Q2 2023 Akoya Biosciences Inc Earnings Call

Yeah.

Good day and welcome to vehicle a coronary biosciences second quarter 2023 earnings conference call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session as.

As a reminder, this call's being recorded.

I'd like to turn the call over to Preamp Shah head of Investor Relations adequate Biosciences, you may begin.

Thank you operator, and thank you to everyone who is joining us today on this call.

I'm pretty I'm sure head of Investor Relations at a quite a biosciences on.

On the call today, we have Brian Mcelligott, Chief Executive Officer.

Johnny as Chief Financial Officer.

Earlier today acquire released financial results for the second quarter ended June 32023.

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 statements. During this call that include forward looking statements 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.

Results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors.

For a list and description of the risks and uncertainties associated with the class baseball. Please refer to the risks identified in our filings with the U S Securities and Exchange Commission, including in the risk factors section of our annual report on Form 10-K for the year ended December 31, 2022 filed on March.

Six 2023, and subsequent filings with the SEC.

Including our quarterly report on Form 10-Q for the second quarter ended June 30 of 2023 filed today August seven 2023.

We urge you to consider these factors and you should be aware that these statements are considered estimates only and are not guarantees of future performance.

This conference call contains time sensitive information and is accurate only as of the live broadcast today August seven 2023.

<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.

Audio portion of this call will be archived on the investors section of our website later today under the heading events.

<unk> plans to participate in several upcoming investor conferences, this quarter, including the Canaccord Genuity growth conference UBS Med Tech tools and genomics summit.

And the Morgan Stanley Health Care Conference.

Details can be found under events on our investors section of our website.

That I will now turn the call over to Brian .

Thank you <unk> and good afternoon or evening to everyone. We appreciate you joining us today.

On today's call I'll provide an overview overview of our performance for the second quarter.

Discuss our business progress and review, our new product introductions.

Johnny will then provide a more detailed look at our financials business trends and outlook.

Of course, it had a very strong second quarter of 2023.

Highlighted by record revenue of $23 5 million, a 31% growth over the prior year and record system placements of <unk> 72 in the quarter.

Our cumulative installed base is now 1064 spatial biology instruments the.

The largest in the industry.

Our call is stable growth.

And leadership in space <unk> biology is a byproduct of delivering a best in class portfolio of products and services.

That span the full continuum of market opportunities from early discovery to translational to the emerging space or clinical market.

We provide complete end to end space solutions purpose built to serve the unique needs of each of these customer types and market segments.

With over 1000 publications to date and more than 80% of these in the last two and a half years.

The transformative power of <unk> solutions has been validated by our customers.

As noted in our 1000 publications press release this morning.

Our current phenotype of a platform is driving profound advancements in the discovery markets highlighted by recent nature publications from the human bio molecular Atlas program or HUD map.

And the human breath with cell Atlas initiative.

We also continue to see robust growth in the translation of markets with growing momentum within our Biopharma and CRO partners as they leverage the imager HD platform to address their growing biomarker needs, especially.

In oncology and immunotherapy applications.

Owning the full biomarker journey using.

Using <unk> continuous solutions first for biomarker discovery studies with the phenotype confusion, then validation in the translational setting and ultimately clinical applications on the imager HD.

As a key value driver for our clients' continued long term sustained growth.

As discussed on the prior call, we're making targeted investments in our business to drive strong revenue growth, while streamlining our cost structure as we move the business towards profitability.

Our stated strategy during and following our IPO.

In April of 2021 was to make the necessary investments to rapidly develop and deploy an industry, leading industry leading portfolio of solutions while in parallel.

<unk>, our organization and commercial channels.

To have the scale and expertise to drive successful product launches and secure a market leading position.

The successful launch of abuse and instrument in 2022 with central to this strategy.

Is it solidify our full instrument portfolio.

We were also focused on enhancing enhancing and improving our pheno imager HD platforms in the organizations readiness to serve the large spatial biology clinical market.

Our progress here included for the HD system meeting clinical platform requirements for system robustness reproducibility.

Meeting regulatory quality standards.

Deploying our platform and a cleaner environment, including establishing a CLIA lab at our Marlboro headquarters.

Securing our first companion diagnostic deal.

From the beginning of 2021 through the end of 2022, we succeeded in achieving all of our internal strategic objectives.

While also consistently beating external financial performance expectations. During this first phase of our multiyear strategy.

The second phase of our strategy initiated beginning of this year.

