Q3 2023 Singular Genomics Systems Inc Earnings Call
Greetings and welcome to the singular genomic systems, Inc. Third quarter 2023 earnings conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your.
Host Philip Taylor you may begin.
Thank you operator, presenting today are singular genomics founder chair and Chief Executive Officer drew some events and the Companys Chief Financial Officer, David meter earlier today singular genomics released financial results for the three months ended September 32023, a copy of the press release is available on the company's 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 November 14th 2023, only and will include forward looking statements and opinion statements, including predictions estimates plans expectations and other information related to our financial and operating 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 10-Q.
And 10-K filings and the form 8-K filed with today's press release, our SEC filings can be found on our website or 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 will be available for audio replay on our website at investor that singular genomics dotcom and the presentations and events section with that I will turn the call over to CEO drew spoke to.
Good afternoon, and welcome to singular genomics third quarter 2023 earnings call.
It was another busy quarter and I'm pleased to update you on our company's performance.
We will focus our update on the following three key areas.
One commercial execution to operational execution and three our innovation pipeline.
In addition, I will provide commentary on the overall state of the business, including what is going well what challenges we are experiencing and most importantly, what we are doing differently to address these challenges.
To address the last topic directly and concisely upfront, we see many encouraging trends have high conviction in the G. Four platform and product roadmap and see a clear path to build a successful business.
Macro and market conditions do present challenges we.
We are being thoughtful and adapting our strategy in light of both internal and external factors.
We have made changes to our business in Q3. This includes organizational structure.
Product roadmap commercial strategy and how we are thinking about managing cash runway forward in order to give the company time to execute.
We will talk more about each of these topics later in the call.
Now I will turn to an update on our third quarter.
Let's start with commercial execution, we shipped five G. Four systems during the quarter, our largest quarterly shipment total yet which was made up of four shipments to four academic core labs and one commercial clinical lab. We progressed qualified leads through the sales funnel increased our order book and saw increasing utilization in the field, giving us confidence in the utilization.
And pull through capability of the G. Four we are excited to continue growing our installed base and delivering unmatched speed power flexibility and accuracy of the G four to our customers.
The G force value proposition is increasingly resonating with our customers for instance, the broad Institute noted that quote the instrument was purchased to replace old equipment augment our sequencing capacity and lower our sequencing costs, while addressing new needs from our users.
It's for flow cells, and 60 Lane design gave us the ability to streamline our single cell sequencing operation. The four color chemistry allows us to successfully and consistently sequence extremely difficult libraries that were a challenge for a very long time, well generate superb reproducible data end quote.
System utilization and the ramp in consumable pull through is increasing but it's still early we are learning more about initial customer utilization patterns and seeing encouraging signs consumer.
Consumables revenues more than doubled in Q3 over Q2 and this growth trend is carrying through in early Q4, we believe higher utilization will increasingly be enabled by two things the usability of the platform.
And new consumable kit availability.
Regarding usability, we continue to make significant progress during the quarter supporting field upgrades of hardware components and software and improving the reliability and uptime of the instrument. We expect this trend of increased utilization to continue.
Regarding new Kid availability most of our customers are currently converting over to the newly launched <unk> flow cells.
As a reminder, the <unk> flow cell doubles, the number of reeds and gigabit output from RF to flow cell, providing customers a significantly higher throughput kit at a lower cost per gigabit.
In addition, we completed the early access program for our Max reads for single cell sequencing and are now, making this kit broadly available to customers.
All these things contributed to a quarter over quarter increase of more than 50% the number of consumable kits ordered and shipped in.
In fact, one of our earliest customer placements has ramped the utilization over the last nine months to an expected annualized pull through rate of approximately $170000.
We are encouraged by these trends and utilization and orders, which we are already seeing translate in early Q4.
Turning to operational execution, our focus in the third quarter was on streamlining and scaling consumables manufacturing processes for our newly launched <unk> flow cells and enhancing the G force usability and reliability and.
In operations in manufacturing, we implemented steps in our production processes around consumables raw materials and intermediate component QC testing, which were designed to increase the quality and consistency of consumables and reduced assay variability in.
In customer service and support we rolled out several instrument hardware and software upgrades, providing new features and enhancements to improve the usability of the system.
Turning to innovation and our product pipeline, we launched <unk> kits for single cell sequencing.
As a reminder, this kit is designed to allow us to get up to $800 million reads per flow cell or $3 2 billion reads per run this enables nova seek level throughput and pricing for single cell sequencing on the bench top system.
