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spk10: Good day and thank you for standing by. Welcome to the Berkeley Lights first quarter 2021 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Carrie Mendeville. Please go ahead. Thank you.
spk02: Earlier today, Berkeley Lights released financial results for the quarter ended March 31st, 2021. If you have not received this news release, or if you'd like to be added to the company's distribution list, please send an email to ir.berkeleylights.com. Joining me today from Berkeley Lights are Eric Hobbs, Chief Executive Officer, and Kurt Woods, Chief Financial Officer. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release Berkeley Lights issued today. For a more complete list and description, please see the Risk Factors section of the company's annual report on Form 10-K filed with the SEC on March 12, 2021, and in its other filings with the Securities and Exchange Commission. Except as required by law, Berkeley Lights disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information And it's accurate only as of the live broadcast, May 11th, 2021. With that, I'd like to turn the call over to Eric.
spk08: Thanks Carrie. And thank you everyone for joining us this morning. We started the year off strong and had solid execution across our business during the first quarter. Revenue grew 35% year over year to $18.6 million. I'm very pleased by the performance of our team this quarter and encouraged by the increasing demand and enthusiasm we are receiving from our customers. At Berkeley Lights, we focus on major markets that leverage cells to make products, which include antibody therapeutics, cell therapy, synthetic biology, and most recently, gene therapy. To truly enable the growth of these markets, one needs to rapidly assess the relevant functions hidden in the large numbers of sequences produced daily. Linking the genome to the desired phenotype at scale is at the heart of our technology. This is extremely important to our customers as it increases their probability of success and leads to an accelerated time to market. These functional tests become even more essential as the complexity of the end product increases. Multidimensional tests and parameter optimization. Sequences by themselves have limited value and are not actionable unless a particular sequence in a cell is shown to create a valuable product, such as a cure for a disease, an enzyme, or a food protein. At BriggsLights, we are bringing functionally validated sequences in cells to life at an unprecedented scale, speed, and resolution. Three key tailwinds continue to drive expansion across our markets. First, demand for cell-based products is growing. Second, the complexity of cell-based products is increasing, requiring more precise multifunctional assays with the highest resolution. And third, there are new therapeutic modalities, including multispecific antibodies, and cell and gene therapies using DNA or mRNA therapeutics, which require precise functional validation. To benefit from these market tailwinds, we are focused on two key areas. First, we are driving our core business in existing and adjacent markets. And second, we are leveraging our technology with partnerships to expand into new addressable markets. Starting with our core business, demand was strong from both new and existing customers in the first quarter. We grew our installed base by 10 platforms to 85 systems, of which eight were direct sales in the quarter and two were attributed to the completion of milestone programs. Five of those went to new customers and five to existing customers. Today, about one-fourth of our installed base is multiple system placements, demonstrating growing technology adoption. CDMO and CRO demand remains strong as Berkeley Light's technology becomes a key offering in this market segment. In the first quarter, approximately one-third of our revenue came from the contract research and development industry and represented the largest contribution to our revenue during the quarter. Part of our technology adoption strategy is to tailor access models to specific customer segments. We do this by offering alternative access models to accommodate customers through a subscription-based approach. Initially, this approach has been focused on financing, essentially providing customers with access to a beacon's full capacity through fixed payments over time. After further market assessment, we're introducing a second subscription model to better meet their specific capacity needs. In this model, customers will subscribe to a given capacity inclusive of all consumables, software, service, and support for their cell line development or antibody discovery campaigns. Pricing is based on campaign capacity, so customers with fewer campaign runs can cost-effectively access our technology. We believe this will increase our served available market broaden our customer base, and drive incremental demand. We're early in the release stage, but are encouraged by the interest we're receiving so far. Kurt will walk you through some of the financial details of our new subscription approach in his remarks. We continue to see opportunities for expansion both in existing and new customers alike, driven