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spk03: will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to David Holmes of Investor Relations. Please go ahead.
spk14: Thank you, Operator, and good afternoon, everyone. Welcome to Standard BioTools' second quarter 2024 earnings conference call. Leading the call today is Michael Eggholm, President and Chief Executive Officer, and Jeff Black, Chief Financial Officer. At the close of market today, Standard BioTools released its financial results for the quarter ended June 30, 2024. During this call, we will review our results and provide an update on our financial and operational performance, 2024 outlook, market trends, and strategic initiatives. During the call, we will make forward-looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, our outlook for 2024, and future financial results, market trends and opportunities, our expectations related to the combined operations with Somalogic, including potential synergies and our business outlook for the combined company. 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 on 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 these non-GAAP financial measures are useful in evaluating our core performance and as a baseline for assessing the 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 on a GAAP and non-GAAP basis. The reconciliation between non-GAAP measures and their GAAP equivalents are provided in the tables accompanying today's press release and as an appendix to today's presentation slides. Please note that management will be referring to a slide presentation, including updated supplemental financial information within the webcast today. Following prepared remarks, we will host a Q&A session. Today's presentation will be available on the website as well as the webcast on the Investor Relations section of the website. I would now like to turn the call over to Michael Echholm, President and CEO of Standard BioTools. Michael.
spk06: Thank you, David, and good afternoon, everyone. We appreciate you joining us today. Before we discuss our quarterly results, I want first to touch on the leadership news we announced this afternoon. As you saw from our announcement today, Jeff Black has accepted an opportunity in another public company located closer to home and family. Jeff helped us build a strong finance function with talented and capable leaders, but positioned us well for a seamless transition. We appreciate Jeff's contributions, his decision, and wish him all the best. He will remain with SBI through August 31st to ensure a smooth transition of his responsibilities. We have started a search for permanent successor, and we are fortunate to already have a deep bench of talent across our leadership team and throughout our finance and IT organizations. Starting on September 1, Alex Kim, our longtime Chief Operating Officer and a co-founder of Standard BioTools, will take on the interim CFO role and will continue to lead strategic planning and integration of acquisitions. We also recently appointed Sean McKay as our new Chief Business Officer, who now assumes responsibility for strategic business development, product management, marketing, and investor relations functions. With that, let's discuss our results. Our team's focus on cost structure and early integration of SummerLogic has accelerated synergy realization in the quarter, and we are now pulling forward the $80 million cost reduction target to the end of 2024, a year ahead of plan, keeping us on the track to achieve break-even adjusted EBITDA for the full year 2026. A strong operational execution was offset by weaker than anticipated second quarter revenue, as summer scant services experienced contract delays, and instrument revenue was down year over year. While the latter is largely attributed to headwinds from the ongoing industry-wide restricted capital purchasing environment, as peers have reported, combined with the service business variability discussed, we are revising our revenue guidance to $170 million to $175 million for the full year 2024. We're confident that industry issues are transitory, and some encouraging signs are emerging in particular markets. Further, our operating system, SPS, has become deeply embedded in the new businesses, focused on delivering improved forecasting, shortened sales cycles, and in time, expanded product offerings to enable a more diversified customer base. SummerScan and its proprietary Apptimate technology is the leading proteomics platform with tremendous upside. We're excited to be partnering with Illumina on their full commercial release in the first half of 2025, enabling the SummerScan assay on Illumina's NoaSeq platform, which has an installed base of around 2,200 instruments. Most importantly, we remain committed to hit break-even adjusted EBITDA for the full year 2026. We're well capitalized with nearly $400 million in cash to execute on our strategic vision of building a scaled, craftable multi-omic solution life science business. At Stata BioTools, we're grounded in the reality that the life science technology and service industry is highly fragmented, filled with small enabling solutions and brilliant technologies, but in desperate need of operational scale and the commercial and manufacturing expertise to achieve that. This is the perfect setup for strategic M&A, which is central to our strategy and an area we continue to be active. In fact, we believe the current market dynamic is creating opportunities for us to accelerate our consolidation thesis to drive additional scale, diversification, and shareholder value. In summary, despite a challenging quarter, we remain confident in our long-term outlook, and we will stay the course on our vision to become a leading, diversified life science leader with the -in-class technology platform and several differentiated growth vectors and a team of operators that understand what it takes to execute in any environment. Turning to our quarterly performance and highlights, revenues on a reported basis grew 57% in the first half of 2014 and 34% in the second quarter. On a performed, combined basis, revenue declined 11% in the first half and 23% in the second quarter. Our -than-expected revenue results were driven primarily by two factors. First, we experienced project delays for so-called scan assay services, largely by select customers in the M&A region. We are encouraged, however, by an early third-quarter uptake and key improvement in the second half of the year. We saw a 40% sequential improvement compared to the first quarter of 2024. While we experienced continued economic pressure in the CapEx instrument purchasing cycles in the second quarter, largely consistent with what we saw in the first quarter, we encouraged by this sequential increase in the As stated above, we have seen sales cycle extent across the portfolio. The opportunities remain available just on an elongated timeline. Against this challenging backdrop, we continue to deliver on an operating cost reduction. On a pro-forma combined basis in the first half of 2014, we reduced our non-GAAP operating expenses by more than $30 million or 27% over the first half of 2023 and delivered another reduction in adjusted EBITDA laws for the quarter. And we have already operationalized $60 million of our $80 million target cost synergies, which we expect will be fully reflected in our full year run rate entering 2025. Turning to sales mix in the second quarter, instruments accounted for 19% of revenue. Consumables and kits were 40%. Instruments support services 17%. And SOMAscan services 21%. While our SOMAscan service revenues remain concentrated and susceptible to quarterly variability, we are working hard to diversify our customer base, which will help to mitigate this. We are also expanding our near and medium term growth drivers of this business with more distributed solutions to complement our service business chiefly through our partnership with Illumina. In addition, we are exploring new models to selling SOMAscan, both with a lower Plexmo cost effective model and single SOMA-Mir reagents. But a single SOMA-Mir reagents productization is underway with the goal to launch a minimal viable product this fall. Furthermore, we continue to lean into our strategy to deploy our multi-omics as a service offering, which will leverage our SOMAscan and CITOF combined technology platforms and future platforms developed and acquired for offerings to expand our lab services business, providing customers premium data with clinical solution support. This white glove customer experience will further accentuate the complementarity of lab technologies and where they can best be applied. It's a natural extension of our existing offerings and provides a quicker path to technology adoption while avoiding some of the capital budget constraints currently facing the broader biopharma market. As we look to the next several quarters and beyond, we are incredibly well equipped to execute. First, we have assembled what we believe to be the most comprehensive proteomics platform in the industry with multiple revenue drivers and a platform to expand and complement those sources of revenue, both organically and inorganically. Second, we have an experienced leadership team committed to our continuous improvement initiative with a track work order driving growth, expanding growth margins, and reducing operating costs. And finally, our healthy balance sheet provides both runway and firepower to execute our long-term growth and strategic initiatives. We ended the second quarter with over $396 million in gas, which we see as a significant competitive advantage in a highly constrained capital environment for our sector. And with that, I'll now turn the call over to Jeff.
