Singular Genomics Systems, Inc.

Good day, ladies and gentlemen, and welcome to the Singular Genomics Systems Incorporated Second Quarter 2022 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Philip Taylor, with the Gilmartin Group. Sir, the floor is yours.

Thank you, Operator. Presenting today are Singular Genomics founder and Chief Executive Officer, Bruce Fabenta, and Head of Finance, Dalen Meader. Earlier today, Singular Genomics released financial results for the three months ended June 30th, 2022. A copy of the press release is available on the company's website. Before we begin, I would like to inform you that comments and responses to your questions during today's call reflect management's views as of today, August 9th, 2022 only. and will include forward-looking statements and opinion statements, including predictions, estimates, plans, expectations, and other information related to our financial and operating results, plans, and strategies. Actual results may differ materially from those expressed or implied from these statements as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission including our most recent Form 10-K or 10-Q and the Form 8-K filed with today's press release. Our SEC filings can be found on our website or on the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. Please note that this conference call will be available for audio replay on our website at singulargenomics.com, on the events page, of the news and events section on our investors page. With that, I will turn the call over to CEO Drew Spaventa.

Hello, and thank you for joining Singular Genomics' second quarter 2022 conference call. My prepared remarks today will focus on the G4 commercial launch progress, including some detail on our target customer segments, capabilities and application expansion for the G4, our product roadmap, and some color on our near-term outlook and priorities. Then Daylon will detail the financial results and provide some commentary on expectations going forward before I conclude. Before I cover specific recent business highlights and updates, I'm going to share my perspective on Singular's positioning within the overall market relative to early commercial activity and long-term value creation. My goal is to be as direct and clear as possible. On the one hand, the second quarter was an extremely productive one for Singular, culminating in the shipment of our first production G4 system in June, continued excitement from customers around the value proposition all of which i will get into however as i suspect is evident to most listeners the market and macroeconomic conditions continue to evolve impacting how we and others think about operating our businesses we find ourselves in a very different world today compared to the first half of 2021 and we are focused on adapting to the realities of the current market some challenges have manifested themselves in the supply side with continued and in some cases exacerbated vendor and supply chain bottlenecks, affecting our ability to obtain certain parts. This has had some impact on our ability to scale manufacturing on schedule. In addition, considerations around cash burn and runway have led us and many of our peer group companies to rethink the pace of investments and roadmap priorities to ensure financial flexibility in the event of an extended market downturn. While we remain confident in our technology, the G4 product profile, our product roadmap, and long-term success, this change in mindset and shift in organizational priorities has downstream impacts on how aggressively we hire and spend. This may also have similar effects on the customer side, which could translate to altered demand dynamics. These changes in the reality of the current environment have implications in the context of how we think about building our business. Since inception, Singular has demonstrated a steadfast discipline in capital efficiency, focused spend, lean execution, agility, phase appropriate investment, and frankly scrappiness. These core cultural tenants have served Singular well to date. We believe this continued disciplined approach to spend and investment will serve us well going forward. I will go into more detail on market dynamics and what we are doing to adapt to this changing landscape. Before I talk further on this topic, let's cover a very productive and exciting list of Q2 updates. In line with our previous commentary, Singular shipped our first commercial G4 unit in June. We are at the start of the next chapter of growth for our company as our vision to advance sequencing materializes. The G4 offers unmatched power, speed, and flexibility in a benchtop instrument, including market-leading key performance indicators, or KPIs, such as data output rate, runtime, flow cell and lane-to-lane flexibility, and number of reads per run. Based on the initial orders, robust activity with prospects, and a growing sales funnel comprised of inbound and outbound leads, we remain confident in our potential to drive meaningful penetration of the sequencing market across our target customer segments. F2 flow cell kits are now available, and we are on track to ship the F3 flow cell later this year. At AGBT, we introduced our MaxRead or M-series flow cell kits. Feedback has been overwhelmingly positive. We believe the M-series kits will offer a highly unique solution ultra-short read sub-100 base kits that provide NovaSeq-level read counts at more attractive pricing. We plan to launch initially with the M2 kit, which will feature up to 1 billion reads per flow cell or up to 4 billion reads per run for short read applications. In addition, we are pleased to announce that we have hired Sam Ropp as our Chief Commercial Officer. Sam is an accomplished commercial leader in the life sciences space. He brings nearly 20 years of experience building and scaling commercial teams, including sales, marketing, and customer support. He joined Singular from 10X Genomics, most recently serving as Senior Vice President of Global Sales. Cam spent the last five years at 10X building and leading all