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spk27: Good day, and welcome to the Akoya Biosciences second quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. As a reminder, this call is being recorded.
spk26: I would like to turn the call over to Priyam Shah, Head of Investor Relations at Akoya Biosciences. You may begin.
spk22: Thank you, Operator, and thank you to everyone who is joining us today on this call.
spk09: I'm Priyam Shah, Head of Investor Relations at Akoya Biosciences. On the call today, we have Brian McElligan, Chief Executive Officer, and Johnny Eck, Chief Financial Officer. Earlier today, Akoya released financial results for the second quarter into June 30th, 2023. 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 risks identified in our filings with the US Securities and Exchange Commission, including in the risk factors section of our annual report on Form 10-K for the year ended December 31st, 2022, filed on March 6th, 2023, and subsequent filings with the SEC, including our quarterly report on Form 10-Q for the second quarter ended June 30th, 2023, filed today, August 7th, 2023. We urge you to consider these factors and you should be aware that these statements are considered estimates only and are not guaranteed a future performance. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 7th, 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. This audio portion of this call will be archived in the Investors section of our website later today under the heading Events. PCOYA plans to participate in several upcoming investor conferences this quarter, including the Canaccord Genuity Growth Conference, UBS MedTech Tools and Genomics Summit, and the Morgan Stanley Healthcare Conference. Details can be found under events on our investor section of our website. And with that, I will now turn the call over to Brian.
spk03: Thank you, Prem, and good afternoon or evening to everyone. We appreciate you joining us today. On today's call, I'll provide an overview of our performance for the second quarter, discuss our business progress, and review our new product introductions. Johnny will then provide a more detailed look at our financials, business trends, and outlook. Akoya had a very strong second quarter of 2023, highlighted by record revenue of $23.5 million, a 31% growth over the prior year, and record system placements of 72 in the quarter. Our cumulative install base is now 1,064 spatial biology instruments, the largest in the industry. Akoya's stable growth and leadership in spatial biology is a byproduct of delivering a best-in-class portfolio of products and services that span the full continuum of market opportunities from early discovery to translational to the emerging spatial clinical market. We provide complete end-to-end spatial solutions, purpose-built to serve the unique needs of each of these customer types and market segments. With over 1,000 publications to date and more than 80% of these in the last two and a half years, the transformative power of COIUS solutions has been validated by our customers. As noted in our 1,000 publications press release this morning, our current phenocycler platform is driving profound advancements in the discovery markets, highlighted by recent Nature publications from the Human Biomolecular Atlas Program, or HUDMAP, and the Human Breadthless Cell Atlas Initiative. We also continue to see robust growth in the translational markets with growing momentum within our biopharma and CRO partners as they leverage the PhenoImager HT platform to address their growing biomarker needs, especially in oncology and immunotherapy applications. Owning the full biomarker journey using Akoya's continuum of solutions first for biomarker discovery studies with the phenocycler fusion, then validation in the translational setting and ultimately clinical applications on the PhenoImager HT is a key value driver for ACOIA's continued long-term sustained growth. As discussed on the prior call, we're making targeted investments in our business to drive strong revenue growth while streamlining our cost structure as we move the business towards profitability. Our stated strategy during and following our IPO in April of 2021 was to make the necessary investments to rapidly develop and deploy an industry-leading portfolio of solutions, while in parallel, expand our organization and commercial channels to have the scale and expertise to drive successful product launches and secure a market-leading position. The successful launch of the fusion instrument in 2022 was central to this strategy as it solidified our full instrument portfolio. We were also focused on enhancing and improving our phenol imager HT platforms and the organization's readiness to serve the large spatial biology clinical market. Our progress here included for the HT system meeting clinical platform requirements for system robustness and reproducibility, meeting regulatory quality standards, deploying our platform in a CLIA environment, including establishing a CLIA lab at our Marlboro headquarters, and securing our first companion diagnostic deal. From the beginning of 2021 through the end of 2022, we succeeded in achieving all of our internal strategic objectives, while also consistently beating external financial performance expectations during this first phase of our multi-year strategy. The second phase of our strategy, initiated at the beginning of this year, targets improving operational leverage while continuing to deliver sustained top-line growth with a focus on system placement expansion and, especially, driving increased reagent revenue. With a best-in-class instrument portfolio now in place and over 1,000 boxes in the field, we are focusing our R&D and operational initiatives on delivering workflow improvements and reagent solutions to our customers, enabling a broad suite of applications and higher system utilization, and as a result, increased instrument pull-through. Since the start of 2023, Akoya initiated efforts to expand our reagent menu, not only with new content, but also with ready-made panels for both the phenocycler fusion for high-flex discovery and the phenol imager HT for high-throughput translational study. These biomarker panels are part of the PhenoCode reagent brand and included our discovery panels for the phenocyclofusion and the signature panels for the PhenoImager HT. The discovery panels have a rolling launch throughout 2023 and are designed in a modular fashion of 10 to 20 markers, providing our customers the ability to easily combine a handful of these modules into a large HyFlex panel while also including the ability to add additional ACOIA catalog antibodies or their own antibodies of interest. The signature panels for the HT are designed to enable fast and scalable assay development and deployment for large immuno-oncology translational biomarker studies, resulting in accelerated HT utilization and an increased ASP per sample. Along with the launch, of these high-value reagent panels. We are also making additional workflow improvements on the systems and instruments to simplify the user experience and further accelerate data processing and analysis. The Fusion 2.0 instrument hardware and software field upgrade was initiated as of the second quarter. This upgrade includes a multi-slide carrier, enabling parallel processing of tissue samples with improved and faster fluidics. which effectively doubles the system throughput of the phenocycler fusion to 20 or more samples per week. The upgrade also includes the necessary hardware and software components to support RNA enablement. Field upgrades started with our first customers in June, and we expect a significant percentage of our phenocycler fusion customers to upgrade by year end. On the PhenoImager HT, We are also streamlining our informatic workflow and post-processing. In July, we introduced improvements to the HT that moves post-processing and tissue analysis workflow directly onto the HT for on-instrument and real-time compute. This results in a several-fold reduction in both image processing and turnaround time, delivering meaningful capacity increase, reduction in hands-on time, and workflow simplification. Now, as a reminder, Akoya's platform leveraged on-instrument image processing and file compression that reduces file sizes from terabytes to gigabytes, delivering the data in a single standardized format. This standardization and the large-scale market adoption of our platforms has catalyzed third-party development of next-generation spatial biology analysis solutions to support our customers. To date, we have partnered with leading software providers, including Enable Medicine, VisioPharm, IndicaLabs, PathAI, and Oracle BIOS, providing our customers with a range of desktop, cloud, commercial, and open source solutions, allowing us to serve the full compendium of customer needs and requirements. We expect and intend for this trend to continue while we focus our internal investments upstream. Coupled to the software partner network, our expanding content menu and workflow improvements will accelerate system utilization, reduce time from sample to answer, and drive increased instrument pull-through. We continue to make great progress in the downstream translation-owned clinical markets. At industry conferences like AACR and CITC, where the focus is on clinical relevance and patient impact, Facial technology and multiplex tissue analysis are seeing a rapidly growing presence and are central to emerging clinical biomarker efforts, particularly in immunology. Akoi has led these efforts by delivering a clinic-ready program, driving adoption through our CLIA lab and CRO partners, and forming transformative partnerships with true thought leaders, including Agilent, AstraZeneca, Acrovan, and more. we continue to expand this ecosystem. For example, our clinical market development and commercial teams are leveraging the HT workflow improvements and best practices from our advanced biopharma solutions CLIA Lab or ABS to build a rapidly growing qualified CRO service provider network. This CRO network amplifies ACOIA's presence and impact in the translational and clinical trial markets and, like ABS, helps advance our companion diagnostic pipeline and opportunity. On the operational side of the business, we are rapidly refining and reworking our product supply chain and manufacturing processes to drive continuous improvements in our inventory management and overall margins, which we expect to approach 60% as we exit 2023. On the expense side, we completed a minor reduction in force across the company in the second quarter optimize our teams after a period of rapid growth in 2021 and 2022, and to better align our organizations and processes to achieve profitability. We further solidified our balance sheet in the second quarter, completing a follow-on offering with a $50 million in gross proceeds. To review, we're focused on the following initiatives throughout the remainder of 2023. First, continue to deliver new applications and drive further workflow and speed improvements to increase the reagent pull-through on the phenocycler fusion for the discovery market and the PhenoImager-HT for the translational and clinical markets. Second, continue to build and expand the ecosystem with biopharma, medical centers, CROs, and diagnostic leaders to drive adoption of the PhenoImager-HT in the translational and clinical research markets to support our companion diagnostic goals. Third, drive operational efficiencies and execute targeted investments to achieve cash flow positivity in 2025. Now, with that, I'll turn the call over to Johnny to discuss our financial results. Johnny?
