Fluidigm Corporation

Good day and thank you for standing by. Welcome to the Fluidime second quarter 2021 financial results call. At this time, all participants are in the listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Peter DiNardo, Investor Relations, CERC.

Thank you, May, and good afternoon, everyone. Welcome to Fluidigm's second quarter 2021 earnings conference call. At the close of the market today, Fluidigm released its financial results for the quarter ended June 30, 2021. During this call, we will review our results and provide commentary on our financial and operational performance, market trends, and strategic initiatives. Presenting for Fluidigm today will be Chris Linthwaite, our President and CEO, and Vikram Jog, our CFO. During the call and subsequent Q&A session, we will make forward-looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, future financial results, and market trends and opportunities. Examples include statements about expected financial performance, including guidance relating to revenues, net loss, business line performance, margins, and cash burn, as well as statements about market trends, the impact of COVID-19, product releases, and customer demand, collaborations and partnerships, market and revenue growth expectations, and fluidized strategic plans. These statements are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from current expectations. Information on these risks and uncertainties and other information affecting our business and operating results is contained in our annual report on Form 10-K for the year ended December 31, 2020, as well as our other filings with the FCC. The forward-looking statements in this call are based on information currently available to us, and FluentM disclaims any obligations to update these forward-looking statements, except as may be required by law. During the call, we will also present some financial information on a non-GAAP basis. Non-GAAP information is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company's operating results as reported under U.S. GAAP. We encourage you to carefully consider our results under GAAP, as well as our supplemental non-GAAP information and the reconciliation between these presentations. Reconciliations between GAAP and non-GAAP operating results are presented in a table accompanying our earnings release, which can be found in the Investors section of our website. At the conclusion of our prepared remarks, we will take questions from those participating by phone, and then, time permitting, we'll take some questions from our online webcast participants who can submit a question by clicking the Ask a Question button in the webcast player. I will now turn the call over to Chris, our president and CEO.

Thank you, Peter, and good afternoon. In the second quarter, our base business top-line revenue continued to rebound from 2020 levels with notable growth in mass cytometry, services, and non-COVID-related microfluidics products. We advanced several key innovative initiatives, including the launch of our fourth-generation industry-leading CyTOF platform, and made strides in our partnerships and the overall R&D pipelines. We completed significant milestones under our NIH RADx contract, as well as our DARPA Mount Sinai program. We did experience headwinds with a rapid deceleration in our COVID testing revenues, which we believe is consistent with macro trends in the United States as vaccination levels have increased and testing of the population has decreased. Earlier this year, we outlined our five-year growth plan that we call Vision 2025. Our 2021 corporate objectives are tied to this plan, which is organized into three pillars of growth, innovation, beachheads, and partnerships. During Q2, we made progress in each of these categories as we advanced towards our objective to power the next generation of healthcare decision-making. We believe we remain on track to achieve the 2021 objectives in this plan, and I will provide more detail on that in a few minutes. Now, briefly shifting to market dynamics for the period, globally speaking, we see an uneven recovery continuing across the various geographies we serve as individual countries navigate successive waves of outbreaks. We estimate that lab operations remain below pre-COVID activity levels with some marginal improvement over Q1 and with the slowest improvement in Japan among the major markets we serve. We are closely monitoring the Delta variant, which introduces further uncertainty, as well as the status of regional travel restrictions and supply chain challenges, which continue to create moderate operational headwinds. However, on balance, based upon what we know today, we are optimistic about the second half of the year, particularly for our base business as we see improving demand signals. As we'll discuss later, we have increased our full-year base business revenue guidance and reduced our outlook for COVID testing revenue while maintaining our prior period full-year guidance range. Shifting gears, I will provide an overview of key business highlights during the quarter and add perspective on how these recent achievements support our five-year strategy. As I mentioned, our strategic vision calls for execution of three distinct growth drivers, innovation, beachheads, partnerships. I will break them down in the context of each franchise. Let me start with mass cytometry and general market conditions for this product family. Broadly speaking, we see a steady recovery in our mass cytometry business, and this includes solid demand across suspension and imaging applications. Though many labs are still operating below pre-COVID levels, customer anecdotes suggest there are significant project backlogs that foreshadow increased activity. These customers anticipate higher demand