Targets, improving operational leverage while continuing to deliver sustained top line growth with a focus on system placement expansion and especially driving increased reagent revenue.

With our best in class instrument portfolio now in place and over 1000 boxes in the field.

We are focusing our R&D and operational initiatives on delivering workflow improvements and reagent solutions for our customers, enabling a broad suite of applications and higher system utilization and as a result increased instrument pull through.

Since the start of 2023, our Korea initiated efforts to expand our range of menu not only with new content.

But also with ready made panels for both Athena secular fusion for high Plex discovery and the P&L imager Ht for high throughput translational studies.

These biomarker panels are part of the Penal code reason brand.

And included our discovery panels for the phenotype of fusion and the signature panels for the piano imagery Ht.

The discovery panels have a rolling launch throughout 2023, and our design in a modular fashion attempt to 'twenty markers, providing our customers the ability to easily combine a handful of these modules into a large high flex panel, while also including the ability to add additional acquire catalog antibodies or.

<unk>.

Their own antibodies of interest.

The signature panels for the Ht are designed to enable fast and scalable assay development and deployment for large immuno oncology immuno oncology translational biomarker studies.

Resulting in accelerated <unk> utilization and an increased ASP per sample.

Along with the launch of these high value reason panels. We are also making additional workflow improvements on the systems and instruments.

Simplified user experience and further accelerate data processing and analysis.

The abuser to pointing out instrument hardware and software field upgrades was initiated as of the second quarter.

This upgrade includes a multi slide carrier, enabling parallel processing and tissue samples with improved and faster fluidics, which effectively doubles the system.

<unk>.

The Phoenix cycle refuses to 20 or more samples per week.

The upgrade also includes the necessary hardware and software components to support RNA and enablement.

Fuel upgrade started with our first customers in June and we expect a significant percentage of our pheno cycle refusing customers to upgrade by year end.

On the piano Imager <unk> T.

We are also streamlining our informatic workflow and post processing.

In July we introduced improvements to the Ht that moves post processing and tissue analysis workflow directly onto the Ht for on instrument in real time compute.

This results in a several fold reduction in both image processing and turnaround time.

Delivering meaningful capacity increase.

Duction and hands on time and workflow simplification.

Now as a reminder, <unk> platform leverage on instrument image processing and file compression that reduces file sizes from terabytes to gigabytes delivering the data in a single standardized format.

This standardization and the large scale market adoption of our platforms has catalyzed third party development of next generation spatial biology analysis solutions to support our customers.

To date, we have partnered with leading software providers, including enabled medicine Vizio farm into Collabs path AI and Oracle buyer.

Providing our customers with a range of desktop cloud commercial and open source solutions.

Allowing us to serve the bulk companion meet customer needs and requirements.

We expect and intend for this trend to continue while we focus our internal net investments upstream.

Coupled to the software partner network.

Our expanding content menu and workflow improvements will accelerate system utilization.

Reduce time from sample to answer and drive increased instrument pull through.

We continue to make great progress in the downstream translational and clinical markets.

And industry conference conferences, like ACR and city, where the focus is on clinical relevance and patient impact.

Spacer technology and multiplex tissue analysis are seeing a rapidly growing presence in a central our central.

Two emerging clinical biomarker efforts, particularly in immuno oncology.

Corey has led these efforts by delivering a clinic ready program.

Driving adoption through our CLIA lab and CRO partners.

And forming transformative partnerships with true thought leaders, including Agila.

Astrazeneca Acheron anymore.

We continue to expand this ecosystem for.

For example, our clinical market development and commercial teams.

We're leveraging the Ht workflow improvements and best practices from our advanced Biopharma solutions clear elaborate yes.

To build a rapidly growing qualified CRO service provider networks.

This euro network amplifiers or <unk> presence and impact.

And the translational and clinical trial markets and like Avs.

Helps advance our companion diagnostic pipeline and opportunities.

On the operational side of the business, we are rapidly refining and reworking our product supply chain and manufacturing processes to drive continuous improvements in our inventory management and overall margins, which we expect to approach 60% as we exit 2023.

On the expense side, we completed a minor reduction in force across the company in the second quarter to optimize our teams. After a period of rapid growth in 2021, and 2022 and to better align our organization and processes to achieve profitability.

We further solidified our balance sheet in the second quarter, completing a follow on offering with a $50 million in gross proceeds.

To review, we're focused on the following initiatives throughout the remainder of 2023.

<unk> continued to deliver new applications and drive further workflow and speed improvements to increase the reagent pull through on the <unk> the discovery market and the imagery for the translational and clinical markets.