Recent feedback from early access users has been very positive for instance nationwide children's hospital analyzed single cell data generated from the <unk> for using the <unk> workflow and compare them to library sequenced on <unk> 6000. They noted quote our interpretation of the single cell data is indistinguishable across the various.
That forms we plan to continue sequencing tax genomics single cell libraries on the G. Four and look forward to adopting the mcafee capability on our instrument and quote.
And finally, we have become highly focused on developing and introducing our unique space youll sequencing and multi omics offerings, which we believe will open a new market for our products earlier than previously expected.
We have a dedicated team to the development of unique and exciting assays and solutions in this space leveraging our core chemistry and technology, we look forward to sharing more soon regarding this exciting opportunity and our expanding capabilities in this area.
Now I'd like to switch gears and provide a few comments on the overall state of our business.
We have been shifting our G. Four sequencing platform for just over a year and have learned a lot about our go to market strategy given the current macro environment.
My comments will touch on what is going well with challenges we continue to see despite recent progress.
And what we're doing to address these challenges.
In terms of what is going well, we have seen significant improvements in both the reliability and usability of the G. Four.
We saw consumable kit shipments increased by more than 50% in Q3 compared to Q2.
Consumables revenues doubled in Q3 over Q2 and this growth trend has continued into early Q4.
We launched the <unk> flow cell and customers are quickly converting over from the <unk> kits.
We believe these developments will have a positive impact on our consumables revenue and system utilization over time as more customers order <unk> flow cells, and <unk> kits, which carry a higher asps given the increased rig count in throughput.
We also have growing conviction in the clinical opportunity given the nature of that segment and the G Force profile.
In terms of the challenges the sales cycle and our ability to convert qualified opportunities to orders has progressed slower than expected.
As a result, the mix of requested sales models for near term opportunities has shifted to fewer capital purchases and more reagent rentals and evaluations. This.
This has delayed the timing for a revenue ramp as the value gets recognized over time and in line with consumable pull through versus upfront delivery and acceptance of the instrument.
Given the positive trends in reliability improvement system usage product ordering patterns, new product introductions increased customer satisfaction and our significant sales funnel. We do feel confident we will see a faster pace of placements and scaling of consumables revenue moving forward.
While we have experienced increasing positive momentum we recognize we are not where we expect it to be at this point and we are taking the following steps to address this.
First we have prioritized for scale up above all else.
This includes a more focused effort across the organization to prepare for more accelerated G. Four shipments are growing installation base and increasing consumables demand.
Second.
As to leverage our recently launched <unk> III and <unk> kits, we are working diligently to deliver these kits to as many customers as possible. We will also double down on our communications to potential customers highlighting the benefits of these new kits and encouraging sample testing and system evaluations as we think about the <unk> product profile moving forward, we are focused on higher VAT.
<unk> kits that differentiate from the competition and bringing these kits to market robustly and on time.
Third to address the challenging market conditions, we believe a two pronged shift in commercial and product strategy is needed on the commercial side, we will be more flexible and deal structure and pricing, we will push harder on reagent rental or alternative deals to drive downstream conversions.
We believe this result will be significant growth in the installation base through 2024.
On the product strategy side, we will focus on leveraging our installed base and release just a couple of new differentiated high value kits next year.
The kits will be significantly differentiated and carry a much higher asps we.
We will share more on the product strategy and roadmap in early 2024.
And fourth we recognize the need to manage our cash and resources prudently to deal with the aforementioned challenges. We recently made a difficult decision to reduce our head count by approximately 10% and reduced our spending plans accordingly based on a more narrowly focused list of priorities and projects.
I believe these actions will extend our cash runway into early 2026.
As we focus our attention on our 2024 operating plan, we continue to identify additional potential areas of cost savings.
And as always we continue to actively evaluate strategic partnerships investments and other opportunities to maximize stockholder value.
Now I'll turn the call over to <unk> to go through the details of our third quarter financial results.
Thank you drew I'll start by covering the Q3 2023 financials, then ill provide additional directional remarks for the rest of 2023.
Revenue for the third quarter of 2023 was approximately half a million dollars predominantly made up of revenue recognized on one instrument during the quarter.
We expect revenue from the remaining four instrument shipments to be recognized over time as our customers purchase consumables for these instruments.
Operating expenses for the third quarter of 2023 totaled $24 $5 million compared to $24 7 million for the third quarter of 2022.
These totals included noncash stock based compensation expense of $2 8 million in Q3, 2023, and $3 4 million in Q3 2022.