for our consumables to support their work. In fact, over the last few months, we have seen momentum forming with new purchase orders and new monthly sales records established for our mass cytometry consumables. These encouraging signs plus our new product releases, underpin our growth expectations for the balance of full year 2021. Turning to innovation. Starting with our suspension business. In May, we launched the fourth generation Sitop instrument, the Sitop XT. The launch at the end of May was a 100% digital effort, including virtual training for field service engineers, which was a first for us. And we are very pleased with the market reaction as well as our execution of this plan given the ongoing macroenvironmental constraints. The event boosted awareness and demand for suspension mass cytometry analyzers and created several hundred potential leads, exceeding our registration and attendance goals and supporting what we believe will be a strong opportunity for the new system in the second half of 2021 and beyond. Internally, we are working to scale up our CyTOF XT manufacturing capacity to accommodate market interest, and we anticipate more unit deliveries in Q4 versus Q3. For those of you who did not attend our launch events or May investor event, the CyTOF XT product addresses user requests for greater automation of sample loading, higher system uptime, an automated approach to cleaning periodic sample flogging, a built-in chiller to reduce noise, and a more compact system footprint that requires less room modification. With these improved capabilities, most customers can deploy two XTs in the space allocated for one of our prior generation Helios system. The new system is also available at a lower instrument price and with lower ownership costs over a projected five to seven year operational cycle. And we also offer attractive trade-in, trade-up, and leasing options. I'm pleased to report that during the first eight weeks of commercial launch, we've sold seven of these new instruments, including three systems for revenue in Q2. These deliveries were to accounts that primarily or exclusively perform clinical and translational research. Among the seven total orders year-to-date, one CRO customer ordered two XTs, to accommodate increasing biopharma demand and represents our first two-system order. New customers accounted for two of these orders. We are pleased with these early market signals as we seek to expand our penetration of translational research as well as provide upgrades to our growing install base. In the years ahead, we expect that the fourth generation unit placements will contribute to the growth in our instrument's revenue with sales to a mix of existing and new customers. These placements will enable further growth in our recurring revenue streams of consumables and services, given the higher pull-through potential for this platform. In mass cytometry imaging, we are seeing similar market dynamics. Customers have reported backlogs of studies that, again, foreshadow increasing future consumables demand. And while we are signaling a new imaging system release in 2022, Our current generation, the Hyperion product, remains the gold standard for single-cell resolution, high-flex protein imaging of tissue. We are carefully monitoring changes in customer buying behaviors as we release updates on our development timelines for the next generation platform. We know the market is increasingly competitive, but we believe our solution remains best positioned to serve clinical and translational research market needs. We believe our planned second-generation platform will put us in a strong position to maintain our imaging market leadership. Lastly, in Q3, we will deliver enhancements to our award-winning MaxPAR Direct Immune Profiling Assay, or MDipA, introducing additional antibody content for immuno-oncology and vaccine studies. In addition, we are planning to introduce a pilot antibody conjugation program that we call MaxPAR on demand, which features pre-curated combinations of isotopes and antibodies. Our MVIPA product has achieved notable adoption milestones, including more than 400 orders and $5 million in revenue since launch. Transitioning from innovation to beachheads, as we outlined in our mass cytometry investor event in May, We believe we are under-penetrated in a number of attractive market segments where we see opportunities for growth. In particular, we are working to increase our exposure to customers who will influence the tools used for future healthcare decision-making, including the CROs that serve these organizations. We are pleased to announce a new collaboration agreement with the imaging CRO, Immobiotech, focusing on advancing CRO capabilities and drug development utilizing our Hyperion system. Immobiotech focuses on the oncology and neurosciences markets and has more than 200 customers, most of which are in the pharma sector. Immobiotech purchased the system to serve increasing customer interest in high-flexity, high-resolution imaging. We hope biopharma customers explore contract service engagements with leading CROs, such as Immobiotech, to accelerate their drug discovery and development objectives. In addition, on the suspension side of our business, we added a specialized vaccine CRO to our community to serve the surging needs of this important healthcare segment. Another CRO partner ordered a system to support their geographic expansion. In conclusion, we believe that the path to increase biopharma adoption of our suspension and imaging platforms will be influenced by our growing network of CRO beachheads. Our focus on beachheads is yielding results, both in terms of our CRO networks, and more broadly, the increasing number of total users executing clinical and translational studies. In Q2, our mass cytometry