Second continued to build and expand ecosystem with Biopharma medical centers.

Crows in diagnostic leaders to drive adoption of the P&L imager Ht and the translational and clinical research markets to support our companion diagnostic goals.

Baird.

<unk> operational efficiencies and execute targeted investments.

To achieve cash flow positivity in 2025.

Now with that I'll turn the call over to Gianni to discuss our financial results Johnny.

Thanks, Brian .

As Brian highlighted total revenue for the second quarter of 2023 was $23 5 million or 31% growth over the second quarter of 2022, a robust year over year growth reflects a strong portfolio with diversified revenue across multiple geographies customer segments.

<unk> and services.

Product revenue, including instruments reagents, and software totaled $17 1 million for the second quarter, representing 20% growth over the prior year period.

Instrument revenue was $11 3 million for the second quarter, representing 19% growth over the prior year period.

We had another strong quarter with 72 total instruments sold of which 27, where pheno cyclists and 45 were from the phenol imaging portfolio.

We ended the second quarter of 2023 with a total installed base of 1064 instruments, which includes 300, Christina <unk> and 764 phenol Imagers.

A total of 181 fusion instruments have shipped since the full commercial launch at the start of 2022, and we now have a total installed base of 159 for the combined <unk> fusion system sold either directly as a combined system or as an upgrade to stand alone.

<unk> Pinot cycle or instruments that previously utilized third party Microsoft microscopes.

Approximately one five years into the fusion launch the majority of <unk> are being sold in combination with the fusion and we expect this combination to drive and create increased reagent pull through with new content and even faster workflows.

Reagent revenue was $5 8 million for the second quarter, representing a 29% growth over the prior year period and.

In the first half of 2023, we are seeing encouraging results of our emphasis on driving reagent growth.

The annualized second quarter reagent pull through has now increased to the mid $30 range for both <unk> and HD as morphine us backwards paired with fusion are up and running and as we see increasing utility of HTS, among biopharma and CRO.

Which are also our target customers are the recently launched.

Penal code signature panel.

This is compared to an annualized pull through per instrument in 2022 in the low $30 range for both the Pheno sigler and image or HG.

Given the ongoing dynamics across our end users a growing installed base and our new product launches designed to realize pull through expansion. We anticipate annual reagent revenue growth to be in this range for the next several years.

Service and other revenue totaled $6 4 million for the second quarter, an increase of 73% over the prior year period.

Services have been a substantial growth segment for us over the past several quarters as our installed base and warranty revenue expands and as our lab services are driving more and higher scale studies.

Gross profit was $12 $1 million in the second quarter, representing 17, 2% year on year growth and gross margin was 51, 5%.

Cogs totaled $11 $4 million for the quarter, including a non routine $2 million charge related to the exploration of materials purchased in prior periods to help mitigate against the global supply chain challenges and enable new reagent product lines.

In the first half of 2023, we have made great strides to strengthen our operation planning and supply chain with improved system and operational leadership as we plan for reagents become a bigger part of our revenue mix.

We will continue to scale and optimize operations and leverage our manufacturing investments to drive the expansion of our gross margins towards the 60% range in the second half of 2023.

Operating expenses for the quarter totaled $31 4 million as.

Third to $29 7 million in the first quarter.

Our continued efforts to leverage our cost structure to drive the business towards profitability are underway as we work to flatten our operating spend throughout 2023 and into 2024.

As Brian mentioned in the second quarter, we reduced our workforce across certain areas of the organization, which will moderate spend and non essential areas and help ensure that a more substantial portion of expected revenue growth falls to our bottom line.

Included in our second quarter expenses was $2 million in severance and other charges with $1 $1 million in cash, which stemmed from the expense reduction effort.

Excluding these charges operating expenses decreased from Q1 to Q2.

Our coil has developed world class products, a robust operating infrastructure and has streamlined commercial execution to drive top line growth.

Our plan for 2023 is to focus on.

Focus our targeted investments in areas that will generate the highest returns as we work towards operating cash flow positivity in 2025.

We ended the quarter with approximately $93 3 million of cash and cash equivalents, which includes net proceeds from an equity raise in the second quarter and have approximately $11 3 million in additional available debt capacity.

We expect to maintain a robust topline growth throughout 2023 with incremental increases to gross margin, resulting in reduced cash burn as we recognize operating leverage and continue to flatten our opex.

Common shares outstanding and fully diluted shares, including the impact of outstanding options and Unvested restricted stock awards are $48 8 million shares as of June 32023.