by increased use cases enabled by our workflows. In Q1, we announced our next generation antibody discovery workflow, OptoPlasma B Discovery 4.0. which will be the industry's first fully integrated antibody discovery workflow from target identification to functional molecule. The placement of our platform in combination with OptoPlasma B Discovery 4.0 will provide customers with an instant turnkey solution. We expect to release this workflow by the end of Q2. Last month, we made another significant product announcement with the launch of OptoAssure, a series of assays that will provide yield and product quality data at an earlier stage in the cell line development process. enabling better lead candidate selection over a broad set of product and manufacturing parameters. Antibody therapeutics are becoming increasingly complex. Quality issues such as aggregation and highly engineered proteins are becoming a greater challenge, with implications for drug manufacturability and patient safety. Identifying manufacturing cell lines that secrete high titers of quality product is emerging as a critical challenge in cell line development. With OptoAssure, our customers will be able to rapidly select clonal cell lines with favorable manufacturability profiles early in cell line development, leading to faster timelines, decreased costs, and the best downstream products. OptoAssure is an example of our strategy, an inherent value proposition to move quality and yield validation to the earliest possible point in the development and manufacturing process. And most recently, at the end of April, we released Cell Line Development 2.1, which significantly enhances our import capabilities by adding a proprietary on-chip enrichment sort. This allows us to screen up to 20 times more cells compared to our previous Cell Line Development 2.0 workflow and up to 50 times greater throughput than traditional well points. Broader access to relevant biodiversity further increases the probability of finding that rare or best clone that will manufacture the product at the volume and quality our customers need. We are also leveraging our technology to access new markets through business development partnerships. The truly incredible thing about our platform-based technology is its broad applicability into new markets. As we approach new attractive cell-based markets, we look for the biggest problems that our customers are having and engage in business development deals with those partners to develop a solution to the problem. We jointly develop workflows, become the solution of record, and commercialize those workflows in the broader market. We have done this in cell line development with Amgen, where Beacon has become Amgen's standard platform for cell line development. We're doing it with Ginkgo in synthetic biology. And our last earnings call, we announced a $17 million deal with a global leader in gene therapy space to adapt the Berkeley Lights platform to enable the selection and manufacturing of stable viral vector producer cell lines. Viral vector producer cell lines are used across multiple therapeutic modalities, such as gene therapy, cell therapy, and really any therapy using viral transfection. Today, these therapies rely on costly and difficult-to-scale transient re-expression cell lines. This is because quickly generating stable producer lines has not been proven possible with current approaches. We believe that Berkeley Light's technology will make it possible for the first time to execute multi-parameter functional tests, including viral capsid and genomic titers, without losing the live biology. Once developed, this will allow us to select stable clones in one to two weeks that will be used to create stable master cell banks similar to what is being done in cell line development for antibody manufacturing. We believe this will become the new standard for viral vector manufacturing as it significantly reduces cost, enhances manufacturing predictability, and provides a superior approach from the regulatory perspective. This partnership has progressed into the next phase, and we expect these types of partnerships to have a meaningful impact on our growth trajectory over the coming years. Finally, before I turn the call over to Kurt, I'd like to share a brief update on our Board of Directors. Today, we announced that John Cheminski, Chairman and CEO of Catalan, will be joining our Board, effective May 14th. John has led Catalan into a leading CDMO that today supports the introduction of 200 new products and over 70 billion doses each year. He brings deep industry and market experience and shares our passion of continuing to accelerate the discovery and development of cell-based products. The Berkeley Knights board and I couldn't be more thrilled to have John on board. At the same time, Michael Marks will be retiring from our board, and Greg Lussier, who currently serves on our board as a director, will assume the role of chairman. Greg has a wealth of experience growing public companies both organically and through high-growth acquisitions in this space. I look forward to his continued leadership and guidance as our new chairman. With that, I will now turn the call over to Kurt for more detail on our financials.