spk11: Thank you, Michael, and thank you all for joining us today. I first want to say a few words about my decision to leave Center Biotools. Since I started at the company almost 15 months ago, we've set an incredibly strong foundation for transformation. We're only just getting started. It's been a tremendous opportunity to be the CFO here working alongside Michael and the rest of our talented ELT team. I remain a steadfast believer in Michael, the team, and the SBI vision. I didn't take the decision lightly, but ultimately decided this new opportunity is the right move for me at this point in my career. It's an industry I know well, located closer to my home and my family. There's never a great time for a move like this, but I'm firmly committed to making the transition a success. Alex and I have been aligned in lockstep since my first day here, and our finance and IT organization is second to none. The leaders are hand-selected and the most capable team I know to continue the great work we started together.
spk12: Now turning to our results,
spk11: and as a reminder, our second quarter and first half 2024 results on an as-reported basis include the combined operations of Standard Biotools and Somalogic since the close of our merger January 5th of this year, while the same periods in 2023 include the financial results of Standard Biotools legacy business only. And so for comparative purposes, we think it's more meaningful to look at the combined operations for both businesses. So my commentary today will focus on the pro forma combined results of operations for Standard Biotools and Somalogic for both 23 and 24. Please refer to today's press release in the appendix to our investor deck for more information, including our reconciliation of the NOM GAAP measures I'll be discussing here. So starting with revenue, in the second quarter, pro forma combined revenue was just over $37 million, down 23 percent, and just over $83 million, down 11 percent for the first half of the year. This is as we continue to navigate lingering headwinds from a challenging economic environment and timing of orders from large pharma accounts. As Michael mentioned, second quarter revenue was predominantly impacted by our SOMA scan assay services, where we saw a number of customer projects extend past the second quarter. Approximately $9 million of the $11 million decrease in our second quarter revenue was attributed to our assay services business. Product revenue was just over $22 million in the second quarter, down 10 percent compared to 2023, and just under $46 million in the first half, up 6 percent compared to 2023. This is driven by the traction we're seeing in our SOMA scan assay kits and related businesses or business with continued expansion in our authorized sites, related pull through, as well as our Illumina early access program. Instruments and consumables was $16 million in the second quarter, down 27 percent, and $31 million in the first half of 2024, down 20 percent. We continue to navigate a macro environment that has constrained customer funding cycles and has extended sales cycles. We're seeing this impact on our instrument orders with a correlated impact on consumables, but we're encouraged by the sequential uptick we saw in instrument places and revenue growth compared to the first quarter. Service revenue was down $14 million in the second quarter, 37 percent down versus 2023, and $36 million in the first half, down about 25 percent. And as mentioned, the biggest driver of this decline was the SOMA scan related business, contributed about $8 million in revenue for the second quarter, down 50 percent, and just over $23 million in the first half of the year, down about 35 percent. But as Michael mentioned, we are encouraged by the early Q3 uptick in sample delivery from key pharma accounts. We expect that to continue to improve as we move through the back half of the year. Instrument support services contributed over $6 million in revenue in the second quarter, 9 percent decrease over 2023, and $13 million in the first half of 2024, roughly flat with 2023. And like our consumables, this revenue source is highly correlated with instrument placement, and we expect this will continue to expand as we grow the installed base over time. Turning quickly to our segment revenue, proteomics business as a whole today represents 75 to 80 percent of our revenue. This segment includes our flow cytometry, imaging instruments, consumables and instrument support services, as well as our SOMA scan assay services and kits business. It's more prone to variability from customer purchasing cycles than our genomic segment. It was down 27 percent for the quarter and 12 percent for the first half of 2024, but we expect proteomics to be our highest growth segment over the long term. Genomics was down 6 percent in the second quarter and in the first half of 2024. That's in line with expectations as we continue to manage the
spk09: business
spk11: through its planned transition, focusing on OEM and key strategic customer accounts. We've right-sized the OpEx over the past two years, and we're now driving the genomic segment to a positive contribution margin, margin targeting mid-single digits, but profitable revenue growth over the long term. Moving to our operating performance, starting with gross margin, our non-gap gross margin on a pro-forma combined basis was 45 percent in the second quarter versus 53 percent in 2023 and 51 percent for the first half of 2024 compared to 53 percent in the same period last year. In the second quarter, we did see headwinds of around 250 basis points from lower capacity utilization related to our lower SOMA scan assay services volumes and over 300 basis points impact from strategic decisions to replace or upgrade instruments in the field. Excluding the impact of these items, our non-gap gross margin would have been 51 percent, and we expect to continue to see improvements as our SOMA scan revenue volumes recover, replacement, upgrade costs decline, with some expected headwinds to continue in the second half of 2024, but encouragingly we're beginning to see our run rate warranty costs decrease. This is an early indicator that our corrective actions are beginning to have impact on longer-term gross margin expansion. So with all that said, we still remain confident in our ability to drive non-gap gross margins into the mid-60s over time, especially as we move past these transitory headwinds. We grow sales, we drive costs and efficiency improvements across our combined operations. Moving to operating expenses, as Michael mentioned, we're pleased to report that we're ahead of plan on our operating expense reduction initiatives. On a combined pro-forma basis, our non-gap op-ex of just under 48 million decreased by about 11 million, or 19 percent, in the second quarter, reflecting continued traction on expense reduction that began in the second half of 2023. For the first half of 2024, our non-gap op-ex decreased by about 33 million, or 27 percent, and as seen by the slight uptick in R&D spend for the second quarter, we continue to take a thoughtful strategic approach to our cost reduction actions, preserving core R&D investments as necessary. And these reductions are all before we see the full impact from restructuring initiatives that we implemented earlier this year and before the impact of any future cost reductions we plan to operationalize in the second half. To date, we've operationalized 60 million in annualized operating expense reductions versus our 2023 jumping-off point of 250 million. We've now committed to accelerate the remaining 20 million target by the end of the year. So in total, we expect that over 25 million of these savings will actually show up in the P&L in 2024, with the full P&L impact reflected in 2025. Based on these efforts, we're more enthusiastic than ever about the value we expect to generate under our now combined cost structure, leveraging the scale and reach of our diversified portfolio. We remain committed to adjust the EBITDA breakeven for the full year of 2026. We're prepared to manage costs even more aggressively if needed to get there.