spk20: Thanks, Brian. As Brian highlighted, total revenue for the second quarter of 2023 was $23.5 million, a 31% growth over the second quarter of 2022. Our robust year-over-year growth reflects a strong portfolio with diversified revenue across multiple geographies, customer segments, products, and services. Product revenue, including instruments, reagents, and software, totaled $17.1 million for the second quarter, representing 20% growth over the prior year period. Instrument revenue was $11.3 million for the second quarter, representing 19% growth over the prior year period. We had another strong quarter with 72 total instruments sold, of which 27 were phenocyclers and 45 were from the PhenoImager portfolio. We ended the second quarter of 2023 with a total install base of 1,064 instruments, which includes 300 phenocyclers
spk22: and 764 phenol imagers.
spk20: A total of 181 fusion instruments have shipped since the full commercial launch at the start of 2022, and we now have a total installed base of 159 for the combined phenocycler fusion system sold either directly as a combined system or as an upgrade to standalone phenocycler instruments that previously utilized third-party microscopes. Approximately one and a half years into the fusion launch, the majority of phenocyclers are being sold in combination with the fusion. And we expect this combination to drive increased reagent pull through with new content and even faster workflows. Reagent revenue was $5.8 million for the second quarter, representing a 29% growth over the prior year period. In the first half of 2023, we are seeing encouraging results of our emphasis on driving reagent growth. The annualized second quarter reagent pull-through has now increased to the mid-$30,000 range for both the phenocycler and HT, as more phenocyclers paired with fusion are up and running, and as we see increasing utility of HTs among biopharma and CROs, which are also our target customers for the recently launched phenocode signature panels. This is compared to an annualized pull-through per instrument in 2022 in the low $30,000 range for both the PhenoCycler and the PhenoImager HT. Given the ongoing dynamics across our end users, a growing install base, and our new product launches designed to realize pull-through expansion, we anticipate annual reagent revenue growth to be in this range for the next several years. Service, another revenue, totaled $6.4 million for the second quarter, an increase of 73% over the prior year period. Services have been a substantial growth segment for us over the past several quarters as our install base and warranty revenue expand and as our lab services are driving more and higher scale studies.
spk22: Gross profit.
spk20: was $12.1 million in the second quarter, representing 17.2% year-on-year growth, and gross margin was 51.5%. COGS totaled $11.4 million for the quarter, including a non-routine $2 million charge related to the expiration of materials purchased in prior periods to help mitigate against the global supply chain challenges and enable new reagent products. In the first half of 2023, we have made great strides to strengthen our operation planning and supply chain with improved systems and operational leadership as we plan for reagents to become a bigger part of our revenue mix. We will continue to scale and optimize operations and leverage our manufacturing investments to drive the expansion of our gross margins toward the 60% range in the second half of 2023. Operating expenses for the quarter totaled $31.4 million as compared to $29.7 million in the first quarter. Our continued efforts to leverage our cost structure to drive the business towards profitability are underway as we work to flatten our operating spend throughout 2023 and into 2024. As Brian mentioned, in the second quarter, we reduced our workforce across certain areas of the organization, which will moderate spend in non-essential areas and help ensure that a more substantial portion of expected revenue growth falls to our bottom line. Included in our second quarter expenses was $2 million in severance and other charges with $1.1 million of this in cash, which stemmed from the expense reduction effort. Excluding these charges, operating expenses decreased from Q1 to Q2. ACOIA has developed world-class products, a robust operating infrastructure, and has streamlined commercial execution to drive top line growth. Our plan for 2023 is to focus our targeted investment in areas that will generate the highest returns as we work towards operating cash flow positivity in 2025. We ended the quarter with approximately $93.3 million of cash and cash equivalents, which includes net proceeds from an equity raise in the second quarter and have approximately $11.3 million in additional available debt capacity. We expect to maintain robust top line growth throughout 2023 with incremental increases to gross margin, resulting in reduced cash burn as we recognize operating leverage and continue to flatten our offense. Common shares outstanding and fully diluted shares, including the impact of outstanding options and uninvested restricted stock awards, our 48.8 million shares as of June 30, 2023. To summarize, we had another record quarter with $23.5 million in revenue, a 31% growth over the prior year. Akoya's total installed base is now at 1,064 instruments, the largest installed base in the spatial biology industry. We continue the rapid expansion of our installed base while driving meaningful reagent revenue growth and pull-through increases. We have implemented critical organizational changes to improve efficiencies, drive gross margin improvement, and cost advantages to help recognize operating leverage while maintaining robust offline growth. And finally, with an industry-leading volume of publications featuring Akoya's platforms, now over 1,000, we remain very confident in our ability to deliver growth, continued growth in 2023. We are reiterating our revenue guidance range of $95 to $98 million for 2023 as we continue to see tailwinds for our business and the spatial biology market. Now I'll turn it back over to Brian for a few closing remarks. Brian?
spk03: Thank you, Johnny. We're pleased to report a strong quarter, announce multiple exciting and new developments across the portfolio, and we'll look to execute on them throughout the year as we drive the business to near-term positive cash flow. We're thankful for the hard work of our fellow dedicated Akoyans, as well as the support of our customers and shareholders. Akoya 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 market. And at this point, we'll open the call for questions. Operator?
spk27: Thank you. If you'd like to ask a question, please press star one, one. If your question has been answered and you'd like to remove yourself from the queue, please press star one, one again. Our first question comes from Kyle Mikeson with Canaccord Genuity. Kyle, your line is open.
spk15: Hey, thanks guys. Thanks for the questions. Congrats on the quarter. Um, so first I, yeah, no problem. I first just want to ask some stuff about fusion. Um, I mean, first of all, the gray instruments kind of strength here. What's the attached rate right now, fusion to phenocyte glitter? And then how would you kind of characterize the pull-through for the phenocyte glitter fusion combined instruments? And then, you know, from this point going forward, every fusion kind of bundle is going to be 2.0, right?
spk03: Thanks. So, yeah, let me answer those in serial. So the fusion attached rate is still well over 80%. It is way more common than not. that when we sell a cycler, it goes with the fusion. And while we're not calling out the pull-through on the phenocycler fusion as a standalone relative to the phenocycler of the third party, if you just look at, Kyle, our top 15 to 20 that are maybe five-fold above that mid-$30,000 range, they're all PCF customers. So consistent with what we're expecting, the phenocycler fusion pull-through is elevated well above those using the phenocycler with third-party scopes, which is why, as we look at that total install base of cyclers, it's about 300. A little more than half of those are attached to fusion. Huge opportunities going forward to continue to upgrade. And as far as the 2.0, that's cutting into manufacturing over time. So we'll probably still do them as a field upgrade through the second half and then probably cut those into manufacturing more towards the tail end of the year. focusing on those field upgrades right away. So a little bit of a hybrid.
spk15: Yeah, that was really helpful. Thanks, Brian. And the service and other revenue was higher than our model, not by a ton, but it was pretty strong. What's driving that? What kind of projects? Is it mainly the HT work, or is there any fusion work being done as well?
spk03: Yeah, Johnny can chime in. Just remember kind of what's rolled into that services line. It certainly includes both our lab services as well as warranty. So we don't really yet carve that out. So it's really a combination of both, you know, growing install base, which means higher warranty revenue, especially when you have, you know, continued strong instrument performance. But it's also, you know, it's also the services across the board, you know, which includes our CLIA lab services at ABS and the ongoing partnership with with Akravan in terms of both of the latter of both continue to advance with kind of larger scale projects with our biopharma customers. through our CLIA lab and the continued advancement of the Acrovant CDX.
spk22: Okay, all right, great. I thought Johnny was going to chime in.
spk15: So maybe last question on really like the company's success outside immuno-oncology. I was curious if any of your more recent publications are kind of like veering outside the borders of IO, and if IO is going to remain like the main clinical use case for spatial, or do you think like target therapies like this Acrovant therapeutic seal is like the Is that going to be like a wild card, kind of an important aspect going forward as well?
spk03: Yeah, it's a really good question. I think what we answer, Kyle, is we take a look at the market segments where our products go. And in the case of the discovery segment of the phenocycler, a lot of publications outside of immuno-oncology and oncology more generally, including areas like inflammatory disease and dermatological diseases. On the HT translation on the clinical side, it's still largely dominated by IO. That said, it's worth noting, that, you know, Akraban's leadership on the therapeutic is in targeted DNA damage repair, so that's not in IO. But I would say that, Kyle, from the near term, there's still so much headroom in this sort of oncology IO space for the translational and clinical market. I expect we're still there for some time as we look at the advancement of that pipeline.
spk16: All right, awesome. Thanks, Brian. Thanks, guys. Thanks, Kyle.
spk27: Thank you. Our next question comes from Lucas Baranowski with UBS. Your line is open.
spk18: Hi guys, this is Lucas on for John Sauerbeer here at UBS. In the past, you've talked about how the majority of phenocycler fusion customers aren't yet at full ramp in terms of utilization. I guess, is that still the case today? And do you anticipate that changing in the coming quarter or two?