spk04: Kurt? Thanks, Eric. Revenue for the three months ended March 31st, 2021 increased 35% year over year to $18.6 million with $13.5 million coming from product revenue and $5.1 million from service revenue. Looking at our three revenue streams, direct platform sales totaled $11.1 million in the first quarter of 2021, increasing 18% over the prior year period. Revenue from joint development agreements and partnerships was $3.1 million in the first quarter of 2021, compared to $1.9 million in the first quarter of 2020. Recurring revenue was $4.4 million in the first quarter of 2021, up 77% over the same period in 2020. The increase is a result of our growing installed base compared to the prior year period. Regionally, the strength in APAC continued into the first quarter and accounted for 45 percent of our first quarter revenue, followed by North America at 40 percent. During the quarter, we added 10 platforms to our installed base, ending with 85 total placements. As Eric mentioned, eight of these platforms were direct sales and two were placed in connection with the completion of a milestone program where title of the tool passed to the customer. Gross profit for the first quarter of 2021 was $12.5 million compared to $10 million in the prior year. Gross margin for the first quarter of 2021 was 67% compared to 72% in the first quarter of 2020. The decline was largely driven by the cumulative impact of the two Ginkgo workflow buy-downs during 2020. By executing our buy-down rights on the Ginkgo workflows, we gain full commercial rights to the workflows in all target markets, which allows us to expedite the commercialization of these workflows and leverage them into new partnerships and accelerate growth. Excluding the Ginkgo impact, gross margins for Q1 was approximately 72%. We continue to expect our long-term target for gross margins to be approximately 70%. Total operating expenses for the first quarter of 2021 were $27.6 million, inclusive of $4.5 million of stock-based compensation, compared to $18.2 million in the first quarter of 2020. The increase of $9.4 million was driven by $3.3 million of stock-based compensation $4.1 million of GNA as we transition to a public company, $1.5 million of research and development, and a half a million dollars of sales and marketing. Net loss for Q1 was $15.4 million compared to a loss of $8.4 million in the first quarter of 2020. All net loss numbers are inclusive of stock-based compensation. We ended the quarter with a strong balance sheet consisting of $230 million of cash and cash equivalents. Turning to our outlook for 2021, we continue to expect revenue to be in the range of $90 to $100 million, representing growth between 40% and 56% over the prior year. As we mentioned in our year-end earnings call, we expect revenues to be more heavily weighted to the back half of the year as more business development collaborations and partnerships come online, and as a result of the seasonality we typically experience in the fourth quarter. As Eric mentioned, we're rolling out a campaign-based subscription offering. This offering will recognize revenue over the subscription term compared to the upfront recognition of a typical equipment sale. As we ramp this offering, it is possible that some previously anticipated CapEx sales may transition to a subscription offering. This could impact quarterly revenues in the near term, but in turn would provide upside to recurring and overall revenues in future periods. The potential variability between CapEx sales and subscription mix is incorporated in our revenue guidance for 2021, and we anticipate placing at least 45 platforms during the year. We do not expect any impact to our long-term gross margin expectation of 70 percent from the new subscription model. With that, I would like to turn the call back over to Eric for closing comments.
spk08: Thanks, Kurt. We started the year with strong platform placements, continued to expand opportunities in our existing markets, and grew our total addressable market. At Berkey Lights, we envision a future where cells are a scalable and sustainable way to manufacture the products that we need to live a long and healthy life. The Berkey Lights platform is key to enabling this by providing precise, rapid discovery and functional validation of biology. As we look ahead in 2021, I'm more bullish than ever about the opportunities in front of us. and I'm confident that we are well-positioned to execute our strategy to transform the market for cell-based products this year and beyond. With that, we will now open up to questions. Operator?
spk10: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from Doug Schenkel with Cowan. Your line is now open.
spk03: Hey, good morning, everybody. So just a couple of financial questions. Of the 10 placements in the quarter, how many were beacon versus lightning, and what was the mix of subscription placements in the quarter?
spk04: Hey, thanks for the question. I appreciate it. We don't disclose the breakout between beacon and lightning. Obviously, it was majority of beacon placements. And then from the subscription standpoint, we had one subscription in the quarter.
spk03: Okay. So I guess a couple questions building off of the subscriptions. I'm doing some quick math here. So, yeah, that's always a little bit dangerous. But I think it's simple enough where it does look like the ASP on beacons, you know, assuming... Yeah. If I just say, Hey, you know, nine of the 10 or, you know, vast majority were beacon and just divide that into your, your instrument revenue, it does seem like ASPs were down. So if I have that right, um, why is that? And then more, more generally, um, you know, going back to when you started the subscription program, I think we had, you know, collectively meaning the company and the investment community, um, higher aspirations for the impact of the existing subscription program. What do you think hasn't worked there as well? And, you know, maybe in a little bit more detail, why does the new program, you know, put you in a better position to essentially lower the bar to adoption here and hopefully get you to that 45 placements this year?