spk13: At the same time,
spk11: as I said, we continue to maintain focused investments in commercial and R&D pipeline to support long-term growth. And finally, cash flow and the balance sheet, we ended the quarter, as Michael said, with about 396 million in cash, cash equivalents, restricted cash, and short-term investments. As we expected, our cash burn, while it sequentially improved over the first quarter, was still a typically high in the second quarter due to several merger-related and other non-operating uses of cash. In the aggregate, during the second quarter, we made about 38 million in cash payments for transaction and merger-related expenses and share repurchases. But excluding the impact of these items, our adjusted operating cash burn was about 28 million, representing about a 7% reduction over our pro-forma combined burn a year ago, even at a reduced revenue level. So while not at the levels we saw in the first and second quarter, we do expect continued cash outlays for merger integration and restructuring activities, but we're well positioned to fund both these non-operating cash needs and to support the combined business, the cash flow of rank even. And as we think about any future M&A, we remain very thoughtful and disciplined about additional strategic M&A when such opportunities arise, including the related use of cash. And then one final update on capital structure initiatives. As we previously announced, in February, the board approved a new share repurchase program of up to $50 million. Through the first half of 2024, we purchased approximately 15.4 million shares, about 4% of our common outstanding shares, for about $41 million in cash and an average repurchase price of $2.66 per share. As we shared in our first quarter call, while we still have room available under the $50 million authorization, we suspended the buyback plan on May 2nd. And in summary, we remain responsible stewards of our assets. We committed to create long-term value for our shareholders. And with that, I'll turn the call back to the operator for Q&A.
spk03: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Matt Stanton with Jefferies. Please go ahead.
spk02: Thanks. Maybe first one for Jeff on the guidance cut. So lower by 39 at the midpoint. The first half of the year, Q&A, QQ was about 10 or so below expectations. Could you talk about the remainder of the bridge on the cut in terms of products for service, proteomics first, genomics? What are you assuming for each of those for the year now? And then talk about visibility or clarity around the step up in the second half. I think even on the new guidance, it applies kind of a 10% step up in the back half for revs first half. Sounds like maybe early signs on soma skin and 3Q are encouraging, but anything else to help bridge the back half relative to the first half year? Thanks.
spk06: Hey, Matt, I'll let Jeff answer like a little bit more detail. Let me just sort of grab the horn first here. First of all, with Jeff and I in the room, we have Alex Kim who will step in as interim CFO here in a month when Jeff leaves us. First off, very excited, remain very excited about the soma skin business when we took it over. We knew it was heavily concentrated. So what we have seen here is really a year over year, tough comp on big customers and then a miss in forecasting, not applying our SPS principles here in the soma skin business. And we now have addressed that. So we have a firm grip on the business. We're definitely excited on where the business is going with the papers coming out showing the superiority of the platform, the growth we're seeing in the board, a customer base, and with time the big customers will level out and be a healthy component of the business but not dominating like this. Jeff, any comment you want to add? Just a bridge.
spk11: Yeah, Matt, we don't. We've not broken out the components either by segment or by product line in terms of what the back half looks like. But I think you hit on it as we are seeing encouraging signs of an uptick in some of the large pharma accounts. We're encouraged by the existing pipeline on the instrument side of the business. And so what you'll see is really just a mix of components that will drive that 10% sequential second half versus first half.
spk06: Yeah, and maybe just let me pipe in here again. I actually, in earlier investor talks, I pointed out that we're so overly dependent on a few big pharma companies. So a project, any one quarter can make us look like heros or whatever the opposite is. And indeed, we find ourselves here. So it was a known risk. The miss on my part was not sooner enough to implement this rigorous SBS forecasting style, which we have now. So we have very good visibility to the second half, hence the updated guidance.
spk02: OK, and maybe sticking with that lumpiness on the Somerset, I think you spiked a kind of high single digit millions impact in 2Q from that. Just to be clear, that's kind of timing related revenue and it didn't really go well. So I used to expect to kind of recoup that over the coming quarters as those handful of projects start to resume or spend in a more earnest way.
spk06: Yeah, so maybe back to the big case, I'll make sure to answer the question. So mostly timing here on the forecasting miss. We are overly reliant on a few big customers. So we have -on-year headwinds here. It's the nature of the business. We're working very deliberately at diversifying the mix through our authorized sites where we saw healthy growth. We have Illumina coming online here, the first half of 25. It's going well. We're excited about them taking over. And then we also, as I said here, we are launching a minimum viable product version of individual somersets. All the time we drive to diversify the revenue. But for this quarter here, it's really timing, but tough -on-year comps also on the big service contracts.
spk02: And then maybe one more, if I can, taking a step back. You reiterated the commitment to adjust to breakeven in 26, pulled forward the rest of the cost synergies by a year. How should we be thinking about the top line from here and any additional color you can provide in terms of the revenue base or growth between now and 26? I think it's probably unlikely the 300 million from prior, but just giving you a reiterate, the adjust to breakeven, any more color you can talk about on the revenue or growth side as we think about that in 26. Thanks.
spk06: Obviously, the 300 seems a bigger stretch given our callback here. We do, and let me be very clear about this, we do see very healthy growth across our portfolio, which is about 80% of the revenue. And even in our genomics portfolio, as our biggest OEM vendor has burned down their inventory and now part of Thermo, we also even see an uptick here in the back half and certainly by next year. The way we think of it is that we will be adjusted EBITDA positive no matter the top line. So irrespective of the top line, we will get to EBITDA breakeven in 26. And so that's how we think about it. And if we hit the higher end of our revenue outlook, no additional actions are acquired, and we'll probably go after it if we can. And if we hit the lower end, I will have to take out more costs, which I remain committed
spk04: to. Thank you. The next
spk03: question comes from Dan Brennan with TD Cowan. Please go ahead.
