Q3 2023 Akoya Biosciences Inc Earnings Call
Good day, ladies and gentlemen, and thank you for standing by welcome to the core Biosciences incorporated third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a Q&A session.
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This time I would like to turn the conference over to Mr. Preempt Shaw Mr. Shaw you may begin.
Thank you operator, and thank you to everyone who is joining us today on this call.
<unk> Shah head of Investor Relations at acquire Biosciences.
On the call today, we have Brian Mcelligott, Chief Executive Officer and Jim.
<unk> Chief Financial Officer.
Earlier today acquire released financial results for the third quarter ended September 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 statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
Any statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements.
Actual 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 acquired business. 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, third 2022 filed on March six 2023.
Subsequent filings with the SEC, including our quarterly report on Form 10-Q for the quarter ended September 32023 filed today November eight 2023, we urge you to consider these factors and you should be aware that these statements are considered estimates only and are not a guarantee of future performance.
This conference call contains time sensitive information and is accurate only as of the live broadcast today November eight 2023 acquire.
Claims 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 the audio portion of this call will be archived on the investors section of our website later today under the heading events.
Acquire plants to participate in several upcoming investor conferences, including the Stephens investment conference. The Canaccord Genuity Med Tech and diagnostics Forum and the Piper Sandler Health care contract.
Details can be found under events on the investors section of our website I would that I will now turn the call over to Brian.
Thank you, Brian and good afternoon or evening to everyone. We appreciate you joining us today.
During today's conference call I will begin by giving you a broad overview of our performance in the third quarter.
Touch upon our business advancements and provide insights into the latest developments in our product offerings.
Following that Johnny will delve deeper into our financials and key business trends.
To provide an outlook for the future of our business.
<unk> had a strong third quarter in 2023 marked by several noteworthy achievements, including record breaking revenue of $25 2 million, representing a strong 34% growth <unk>.
Compared to the previous year.
Gross profit was $15 3 million in the third quarter, representing a 40% growth over the prior year period and gross margin has now grown to 66% for the third quarter.
All of this was achieved while also contracting our operating expenses versus the prior year and quarter.
Our ongoing efforts to leverage our cost structure to drive the business towards positive cash flow are well underway as we work to ensure a more substantial portion of the expected revenue growth continues to fall to our bottom line.
The cumulative installed base now stands at 1132 instruments largest in the field.
Testament to our team's commitment to scaling spatial biology workflows for our customers and setting the standard in the industry.
<unk> consistent and sustained growth year after year and quarter after quarter.
Since our IPO in the spring of 2021 can.
Can be attributed to our unwavering dedication to delivering a top tier portfolio of products that cover the entire spectrum of the spatial biology market.
Biomarker discovery.
Translational research to clinical applications, all backed by a strong intellectual property portfolio.
Our incremental investments moving forward are strategically targeted.
Allowing us to maintain operating expenses at a constant level, while we continue to rapidly scale our footprint in spatial biology.
We are pleased to report the continued expansion in peer review publications now over 1070 as of the end of the third quarter, a 55% increase in the prior year period.
This volume of accelerating publications.
Due to the great science being done by our customers and we expect this trend to continue.
Recent highlights include a published study in the inaugural issue of Gen Biotechnology last month.
Detailing the powerboat results of a study done by the team at the University of Queensland.
To comprehensively map, the spacer proteome of head and neck squamous cell carcinoma, using a panel of over 100 protein markers run on the <unk>.
Through this effort. These researchers have identified distinct immune and metabolic signatures to help advance the understanding of the heterogeneity of tumors and the mechanistic basis, our variable clinical response.
<unk> is now at the forefront.
Ushering in.
The next era of spatial biology.
Or spatial biology to point out.
With a focus on delivering faster and more powerful solutions across our more than 1100 instruments in the field.
Our R&D and operational efforts are now dedicated to further scaling our platforms by introducing significant workflow efficiencies.
Launching expanded panels and ready to use content.
Broadening our application menu.
And expanding our range of partner software solutions.
This holistic approach.