To summarize we had another record quarter with $23 $5 million in revenue, a 31% growth growth over the prior year.

Ah Coy as total installed base is now at 1064 instruments, the largest installed base in a spatial biology industry.

We continue the rapid expansion of our installed base, while driving meaningful reagent revenue growth and pull through increases.

We have implemented critical organizational changes to improve efficiencies drive gross margin improvement and cost advantages to help recognize operating leverage while maintaining robust topline growth.

And finally with an industry, leading volume of publications featuring our coils platforms now over 1000, we remain very confident in our ability to deliver growth continued growth in 2023.

Currently we are reiterating our revenue guidance range of $95 million to $98 million for 2023, as we continued to see tailwind for our business and our spatial biology market.

Now I'll turn it back over to Brian for a few closing remarks, Brian .

Thank you Tony.

We're pleased to report a strong quarter.

<unk> multiple exciting new developments across the portfolio and.

And we will look to execute on them throughout the year as we drive the business to near term positive cash flow.

We're thankful for the hard work of our fellow dedicated of clients as well as the support of our customers and shareholders.

Korea remains very well positioned for growth.

And we're excited about the opportunities that lie ahead, as we deliver new space solutions.

The discovery to the clinical market and at this point.

We will open the call for questions operator.

Thank you if you'd like to ask a question. Please press star one one if your question has been answered and you'd like to remove yourself from the queue. Please press star one again.

Our first question comes from Mike <unk> with Canaccord Genuity. Your line is open.

Hey, Thanks, guys. Thanks for the questions congrats on the quarter.

So firstly, yes, no problem I first just wanted to ask some stuff about fusion.

I mean first of all great instruments kind of strength here.

What's the attach rate right now fusion to conduct bipolar and then how would you kind of characterize the pull through for the peanuts likely diffusion combined instruments and then if I'm just wondering going forward every fusion kind of bundle was going to be to point out right.

Thanks.

So yes, let me answer those in cereal, so diffused and attach the fusion attach rate is still well over 80%.

It is way more common than not.

But when we sell a cycle of dose with the fusion.

And while we're not calling out the pull through on Athena secular.

Fusion as a standalone railroad relative to the Athena stock with a third party. If you just look at Kyle our top 15 to 20 that are may be fivefold above that mid <unk> or $30000 range Theyre, all PCF customers. So consistent with what we're expecting the coenosarc refusing pull through is elevated well above those.

Using the <unk> with third party scopes, which is why as we look at that total installed base of cycle or is its about 300 little more than half of those are tests diffuse and huge opportunities going forward to continue to upgrade and as far as the two point, though.

Yes, that's cutting into manufacturing over time, so we're probably still do them as a field upgrade.

Through the second half and then probably cut those into manufacturing more towards the tail end of the year focusing on those field upgrades.

So a little bit of a hybrid.

Yes that was really helpful. Thanks, Brian .

On the service and other revenue was higher than our model.

Not by Tom, but it was pretty strong what's driving that.

Projects is it mainly the Ht work or is that any fusion work being done as well.

Yes, Johnny can chime in just remember kind of what's what.

Rolled into that services line. It certainly includes both our lab services.

As well as warranty so we don't really yet carve that out so it's really a combination of both.

A growing install base, which means higher warranty revenue, especially when you have continued strong instrument performance, but it's also it's also the services across the board, which includes our CLIA lab services at ABS and the ongoing partnership with.

With <unk> in terms of both the ladder of both continued to advance with kind of larger scale projects with our biopharma customers through our CLIA lab and the continued advancement of the acrimony CTX.

Okay, all right great I'll touch on it was within China. So maybe last question on <unk>.

Where do you like the company success outside of immuno oncology I was curious if any of your more recent publications are kind of like gearing outside the borders of.

And if I was going to remain like the main clinical use case for spatial or do you think like target therapies like this acheron therapeutics, you always like that.

That could be like a wildcard kind of important aspect going forward as well that's a really good question and I think we answer our calls we take a look at the market segments, where our products go and in the case of the discovery segment as being recycler, a lot of publications outside of immuno oncology oncology more generally including areas like inflammatory disease.

<unk> and dermatological diseases on the H T translation on the clinical side, it's still largely dominated by Io that said, it's worth noting there.

<unk> leadership in the new therapeutics and targeted DNA with DNA damage repair, so thats not nio, but I would say that cough in the near term there is still so much headroom in this sort of oncology Io space of the translational clinical market I expect we're still there for some time as we look at the advancement of that of that pipeline.