spk08: So, Doug, this is Eric. I'll answer the second question first, and then Kirk can come in on the other one, right? When we look at the overall market for the Berkeley Lights platform and one of the things that we found when we rolled out the first subscription is that although it provided our customers with the full access to the beacon, that there were still a larger subset of customers which could leverage a different level of capacity on the Berkeley Lights beacon. What we wanted to do was to make it as easy as possible for our customers to access our technology. you know, by offering this newer subscription on alternative access model, it accommodates our customers through this approach. Now, as I mentioned, initially their approach was focused on financing, which essentially provided customers, again, to the full access. But the new subscription model better meets their specific capacity needs. And in this model, you know, our customers are going to subscribe to a given capacity, and it's all-inclusive of consumable software service and support, for their cell line development or antibody discovery campaigns. And I think when you place yourself in the shoes of our customers in this space, they're really thinking about how do they execute their campaigns to serve their customers. And this newer subscription offering does exactly that. Does that help, Doug, answer that question on the newer model?
spk03: It does. And I guess my only follow-up, Eric, would be, I mean, this seems like a smart way of, you know, essentially getting more people to use the platform with maybe less of a commitment. And I guess the hope would ultimately be that, you know, after more experience with Beacon, they would, you know, potentially use this more or make a more long-term commitment. I want to make sure I'm thinking about that right. And then, you know, kind of building off of that before, you know, I know Kurt answers the other question on ASPs. I am curious if any of this is in part motivated by competitive dynamics with folks who are you know, are not selling instruments, but instead are offering, you know, somewhat similar services?
spk08: Yeah, it's not a competitive offering. It is, in fact, you know, we do see our customers, our customers are doing incredible things with our platform, Doug, and it's really exciting for me to see. And so the more people who have access to our technology, the more innovation, not only from Berkeley Heights, but from our customers into some of these new markets that will gain traction. And I think as we continue to deploy and ramp our technology, that customer-based innovation is really important, and it makes them part of the story as well. So for me, it's important to see our technologies continue to roll out and ramp in the market.
spk04: And Doug, this new subscription is really tailored to the folks with a lower capacity need, so it's a sweet spot with what we're offering, and we do believe that It accelerates the access of that SAM, the serviceable available market for that. And what we saw already is, you know, we've got good traction. You know, after that initial subscription, we took feedback from our customers, came up with this program, and already in kind of the pilot, we've gotten, you know, really strong interest in this. So we feel good about that.
spk03: Okay. That's great. And then, Kurt, on ASP, anything interesting there?
spk04: Yeah, I think what you might be missing is while we placed 10, what we mentioned in the calls, two of those were essentially title transfers at $0 from the completion of a milestone agreement that we did. So they were included in partnership revenue in the past, and upon the successful completion of the milestones, the title passed to them. So they'll bear the pull-through on those tools going forward. So really from a revenue-generating aspect, there was eight tools in the quarter that were direct placements.
spk03: Okay, and very last one, and then I'll let others jump in here. Just looking at the funding environment in terms of company access to capital, there certainly seems like there's been no slowdown in the pace of investment, and for that matter, innovation in the field of cell therapy. Is that changing the mix of demand that you're seeing? I mean, I'm not necessarily saying that this is a huge change, change from trend, but I am curious if, you know, there's a pickup in interest from, you know, emerging players or, you know, on the flip side, maybe CDMO interest is as strong as ever. I guess at a high level, what I'm asking is, you know, where are you seeing the most interest over the last three months and is the mix of backlog in terms of customer profile evolving at all relative to where we were last year?
spk08: Yeah, Doug, in the cell therapy space, we continue to see demand for functional validation of the therapeutic entities that customers are creating, and whether that's cell therapies or mRNA therapies, understanding that those therapeutics are having the function which is intended by the designer to cure the diseases that they want to cure is is really important for them. And to be able to see that function on patient samples in a Bertuglides platform with just thousands of cells is fairly interesting to our customers. And so we'll continue to learn more about that particular market space and support those customers as we continue to evolve the capability of these different therapeutics.
spk03: Okay. Sounds good. All right. Thanks, guys. Thanks, Doug.
spk10: Thank you. Our next question comes from Tycho Peterson with JP Morgan. Your line is now open.
spk09: Hey, thanks. Eric, maybe I'll start with the cell therapy manufacturing. I know, you know, you placed your first alpha unit in the fourth quarter. Can you just talk a little bit about, you know, discussions with clinical customers, how we think about workflow development and just, you know, next steps?
