This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk23: Thank you for standing by and welcome to the Akoya Biosciences fourth quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask a question at that time, please press star 11 on your phone. As a reminder, today's conference call is being recorded. I will now turn the conference over to your host, Mr. Priyam Shah, head of investor relations. Please go ahead, sir.
spk22: Thank you, Operator, and thank you to everyone who is joining us today on this call. I'm Priyam Shah, Head of Investor Relations at Akoya Biosciences. On the call today, we have Brian McElligan, Chief Executive Officer, and Joe Driscoll, Chief Financial Officer. Earlier today, Akoya released financial results for the fourth quarter ended December 31st, 2022. 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 provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. 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 COIS business, please refer to the risk factors section of our Form 10-K filed with the Securities and Exchange Commission today, March 6, 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, March 6, 2023. ACOIA disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. The audio portion of this call will be archived on the investor section of our website later today under the heading events. We would also like to inform listeners that Akoya will be participating in the Cal and Healthcare Conference tomorrow, March 7th. If you're not planning to attend in person, please see our investor relations page for webcast information for this and other recent or upcoming investor events. And with that, I will now turn the call over to Brian.
spk04: Thank you, Priyam. And good afternoon and evening to everyone. We appreciate you joining us on the call today. 2022 was an excellent year for Akoya. tapped off by a strong finish with yet another record-breaking quarter. As an organization, we delivered solid commercial execution and consistently strong revenue growth, install-based growth, and publication growth within the spatial biology market. We reported record revenue of $21.2 million in the fourth quarter and $74.9 million for the full year of 2022, a 36% growth over the prior year. We sold a total of 71 instruments in the fourth quarter and 237 instruments for the full year 2022, a 61% growth in placements from the prior year, and we ended the year with an install base of 934 instruments. Akoya has the largest install base of spatial instruments in the industry, and we are on track to reach 1,000 instruments by early this year, a major milestone for the company. Additionally, the rapidly accelerating publications volume featuring Akoya's platforms, now at 772 publications to date, is the largest amongst spatial biology providers. Our consistent execution, large and growing install base, and publication growth gives us increasing confidence in the momentum of our business and the spatial biology market in 2023 and beyond. Akoya's product portfolio is setting the industry standard for next-generation tissue analysis. The company was founded on the vision and fundamental assumption that the market requires rapid imaging-based in-situ technology for comprehensive tissue analysis, enabling the understanding of the molecular and cellular interactions at a single-cell level across whole tissue samples. In 2022, we solidified our instrument portfolio with the launch of the fusion. We expanded our footprint across all market segments and made significant progress on our long-term clinical goal of impacting patient care. ACOIA brings to the spatial biology market a full suite of end-to-end and purpose-built platforms across the discovery, translational, and clinical market segments. Our continuity of technology, reagents, and methods across our entire portfolio allows us to own the biomarker journey from discovery to the clinic. At our recent Spatial Day event in December, we previewed our 2023 priorities and product roadmap, and the summary is as follows. First, we are introducing platform and workflow improvements across our entire instrument line that will further advance our leadership position in spatial imaging and drive additional reach and pull-through across our nearly 1,000 instruments in the market. Second, we will build on our commercial and partnership success in the translational and clinical markets to further advance our goal of improving patient care. Third, we will focus on driving operational efficiencies, including more targeted investments in 2023. Now, let me address each one of these in more detail. Our platform improvements include further simplification and acceleration of our workflows on both the phenocycler fusion and the PhenoImager HT. To take full advantage of these improvements, we are introducing expanded reagent menus of ready-made panels for both the phenocycler fusion for HyPlex discovery and the PhenoImager HT for high-throughput translational studies. These new biomarker panels will be marketed under the brand name PhenoCode. PhenoCode discovery panels for the phenocycler fusion and a few new code signature panels for the HT. Our projected reagent pull-through increases will be driven by improved system capacity and throughput, ready-made panels to increase Plex and application breadth, and an ecosystem of software partners to reduce the time from data to answer. Beginning next quarter, the Fusion 2.0 release will be rolled out. It is the primary system improvement on the phenocycler fusion for 2023 and results in a significant increase in throughput and workflow simplification. This 2.0 release includes a multi-slide carrier for parallel processing of tissue samples and effectively doubles the system throughput up to 20 to 30 samples per week. This upgrade also supports the rollout of Biotechnes RNA scope on the phenocycler fusion. Now, to remind you, RNAscope is the industry's gold standard RNA in situ assay, with over 6,000 publications to date and broad adoption across the life sciences market. RNAscope is an ideal solution to complement protein-based spatial phenotyping in a targeted manner and to validate discoveries made with higher plex spatial transcriptomic approaches. And in parallel, in the second half of 2023, we will introduce Akoya's proprietary HyPlex spatial transcriptomic solution to support RNA and ultimately multiomic spatial studies. On the PhenoImager HT, we are continuing our efforts to simplify and streamline our informatic workflow and post-processing to a true clinical standard. In mid-2023, we will introduce further improvements to the HT that moves the post-processing tissue analysis steps directly onto the HT for on-instrument compute. The result will be a reduction in data post-processing from hours to minutes and an automated workflow for tissue and cellular annotation. This upgrade supports our translational and clinical customer demands for rapid and standardized analysis to drive throughput, consistency, and ultimately adoption. Now, to enable our customers to take full advantage of these system improvements on the phenocycler fusion and the phenol imager HT, we are introducing our new phenocode reagent offerings. These phenocode panels will deliver a suite of ready-to-use biomarker panels focused on answering key biological questions with greater efficiency, speed, and comprehensiveness. Our phenocode discovery panels are designed to run on the phenocycler fusion for discovery-based applications. The first product launch will be protein-based, with RNA solutions coming later in the year. These panels will be introduced throughout the year on a quarterly cadence. We will share more details at this year's AACR meeting in early April, but at a high level, the Phenocode Discovery Panels will be launched as modules of 10 to 20 biomarkers, enabling our customers to mix and match modules to quickly build a comprehensive HyFlex panel. They are focused on core biomarkers and are designed to address key biological questions in oncology, inflammatory disease, and neurobiology. At the AGBT conference last month, Akoya and our partners at Stanford each presented phenocode discovery panels with simultaneous detection of protein and RNA across large sample cohorts, demonstrating great science at speed and scale. Throughout this year and next, we will continue to build out these modules for protein, RNA, and multi-omic applications, enabling high-plex and high-throughput discovery across a broad range of applications and customers. For the translational and clinical markets, our phenocode signature panels are designed to run on the phenol imager HT. The initial five panels were created for the rapidly advancing immunooncology therapy landscape that includes nearly 6,000 ongoing clinical trials, which demand pre-designed validated antibody panels with detection reagents in a ready-to-use format. The phenocode signature panels enable fast and scalable spatial signature development and deployment and will deliver higher revenue per sample, accelerated and increased system utilization, reduced assay optimization time, and will result in a higher pull-through on the HT. And now to pivot to software and data analysis. But to remind you, ACOIA's platforms already leveraged on-instrument image processing and file compression that reduce file sizes by 30-fold from terabytes to gigabytes. This novel and proprietary technology enables ease of data transfer and analysis via our standardized file format called QPTIF. This standardized format also simplifies and accelerates the development of third-party software solutions. Rather than develop and deploy a singular monolithic solution, Akoya's strategy is to partner with the rapidly growing ecosystem of spatial biology software providers. Similar to the dynamics seen in other markets like microarrays and flow cytometry and NGS, rapidly adopted new technologies spur parallel development of supportive solutions. This is especially true of software and is certainly happening now in the spatial biology market. We already have a full range of software partners to support the unique customer needs across all of our platforms and market segments. We have both commercial and free open source partners. We have cloud-based solutions and others that rely on local compute. The growing list of partners include established industry leaders like VisioPharm, indica labs and path ai new and rapidly emerging providers like oracle bio and enable medicine and open source software and the open source software qpath in addition to this rich product roadmap we are progressing several initiatives in the downstream translational and clinical markets leveraging the phenol imager ht and our advanced biopharma solutions cleolab or abs out of Marlboro. We recently announced a partnership with Agilent to make possible a seamless end-to-end clinical workflow for multiplex assay use in clinical trials. ACOYA will leverage Agilent's expertise and their clinical-grade Omnis autostainer to support a full spectrum of multiplex assays for BioPharma. With Agilent's Omnis clinical antibodies, and CDX expertise, and ACOYA's HT platform, CLIA Lab, and technical leadership in clinical-grade multiplexing, we can together support clinical assay development, validation, and use in clinical trials, creating a one-stop shop for our shared biopharma partners. The combined strengths of Agilent and ACOYA, two leaders in our respective fields, accelerates multiplex companion diagnostic development programs, and provides a global channel for subsequent commercialization. Our agreement with Akraban Therapeutics to exclusively co-develop and commercialize a first-of-its-kind spatial signature companion diagnostic for their targeted oncology agent continues to advance with the clinical trial ongoing and is yet another important milestone in furthering our clinical menu offering. In parallel, ABS continues to see robust growth and expansion of existing and new pharma partners. We made significant progress in 2022 pursuing the large spatial biology clinical TAM with key partnerships and developments that will continue to gain traction in 2023. To summarize our fourth quarter and full year 2022, We are very pleased with our strong financial and commercial performance this year as we continue to expand our leadership position in the spatial biology market. As we outlined, we'll focus on the following initiatives in 2023. First, drive the continued adoption and improvements of the phenocycler fusion as a best-in-class, in-situ imaging platform for discovery spatial biology. continue to deliver new applications and drive further workflow and speed improvements across the full instrument portfolio to drive an increase in poultry. And third, we'll continue to partner with leading biopharma, medical centers, CROs, and diagnostic leaders to drive the adoption of the PhenoImager HT in translational research and clinical diagnostics. And lastly, who will drive operational efficiencies and more targeted personnel investments on our path to achieve profitability. And with that, I will now turn the call over to Joe to discuss our financial results. Joe?