Awesome. Thanks, Brian Thanks, guys. Thanks, Scott.

Thank you. Our next question comes from Lucas Baranowski with UBS. Your line is open.

Hi, guys. This is Lucas on for Jonathan Sadler beer here at UBS.

In the past you've talked about how the majority of cyclic using customers arent yet at all Brian in terms of utilization I guess, it's slides.

Still the case today and do you anticipate that changing in the coming quarter or two.

Yes, I think when we talk about full capacity I just think it's rare generally speaking for any life sciences tool system to operate at full capacity that said, what we do feel like John is we do feel like with some of these field upgrades with the improvement on copper bookends more and more panels upfront.

And then the improved software partners, we do feel like Lucas at that median is going to begin to shift to a larger and larger port where a number.

I suspect hitting full capacity is is more of an idealized, but again, having a higher percentage of your customers.

Running this at a frequency that gets her pull through from the mid <unk> now we continue to grow at a similar rate over the next couple of years is what we expect.

That's very helpful. And then I guess that kind of leads into my other question.

The two point I'll upgrade clearly has started now.

Is there any commentary you can provide on how that's going both in terms of how things are going on your end of it and also what youre hearing from customers. Thanks.

I think Lucas, it's still pretty early as I noted in the commentary.

<unk>.

In June where we started doing those field upgrades, but theres two things we look for number one is just a simple robustness of the upgrade.

In terms of you install it and it works out of the box, that's going extremely well and the second thing you look for is is it having the realized utilization ramp where people were now prepping.

Lot more samples per week, because they concerned multiples per day.

I think there is still a little bit too early Lucas for that but given the former the robustness, we're pretty optimistic that our ability to realize those benefits can accelerate those upgrades, we're optimistic about that to second half and into 'twenty four.

Great commentary guys. That's all I had thank you Lucas thanks.

Thank you. Our next question comes from Rachel <unk> with J P. Morgan Chase Your line is open.

Great Hi, guys. Thanks for taking the questions and good afternoon.

So first off I just wanted to talk about some of the performance by geography, We know China I believe it's roughly 15% of total <unk> revenues, we've heard of a lot of weakness from other peers on the instrumentation and 12 players from the sector in the region. So can you kind of walk us through how did China play out what was growth. This quarter. How are orders trending and then are you seeing any impact from <unk>.

From some of the recent government stimulus programs.

So great question, while we don't call out China, specifically it is APAC is about 25% of our total generally speaking, it's probably a little bit less than that now in China as the majority of that and we did see.

A material impact on the capital purchase through purchases through a back negatively obviously because of the pullback of some of these interest free loans for example that were happening in China. So it did it did negatively impact our APAC capital purchases that said, we've got a really nimble and challenge the team in Asia Pacific.

And we were able to realize some growth and benefit in APAC regions outside of China. So while we did feel that pain. It wasn't yet to a scale, where it materially impacted our topline and our.

Performance for the quarter.

Great. Thank you for that color and then just on the gross margin performance. It looks like gross margin stepped down a bit sequentially can you just kind of walk us through some of the drivers. There obviously some solid placements this quarter and then just on gross margins heading into next year you guys had talked about the 200 basis points of expansion in tax for this.

How should we think about that translating to Max as this becomes more and more of a reagent consumable focused business.

It's a great question rates or maybe will allow Johnny the money men to talk a little bit about margins in some of the unique dynamics in this quarter. Yeah. Thanks. Thanks, Brian It really was unique this quarter.

Our our standard margin as we sell through product really hasnt changed.

On the downside, we really continue to expand that margin. What we saw this quarter was sort of a non routine item, where we had some mix some expiring or expired inventory that we took the charge for in Q2 and as inventory was purchased year to two years ago sort of at the tail end of the global.

Supply chain lockup and as we were in the middle of a high adoption mode, launching new products and really thats sort of.

That inventory came to sort of expiring in Q1, and Q2 and so we took that charge in Q2 and clean that up but to answer your the second half of your question, we expect and as Brian mentioned and I mentioned on the call we expect to exit 200.

One end of 'twenty three in that 60% range and then we will see the expansion as we've mentioned a couple of hundred basis points into 'twenty four.

And certainly as reagents make up a larger portion of our revenue as it continues to shift we will we should expect that that margin expansion related to that shift. In addition to the internal operational improvements and efficiencies that we are that we're working on.

Great. That's it for me thank you.

