Q2 2023 Singular Genomics Systems Inc Earnings Call
Good day, everyone and welcome to the singular genomic systems, Inc. Second quarter 2023 earnings Conference call.
At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host trip Taylor, Sir the floor is yours.
Thank you operator, presenting today are singular genomics founder chair and Chief Executive Officer drew some events and the Companys Chief Financial Officer, Dale and meter earlier today singular genomics released financial results for three months ended June 32023, a copy of the press release is available on the company.
<unk> website before we begin I would like to inform you that comments and responses to your questions. During today's call reflect management's views as of today August nine 2023, only and will include forward looking statements and opinion statements, including predictions estimates plans expectations and other information related to our financial and.
Results plans and strategies actual results may differ materially from those expressed or implied by these statements as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission, including our most recent form.
<unk> 10-Q, and 10-K filings in the form 8-K filed with today's press release, our SEC filings can be found on our website or on the SEC's website investors are cautioned not to place undue reliance on forward looking statements. We disclaim any obligation to update or revise these forward looking statements. Please note that this conference call.
We'll be available for audio replay on our website at Investor <unk> singular genomics dot com in the presentations and events section with that I will turn the call over to CEO Bruce event.
Good afternoon, and welcome to singular genomics second quarter 2023 earnings call.
I am pleased to provide you with an update on our company's performance.
We will focus our update on the following four key areas.
One commercial execution.
<unk> market opportunity three operational execution and for our innovation pipeline as a reminder, we previously outlined these key areas during our Q1 earnings call as the 2023 four pillars of success.
These pillars are the framework for how we intend to measure our progress throughout the year.
Let's start with commercial execution.
<unk> quarter was an important time for the company, which yielded a moderated pace of additional key external placements that we expect will support our ramp of unit shipments in the second half of 2023.
We continue to believe that this measure deployment of systems among <unk>.
Influential key opinion leaders or Kols and other strategically important partners is the appropriate strategy to establish our <unk> platform as the foundation for a sustained success during the second half of the year and into 2024.
We shipped <unk> systems during the quarter to academic labs, bringing our total system placements in the field as at the end of the quarter to 11.
We also added to our library prep compatibility menu and grew the number of qualified leads and the sales funnel.
We are excited to continue expanding our installed base and delivering the speed and power flexibility and accuracy of the G. Four system to our customers.
Customer feedback continues to validate the <unk> value proposition as a superior alternative to other mid throughput sequences.
For instance, the University of Vermont noted that quote the flexibility and consumable costs were undeniably compelling to purchase the G. Four substantially better than an illumina instrument with excellent flexibility and flow cell loading tolerances output is much higher than reported in company's spec sheets and quote.
We continue to be pleased with the G. Four performance at initial customer sites.
Feedback has validated that argue for instrument exceeds key data specification and is capable of addressing a broad set of applications.
As you would expect at this stage it takes time and work to get users up and running including time for trainings.
Workflow and protocol optimization, and completing field services and upgrades on the instrument.
Nevertheless, there has been encouraging progress throughout the quarter, which is enabling quicker customer bring up more seamless support and training and better system support.
These important improvements will enable customers to scale quicker and more frequently and raise pull through.
We will provide more color on utilization and pull through now we believe higher utilization of our <unk> platform will be enabled by two things usability and product availability.
First the usability of the platform.
It is critical we make the <unk> easy to use as possible for customers to move their work and scale. Their work on the platform. This includes ease of training or Onboarding.
Ongoing operation of the system usability feature sets such as dashboards run tracking system monitoring and system uptime, which is a symptom of both system reliability and field service support.
We have made significant progress on each of these in the second quarter and will continue to focus on these key factors for the rest of 2023, which are critical to utilization and pull through.
Second product availability new.
New consumable kits offerings will be available in the second half of the year, including the <unk> III and Max <unk> flow cell kits.
The <unk> III doubled the throughput of the <unk> kit delivering a highly competitive price per gigabyte or price per read and further expand the set of applications that make sense to run on the G. Four.
The Max rate single cell kit delivers over $800 million reads on a single flow cell or $3 2 billion rides per run.
This will deliver a unique combination of throughput flexibility and cost for our leading application single cell sequencing in the academic and research segment we.
We expect these additional product offerings to drive utilization of the system and increase consumable pull through for systems in the field overtime.
Turning to the market opportunity.
We believe the demand for our <unk> platform continues to be strong among our target customer segments as evidenced by a growing funnel of qualified leads additional perspective, <unk> evaluation sites and increased inbound interest from positive reference sites. This.
