Standard BioTools Inc.

Hello, and welcome to the Standard Royal Tools Inc. Second Quarter 2023 Financial Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Greenstone, Vice President, Investor Relations and Business Development. Thank you. Mr. Greenstone, you may now begin.

Thank you, Operator, and good afternoon, everyone. Welcome to the Standard BioTools second quarter 2023 earnings conference call. At the close of market today, Standard BioTools released its financial results for the quarter ended June 30th, 2023. During this call, we will review our results and provide commentary on our financial and operating performance, market trends, and strategic initiatives. Presenting for Standard BioTools today will be Michael Eggholm, Chief Executive Officer and President, and Jeff Black, Chief Financial Officer. During the call, we may make forward-looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, our outlook for 2023 and future financial results, and market trends and opportunities. These statements are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from current expectations. The forward-looking statements in this call are based on information currently available to us and we disclaim any obligation to update these statements except as may be required by law. During the call, we will also present some financial information on a non-GAAP basis. We believe that these non-GAAP financial measures are useful in evaluating our core performance and as a baseline for assessing our future earnings potential of the company. We use these non-GAAP measures in our own evaluation of continuing operating performance. We encourage you to carefully consider our results under GAAP as well as our supplemental non-GAAP information, and the reconciliation between these presentations, which are disclosed in a table accompanying our earnings release. Please note that management will be referring to a slide presentation, including updated supplemental financial information within the webcast today, and this presentation is also posted on our website. I would also like to note that the company will not be hosting a Q&A session following prepared remarks during today's conference call. I will now turn the call over to Michael Eggholm, our Chief Executive Officer and President. Michael?