spk03: Yeah, I think when we talk about full capacity, I just think it's rare, generally speaking. you know, for any life sciences tool system to operate at full capacity. That said, what we do feel like, John, is we do feel like with some of these field upgrades, with the improvement on, we'll call it the bookends, more and more panels up front, and then the improved software partners, we do feel like, Lucas, that that median is going to begin to shift to a larger and larger pull through a number. You know, I suspect hitting full capacity is is more of an idealized, but again, having a higher percentage of your customers, you know, running this at a frequency that gets your pull through from the mid thirties. Now, you know, we continue to grow at a similar rate over the next couple of years is what we expect.
spk18: That's very helpful. And then I guess that kind of leads into my other question. You know, the 2.0 upgrade, you know, clearly has started now. Is there any commentary you can provide on how that's going both in terms of how things are going on your end of it and also, you know, what you're hearing from customers? Thanks.
spk03: Yeah, I think, Lucas, it's still pretty early. You know, as I noted in the commentary, it was really, you know, in June where we started doing those field upgrades. But there's two things we look for. Number one is just a simple robustness of the upgrade. In terms of you install it and it works out of the box, that's going extremely well. And the second thing you look for is, is it having the realized utilization ramp where people are now prepping a lot more samples per week because they can turn multiples per day. I think it's still a little bit too early, Lucas, for that, but given the former, the robustness, we're pretty optimistic that our ability to realize those benefits and accelerate Those upgrades, we're optimistic about that to second half and into 24.
spk18: Great commentary, guys. That's all I had.
spk25: Thank you, Lucas. Thanks.
spk27: Thank you. Our next question comes from Rachel Battenstall with JPMorgan Chase. Your line is open.
spk28: Great. Hi, you guys. Thanks for taking the questions, and good afternoon. So first off, I just want to talk about some of the performance by geography. You know, China, I believe, is roughly 15% of total co-revenues. We've heard of a lot of weakness from other peers on the instrumentation and tools players from the sector in the region. So can you kind of walk us through how did China play out? What was growth this quarter? How were orders trending? And then are you seeing any impact or benefit from some of the recent government stimulus programs?
spk03: Great question. While we don't call out China specifically, you know, it is, APAC is about 25% of our total, generally speaking. It's probably a little bit less than that now. And China is the majority of that. And, you know, we did see, you know, a material impact on the, you know, the capital purchases through ABAC negatively, obviously, because of the pullback of some of these interest-free loans, for example, that were happening in China. So it did It did negatively impact our APAC capital purchases. That said, we've got a really nimble and talented team in Asia Pacific, and they're able to realize some growth and benefit in APAC reasons outside of China. So while we did feel the pain, it wasn't yet to a scale where it materially impacted our top line and our performance for the quarter.
spk28: Great. Thank you for that color. And then just on the gross margin performance, you know, it looks like gross margins stepped down a bit sequentially. Can you just kind of walk us through some of the drivers there? Obviously, some solid placements this quarter. And then just on, you know, gross margins heading into next year, you guys have talked about the 200 basis points of expansion in tax for this year. How should we think about that translating to next as this becomes more and more of a, you know, rate and consumable focus business? Thank you.
spk03: It's a great question, Rachel, and maybe
spk20: allow johnny the money man to talk a little bit about margins and some of the unique dynamics in this quarter yeah thanks thanks brian it really was unique this quarter um our our standard margin as we sell through product really hasn't changed um for on the downside we really continue to expand that margin what we saw this quarter was sort of a non-routine item where we had some some expiring or expired inventory that we took the charge for in q2 and this inventory was purchased a year to two years ago, sort of at the tail end of the global supply chain lockup. And as we were in the middle of a high adoption mode, launching new products, and really that inventory came to sort of expire in Q1 and Q2. And so we took that charge in Q2 and cleaned that up. But to answer the second half of your question, we expect, and as Brian mentioned and I mentioned on the call, we expect sort of the to exit into end of 23 in that 60% range. And then we'll see the expansion, as we've mentioned, of a couple hundred basis points into 24. And certainly as reagents make up a larger portion of our revenue, as it continues to shift, we should expect that margin expansion related to that shift, in addition to the internal operational improvements and efficiencies that we are working on.
spk28: Great puppet for me.
spk27: Thank you.
spk03: Thanks, Rachel.
spk27: Thank you. Our next question comes from Mark Massaro with BTIG. Your line is open.
spk21: Hey, guys. Thank you. So you've now had, I believe, six quarters consecutive with services and other revenue exceeding 50%, which is great to see. I'd love to hear maybe a little bit more what's driving that and how sustainable you think it is. On the other hand, your reagent revenue growth rate has lagged your top-line revenue growth rate for five consecutive quarters. I'm curious as to when you think the reagent revenue will start to sort of materially inflect, or do you think that the services and other line will pretty much drive similar levels of growth for some time?
spk03: No, it's a good question, Mark. I suspect, you know, while we don't guide to this level of granularity, I suspect you'll see those trends start to change a little bit. I mean, if you just look back over the last three years or so, in 2021, you know, we're doing about three and a half million in reactions per quarter. 2022, that's up to four and a half. You know, 2023, kind of we're in the, you know, the high fives, you know, getting close to six. So we're continuing that step function. And I suspect that we'll start to realize more growth there. Mark, as the 2.0 becomes a larger percentage, as phenocyclic fusion becomes dominant over phenocyclic third party, and as a lot of these reagent offerings that we're beginning to roll out throughout full year begin to have their impact. So I think that's probably how I would look at that overall, Mark. And then on the services side, you know, a lot of that, Mark, is really a combination of both the growing install base, but most certainly the realization of the revenue contributions from both the growth of the ABS and the continued productive advancement of our partnership with Akraban. So hopefully that gives you some color.
spk21: Yep, that's very helpful. So you guys have a lot going on with the 2.0 upgrade, the RNA scope. Obviously, you've got the signature panel. As we think about the panels rolling off, Which of the, rolling out, which of the new product launches do you think is most likely to be material, you know, in the back half of 23? And which do you think will take more time to kind of become more material in 24 and beyond?
spk03: Yeah, I really like how you phrased that. You know, I think, Mark, that, you know, I think for me, as we get towards the end of 23 and into 24, You know, I really think it's the signature panels on the HT that, and again, this is sort of how I look at it. I think those have an opportunity to be material because the way those go, Mark, is there's a limited evaluation. Then there's a bit of a validation period with our biopharma partners and CROs. And then they get to full implementation at scale. These are being evaluated for larger scale projects. So that's the one I look at. That's the product line I look at to have more like a step function impact than something like the 2.0 where you have kind of a gradual roll-in over time.
spk21: OK, thanks. That's it for me. Thanks, Mark.
spk27: Thank you. Our next question comes from Tejas Savant with Morgan Stanley. Your line is open.
spk08: Hey, guys. This is Edmund on for Tejas. Thank you for taking my questions. Hey, uh, the first question, um, just wanted to touch on the competitive dynamics here, um, with the proteomics side with text announcements, acquire the four and Brugger making it harder to push with sales gate. Um, are you starting to see them, uh, come across them in your customer conversations and how does this change the content competitive dynamic on the protein side?
spk03: Yeah, it's a great question. I think I look at it two ways. Well, maybe three, I think it's a little bit early. on the Luna 4 Biotechnics side to look for potential impact. I think as you look at the narratives and the investments coming out of our colleagues at Bruker and Biotechnics, I look at it as kind of an endorsement of the value of spatial proteomics in the discovery market, which there's been a lot of, and appropriately so, attention paid to spatial transcriptomics. I think the narrative and investments coming out of our colleagues at Bruker and Biotechnics land even more credence to the power of a spatial proteomics as a true discovery engine. And so we're going to continue our eye towards, you know, a road towards multiomics. So I think that's how we look at it. A little bit too early for the impact, particularly as it relates to the Lunafor, you know, additional resources being part of biotechnology.
spk08: Got it. That's super helpful. And then switching to the competitive dynamics on the transcriptomic side, there's a lot going on with the litigation between your peers. But as of now, both of them are now announcing 5K and 6K Plex by next year. So I was wondering if you guys have any updates for your internal 1000 Plex RNA chemistry? And has this changed your view on your approach to the transcriptomic side at all?
spk03: Yeah, I think that as we've been articulating in prior calls, and certainly at the last AGPD conference. I think as we look at the market opportunity for us, you know, we feel like for our install base, for our customers, and for our core competency that exists today, for example, we just talked about on the proteomics side, you know, we think there's huge opportunity in really in the multiomics space in more of a targeted fashion. You know, we'll go ahead and let our our friends at 10X and AnaString really go after these much higher flexes. Our focus is really, Edmund, on capturing sample velocity, experiments per unit time, giving our customers the ability to churn through experiments in the 20 to 30 to 40, 50 samples in a week or two. And so that's why we're focused on the right amount of content for the right question, giving them the answer in a reasonable amount of time versus something that may be a very long, protracted tie-in to result in a very expensive per sample. So we're more focused in that multi-omic kind of mid-plex range, and then there's higher-plex, thousands and thousands of transfers.