The sales funnel continues to grow with total qualified opportunities nearing 200.
In addition, we are seeing initial traction with academic core labs, the majority of which comprise our current placements.
These labs are often managing varying sample volumes and output requirements from a range of applications like RNA seek and single cell sequencing.
The speed power and flexibility of the G. Four enables these labs to optimize sequencing runs based on varying experimental needs and delivers results in less than a day.
Interest in the <unk> four has continued to increase from researchers and lab directors at leading academic labs.
For example.
Recently noted that quote we have been very excited by the enthusiasm of the researchers we support for the G. Four with many labs already submitting projects to be run on the sequencer. These include samples for RNA seek both standard and high throughput cut and run as well as custom protocols, where the laboratories are preparing their.
Own libraries and quote.
We are encouraged by the positive traction and growing interest and expect this to translate to increased demand and unit placements over time.
As expected and discussed on prior earnings calls, we shipped a moderated number of <unk> systems in the first half of the year.
Believe that this measured deployment of systems was the right approach for three reasons first to establish a foundation for sustained success.
Second to implement system improvements aimed at reliability usability and manufacturer ability and third to make sure customer expectations are met or exceeded.
We believe unit placements will ramp in the second half of 2023, given the progress made in manufacturing and the ability to supply instruments to the field, coupled with increased commercial traction and growth in the sales funnel and availability of <unk> III and then Max re kits for single cell sequencing.
Turning to operational execution.
Our focus has been on optimizing the supply chain.
Streamlining manufacturing processes and enhancing the <unk> usability and reliability, we've been executing on several key initiatives to support these goals.
In operations in manufacturing, we've taken steps to strengthen our <unk> production capabilities. This includes engaging second sources for suppliers of critical components.
Working collaboratively with vendors to refine specifications and sub component testing protocols.
And implementing additional QC testing for incoming parts.
These initiatives are designed to reduce the time required to build and bring up a <unk> instrument and increased predictability in the supply chain.
In addition, we rolled out several important software updates to systems in the field, providing new features and enhancements designed to improve usability and reliability.
In our commercial organization, we are expanding our presence outside of the U S. We attended the European Human Genetics Conference in Glasgow, Scotland in June where our commercial team met with industry Kols and scientific leaders from the region and showcase the G. Four through system demos technical talks and presentations in.
In addition, we are excited to have brought on board a general manager of Europe , which we believe is an important step in our international commercial growth strategy.
Turning to innovation and our product pipeline. Our team is excited about the progress being made on the pipeline of innovations, including improvements in the <unk> system performance and specs.
Our throughput flow cells, and consumable kits and novel content and workflows for wildly run applications.
We're pleased to have <unk> III flow sales available. After a successful early access period, the <unk> flow cell doubles, the number of rights from RF to flow cell offering, allowing users to get up to 450 million reads per flow cell or $1 8 billion reads per run.
Addressing some of the most widely run applications.
We have also started shipping <unk> kit for single cell sequencing to early access customers. This kit is designed to allow users to get up to $800 million reached per flow cell or $3 2 billion rights per run.
This enables <unk> level pricing for single cell sequencing on a bench top system.
We look forward to offering this kit for broader commercial release later this quarter.
With a compelling set of kits available in the second half.
Our major focus will be on execution of the already announced products, ensuring quality availability and supporting customers and moving their work onto these new offerings.
Thus far feedback from customers on <unk> and early access users of Max rates has been positive.
We believe this will be an important catalyst for scaling the G. Four placements over the rest of the year and facilitating more system usage and higher pull through.
And finally, we continue to progress our work in multi omics, we have a lean team dedicated to the development of the PX.
Our high throughput <unk> spatial and single cell system.
We look forward to providing additional updates in the future at the appropriate time.
Now I will turn the call over to <unk> to go through the details of our second quarter financial results.
Thank you drew.
I'll start by covering the Q2 2023 financials, then ill provide additional directional remarks on key metrics for the rest of 2023.
Revenue for the second quarter of 2023 was approximately half a million dollars predominantly made up of revenue recognized on two instruments during the quarter.
Operating expenses for the second quarter of 2023 totaled $27 5 million compared to $24 2 million for the second quarter of 2022.
These totals included noncash stock based compensation expense of $2 $8 million in Q2, 2023, and $3 6 million in Q2 2022.
In addition, Q2 2023 included a noncash expense of $1 $9 million related to a onetime adjustment in the carrying value of property plant and equipment.
The year over year increase in total operating expenses was otherwise driven primarily by scaling head count facilities and infrastructure to support commercialization of the <unk> four and development of our product roadmap.