spk10: Thanks, Brian, and hello, everyone. As Brian highlighted, the total revenue for the fourth quarter of 2022 was a record $21.2 million, 31% growth over Q4 2021, and full-year revenue was 74.9 million, 36% growth over full year 2021. Our extremely strong performance in 2022, despite a challenging macro environment, gives us increasing confidence that we are in a high growth market with a strong portfolio that meets the needs of a broad customer base across multiple verticals and revenue categories. Product revenue, which includes instruments, reagents, and software, was $15.7 million for the fourth quarter and $57.7 million for the full year, representing 30% growth over full year 2021. Instrument revenue was $11.1 million for the fourth quarter and $38.6 million for the full year, representing 35% growth over full year 2021. We had another strong quarter with 71 total instruments sold, of which 25 were phenocyclers and 46 were from the PhenoImager portfolio. We sold 237 instruments for the full year and ended 2022 with a total installed base of 934 instruments, which includes 254 phenocyclers and 680 PhenoImagers. As of year end 2022, A total of 120 fusion instruments have been shipped since the full commercial launch at the start of the year, and we now have a total install base of 105 for the combined phenocycler fusion system, sold either directly as a combined system or upgraded from a previous standalone phenocycler instrument. The number of combined units is an important metric because this combination is projected to drive significant increases in reagent pull-through over the next few years. Reagent revenue was 4.5 million for the fourth quarter and 18.4 million for the full year, representing 29% growth over full year 2021. In 2022, we experienced some FX headwinds in Europe and COVID lockdowns in China, which impacted our reagent revenue. With an annualized pull-through in the mid $30,000 range per instrument, for the phenocycler and the PhenoImager-HT, we project the pull-through to increase significantly by as much as two to three times over the next several years as more phenocycler fusions are up and running, along with our rollout of new consumable offerings and instrument field upgrades. With the phenocycler fusions shipped during the early phase of the launch, for which researchers have been trained and are now actively using for projects, we are already noticing significant increases in pull-through compared to phenocyclers with third-party microscopes. As researchers continue to become fully trained and the installed base of phenocycler fusions continues to expand, we expect the further acceleration in throughput and application expansion to impact reagent pull-through even more. The new highly optimized phenocode signature panels and higher PLEX phenocode discovery panels, which will be rolled out throughout 2023, will not only contribute meaningfully to pull through and accelerate time to answer, but will also increase our share of reagent revenue as the panels are wholly offered through ACOIA as ready to use. We continue to target annual reagent revenue growth of approximately 40% per year for the next several years as the new innovations hit a commercial stride and our installed base continues to rapidly expand. Services and other revenue totaled $5.5 million for the quarter and $17.2 million for the full year, representing an increase of 65% over full year 2021. Our advanced biopharma solutions CLIA lab continues to gain significant traction with large pharma, and we also signed other meaningful clinical partnerships throughout 2022, such as Acrovan Therapeutics and Agilent. Gross profit was $12 million in the fourth quarter and $43.4 million for the full year, representing full-year gross margin of 58%. We continue to make investments in the CLIA Service Lab to support clinical trial enrollment, which has a near-term impact on margins as we build out these clinical-grade capabilities. We have also experienced some impact on margin from inflationary cost pressures, consistent with what most other companies are experiencing. Operating expenses for the quarter totaled $29.6 million and $109.5 million for the full year. With significant investments on business expansion efforts throughout 2022, we have laid the groundwork for the commercial rollout of the Pheno Code panels throughout the year, field upgrades for the PhenoCycler Fusion, partnered software expansion, and a full end-to-end discovery to clinical workflow. Our plan for 2023 includes making more targeted investments in areas that will generate the highest returns as we create a path to profitability over the next several years. We ended the quarter with approximately $81 million of cash and marketable securities and $11 million in additional debt capacity. We continue to take a balanced approach to accessing capital as needed to ensure we maintain our exceptional growth throughout 2023. Common shares outstanding are 38.3 million as of December 31st, and fully diluted shares, including the impact of outstanding options and unvested restricted stock awards, totals 38.9 million. To summarize, we had another record-breaking quarter with 21.2 million in revenue and 74.9 million for full year 2022, 36% growth over the prior year. We sold 71 instruments across the product portfolio this quarter, 237 instruments throughout 2022, and now have a total install base of 934 instruments, the largest in the industry. The shipment of 120 fusions in the first year since the launch demonstrates the robust demand for our new instrument offering. Now with 772 publications, featuring ACOIA's platform as of year-end 2022, we remain very confident in our ability to deliver continued growth in 2023 with the adoption of our current platform and new commercial product rollouts. At this time, we are providing a preliminary revenue guidance range of $95 million to $98 million for 2023 as we continue to see tailwinds for our business and the spatial biology market. We project that seasonality will be consistent with prior years, with Q1 having the lowest quarterly revenue and Q4 having the highest. Now I'll turn it back over to Brian for closing remarks.
spk04: Thank you, Joe. We're pleased to report a strong quarter and full year performance. We announced multiple exciting new partnerships and developments across the portfolio, and we'll look forward to executing them throughout the year. We're thankful for the hard work of our fellow dedicated Aquians, as well as for the support of our customers and shareholders. Aquia remains very well positioned for growth, and we're excited about the opportunities that lie ahead as we deliver new spatial solutions from the discovery to the clinical markets. And at this point, we will open up the call for questions. Operator?
spk23: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your touchtone telephone. Again, to ask a question, please press star 1-1. One moment, please. Our first question comes from the line of John Sauerbeer of UBS. Your line is open.
spk13: Hi. Congrats on the finish for the year, and thanks for taking the question. Thanks, John. Just on the 2023 guidance, Any color just on how to think about instrument pull through and tool mix through the year and what's really embedded in guidance there? And then if you look back at the customers that adopted the fusion in the first half of 2020-2022, do you think that most of these customers have now started to hit that full utilization? Or just how do we think about those dynamics and what's embedded?
spk04: Just to clarify the second part of your question, you're referencing those customers that have the new phenocycler fusion? Yep, that's correct. Yeah, let me take that second part, and Joe can give, you know, qualitatively on the 2023 with the caveat that to date we've only really guided on the number. I guess what I would say in terms of the aggregate phenocyclic user base, recognizing that we launched in March, we really started shipping in bulk a year ago with really strong performance throughout the year. So if you sort of average in and assume it takes a quarter, sometimes two for people to get up and running, I would say we probably don't have the majority of those phenocycler fusion user customers at full stride just yet, given how long it takes. And given that, you know, if you sort of average in that total number that we've sold, we're probably, you know, less than halfway there in terms of full system utilization. And then the aggregate impact that those higher throughput users have on the total reagent number, but also on the average pull through, if that makes sense.
spk13: That makes sense.
spk11: Yeah.
spk13: And I guess just a follow-up, you know, you ended the year with $81 million cash on hand. Any of this color around, you know, the cash burn and then, you know, any potential financing plans?
spk04: Yeah, let me talk on that. And then, Joe, I didn't give Joe a chance to talk a little bit about the first part of your question on 2023. Yeah, $81 million cash on hand with $11 million additional in debt capacity. And again, as Joe noted, a more targeted investments this year with higher revenue, so less burn. So we're in a really solid cash position right now. But Joe, you can add a little bit more color there if you'd like, but also address John's question around 2023 and any additional color.
spk10: Yeah, I think your answer on cash is spot on. In terms of the guidance for next year, the $95 to $98 million, you know, we don't break down the guidance by individual categories. But the way we think about reagents, for example, is that there will be a build throughout the year as we roll out new products, as more and more customers get up and running on the phenocycler fusion. So, you know, I think you could think about pull-through as being a gradual increase, you know, quarter after quarter. That combined with the increase in the number of instruments that we sell, that's what you know, hopefully will get us to that 40% growth number for reagents.
spk11: That's our internal target anyways. Got it. Thanks for taking the questions. Thanks, John.
spk23: Thank you. One moment, please. Our next question comes from the line of Kyle Mixon of Canaccord. Your line is open.
spk14: Hey, thanks, guys, for the questions. Yeah, congrats on the year. Great outlook as well. Maybe a multi-part financial question to start, then the follow-up question. So on pull-through, actually, just on your last point, Joe, I mean, it sounds like it's going to continue to increase. I mean, you said $30K, though, still. I mean, I've heard that for a few years, I feel like. I mean, what's stopping customers from really using the boxes more? I think that would have increased or at least accelerated kind of recently. And you just mentioned, Joe, this 40% growth rate going forward and I think like over 50-50 mix with consumables and instruments would be good as well. I mean, can you kind of do that if pull-through remains in this 30-40 kind of range? Thanks.
spk10: So in terms of the pull-through, I think, are you saying how do we get to 40% reagent growth?
spk14: Yeah, is that predicated based on the 30K or does it have to expand to some other higher level?
spk10: It would have to expand, but not a tremendous amount. So instead of the sort of the mid-30 range, mid-$30,000 range per instrument, you know, you're talking about kind of low $40,000 range per instrument. That combined with the increase in the number of instruments out there, that'll get you the reagent numbers that we're talking about. So it's not like it has to go from mid-30s to 50,000 in 2023 to generate that kind of number. As long as the instrument number hangs in there.