spk08: Yeah, absolutely, Tycho. Morning. Yeah, so as we continue, our team continues internally to make really good progress on the CTMS system. We've got our alpha units, you know, up and running, right, doing process optimization on culture, integrating different assays. So that's great to see the internal team continue to make great progress on the CTMS. And the discussions in the market are, you know, are how do we integrate those next generation assays, you know, and what are the critical assays that our customers are looking for in this space, right? And certainly, of course, the cytotoxicity assay that we have, Tyco, has certainly gained interest for our customers. But we'll continue to move that forward. Again, I just want to remind everyone that in the cell therapy space, although it's a wonderfully exciting space, it also is one that has a longer burn as we get into the market on a timeline for that to start to generate revenue. But certainly progress is being made, and I'm very excited about what the team is doing inside the company right now.
spk09: Great. And then on the CDMO front, I know you talked about, I think, a third of the placements were either CROs or CDMOs. You know, on the back of your viral vector deal last quarter, which, you know, was an interesting one, right? I think you started out trying to sell a system and turned it into a $17 million, you know, deal. So can you just talk about whether there's been kind of follow-on interest from others around viral vector production? similar type arrangements?
spk08: Yeah, absolutely. In this particular market, you know, Berkeley Light's, you know, enabling stable rapid generation of stable cell lines would be a game changer in the market. And so, you know, we have had additional discussions about as far as I think I can disclose anything on the call. But we do have interest. Of course, people would love to do this. If we could, you know, the potential opportunity is if we could make stable cell lines very rapidly. which we believe we can do, then that would change the way that this particular market operates. And so, for us, it's very exciting because Tycho, you know, in antibody therapeutics, Berglutides has a wonderful solution for antibody discovery and cell line development. But make no mistake, we are better than. It's a me better kind of a market, right? We're better than the competition in that space. In some of these other spaces, we may be the only solution in those spaces. And of course, for obvious commercial reasons, right, that has great interest to us. And so we're excited about some of these new markets that we're seeing as we continue to evolve our capabilities from our foundational markets into adjacent markets and future markets.
spk09: Okay, that's helpful. And then just to follow up on Doug's question on the, you know, new subscription model, can you give us a sense of the types of customers you're targeting with this kind of all-in approach? Is there a particular customer class you're going after here?
spk08: Certainly the customers who are, you know, using a lower capacity, you know, smaller CROs, CDMOs are of particular interest, but can also be large pharma companies who want to dip their toe in the water and try something first before they move on to a full purchase. And so we do see a large market contingent in that customer base as Kurt mentioned, with a larger serverable available market to us.
spk04: And I think, Tycho, you're seeing a lot of... Oh, go ahead. No, no, go ahead. You're seeing a lot of companies get funding that, you know, are starting out with their own biology, you know, want to run it but can't utilize the full capacity of a beacon, hard to get that capex sale through. This provides an easy way for them to get in, and in some cases, allows them to bypass an initial feasibility study because the hurdle's smaller, and they go right into being able to run campaigns very quickly in a cost-effective, differentiated way.
spk09: Okay, that's helpful. And then last one on Ginkgo, you talked about the workflows that you've kind of brought down. Can you just talk about timelines to commercialize those workflows?
spk08: Yeah, we're still on track to deliver workflows to Ginkgo this year. Per previous discussion that we had, Tycho, the team continues to collectively, these two teams are working together fantastically well. There's new innovations. There's new capabilities in the space that I'm extremely happy to see. And so I continue to be happy about that particular relationship and partnership between the two companies. Okay. Thank you. Thanks, Tycho. Thank you.
spk10: Thank you. Our next question comes from Brian Weinstein with William Blair. Your line is now open.
spk07: Hey, guys. Good early morning to you out on the West Coast. So I guess of the 45 placements that are in your guide, what is the mix that you guys are thinking between the different commercial models that you're expecting? And in longer term, can you talk about what your expectations are as we think about revenue longer term as to how these different commercial models will play. And I understand your gross margins are not changing, but how should we think about the way that you're planning around these subscription models longer term?