Net loss for the second quarter of 2023 was $25 $6 million or <unk> 35 per share.
Compared to $24 million or <unk> 34 per share in the second quarter of 2022.
Our weighted average share count for the second quarter used to calculate net loss per share was approximately $72 5 million.
Ending cash cash equivalents and short term investments, excluding restricted cash totaled $206 $7 million.
Turning to comments on the rest of 2023 commercial interest continues to be strong as reflected in the growing number of qualified opportunities in the sales funnel.
We believe that the number of placements in the second half of 2023 will ramp supported by commercial availability of the <unk> flow cell consumable kits and our <unk> kit for single cell sequencing.
Consumable pull through is still in the early stages as drew noted we're seeing early commercial traction with academic customers with nine of our 11 <unk> four placements at academic labs.
Utilization at these academic customers is dependent on experiments and sequencing project volumes and could be slower to ramp initially depending on sequencing project needs. We.
We anticipate learning more about customer utilization patterns over time and expect to provide updates on consumable pull through as it becomes more predictable.
Regarding operating expenses, while we do expect investment in the second half of 2023 to modestly increase in areas directly related to the <unk> for commercialization and development of our product roadmap, we intend to manage existing resources to provide cash runway into the second half of 2025.
Thank you and back to drew for closing remarks.
Thank you Dylan.
I am proud of the team's dedication during Q2 our.
Our hard work and efforts of establishing the critical foundation from which we can scale the business in the second quarter, we made significant internal progress in manufacturing quality and operations. We also shipped <unk> systems supported customer installations and upgrades added to our order book and grew the.
A number of qualified opportunities in the sales funnel.
Our recent product launches, including the <unk> III, both sales and consumable kits and the early access version of our <unk> kits for single cell sequencing are expected to be important catalysts driving commercial demand and scaling across the second half of the year.
Perhaps most importantly, we continue to receive validation that we design the right product with a feature set and value proposition that meets the needs of many of the largest and fastest growing segments of the market, we remain steadfast and confident in the opportunity in front of US now, let's open it up for questions operator.
Certainly everyone. At this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
We do ask that while posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone.
Your first question is coming from Matt <unk> from Goldman Sachs. Your line is live.
Hey, drew Dillon, thanks for taking my questions good afternoon.
I just wanted to kind of on the back of your comments about the second half ramp through previously in previous quarters, you've kind of laid out sort of a cadence of two to four per month with sort of the first half of the year at the low end and maybe the end of the year being at the higher end of that is.
Is that still kind of a measure we should be using as you talked about this back half ramp or should we be thinking about a different kind of cadence as you kind of.
Measure that that demand going forward.
Hey, Matt Thanks for taking the time to listen and for the question.
We haven't communicated anything differently that two to four will likely step into it I think you can gather from the comments that we still are scaling and very much in the early stages of getting the first handful of instruments out.
But that is the previously discussed range and we should be stepping into that in the second half of the year and hopefully ramping.
Into next year.
Got it and then just maybe a little more detail on the expansion into Europe , just given the academic presence in Europe is that in your success, so far with academic core labs.
Is that part of the reason why.
You are kind of investing in that area or any other kind of color you can provide on that expansion would be helpful.
Yeah, absolutely, we've actually had quite a bit of inbound demand from from Europe .
A number of conferences that we have.
We have attended it seems that the G. Four will be a really good fit for that market. The European market is much more decentralized you don't have any as many large central labs doing really high throughput sequencing, it's much more decentralized and fragmented and the speed and the flexibility speaks very well to that environment.
It's a modest investment at this point in Europe again, putting the foundation in place getting a general manager for the area and starting to think about support and application.
Scientists to bring up customers is really the first part of that and we're just starting to lay that foundation now to set us up for the ability to enter that market next year, but we do think overall Europe will be a really compelling market in a nice fit for the profile that you for.
Got it and just one last one if I could sneak it in you talked about <unk>.
Shipping Max Freedom three flow cell it sounds like that that just commenced so in terms of like sort of the pulling in of demand from the instrument side with those products and sort of the positive feedback that <unk> gotten from the people of trials. So far should we be kind of thinking that sort of towards the end of the year type dynamic.
As those products get shipped out over time.
Yes, I think it will definitely inflected demand what we're seeing out there in general is that sales sales cycles are longer than that I think a lot of.
People anticipated and a lot of that has to do with the macro environment and the evaluation framework for which customers are putting new technology.
Through.
So.