spk10: Hey guys, thanks for the questions. Maybe Jeff, obviously sorry to see you leave. Good luck with the next endeavor. Anything else you can share just about the decision to leave now? I mean, you've been at the helm for 15 months, particularly after kind of a mixed quarter. Just anything else you can kind of share about the decision to part?
spk11: Yeah, Dan, absolutely a personal decision. Returning to an industry I know well, working with people that I've worked with in the past, much closer to family and home. There's never a great time for these types of decisions. It's just the right decision for me at this point in my career. No disagreements with the management team. I remain a loyal shareholder who believes in the vision. I think it's – I'm proud of the fact that I was able to come in and really rebuild a finance organization that will now flourish under Alex. We're greatly aligned in our strategic and operational views. We have an incredibly strong team under me that's going to carry it on. So I wouldn't read into it at all other than just a very personal decision at an inopportune time for the company.
spk10: Thank you for that. And then maybe back to the question I know that was asked just earlier. Michael, you kind of addressed it a little bit with the rigorous kind of forecasting process that's now in place. But stock is going to be down a fair amount. I assumed it's on the miss and just departure. So you have the opportunity to really reset the guide and get it to a point that investors really feel good that it's pretty much de-risk. Can you speak a little bit more to like what the – any components? I know you guys don't go by components. So maybe you can share about how you guys arrived at the new number and kind of what you've kind of assumed in terms of the spending environment or anything like that that will give people confidence?
spk06: No, no. Thanks. That definitely instituted a tight process now on the SoMask end side, like following the projects from signing of the contract to sample receipt, which is remarkably difficult, non-trivial debt piece, but rigorous daily visual management in place. So the updated guidance is what we have visibility today. To answer your questions, we – this is done with the backdrop of a contained pharma spending environment, both on projects and on instruments. Should the market recover in the second half, I'll be the happiest man on earth here. But we're not assuming that for this piece. On the instrument side here, we keep building funnels. This was before my team should be equally busy whether people are buying instruments or not. If we're not selling instruments, we're building the funnel. And then maybe just the other growth vectors we're really leaning into now, it's not a big impact here in the second half, but next year we actually expect it to be another growth driver. It's this omics as a service where we lean into the fact that SoMologic built a very nicely, fully integrated service organization. We're adding SITAR, other technologies we're thinking of adding to what now will sort of come leading a lot profiling business. So where we're going to go and lead with service sales instead of instrument sales. And that's what we're working through now, both selling instruments and service, but really different customers, different solutions. And we expect that that will lead to higher growth in the future, not a huge impact the second half, but will be a tailwind for sure on second half revenue, but not strong enough.
spk10: Got it. I mean one final, just like instruments and consumables, obviously you're in a tough capex environment. Anything you could speak to about the relative trends in the quarter and how they came in and how you're thinking about the back half of those?
spk06: Yeah, so the consumable spend is, or the consumable revenue, if you include the authorized side in it, the way I look at it, we actually have flat year over year, we should have been increasing. So, but any one contract can push it, so it wouldn't over index on what is a flat number. It's also still very early in the XTI launch, the Hyperion XTI, the imaging platform, which will drive a lot of future consumable revenue because of its much higher throughput. And then all the fixing we had to do on our site of XT flow business, but we really believe we're on the other side of a number of issues we had to work through. And eventually our customers will step up the consumable pull through, but a million dollar pharma contract, even on consumables here, can move it from one quarter to another. And you may recall we actually had a very good Q2 last year, so it's also a tough year over year, so we're not over index on it.
spk04: Okay, all right guys, thank you very much.
spk03: The next question comes from Paul Knight with KeyBank. Please go ahead. Hi Michael,
spk07: what was genomics in the quarter in terms of revenue, and I think you're calling out a pickup sequentially in the second half. But is that a growing business in future years, first question?
spk06: Yeah, no, so last year when we took over what was fluid iron, we did surgery on the cost structure, changed the strategy radically, and so it's down almost at 6% in the first half of the year. And that's as, it's sort of what we call a managed decline as we're bleeding off people that are moving to NGS, like long-term trend. I've been talking about that I think the last three or four earnings calls. We're going to be through that 12, 18 months, so this is sort of the headwind. The tailwind here is that our OEM now partners, we have O-Link and NextGen diagnostic as partners, and a working additional relationship are picking up. Plus we found a couple of nice niches that are actually experiencing healthy growth. So second half next year should be flat, and then we should see a nice tick. And it is, as Jeff pointed out, the business is creative on a contribution basis, and we preserved with that a very strong technology basis, so we still have that core microfluidics technology capability, which we believe will be useful for us in the future, and we have a -the-art manufacturing plant in Singapore that we actually expect to leverage across the business. So we're absolutely going to keep the microfluidics business, and we're going to grow it, and it's going to be a nice driver of profit here in the coming years.
spk07: And on the Soma Magic decline year over year, is that business that can be recouped or no?
spk06: Yeah, so it's like, Paul, you have to remember a handful of customers in any one year makes up the majority of the revenue on the Soma Scan service side. And so any one year it will fluctuate. As I said, we're leaning into that service, expanding the service, building it, and want to expand it to more than a few handfuls. And then we are moving to a distributed solution for now with our authorized sites, and then with Illumina, and then getting the auto revenue driver on. And the particular projects delayed here, yeah, they will come later, but all projects are shifted out, hence the takedown of the guide. Okay, thanks. I haven't launched any one project. Okay.
spk03: This concludes our question and answer session. I would like to turn the conference back over to Michael Eggholm for any closing remarks.
spk04: Yeah, thanks, Drew, and thank you for
spk06: the question, and thank you for listening. We thank you all for your continued support. We look forward to seeing many of you at the Cannacote Genomics 44th Annual Group Conference on August 13 in Boston, and then at the UBS Genome Medicine Summit on August 14 in Laguna Beach. So looking forward to see you all, and back to you, Drew.