spk04: Yeah, I appreciate the question. I think we guided at least 45 placements. And, you know, in this year, the lower number of placements would correlate to the higher end of the guidance because that would mean we're doing more CapEx sales. What we believe is the new subscription model increases the SAM and increases the unit placements. So we would expect that to drive incremental unit placements. So you would have a higher incremental units, but there could be in the short term some cannibalization rate for those customers that are on the fence of the capacity need that would trade off some of the revenue in the short term for a longer term recurring aspect. A couple ways to look at this. If you think about the subscription model of how we're pricing it, over the five-year useful life of the tool, it's slightly accretive on a subscription on an absolute dollar basis. Obviously, though, we expect not just to break even. We drive that incremental demand that we're doing. So the real driver will be as a success of that is can we drive the incremental demand in units, and we feel we can under the subscription model for that. So I think as you look out in time, as we place that more and more subscriptions, you're going to see more recurring revenue come off of that, plus you obviously have off of the existing install base in the CapEx sale a growing consumable run rate. You saw the jump in recurring year over year this year as well. We would expect that to continue. It's obviously way too early for us to guide for 2022 and beyond. But we do anticipate that recurring base from both subscription and the growing install base to be strong drivers of growth in the future. I will point out, though, this new subscription plan, unlike the old one, it's all-inclusive. It includes the consumables. It includes the tool. It includes the service and everything on that. So this really is an all-in, very simple sale process for us that allows them to run it on a per-campaign basis, all-included.
spk07: Got it. Thank you for that. And then, Eric, a high-level question for you. I mean, you guys have announced a lot of stuff from a technology standpoint to business model standpoint. If you take a step back, what are the kind of key drivers, the key two or three drivers that you're looking at when you think about how this business is progressing? What are you looking at internally here to kind of monitor all this?
spk08: Yeah, thanks, Brian. You know, there are really three main drivers or catalysts for our business. And the first is to grow the opportunity. And we've talked about that through, you know, business models such as subscription, but also with business development in regards to viral vectors. The second thing we're doing is expanding our biology and technology offerings. These are the new workflows, the new capabilities that we talk about, you know, CTMS and antibody discovery 4.0. And the third thing we're really working on is building our corporate capabilities. So in addition to do sales and marketing and business development, which we talked about, also building biology, our apps dev, and even into infrastructure such as our finance organization team. And those are really the three things that are driving overall, that are the three drivers for our business as we move forward.
spk07: Got it. Thanks for that. And if I can squeeze one more in here. We get a lot of questions about competitive dynamics and whatnot, and I know that you just addressed that. the change in the commercial model was not related to competitive dynamics, and I appreciate that. But what are you seeing competitively at this point in terms of other systems that are out there? Obviously, there's some that are more high profile than others, but can you just kind of give us an update on the competitive landscape and what you see relative to how your technology is stacking up against others at this point? Thank you.
spk08: Yeah, absolutely, Brian. So, you know, the thing that we see in the market is that we're learning is that, you know, Bricklight does functional validation or tests better than anybody else. And the relevances of that is that each and every biologic modality, whether it's antibody cell therapies, gene therapies, and every gene sequence that's discovered or cell line that's engineered, each requires functional validation. And I believe it can be optimally performed on the Bricklight's platform. And so, For customers who are looking to accelerate their business to discover development, to manufacture any cell-based products, all roads ultimately lead to birthrights. And so I feel very, very strong about how we're positioned in the market right now. We'll continue to release capabilities to build our capabilities so that our customers are able to do the job that they need to do with their products. Thank you. Thanks, Mark.
spk10: Thank you. Our next question comes from Thea Savant with Morgan Stanley. Your line is now open.
spk01: Hey, guys. Good morning. So, Eric and Kurt, just one question on the service revenue. It looks like you came in, you know, decently higher than our model. And so I was just curious as to what drove the uplift there. Obviously, you have the CDMO contract sort of working its way through the model. But in terms of how you're thinking about amortizing that $17 million contribution over the remainder of this year and into 2022, is there any sort of shift in revenue recognition thinking on that front?
spk04: I'd have to dig into your model a little bit more specifically to answer unique on your model. But from the partnership, we're not seeing a change in You know, the revenue recognition that we outlined earlier from the viral vector deal, we obviously announced that it's, you know, going into the next phase. We obviously had some revenue recognition for that in the first quarter, which is positive. That arrangement's going extremely well. Eric mentioned the demand we're getting from others inbound coming in. Obviously nothing formalized to announce, but we are seeing a fair amount of traffic come in from that. So we feel good about that. Consumable recurring run rates up. And the service type specifically line within the recurring, I would say, was a normal seasonal pattern for us.