spk07: Great answer. Thank you. Thanks, Evan.
spk27: Thank you. Our next question comes from Tim Chang with Capital One. Your line is open.
spk11: Hi, thanks. Brian, I know you've provided, you know, three initiatives for the remainder of the year. Could you just talk a little bit about what you see the pushes and pulls are in the second half of the year to, you know, getting more biopharma medical centers, CRO customers, one, and then, you know, I had a follow-up question for Johnny on the gross margins.
spk03: Yeah, you know, it's a good question, Tim. As we think about what do we need to do you know, to catalyze penetration in the biopharma side, whether it's for the phenocyclic fusion or the HT. I think it's what we talked about, you know, in terms of our pillar number one on system utilization and pull-through. It's about investing in that full workflow, Tim, so it's technician-friendly. You know, sample modules and panels ready out of the box, a very simple streamlined workflow on both the phenocyclic fusion with the 2L and the HT with the onboard compute to get through that sample in a technician-easy, friendly manner, and then to come out the other side with a compressed data file and a number of options available to you in terms of analysis through third parties. I think that core strategy on a simple workflow end-to-end ready to go, that's what our biopharma customers look for versus sort of investing in technologies and having to have some skin in the game on tech dev. So I think we're there and that's sort of number one. And I think number two, as we look around having higher utilization downstream, I think what we're doing with our CRO partners in the CRO network, really enabling them with best practices like we have internally. And that's what we've done with our CRO network is really gotten them to best practices. So when our biopharma partners are looking to outsource projects, They have a number of options available to them, including those that they've historically worked with. So I think that's how I would focus on the biopharma penetration side, Tim.
spk11: No, that's good color, Ryan. And then, Johnny, you know, I don't know if this is the right way to look at it, but if I would have stripped out that, I guess, obsolete inventory and taken out the $2 million charge, your gross margins probably would have been what, around 60%? Is that right?
spk19: Yeah, you're exactly right. And that's the right way to look at it.
spk20: While there's always an element of inventory obsolescence or expiry that you'll have to be tracking, this was pretty unique in nature, just the timing of when it was purchased and the nature of the world at the time from a supply chain perspective. And then to sort of the what now to make sure that we're driving that margin and we're fully leveraging our ERP, resource planning, including expiration dating, access inventory tracking, all those things you would expect. Really, we've strengthened the operational leadership with folks who have strong operations experience, strong management of inventory. And so, like you said, excluding this charge, we're at that 60% range, which is why we sort of said in the back half of the year, we think that's the range where we should be. Mix of revenue, as you'd imagine, moves margin a little bit up or down depending on instruments, reagents, or service. So that's always a factor that if we can predict our revenue well, then we have a real good view of margin. While we don't break out margin specifically by a product line, certainly those impact that margin, which is why we push for what we're going to do from a reagent perspective. That will drive. As we grow reagents, we will drive that margin up.
spk10: Got it. Okay. That's very helpful. Thank you, guys. Thanks, Tim. Yep.
spk27: Thank you. Our next question comes from David Westenberg with Piper Sandler. Your line is open.
spk17: Hi. Thank you for taking my question. So you have launched a lot of products in the last couple of years that I would think would drive a pretty significant utilization. So as we look at the content you've launched, is there any specific ones you want to highlight that have been good contributors to reagent growth versus ones that were a little less than you expected?
spk03: I don't think there's anything. It's a good question, David. I don't think there's anything I would call out yet. Mostly because if you look back, David, over the last two years, you know, while there was a good bolus of additional content on the peanut cycler in 2022, and that did contribute top line, a lot of what we rolled out in 22, which would impact 23 pull through, was really on the platform side. And I think as you look at full year 23, I think the balance between our signature panels for the EHT and then some of the discovery panels is where we'll start to see that impact. And I think, you know, consistent with Mark Massar's question, you know, we really think the step function for the signature panels is something that we might realize more explicitly than I would call the gradual rolling of what we're going to see for the pull-through on the phenocyclic fusion as we get more 2Os, as we get more fusion versus third-party, and as those uh, discovery panels roll out.
spk17: Gotcha. So, I mean, is there any way to, to, to kind of framework the, the adoption of, of that as, as, as, you know, major revenue contributors? So, I mean, are they, you know, dabbling in them at first and then, you know, bigger and bigger experiments as we go on? Um, and, and I, I get that this is, you know, you have six months or so where the, uh,
spk03: uh of data here i'm just kind of um thinking about how reagents are going to grow over the next couple years and i think that would be helpful yeah i think there's two different generally speaking two different adoption methodologies for the discovery market versus for um the downstream translation market on the latter side it is really about a targeted evaluation of 10 to 20 samples on these signature panels in fields like IO. They do that because they have a specific large-scale scale clinical study in mind. So we're at that evaluation kind of validation phase. Assuming we get through those, then, David, you're talking about a big step function of large orders where they want to lock in a large kind of bolus of reagent orders for a large-scale retrospective or prospective clinical study. Those are step functions. And then I'd say on the discovery side, you're really talking about a migration to larger panels as projects wind down and wind back up. So those are the dynamics I would point to. With respect to the latter, I think that'll probably average in more. Because the PSP panels are such a big bump in ASP, I think we'll realize that top line benefit more acutely than on the discovery side. Gotcha.
spk17: You know, I, and again, that's, you bring up a good point. I mean, there's two different platforms that, you know, have two different user kind of characteristics. So maybe I'm just going to focus on one and then offline I can, you know, maybe talk about the, um, the other. So let's just go with the, um, um, the, um, the, the, you know, imager, um, what kind of custom, I mean, the customers that are using it to full capacity, I mean, what, what are kind of the characteristics, um, of those customers just in terms of projects or content or whatnot? That would be my last question.
spk03: So if you look at our current highest user HT customers, they're generally made up of two customer types. A lot of them are CROs and increasingly so. And that's what gives us a lot of excitement around the signature panels. There's a lot of that is an IO and we remove their need to have to do any panel building because these are already made. So CROs are a significant percentage of it as are academic institutions that are working directly across their institution and biopharma for large scale clinical trials. So those are the two largest customer base. And I would say, you know, I think probably earlier question, I think from, from Kyle, A lot of these on the HT imager side are really still in the IO, immuno-oncology, immunotherapy space, which is why the signature panel content is so appropriately designed.
spk17: Got it. Thank you, guys. Great job on the quarter. All right. Thanks, David.
spk27: Thank you. And our last question comes from Mason Carrico with Stevens, Inc. Your line is open.
spk14: Hey, guys. On the diffusion upgrades, have you prioritized who gets upgraded first? Is it based on customer location, customer schedule? Are you targeting the highest utilization accounts first? Any color there would be great.
spk03: Yeah, we have. I'd say loosely so. It's mostly those that have high utilization and need the additional bandwidth. That is usually the case where they have it or need it. They have scaled or are scaling. Those are really the customers that we're looking at first, and that includes people that not only want the higher capacity but not to get in the weeds, Mason, but the software upgrade that's going with the hardware also makes it a lot easier for our customers to put multiple tissues on that slide because we have the largest imageable area in the market, and this certainly supports their productivity there as well.
spk14: Got it. That's helpful. And then within your ABS business, how's the pipeline shaping up? Could positive data from Akravan's study in the back half serve as a catalyst for additional CDX opportunities? And how are you thinking about the pacing there of when we could potentially see the next CDX announcement?
spk03: Yeah, that's a great question. Your last one is sort of the money question that I will deflect for now because it's a tough one to answer and one that I probably wouldn't do explicitly. But Um, you know, yeah, Akraban has announced that, that, that not only have fast track, but they're going to at least to date report. You're in them results in second half. So that'll be really interesting to hear. I mean, I think one of the things that we've seen Mason as, as our expertise, because of Akraban, because of our partnership with Agilent and our ongoing success with the number of pharma, what what's happened to our projects Mason is we've gone from. exploratory studies that are reasonable size to larger retrospective studies to then even larger retrospective, prospective, or ongoing clinical studies. So I think what we're seeing, thankfully, Mason, is a migration of project types from exploratory to getting even closer to those clinical trial assays. And in addition to the additional work in leveraging our capacity, it's the nature It's the nature of those studies that I think we're equally excited about moving farther and farther downstream.
spk13: Got it. That's helpful. Thanks, guys.
spk27: Thank you. There are no further questions. I'd like to turn the call back over to Brian for any closing remarks.
spk03: Listen, nothing additional to close on. We appreciate everybody's time, attention to detail. We're certainly excited by our results and look forward to you know, continuing our priorities to drive system utilization, to really advance our translational and clinical opportunities. And I think, as Jeremy articulated so well, is really drive that operational excellence on our path to profitability as we deliver on those other two pillars. So thank you all for your time and your attention, and we look forward to following up conversations and seeing you all again soon.
spk27: Thank you for your participation. This concludes the program, and you may now disconnect. Everyone, have a great day.