spk14: Okay. And then Brian, just on my first part, part of the question, but that was about kind of like what's preventing customers from really, you know, cranking up their usage of the boxes. I know you have these new products coming out that should increase both through going forward, but I mean, to date though, like what's been some of the, uh, if you look back historically, um, on a sort of an annual basis, Kyle,
spk04: And Joe can keep me honest on the numbers here. And granted, these are somewhat contaminated by COVID. I think if you go back around 2019, 2020, the pull through for the phenocycler on third party scopes went from like 20 or so up to 30. And now we're starting to see that amongst the phenocycler users, customers go beyond 30. So we're already seeing that trend. It's just a matter, Kyle, as you look across the 254 phenocyclers that are out there, a minority have the fusion attached to it. So that's already starting to impact the overall pull-through number into the mid-30s for the phenocycler. So we're starting to see that impact begin to happen already for the fusion, coupled to what we've seen historically, that pull-through climb in a more gradual manner up to the 30 or so where it was that we articulated on our last Q call.
spk10: Okay, that one already, thank you. One other quick point, you know, the COVID lockdowns in China did hit our reagent revenue in 2022. That, you know, and that's part of the pull-through calculation, you know, is total reagent revenue. So if that didn't happen, you know, our reagent revenue would have obviously been, you know, a million dollars plus higher in 2022. Okay. All right.
spk14: Thanks, guys. I'll ask just one follow-up here. bigger picture, very kind of topical question, obviously. You know, you did a great, you had a great quarter with placement, I think, at least with the 70 or so, and I think nothing, it doesn't look like anything really slowed down in terms of customers getting kind of distracted by the The Imgur is kind of like a launch at the end of the fourth quarter. But where do you see kind of recently, I guess, you know, these products are fresh on the market. I'm aware of a few folks that are obviously buying these Imgurs. Is that impacting your ability to kind of get in front of customers and potentially close deals?
spk04: Yeah, it's a good question. So with the launch of the competing Imgur products, you know, the Cosmix, you know, the Xenium, it really hasn't impacted our pipeline and our instrument performance at all. You know, the COSMIC is not a new event because they've been pre-selling it throughout the year, and Xenium's fairly new. I still think, Kyle, that's largely within the genomics discovery segment. And, you know, given where we compete in discovery, but all the way through to the translational and clinical side, we're still really not feeling any competitive impacts from them. Now, as we launch our RNA, and we start participating more and more in that genomic segment, I think we might have more color on that because I think we'll be more directly competing.
spk14: Right. Yeah, that last part's important, Brian. Thanks a lot for that.
spk04: All right.
spk14: I'm going to hop off. Thanks, guys. Appreciate it. Thanks, Kyle.
spk23: Thank you. One moment, please. Our next question comes from the line of Mason Carrico of Stevens. Your line is open.
spk19: Hey, guys. Thanks for the question. Congrats on strong 2022. um maybe just starting with reagent revenue during the quarter i i think it came in slightly lighter than than we were modeling um could you expand on some of the dynamics that played out specifically in the fourth quarter i know you called out some factors that weighed on this revenue in 2022 but i guess just any incremental color on on what played out during q4 and if any of those dynamics have continued in 2023
spk04: Yeah, Joe can address that. I mean, but there's a lot of contributing factors. Maybe, Joe, you can talk to a little bit of those.
spk10: Yeah, I think it's pretty much what we've talked about already. You know, the COVID lockdowns in China, that was, you know, that was a problem from Q2 through Q4. You know, some softness in Europe with, you know, currency issues kind of held back some spending. So I don't think it was any one thing, but You know, as we've rolled into Q1, you know, we've definitely seen order volumes pick up versus Q4. So I think, you know, we're going to be fine in 2023 in terms of reagent performance.
spk04: Got it. And there's still a little bit of lumpiness in the revenue realization within each quarter, but most certainly also on the comps from the prior year.
spk19: Got it. Okay. Perfect. Thanks. On the macro environment, are you still seeing an elongation in capital purchase timelines? And as we kind of think about the 2023 guide, has any conservatism been baked in around that dynamic this year? How are you thinking about it?
spk04: So I'll make a comment and then Joe can add on. You know, where we saw some expansion of capital purchase timelines, timelines and approval strings was in EMEA, but it didn't have a material impact on the corridor or even looking forward. It's just really a dynamic that we have to be cognizant to manage. And as for including that in 2023, we did not. But the other concept that we did talk about was, you know, still fairly anemic reagent revenue, albeit coming back slowly in China, I think we still are contemplating some of that. Joe, you want to add any more color?
spk10: Yeah, you know, just overall, you know, we're not anticipating a, you know, a massive economic turnaround in our 2023 guide. You know, I guess the guide that we've given presumes that things are kind of going to be what they are right now in terms of overall macro environment. So, you know, we'll obviously keep a close eye on that, but that's kind of our basic assumption.
spk18: Got it. That's helpful. Thanks, guys. Thanks, Mason.
spk23: Thank you. One moment, please. Our next question comes from the line of Tejas Savant of Morgan Stanley. Your line is open.
spk07: Hey, guys. Good evening. Thanks for the time you are. Brian, maybe to kick things off, one for you. So other than scheduling, where do things stand on what remains to be done for the Fusion 2.0 rollout? I think you mentioned you expect that to start in 2Q. And then by when do you expect to be done with those field upgrades? And then, Joe, as a follow-up to that, is the increase in throughput that the Fusion 2.0 enables, I think it said from 10 to 20 to 30 samples. To what extent is that sort of baked into your guide at the midpoint?
spk04: So I'll take that first part, and then Joe can talk about how that impacts the guide. So the 2.0 is a field upgrade that will begin next quarter. And there is just some final, I would call it, you know, validation and verification work, sort of the final stages of D and development. There's not any sort of technical risk associated with that. So, again, really standard product development methodologies. And just reminding you that Fusion 2.0 is going to meet the requirements for, the multi-site carrier, some improvements to the operating software and the reagents, but also, as noted in the commentary, the RNA scope and also for future RNA. So that will all happen in Q2. In terms of for the existing customers, how long will it take? That's a really good question. Obviously, we want to do it as fast as we can. I would say, you know, the shortest would be six to nine months. It could maybe take a little bit longer than that depending upon customer preparedness and whether or not it would interrupt existing studies.
spk10: And on your question about what is baked into the guide, so we're really looking at going from the mid $30,000 per instrument on average to the low $40,000 on average. And really, there's a wide array of customers in that mix, right? Some do very little. Some are doing $200,000 per instrument per year. So that's really what's baked into the guide right now, and it seems very achievable from where we sit right now. Got it. Okay.
spk07: And then on the phenocode panels, similar sort of question, really. You talked about really strong traction there at EGBT as well as the upcoming launches over the course of the year on the discovery side. How much of that is factored into the guide here?
spk10: Not a tremendous amount. It's certainly a part of the guide, but you're talking about a million or two million for the whole year. Got it.
spk07: Okay, that's helpful. And then on the multi-omic front, Brian, is early access sort of imminent in terms of that 100 plex panel rollout? Can you just remind us again how high could protein plex go on that panel? And then by when do you expect to get, you know, true code detection and early access? I believe this was the first version is going to be sequential sections of the data. Is that right?
spk04: Yeah, so we'll start with sequential sections. Whether or not we do early access like via services, we're still sort of debating whether or not we have to do that because, again, as we talked about, you will have probably by the time it comes out, you know, 300 boxes in the market. Well, we just want to make sure that we're sort of commercially ready for the HyFlex RNA and HyFlex protein on these serial sections. But, again, as you noted, the multiomics will come earlier. In terms of how high can we go on the protein, We sort of think there's no upper limit, but there is a scientifically reasonable limit and also a cost limit. So I think 100 plex is about as much as I think we think people need right now. And just by comparison, there's been discussions out amongst the scientific community and others as you think about comparative plex between RNA and protein. And there's commentary that you know, in terms of scientific value, a protein can be, say, 5 slash 10 equivalents of RNA, given that's sort of a direct measurement of the activity. So we think a 100-plex protein is probably where we're going to stay for a while, and then the RNA will be kind of somewhere similar into that range, first cereal and then multiomic.
spk07: Got it. That's helpful. And then, Joe, back to you for, you know, your comments around just taking a more targeted approach to investments and Are there any guardrails you can put around sort of OPEX vis-a-vis last year? I mean, I think your 4Q OPEX was a little bit higher than where we were by 2 or 3 million. Is that sort of, you know, 30 million-ish run rate a good benchmark to use when you think about 2023?
spk10: Yes. So I would say, you know, we're going to hire people in 2023, but you know, sort of spread throughout the year. It's not going to be a massive number of people. So I think you could look at something like $30 million in Q1, and then maybe it goes up half a million dollars each quarter throughout the year, something like that.
spk08: Perfect. Very helpful. Thanks, guys. Appreciate it. Thanks, Sajak.
spk23: Thank you. One moment, please. Our next question comes from the line of Mark Massaro of BTIG. Your line is open.
spk16: Hey, guys. Thank you for the questions. Congrats on a strong year. So a lot has been asked, but I'm curious if you could comment about some of the economics with respect to the phenocycler fusion 2.0. I don't believe you're looking to drive, you know, incremental economics on that instrument relative to the 1.0. Can you just clarify that? And then, you know, I guess what I'm really trying to determine is, you know, the guide does not look like there is a significant step up as a result of new products. And so, Joe, I appreciate your commentary about one to two million on the PhenoCode panels, but other than perhaps negligible revenue contribution for the Phenocycler Fusion 2.0 upgrade, is it fair to say that you're baking in very modest contribution all in from new products in 2023?
spk04: I think a lot of it is, thanks for the questions, Mark, maybe your first part. So the 2.0, the ASP is the same of the versions built and shipped with and then the future versions with 2.0. So there's not a price increase because of the 2.0, if that was your question on the instrument. Yes. Okay. And then in terms of the NPIs, you can see that that these are beginning this quarter and throughout the year and these are continuous rollouts of additional panels upgrades to systems software partnerships and it's all really centered around a accelerating realization of these over time so i think you have to maybe pull the aperture back outside of a single quarter and The thesis here is all of these improvements that we've outlined are really the drivers getting that pull through from its current level to the low 40s to the low 50s, et cetera. So this is sort of the internal framework or OS within ACOYA to drive these continuous improvements from workflow to content to software partnerships so you can do more samples per unit time, faster time to answer, So the realization is not a single binary event, but rather an aggregate over time.