Delivering ongoing improvements to our platforms from sample to answer is transformative for our customers driving further adoption and accelerating the utilization of acquired solutions.
This spatial biology to point our initiatives announced.
Announced at last week's society for immunotherapy of cancer meeting with <unk> and see an ego is grounded in the following principles first.
Space will peanuts, I think was whole slide imaging and high throughput as a requirement whether it's a discovery translation or a diagnostic applications.
Second the time from sample to answer needs to be rapid to support our researchers ability to expeditiously complete their study.
Whether it's a 50 sample to scurry PRASM grew 300 sample translational study time matters.
Sample processing times need to be minutes hours not days to weeks.
Third given the significant investment of our customers are making scientist expect a future proof solution with frequent improvements and upgrades.
Some specific examples of acquired spatial biology to Plano deliverables include the following.
First the recent rollout.
Of the Phoenix Acura refuses to <unk> field upgrade represents a significant milestone.
Setting a new industry standard and the speed of whole slides based on phenotype.
With this upgrade.
Customers can now process twice as many samples per week, establishing the Phoenix accurate infusion is the highest throughput spatial discovery platform available in the market.
Second.
Our Pheno imager H T to upgrade similarly represents a transformative enhancement, resulting in an astounding fivefold increase in workflow speed.
One of the key new features of the HD to point out is its ability to perform real time image analysis directly on the instrument.
This not only expedites the sample to answer process.
But also enhances the overall efficiency of the workflow.
These instrument upgrades have been welcomed great enthusiasm by our customers and we expect the adoption to continue to accelerate.
Coupling the integration of these two point of instrument upgrades with Mccoy is ready to use FICO discovering signature <unk> provides in an accelerated a streamlined solution.
Korea continues to expand its portfolio of vehicle panels builds.
Building on our existing content in oncology immuno oncology and inflammation, while also expanding into new areas like neuro biology, and preclinical animal models.
Given the rapid expansion.
Commercial and open source spatial biology software solutions.
<unk> continues to prioritize our resources on delivering rapid and real time primary analysis for our customers and partnering with industry, leading third third party software providers for the downstream analysis.
Our proprietary file compression algorithm and rapid image analysis.
To deliver our data in a standardized format called <unk>.
This standardized data format delivers manageable data files compressed nearly 30 pool to tens of gigabytes and catalyzes the ability of.
Third party software providers to easily develop and support analysis of our Korea derived data sets.
We have established partnerships with leading software providers, including enable medicine.
Vizio farm into Collabs path, AI, Oracle bow and open source solutions like <unk>.
The result is a comprehensive suite of desktop cloud base and open source software solutions, ensuring that researchers have the flexibility to.
To select the software solution, the best aligns with their specific needs and requirements.
At the Citi Conference last week that I already mentioned.
<unk> had a strong presence as we highlighted our spatial biology to point our initiatives.
It was also clear.
That space will Phenotyping is gaining significant traction as becoming central to both early and late stage clinical biomarker efforts, especially in the field of immuno oncology.
Korea has played a pioneering role in driving these efforts by offering a clinically platform that meets the student stringent requirements.
Of our Biopharma partners precision medicine, and companion diagnostic groups.
Our advanced Biopharma solutions CLIA lab in Marlboro.
<unk> ABS is increasingly focused on later stage high value projects and we are confident in our ability to continue to meet the.
The accelerating needs of the spatial biology clinical market.
To expand and strengthen our clinical pipeline.
<unk> is actively leveraging.
The capabilities of our <unk> workflow and cross Pollinating the bed.
Best practices from our advanced Biopharma solutions, CLIA lab directly to our CRO partners.
To date, we have expanded our rapidly growing qualified service provider network, which now includes 18 <unk>.
Industry, leading crows.
With their direct promotion of Korea based biomarker solutions.
Our platform adoption and more and more clinical studies is further amplified.
On the operational front, our focus is on supply chain simplification and manufacturing robustness and efficiency to meet the rapidly growing demand for our reagents.
In parallel.
We have a dedicated effort to drive meaningful margin improvements on these regions as they become a larger percentage of our overall revenue year over year.