Interest is really strong and it's very much a show me with <unk> customers, often want to run samples or they want references and other sites. They can call and we're starting to get those up and running which we think will be really strong catalyst, but it is still going to be longer sales cycle than I think many had anticipated. So I think your comments on Q4 and into next.
Year, absolutely, we expect to really start to see the catalyst from the new products.
To have an effect on sales funnel conversion.
This year and even more so into next year.
Got it thanks very much I appreciate it.
Thank you. Your next question is coming from Jon <unk> from UBS. Your line is live.
Hey, everyone, it's actually Christian on for John Thank you for taking my question.
I know you guys called out about I think it was about 200 people within the sales funnel I was just looking for any more color can you talk about how that all.
Funnel has progressed throughout the throughout 'twenty.
And I think if you kind of touched on it on the previous question.
The sales the sales cycle, how has that progressed and then if you could give any color on pricing and how that really is.
In the conversation thank you.
Yes, so maybe I'll start with kind of the sales funnel.
Going back into the back half of last year I think in our Q3 earnings call.
No I don't think we gave a specific number was probably into dozens of qualified leads and I think let's remember what a qualified lead is a qualified lead is something thats passed several film.
<unk> filters in it now.
An entity that has a need for a sequencer. We're speaking with the right person that has the authority to make a purchase in their budget.
And those are those are important factors to understand and the quality of the lead.
We've seen it steadily increase but this last quarter, we saw probably the most significant increase in the funnel now up to close to 200 qualified leads now not all of those are near term, meaning they will convert right away, but they are all real opportunities and it's very encouraging for us to really see that start to build.
And we're confident that over time, we're going to start to really see a higher level of conversion, we're going to see the ramp really start to take form.
So we're excited about it and then on the I think the second question was on kind of the sales dynamic where the pricing is that right.
Yes, yes.
Yes, so we've taken a strategy, so florida to try and maintained price integrity.
If you look at the small end number but if you look at our Asps have been trending in the high 200, thousands for the last three quarters over the 11 instruments.
We do have.
A reagent rental and we have a lease model.
We will do strategic placements as needed or evaluations, but by and large our strategy has been to try and show the value for the <unk> four and.
And hold the line on price to make sure that customers are really stepping in and making a commitment and they realize the value of the platform. The speed the flexibility the cost point to run the system all of that should should easily justify a purchase price of the instrument.
Kind of in line with with Illumina.
Alumina alumina list at $3 35, and typically sells close to that so I think it's really a matter of time to get the system established but so far we have I think been fortunate to realize asps that are.
Indicative of the system value and we will we will try to continue to do that.
Thank you very much ethanol.
Thank you. Your next question is coming from Dan Brennan from TD Cowen.
Your line is live.
Great. Thanks, guys for taking the questions, maybe just a little bit on I guess competitive dynamics I know.
A large market you guys have a couple of boxes and the kind of place, but just what are you seeing in the lab does anything change in terms of when you're going up against whether it be element or whether it be alumina how are things going there.
Yes, I'd say the general trend in the labs is that that people are understanding that there is a choice and I think theyre doing more thorough evaluations.
They're taking their time to really look at the different options and what meets their needs at times labs are asking to test samples at times or asking for references.
Overall illumina is.
Competitive.
Alternative that we are going up against 98% of the time and that really is the.
The predominant player out there alumina I think we'll ship close to 200 <unk> this year and many more <unk>.
For us those are really the opportunities on where we can offer a much more compelling value at a similar price point given the profile of the instrument. So.
I think the positive part of it is the value proposition, especially within the academics and the course.
And kind of the private investigator labs really resonates, it's essentially a similar price point, but you get a ton more flexibility at a lower cost for an experiment or flow cells are down to 600 Bucks.
It's just a much better system for how they wanted to use and do their sequencing. So.
We feel really good about kind of how we stack up competitively I think the big issue Dan is really just establishing the platform of the company as you know.
Being a zero or low risk acquisition and that's something that just takes time. It takes references and we're working on that right now.
Great. Thanks drew and just just in terms of setting the model straight into the back half of the year I guess it sounds like Youre confident you can get into that ZIP code that Matt mentioned, the $2 four per month, but is it a little bit more skewed to <unk> versus <unk> in terms of how we should be thinking about the third quarter.
Yes, I think so I mean, just to the comments, we are being pretty direct and candid. The sales cycles are taking a little bit longer leads are growing references are growing everything is trending in the right direction entitlement progress made internally to be able to supply instruments, we're feeling good about that.
And as we look into the third and fourth quarter, absolutely kind of stepping into that range in the low end for the third quarter and then hopefully starting to raise into the middle of the higher range for Q4.