Thank you, Scott, and good afternoon, everyone. We appreciate you joining us on the call today. First off, I would like to welcome Jeff Black, our Chief Financial Officer, to the Standard BioTools team and thank BecomeJob for his 15 years of service and dedication to this company and wish him the best in his next endeavor. Jeff brings years of relevant operational and capital markets experience, having most recently played pivotal leadership roles in two successful MedTech turnarounds. We're already seeing his impact after two short months, and he will be an integral member of our leadership team as we execute on our vision to create the next diversified life science tools player. During the call today, I'll provide a summary of our performance and discuss where the business is heading. My comments today will focus primarily on our first half 2023 progress, as this year-to-date perspective is more representative of the progress we're making in our corporate transformation versus what any single quarter might suggest. I will then turn the call over to Jeff to offer a more detailed look at Q2 and our first half financial performance. Today, I'm more encouraged by the business and our progress than I've been since joining five quarters ago, while remaining humble about the work still ahead. I'm pleased to report that in the first half of 2023, we delivered 17% revenue growth with 47% growth in the most recent quarter compared to 2022. In addition, through the first half of 2023, we saw over 1,000 basis point improvement in non-GAAP gross margins and nearly $18 million and more than 25% reduction in non-GAAP operating expenses, and a $28 million and more than 60% reduction in operating cash burn compared to 2022. We remain early in our corporate transformation and remain mindful of the macro environment in which we currently operate. The strategy as previously articulated is focused on three priorities, stabilizing the core business with a focus on bringing it back to growth, improving operating discipline, which includes expanding gross margins and reducing operating expenses to achieve positive cash flow and profitability, and finally using M&A to drive scale, profitability, and growth. We're making progress against two of these objectives with our lean operating system and remain focused on executing on the third. We view our business across three product categories, instruments, consumables, and services. Each drive the other to feed the corporate P&L, but naturally with different economic and growth dynamics. Today, we serve two end-user markets in related but distinct scientific fields, proteomics and genomics. We expect this to expand over time as we expand the reach and diversity of our offerings. Internal R&D and inorganic efforts are focused on filling these segments and markets with the best and most attractive products and solutions. Turning to our first strategic objective, a return to stable growth, we are seeing encouraging signs in our business driven largely by new instrument sales. Total revenues for the first half of the year grew 17% over the same period. In the prior year, the total instrument revenue growing over 70% in that period. Growth was led by our proteomics business, which was up nearly 40% against an expected 8% decline in genomic sales, which we are explicitly managing for profitability, not growth today. The growth in proteomics reverses the business's decline from a year ago, which we ascribe to new products and a disciplined commercial execution, improved customer service, and a rootless focus on quality. In April, we launched a new imaging product, our first in six years, named the Hyperion XTI. This new solution has, by far, the highest data quality and throughput for high parameter protein analysis in the rapidly growing spatial biology marketplace, positioning us as a real contender for translational researchers. We are encouraged by early traction and delivery of our first revenue units in May, and we're working hard to build our funnel. In our traditional flow cytometry business, our customer-focused approach has highlighted that our mass cytometry solution has real fundamental technical and workflow advantages over competitors' products. Today, the site of XT is the only platform that can multiplex a high number of extracellular markers and intracellular markers at the same time. This capability enables biological insights missed by legacy technologies, and a growing area of interest noted by multiple publications at this year's CYTO meeting. This simple but important insight allowed our team to do a much better job positioning our advantages to prospective customers, which grow unit sales in the quarter and fill the sales funnel for future quarters. Our second end-user market, Genomics, continues to undergo a multi-year transition to high-throughput applications on NGS. I've been in this field since its earliest days, and when the wind is blowing, it's best to have it at your back, not your front. With that knowledge, over the last year, we made a hard pivot in the business with three key actions. First, we consolidated the product portfolio down to a single instrument, DX9. eliminating several legacy systems, including lower-priced options, understanding this would lead to temporary headwinds for instrument sales. Second, we significantly reduced spend in sales, marketing, and R&D, and finally initiated a new go-to-market approach focused on gaining additional OEM partners and high-volume key accounts. This strategic shift allowed us to execute a managed decline of 8% in our genomics business for the first half of the year, while delivering a near break-even contribution margin versus a loss of over 15 million in the first half of 2022. We believe this is a sustainable trend as our new go-to-market strategy gains traction and our OEM partner grows its business. The trade-off on this type of OEM relationship is that margins are lower than for the instruments we sell directly, but expand over time as revenue shifts to higher margin consumable sales, and importantly, with lower SG&A associated with these OEM sales. We are working on additional potential OEM partnerships, but caution that new relationships take time to develop, validate, and mature, and we're still early in that process. All of the above improvements are the result of our commitment to the SBS way of operating and the people we recruited into the organization to drive that system. I'm proud to say that SBS is now firmly rooted across all functions in the company and will help drive further progress in quarters to come, resulting in continued revenue growth, gross margin expansion, and operating expense rationalization. Focus on quality and serving our customers is inherent in our lean-based SBS approach, and reliability is crucial to customer satisfaction. While there's more work to do here, we have worked hard at improving quality in manufacturing as well as being highly responsive to our customers. This has the virtuous cycle benefit of higher instrument sales and higher margin consumable pull-through over time. Services in this area also help customers gain comfort and become, over time, instrument purchasers and consumable users. In addition to the commercial execution, our operating discipline is manifesting itself in higher gross margin and reduced operating expenses, allowing for materially lower operating cash burn. This leads us to our third priority consolidation, adding to our instrument reagents and services through inorganic growth. This is a critical core focus for standard bio tools, but also nonlinear. The industry is ripe for consolidation, and we are well positioned to lead the charge. Incremental additions can leverage our infrastructure and SBS approach, feed our balance sheet, accelerate scale, drive growth, and add, importantly, to profitability. Each opportunity fits. into a detailed internal matrix and with a world full of innovative products, but few able to alone support a single company or even fewer companies with experienced and capable teams to scale and build a profitable business. We now see standard bio tools as well-positioned with a uniquely attractive chassis for us to consolidate. Such consolidation is central to our strategy and our value proposition resonates with founders that are excited about potentially joining a company where they can have a meaningful impact. I will now turn it over to Jeff for a review of our financial results. Jeff?