spk03: Thanks, Michelle. Thank you. Thank you. Thank you.
spk27: Good day, and welcome to the Akoya Biosciences second quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. As a reminder, this call is being recorded.
spk26: I would like to turn the call over to Priyam Shah, Head of Investor Relations at Akoya Biosciences. You may begin.
spk22: Thank you, Operator, and thank you to everyone who is joining us today on this call.
spk09: I'm Priyam Shah, Head of Investor Relations at Akoya Biosciences. On the call today, we have Brian McKelligan, Chief Executive Officer, and Johnny Eck, Chief Financial Officer. Earlier today, Akoya released financial results for the second quarter into June 30th, 2023. 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 COAS business, please refer to the risks identified in our filings with the U.S. Securities and Exchange Commission, including in the risk factors section of our annual report on Form 10-K for the year ended December 31st, 2022, filed on March 6th, 2023, and subsequent filings with the SEC, including our quarterly report on Form 10-Q for the second quarter ended June 30th, 2023, filed today, August 7th, 2023. We urge you to consider these factors and you should be aware that these statements are considered estimates only and are not guaranteed a future performance. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 7th, 2023. PCOYA 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. This audio portion of this call will be archived in the Investors section of our website later today under the heading Events. PCOYA plans to participate in several upcoming investor conferences this quarter, including the Canaccord Genuity Growth Conference, UBS MedTech Tools and Genomics Summit, and the Morgan Stanley Healthcare Conference. Details can be found under events on our investor section of our website. And with that, I will now turn the call over to Brian.
spk03: Thank you, Prem, and good afternoon or evening to everyone. We appreciate you joining us today. On today's call, I'll provide an overview of our performance for the second quarter, discuss our business progress, and review our new product introductions. Johnny will then provide a more detailed look at our financials, business trends, and outlook. Akoya had a very strong second quarter of 2023, highlighted by record revenue of $23.5 million, a 31% growth over the prior year, and record system placements of 72 in the quarter. Our cumulative install base is now 1,064 spatial biology instruments, the largest in the industry. Akoya's stable growth in leadership in spatial biology is a byproduct of delivering a best-in-class portfolio of products and services that span the full continuum of market opportunities from early discovery to translational to the emerging spatial clinical market. We provide complete end-to-end spatial solutions, purpose-built to serve the unique needs of each of these customer types and market segments. With over 1,000 publications to date and more than 80% of these in the last two and a half years, the transformative power of Koya's solutions has been validated by our customers. As noted in our 1,000 publications press release this morning, our current phenocycler platform is driving profound advancements in the discovery markets, highlighted by recent Nature publications from the Human Biomolecular Atlas Program, or HUDMAP, and the Human Breadthless Cell Atlas Initiative. We also continue to see robust growth in the translational markets with growing momentum within our biopharma and CRO partners as they leverage the PhenoImager HT platform to address their growing biomarker needs, especially in oncology and immunotherapy applications. Owning the full biomarker journey using Akoya's continuum of solutions first for biomarker discovery studies with the phenocycler fusion, then validation in the translational setting and ultimately clinical applications on the phenoimager HT is a key value driver for ACOIA's continued long-term sustained growth. As discussed on the prior call, we're making targeted investments in our business to drive strong revenue growth while streamlining our cost structure as we move the business towards profitability. Our stated strategy during and following our IPO in April of 2021 was to make the necessary investments to rapidly develop and deploy an industry-leading portfolio of solutions, while in parallel, expand our organization and commercial channels to have the scale and expertise to drive successful product launches and secure a market-leading position. The successful launch of the fusion instrument in 2022 was central to this strategy as it solidified our full instrument portfolio. We were also focused on enhancing and improving our phenol imager HT platforms and the organization's readiness to serve the large spatial biology clinical market. Our progress here included for the HT system meeting clinical platform requirements for system robustness and reproducibility, meeting regulatory quality standards, deploying our platform in a CLIA environment, including establishing a CLIA lab at our Marlboro headquarters, and securing our first companion diagnostic deal. From the beginning of 2021 through the end of 2022, we succeeded in achieving all of our internal strategic objectives, while also consistently beating external financial performance expectations during this first phase of our multi-year strategy. The second phase of our strategy, initiated at the beginning of this year, targets improving operational leverage while continuing to deliver sustained top-line growth with a focus on system placement expansion and, especially, driving increased reagent revenue. With a best-in-class instrument portfolio now in place and over 1,000 boxes in the field, we are focusing our R&D and operational initiatives on delivering workflow improvements and reagent solutions to our customers, enabling a broad suite of applications and higher system utilization, and as a result, increased instrument pull through. Since the start of 2023, Akoya initiated efforts to expand our reagent menu, not only with new content, but also with ready-made panels for both the phenocycler fusion, for HyPlex discovery, and the PhenoImager HT for high throughput translational study. These biomarker panels are part of the PhenoCode reagent brand and included our discovery panels for the phenocyclofusion and the signature panels for the PhenoImager HT. The discovery panels have a rolling launch throughout 2023 and are designed in a modular fashion of 10 to 20 markers, providing our customers the ability to easily combine a handful of these modules into a large high-flex panel, while also including the ability to add additional ACOIA catalog antibodies or their own antibodies of interest. The signature panels for the HT are designed to enable fast and scalable assay development and deployment for large immuno-oncology translational biomarker studies, resulting in accelerated HT utilization and an increased ASP percentage. Along with the launch of these high-value reagent panels, we are also making additional workflow improvements on the systems and instruments to simplify the user experience and further accelerate data processing and analysis. The Fusion 2.0 instrument hardware and software field upgrade was initiated as of the second quarter. This upgrade includes a multi-slide carrier, enabling parallel processing of tissue samples with improved and faster fluidics, which effectively doubles the system throughput of the phenocycler fission to 20 or more samples per week. The upgrade also includes the necessary hardware and software components to support RNA enablement. Field upgrades started with our first customers in June, and we expect a significant percentage of our phenocycler fission customers to upgrade by year end. On the PhenoImager HT, We are also streamlining our informatic workflow and post-processing. In July, we introduced improvements to the HT that moves post-processing and tissue analysis workflow directly onto the HT for on-instrument and real-time compute. This results in a several-fold reduction in both image processing and turnaround time, delivering meaningful capacity increase, reduction in hands-on time, and workflow simplification. Now, as a reminder, Akoya's platform leveraged on-instrument image processing and file compression that reduces file sizes from terabytes to gigabytes, delivering the data in a single standardized format. This standardization and the large-scale market adoption of our platforms has catalyzed third-party development of next-generation spatial biology analysis solutions to support our customers. To date, we have partnered with leading software providers, including Enable Medicine, VisioPharm, IndicaLabs, PathAI, and Oracle BIOS, providing our customers with a range of desktop, cloud, commercial, and open-source solutions, allowing us to serve the full compendium of customer needs and requirements. We expect and intend for this trend to continue while we focus our internal investments upstream. Coupled to the software partner network, our expanding content menu and workflow improvements will accelerate system utilization, reduce time from sample to answer, and drive increased instrument pull-through. We continue to make great progress in the downstream translation-owned clinical markets. At industry conferences like AACR and CITC, where the focus is on clinical relevance and patient impact, Spatial technology and multiplex tissue analysis are seeing a rapidly growing presence and are central to emerging clinical biomarker efforts, particularly in immunology. Akoi has led these efforts by delivering a clinic-ready program, driving adoption through our CLIA lab and CRO partners, and forming transformative partnerships with true thought leaders, including Agilent, AstraZeneca, Acrovan, and more. We continue to expand this ecosystem. For example, our clinical market development and commercial team are leveraging the HT workflow improvements and best practices from our advanced biopharma solutions CLIA lab or ABS to build a rapidly growing qualified CRO service provider network. This CRO network amplifies ACOIA's presence and impact in the translational and clinical trial markets and, like ABS, helps advance our companion diagnostic pipeline and opportunity. On the operational side of the business, we are rapidly refining and reworking our product supply chain and manufacturing processes to drive continuous improvements in our inventory management and overall margins, which we expect to approach 60% as we exit 2023. On the expense side, we completed a minor reduction in force across the company in the second quarter optimize our teams after a period of rapid growth in 2021 and 2022, and to better align our organizations and processes to achieve profitability. We further solidified our balance sheet in the second quarter, completing a follow-on offering with a $50 million in gross proceeds. To review, we're focused on the following initiatives throughout the remainder of 2023. First, continue to deliver new applications and drive further workflow and speed improvements to increase the reagent pull-through on the phenocycler fusion for the discovery market and the PhenoImager-HT for the translational and clinical markets. Second, continue to build and expand the ecosystem with biopharma, medical centers, CROs, and diagnostic leaders to drive adoption of the PhenoImager-HT in the translational and clinical research markets to support our companion diagnostic goals. Third, drive operational efficiencies and execute targeted investments to achieve cash flow positivity in 2025. Now, with that, I'll turn the call over to Johnny to discuss our financial results. Johnny?