Year over year decrease in total operating expenses was driven primarily by a decrease in research and development materials and other general lab supply costs as we transition from development to commercialization of the <unk>.
Net loss for the third quarter of 2023 was $22 4 million or <unk> 31 per share.
Compared to $23 $8 million or <unk> 33 per share in the third quarter of 2022.
Our weighted average share count for the third quarter used to calculate net loss per share was approximately $73 2 million.
Ending cash cash equivalents and short term investments, excluding restricted cash totaled $197 million.
Turning to directional comments on the rest of 2023, we expect the number of <unk> placements in the fourth quarter to be slightly higher than the third quarter and for consumable pull through to continue increasing as utilization increases with more customers purchasing <unk> III and Maxine kits.
<unk> showed greater demand for reagent rentals and evaluations versus the traditional capital purchase sales models during the third quarter and we expect that trend to continue in the fourth quarter and into 2024.
Regarding operating expenses, we recently implemented expense reduction measures to reduce our quarterly burn going forward.
These measures included a reduction of approximately 10% of our head count.
Termination of a long term lease obligation and other non labor expense reductions. We believe these measures will allow us to extend cash runway into early 2026.
Thank you and back to drew for closing remarks.
Thank you Dylan.
In closing Q3 was a busy quarter for our team as we shipped another five systems supported customer installations, and upgrades and launched new higher throughput consumable kit offerings.
We have now been shipping our G. Four sequencing platform for just over a year and we continue to evaluate our strategy.
We are sensitive to the fact that 2023 has been slower than anticipated and so the fact that the macro environment shows little sign of improvement in the near term.
We also remain steadfast in our conviction that the <unk> sequencer and singular technology offers important and meaningful value to the field of science and medicine.
We have a thorough understanding of the challenges facing us and other early stage companies in our space.
We are addressing these challenges through prudent actions such as shifting our sales strategy to accommodate customer sales model preferences refining our roadmap and company priorities.
Streamlining our head count and organizational structure, and ultimately reducing our burn to extend runway into 2026.
Bite. These challenges we remain confident about the opportunity in front of us.
Our recent product launches, including the <unk> III <unk> sales and consumable kits and our mastery kits for single cell sequencing are expected to be important catalysts for commercial demand.
We continue to receive validation from our customers that we designed 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.
Now, let's open up to questions operator.
Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Your first question for today is coming from Dan Brennan with TD Cowen.
Great. Thanks for thanks for the questions guys.
Maybe the first one would just beyond.
The shift to more reagent rental versus outright sale given the environment could.
Could you speak to a little bit like what are the normal terms of like a reagent rental what these customers any any color you can provide on Mike required consumable spending over the course of whatever it is 12 24 36 months just so we can get a sense of what the.
The attach revenue stream could look like.
Hey, Dan This is drew thanks for the question.
Maybe I'll provide a little color on kind of the market and then Dale and can provide more specifics if needed.
Right now, it's just highly competitive and.
Lot of customers.
Are frankly, not in a position where they're leaning in to buy expensive capital equipment. So it's vital for us to be able to.
Meet demand where people want to access new sequencer, especially the benefits given the lower running costs faster turnaround time, the flexibility with the G. Four speaks to them. So theres really three buckets. The first bucket would be the capital purchase the second bucket would be the reagent rental that percent uplift really depends on the volume requirement. So there's kind of a toggle between what percent of.
Normal pricing it could be anywhere from.
30% to 100% above the normal pricing depending on what they commit to and then the term is typically negotiated anywhere from.
Three to five years, the third bucket would be a strategic placement or an evaluation of our loaner unit and that scenario, where again to drive adoption for <unk> technology in a tough market.
Betting on the system, putting it in letting people evaluated as a loner pool.
As a unit in loaner pool, and then converting them into one of the two after mentioned models, either a capex or a reagent rental once they've tried the instrument and got comfortable with it. So it's really deploying a different strategy to push equally on all three of those with the end goal of building installed base.
Yes, Dan this deal and maybe the one thing I'll add is.
There are instances, where the commitment can be project or sample based rather than time based so we have seen that but for the most part.
Typical you've kind of terms would be more kind of duration of time based.
Okay.
Got it and should we assume then drew I think in your prepared remarks, you discussed.
I think you used the word significant more instrument placements given maybe the shift to more of this reagent rental model.
You know.
Maybe how do we think about like on a go forward basis. Obviously, you gave the guidance for the fourth quarter, but if we think about the mix beyond that.