Thanks Rachel.

Thank you. Our next question comes from Mark Massaro with <unk>. Your line is open.

Hey, guys. Thank you. So you've now had I believe six quarters consecutive with services and other revenue exceeding 50%, which is great to see I'd love to hear maybe a little bit more what's driving that and how sustainable you think it is.

On the other hand, your reagent revenue growth rate had lagged your topline revenue growth rate for five consecutive quarters.

Curious as to when do you think the reagent revenue will start to sort of materially inflect or do you think that the services and other line will pretty much drive similar levels of growth for some time.

No.

Good question, Mark I suspect, while we don't guide to this level of granularity I suspect youll see those trends start to change a little bit I mean, if you just look back over the last three years or so in 2021.

We're doing about $3 5 million in <unk> per quarter of 2022, that's up to four and a half two.

2023 kind of where we are in the high fives getting close to six so we're continuing that step function and I suspect that will we will start to realize more growth there.

Mark as the two point out becomes a larger percentage as phenotype to refuse it becomes dominant or FEMA second third party and has a lot of these reagent offerings that were beginning to rollout.

Throughout full year begin to have their impact.

So I think that's probably how I would look at that overall.

Mark and then on the services side a lot of that Mark is really a combination of both the growing installed base, but most certainly the realization of the revenue contributions from both the growth of the ABS and then continued productive advancement of our partnership with anchor box.

So hopefully that gives you some color.

Yes, that's very helpful. So you guys have a lot going on with the two point now upgrade.

The RNA scope.

Obviously, you've got the signature.

Panel.

As we think about the panelists rolling off.

Which of the rolling out which are the which are the new product launches do you think.

It's most likely to be material.

In the back half of 'twenty, three and which do you think will take more time to kind of become more material in 'twenty four and beyond.

Yes, I really like how you frame that.

I think mark that I think for me as you as we get towards the end of 'twenty three and into 'twenty four.

I really think it's a signature panels on the Ht.

And again. This is this is sort of how I look at it I think those have an opportunity to be material because of the way. Those those go Mark is there is a limited evaluation.

There's a bit of a validation period with our with our Biopharma partners in <unk> and then they get to full implementation that scale.

These are being evaluated for larger scale projects. So that's the one I look at that as the product line I look at to have more of a more of like a step function impact than something like the two <unk>.

You have kind of a gradual roll in over time.

Okay. Thanks, that's it for me thanks Mark.

Thank you. Our next question comes from Tejas Savant with Morgan Stanley . Your line is open.

Hey, guys. This is edmund on for <unk>. Thank you for taking my questions.

Hey, the first question just wanted to touch on the competitive dynamics here.

The proteomics side with text announcements at quieter than before and Buber, making a harder push with sales gains are used to.

Turning to see them.

Come across them in your customer conversations and how does this change the competitive dynamic on the protein side, yes, it's a great question.

I think I'd look at it two ways well, maybe three I mean, I think it's a little bit early on the lunar for biotech side to it.

Yes.

To look for potential impact.

I think as you look at the narratives and the investments coming out of our colleagues at a broker in biotech thing I think I look at it as kind of an endorsement of the value of spatial proteomics and discovery market, which has been a lot of inappropriate so attention paid to space. The transcript almac. So I think the narrative and investments coming out of our call.

<unk> broker in biotech I think Ron even more credence to the power of the space of proteomics as a true discovery engine.

And so we're going to continue our eye towards.

A road towards towards more multi domain. So I think thats, how we look at it a little bit too early for the impact, particularly as it relates to the lunar for.

Additional resources being part of biotech.

Got it that's super helpful. And then switching to the competitive dynamics on the transportation side is a lot going on with the litigation between appears but.

Now both of them are now announcing <unk> K plex by next year. So I was wondering if you guys have any updates for your internal 1000, Plex RNA chemistry and.

Has this changed your view on your approach to the cask atomic site at all.

I think as we've been articulating in prior calls and certainly at the last <unk> Conference I think as we look at the market opportunity for us.

We feel like for our install base for our customers and for our core competency that exist. Today. For example, we're just talking about the proteomics side, we think there's huge opportunity in really in the multi omics based on more of a targeted fashion. We will go ahead and let our our friends at 10 accident Ana strength really go after these much higher.

<unk>, our focus is really on cat on capturing sample velocity experiments per unit time, giving our customers the ability to churn through experiments in the 20% to 30% to 40 50 samples in a week or two.