This drives continued increase in our overall gross margin, which we anticipate being above 60% as we exit 2023.
In summary.
Our strategic focus for the remainder of 2023 is centered on three key initiatives.
<unk>.
Enhancing applications and workflow efficiency as we usher in spatial biology to point out.
Including system improvements and upgrades.
Spanning our Phoenix whole menu of offerings.
And driving increased pull through of reagents on both the <unk> fusion and Fino Imager Ht.
Second.
Accelerating the clinical adoption with clinically directed workflow improvements.
Expanding late stage biomarker programs with our top tier biopharma through our ABS lab.
And leveraging our growing network of partners through our qualified service provider network to drive further adoption in the late translational and clinical markets.
And third.
Driving operational excellence and financial sustainability by focusing on improving efficiencies and cost effectiveness.
Executing on targeted investments to support our strategic goals and working towards achieving cash flow positivity in 2025.
And with that I will turn the call over to Johnny to discuss our financial results John.
Thanks, Brian.
As Brian highlighted total revenue for the third quarter of 2023 was $25 2, million% to 34% growth compared to the same period in 2022.
Our robust year over year growth was achieved globally across our diversified revenue channels and strong portfolio of products and services.
Product revenue, including instruments reagents, and software totaled $18 million for the third quarter, representing 25% growth over the prior year period.
Instrument revenue reached $12 million in the third quarter, representing a 27% growth over the prior year period.
During the quarter, we sold 69 instruments of which 27, where Pheno Sigler and 42 were from the phenol imager portfolio.
Our total installed base now stands at 1132 instruments.
Which includes 327, <unk> and 805 Pheno Imagers.
A total of 209 fusion instruments have shifts since a full commercial launch at the start of 2022, and we now have a total installed base of 186 for the combined fino cycle, our fusion system sold directly as a combined system or as an upgrade to standalone fino cycle.
Instruments that previously utilized third party microscopes.
The majority of <unk> are being sold in combination with the fusion and we expect this combination to drive increased reagent pull through with an expanding menu of panels and faster workflows because of the ongoing 2.0 field upgrades.
We project that approximately half the current installed base of phenyl cycle Fusions MH teams will have upgraded to the 2.0 version by year end.
Reagent revenue reached $5 7 million in the third quarter, reflecting a 21% increase from the prior year period.
The annualized third quarter reagent pull through applicable to both <unk> and <unk> is now in the mid $30 range. This is a notable improvement compared to the annualized pull through per instrument in 2022, which was in the low $30 range for both the <unk> and the HG.
This growth can be attributed to the increased utilization of pheno cyclists paired with a fusion and a growing utility for HTS.
As we continue to pair more fusions with Pheno cycle, there's enhanced our instruments through the two point out field upgrades with expanded workflow capabilities and refine our operations planning and supply chain. We are strategically positioning reagents to play a more significant role in our revenue mix as our customers incur.
<unk> their usage.
Service and other revenue totaled $7 2 million for the quarter, an increase of 62% over the prior year period.
Services have been a substantial growth segment for us as our installed base and warranty revenue rapidly expand and as our lab services continued to drive additional higher scale studies.
Gross profit was $15 3 million in the third quarter, representing a 40% growth over the prior year period, and gross margin was 66% for the third quarter.
As we optimize our operations and leverage our manufacturing investments, we expect to further drive the expansion of our gross margins, which we project project to be above 60% as we exit 2023.
Operating expenses for the quarter totaled $26 8 million as compared to $27 6 million in.
In the prior year period indicative of a flattening or reduced spend pattern as we had previously indicated.
Throughout 2023, we've had consecutive quarterly contraction in our spend while we continue our meaningful top line growth.
As Brian highlighted our efforts to leverage our cost structure to drive the business towards profitability R&D well underway.
We ended the quarter with approximately $78 $6 million of cash and cash equivalents with the ability to draw an additional $11 $3 million on our <unk>.
Existing debt facility.
Our total available capital to $89 8 million.
Common shares outstanding and fully diluted shares, including the impact of outstanding options and Unvested restricted stock awards are up $49 1 million as of September 32023.