Like should we be thinking 80, 20 kind of reagent rental 90 10 like just any any help on im sure Youll ship with the environment is needed, but just trying to think through how this might change the model as we look at it kind of a forecast for 2004.
For 'twenty four we will provide more color.
In 24 on the Q1 earnings call.
I think for right now, we just want to be conservative and kind of assume that Q4 will be a similar mix to Q3 and carry that forward and then as we get more comfortable with how this change in strategy you guys received over the next few months will will dial in 2024 and would probably provide more more guidance in 'twenty four than we did in 'twenty three directional comp.
Terry versus actual guidance, so we should be able to fill that in for you in a few months.
Got it and then.
Looking at the 16 shipments we've done to date about 60% of those were capital purchases.
40% kind of fell into the other bucket that you described the bulk of that being kind of in Q3. So.
That's really kind of the mix that we're seeing and how it's trending and so I think the idea here is you get another quarter under the belt with Q4 and provide some additional detail and color on the next call.
For next year.
Got it and then I guess, maybe just ask one more.
I think on the last call you gave or you've given some color on like either maybe not outright orders, but like qualified leads kind of that funnel.
And I know you talked about it's been harder to convert and you're not alone in that and that SaaS. It given the market dynamics, but can you give any updated view on where we stood last quarter, where we stand this quarter like what does that what does that sales funnel look like and if you do have any.
Actual hard backlog you guys are carrying into Q4 or in Q4 that would be great to know that as well. Thanks.
Yes, holistically the funnel has more opportunities and it now qualified leads than it has ever before what we've seen is that the ability to get those leads from the middle of the funnel down to the bottom of the funnel, which is a purchase is just taking longer and some are falling out being candid. So we're focused on two things.
Continuing to fill the top of the funnel.
And then making sure that they don't fall out that we are able to push them forward and then some of them are just stalling we had it in Q2 and Q3, where we expected to have a few more click in and you get to the end of the quarter and they just seem to be waiting and taking their time to make a decision. So it's not that the opportunity falls out it's just that things are going slower.
We're confident that as the system becomes more established in the field, there's more word of mouth reputation of the <unk> and more customer hands that that will help and then we also think that again getting F. Three and Max readout when people talking about it will help and then we also think time will help.
A lot of ways, Dan for a new entrant, we do have.
Some time to execute we are looking at 13 to 14 quarters of runway.
We have multiple products coming out next year that we're really excited about that will leverage the current install base. So our strategy right. Now is really build the installed base continue to fill the funnel do everything we can to convert through bottom of funnel and then leverage that growing install base next year with some very exciting kits that will be released kind of in the mid to second half of the year.
Great. Thanks, guys.
Your next question is coming from Mac Sykes with Goldman Sachs.
Hey, good afternoon, thanks for taking my questions maybe.
Maybe a follow up following up on Dan's question just on the.
Increased <unk>.
Shipment.
Perspective that you guys gave I know that previously you've given sort of the context of two to four shipments per month.
How should we think about that previous guidance in the context of the shift in the go to market strategy with increasing reagent rental is driving maybe higher level of shipments over time.
So we got five out in Q3, Matt.
We would expect Q4 to be an increase over Q3, although I don't think we're at a point, where we have enough confidence we could tell you exactly where we'll land I think moving into next year, that's where we're planning to see a more significant jump quarter over quarter.
In terms of being more aggressive it's there has been situations prior where we've made a decision not to go forward with.
For various reasons and I think we're just starting to.
Widen the aperture in terms of what we consider for replacement and what we advanced into that <unk> and placement. So we do think that we will be able to grow that installed base quite significantly with this change in strategy and the revised product mix and a few other things that are just trending positively internally.
Got it and then your commentary on on things dropping out of the of prospects dropping out of the funnel do you guys have a sense that for the ones that dropped out or are they looking at alternative purchases of.
Competing equipment or is it just an overall delay in just the purchase itself and they're thinking longer about it just wanted to get a context for the competitive environment that you are sitting in.
I think it's there's a few different reasons.
First from the competitive aspect.
There is more competition illumina is being more aggressive in how they discount and try and do creative deals too.
Not lose placements to a singular.
In terms of things taking longer thats been.
The trend that we've seen throughout the year and it's still continuing where it's not that potential customers says, we're not going to buy they just take more time than what we expect to be a Q3 decision. They say, it's now a Q4 decision and we're seeing a lot of that and then there are of course, some customers that are rethinking or just saying I'm on hold indefinitely I am not going to buy a new piece of equipment.