So that's why we're focused on the right amount of content for the right question, giving them the answer in a reasonable amount of time versus something that may be a very long.

Crafted protracted time to result in a very expensive per sample. So we're more focused in our multi omics kind of mid plex range Edmund in this higher plex, thousands and thousands of transplants.

Great answer thank you.

Thank you. Our next question comes from Tim Chiang with capital One your line is open.

Hi, Thanks.

Brian I know you've provided three initiatives for the remainder of the year could you just talk a little bit about what you see the pushes and pulls are in the second half of the year or two.

Getting more biopharma.

Medical centers CRO customers.

And then.

I had a follow up question for Johnny on the gross margins.

It's a good question, Tim as we think about what do we need to do.

Its a capitalized penetration in the Biopharma side, whether it's for the Pheno secular fusion of the Ht I think thats, what we talked about in terms of our pillar number one on system utilization in quarter, it's about investing in that whole workflow, Tim so its technician friendly.

Sample modules and panels ready out of the box a very simple streamlined workflow on both the phenotype of the fusion with the two on the Ht with the onboard compute to get through that sample and a technician easy friendly manner and then they come out the other side with a compressed data file and a number of options available to you in terms of.

The analysis to third parties I think that core strategy.

On a simple workflow and to and ready to go that's what our biopharma customers look for versus sort of investing in technologies and having to have some skin in the game on ticked up.

So I think we're there and thats sort of number one I think number two.

As we look around having higher utilization downstream I think what we're doing with our CRO partners in the CRO network really enabling them with best practices like we have internally.

And that's what that's what we've done with R. R.

<unk> CRO network is really gotten them to best practices. So when our Biopharma partners are looking to outsource projects. They have a number of options available to them.

<unk> those that they've historically worked with.

So I think that that's how I would focus on the Biopharma penetration sorry, Tim.

No that's good color Bryan and then Jonny.

I don't know if this is the right way to look at it but if I would have stripped out that.

I guess obsolete inventory and taken out the $2 million charge gross margins its probably would've been.

But around 60%.

Yes, Youre exactly right, yes, youre exactly right Thats, the right way to look at it.

While there is always an element of inventory obsolescence or expiry that youll have to be tracking this was pretty.

Pretty unique in nature, just the timing of when it was purchased and the nature of the world from a supply chain perspective, and then two.

<unk> to sort of the what now to make sure that we're driving that margin and we're fully leveraging our ERP resource planning, including expiration dating SaaS inventory tracking all of those things you would you would expect really.

We've strengthened the operational leadership with folks who have strong operations.

<unk> experienced strong management of inventory.

And so like you said, excluding a charge where were at that 60% range, which is why we sort of said in the back half of the year. We think that's the range, where we should be.

Mix of revenue as you would imagine moves margin, a little bit up or down depending on instruments reagents or service. So that's always a factor that that if we can predict our revenue well then we have a real good view of margin, while we don't break out margin specifically by product line certainly those those impact that margin, which is why we push for.

What we're going to do from a reagent perspective that will drive as we grow reagents, we will drive that margin up.

Got it okay. That's very helpful. Thank you guys. Thanks, Tim.

Yes.

Thank you. Our next question comes from David Westenburg with Piper Sandler Your line is open.

Hi, Thank you for taking my question. So you have launched a lot of products on the years are and all that.

A couple of years I would think would drive a pretty significant utilization. So as we look at the.

On the content.

You've launched is there any specific ones you want to highlight that have been.

Good contributors to reagent growth versus ones that were a little less.

Than you expected.

Okay.

I don't think Theres anything Thats a good question, David I don't think Theres anything I would call out yet.

Mostly because if you look back.

David over the last two years.

There was a good bolus of additional content on the <unk>.

In 2022 and that did contribute topline a lot of what we rolled out.

And 'twenty, two which will impact 'twenty three port was really on the platform side and I think as you look at full year 'twenty three I think the balance between our segments for panels with <unk> T. And then some of the discovery panels is where it will start to see that impact and I think consistent with Mark Massaro Ars question, we really think.

The step function for the signature panels is something that we might realize more explicitly than I would call. The gradual roll in of what we're going to see for the pull through on the feedstock refuse them as we get more <unk>.

As we get more views and versus third party and as those.

Discovery panels rollout.

Gotcha.

Is there any way to kind of framework.

Adoption of that as major revenue contributors. So I mean are they.

Dabbling in them at first and then bigger and bigger experiment as we go on.

I get that this is you.

Sure.

Where is that.

Uh huh.