In summary, we are thrilled to report another exceptional quarter with record breaking revenue of $25 2 million, marking a strong 34% growth over the prior year period.
Acquired installed base has now reached 1132 instruments solidifying our position as the industry leader in spatial biology.
Our strategic focus remains on the rapid expansion of our installed base, while driving reagent revenue growth and increasing pull through across our systems to realize the scalability of spatial biology.
We've also implemented important organizational changes to enhance efficiency drive gross margin improvement and achieve cost advantages all while maintaining strong top line growth.
As such we are confident in our ability to sustain strong growth throughout 2023 and beyond while driving towards our goal of cash flow positivity in 2025.
We are pleased to reaffirm our reaffirm our 2023 revenue guidance range of $95 million to $98 million given the direction of our business and the favorable trends we are observing in the dynamic spatial biology market.
Back to you Brian.
Well. Thank you Johnny we're pleased to report a strong quarter and we look forward to executing on our strategic objective <unk> throughout the remainder of the year as.
As we drive the business towards positive cash flow.
Thankful for the hard work, our fellow dedicated of clients as well as for the support of our customers and shareholders.
<unk> remains well positioned for growth and we're excited about the opportunities that lie ahead.
As we deliver new space solutions from the discovery to the clinical markets.
At this point, we'll turn the call over to the operator for questions operator.
Yes, Sir ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.
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Again, if you have a question or comment please press star one one on your telephone keypad.
Please standby, while we compile the Q&A roster.
Our first question or comment comes from the line of Trey harsh Savak from Morgan Stanley. Mr. <unk>. Your line is open.
Good evening guys is edman. Thank you for the time.
Thank you.
Hey, Brian.
Just to start on the two point out rollout progress.
I think on the call you guys mentioned expect about 50% of both platforms to be upgraded by year end I recall previously had noted that it would be a little faster Filipino imager, because it's a software upgrade or something.
Has there been any changes or what caused the change in expectation here.
I don't I don't think there's any change.
I think that's kind of what we had expected it certainly could potentially accelerate so.
Approximately 50% across the board by year end is kind of what our expectations have been so it's really in line with what we believe.
What we have planned.
Got it and given the fact that the RNA chemistry isn't going to be capable until the customers have to point out rollout is it fair to assume that you won't be releasing anything that provides RNA contact context until next year and if you could could you provide some color on what.
What this initial panel would look like would it be.
I think Brian you mentioned you plan on designing panels for <unk>.
More targeted experiments on the scale up 330 to 100 samples so would it be more of a <unk>.
Mid Plex range RNA <unk> capability.
At a high level and then our objective is to look at RNA is an absolutely complimentary analyte to our high Plex protein profiling and then with respect to the details of the RNA rollout will be will be providing some more specific announcements on our RNA strategy in the near future. So we're going to hold off on a little bit more detail at this point.
Okay.
And then the final question on the call. Brian You mentioned, some clinical driven workflow improvements TXT is that on the two point out rollout that's ongoing right now.
There's a couple of pars Thats a good question overwhelmingly the two <unk> rollout really does simplify the primary informatic analysis by doing it in parallel having your data come off sort of ready for kind of what you call. It tertiary analysis, which is to get the meeting the meeting of the understand that sort of the value of your study that's part one.
Certainly that workflow improvement is certainly meaningful theres also some additional workflow improvements and expertise that's coming out of our partnership with <unk>.
That we're going to be able to leverage as part of some of our forthcoming partnerships.
Some of those things include kind of reporting additional workflow improvements reagents et cetera. So that those are those improvements are I think more second order, but really clinically relevant and embedded within our conversations with with many of our Biopharma partners is as we see our pipeline of opportunities and projects move farther and farther downstream.
Got it thank you for the time thank.
Thank you very much.
Thank you our next question or comment comes from the line of <unk>.
Lucas Baranowski from UBS Mr. Baranovsky. Your line is now open.
Actually <unk> <unk>, calling in thanks for taking my question and congrats on the quarter.
Maybe just start off first.
The gross margin sounds like 60% rate exiting the year.
Any color there.