spk03: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
spk00: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
spk03: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
spk14: Thank you, Operator, and good afternoon, everyone. Welcome to Standard BioTools' second quarter 2024 earnings conference call. Leading the call today is Michael Eggholm, President and Chief Executive Officer, and Jeff Black, Chief Financial Officer. At the close of Market Today, Standard BioTools released its financial results for the quarter ended June 30, 2024. During this call, we will review our results and provide an update on our financial and operational performance, 2024 outlook, market trends, and strategic initiatives. During the call, we will make forward-looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, our outlook for 2024 and future financial results, market trends and opportunities, our expectations related to the combined operations with Somalogic, including potential synergies and our business outlook for the combined company. 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 on 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 these non-GAAP financial measures are useful in evaluating our core performance and as a baseline for assessing the 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 on a GAAP and non-GAAP basis. The reconciliation between non-GAAP measures and their GAAP equivalents are provided in the tables accompanying today's press release and as an appendix to today's presentation slides. Please note that management will be referring to a slide presentation, including updated supplemental financial information within the webcast today. Following prepared remarks, we will host a Q&A session. Today's presentation will be available on the website as well as the webcast on the Investor Relations section of the website. I would now like to turn the call over to Michael Echolm, President and CEO of Standard BioTools. Michael?
spk06: Thank you, David, and good afternoon, everyone. We appreciate you joining us today. Before we discuss our quarterly results, I want first to touch on the leadership news we announced this afternoon. As you saw from our announcement today, Jeff Black has accepted an opportunity in another public company located closer to home and family. Jeff helped us build a strong finance function with talented and capable leaders, but position us well for a seamless transition. We appreciate Jeff's contributions, his decision and wish him all the best. He will remain with SBI through August 31st to ensure a smooth transition of his responsibilities. We have started a search for permanent successor, and we're fortunate to already have a deep bench of talent across our leadership team and throughout our finance and IT organizations. Starting on September 1, Alex Kim, our longtime chief operating officer and a co-founder of Standard BioTools, will take on the interim CFO role and will continue to lead strategic planning and integration of acquisitions. We also recently appointed Sean McKay as our new chief business officers, who now assumes responsibility for strategic business development, product management, marketing, and investor relations functions. With that, let's discuss our results. Our team's focus on cost structure and early integration of Sumo Logic has accelerated synergy realization in the quarter, and we are now pulling forward the $80 million cost reduction target to the end of 2024, a year ahead of plan, keeping us in the track to achieve break-even adjusted EBITDA for the full year 2026. The strong operational execution was offset by weaker than anticipated second quarter revenue, as so much services experienced contract delays and instrument revenue was down year over year. While the latter is largely attributed to headwinds from the ongoing industry-wide restricted capital purchasing environment, as peers have reported, combined with the service business variability discussed, we are revising our revenue guidance to -$175 million for the full year 2024. We're confident that industry issues are transitory and some encouraging signs are emerging in particular markets. Further, our operating system, SBS, has become deeply embedded in the new businesses, focused on delivering improved forecasting, shortened sales cycles, and in time, expanded product offerings to enable a more diversified customer base. SumoScan and its proprietary Apptimate technology is a leading proteomics platform with tremendous upside. We're excited to be partnering with Illumina and their full commercial release in the first half of 2025, enabling the SumoScan assay on Illumina's NovoSig platform, which has an installed base of around 2,200 instruments. Most importantly, we remain committed to a -break-even adjusted EPIDAR for the full year 2026. We're well-capitalized with nearly $400 million in cash to execute on our strategic vision of building a scaled, craftable multi-ormic solution life science business. At Stata BioTools, we're grounded in the reality that the life science technology and service industry is highly fragmented, filled with small enabling solutions and brilliant technologies, but in desperate need of operational scale and the commercial and manufacturing expertise to achieve that. This is the perfect setup for strategic M&A, which is central to our strategy and an area we continue to be active. In fact, we believe the current market dynamic is creating opportunities for us to accelerate our consolidation thesis to drive additional scale, diversification, and shareholder value. In summary, despite a challenging quarter, we remain confident in our long-term outlook, and we will stay the course on our vision to become a leading, diversified life science leader with the -in-class technology platform and several differentiated growth vectors and a team of operators that understand what it takes to execute in any environment. Turning to our quarterly performance and highlights, revenue as on a reported basis grew 57% in the first half of 2024 and 34% in the second quarter. On a performed, combined basis, revenue declined 11% in the first half and 23% in the second quarter. Our -than-expected revenue results were driven primarily by two factors. First, we experienced project delays for summer scan assay services, largely by select customers in the M&A region. We are encouraged, however, by an early third quarter uptake and key farm account activity provided as an early optimism for potential improvement in this segment as we move through the second half of the year. Instrument revenues was down -over-year, but we saw a 40% sequential improvement compared to the first quarter of 2024. While we experienced continued economic pressure in the CapEx instrument purchasing cycles in the second quarter, largely consistent with what we saw in the first quarter, we are encouraged by this sequential increase in placements in the second quarter. As stated above, we have seen sales cycle extent across the portfolio. The opportunities remain available just on an elongated timeline. Against this challenging backdrop, we continue to deliver on an operating cost reduction. On a pro-forma combined basis in the first half of 2024, we reduced our non-GAAP operating expenses by more than 30 million or 27% over the first half of 2023 and delivered another reduction in adjusted EBITDA laws for the quarter. And we have already operationalized 60 million of our $80 million target cost energies, which we expect will be fully reflected in our full year run rate entering 2025. Turning to sales mix in the second quarter, instruments accounted for 19% of revenue, consumables and kits were 40%, instrument support services 17%, and SOMA scan services 21%. While our SOMA scan service revenues remain concentrated and susceptible to quarterly variability, we are working hard to diversify our customer base, which will help to mitigate this. We are also expanding our near and medium term growth drivers of this business with more distributed solutions to complement our service business chiefly through our partnership with Illumina. In addition, we are exploring new models to selling SOMA scan, both with a lower Plexmo cost effective model and single SOMA reagents. But a single SOMA reagents productization is underway with the goal to launch a minimal viable product this fall. Furthermore, we continue to lean into our strategy to deploy our multi-omics as a service offering, which will leverage our SOMA scan and site of combined technology platforms and future platforms developed and acquired for offerings to expand our lab services business, providing customers premium data with clinical solution support. This might block customer experience with further accentuated complementarity of lab technologies and where they can best be applied. It's a natural extension of our existing offerings and provides a quicker path to technology adoption while avoiding some of the capital budget constraints currently facing the broader biofarm market. As we look to the next several quarters and beyond, we are incredibly well equipped to execute. First, we have assembled what we believe to be the most comprehensive proteomics platform in the industry with multiple revenue drivers and a platform to expand and complement those sources of revenue, both organically and inorganically. Second, we have an experienced leadership team committed to our continuous improvement initiative with a track record of driving growth, expanding gross margins and reducing operating costs. And finally, our healthy balance sheet provides both runway and firepower to execute our long term growth and strategic initiatives. We ended the second quarter with over $396 million in gas, which we see as a significant competitive advantage in a highly constrained capital environment for our sector. And with that, I'll now turn the call over to Jeff.