spk17: Okay, that makes sense.
spk10: Yeah, just to add on to that, basically saying what Brian just said, but the 2.0 upgrade in and of itself doesn't generate, you know, dollars, but it helps that reagent pull through. You know, that's really where the dollars are going to come. So it's not necessarily... you know, new products that are delivering that revenue, but it's the 2.0 upgrade is helping us drive that reagent revenue to, you know, to a much higher level.
spk16: Right, and just to clarify, that reagent revenue growth target is approximately 40% this year, correct?
spk10: Correct, yes.
spk16: Okay. You know, we've seen some other tools companies sometimes have push-pulls between the Razor, Razorblade contribution and the services contribution. But in your case, we're really not seeing that. So you drove a strong 65% growth year over year in services last year. I think historically you've talked about a services target in the 30% to 40% range. Recognizing that you just did 65%, are there any qualitative factors perhaps that would suggest any reasons why that growth rate is likely to moderate other than just challenging comps.
spk04: Maybe, Joe, you can describe kind of what's in that, and then I can make a specific commentary around the lab services specifically.
spk10: Right. So our services are going to have another good year in 2023. What we have in that bucket right now is really the CLIA lab, which is doing projects for large pharma, and I'll let Brian comment some more on that. That's been going very well. We've got a second services lab that focuses on phenocycler projects, so early stage discovery projects. And now we also, in that bucket, we also have CDX revenue. So this is, you know, the Acrovan deal that we signed in 2022. You've got a piece of that is in our 2022 revenue, but more will be in 2023, the, you know, the milestones and things like that that we get for doing the Acrobon deal. So those three pieces are really the bulk of that services revenue. So 2023 should be another good growth year for services.
spk04: And then, again, just to go back to, as promised, Mark, so, you know, lab services includes, you know, working with the biopharma group. really to drive adoption in early translational all the way through clinical trial studies. And those were the services that Joe just alluded to. But it also includes the revenue that's realized in doing our partnership as also as a lab service through Akravan, where we have these milestone-based, milestone-driven, these revenue milestones that we achieved throughout last year and this year that's also included within that. And that helps explain, Mark, why that number has grown so much because of the success of both of those efforts.
spk16: Okay, excellent. And last one for me, you know, Joe, I think I heard you say that you're seeing volumes pick up nicely here in Q1, so reagents are off to a good start. It doesn't seem like there's a huge necessarily a challenge with respect to funding or, you know, budgets at the customer level. But maybe can you just speak to any conversations you're having about, you know, forecasting orders throughout the course of the year and whether or not you're seeing issues with budgets?
spk10: We have not seen any issues with budgets. You know, really the only hiccup we had in 2022 is really things like COVID lockdowns, which we really can't control. But other than that, you know, other than unusual things like that, budgets seem to be fine. And... you know, back to, quote, normal.
spk04: And, Mark, a lot of what, you know, a lot of the macro commentary around biopharma funding is really what the discussions have been around the smaller emerging biopharma, you know, this year or the latter part of last year, you know, relative to 2020 and 2021. And two comments on that. That's really not a meaningful percentage of our customer base we're mostly dealing with a multinational biopharma who have seen kind of a tremendous surge in R&D spend, particularly as their COVID spend has muted. So I don't really think that the biopharma commentary is not, respect to small pharma, has not really impacted us. And again, large pharma funding in terms of their R&D has been pretty darn strong, particularly in oncology, where you've got clinical trials up something like, It's like 38% of all clinical trials, a 10% CAGR, which is really where we play with our HC system.
spk15: Excellent. That all makes sense. Thanks for the color. Thanks, Mark.
spk23: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 11 on your telephone. Again, to ask a question, please press star 11. One moment, please. Our next question comes from David Westenberg of Piper Stanley. Your line is open.
spk05: Hey, guys, congrats on another solid print and a great guide. I'm going to ask Joe that commentary about the 30,000 to 2X, 3X stat. Can you just give us more color on what you're talking about? Are you talking about the entire phenocycler fusion base, or is that the one when they have – sorry, phenocycler – base, or is that just with the fusion? And, you know, how should we think about the total base in that ramp? Just a clarification on your commentary there.
spk10: Yeah, our commentary, you know, and that's really a multi-year commentary that we're, you know, we're talking about two to three times over a several-year period that, you know, this whole process is a building process, you know, quarter by quarter, year by year. You know, really, The key to get the overall phenocycler fusion number up is to continue to transition as many customers as possible from just a phenocycler to a phenocycler fusion. We're partway through that whole process of converting those customers to encourage them to buy a fusion. That's really a piece of the equation. If we get the majority of phenocycler customers to shift to a phenocycler fusion that's how you'll get those those kinds of numbers of you know on average 60 000 70 000 per year but it'll it'll take a multiple years to to get there but just to make sure they that that that growth that is that is the the total average amongst our phenocycler user base right yeah got it yeah that that last part thank you thank you
spk05: very much because that last part is actually why I was going to ask about how you came up with exactly that number. So I appreciate the color there. Now, can you just, one more part to this little part. Are you seeing more adoption or can you talk about the percentage of adoption from the phenocycler who get the microscope? Is this, you know, almost all of them? And then in terms of retroactive placements, I mean, How far do we have to go? What's the kind of the goal penetration rate of that? I'm assuming it wouldn't be 100%, but it could be close to 100%. And where are that in terms of the penetration rate?
spk04: Yeah, I'll take that last part, and then Joe can give you a little bit more color. You're right. It probably won't go all the way to 100% because there are some labs that are – that preferentially use some third-party microscopes. But that's a really, that's going to be a very, over time, a decreasing, a pretty small percentage of the total. But Joe can speak to kind of where we are in terms of the penetration amongst our existing user base and kind of the attachment we see going forward for new customers.
spk10: Yeah, the attach rate, and when we say attach rate, we mean every time somebody buys a phenocycler, how often are they buying a fusion at the same time? It's really good. We initially modeled it at 55% or 60% attach rate. It's coming in 80% plus right now. I think customers really see the value of buying the two instruments together. And so from what we can tell, You know, there will be some people who still only buy a phenocycler without the fusion, but that's going to be the minority of people. So I think 80% is a good number to go with for now.
spk04: And then for the existing install base, David, we're, you know, less than halfway there. I'd say directionally call it, you know, 40% or so, maybe 30, 40% of the total customer base that had the phenocycler before the fusion came out now have the fusion. So we still have a lot of headroom to upgrade existing customers.
spk05: I appreciate it. I'll ask the rest offline. Thank you. Thank you.
spk23: Thank you. One moment, please. Our next question comes from the line of Tim Chang of Capital One. Your line is open.
spk06: Oh, hey, thanks. Brian, Joe, you know, I think there've been a lot of questions just about pull through the impact of the, the new fusion 2.0 launch and also, um, you know, how that'll benefit your agent business. Is this kind of a lag effect, um, in terms of when you expect a ramp with the reagents out of the business as more of the, uh, fusions convert over to the 2.0?
spk04: Well, yeah, there's, I mean, there's always a lag effect with any NPI new product introduction. And so the standard kind of instrument utilization lag, and I say standard because, you know, doing this for 30 years, it's pretty much formulaic where customer buys an instrument, initial pilot run in Q2, and in the first quarter, you know, their assessments happen in the second quarter, and then coming out of that into the third quarter, they start to get real productive use. That's a typical cycle for an instrument. So that is the lag we're now starting to see realized on the fusion as it impacts our total pull-through, given the phenocycler fusion customers have higher pull-through than the phenocyclers alone. So that lag is most certainly real. And then you have an adoption cycle with any new application or assay on that very system itself. So That is probably generally shorter because you're dealing with an instrument that's ready to grab those new panels right away or that new applications if it was RNA. So yeah, there is a lag effect amongst all of these. That's why we've talked about this build over time of pull through.
spk06: Right. And maybe just one follow up, Brian. You know, you signed this partnership with Agilent at the beginning of the year. How meaningful do you think this partnership will have? What sort of impact do you think it will have on your phenol imager HT instrument?
spk04: Yeah, the impact is going to be an expansion of projects that our farmer partners implement on the HT. That's going to be the first impact, and that's not something that we will necessarily quantify externally because we're already seeing that happen. And that's because of the clinical workflow that they support and the expertise that they bring to the table and leverage that workflow along with our expertise on the EHT. That is the impact. Now, that may result in, it should result in a much more robust pipeline both for the HT system itself, the new panels that we're launching, but also for our lab services business, because it's going to galvanize these additional projects in the service CLIA lab as well.
spk06: Got it. And Joe, just one last question. Gross profit margins around 57%. I mean, is that a pretty good starting number for 2023? And just sort of wondering how that sort of progresses as the year rolls out.
spk10: Yes, we would project that that number is going to go up in 2023. You know, one of the keys for gross margin is getting more reagent business. So, you know, we've talked a lot about reagents here today. That's really the key to driving that gross margin percentage higher. But we are projecting that we're going to do better than what we did in 2022. Right.
spk06: And your gross margins on the reagent business are around 80%. That's right?
spk09: Yeah, mid-70s, yeah.
spk06: Mid-70s. Okay, great. Super. Thanks much.
spk23: Thank you. I'm sure no further questions at this time. Let's turn the call back over to Brian McKelligan for any closing remarks.
spk04: Well, yeah, just we're at the top of the hour, so just I wanted to thank everybody for their time, their attention. their support, and we look forward to following up with each of you. So thank you, everyone.
spk23: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.
spk19: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. you Thank you. Thank you.