spk20: Thanks, Brian. As Brian highlighted, total revenue for the second quarter of 2023 was $23.5 million, a 31% growth over the second quarter of 2022. Our robust year-over-year growth reflects a strong portfolio with diversified revenue across multiple geographies, customer segments, products, and services. Product revenue, including instruments, reagents, and software, totaled $17.1 million for the second quarter, representing 20% growth over the prior year period. Instrument revenue was $11.3 million for the second quarter, representing 19% growth over the prior year period. We had another strong quarter with 72 total instruments sold, of which 27 were phenocyclers and 45 were from the PhenoImager portfolio. We ended the second quarter of 2023 with a total install base of 1,064 instruments, which includes 300 phenocyclers
spk22: and 764 phenol imagers.
spk20: A total of 181 fusion instruments have shipped since the full commercial launch at the start of 2022, and we now have a total installed base of 159 for the combined phenocycler fusion system sold either directly as a combined system or as an upgrade to standalone phenocycler instruments that previously utilized third-party microscopes. Approximately one and a half years into the fusion launch, the majority of phenocyclers are being sold in combination with the fusion. And we expect this combination to drive increased reagent pull through with new content and even faster workflows. Reagent revenue was $5.8 million for the second quarter, representing a 29% growth over the prior year period. In the first half of 2023, we are seeing encouraging results of our emphasis on driving reagent growth. The annualized second quarter reagent pull-through has now increased to the mid $30,000 range for both the phenocycler and HT, as more phenocyclers paired with fusion are up and running, and as we see increasing utility of HTs among biopharma and CROs, which are also our target customers for the recently launched phenocode signature panels. This is compared to an annualized pull-through per instrument in 2022 in the low $30,000 range for both the PhenoCycler and the PhenoImager HT. Given the ongoing dynamics across our end users, a growing install base, and our new product launches designed to realize pull-through expansion, we anticipate annual reagent revenue growth to be in this range for the next several years. Service, another revenue, totaled $6.4 million for the second quarter, an increase of 73% over the prior year period. Services have been a substantial growth segment for us over the past several quarters as our install base and warranty revenue expand and as our lab services are driving more and higher scale studies.
spk22: Gross profit.
spk20: was $12.1 million in the second quarter, representing 17.2% year-on-year growth, and gross margin was 51.5%. COGS totaled $11.4 million for the quarter, including a non-routine $2 million charge related to the expiration of materials purchased in prior periods to help mitigate against the global supply chain challenges and enable new reagent product lines. In the first half of 2023, we have made great strides to strengthen our operation planning and supply chain with improved systems and operational leadership as we plan for reagents to become a bigger part of our revenue mix. We will continue to scale and optimize operations and leverage our manufacturing investments to drive the expansion of our gross margins toward the 60% range in the second half of 2023. Operating expenses for the quarter totaled $31.4 million as compared to $29.7 million in the first quarter. Our continued efforts to leverage our cost structure to drive the business towards profitability are underway as we work to flatten our operating spend throughout 2023 and into 2024. As Brian mentioned, in the second quarter, we reduced our workforce across certain areas of the organization, which will moderate spend in non-essential areas and help ensure that a more substantial portion of expected revenue growth falls to our bottom line. Included in our second quarter expenses was $2 million in severance and other charges with $1.1 million of this in cash, which stemmed from the expense reduction effort. Excluding these charges, operating expenses decreased from Q1 to Q2. ACOIA has developed world-class products, a robust operating infrastructure, and has streamlined commercial execution to drive top line growth. Our plan for 2023 is to focus our targeted investment in areas that will generate the highest returns as we work towards operating cash flow positivity in 2025. We ended the quarter with approximately $93.3 million of cash and cash equivalents, which includes net proceeds from an equity raise in the second quarter and have approximately $11.3 million in additional available debt capacity. We expect to maintain robust top line growth throughout 2023 with incremental increases to gross margin, resulting in reduced cash burn as we recognize operating leverage and continue to flatten our offense. Common shares outstanding and fully diluted shares, including the impact of outstanding options and unrestricted stock awards, our 48.8 million shares as of June 30, 2023. To summarize, we had another record quarter with $23.5 million in revenue, a 31% growth over the prior year. Akoya's total installed base is now at 1,064 instruments, the largest installed base in the spatial biology industry. We continue the rapid expansion of our installed base while driving meaningful reagent revenue growth and pull-through increases. We have implemented critical organizational changes to improve efficiencies, drive gross margin improvement, and cost advantages to help recognize operating leverage while maintaining robust offline growth. And finally, with an industry-leading volume of publications featuring Akoya's platforms, now over 1,000, we remain very confident in our ability to deliver growth, continued growth in 2023. We are reiterating our revenue guidance range of $95 to $98 million for 2023 as we continue to see tailwinds for our business and the spatial biology market. Now I'll turn it back over to Brian for a few closing remarks. Brian?
spk03: Thank you, Johnny. We're pleased to report a strong quarter, announce multiple exciting and new developments across the portfolio, and we'll look to execute on them throughout the year as we drive the business to near-term positive cash flow. We're thankful for the hard work of our fellow dedicated Akoyans, as well as the support of our customers and shareholders. Akoya 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 market. And at this point, we'll open the call for questions. Operator?
spk27: Thank you. If you'd like to ask a question, please press star one, one. If your question has been answered and you'd like to remove yourself from the queue, please press star one, one again. Our first question comes from Kyle Mikeson with Canaccord Genuity. Kyle, your line is open.
spk15: Hey, thanks guys. Thanks for the questions. Congrats on the quarter. Um, so first I, yeah, no problem. I first just want to ask some stuff about fusion. Um, I mean, first of all, great instruments kind of strength here. What's the attached rate right now, fusion to phenocyte glitter? And then how would you kind of characterize the pull-through for the phenocyte glitter fusion combined instruments? And then, you know, from this point going forward, every fusion kind of bundle is going to be 2.0, right?
spk03: Thanks. So, yeah, let me answer those in serial. So the fusion attached rate is still well over 80%. It is way more common than not. that when we sell a cycler, it goes with the fusion. And while we're not calling out the pull-through on the phenocycler fusion as a standalone relative to the phenocycler of the third party, if you just look at, Kyle, our top 15 to 20 that are maybe five-fold above that mid $30,000 range, they're all PCF customers. So consistent with what we're expecting, the phenocycler fusion pull-through is elevated well above those using the phenocycler with third-party scopes, which is why, as we look at that total install base of cyclers, it's about 300. A little more than half of those are attached to fusion. You know, huge opportunities going forward to continue to upgrade. And as far as the 2.0, that's cutting into manufacturing over time, so we'll probably still do them as a field upgrade through the second half and then probably cut those into manufacturing more towards the tail end of the year. focusing on those field upgrades right away. So a little bit of a hybrid.
spk15: Yeah, that was really helpful. Thanks, Brian. And the service and other revenue was higher than our model, not by a ton, but it was pretty strong. What's driving that? What kind of projects? Is it mainly the HT work, or is there any fusion work being done as well?
spk03: Yeah, Johnny can chime in. Just remember kind of what's rolled into that services line. It certainly includes both our lab services as well as warranty so we don't really yet carve that out so it's really a combination of both you know growing install base which means higher warranty revenue especially when you have you know continued strong instrument performance but it's also you know it's also the services across the board you know which includes our our cleo lab services at abs and the ongoing partnership with with acrevon in terms of both of the latter are both continuing to advance with kind of larger scale projects with our biopharma customers through our CLIA lab and the continued advancement of the Acrovant CDX.
spk22: Okay, all right, great. I thought Johnny was going to chime in.
spk15: So maybe last question on really like the company's success outside immuno-oncology. I was curious if any of your more recent publications are kind of like veering outside the borders of IO, and if IO is going to remain like the main clinical use case for spatial, or do you think like target therapies like this Acrovant therapeutic seal is like the Is that going to be like a wild card, kind of an important aspect going forward as well?
spk03: Yeah, it's a really good question. I think what we answer, Kyle, is we take a look at the market segments where our products go. And in the case of the discovery segment of the phenocycler, a lot of publications outside of immunology and oncology more generally, including areas like inflammatory disease and dermatological diseases. On the HT translation on the clinical side, it's still largely dominated by IO. That said, it's worth noting, that, you know, Acrobon's leadership in the therapeutic is in targeted DNA damage repair, so that's not in IO. But I would say that, Kyle, from the near term, there's still so much headroom in this sort of oncology IO space for the translational and clinical market. I expect we're still there for some time as we look at the advancement of that pipeline.
spk16: All right, awesome. Thanks, Brian. Thanks, guys. Thanks, Kyle.
spk27: Thank you. Our next question comes from Lucas Baranowski with UBS. Your line is open.
spk18: Hi, guys. This is Lucas on for John Sauerbeer here at UBS. In the past, you've talked about how the majority of phenocycler fusion customers aren't yet at full ramp in terms of utilization. I guess, is that still the case today? And do you anticipate that changing in the coming quarter or two?