aspects of regional sales, marketing, support, and global sales operations. His proven track record of building successful commercial organizations and driving sales will help propel Singular as we grow our commercial offering with the G4 and plan for future commercialization of the PX system. Dan has hit the ground running and is in the field speaking with customers to gain experience that will inform strategy and process development. We look forward to seeing the impact of his commercial and executive leadership. Turning to target customer profiles, we group customers into three segments, academic labs, clinical and research commercial labs, and emerging growth labs. I will provide more detail on the opportunity within each of these three target customer segments, how the G4 value proposition is resonating, and how we are addressing each segment's prospective customer needs. Number one, academic labs. These labs are often providing sequencing services for multiple principal investigators, or PIs, and researchers, and are running a wide range of applications with diverse sequencing requirements, such as RNAC, single-cell, targeted panels, exomes, whole genome, and other multi-omics experiments. The flexibility of 16 individually addressable lanes across four flow cells in a single run, coupled with a 19-hour or less runtime, is an appealing value proposition for these customers. In our discussions, lab directors have indicated that the G4's ability to allocate individual lanes to PIs without the risk of sample contamination from pooling or the ability to sell individual lanes at a lower price point provides a compelling and unique value proposition. Our early sales focus within this segment has been to identify labs and KOLs that will help generate data and publications. These efforts are necessary in the early stages of commercialization to provide further third-party validation of the technology given we are a new entrant in the NGF space. Number two, clinical and research commercial labs. These commercial organizations often run a wide range of both research and clinical sequencing applications, such as RNA-seq, targeted panels, exomes, and rapid-hold genomes. Clinical sequencing is often done in the form of LVTs in a CLIA lab environment. The G4's power and speed, or gigabase throughput per hour, are attractive selling points for these labs that want to run more samples with shorter turnaround times. When combining this power and speed with the flexibility of the G4, these customers can run their samples quickly and cost-effectively versus having to wait and batch like-sized samples or runs. Our initial focus within this segment is then to target early innovators and technology adopters that will help prove out the robustness of the G4 system in the field. We are actively leveraging our internal customer care lab to assist in the sales cycle with these customers. This courtesy pre-sale service is proving an effective way to validate prospective customer applications on the G4 via sample optimization and testing in advance of purchasing. Number three, emerging growth labs. These labs typically span across both research and clinical LDT-based applications, such as RNA-seq, single-cell, targeted panels, spatial, and proteomics. This profile of customer is cost-conscious and looking for a solution that can scale up with their sequencing needs over time, providing varying throughput options. We believe the combination of power, speed, and flexibility of the G4 is perfectly suited for this customer profile. It offers the customer attractive pricing for both smaller scale down experiments and higher throughput runs as they scale. The flexibility enables more frequent runs and facilitates more rapid R&D iteration. A single G4 system and its capital cost is much cheaper than scaling with other benchtop offerings, which would require three to four similarly priced instruments to match a single G4's capabilities. Our sales team has been heavily engaged with this segment in a high-touch sales process. Interactions with customers in this segment typically require customized cost modeling support to highlight the overall ROI and lower cost of ownership versus other competitive systems. Some of these customers are sensitive to the upfront capital purchase model for the instrument. For these customers, we are working with them to provide flexible financing and sales options. Our aim is to establish long-lasting relationships and grow with these customers over time as their businesses scale. Overall, we are pleased with the robustness of the sales funnel and the feedback received from customer discussions in the field. We have received orders from customers within each of our target customer segments and continue to believe the value proposition of G4 is resonating. Q2 was also an active quarter for partnerships. We announced a planned partnership with TwinStrand Biosciences to collaborate and develop ultra-high accuracy NGS solutions for the G4 platform. This partnership is intended to combine TwinStrand's proven duplex sequencing solution with Singular's HDC technology on the G4 to maximize mutation detection sensitivities for applications requiring rare variant detection, such as monitoring minimum residual disease, or MRD. The combination of these technologies should offer unmatched Q50-plus accuracy at high efficiency for rare variant applications in oncology. We also announced a collaboration with O-Link to enable the use of O-Link Explorer and high throughput proteomics platform with the MaxRead kits on the G4. We believe that Singular's MaxRead kits are perfectly suited for the sub-100 base readout requirement of OLIG's Xplore solution. The M-series kits can provide readout scale at the Novaseq level at more attractive price points for both the system and reagents. On a library prep front, we are excited to announce three new partnerships with solution providers, integrated DNA technologies, Takara Bio, and Parse Biosciences. With integrated DNA technologies, we are validating its high-quality XGen NGS library preparation kits