And those are falling out.
So I think it's a little bit of everything.
I don't know if that answers your question, but it's not one thing it's kind of.
Our balance between those three I got.
Got it that's helpful. And then just my last question tailwind for you just on the on the cost cutting that you did I know that the R&D kind of drop year over year as you kind of went commercial on G. Four but can you maybe give us some context of those cost cutting that you did kind of the split between SG&A and R&D.
How does kind of laid out.
Yes sure Matt.
In October we.
Completed.
A small reduction in force of about 10% of the workforce that was about 30 approximately 30 people.
It really was across the organization, probably more heavily weighted on the R&D.
Side of the house just being.
Tied to.
Different project decisions and priorities like like you had mentioned youre thinking across that.
Holistically as part of our kind of annual strategic planning and operating plan process, what are the highest priority activities and projects that we're going to focus on.
So really it was spread across the entire organization a little bit more heavily weighted.
R&D side.
Got it thanks for the questions guys I appreciate it.
Thanks Pat.
Your next question is coming from John Sour beer with UBS.
Hey, good evening and thanks for taking the question.
Drew I think in the prepared remarks, you mentioned there was a customer that had gotten up to 175 K on on pull through just any additional color. There are they using both the degree and the Maxwell.
Do you think that other customers can get there.
Any additional color on where you think holds roofing can go from there.
Absolutely. Thanks, Thanks, John Thanks for joining us for the question.
Customers in academic core.
They are servicing a number of <unk> they do a whole host of different sequencing a lot of single cell sequencing.
They've migrated almost 100% onto the F. Three now.
And they will also.
I think they've begun ordering Max re kits, which has just recently available and they will likely do a lot of Max read as well.
So that's kind of nature of that customer I think there are other customers that are similar to what we have found is a lot.
Other times in these key core lab environments.
Really getting the people doing the work the.
The customers are the core so to speak to elect and decide to put work onto the G. Four and sometimes it takes time to have them start to select App machine versus other machines and I think this quarter's a really good example of that.
The wrap this instrument has been out for.
Gosh almost a year.
And it really took a full nine months plus for them to ramp up and get to a point, where they have multiple pis, putting experiments on the instrument and routine basis. So it's very encouraging to see.
There are a number of core labs that we that we currently have as customers and other and others in the queue that have similar types of customer basis, meaning they're high volume quarters, where there's a ton of usage multiple sequencer. So I think it's an encouraging sign but it also again.
Speaks to the fact that it is taking time I mean this was an early adopter somebody very support of the system and advocate for the system is still took a full nine months plus to get to the point where it's.
At this pull through so and most of our installed basis, then only up for a few months. So it's still we're still seeing the ramp occur.
Got it and then with the focus increased focus here on the <unk> launch with the cost cutting I guess any updates on the Bx and you are you still moving forward on that program.
Yes, we're moving forward with spatial.
We've been <unk>.
Firm that we think theres, a huge opportunity to leverage our sequencing technology and a lot of the method development. We've been working on for now close to five years.
And it's something we are continuing to be.
Very excited about we are in the middle of the tap program right now.
Technology access.
Okay.
Academic institutions in the world to do new things using sequencing as a readout in <unk>.
We plan to have more information on how we plan to bring that forward and realize that value for for the company for the customers and for our stockholders.
At the beginning of 2024.
So it's something we're actively working on but.
We don't have.
We'll plan to share quite yet.
Thanks, Ed.
On the <unk>.
Orders that are kind of dropped out of the sales funnel I guess, just a clarification. There have you actually seen any cancellations there that might have actually moved into.
Backlog or are these just broader within within the different groups of the sales funnel.
I don't think we've seen any <unk>, yeah, we haven't seen any cancellations. What we're seeing is if we have.
Four different levels and our sales funnel as it advances down at various stages.
We're just seeing where you're at the middle of that funnel, where it goes from an evaluation or getting into sample testing or once the samples are tested getting into a po. We're just not seeing quite the movement through that we would we would expect as kind of getting clogged and stuck in the middle.
And again, I think where we're really thinking about all the different ways, we can address it but.
But it's not that people are backing out its more just trying to get from there as an interested party here that wants the sequencer, but theres a budget constraint or.
Don't want to wait for whatever reason, how do we how do we advance those forward in <unk>.
Reduce any barriers to get them to move forward it to take a system and start using it.
Great. Thanks for taking the questions.
Thanks, Sean.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.