Q2 2023 SomaLogic Inc Earnings Call
Good afternoon, and walk through some allergic second quarter 2023 earnings conference call. At this time, all participants are in a listen only mode.
Are they still taking the question and answer session.
Towards the end of the call today.
This call is being recorded for replay purposes, I would now like to turn the call over to Mr. Bice.
No Martin.
Mr Relations for introductory comments.
Okay.
Great. Thank you.
Today I'm, a logic released financial results for the quarter ended June 32023.
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.
Our results or performance are forward looking statements.
Forward looking statements, including without limitation those relating to our market opportunity gross margin in future financial performance.
Arsene content and database growth customer base diagnostic pipeline expectations for hiring and 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.
Accordingly, you should not place undue reliance on these statements for.
For a lesson description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our latest Form 10-Q filed with the Securities and Exchange Commission.
This conference call contains time sensitive information and is accurate only as of the live broadcast today August 14 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.
And with that I will now turn the call over to Adam page interim Chief Executive Officer.
Good afternoon, and thank you for joining <unk> second quarter 2023 conference call and my first full quarter since assuming the interim CEO role in late March.
From day, one my focus has been on bringing consistent commercial execution and operating discipline to the organization with an emphasis on driving revenue, while reducing spend our results. This quarter demonstrate early progress on both of these objectives.
Although substantial work remains ahead, we are taking the steps necessary to ensure soma logic is in a position to capture a greater share of the growing high plex proteomics market.
Revenue for the second quarter was $20 5 million, reflecting 45% year over year growth driven by increasing adoption of the Soma scan platform in both assay services and a growing number of authorized sites, excluding the impacts of royalty revenue in the prior year our second.
<unk> 2023 performance reflects 55% year over year growth on a sequential basis, our revenues were roughly flat versus the first quarter of 2023 in line with our expectations.
As a result of our second quarter progress and the ongoing trends in the business. We are reiterating our guidance of $80 million to $84 million in full year 2023 revenue.
Before we discuss our results in more detail I'd like to welcome Elliott Lori or to Soma logic Elliott joined as interim Chief Financial Officer, and Jim. He is a seasoned executive with over 35 years of experience in the life sciences industry across research and commercial organizations.
Elliot brings a deep understanding of financial operations and accounting in publicly traded companies to some logic and we're thrilled to have him on board.
Turning to progress in the quarter let.
Let me start with our core assay services offering our largest revenue contributor in the near term.
In recent quarters, we have taken steps to stabilize the business and position it for growth. Our commercial teams are intensely focused on new customer acquisition as well as driving high levels of customer retention, we continue to expand our reach into new Biopharma accounts and are broadening the impact of the summit scan.
Platform well beyond our traditional discovery call points.
While there is plenty of work ahead, we are beginning to see more consistent execution emerging our topline for the second quarter and in our pipeline for the year.
Equally important is the expansion of our distributed solution or authorized sites program since the full scale launch of this program at the beginning of 2023, we have signed agreements with several partners to enable broader access of our technology, both domestically as well as into untapped international.
Most recently, we shared two new partnerships focused on driving volume in Europe , Cytogen and Dante genomics side to join as a multi year Homelink laboratory located in Spain with a very strong track record in providing services to their clients Dante genomics as a global leader in genome.
<unk> and precision medicine, and the first Soma logic authorized site in Italy. These.
These partnerships build upon <unk> 42 health care in the Middle East Bayou Star in China, molecular genomics in Singapore and phone its life in Japan as Soma logic authorized sites, serving the global proteomics market as we continue to scale the business distributed solutions will allow us dermatologic too.
Expand our presence in key markets generate more predictable and higher margin revenue and reduce sample delivery timelines for researchers globally. Importantly, we are making the soma logic platform more accessible, allowing us to better serve the specific needs of our customers.
Building on this effort to grow our distributed business is our partnership with Illumina, which is progressing well and is focused on delivering a co exclusive co branded mgs based distributed solution.
Our work with them remains on track and we continue to expect early access in 2020 for this joint proteomics product will combine alumina is market, leading installed base and commercial force with the breadth and depth of the Soma scan assay to deliver differentiated insights to researchers.