Data here I am just kind of thinking about how reagents theyre going to grow over the next couple of years I think that'd be helpful. Yes, I think theres two different generally speaking two different adoption.

Methodologies.

For the discovery market versus four.

The downstream transmission market on the latter side. It is really about a targeted evaluation of 10 to 20 samples on the signature panels it feels like.

They do that because they have a specific large scale scale clinical study in mind.

So we're at that evaluation kind of validation phase.

Assuming we get through those and then David you were talking about a big step function of large orders.

Where they want to lock in a large kind of bolus of Reed's and orders.

For a large scale retrospective or prospective clinical studies those are step functions.

And then I can say on the discovery side, you're really talking about a migration to larger panels as projects wind down and wind back up.

So those are the dynamics I would point to with respect to the latter I think that'll probably averaging more.

Because the PSP panels are such a big bump in the Asps I.

I think we'll realize that topline benefits more acutely than on the discovery side.

Gotcha.

And again, you bring up a good point I mean, there is two different platforms that have two different user kind of characteristics. So maybe I'm just going to focus on one and then offline I can maybe talk about the.

The others. So let's just go with the.

The.

Amateur.

What kind of cost.

Customers that are using it to full capacity I mean, what are kind of the characteristics.

Of those customers in.

Just in terms of.

Projects or.

Content or or whatnot that will be my last question. So if you look at our current.

<unk> user.

H T customers Theyre generally made up of two customer types.

A lot of them are <unk> and increasingly so.

And that's what gives us a lot of excitement around the signature panel. There is a lot of that is in Io and we remove their need to have to do any panel building. Because these are already made so see arrows are significant percentage of it as our academic institutions that are working directly across their institution in biopharma for large scale clinical trials.

So those are the two largest customer base and I would say.

I think poorly earlier question I think from from Kyle.

A lot of these are on the on the HTM at your side are really still in the Io.

Oncology immunotherapy space, which is why the signature panel content.

So appropriately designed.

Got it. Thank you guys great job on the quarter Alright, Thanks, David.

Thank you and our last question comes from Nathan <unk> with Stephens, Inc. Your line is open.

Hey, guys on the fusion upgrades have you prioritized who gets upgraded first is it based on customer location customer schedule are you targeting the highest utilization accounts first any color there would be great.

Yes, we have I'd say loosely so it's mostly those that have high utilization and <unk>.

The additional bandwidth.

That is usually the case, where they have it or need it they add scale there are scaling.

Those are really the customers that we're looking at first and that includes people that not only want the higher capacity, but not to get in the weeds Mason.

The software upgrade that's going with the hardware also makes it a lot easier for our customers.

Multiple tissues on that slide because we have the largest imaging will area in the market and this certainly supports their productivity there as well.

Got it that's helpful and then within your ABS business, how is the pipeline shaping up.

Positive data from <unk> study in the back half served as a catalyst for additional CTX opportunities and how are you thinking about the pacing there of when we could potentially see the next CTX announcement, yes.

Yes, it's a great question. Your last one is sort of the money question that I will I will deflect for now because it's a tough one to answer and one that I probably wouldn't be explicitly but.

Yes, <unk> has announced that they're not only a fast track, but theyre going to at least to date report interim results in second half so that will be really interesting to hear I mean, I think one of the things that we've seen Mason as.

As our expertise because of <unk> because of our partnership with <unk> and our ongoing success with a number of pharma.

What's happened to our projects Mason as we've gone from.

Exploratory studies in a reasonable size.

To larger retrospective studies. So then even larger retrospective prospective ongoing clinical studies, so I think what we're seeing.

Mason as a migration of project types.

From exploratory to getting even closer to those clinical trial assays and in addition to the additional work.

And leveraging our capacity it's a nature.

Major of those studies that I think we're equally excited about moving farther and farther downstream.

Got it that's helpful. Thanks, guys.

Thanks.

Thank you there are no further questions I'd like to turn the call back over to Brian for any closing remarks.

Nothing additional close on we appreciate everybody's time attention to detail.

We're certainly excited by our results and look forward to.

Turning continuing our priorities to drive system utilization to really advance our translational and clinical opportunities and I think as Tony articulated. So well is really drive that operational excellence on our path to profitability as we deliver on those other two pillars. So thank you all for your time and your attention and we look forward to following up.

Conversations with senior Oregon soon.

Thank you for your participation. This concludes the program and you may now disconnect everyone have a great day.

Thanks Michelle.

Sure.

Okay.

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Okay.

Okay.

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