What some of the puts and takes in the margin improvement and just thoughts on the past path too.
Positive cash flow.
Sure Yes.
You saw our Q3 results of 66% gross margin is really indicative of where we think the business is when we operate the way.
<unk> been preparing to do we expect to see those improvements in the next year as we take advantage of initiatives that we're putting in place now too.
Bring in house, some of our some manufacturing capability improve our supply chain, which drives efficiency youll recall in prior quarters.
Some of the headwind on gross margin was related to scrap and excess in yields and things like that and so we're taking action on many of those items, which will allow our gross margin to improve over the next year or so.
Coupled with the fact that that as our revenue mix changes over time more to reagents, which are our higher margin product for us that will supplement the cost efforts that we're putting in places like the gross margin.
Thanks and I.
Apologies I was a little late joining the call, but I think last quarter, you talked a little bit about some of the broader market the band like China, maybe a pullback with some capital purchases.
Any updates there on thoughts in the market and just as you look out to the fourth quarter. Even next year, yes. It's a really good question I think as we look across the market segments. Obviously.
34% growth year over year.
<unk>, 31% growth full year to date I think those are those are solid growth numbers as we drill in a little bit.
It's really interesting to look at.
The largest market for us really is the Americas.
And that market year over year, and we've been able to grow.
In the mid 40% range year over year in the Americas EMEA is doing pretty strong at the mid 20%.
Like others APAC has been a challenge that said, we still been able to grow in mid single digits in APAC, certainly well below our hope and expectations coming into the year, but given the strength in the Americas. The continued performance in the EMEA.
And the ability of the APAC team to to continue to get some growth out of that business. That's what's enabled us across the board.
To continue to grow this quarter at 30, 34% year over year.
Got it thanks for taking the questions. Thanks Louise.
Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone keypad.
Our next question or comment comes from the line of David Westenburg from Piper Sandler Mr. Westenburg. Your line is now open.
Hi, Thanks for taking the question. This is John on for Dave.
Given the interest rate environment do you feel about it.
Packaging any capital equipment like the appetite for capital equipment, and considering that you have more affordable platform.
Helping them. Thank you.
I mean, I, certainly, we're seeing more diligence around capital purchases.
So there is.
Slight lengthening.
And visibility around.
Round platforms like ours it hasnt.
We've gotten to a point, where it's impacting our ability to perform.
And I do think certainly the affordability of our platform certainly helps I think the other way that we look at it.
Is the meaningful throughput of our instruments really allows our customers as you think about amortizing costs over a number of samples per unit time, it's really that's really helped our business and thats, particularly true as you look at groups, whether Theyre Crows, our core labs, a research space euros that want to leverage our platforms.
As a business opportunity for them across multiple users. The fact that we can do.
60, 80 samples a day 300 samples a week on the Ht and 20% to 30 samples on the <unk> fusion that throughput coupled to the affordability of the amortization of samples per unit time has really allowed us to take those platforms and continue to grow in areas, where it's being used as a service offering.
Got it thank you and I'm sure that youre not giving.
Any guidance towards 2020 for revenues, but are there any other macro factors that we should consider when looking forward to that.
Don't think anything different than our peer group just in terms of the macroeconomic and Meyer environment I'd, just I think for US as we look to 'twenty four generally thematically as Johnny alluded to it's about really.
Continuing to see solid topline growth while at the same time, we're really going to be holding our expenditures in 2024 at a level that's consistent with what you'll see at the second half. So I think we feel like in terms of our multi year strategy to really forward invest in 'twenty, one and 'twenty two to solidify our commercial team and portfolio.
And then in the subsequent years 'twenty, three and 'twenty four continue that revenue growth, while really holding our expenses and investing in gross margin that really has been our plan.
And it's certainly of magnified importance in this environment and so we think that strategy will continue into 2024. So as you noted we're not guiding specifically again still thematic Leah.
It's continued topline growth with a real eye towards.
Expenditures equivalent in 2000 and for the second half to reiterate John anything to add to that no.
No I think that's exactly right. It's a three refocus its continuing to grow revenue at a meaningful rate, it's improving gross margin ratably through the year and then it's continuing to hold opex at an appropriate rate given the Florida investment.