technology was incorporated in seven new clinical trials, bringing the total to 162. Our technology has been featured in nearly 1,600 publications with more than 115 of them related to Hyperion, our imaging platform. Let me turn to partnerships. In addition to the IMMA Biotech Agreement, we announced a co-marketing agreement with UltiView, a leader in advancing precision medicine solutions. Our marketing efforts are focused on expanding the portfolio of biomarker discovery and drug development tools for tissue analysis available to researchers. Our technologies are complementary, and each company will market these capabilities, increasing awareness of new approaches to serve this fast-growing field. Via our therapeutic inside services business, we plan to offer customers access to these combined technologies. As a side note, we completed 12 projects for biopharma accounts during this latest reporting period. We also recently established a collaboration focused on data management and more automated analysis of images. We signed a co-development agreement with VisioPharm to enable customers to upload our images into their software package and automate the reading and analysis of imaging mass cytometry. Switching now to our microfluidics business, our base microfluidics business has been steadily recovering and delivering renewed revenue growth. We are seeding new account opportunities beyond COVID-related testing and are executing on our growth formula of innovation, BCHES, and partners. As mentioned in my opening comments, COVID-related testing revenue did decline faster than we expected in Q2, and we missed our performance targets in that area. The overall uncertainty regarding vaccine efficacy and future testing demand presents forecasting challenges. However, vision However, Vision 2025 is not predicated on success in COVID testing. Rather, our strategy has been to invest in the foundational elements of a durable diagnostic strategy, leveraging the COVID revenue generated and the large investments from agencies such as the NIH and Department of Defense. We are pleased with our progress on these foundational elements, including the approaching end of our manufacturing facility upgrade funded by the NIH RADx contract. Over the last year, we have tripled our capacity with new, state-of-the-art manufacturing lines, installing more than 110 new pieces of equipment on a demanding schedule, which will support growth for years to come. Other benefits of our COVID response include a new BioMark platform and novel chip configuration, well-suited for a broad range of diagnostic applications. Turning now to innovation in this franchise, we achieved significant internal milestones with respect to development and launch of the next generation BioMark platform we introduced during our May call. In addition, we are fast approaching a milestone to submit our new sample to answer ISD for FDA review, a chip that can be adapted to numerous applications. As a reminder, the next gen BioMark platform integrates our Juno and BioMark HD instruments into a single system, one-sixth the size of the two current instruments, with an advanced, easy-to-use interface that will hybridize our novel approach to PCR with a large touchscreen user interface. In fact, the new instrument will ultimately encompass 100% of the features of our Juno and BioMark HD platforms combined at a lower total ownership cost, offering tremendous value. We intend to market these capabilities to diagnostic industry participants with the goal to recruit go-to-market partners who share our vision of simplifying complex workflows and reducing the cost structure of testing. Though we have begun to demo these new platforms and the new proprietary microfluidics chips, our associated revenue expectations for the balance of 2021 are modest. with the vast majority of our projected revenue coming from existing base business improvements and our existing OEM relationships. We will share more details as we approach the new BioMark launch, and we are entertaining early developer interests now. Innovation can come in many forms. One area I'd like to highlight is our service business innovation. Our service team continues to execute in the face of a challenging operating environment. In Q2, we delivered a new quarterly service revenue record. Service innovation is part of our multi-year commitment to driving sustained revenue growth and meeting new customer needs. We launched our Fluidigm Pro service brand during the first half of the year, offering enhanced service lines, and we are driving a pipeline of service line extensions and new capabilities to enhance the value of our growing install base. Now let me turn to partnerships in our microfluidics franchise. In Q3, we anticipate transitioning from the development phase of our contract with Olin Proteomics to the commercialization and scale-up phase. We are grateful for the opportunity to serve this exciting market and important partner. We are excited by the prospects of our partner to penetrate new markets and advance the field of proteomics in the years ahead. Our partnership achieved a major milestone as O-Link launched its signature Q100 product, which is a designated benchtop system for protein biomarker analysis. Q100 is conceptually an end-market, application-specific derivative of our next-gen biomarker. We look forward to learning more about early market response to their launch event in the weeks ahead. We are pleased with the continued execution against our Vision 2025 strategy and the steadily growing improvement in our base business and the early response to our new product introductions in both the mass cytometry and microfluidics business. I'll now turn the call over to Vikram for a detailed discussion of our second quarter financial results. Vikram.