Across a wide range of customer segments. We are excited about this effort and the level of interest from customers is high.
Finally, bolstering our current and future offerings is the continued content expansion within our Soma scan platform as we drive forward and content. We are pleased to reiterate that our summit scan 10-K Plex solution is on track for a fourth quarter launch we are beginning to see increasing rep.
Ignition for the importance of a more comprehensive view of the protium as customers come up the adoption curve and apply the Soma scan platform to a diverse set of use cases as early innovators in this space, we know that the discovery and development of disruptive therapeutics benefit substantially from a more complete view of the.
Proteome, we believe Soma logic is a well differentiated leader in this growing market.
Before I turn the call over to Elliot I'd like to provide an update on our initiatives to reduce expenses across the organization as we continue to expand our business. We must also reduce our cost base. We are realigning our spend to account for this by focusing resources solely on inputs to our call.
Our life Sciences business, we've made early progress in this quarter's operating expenses reflect a 26% reduction over the same quarter last year, we are focusing our organization to preserve our substantial cash position and allow for operational flexibility into the future. We are on track.
To spend approximately $170 million and operating expenses for the full year, a significant reduction versus 2022 and remain committed to even more disciplined spending into 2024 and beyond with that I will turn the call over to Elliot to review our financial results for the quarter.
Yeah.
Thank you Adam for the warm welcome and thank you everyone for joining us today I'll start with our results for the quarter.
Revenue for the three months ended June 32023 was $20 5 million.
A 45% increase from $14 1 million in the same period of the prior year.
Quarterly revenue was driven by increasing adoption of the <unk> platform.
Excluding the impacts of royalty revenues in the prior year revenue grew 55%.
Gross margin for the second quarter of 2023 was 45, 4% compared to 50% in the second quarter of the prior year.
Gross margin was impacted by lower royalty revenue in comparison to the same period in the prior year.
As a result, we now expect full year gross margin in the mid to high 40% range.
Combined with our distributed solution and future royalty revenues, we expect our margin profile to improve long term.
Total operating expenses for the second quarter of 2023 were $40 4 million, a 26% decrease from $54 4 million in the second quarter of 2022.
R&D expenses for the second quarter of 2023 were $10 8 million compared to $17 6 million in the second quarter of 2022.
Sales general and administrative expenses for the second quarter of 2023, or $29 6 million compared to $36 8 million in the second quarter of 2022.
With our ongoing initiatives to reduce spend we remain on track to deliver approximately $170 million in full year operating expenses.
Adjusted EBIT for the second quarter of 2023 was a loss of $28 9 million compared to an adjusted EBITDA loss of $46 4 million in the second quarter of 2022.
See our press release on file with the SEC as of this afternoon for a reconciliation between GAAP net loss and non-GAAP adjusted EBITDA.
And we ended the quarter with $474 $2 million of cash cash equivalents and short term investments offering substantial flexibility to drive current and future commercial and R&D initiatives.
Our cash burn in the second quarter of 2023 was $26 million.
Reflecting a sequential decrease from the prior quarter's cash burn of $39 million.
We continue to anticipate cash burn to be $120 million or less for the full year.
Ending with our full year outlook as Adam mentioned, we are reiterating our 2023 revenue guidance of 80 million to $84 million.
We continue to see 2023 is a building year for the organization, while our teams worked diligently on the many growth drivers ahead.
As Adam expressed our focus is to drive the operational rigor required to grow revenue sustainably and predictably, while preserving our strong capital position.
At this point I'd like to turn the call back to Adam.
Thanks, Elliot operator, we're now ready for questions.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone again to ask a question. Please press star one one we do ask that you. Please limit yourself to one question and a follow up.
One moment please for our first question.
Our first question comes from the line of Carl Michelson of Canaccord Genuity. Your line is open.
Great. Thanks, guys. Thanks for taking my questions. Congrats on the quarter, one talk about the top line basically so service revenue kind of soft quarter over quarter.