To your point not guiding for 'twenty four yet, but it's how we look to the future. Those are our critical a critical area of focus for us.
Got it thank you for your time.
Thank you. Our next question or comment comes from the line of Rachel <unk> from J P. Morgan prescribing.
Your line is now open.
Hello, This is martha on for Rachael.
From JP Morgan. Thank you for taking my question and congrats on the quarter.
Just wanted to dig into your assumptions for <unk>, maybe you can provide a little bit more color on the quarter on placements assumptions and just to clarify.
In light of the macro are you assuming for sort of hard to budget flush from thank you.
So yes, so right now I think I heard your question is about <unk> guidance on that and budget flush and while we explicitly don't guide on the fourth quarter.
Like our typical seasonality.
We do expect a top line step up in Q4 relative to Q3 in terms of budget flush. Its a really good question I think for us it is.
Obviously, it's not a binary event, where if there is either a flushed or not.
For us, where we're being fairly muted in our expectations of a meaningful freeing up of capital of Capex money amongst our customers.
And thinking this is going to be sort of more of a typical step up similar dynamic in 2022, because I think the environment is similar Johnny one add anything.
I think thats, how we think of it and the only thing I would add is.
As we reiterated guidance.
You do math on Q4, and you get right into our guidance, which is where we expect for the full year.
Okay.
Thank you and then in terms of pricing. This year can you discuss how much you're able to raise pricing.
Expectations for 'twenty floor, and then I think any pricing pressure from your competitor.
I'd say I'd say like like this this fiscal year 'twenty three it will be a similar scale of price increase in 'twenty four.
Taking into account, obviously, the economy and interest rates and what we think is a fair price increase but I think it'll be within standard range.
Nothing that is sort of an outlier Johnny you want to add anything to that no.
Thank you.
With the high high inflation environment, where we're seeing we expect to be able to get price increases there that or what we've seen in prior years and appropriate we're not seeing.
Full pressure on price I think that's part of your question is we're not I think that in the field thats not a major.
A major item, where we're contending with.
Thank you.
Thank you. Our next question or comment comes from the line of Carl Mixon from Canaccord Genuity. Mr. Mixing your line is now open.
Yeah, Hey, guys. Thanks for taking my questions congrats on the quarter.
Ryan can you kind of talk about like maybe update us on your push into that genomics market because like as we think I mean, I remember like asking like a year ago. Our silicon you talk about arent at the worst time.
How has that gone so far and are you going to really like kind of pulled back and really lean Barnes I guess proteomics still I mean, it just how are you thinking about this whole multi omics strategy as we look ahead and try to anymore.
I think longer term Kyle it's still a absolute importance to have a multi omics solution I think I think for US is as we talked earlier I think we look at we really look at RNA is an absolute complementary analyte.
Just as an example that we alluded to in the opening comments. The recent publication in Gen Biotechnology and a lot of the discoveries that we are able to be realized with 100 Plex multi ohmic 100 plex.
<unk> proteomics.
Study on the PCF and the immense value.
And out of that it really does highlight.
How much discover you can get out of out of special proteomics, and we're seeing I think a growing realization of that so as we look at RNA is absolutely.
A complementary approach, where it's used to either look at transit translational Transco.
Transcriptional translational concordance or not but probably more importantly, leveraging it to look at analytes, where protein might not be the most ideal methodologies still still at a high level looking at it as a highly complementary approach still committed to it but as noted earlier, we're going to give a little bit more color on the RNA strategy.
In the coming months.
Yes.
Okay, and maybe just clarify what I was asking was pretty noisy in that market today does it make sense sort of pullback.
Pull back a bit I guess I'm, just kind of focus on your bread and butter.
The way I would characterize it is our number one priority is to continue to be great at our workflow.
To deliver on the continued workflow improvement workflow simplification throughput flexing et cetera, and then layering in RNA as complementary versus.
Having RNA be be the number one top priority, it's amongst the priorities getting towards a multimodal solution.
Okay.