spk03: Yeah, I think when we talk about full capacity, I just think it's rare, generally speaking. you know, for any life sciences tool system to operate at full capacity. That said, what we do feel like, John, is we do feel like with some of these field upgrades, with the improvement on, we'll call it the bookends, more and more panels up front, and then the improved software partners, we do feel like, Lucas, that that median is going to begin to shift to a larger and larger pull through a number. You know, I suspect hitting full capacity is is more of an idealized, but again, having a higher percentage of your customers, you know, running this at a frequency that gets your pull through from the mid thirties. Now, you know, we continue to grow at a similar rate over the next couple of years is what we expect.
spk18: That's very helpful. And then I guess that kind of leads into my other question. You know, the 2.0 upgrade, you know, clearly has started now. Is there any commentary you can provide on how that's going both in terms of how things are going on your end of it and also, you know, what you're hearing from customers? Thanks.
spk03: Yeah, I think, Lucas, it's still pretty early. You know, as I noted in the commentary, it was really, you know, in June where we started doing those field upgrades. But there's two things we look for. Number one is just a simple robustness of the upgrade. In terms of you install it and it works out of the box, that's going extremely well. And the second thing you look for is, is it having the realized utilization ramp where people are now prepping a lot more samples per week because they can turn multiples per day. I think it's still a little bit too early, Lucas, for that, but given the former, the robustness, we're pretty optimistic that our ability to realize those benefits and accelerate Those upgrades, we're optimistic about that to second half and into 24.
spk18: Great commentary, guys. That's all I had.
spk25: Thank you, Lucas. Thanks.
spk27: Thank you. Our next question comes from Rachel Battenstall with JPMorgan Chase. Your line is open.
spk28: Great. Hi, you guys. Thanks for taking the questions, and good afternoon. So first off, I just want to talk about some of the performance by geography. You know, China, I believe, is roughly 15% of total co-revenues. We've heard of a lot of weakness from other peers on the instrumentation and tools players from the sector in the region. So can you kind of walk us through how did China play out? What was growth this quarter? How were orders trending? And then are you seeing any impact or benefit from some of the recent government stimulus programs?
spk03: Great question. While we don't call out China specifically, you know, it is, APAC is about 25% of our total, generally speaking. It's probably a little bit less than that now. And China is the majority of that. And, you know, we did see, you know, a material impact on the, you know, the capital purchases through ABAC negatively, obviously, because of the pullback of some of these interest-free loans, for example, that were happening in China. So it did It did negatively impact our APAC capital purchases. That said, we've got a really nimble and talented team in Asia Pacific, and they're able to realize some growth and benefit in APAC reasons outside of China. So while we did feel the pain, it wasn't yet to a scale where it materially impacted our top line and our performance for the quarter.
spk28: Great. Thank you for that color. And then just on the gross margin performance, you know, it looks like gross margins stepped down a bit sequentially. Can you just kind of walk us through some of the drivers there? Obviously, some solid placements this quarter. And then just on, you know, gross margins heading into next year, you guys have talked about the 200 basis points of expansion in tax for this year. How should we think about that translating to next as this becomes more and more of a, you know, rate and consumable focus business?
spk03: Thank you. It's a great question, Rachel, and maybe
spk20: allow johnny the money man to talk a little bit about margins and some of the unique dynamics in this quarter yeah thanks thanks brian it really was unique this quarter um our our standard margin as we sell through product really hasn't changed um for on the downside we really continue to expand that margin what we saw this quarter was sort of a non-routine item where we had some some expiring or expired inventory that we took the charge for in q2 and this inventory was purchased a year to two years ago, sort of at the tail end of the global supply chain lockup. And as we were in the middle of a high adoption mode, launching new products, and really that inventory came to sort of expire in Q1 and Q2. And so we took that charge in Q2 and cleaned that up. But to answer the second half of your question, we expect, and as Brian mentioned and I mentioned on the call, we expect sort of the to exit into end of 23 in that 60% range. And then we'll see the expansion, as we've mentioned, of a couple hundred basis points into 24. And certainly as reagents make up a larger portion of our revenue, as it continues to shift, we should expect that margin expansion related to that shift, in addition to the internal operational improvements and efficiencies that we are working on.
spk28: Great. That's it for me.
spk27: Thank you.
spk03: Thanks, Rachel.
spk27: Thank you. Our next question comes from Mark Massaro with BTIG. Your line is open.
spk21: Hey, guys. Thank you. So you've now had, I believe, six quarters consecutive with services and other revenue exceeding 50%, which is great to see. I'd love to hear maybe a little bit more what's driving that and how sustainable you think it is. On the other hand, your reagent revenue growth rate has lagged your top line revenue growth rate for five consecutive quarters. I'm curious as to when you think the reagent revenue will start to sort of materially inflect, or do you think that the services and other line will pretty much drive similar levels of growth for some time?
spk03: No, it's a good question, Mark. I suspect, you know, while we don't guide to this level of granularity, I suspect you'll see those trends start to change a little bit. I mean, if you just look back over the last three years or so, in 2021, you know, we're doing about 3.5 million in reactions per quarter. 2022, that's up to 4.5. You know, 2023, kind of we're in the high fives, you know, getting close to six. So we're continuing that step function, and I suspect that we'll start to realize more growth there. Mark, as the 2.0 becomes a larger percentage, as phenocyclic fusion becomes dominant over phenocyclic third party, and as a lot of these reagent offerings that we're beginning to roll out throughout full year begin to have their impact. So I think that that's probably how I would look at that overall, Mark. And then on the services side, you know, a lot of that, Mark, is really a combination of both the growing install base, but most certainly the realization of the revenue contributions from both the growth of the ABS and the continued productive advancement of our partnership with Akron. So hopefully that gives you some color.
spk21: Yep, that's very helpful. So you guys have a lot going on with the 2.0 upgrade, the RNA scope. Obviously, you've got the signature panel. You know, as we think about the panels rolling off, Which of the, rolling out, which of the new product launches do you think is most likely to be material, you know, in the back half of 23, and which do you think will take more time to kind of become more material in 24 and beyond?
spk03: Yeah, I really like how you phrased that. You know, I think, Mark, that, you know, I think for me, as we get towards the end of 23 and into 24, You know, I really think it's the signature panels on the HT that, and again, this is sort of how I look at it. I think those have an opportunity to be material because the way those go, Mark, is there's a limited evaluation. Then there's a bit of a validation period with our biopharma partners and CROs. And then they get to full implementation at scale. These are being evaluated for larger scale projects. So that's the one I look at. That's the product line I look at to have more like a step function impact than something like the 2.0 where you have kind of a gradual roll-in over time.
spk21: Okay. Thanks. That's it for me. Thanks, Mark.
spk27: Thank you. Our next question comes from Tejas Savant with Morgan Stanley. Your line is open.
spk08: Hey, guys. This is Edmund on for Tejas. Thank you for taking my questions. Sure. Hey, the first question, just wanted to touch on the competitive dynamics here. With the proteomics side, with text announcements that acquire Lutifor and Brugger making it harder to push with SalesGate, are you starting to see them, come across them in your customer conversations? And how does this change the competitive dynamic on the protein side?
spk03: Yeah, it's a great question, Adam. I think I look at it two ways. Well, maybe three, Adam. I think it's a little bit early. on the Luna 4 Biotechnics side to look for potential impact. I think as you look at the narratives and the investments coming out of our colleagues at Bruker and Biotechnics, I look at it as kind of an endorsement of the value of spatial proteomics in the discovery market, which there's been a lot of, and appropriately so, attention paid to spatial transcriptomics. I think the narrative and investments coming out of our colleagues at Bruker and Biotechnics land even more credence to the power of spatial proteomics as a true discovery engine. And so we're going to continue our eye towards, you know, a road towards multiomics. So I think that's how we look at it. A little bit too early for the impact, particularly as it relates to the Lunafor, you know, additional resources being part of biotechnologies.
spk08: Got it. That's super helpful. And then switching to the competitive dynamics on the transcriptomic side, there's a lot going on with the litigation between your peers. But as of now, both of them are now announcing 5K and 6K Plex by next year. So I was wondering if you guys have any updates for your internal 1000 Plex RNA chemistry? And has this changed your view on your approach to the transcriptomic side at all?
spk03: Yeah, I think that as we've been articulating in prior calls, and certainly at the last AGPD conference. I think as we look at the market opportunity for us, you know, we feel like for our install base, for our customers, and for our core competency that exists today, for example, we just talked about on the proteomics side, you know, we think there's huge opportunity in really in the multiomics space in more of a targeted fashion. You know, we'll go ahead and let our our friends at 10X and Anastring, you know, really go after these much higher flexes. Our focus is really, Edmund, on capturing sample velocity experiments per unit time, giving our customers the ability to turn through experiments in the 20 to 30 to 40, you know, 50 samples in a week or two. And so that's why we're focused on the right amount of content for the right question, giving them the answer in a reasonable amount of time versus something that may be a very long procracted protracted tie-in to result in a very expensive per sample. So we're more focused in that multi-omic kind of mid-plex range, and then this higher plex, thousands and thousands of transfers.