Was that due to any macro headwinds or something I was just wondering if you could just kind of double click on that and then with product revenue I mean, very strong very encouraging to see this kind of happened. So quickly what's going on there I guess and on that note I mean.
The gross margin for product revenue is not still high forty's.
Last year that was low 60 is kind of interesting to see this kind of playing out just could you walk through some of these dynamics with the at the top line. Thanks.
Sure of course, Kyle Thanks for the message on the top line as it relates to the service revenue is consistent with the expectations that we have.
Sure of course, Kyle Thanks for the message on the top line as it relates to the service revenue is consistent with the expectations that we have.
We reiterated the guide of 80 to 84.
Yes.
Effectively where we would expect to the service business to come in.
As we pick up more steam within our authorized sites and so then on the product revenue as you mentioned.
It's still very early days for us as it relates to getting site installations, we are on track.
To double the number of sites per our discussions over the last several months.
A really nice successful couple of installs or during the course of the quarter.
And I think as we continue to evolve that business and gain efficiencies within our manufacturing will continue to see those margins move up per the expectation.
Okay that was great and then Adam on the alumina.
The agreement high level of interest that sounds good but I mean, what gives your comments that youre not going to be freezing the market kind of heading to that early access in 224, given there is some interest out there and then secondly, you amended the collaboration.
June I guess, when you announced that could you just clarify what change and how that affects your ability to commercialize those co developed kits as well as generate revenue from the agreement.
Sure. So yes, I mean, the we actually announced the Illumina agreement back I think at J P. Morgan 2022.
And Youre absolutely right in that there are certain customers.
Our goal all along has been to meet our customers, where they want to be met right. So not everyone wants to participate from a services perspective. So we've launched the authorized sites and we certainly have.
With incredible installed base that Illumina has.
Great opportunity for us from an NGL perspective so.
So we don't see at this point freezing the market per se, we do certainly know that there are customers.
Who have.
Sequencing capacity and will probably sit on the sidelines and that's factored into guide at this point.
Thank you one moment please.
Our next question comes from the line of Dan Arias of Stifel. Your line is open.
Good afternoon, guys. Thanks for the questions Adam just to follow up on the Illumina partnership there early access in 2024 do you think broad based commercialization also land and 24 does that does that feel more like a 2020 type of event.
Sure Dan.
We're sticking to the plan, we articulated actually back there in early 2022, so early customer access in 2020 for full commercial release is slated for 2025.
Okay.
Okay, and then just maybe.
On the quarterly pacing for the $20 million or so that it kind of feels like youre tracking pretty consistently is the simple way to think about the back half of the year and then roughly 41.
$1 million left under the guide to.
Equally and along those lines are there any differences that you would call out when it comes to the sources of that revenue new customer formation or.
Ups and downs in terms of account types et cetera.
Sure Dan I think the way youre thinking about that as is.
Great I mean, I don't want to.
Specific quarterly guidance on the topline, but I mean, you can we're halfway through.
And so the math is fairly simple from that point out we do expect we'll continue to see uptake on the authorized sites. So you start to see more of that as we progress through the year that said it's still.
A fairly small number of sites, we would expect that to be a little lumpy and we've got a really nice pipeline on the services side of the business and so I would expect the complexion of the business certainly won't change overnight.
There's going to be ebbs and flows as it relates to mix between services.
And the product revenue and ticket revenue.
But I think we would expect more sort of what we've been seeing here in the first half.
Okay. Thanks, so much.
Thank you.
One moment please.
Our next question comes from the line of Dan Brennan of Cowen Your line is open.
Hey, thanks.
Taking the questions maybe first on the kit business.
You talked about doubling the number of sites. How many are in total today, So where do you expect to end the year.
And then can you walk through some of the experience that the customers are having with these kits.
Mainly.
What's the kind of.
What kind of outputs are getting versus what they would have sent the results for your lab to run in Colorado at it the same.
Kind of what's the training required for that and then kind of any flavor just an unusual spending.
Per customer for Kate how that's working out.
Sure. Thanks, Dan, Yes, so when we.