spk11: Thank you, Michael, and thank you all for joining us today. First, I want to say a few words about my decision to leave Center Biotools. Since I started the company almost 15 months ago, we've set an incredibly strong foundation for transformation. We're only just getting started. It's been a tremendous opportunity to be the CFO here, working alongside Michael and the rest of our talented ELT team. I remain a steadfast believer in Michael, the team, and the SBI vision. I didn't take the decision lightly, but ultimately decided this new opportunity is the right move for me at this point in my career. It's an industry I know well, located closer to my home and my family. There's never a great time for a move like this, but I'm firmly committed to making the transition a success. Alex and I have been aligned in lockstep since my first day here, and our finance and IT organization is second to none. The leaders are hand-selected and the most capable team I know to continue the great work we started together.
spk12: Now, turning to our results,
spk11: and as a reminder, our second quarter and first half 2024 results, on an as-reported basis, include the combined operations of Standard Biotools and Somalogic since the close of our merger January 5th of this year, while the same periods in 2023 include the financial results of Standard Biotools legacy business only. And so for comparative purposes, we think it's more meaningful to look at the combined operations for both businesses. So my commentary today will focus on the pro forma combined results of operations for Standard Biotools and Somalogic for both 2023 and 2024. Please refer to today's press release and the appendix to our investor deck for more information, including our reconciliation of the NOM GAAP measures I'll be discussing here. Starting with revenue, in the second quarter, pro forma combined revenue was just over $37 million, down 23 percent, and just over $83 million, down 11 percent for the first half of the year. This is as we continue to navigate lingering headwinds from a challenging economic environment and timing of orders from large pharma accounts. As Michael mentioned, second quarter revenue was predominantly impacted by our SOMA scan assay services, where we saw a number of customer projects extend past the second quarter. Approximately $9 million and the $11 million decrease in our second quarter revenue was attributed to our assay services business. Product revenue was just over $22 million in the second quarter, down 10 percent compared to 2023, and just under $46 million in the first half, up 6 percent compared to 2023. This is driven by the traction we're seeing in our SOMA scan assay kits and related businesses or business with continued expansion in our authorized sites and related pull through, as well as our Illumina Early Access Program. Instruments and consumables was $16 million in the second quarter, down 27 percent, and $31 million in the first half of 2024, down 20 percent. We continue to navigate a macro environment that has constrained customer funding cycles and has extended sales cycles. We're seeing this impact on our instrument orders with a correlated impact on consumables, but we're encouraged by the sequential uptick we saw in instrument places and revenue growth compared to the first quarter. Service revenue was down $14 million in the second quarter, 37 percent down versus 2023, and $36 million in the first half, down about 25 percent. And as mentioned, the biggest driver of this decline was the SOMA scan related business, which contributed about $8 million in revenue for the second quarter, down 50 percent, and just over $23 million in the first half of the year, down about 35 percent. But as Michael mentioned, we are encouraged by the early Q3 uptick in sample delivery from key pharma accounts. We expect that to continue to improve as we move through the back half of the year. Instrument support services contributed over $6 million in revenue in the second quarter, 9 percent decrease over 2023, and $13 million in the first half of 2024, roughly flat with 2023. And like our consumables, this revenue source is highly correlated with instrument placement, and we expect this will continue to expand as we grow the installed base over time. Turning quickly to our segment revenue, proteomics business as a whole today represents 75 to 80 percent of our revenue. This segment includes our flow cytometry, imaging instruments, consumables and instrument support services, as well as our SOMA scan assay services and kits business, is more prone to variability from customer purchasing cycles than our genomics segment. It was down 27 percent for the quarter and 12 percent for the first half of 2024, but we expect proteomics to be our highest growth segment over the long term. Genomics was down 6 percent in the second quarter and in the first half of 2024. That's in line with expectations as we continue to manage the
spk09: business
spk11: through its planned transition, focusing on OEM and key strategic customer accounts. We've right-sized the OpEx over the past two years, and we're now driving the genomics segment to a positive contribution margin, targeting mid-single digits, but profitable revenue growth over the long term. Moving to our operating performance, starting with gross margin, our non-GAAP gross margin on a pro-forma combined basis was 45 percent in the second quarter versus 53 percent in 2023 and 51 percent for the first half of 2024 compared to 53 percent in the same period last year. In the second quarter, we did see headwinds of around 250 basis points from lower capacity utilization related to our lower SOMA scan assay services volumes and over 300 basis points impact from strategic decisions to replace or upgrade instruments in the field. Excluding the impact of these items, our non-GAAP gross margin would have been 51 percent, and we expect to continue to see improvements as our SOMA scan revenue volumes recover, replacement, upgrade costs decline, with some expected headwinds to continue in the second half of 2024. But encouragingly, we're beginning to see our run rate warranty costs decrease. This is an early indicator that our corrective actions are beginning to have impact on longer-term gross margin expansion. So with all that said, we still remain confident in our ability to drive non-GAAP gross margins into the mid-60s over time, especially as we move past these transitory headwinds, we grow sales, we drive costs and efficiency improvements across our combined operations. Moving to operating expenses, as Michael mentioned, we're pleased to report that we're ahead of plan on our operating expense reduction initiatives. On a combined pro-forma basis, our non-GAAP OPEX of just under 48 million decreased by about 11 million, or 19 percent, in the second quarter, reflecting continued traction on expense reduction that began in the second half of 2023. For
spk13: the first half
spk11: of 2024, our non-GAAP OPEX decreased by about 33 million, or 27 percent, and as seen by the slight uptick in R&D spend for the second quarter, we continue to take a thoughtful strategic approach to our cost reduction actions, preserving core R&D investments as necessary. And these reductions are all before we see the full impact from restructuring initiatives that we implemented earlier this year and before the impact of any future cost reductions we plan to operationalize in the second half. Today, we've operationalized 60 million in annualized operating expense reductions versus our 2023 jumping off point of 250 million. We've now committed to accelerate the remaining 20 million target by the end of the year. So in total, we expect that over 25 million of these savings will actually show up in the P&L in 2024, with the full P&L impact reflected in 2025. Based on these efforts, we're more enthusiastic than ever about the value we expect to generate under our now combined cost structure, leveraging the scale and reach of our diversified portfolio. We remain committed to adjusting EBITDA break even for the full year of 2026. We're prepared to manage costs even more aggressively if needed to get there.