spk23: Thank you for standing by and welcome to the Akoya Biosciences fourth quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there'll be a question and answer session. To ask a question at that time, please press star 11 on your phone. As a reminder, today's conference call is being recorded. I will now turn the conference over to your host, Mr. Priyam Shah, head of investor relations. Please go ahead, sir.
spk22: Thank you, Operator, and thank you to everyone who is joining us today on this call. I'm Priyam Shah, Head of Investor Relations at Akoya Biosciences. On the call today, we have Brian McElligan, Chief Executive Officer, and Joe Driscoll, Chief Financial Officer. Earlier today, Akoya released financial results for the fourth quarter ended December 31st, 2022. 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 provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. 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 COIA's business, please refer to the risk factors section of our Form 10-K filed with the Securities and Exchange Commission today, March 6, 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, March 6, 2023. ACOIA disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. The audio portion of this call will be archived on the investor section of our website later today under the heading events. We would also like to inform listeners that Akoya will be participating in the Cowan Healthcare Conference tomorrow, March 7th. If you're not planning to attend in person, please see our investor relations page for webcast information for this and other recent or upcoming investor events. And with that, I will now turn the call over to Brian.
spk04: Thank you, Priyam. And good afternoon and evening to everyone. We appreciate you joining us on the call today. 2022 was an excellent year for Akoya. tapped off by a strong finish with yet another record-breaking quarter. As an organization, we delivered solid commercial execution and consistently strong revenue growth, install-based growth, and publication growth within the spatial biology market. We reported record revenue of $21.2 million in the fourth quarter and $74.9 million for the full year of 2022, a 36% growth over the prior year. We sold a total of 71 instruments in the fourth quarter and 237 instruments for the full year 2022, a 61% growth in placements from the prior year, and we ended the year with an install base of 934 instruments. Akoya has the largest install base of spatial instruments in the industry, and we are on track to reach 1,000 instruments by early this year, a major milestone for the company. Additionally, the rapidly accelerating publications volume featuring Akoya's platforms, now at 772 publications to date, is the largest amongst spatial biology providers. Our consistent execution, large and growing install base, and publication growth gives us increasing confidence in the momentum of our business and the spatial biology market in 2023 and beyond. Akoya's product portfolio is setting the industry standard for next-generation tissue analysis. The company was founded on the vision and fundamental assumption that the market requires rapid imaging-based in-situ technology for comprehensive tissue analysis, enabling the understanding of the molecular and cellular interactions at a single-cell level across whole tissue samples. In 2022, we solidified our instrument portfolio with the launch of the fusion. We expanded our footprint across all market segments and made significant progress on our long-term clinical goal of impacting patient care. ACOIA brings to the spatial biology market a full suite of end-to-end and purpose-built platforms across the discovery, translational, and clinical market segments. Our continuity of technology, reagents, and methods across our entire portfolio allows us to own the biomarker journey from discovery to the clinic. At our recent Spatial Day event in December, we previewed our 2023 priorities and product roadmap, and the summary is as follows. First, we are introducing platform and workflow improvements across our entire instrument line that will further advance our leadership position in spatial imaging and drive additional reach and pull-through across our nearly 1,000 instruments in the market. Second, we will build on our commercial and partnership success in the translational and clinical markets to further advance our goal of improving patient care. Third, we will focus on driving operational efficiencies, including more targeted investments in 2023. Now, let me address each one of these in more detail. Our platform improvements include further simplification and acceleration of our workflows on both the phenocycler fusion and the PhenoImager HT. To take full advantage of these improvements, we are introducing expanded reagent menus of ready-made panels for both the phenocycler fusion for HyPlex discovery and the PhenoImager HT for high-throughput translational studies. These new biomarker panels will be marketed under the brand name PhenoCode. PhenoCode discovery panels for the phenocycler fusion and a few new code signature panels for the HT. Our projected reagent pull-through increases will be driven by improved system capacity and throughput, ready-made panels to increase Plex and application breadth, and an ecosystem of software partners to reduce the time from data to answer. Beginning next quarter, the Fusion 2.0 release will be rolled out. It is the primary system improvement on the phenocycler fusion for 2023 and results in a significant increase in throughput and workflow simplification. This 2.0 release includes a multi-slide carrier for parallel processing of tissue samples and effectively doubles the system throughput up to 20 to 30 samples per week. This upgrade also supports the rollout of Biotechnes RNA scope on the phenocycler fusion. Now, to remind you, RNAscope is the industry's gold standard RNA in situ assay, with over 6,000 publications to date and broad adoption across the life sciences market. RNAscope is an ideal solution to complement protein-based spatial phenotyping in a targeted manner and to validate discoveries made with higher plex spatial transcriptomic approaches. And in parallel, in the second half of 2023, we will introduce Akoya's proprietary HyPlex spatial transcriptomic solution to support RNA and ultimately multiomic spatial studies. On the PhenoImager HT, we are continuing our efforts to simplify and streamline our informatic workflow and post-processing to a true clinical standard. In mid-2023, we will introduce further improvements to the HT that moves the post-processing tissue analysis steps directly onto the HT for on-instrument compute. The result will be a reduction in data post-processing from hours to minutes and an automated workflow for tissue and cellular annotation. This upgrade supports our translational and clinical customer demands for rapid and standardized analysis to drive throughput consistency, and ultimately adoption. Now, to enable our customers to take full advantage of these system improvements on the phenocycler fusion and the phenol imager HT, we are introducing our new phenocode reagent offerings. These phenocode panels will deliver a suite of ready-to-use biomarker panels focused on answering key biological questions with greater efficiency, speed, and comprehensiveness. Our phenocode discovery panels are designed to run on the phenocycler fusion for discovery-based applications. The first product launch will be protein-based, with RNA solutions coming later in the year. These panels will be introduced throughout the year on a quarterly cadence. We will share more details at this year's AACR meeting in early April, but at a high level, the Phenocode Discovery Panels will be launched as modules of 10 to 20 biomarkers, enabling our customers to mix and match modules to quickly build a comprehensive HyPlex panel. They are focused on core biomarkers and are designed to address key biological questions in oncology, inflammatory disease, and neurobiology. At the AGBT conference last month, Akoya and our partners at Stanford each presented phenocode discovery panels with simultaneous detection of protein and RNA across large sample cohorts, demonstrating great science at speed and scale. Throughout this year and next, we will continue to build out these modules for protein, RNA, and multi-omic applications, enabling high-plex and high-throughput discovery across a broad range of applications and customers. For the translational and clinical markets, our phenocode signature panels are designed to run on the phenol imager HT. The initial five panels were created for the rapidly advancing immunology therapy landscape. That includes nearly 6,000 ongoing clinical trials, which demand pre-designed validated antibody panels with detection reagents in a ready-to-use format. The phenocode signature panels enable fast and scalable spatial signature development and deployment, and will deliver higher revenue per sample, accelerated and increased system utilization, reduced assay optimization time, and will result in a higher pull-through on the HT. And now to pivot to software and data analysis, but to remind you, ACOIA's platforms already leveraged on-instrument image processing and file compression that reduce file sizes by 30-fold from terabytes to gigabytes. This novel and proprietary technology enables ease of data transfer and analysis via our standardized file format called QPTIF. This standardized format also simplifies and accelerates the development of third-party software solutions. Rather than develop and deploy a singular monolithic solution, Akoya's strategy is to partner with the rapidly growing ecosystem of spatial biology software providers. Similar to the dynamics seen in other markets like microarrays and flow cytometry and NGS, rapidly adopted new technologies spur parallel development of supportive solutions. This is especially true of software and is certainly happening now in the spatial biology market. We already have a full range of software partners to support the unique customer needs across all of our platforms and market segments. We have both commercial and free open source partners. We have cloud-based solutions and others that rely on local compute. The growing list of partners include established industry leaders like VisioPharm, indica labs and path ai new and rapidly emerging providers like oracle bio and enable medicine and open source software and the open source software qpath in addition to this rich product roadmap we are progressing several initiatives in the downstream translational and clinical markets leveraging the phenol imager ht and our advanced biopharma solutions cleolab or abs out of Marlboro. We recently announced a partnership with Agilent to make possible a seamless end-to-end clinical workflow for multiplex assay use in clinical trials. Okoye will leverage Agilent's expertise and their clinical-grade Omnis autostainer to support a full spectrum of multiplex assays for BioPharma. With Agilent's Omnis clinical antibodies, and CDX expertise, and ACOYA's HT platform, CLIA Lab, and technical leadership in clinical-grade multiplexing, we can together support clinical assay development, validation, and use in clinical trials, creating a one-stop shop for our shared biopharma partners. The combined strengths of Agilent and ACOYA, two leaders in our respective fields, accelerates multiplex companion diagnostic development programs, and provides a global channel for subsequent commercialization. Our agreement with Acribon Therapeutics to exclusively co-develop and commercialize a first-of-its-kind spatial signature companion diagnostic for their targeted oncology agent continues to advance with the clinical trial ongoing and is yet another important milestone in furthering our clinical menu offering. In parallel, ABS continues to see robust growth and expansion of existing and new pharma partners. We made significant progress in 2022 pursuing the large spatial biology clinical TAM with key partnerships and developments that will continue to gain traction in 2023. To summarize our fourth quarter and full year 2022, We are very pleased with our strong financial and commercial performance this year as we continue to expand our leadership position in the spatial biology market. As we outlined, we'll focus on the following initiatives in 2023. First, drive the continued adoption and improvements of the phenocycler fusion as a best-in-class, in-situ imaging platform for discovery spatial biology. continue to deliver new applications and drive further workflow and speed improvements across the full instrument portfolio to drive an increase in poultry. And third, we'll continue to partner with leading biopharma, medical centers, CROs, and diagnostic leaders to drive the adoption of the phenol imager HT in translational research and clinical diagnostics. And lastly, will drive operational efficiencies and more targeted personnel investments on our path to achieve profitability. And with that, I will now turn the call over to Joe to discuss our financial results. Joe?