Setting up for a really nice next year, that's absolutely how we are thinking about it.
And kind of your capacity for next year would be assuming you can get to that six and.
Call. It like nine in Q3, Q4 kind of how would we use that as a jumping off point, what you can do next year.
Let us let us take this quarter and really understand a little bit better kind of how how this and next quarter are looking I think we do want to be more forthcoming with with how we think about next year could look in terms of kind of goalposts on new unit placements and revenue, but I. Just don't think we know enough yet to be able to give you an accurate answer there.
Give us a little time, but we will certainly.
Be planning to give more information about how 2004 shaping up in coming calls.
And maybe just one comment to add.
You're dealing in prior calls we have talked about dedicated manufacturing space that we have.
Has plenty of infrastructure capacity to get us through the next couple of years in terms of supply with the G. Four it's just a matter of the labor and some of the other kind of ancillary variable.
Cost and investment items to support the units. So we've got the infrastructure. It's just how quickly we want to scale it up.
Great. Okay, guys. Thanks, a lot.
Thank you. Your next question is coming from Mike <unk> from Bank of America. Your line is live.
Hi, This is atlantica on for Mike.
Wanted to ask you where do you see the gross margin moving to in the second half and maybe in 2024 at the <unk> ramp up thank you.
Yes, hi, there this is Dylan.
Gross margin we expect.
The model to be.
<unk> similar in line with other tools companies. If you think about kind of the traditional razor razorblade model.
Instruments get placed at a lower gross margin profile.
And then as the pull through increases the consumables really start to take over the mix of revenue at a much higher gross margin profile and so as that mix changes you'd get a nice gross margin tailwind and we would expect.
Words, such small and counts right now in terms of the install base pull through is still in the very early stages.
We move into next year.
We would expect to see kind of that traditional tailwind off the model as we are able to move customers up the utilization curve and grow the installed base.
Got it. Thank you so much and then.
Given your comments on the cost control how much of a priority of the PX currently.
Yes, it's a good question.
The PX remains.
Our spatial effort in general remains something that we're committed to.
We believe using the sequencing technology that we have and applying it to cells and tissue is really novel and something unique that we can offer and we've had quite an abundance of feedback through kols and interactions.
That really verify and validate that.
We are moving forward with the tap program right now, it's a technology access program with two leading academics where.
We're working with them to receive samples and so novel methods.
With the technology was developed to do into two sequencing and look at.
Spatial context in tissue and cells and it's something we plan to share more about later this year and into next year as far as the PX system itself relates it will take a broader effort to bring forward and we've talked previously about looking and exploring partnerships or alternative ways that we can fund that program.
The work is continuing.
It's a small and lean team were being judicious with our capital spend but.
At this point, we do believe it's the right place to have a modest investment given the high value of the opportunity.
Got it. Thank you so much for that and then if I can sneak one more in.
This quarter you had three shipments to academic are you surprised with a heavy bias towards academic customer then the reason why youre not seeing customers commercial customers buying more.
No not really I think when we look at the kind of the adoption profile different market segments.
The academics are typically going to be the early adopters.
That really rings true for a lot of different new technologies that sell into this type of environment.
They're going to kick the tires, they are going to provide feedback they're going to work with you they're usually on the kind of the cutting tip of new new technologies.
Once the academics.
<unk> when you start to get publications and you kind of have that foundation. The next segment that we would we would expect and we do have these represented in our funnel would be kind of your private companies Youre large research or your large and medium sized research companies.
People that are essentially using sequencing as an internal tool to develop whatever products. They are doing there is a ton of sequencing being done for cell therapy for CRISPR applications. So that would kind of be the next wave of customers and then kind of beyond that would be kind of hospital medical centers academic medical centers or larger clinical customers that are running sequencing.
Fleets to run clinical testing of <unk>. So there is really a continuum of.
Buyers, but it really depends on kind of where you are in the lifecycle of your system launch and I'll. Just give you. An example, if you are thinking about the application of newborn intensive care unit sequencing.
And application that youre going to offer with a new technology that you are still kind of ironing out the kinks, that's new to market, that's something you're going to go into when you have a very mature box in.
That's something that we're very very much think is a good application for the G. Four given the speed and flexibility, but it's also something you go to at the point in time, when you have a really stable established platform in.
You are a bit down the road so.
Long winded way of saying not surprised at all with the early academic interest.
Our funnel right now is probably about two thirds academic but theres a good third of.
Entities in the funnel that are the other profiles as well that I think will be adopters of the technology.
Got it thank you so much.
Thank you that completes our Q&A session everyone. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.