spk13: At the same time,
spk11: as I said, we continue to maintain focused investments in commercial and R&D pipeline to support long-term growth. And finally, cash flow and the balance sheet, we ended the quarter as Michael said, with about 396 million in cash, cash equivalents, restricted cash, and short-term investments. As we expected, our cash burn, while it's sequentially improved over the first quarter, was still a typically high in the second quarter due to several merger-related and other non-operating uses of cash. In the aggregate, during the second quarter, we made about 38 million in cash payments for transaction and merger-related expenses and share repurchases. But excluding the impact of these items, our adjusted operating cash burn was about 28 million, representing about a 7% reduction over our pro-former combined burn a year ago, even at a reduced revenue level. So while not at the levels we saw in the first and second quarter, we do expect continued cash outlays for merger integration and restructuring activities, but we're well positioned to fund both these non-operating cash needs and to support the combined business, the cash flow of rate even. And as we think about any future M&A, we remain very thoughtful and disciplined about additional strategic M&A when such opportunities arise, including the related use of cash. And then one final update on capital structure initiatives. As we previously announced, in February, the board approved a new share repurchase program of up to $50 million. Through the first half of 2024, we purchased approximately 15.4 million shares, about 4% of our common outstanding shares, for about $41 million in cash and an average repurchase price of $2.66 per share. As we shared in our first quarter call, while we still have room available under the $50 million authorization, we suspended the buyback plan on May 2nd. And in summary, we remain responsible stewards of our assets. We committed to create long-term value for our shareholders. And with that, I'll turn the call back to the operator for Q&A.
spk03: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Matt Stanton with Jeffries. Please go ahead.
spk02: Thanks. Maybe first one for Jeff on the guidance cut. So lower by $30 million at the midpoint. 2Q was about $10 or so below expectations. Could you talk about the remainder of the bridge on the cut in terms of products for service, proteomics versus genomics? What are you assuming for each of those for the year now? And then talk about visibility or clarity around the step up into second half. I think even on the new guidance, it implies kind of a 10% step up in the back half for RABs versus first half. Sounds like maybe early signs on soma skin and 3Q are encouraging, but anything else to help bridge the back half relative to the first half year.
spk06: Thanks. Hey, Matt, I'll let Jeff answer like a little bit more detail. Let me just sort of grab the horn first here. First of all, with Jeff and I in the room, we have Alex Kim, who will step in as interim CFO here in a month when Jeff leaves us. First off, very excited, remain very excited about the soma skin business. When we took it over,
spk05: we knew
spk06: it was heavily concentrated. So what we've seen here is really a year over year, tough comp on big customers and then a miss in forecasting, not applying our SPS principles here in the soma skin business. And we now have addressed that. So we have a firm grip on the business. We're definitely excited on where the business is going with the papers coming out showing the superiority of the platform, the growth we're seeing in the board, a customer base, and with time, the big customers will level out and be a healthy component of the business, but not dominating like this. Jeff, any comment you want to add? Just a bridge.
spk11: Yeah, Matt, we don't. We've not broken out the components either by segment or by product line in terms of what the back-up looks like. But I think you hit on it is we are seeing encouraging signs of an uptick in some of the large pharma accounts. We're encouraged by the existing pipeline on the instrument side of the business. And so what you'll see is really just a mix of components that will drive that 10% sequential second half versus first half.
spk06: Yeah, and maybe just let me pipe in here again. I actually, I think in earlier investor talks, I pointed out that we're so overly dependent on a few big pharma companies. So a project, any one quarter can make us look like heroes or whatever the opposite is. And indeed, we find ourselves here. So it was a known risk that the miss on my part was not sooner enough to implement this rigorous SPS forecasting style, which we have now. So we have very good visibility to the second half, hence the updated guidance.
spk02: Okay, and maybe sticking with that lumpiness on the SOMA side, do you expect that kind of high single digit millions impact in 2Q from that? Just to be clear, that's kind of timing related revenue and it didn't really go elsewhere. Do you still expect to kind of recoup that over the coming quarters as those handful of projects start to resume or spend in a more earnest way?
spk06: Yeah, so maybe back to the big case, I'll make sure to answer the question. Yeah, so mostly timing here on the forecasting miss. We are overly reliant on a few big customers. So we have -over-year headwinds here. It's the nature of the business. We're working very deliberately at diversifying the mix through our authorized sites where we saw a healthy growth. We have Illumina coming online here the first half of 2025. It's going well. We're excited about them taking over. And then we also, as I said here, we are launching a minimum viable product version of individual SOMA mares. All the time we drive to diversify the revenue. But for this quarter here, it's really timing, but tough -over-year comps also on the big service contracts.
spk02: And then maybe one more, if I can, taking a step back. You reiterated the commitment to adjusted breakeven in 2016, pulled forward the rest of the cost synergies by a year. How should we be thinking about the top line from here in any additional color you can provide in terms of the revenue base or growth between now and 2016? I think it's probably unlikely that 300 million from prior, but just give me a reiterate, the adjusted breakeven, any more color you can talk about on the revenue or growth side as we think about that in 2016.
spk06: Thank you. Obviously, the 300 seems a bigger stretch given our callback here. We do, and let me be very clear about this, we do see very healthy growth across our portfolio, which is about 80% of the revenue. And even in our genomics portfolio, as our biggest OEM vendor has burned down their inventory and now part of Thermo, we also even see an uptick here in the back half and certainly by next year. The way we think of it is that we will be adjusted EBITDA positive no matter the top line. So irrespective of the top line, we will get to EBITDA breakeven in 2016. And so that's how we think about it. And if we hit the higher end of our revenue outlook, no additional actions are acquired, although we'll probably go after it if we can. And if we hit the lower end, I will have to take out more costs, which I remain
spk04: committed to. Thank you. The next
spk03: question comes from Dan Brennan with TD Cowan. Please go ahead.