spk10: Thanks, Brian. And hello, everyone. As Brian highlighted, the total revenue for the fourth quarter of 2022 was a record 21.2 million, 31% growth over Q4 2021, and full year revenue was 74.9 million, 36% growth over full year 2021. Our extremely strong performance in 2022, despite a challenging macro environment, gives us increasing confidence that we are in a high growth market with a strong portfolio that meets the needs of a broad customer base across multiple verticals and revenue categories. Product revenue, which includes instruments, reagents, and software was $15.7 million for the fourth quarter and $57.7 million for the full year, representing 30% growth over full year 2021. Instrument revenue was $11.1 million for the fourth quarter and $38.6 million for the full year, representing 35% growth over full year 2021. We had another strong quarter with 71 total instruments sold, of which 25 were phenocyclers and 46 were from the PhenoImager portfolio. We sold 237 instruments for the full year and ended 2022 with a total installed base of 934 instruments, which includes 254 phenocyclers and 680 PhenoImagers. As of year end 2022, A total of 120 fusion instruments have been shipped since the full commercial launch at the start of the year, and we now have a total install base of 105 for the combined phenocycler fusion system, sold either directly as a combined system or upgraded from a previous standalone phenocycler instrument. The number of combined units is an important metric because this combination is projected to drive significant increases in reagent pull-through over the next few years. Reagent revenue was 4.5 million for the fourth quarter and 18.4 million for the full year, representing 29% growth over full year 2021. In 2022, we experienced some FX headwinds in Europe and COVID lockdowns in China, which impacted our reagent revenue. With an annualized pull-through in the mid $30,000 range per instrument, for the phenocycler and the PhenoImager HT, we project the pull-through to increase significantly by as much as two to three times over the next several years as more phenocycler fusions are up and running, along with our rollout of new consumable offerings and instrument field upgrades. With the phenocycler fusions shipped during the early phase of the launch, for which researchers have been trained and are now actively using for projects, we are already noticing significant increases in pull-through compared to phenocyclers with third-party microscopes. As researchers continue to become fully trained and the installed base of phenocycler fusions continues to expand, we expect the further acceleration in throughput and application expansion to impact reagent pull-through even more. The new highly optimized phenocode signature panels and higher PLEX phenocode discovery panels, which will be rolled out throughout 2023, will not only contribute meaningfully to pull through and accelerate time to answer, but will also increase our share of reagent revenue as the panels are wholly offered through ACOIA as ready to use. We continue to target annual reagent revenue growth of approximately 40% per year for the next several years as the new innovations hit a commercial stride and our installed base continues to rapidly expand. Services and other revenue totaled $5.5 million for the quarter and $17.2 million for the full year, representing an increase of 65% over full year 2021. Our advanced biopharma solutions CLIA lab continues to gain significant traction with large pharma, and we also signed other meaningful clinical partnerships throughout 2022, such as Acrovan Therapeutics and Agilent. Gross profit was $12 million in the fourth quarter and $43.4 million for the full year, representing full-year gross margin of 58%. We continue to make investments in the CLIA Service Lab to support clinical trial enrollment, which has a near-term impact on margins as we build out these clinical-grade capabilities. We have also experienced some impact on margin from inflationary cost pressures, consistent with what most other companies are experiencing. Operating expenses for the quarter totaled $29.6 million and $109.5 million for the full year. With significant investments on business expansion efforts throughout 2022, we have laid the groundwork for the commercial rollout of the Pheno Code panels throughout the year, field upgrades for the PhenoCycler Fusion, partnered software expansion, and a full end-to-end discovery to clinical workflow. Our plan for 2023 includes making more targeted investments in areas that will generate the highest returns as we create a path to profitability over the next several years. We ended the quarter with approximately $81 million of cash and marketable securities and $11 million in additional debt capacity. We continue to take a balanced approach to accessing capital as needed to ensure we maintain our exceptional growth throughout 2023. Common shares outstanding are 38.3 million as of December 31st, and fully diluted shares, including the impact of outstanding options and unvested restricted stock awards, totals 38.9 million. To summarize, we had another record-breaking quarter with 21.2 million in revenue and 74.9 million for full year 2022, 36% growth over the prior year. We sold 71 instruments across the product portfolio this quarter, 237 instruments throughout 2022, and now have a total install base of 934 instruments, the largest in the industry. The shipment of 120 fusions in the first year since the launch demonstrates the robust demand for our new instrument offering. Now with 772 publications, featuring ACOIA's platform as of year-end 2022, we remain very confident in our ability to deliver continued growth in 2023 with the adoption of our current platform and new commercial product rollouts. At this time, we are providing a preliminary revenue guidance range of $95 million to $98 million for 2023 as we continue to see tailwinds for our business and the spatial biology market. We project that seasonality will be consistent with prior years, with Q1 having the lowest quarterly revenue and Q4 having the highest. Now I'll turn it back over to Brian for closing remarks.
spk04: Thank you, Joe. We're pleased to report a strong quarter and full year performance. We announced multiple exciting new partnerships and developments across the portfolio, and we'll look forward to executing them throughout the year. We're thankful for the hard work of our fellow dedicated Aquians, as well as for the support of our customers and shareholders. Aquia remains very well positioned for growth, and we're excited about the opportunities that lie ahead as we deliver new spatial solutions from the discovery to the clinical markets. And at this point, we will open up the call for questions. Operator?
spk23: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your touchtone telephone. Again, to ask a question, please press star 1-1. One moment, please. Our first question comes from the line of John Sauerbeer of UBS. Your line is open.
spk13: Hi. Congrats on the finish for the year, and thanks for taking the question.
spk25: Thanks, John.
spk13: Just on the 2023 guidance, Any call or just on, you know, how to think about instrument pull through and tool mix through the year and what's really embedded in guidance there? And then if you look back at the customers that adopted the fusion in the first half of 2020-22, do you think that most of these customers have now started to hit that full utilization or just how do we think about those dynamics and what's embedded?
spk04: Just to clarify the second part of your question, you're referencing those customers that have the new phenocycler fusion? Yep, that's correct. Yeah, let me take that second part, and Joe can give, you know, qualitatively on the 2023 with the caveat that to date we've only really guided on the number. I guess what I would say in terms of the aggregate phenocyclic user base, recognizing that we launched in March, we really started shipping in bulk a year ago with really strong performance throughout the year. So if you sort of average in and assume it takes a quarter, sometimes two for people to get up and running, I would say we probably don't have the majority of those phenocycler fusion user customers at full stride just yet, given how long it takes. And given that, you know, if you sort of average in that total number that we've sold, we're probably, you know, less than halfway there in terms of full system utilization. And then the aggregate impact that those higher throughput users have on the total reagent number, but also on the average pull through, if that makes sense.
spk13: That makes sense.
spk11: Yeah.
spk13: And I guess just a follow-up, you know, you ended the year with $81 million cash on hand. Any of this color around, you know, the cash burn and then, you know, any potential financing plans?
spk04: Yeah, let me talk on that. And then, Joe, I didn't give Joe a chance to talk a little bit about the first part of your question on 2023. Yeah, $81 million cash on hand with $11 million additional in debt capacity. And again, as Joe noted, a more targeted investments this year with higher revenue, so less burn. So we're in a really solid cash position right now. But Joe, you can add a little bit more color there if you'd like, but also address John's question around 2023 and any additional color.
spk10: Yeah, I think your answer on cash is spot on. In terms of the guidance for next year, the 95 to 98 million, we don't break down the guidance by individual categories, but the way we think about reagents, for example, is that there will be a build throughout the year as we roll out new products, as more and more customers get up and running on the phenocycler fusion. So, you know, I think you could think about pull-through as being a gradual increase, you know, quarter after quarter. That combined with the increase in the number of instruments that we sell, that's what you know, hopefully we'll get us to that 40% growth number for reagents.
spk11: That's our internal target anyways. Got it. Thanks for taking the questions. Thanks, Joan.
spk23: Thank you. One moment, please. Our next question comes from the line of Kyle Mixon of Canaccord. Your line is open.
spk14: Hey, thanks, guys, for the questions. Yeah, congrats on the year. Great outlook as well. Maybe like a multi-part financial question to start, then the follow-up question. So on pull-through, actually just on your last point, Joe, I mean, it sounds like it's going to continue to increase. I mean, you said 30K, though, still. I mean, I've heard that for a few years, I feel like. I mean, what's stopping customers from really using the boxes more? I think that would have increased or at least accelerated kind of recently. And you just mentioned, Joe, this 40% growth rate going forward and I think like over 50-50 mix with consumables and instruments would be good as well. I mean, can you kind of do that if pull-through remains in this 30-40 kind of range? Thanks.
spk10: So in terms of the pull-through, I think, are you saying how do we get to 40% reagent growth?
spk14: Yeah, is that predicated based on the 30K or does it have to expand to some other higher level?
spk10: It would have to expand, but not a tremendous amount. So instead of the sort of the mid-30 range, mid-$30,000 range per instrument, you know, you're talking about kind of low $40,000 range per instrument. That combined with the increase in the number of instruments out there, that'll get you the reagent numbers that we're talking about. So it's not like it has to go from mid-30s to 50,000 in 2023 to generate that kind of number. as long as the instrument number hangs in there.