Turning to go into so much detail there, but that was great. Thank you.
You guys mentioned Youre.
You are making efforts to achieve meaningful margin improvements for reagents. So that would be that's something that we've been looking forward to for a while now if you like.
Corporate et cetera can you just kind of.
Dive deeper into that and tell us what exactly you meant by that statement and what can we expect in the next couple of quarters or year or so that can really meaningfully improve margin as well as just consumables pull.
Pull through and kind of what underlying.
Margins for that business as well, yes. So the two parts that obviously are compounding and more than additive part one is.
Is is enabling that higher throughput with the 2.0 releases with the continued rollout of additional Athena code panels with the maturation and addition of additional software partners.
So that time to answer becomes faster and easier that's sort of part one and I think we sort of talked through all of the components of that in fact I. Just did the second part is in terms of improving raising gross margins.
Some of these some of this includes rather than relying on external third parties and the chain of custody of third party suppliers amongst all the reason components.
And antibody conjugations and fulfillment is beginning to take more control of that ourselves and so that.
At that time from from build to customer shelf is shortened and so is the amount of investment that we have to make both internally and externally to do that so the overall cost of goods for an individual antibody or panel drops down while we simplify and streamline.
That supply chain that chain of custody and take on more of their manufacturing internally rather than relying on third parties, which is why we have an ISO $13 45 facility and why we have that capability.
If I could just squeeze another one in <unk>.
If you could just talk about either qualitatively or quantitatively what percentage of what portion of the.
Again, that's likely or kind of installed base is using.
Standard or legacy microscopes, rather than the fusion can I guess I'm curious to hear that given that transition over the past couple of years.
A good question, it's a little bit over 40% that are still on third party.
So if you look at the 330 stope Unicyclists that are out there about 190 of them I'm rounding up a little bit about 190 of them.
Have a.
Have a fusion attached to it.
So that's about that's about the proportion and we see as we go through next year.
Almost every cycle of it. So this is going on with the fusion.
So that's sort of part one and then part two we will continue to upgrade.
Those existing <unk> third party scopes throughout next year. So hopefully that gives you your answer.
Yeah that was perfect. Thanks for the time guys.
Thank you. Our next question or comment comes from the line of Timothy Chiang from capital one Mr. Shanker. Your line is open.
Thanks.
Hey, Brian.
Just being in Sydney last week, obviously, you guys had a pretty big presence there.
<unk> had a pretty well attended reception as well.
How do you sort of leverage.
Rollout of diffusion tube.
Post the <unk> conference.
Would you guys get a lot of positive responses could you talk a little bit about that.
Yes, I mean, there is there is huge positive response, not only not only at the booth, but also with some of the events that you might have been two <unk>.
Spots to the poster publications I think it's simply the number one thing Tim that you get out of it as a high number of qualified leads leads amongst an audience that really is the most targeted.
Customer base for our current platforms in the field of oncology immuno oncology so.
The number one thing that you get out of it is high quality leads.
Obviously, the second benefit you get out of that given the not only the massive.
Increase in the size of that conference.
But just our large presence we get a lot more visibility.
And with the rollout of both the 2.0 on the Athena cycle fusion in the Ht to point out that visibility is across multiple market segments, because theres researchers at <unk> that are not only discovery researchers that have interest in Athena secular fusion, but absolutely.
Translational and clinical companion diagnostic diagnostic leaders in our in our market that have an absolute interest in the emerging clinical opportunities, so get getting that visibility across that entire market continuum.
Sei is the second biggest value.
Okay.
Maybe just a follow up question for Johnny Obviously, your gross margins right.
We're at 60% this quarter.
And you mentioned some supply chain efficiencies that youre starting to benefit from it.
What can you get your gross margins down the road.
Got it.
So I think it's.
As I've mentioned, it's sort of comprised of several efforts that will involve gross margin overtime, our first in and sort of.
Quickest improvements to margin or on the cost supply chain.
As Brian mentioned, the Champs has to be in some of our reagents. Those things. We can we can make moves there and have started making moves that you've seen this margin are improving that will drive margin as ive sort of said in the past couple of hundred basis points, a year and sort of how we see margin moving.