spk01: Got it. And, Kurt, I want to go back to that comment you had made earlier in your prepared remarks around there's a certain degree to which we're expecting some of the direct installs to shift to the new subscription model here. Given your sort of subsequent remarks that, you know, the offering is essentially tailored at folks with a lower capacity need, it allows them to bypass initial sort of feasibility studies and so on, Can you just walk us through why a customer who was potentially going to buy a $1.5 to $2 million beacon would now pivot to this model? I can understand why the old subscription model might sort of result in some of those customers switching to a more flexible sort of offering. But from a direct install perspective, can you just walk us through the dynamics there, please?
spk04: Yeah, if you look at the lower capacities, obviously, The more campaigns you're going to run on a tool, the more apt you are to purchase that tool and get the economies of scale there. But for some customers that have lower, let's say, 10 or less type campaigns, they're probably going to consider and say, look, do I want to spend the cash on that right now, and can I get the return of doing that on it, or am I better off entering into an all-in-exclusive relationship that doesn't have that same long-term commitment on there. And that's what we're seeing is a few folks that really see the value of it, but have that lower campaign capacity need that puts them on the cusp. And it's actually those customers that generally have a longer sales cycle to begin with. So this alleviates that constraint of a longer sales cycle, allows them to have a way to access the technology all in. And there's likely going to be some cannibalization, you know, I think it's a very low percentage of cannibalization, but you'll likely see some of that. And then the majority of the sales will be new incremental growth that we have. Does that answer your question? Yes, super helpful, Kurt.
spk01: And then a couple for you, Eric. You know, just in time, I think Tyco asked us around timelines for the Ginkgo workflow commercialization. I know you mentioned the partnership is on track and is working well, but over what time frame should we expect that commercialization the workflow that you've brought down to be commercialized across a broader customer set, and then any updates you can share on the expansion of the biofoundry that you've completed in the U.K. and Asia, just how that's translating into customer inbounds and pipelines in those geographies would be very helpful.
spk08: Yes, we continue to. So let's answer the workflow question first. So the workflow question, we will release those later this year, and as we release those later this year in Q4, in late Q4, then you'll start to see us commercialize these through 2022. On the biofoundries of the labs, the labs in Asia Pacific and in the European Union, We just, it's great to see the pictures coming back for the team, the labs being built, the systems installed, working, running with customers in the market. In the Asia Pacific area, we have an upcoming, we'll have our second user group meeting this summer. So looking forward to bringing customers together in APAC. And so as things begin to open up in APAC, we see, again, recurring and strong interest in that space. And the demo lab in the European Union just was The tools were just installed, I think, two weeks ago. And so I saw some pictures coming from Gareth over in Europe. So those are moving forward. Again, running customer demos. Customers love to see their biology operating on our system. So certainly I do believe that's a great sales tool for our team members in these regions.
spk01: Got it. Super helpful. Thanks, guys.
spk10: Thank you. Our next question comes from Dan Arias with Stifel. Your line is now open.
spk06: Good morning, guys. Thank you. Eric, can you just expand a bit about how the lightning figures into the equation going forward? You've got the beacon outright purchase and the beacon subscription uptake. I'm just sort of curious where the sweet spot is for that system at this point.
spk08: Yeah, so as everybody is aware, lightning is our lower capacity, less automated way to access our technology. And we continue to place lightnings in the corridor as well. And so we see, it's very interesting, we see some very interesting demand in the lightning space, in particular back to the question I believe was asked by Tycho, which is in the cell therapy space and understanding, you know, taking samples from patients, you know, before infusion of the cell therapy and, of course, after infusion of the cell therapy. And I think there's a very good fit there for lightning in the cell therapy space. We continue to release our cell therapy workflows in that space. And as we continue to move into the future, right, is there another access model for lightning to be determined? Right now we continue to see, like I said, in the academic space some pretty strong and building interest on using the lightning in the cell therapy space.
spk06: Okay. Okay. And then just maybe on the beacon and the placements that you're making today versus, say, a year ago, are you seeing the validation and the ramp-up period get shorter these days as labs get smarter and you guys sort of get smarter at bringing customers up to speed? And do you think that that's something that can positively impact the pull-through rate that you might see in, say, the first 12 months of ownership for a customer?