spk10: Hey guys, thanks for the questions. Maybe Jeff, obviously sorry to see you leave, excuse me, good luck with the next endeavor. Anything else you can share just about the decision to leave now? I mean, you've been at the helm for 15 months, you know, particularly after kind of a mixed quarter. Just anything else you can kind of share about the decision to depart?
spk11: Yeah, Dan, absolutely a personal decision. Returning to an industry I know well, you know, with working with people that I've worked with in the past, much closer to family and home. There's never a great time for these types of decisions. It's just the right decision for me at this point in my career. I have no disagreements with the management team. I remain a loyal shareholder who believes in the vision. I think it's, you know, I'm proud of the fact that I was able to come in and really rebuild a finance organization that will now flourish under Alex. We're greatly aligned in our strategic and operational views. And we have an incredibly strong team under me that's going to carry it on. So I wouldn't read into it at all other than just a very personal decision at an inopportune time for the company.
spk10: Thank you for that. And then maybe back to the question I know that was asked just earlier, Michael, you kind of addressed it a little bit with, you know, the rigorous kind of forecasting processes now in place. But you know, stocks are going to be down a fair amount, you know, I assume just on the miss and just departure. So you have the opportunity to really reset the guide and get it to a point that people, you know, investors really feel good that it's, you know, pretty much do risk. Can you speak a little bit more to like what the, any components? I know you guys don't go by components. Anything else you can share about how you guys arrived at the new number and kind of what you've kind of assumed in terms of the spending environment or anything like that that will give people confidence?
spk06: No, no, thanks. That definitely instituted a tight process now on the SoMask end side, like following the projects from signing of the contract to sample receipt, which is remarkably difficult, non-trivial debt piece, but rigorous daily visual management in place. So the updated guidance is what we have visibility today. To answer your questions, this is done with the backdrop of a contained pharma spending environment, both on projects and on instruments. Should the market recover here the second half, I'll be the happiest man on earth here, but we're not assuming that for this piece on the instrument side here. We keep building funnels. My team should be equally busy whether people are buying instruments or not. If we're not selling instruments, we're building the funnel. And then maybe just the other growth vectors we're really leaning into now. It's not a big impact here in the second half, but next year we actually expected to be another growth driver. What we're really looking at here is this omics as a service where we lean into the fact that SoMologic built a very nicely, fully integrated service organization. We're adding SITOF, other technologies we're thinking of adding to what now will be leading a lot profiling business, where we're going to go and lead with service sales instead of instrument sales. And that's what we're working through now, both selling instruments and service, but really different customers, different solutions. And we expect that that will lead to higher growth in the future, not a huge impact the second half, but will be a tailwind for sure on second half revenue, but not strong enough.
spk10: Got it. I mean one final, just like instruments and consumables, obviously you're in a tough capex environment. Anything you could speak to about the relative trends in the quarter and how they came in and how you're thinking about the back half of those?
spk06: Yeah, so the consumable spend is, or the consumable revenue, if you include the authorized side in it, the way I look at it, we actually have flat year over year. We should have been increasing. But any one contract can push it, so it wouldn't over index on what is a flat number. It's also still very early in the XTI launch, the Hyperion XTI, the imaging platform, which will drive a lot of future consumable revenue because of its much higher throughput. And then all the fixing we had to do on our site of XT float business, but we really believe we're on the other side of a number of issues we had to work through. And eventually our customers will step up the consumable pull through. But a million dollar Pharma contract, even on consumables here, can move it from one quarter to another. And you may recall we actually had a very good Q2 last year, so it's also a tough year over year. So we're not over index on it.
spk04: Okay. All right, guys. Thank you very much.
spk03: The next question comes from Paul Knight with KeyBank. Please go ahead.
spk07: Hi, Michael. What was genomics in the quarter in terms of revenue? And I think you're calling out a pickup sequentially in the second half. But is that a growing business in future years? First question.
spk06: Yeah, no. So we last year or when we took over, it was fluid iron. We did surgery on the cost structure, changed the strategy radically. And so it's down over 6% in the first half of the year. And that's as, and it's sort of what we call a managed decline as we're bleeding off people that are moving to NGS, like long term trend. I've been talking about that, I think, the last three or four earnings calls. We're going to be through that 12, 18 months. So this is the headwind. The tailwind here is that our OEM now partners, we have O-Link and NextGen Diagnostics as partners and a working additional relationship are picking up. Plus, we found a couple of nice niches that are actually experiencing healthy growth. So second half next year should be flat and then we should see a nice tick. And it is, as Jeff pointed out, the business is creative on a contribution basis. And we preserved with that very strong technology basis. So we still have that core microfluidics technology capability, which we believe will be useful for us in the future. And we have a state of the art manufacturing plant in Singapore that we actually expect to leverage across the business. So we're absolutely going to keep the microfluidics business and we're going to grow it and it's going to be a nice driver of profit here in the coming years.
spk07: And on the Soma Magic decline year over year, is that business that can be recouped or no?
spk06: Yeah, so it's like, Paul, you have to remember a handful of customers in any one year makes up the majority of the revenue on the Soma Scan Service side. And so any one year it will fluctuate. As I said, we're leaning into that service, expanding the service, building it and want to expand it to more than a few handfuls. And then we are moving to a distributed solution for now with our authorized size and then with Illumina and then getting the auto revenue driver on. And the particular projects delayed here, yeah, they will come later. But all projects are shifted out, hence the take down of the guide. Okay, thanks. I haven't lost any one project. Okay.
spk03: This concludes our question and answer session. I would like to turn the conference back over to Michael Eggholm for any closing remarks.
spk04: Yeah, thanks, Drew. And thank
spk06: you for the question and thank you for listening. And we thank you all for your continued support. We look forward to seeing many of you at the Cannacode Genuity 44th Annual Group Conference on August 13 in Boston and then at the UBS Genome Medicine Summit on August 14 in Laguna Beach. So looking forward to see you all and back to you, Drew.
spk03: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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