But as more and more long term margin becomes a revenue becomes more heavily weighted towards reagents again, I think that margin continues to move.
<unk> continues to move more north for the next several years right.
Right right now in the near term its cost initiatives as well as our margins as a revenue shift but that becomes even more important as we fully leverage the 1200 instruments, we have in the field as that annuity or that pull through increases per box that drive that margin improvement as well too.
Something clearly north of the 60 that we're talking about now.
Okay got it thanks.
Yes.
Thank you. Our next question or comment comes from the line of makes some cargo from Stephens. Mr. <unk>. Your line is now open.
Hey, guys. Thanks for the question and sorry to have already been asked I'll ask two upfront if thats alright.
First how are you thinking about the growth outlook for the services business going forward growth there is.
Obviously been really strong this year is there anything that we should be taking into consideration when we're thinking about how to model that segment of your business next year or do you expect demand momentum that we've been seeing to really keep continuing.
Yes on the services front, obviously, we report that out but don't guide at that level of granularity.
But I think I would say qualitatively.
There is two growth drivers so that service revenue, obviously, the growing install base and warranty revenue.
But some of the real material drivers I think as you're alluding to are the.
Our current companion diagnostic partnerships and the continued <unk>.
Expansion of our advanced Biopharma solution service business. So we expect continued incremental growth across the services next year.
The other thing I would say as I noted too on the in the commentary we are in.
Really working with our CRO partners through our qualified service provider network to really begin to leverage them as a partner and an amplifier and the translational and clinical research segments given that we have a really solidify workflow at this point with the two <unk> and the reagents and some of the software improvements so while we expect.
Continued incremental growth in the services across the board from both of those contributors warranty and lab services. We are also increasingly focus on taking those opportunities with our Biopharma partners partners and turning those more into product revenue with our CRO partners, while we have more shots on goal and more clinical trials.
Giving us a higher and higher probability of more CTX opportunities that we will have in house in 'twenty, four and beyond and those CTX opportunities I would say Mason really are upsides to the model. So it took some liberties with your question on how it fits in strategically, but thats, how we think about it.
No.
Helpful and if I could take one more here.
How is the adoption of the <unk> panels trended and how are you thinking about the timeline until when some of your higher utilization CRO customers could begin rolling those into regular use that's a really good question in that that the latter part of your question is really are explicit strategy.
<unk> and Thats kind of embedded in our desire to build this qualified service provider network, because we want to have that in place because what you what we've talked about with our Phoenix panels, whether the signature panels on the H T or the discovery panels on the peanut sigler those have sort of a rolling cycle release that we're really second half weighted and into 'twenty four.
Having having that Ciara network locked in ready to grab those signature panels, having the systems upgrades on both of the two <unk> to leverage those panels to drive higher utilization all of that does point to as Youre alluding to 2024 really as the realized year. When we feel like those regions are going to begin to contribute to the top.
Wine and continue that recent revenue growth.
Thanks, that's helpful. Brian appreciate it.
Thank you I'm showing no additional questioners in the queue at this time I would like to turn the conference back over to Mr. Mcelligott for any closing remarks, yes, just very simply I think to reiterate what both John and I have said first and foremost thank everybody for your time your questions. Your intention and obviously as we look forward to really reiterate our priorities.
There are threefold number one is to continue to invest in our portfolio in that workflow.
Continue to upgrade the systems provide content and software solutions. So that time to answer is both easier and faster and that will help drive our growth and that recent revenue portfolio. While at the same time point number two we invest in our own operational excellence to get better margins out of those very reagents.
Themselves and maintain our overall cost basis, while we continue to grow the top line really securing our path to cash flow positivity.
And number three we really are seeing.
Growing level of excitement in our later stage translational clinical partnerships and are growing increasingly confident in this real clinical opportunity and so we'll look at that in the forthcoming years as real upside to our existing financial model.
That will really prove to the market that this clinical Pam is something real in the near term.
Those are really the sort of the three legs of our growth strategy and with that I. Thank everybody for your time and we look forward to seeing you all soon.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
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