spk14: Okay. And then Brian, just on my first part of the question, but that was about kind of like what's preventing customers from really, you know, cranking up their usage of the boxes. I know you have these new products coming out that should increase both through going forward, but I mean, to date though, like what's been some of the, uh, if you look back historically, um, on a sort of an annual basis, Kyle,
spk04: And Joe can keep me honest on the numbers here. And granted, these are somewhat contaminated by COVID. I think if you go back around 2019, 2020, the pull through for the phenocycler on third party scopes went from like 20 or so up to 30. And now we're starting to see that amongst the phenocycler users, customers go beyond 30. So we're already seeing that trend. It's just a matter, Kyle, as you look across the 254 phenocyclers that are out there, a minority have the fusion attached to it. So that's already starting to impact the overall pull-through number into the mid-30s for the phenocycler. So we're starting to see that impact begin to happen already for the fusion, coupled to what we've seen historically, that pull-through climb in a more gradual manner up to the 30 or so where it was that we articulated on our last Q call.
spk10: Okay, that was great.
spk04: Thank you.
spk10: One other quick point, you know, the COVID lockdowns in China did hit our reagent revenue in 2022. That, you know, and that's part of the pull-through calculation, you know, is total reagent revenue. So if that didn't happen, you know, our reagent revenue would have obviously been, you know, a million dollars plus higher in 2022. Okay. All right.
spk14: Thanks, guys. I'll ask just one follow-up here. bigger picture, very kind of topical question, obviously. You know, you did a great, you had a great quarter with placement, I think, at least with the 70 or so, and I think nothing, it doesn't look like anything really slowed down in terms of customers getting kind of distracted by the the Imgur is kind of like launched at the end of the fourth quarter. But what are you seeing kind of recently? I guess, you know, these products are fresh on the market. I'm aware of a few folks that are obviously buying these Imgurs. Is that impacting your ability to kind of get in front of customers and potentially close deals?
spk04: Yeah, it's a good question. So with the launch of the competing Imgur products, you know, the Cosmix, you know, the Xenium, it really hasn't impacted our pipeline and our instrument performance at all. You know, the COSMIC is not a new event because they've been pre-selling it throughout the year. And Xenium is fairly new. I still think, Kyle, that's largely within the genomics discovery segment. And, you know, given where we compete in discovery, but all the way through to the translational and clinical side, we're still really not feeling any competitive impacts from them. Now, as we launch our RNA, and we start participating more and more in that genomic segment, I think we might have more color on that because I think we'll be more directly competing.
spk14: Right. Yeah, that last part's important, Brian. Thanks a lot for that. All right. I'm going to hop off. Thanks, guys. Appreciate it. Thanks, Carl.
spk23: Thank you. One moment, please. Our next question comes from the line of Mason Carrico of Stevens. Your line is open.
spk19: Hey, guys. Thanks for the question. Congrats on. a strong 2022. Maybe just starting with reagent revenue during the quarter, I think it came in slightly lighter than we were modeling. Could you expand on some of the dynamics that played out specifically in the fourth quarter? I know you called out some factors that weighed on this revenue in 2022, but I guess just any incremental color on what played out during Q4 and if any of those dynamics have continued in 2023.
spk04: Yeah, Joe can address that. I mean, but there's a lot of contributing factors. Maybe, Joe, you can talk to a little bit of those.
spk10: Yeah, I think it's pretty much what we've talked about already. You know, the COVID lockdowns in China, that was, you know, that was a problem from Q2 through Q4. You know, some softness in Europe with, you know, currency issues kind of held back some spending. So I don't think it was any one thing, but you know, as we've rolled into Q1, you know, we've definitely seen order volumes pick up versus Q4. So I think, you know, we're going to be fine in 2023 in terms of reagent performance.
spk04: Got it. And there's still a little bit of lumpiness in the revenue realization within each quarter, but most certainly also on the comps from the prior year.
spk19: Got it. Okay. Perfect. Thanks. And On the macro environment, are you still seeing an elongation in capital purchase timelines? And as we kind of think about the 2023 guide, has any conservatism been baked in around that dynamic this year? How are you thinking about it?
spk04: So I'll make a comment and then Joe can add on. You know, where we saw some expansion of capital purchase timelines, timelines and approval strings was in EMEA, but it didn't have a material impact on the quarter or even looking forward. It's just really a dynamic that we have to be cognizant to manage. And as for including that in 2023, we did not. But the other concept that we did talk about was, you know, still fairly anemic reagent revenue, albeit coming back slowly in China, I think we still are contemplating some of that. Joe, you want to add any more color?
spk10: Yeah, you know, just overall, you know, we're not anticipating a, you know, a massive economic turnaround in our 2023 guide. You know, I guess the guide that we've given presumes that things are kind of going to be what they are right now in terms of overall macro environment. So, you know, we'll obviously keep a close eye on that, but that's kind of our basic assumption.
spk18: Got it. That's helpful. Thanks, guys. Thanks, Mason.
spk23: Thank you. One moment, please. Our next question comes from the line of Tejas Savant of Morgan Stanley. Your line is open.
spk07: Hey, guys. Good evening. Thanks for the time you are. Brian, maybe... To kick things off, one for you. So other than scheduling, where do things stand on what remains to be done for the Fusion 2.0 rollout? I think you mentioned you expect that to start in 2Q. And then by when do you expect to be done with those field upgrades? And then, Joe, as a follow-up to that, is the increase in throughput that the Fusion 2.0 enables, I think it said from 10 to 20 to 30 samples. To what extent is that sort of baked into your guide at the midpoint?
spk04: So I'll take that first part, and then Joe can talk about how that impacts the guide. So the 2.0 is a field upgrade that will begin next quarter. And there is just some final, I would call it, you know, validation and verification work, sort of the final stages of D and development. There's not any sort of technical risk associated with that. So, again, really standard product development methodologies. And just reminding you that Fusion 2.0 is going to meet the requirements for, the multi-site carrier, some improvements to the operating software and the reagents, but also, as noted in the commentary, the RNA scope and also for future RNA. So that will all happen in Q2. In terms of for the existing customers, how long will it take? That's a really good question. Obviously, we want to do it as fast as we can. I would say, you know, the shortest would be six to nine months. It could maybe take a little bit longer than that depending upon customer preparedness and whether or not it would interrupt existing studies.
spk10: And on your question about what is baked into the guide, so we're really looking at going from the mid $30,000 per instrument on average to the low $40,000 on average. And really, there's a wide array of customers in that mix, right? Some do very little. Some are doing $200,000 per instrument per year. So that's really what's baked into the guide right now, and it seems very achievable from where we sit right now. Got it.
spk07: Okay. And then on the phenocode panels, similar sort of question, really. You talked about really strong attraction there at EGBT as well as the upcoming launches over the course of the year on the discovery side. How much of that is factored into the guide here?
spk10: Not a tremendous amount. It's certainly a part of the guide, but you're talking about a million or two million for the whole year. Got it. Okay.
spk07: That's helpful. Okay. And then on the multi-omic front, Brian, is early access sort of evident in terms of that 100 plex panel rollout? Can you just remind us again, how high could protein plex go on that panel? And then by when do you expect to get, you know, true code detection and early access? I believe this was, the first version is going to be sequential sections of the data, is that right?
spk04: Yeah, so we'll start with sequential. Whether or not we do early access like via services, we're still sort of debating whether or not we have to do that because, again, as we talked about, you will have probably by the time it comes out, you know, 300 boxes in the market. Well, we just want to make sure that we're sort of commercially ready for the HyFlex RNA and HyFlex protein on these serial sections. But again, as you noted, the multiomics will come earlier. In terms of how high can we go on the protein, We sort of think there's no upper limit, but there is a scientifically reasonable limit and also a cost limit. So I think 100 plex is about as much as I think we think people need right now. And just by comparison, there's been discussions out amongst the scientific community and others as you think about comparative plex between RNA and protein. And there's commentary that You know, in terms of scientific value, a protein can be, say, 5-10 equivalents of RNA, given that's sort of a direct measurement of the activity. So we think a 100-plex protein is probably where we're going to stay for a while, and then the RNA will be kind of somewhere similar into that range, first cereal and then multiomic.
spk07: Got it. That's helpful. And then, Joe, back to you for, you know, your comments around just taking a more targeted approach to investments. Are there any guardrails you can put around sort of OPEX vis-a-vis last year? I mean, I think your 4Q OPEX was a little bit higher than where we were by two or three million. Is that sort of, you know, 30 million-ish run rate a good benchmark to use when you think about 2023?
spk10: Yes. So I would say, you know, we're going to hire people in 2023, but you know, sort of spread throughout the year. It's not going to be a massive number of people. So I think you could look at something like $30 million in Q1, and then maybe it goes up half a million dollars each quarter throughout the year, something like that.
spk08: Perfect. Very helpful. Thanks, guys. Appreciate it. Thanks, Sajak.
spk23: Thank you. One moment, please. Our next question comes from the line of Mark Massaro of BTIG. Your line is open.
spk16: Hey, guys. Thank you for the questions. Congrats on a strong year. So a lot has been asked, but I'm curious if you could comment about some of the economics with respect to the phenocycler fusion 2.0. I don't believe you're looking to drive, you know, incremental economics on that instrument relative to the 1.0. Can you just clarify that? And then, you know, I guess what I'm really trying to determine is, you know, the guide does not look like there is a significant step up as a result of new products. And so, Joe, I appreciate your commentary about one to two million on the PhenoCode panels. But, you know, other than perhaps negligible revenue contribution for the PhenoCycler Fusion 2.0 upgrade, is it fair to say that you're baking in, you know, very modest contribution all in from new products in 2023?
spk04: I think a lot of it is, thanks for the questions, Mark, maybe your first part. So the 2.0, the ASP is the same of the versions built and shipped with and then the future versions with 2.0. So there's not a price increase because of the 2.0, if that was your question on the instrument.
spk17: Yes.
spk04: Okay. And then in terms of the NPIs, You can see that these are beginning this quarter and throughout the year. These are continuous rollouts of additional panels, upgrades to systems, software partnerships, and it's all really centered around an accelerating realization of these over time. So I think you have to maybe pull the aperture back outside of a single quarter and The thesis here is all of these improvements that we've outlined are really the drivers getting that pull through from its current level to the low 40s to the low 50s, et cetera. So this is sort of the internal framework or OS within ACOYA to drive these continuous improvements from workflow to content to software partnerships so you can do more samples per unit time, faster time to answer, So the realization is not a single binary event, but rather an aggregate over time.