spk07: Great answer. Thank you. Thanks, Evan.
spk27: Thank you. Our next question comes from Tim Chang with Capital One. Your line is open.
spk11: Hi, thanks. Brian, I know you've provided, you know, three initiatives for the remainder of the year. Could you just talk a little bit about what you see the pushes and pulls are in the second half of the year to, you know, getting more biopharma medical centers, CRO customers, one, and then, you know, I had a follow-up question for Johnny on the gross margins.
spk03: Yeah, you know, it's a good question, Tim. As we think about what do we need to do know to catalyze penetration in the biopharma side whether it's for the phenocyclic fusion or the ht i think it's what we talked about you know in terms of our pillow number one on system utilization and pull through it's about investing in that full workflow tim so it's technician friendly you know sample modules and panels ready out of the box a very simple streamlined workflow on both the phenocyclic effusion with the 2L and the HT with the onboard compute to get through that sample in a technician easy, friendly manner, and then to come out the other side with a compressed data file and a number of options available to you in terms of analysis through third parties. I think that core strategy on a simple workflow end-to-end ready to go, that's what our biopharma customers look for versus sort of investing in technologies and having to have some skin in the game on tech dev. So I think we're there and that's sort of number one. And I think number two, as we look around having higher utilization downstream, I think what we're doing with our CRO partners in the CRO network, really enabling them with best practices like we have internally. And that's what we've done with our our CRO network. It's really gotten them to best practices. So when our biopharma partners are looking to outsource projects, they have a number of options available to them, including those that they've historically worked with. So I think that's how I would focus on the biopharma penetration side, Tim.
spk11: No, that's good color, Ryan. And then, Johnny, you know, I don't know if this is the right way to look at it, but if I would have stripped out that I guess, obsolete inventory and taking out the $2 million charge, your gross margins probably would have been, what, around 60%? Is that right?
spk19: Yeah, you're exactly right. That's the right way to look at it.
spk20: While there's always an element of inventory obsolescence or expiry that you'll have to be tracking, this was pretty unique in nature, just the timing of when it was purchased and the nature of the world at the time from a supply chain perspective. And then, you know, to sort of the what now to make sure that we're driving that margin and we're fully leveraging our ERP, resource planning, including expiration dating, access inventory tracking, all those things you would expect. Really, we've strengthened the operational leadership with folks who have strong operations experience, strong management of inventory. And so like you said, excluding this charge, we're at that 60% range, which is why we sort of said in the back half of the year, we think that's the range where we should be. Mix of revenue, as you'd imagine, moves margin a little bit up or down depending on instruments, reagents, or service. So that's always a factor that if we can predict our revenue well, then we have a real good view of margin. While we don't break out margin specifically by a product line, certainly those impact that margin, which is why we push for what we're going to do from a reagent perspective. That will drive. As we grow reagents, we will drive that margin up.
spk10: Got it. Okay. That's very helpful. Thank you, guys. Thanks, Tim. Yep.
spk27: Thank you. Our next question comes from David Westenberg with Piper Sandler. Your line is open.
spk17: Hi. Thank you for taking my question. So you have launched a lot of products in the last couple of years that I would think would drive a pretty significant utilization. As we look at the content you've launched, is there any specific ones you want to highlight that have been good contributors to reagent growth versus ones that were a little less than you expected?
spk03: I don't think there's anything. It's a good question, David. I don't think there's anything I would call out yet. Mostly because if you look back, David, over the last two years, you know, while there was a good bolus of additional content on the PenaCycler in 2022, and that did contribute top line, a lot of what we rolled out in 22, which would impact 23 pull through, was really on the platform side. And I think as you look at full year 23, I think the balance between our signature panels for the EHT and then some of the discovery panels is where we'll start to see that impact. And I think, you know, consistent with Mark Massar's question, you know, we really think the step function for the signature panels is something that we might realize more explicitly than I would call the gradual rolling of what we're going to see for the pull-through on the phenocyclic fusion as we get more 2Os, as we get more fusion versus third-party, and as those uh, discovery panels roll out.
spk17: Gotcha. So, I mean, is there any way to, to, to kind of framework the, the adoption of, of that as, as, as, you know, major revenue contributors? So, I mean, are they, you know, dabbling in them at first and then, you know, bigger and bigger experiments as we go on? Um, and, and I, I get that this is, you know, you have six months or so worth of, uh, of data here. I'm just kind of thinking about how reagents are going to grow over the next couple years, and I think that would be helpful.
spk03: Yeah, I think there's two different, generally speaking, two different adoption methodologies for the discovery market versus for the downstream translation market. On the latter side, it is really about a targeted evaluation of 10 to 20 samples on these signature panels in fields like IO. They do that because they have a specific large-scale clinical study in mind. So we're at that evaluation kind of validation phase. Assuming we get through those, then, David, you're talking about a big step function of large orders where they want to lock in a large kind of bolus of reagent orders for a large-scale retrospective or prospective clinical study. Those are step functions. And then I'd say on the discovery side, you're really talking about a migration to larger panels as projects wind down and wind back up. So those are the dynamics I would point to. With respect to the latter, I think that'll probably average in more. Because the PSP panels are such a big bump in ASP, I think we'll realize that top line benefit more acutely than on the discovery side. Gotcha.
spk17: You know, I, and again, that's, you bring up a good point. I mean, there's two different platforms that, you know, have two different user kind of characteristics. So maybe I'm just going to focus on one and then offline I can, you know, maybe talk about the, um, the other. So let's just go with the, um, um, the, um, the, the, you know, imager, um, what kind of custom, I mean, the customers that are using it to full capacity, I mean, what, what are kind of the characteristics, um, of those customers just in terms of projects or content or whatnot? That would be my last question.
spk03: So if you look at our current highest user HT customers, they're generally made up of two customer types. A lot of them are CROs and increasingly so. And that's what gives us a lot of excitement around these signature panels, because a lot of that is in I.O., and we've removed their need to have to do any panel building, because these are already made. So CROs are a significant percentage of it, as are academic institutions that are working directly across their institution and biopharma for large-scale clinical trials. So those are the two largest customer base. And I would say, you know, I think probably earlier question, I think, from Kyle, A lot of these on the HT imager side are really still in the IO, immuno-oncology, immunotherapy space, which is why the signature panel content is so appropriately designed.
spk17: Got it. Thank you, guys. Great job on the quarter. All right. Thanks, David.
spk27: Thank you. And our last question comes from Mason Carrico with Stevens, Inc. Your line is open.
spk14: Hey, guys. On the diffusion upgrades, have you prioritized who gets upgraded first? Is it based on customer location, customer schedule? Are you targeting the highest utilization accounts first? Any color there would be great.
spk03: Yeah, we have. I'd say loosely so. It's mostly those that have high utilization and need the additional bandwidth. That is usually the case where they have it or need it. They have scaled or are scaling. Those are really the customers that we're looking at first, and that includes people that not only want the higher capacity but not to get in the weeds, Mason, but the software upgrade that's going with the hardware also makes it a lot easier for our customers to put multiple tissues on that slide because we have the largest imageable area in the market, and this certainly supports their productivity there as well.
spk14: Got it. That's helpful. And then within your ABS business, how's the pipeline shaping up? Could positive data from Akravan's study in the back half serve as a catalyst for additional CDX opportunities? And how are you thinking about the pacing there of when we could potentially see the next CDX announcement?
spk03: Yeah, that's a great question. Your last one is sort of the money question that I will deflect for now because it's a tough one to answer and one that I probably wouldn't do explicitly. But You know, yeah, ACRAVON has announced that not only have fast track, but they're going to at least to date report their end results in second half. So that'll be really interesting to hear. I think one of the things that we've seen, Mason, as our expertise because of ACRAVON, because of our partnership with Agilent and our ongoing success with a number of pharma, what's happened to our projects, Mason, is we've gone from exploratory studies at a reasonable size to larger retrospective studies to then even larger retrospective, prospective, or ongoing clinical studies. So I think what we're seeing, thankfully, Mason, is a migration of project types from exploratory to getting even closer to those clinical trial assays. And in addition to the additional work in leveraging our capacity, it's the nature It's the nature of those studies that I think we're equally excited about moving farther and farther downstream.
spk13: Got it. That's helpful. Thanks, guys.
spk27: Thank you. If there are no further questions, I'd like to turn the call back over to Brian for any closing remarks.
spk03: Listen, nothing additional to close on. We appreciate everybody's time, attention to detail. We're certainly excited by our results and look forward to you know, continuing our priorities to drive system utilization, to really advance our translational and clinical opportunities. And I think as Johnny articulated so well, is really drive that operational excellence on our path to profitability as we deliver on those other two pillars. So thank you all for your time and your attention, and we look forward to following up conversations and seeing you all again soon.
spk27: Thank you for your participation. This concludes the program, and you may now disconnect. Everyone, have a great day.
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