Our year end release, we had eight sites eight authorized sites up and running we made a commitment to double that by the end of the year, we're well on track to do that we're on pace to.
To have at least 16 sites by the time, we ended the year.
It's really important that we're not only selecting fantastic partners, which we have been but to your point around output. It's extremely important that these sites are successful and so we've been investing in it's one of the areas we've invested in.
It's still relatively small.
Sort of a broad scale, but compared to where we were a year ago, we've invested heavily in field application support.
We really need our customers and particularly in those geographies that we haven't been able to reach with our services offering and a China being a great example of that it's critical that the customer experience and the data the output that they're getting.
As consistent equivalent with what they'd be getting if they were sending samples to us in Boulder and that's what we're seeing thus far.
And then on the gross margin.
Yes.
Okay.
Dan could you please star one one.
Okay.
My motto please.
Daniel can you hear me, yes, loud and clear.
Sorry, Linda just on gross margins could you walk through a little bit more color about why the lowering I know you cited royalty revenues, but they were kind of addition of <unk>. So I don't think we're aware that that was a big.
Drive revenue guide for the year is there any impact from the kit versus the service side of the business for some more color on kind of gross margins.
Sure Dan Let me, let me start with that and then I can turn it over to Elliot for additional color if needed.
What we really saw.
Coming out in Q2.
It was less around sort of the product mix between service.
And.
And kits and just more as we're ramping up our manufacturing campaign as it relates to 10-K.
We had a significant production.
Amp and some associated manufacturing variances as we were ramping up in Q2.
Elliot anything you would add.
No I really think it's a mixture.
That we had we had the variances in Q2 and then if you are comparing the prior period, you've got royalty revenue with no cost of goods.
Thank you one moment please for our next question.
Our next question comes from the line of Brian <unk> of Jefferies. Your line is open.
Hey, Thanks, good afternoon.
Adam on the 10-K Plex assay launch in the fourth quarter.
Can you talk about level of customer interest.
That rollout how much of the services business you expect to convert to.
The 10-K assay or will there still be some questionnaires.
Maybe.
Carl just a pricing premium that you might capture from that expanded content.
Sure. Thanks, Brandon as it relates to pricing we're in the process of working through that now so we haven't announced pricing commercially for 10-K, so stay tuned on that one.
As it relates to 10-K, I mean look the protium is vastly underutilized and it's under measured right. So similar to what we've all experienced in the genome.
Our full mapping the protium overtime.
We firmly believe is going to lead to substantial discoveries about mechanisms of action and various other insights around disease state and by the time, we get out there with 10-K, our technology is going to measure half the human proteome in every sample, which is truly remarkable and market, leading and so we're seeing incredible enthusiasm around it is it really.
Rates too who will stick sort of on the seven case certainly there.
Some studies that are out there where folks are maybe only halfway through kind of a cohort and they've been running at around seven K I can see in some of those folks are sticking with <unk> and we are going to make that available.
For customers for a period of time until we sunset that but I would expect that we will see most of our customers as we move into 2024 transition immediately to the 10-K content.
Okay got you.
And then just in terms of.
Your interim title in the Elliott coming onboard we can control titles like just kind of unpack why is that still the case and baby.
I guess, what seems to be still ongoing search process, maybe hasnt been finalized yet.
Sure sure Yeah, we can parse the two roles on the CEO side I am maintaining the interim title for the time being the company is not conducting a CEO search.
And I've got to say the board has been extremely supportive.
Over the last couple of months.
As it relates to.
On the CFO side, we've really just been investing our time and effort getting up to speed. So it goes without saying, we need absolutely excellent financial leadership and really since the time that Elliott stepped in the door, we've really just been working to get them up to speed.
And ensuring that <unk> got the resources to do a tremendous job for us and we'll keep you posted on that front as we move forward.
Roger that thank you.
Thank you.
Does conclude our Q&A for today I'd like to turn the call back over to Adam <unk> for any closing remarks.
Okay, well first of all I'd, just like to thank everyone for joining us today and your ongoing interest in some logic. We look forward to speaking to you next quarter. Thank you so much.
Ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.
Okay.
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