spk17: Okay, that makes sense.
spk10: Yeah, just to add on to that, basically saying what Brian just said, but the 2.0 upgrade in and of itself doesn't generate dollars, but it helps that reagent pull through. That's really where the dollars are going to come. So it's not necessarily... you know, new products that are delivering that revenue, but it's the 2.0 upgrade is helping us drive that reagent revenue to, you know, to a much higher level.
spk16: Right, and just to clarify, that reagent revenue growth target is approximately 40% this year, correct? Correct, yes. Okay. You know, we've seen some other tools companies sometimes have push-pulls between the Razor, Razorblade contribution and the services contribution. But in your case, we're really not seeing that. So you drove a strong 65% growth year-over-year in services last year. I think historically you've talked about a services target in the 30% to 40% range. Recognizing that you just did 65%, are there any qualitative factors perhaps that would suggest any reasons why that growth rate is likely to moderate other than just challenging comps.
spk04: Maybe, Joe, you can describe kind of what's in that, and then I can make a specific commentary around the lab services specifically.
spk10: Right. So our services are going to have another good year in 2023. What we have in that bucket right now is really the CLIA lab, which is doing projects for large pharma, and I'll let Brian comment some more on that. That's been going very well. We've got a second services lab that focuses on phenocycler projects, so early stage discovery projects. And now we also, in that bucket, we also have CDX revenue. So this is, you know, the Acrovan deal that we signed in 2022. You've got a piece of that is in our 2022 revenue, but more will be in 2023, the, you know, the milestones and things like that that we get for doing the Acrobon deal. So those three pieces are really the bulk of that services revenue. So 2023 should be another good growth year for services.
spk04: And then, again, just to go back to, as promised, Mark, so, you know, lab services includes, you know, working with the biopharma group. really to drive adoption in early translational all the way through clinical trial studies. And those were the services that Joe just alluded to. But it also includes the revenue that's realized in doing our partnership as also as a lab service through Akravan, where we have these milestone-based, milestone-driven, these revenue milestones that we achieved throughout last year and this year that's also included within that. And that helps explain, Mark, why that number has grown so much because of the success of both of those efforts.
spk16: Okay, excellent. And last one for me, you know, Joe, I think I heard you say that you're seeing volumes pick up nicely here in Q1, so reagents are off to a good start. It doesn't seem like there's a huge necessarily a challenge with respect to funding or, you know, budgets at the customer level. But maybe can you just speak to any conversations you're having about, you know, forecasting orders throughout the course of the year and whether or not you're seeing issues with budgets?
spk10: We have not seen any issues with budgets. You know, really the only hiccup we had in 2022 is really things like COVID lockdowns, which we really can't control. But other than that, you know, other than unusual things like that, budgets seem to be fine. And... you know, back to, quote, normal.
spk04: And, Mark, a lot of what, you know, a lot of the macro commentary around biopharma funding is really what the discussions have been around the smaller emerging biopharma, you know, this year or the latter part of last year, you know, relative to 2020 and 2021. And two comments on that. That's really not a meaningful percentage of our customer base we're mostly dealing with a multinational biopharma who have seen kind of a tremendous surge in R&D spend, particularly as their COVID spend has muted. So I don't really think that the biopharma commentary is not, respective small pharma has not really impacted us. And again, large pharma funding in terms of their R&D has been pretty darn strong, particularly in oncology, where you've got clinical trials up something like, It's like 38% of all clinical trials, a 10% CAGR, which is really where we play with our HC system.
spk15: Excellent. That all makes sense. Thanks for the color. Thanks, Mark.
spk23: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your telephone. Again, to ask a question, please press star 1-1. One moment, please. Our next question comes from David Westenberg of Piper Stanley. Your line is open.
spk05: Hey, guys. Congrats on another solid print and a great guide. I'm going to ask Joe that commentary about the 30,000 to 2X, 3X stat. Can you just give us more color on what you're talking about? Are you talking about the entire phenocycler fusion base, or is that the one when they have – sorry, phenocycler – base, or is that just with diffusion? And, you know, how should we think about the total base in that ramp? Just a clarification on your commentary there.
spk10: Yeah, our commentary, you know, and that's really a multi-year commentary that we're, you know, we're talking about two to three times over a several-year period that, you know, this whole process is a building process, you know, quarter by quarter, year by year. You know, really, The key to get the overall phenocycler fusion number up is to continue to transition as many customers as possible from just a phenocycler to a phenocycler fusion. We're partway through that whole process of converting those customers to encourage them to buy a fusion. That's really a piece of the equation. If we get the majority of phenocycler customers to shift to a phenocycler fusion, that's how you'll get those kinds of numbers of, you know, on average 60,000, 70,000 per year. But it'll take multiple years to get there.
spk04: Just to make sure, Dave, that that growth, that is the total average amongst our phenocycler user base.
spk21: Right.
spk04: Yeah.
spk05: Got it. Yeah, that last part, thank you, thank you. very much because that last part is actually why I was going to ask about how you came up with exactly that number. So I appreciate the color there. Now, can you just, one more part to this little part. Are you seeing more adoption or can you talk about the percentage of adoption from Fasino Cycler who get the microscope? Is this, you know, almost all of them? And then in terms of retroactive placements, I mean, How far do we have to go? What's the kind of the goal penetration rate of that? I'm assuming it wouldn't be 100%, but it could be close to 100%. And where are that in terms of the penetration rate?
spk04: Yeah, I'll take that last part, and then Joe can give you a little bit more color. You're right. It probably won't go all the way to 100% because there are some labs that are – that preferentially use some third-party microscopes. But that's a really – that's going to be a very – over time, a decrease in a pretty small percentage of the total. But Joe can speak to kind of where we are in terms of the penetration amongst our existing user base and kind of the attachment we see going forward for new customers.
spk10: Yeah, the attach rate, and when we say attach rate, we mean every time somebody buys a phenocycler, how often are they buying a fusion at the same time? It's really good. We initially modeled it at 55% or 60% attach rate. It's coming in 80% plus right now. I think customers really see the value of buying the two instruments together. And so from what we can tell, There will be some people who still only buy a phenocycler without the fusion, but that's going to be the minority of people. So I think 80% is a good number to go with for now.
spk04: And then for the existing install base, David, we're less than halfway there. I'd say directionally call it 40% or so, maybe 30%, 40% of the total customer base that had the phenocycler before the fusion came out now have the fusion. So we still have a lot of headroom to upgrade existing customers.
spk05: I appreciate it. I'll ask the rest offline. Thank you. Thank you.
spk23: Thank you. One moment, please. Our next question comes from the line of Tim Chang of Capital One. Your line is open.
spk06: Oh, hey, thanks. Brian, Joe, you know, I think there've been a lot of questions just about pull through the impact of the, the new fusion 2.0 launch and also, um, you know, how that'll benefit your agent business. Is this kind of a lag effect, um, in terms of when you expect a ramp with the reagent side of the business as more of the, uh, fusions convert over to the 2.0?
spk04: Well, yeah, there's, I mean, there's always a lag effect with any NPI new product introduction. And so the standard kind of instrument utilization lag, and I say standard because, you know, doing this for 30 years, it's pretty much formulaic where customer buys an instrument, initial pilot run in Q2, and in the first quarter, you know, their assessments happen in the second quarter, and then coming out of that into the third quarter, they start to get real productive use. That's a typical cycle for an instrument. So that is the lag we're now starting to see realized on the fusion as it impacts our total pull-through, given the phenocycler fusion customers have higher pull-through than the phenocyclers alone. So that lag is most certainly real. And then you have an adoption cycle with any new application or assay on that very system itself. So That is probably generally shorter because you're dealing with an instrument that's ready to grab those new panels right away or that new applications if it was RNA. So yeah, there is a lag effect amongst all of these. That's why we've talked about this build over time of pull-through.
spk06: Right. And maybe just one follow-up, Brian. You know, you signed this partnership with Agilent at the beginning of the year. How meaningful do you think this partnership will have? What sort of impact do you think it will have on your phenol imager HT instrument?
spk04: Yeah, the impact is going to be an expansion of projects that our farmer partners implement on the HT. That's going to be the first impact, and that's not something that we will necessarily quantify externally because we're already seeing that happen. And that's because of the clinical workflow that they support and the expertise that they bring to the table and leverage that workflow along with our expertise on the EHT. That is the impact. Now, that may result in, it should result in a much more robust pipeline both for the HT system itself, the new panels that we're launching, but also for our lab services business, because it's going to galvanize these additional projects in the service CLIA lab as well.
spk06: Got it. And Joe, just one last question. Gross profit margins around 57%. I mean, is that a pretty good starting number for 2023? And just sort of wondering how that sort of progresses as the year rolls out.
spk10: Yes, we would project that that number is going to go up in 2023. You know, one of the keys for gross margin is getting more reagent business. So, you know, we've talked a lot about reagents here today. That's really the key to driving that gross margin percentage higher. But we are projecting that we're going to do better than what we did in 2022. Right.
spk06: And your gross margins on the reagent business are around 80%. That's right?
spk09: Yeah, mid-70s, yeah.
spk06: Mid-70s. Okay, great. Super. Thanks much.
spk23: Thank you. I'm sure no further questions at this time. Let's turn the call back over to Brian McKelligan for any closing remarks.
spk04: Well, yeah, just we're at the top of the hour, so just I wanted to thank everybody for their time, their attention.
spk23: their support and we look forward to following up with each of you so thank you everyone thank you ladies and gentlemen this does conclude today's conference thank you all for participating you may now disconnect have a great day
Disclaimer