spk08: Well, I think the key, yeah, so I think the key thing is, you know, Bird's Eye continues to improve these workflows And I do believe as we continue to develop and improve the workflows, you know, we are going to see increase in recurrence. So, for example, antibody discovery 4.0 is great because, you know, not only do we have, you know, the upfront sorting capability as we come into the microfluidic environment, but we're also enabling our customers to rapidly re-express their proteins as they've discovered. And all this can be done in less than a week. And so, as we continue to turn the crank and improve these protocols, improve these workflows, they are coming up faster, Dan, for our customers. And I think that, you know, as our customers see the system, you know, they see computer-controlled biology in action, right, and they tell their friends about it. Hey, these tools come in, right? They wheel them in. They plug in, you know, a couple gas lines, power in the Internet, and all of a sudden we're up and running. Antibody discovery workflow is faster than we could ever run. And so that's very positive for our customers. I think it's also positive for the markets. And as we continue to add capabilities, we'll continue to take more upstream and downstream capability into the Berkeley Lights workflow, which will drive recurring revenues up.
spk06: Okay, one more for you, and then I'll hop off. On consumables utilization, how would you compare the increase in pull-through when you just look at your anchor users, Amgen, Averis, et cetera, to some of the new buyers? I mean, obviously the dollar amount is higher for the big-time customers, but I'm sort of just – Curious whether you're seeing a steady progression towards higher utilization across the board here when you look at the various types of customers.
spk04: You hit the nail on the head there. It kind of varies by segment that you go for. And then obviously part of the subscription offering we're doing is for some of those customers that have lower campaign and consumable requirements. But when we look at a like-for-like basis, we actually saw a little bit of an uptick year over year, Q1 to Q1. on the customers that were in service. So similar to like a same store sale type metric, we saw a slight uptick. Okay, thanks a bunch.
spk10: Thank you. Our next question comes from Paul Knight with QBank. Your line is now open.
spk05: Hi, Eric. Are the academic customers more oriented to this second subscription model, or are they more of a lightning customer in your opinion?
spk08: Yeah, certainly. So the academics love to play. They love to invent, and they're coming up with great stuff, Paul. So they're more on the side of buying consumables. They'll buy their consumables, their reagents, and they'll play into a new space. The new subscription offering is really a turnkey solution. right, customers, I think as Kurt had mentioned, you know, smaller startups, a certain amount of money in the bank, right, need to run, they need to run a number of campaigns. They know they need to execute those things in a timely manner to drive the value of their organization. And so really, because the new subscription includes the consumables, the service support, the software, et cetera, for running a given number of campaigns, You know, I think that's excellent in the commercial area, but the academics love to play and tinker so much that it wouldn't suit their needs. Certainly not targeting them at this point in time with that subscription model.
spk05: And then the success you're seeing in Asia with 45% of sales in that market, what's driving that?
spk08: Yeah, sure, Paul. I mean, certainly, you know, we saw Asia-Pacific come out of COVID earlier than the rest. So strong growth in the Asia-Pacific region is, one, due to the response to COVID. But additionally, you know, the Asia-Pacific market is an emerging market. And in an emerging market, they don't have installed infrastructure in place that they have to forego to move to a new technology. And so they're rapidly adopting the Berkeley Lights technology as it's the fastest and most efficient way to get to these solutions and build their pipelines. And so new technology can make the biggest impact in emerging markets. And so I believe that's another reason why we're seeing the rapid adoption of our platform in that space.
spk05: And is OptoAssure a contract manufacturing purchase or a contract research purchase?
spk08: So OptoAssure, you'll see it used more in the CDMOs and our cell line development workflow. And OptoAssure, the first that we've released with OptoAssure is the aggregation assay. And so our customers need to know and understand whether the antibodies that they've engineered or discovered have this aggregation potential because these drugs just operate differently inside of patients. And so it's very valuable for our customers to know that at the point of cell line development rather than learning that downstream while they're trying to scale things up. That would, of course, be a lot of waste in terms of processing time and dollars spent for our customers. And so what we're doing is part of our strategy has always been to take these downstream quality checks and move them as early in the process as possible so our customers have a better product, have the best product as they move into scaling up their solution.
spk05: And then lastly, your sales head count and sales head count goal for the year end
spk08: Yeah, we continue to drive our sales headcount up. And we had previously mentioned that we're looking to push up from 2020 through a factor of two into 2021. And we'll continue to drive sales heads and sales headcount as we move. But simultaneously, Paul, in addition to headcount, it's all about also getting efficient with our sales headcount, ensuring that we have the right marketing materials and these things and sales tools for our sales our sales leads to be able to effectively do their job. So it's a balance of both headcount and process. Thanks.
spk10: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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