for both DNA and RNA sample prep. With Takara, we are validating its EverCode kit for single-cell RNA-seq. With Parse, we are validating its single-cell RNA-seq kit based on its SmartSeq and other NGS technologies. We were pleased to attend and participate in the AGPT conference in Orlando in June, where we met with industry leaders and prospective customers. We had a G4 instrument onsite and provided dozens of system demos for meeting attendees. Feedback was very positive, with demo attendees highlighting the G4's intuitive interface, user-friendly sequencing workflow setup, and efficient closed-cell or reagent cartridge loading. Coming out of the conference, we experienced increasing customer and KOL interest, validation of our value proposition, and strong lead generation. While at AGBT, we released several exciting application notes and third-party collaborator posters. Starting with the single-cell RNA-seq application note, this study leveraged the G4 platform to characterize single cells derived from peripheral blood mononuclear cells, or PBMCs. Results were highly concordant with those generated on Inovaseq 6000, demonstrating that the G4 can be a plug-and-play solution for single-cell RNA-seq workflows compatible with existing lab ecosystems. Moving on to whole exome sequencing application note, libraries were sequenced on a 2x150 F2 flow cell. High coverage uniformity was seen across the exome target regions, resulting in strong variant detection performance. This reflects the compatibility of the G4 platform with common exome library preparation kits. In addition to these application notes, we presented numerous posters from third-party collaborators Resolution Biosciences, Joint Genome Institute, or JGI, and TGEN. I'll provide a brief overview of some of the exciting takeaways. Resolution Biosciences evaluated the G4 with their Resolution CTDx assay on cell-free DNA. The G4 was compared against the Illumina NexSeq 550 and provided consistently high read quality, concordant read depth and unique read count, and comparable sensitivity in variant detection. The Joint Genome Institute, or JGI, successfully used the G4 to assemble bacterial genomes with comparable performance and error profiles to that of short-read sequencing platforms. TGEN tested the performance of the G4, focusing on data quality and accuracy of variant calling for whole exome sequencing. The TGEN team noted that the system was easy to use, exhibited a high degree of flow cell reproducibility, and met their expectations for variant calling performance. In summary, we had a strong quarter on many fronts. especially in areas of data generation and publication. We shipped our first commercial system, announced several important workflow and collaborative partnerships, and filled a key leadership role with Sam Roth as our new chief commercial officer. Now I'd like to revisit some of my earlier comments and provide a summary of where things are going well, where there are challenges, and how we are addressing those challenges. First and foremost, the G4 technology in terms of specs and product roadmap has delighted us internally on the upsides. The specs are resonating strongly with customers, power, speed, flexibility, and the system profile and KPIs are highly differentiated within the Benchtop segment. In addition, the specialized application kits in our product roadmap, most notably MaxReads, has really put wind in our sails. We believe that the demand for a Benchtop instrument that can do high-throughput short reads at low cost would be significant. We expect these kits will address some of the most widely run and highest volume applications today, including single-cell readouts, proteomics library readout, CRISPR library readout, counting applications, and NIPT. Since we announced the M-series, the demand has shifted our internal prioritization towards getting the M-series kits robust and launched as soon as possible. This is an area where the G4 and the M-series are highly differentiated in the marketplace. No other Benchtop offering comes close to providing 4 billion reads per run, and that's just the first kit in our M-series roadmap. Additional internal positives on the G4 technology include progressing the F3 kits, which are on schedule to launch later this year, and advancing HDSeq to achieve Q50 accuracy at over 100 million reads on our current F2 flow cells. We believe the commercial uptake for HDSeq will be more gradual as it will be application and content specific. However, the unique accuracy profile and translational and clinical applicability support our conclusion that this will become a sticky and highly differentiated offering on the G4 platform. Long-term differentiation of applications and capabilities and unique content will be important areas of continued focus for Singular. Other activities that are progressing nicely include expanded third-party validations through additional application notes, workflow partnerships, and collaborations with innovative companies in the NGS and multi-omic space. We have now signed 13 library prep partners to show broad G4 application compatibility with leading library prep kits, and we have published seven papers, three of which were peer-authored from early G4 early access partners. Lastly, onboarding commercial leadership in the form of chief commercial officer, as well as the head of U.S. sales, were important and exciting steps for singular this quarter. Now, I'll shift gears to discuss some of the challenges that have surfaced and what we are doing to address them. I will cover three areas. First, manufacturing challenges manifested themselves in Q2 in a variety of escalating and some unexpected ways. Supply of parts to build and scale commercial G4 units has been a growing pain point. Despite ordering long lead time parts and key components very early on and in large production quantities, Some vendors have been unable to deliver on time or meet their commitments. This has translated to a slower build and scale up of the G4 production units. We are working tirelessly to address these issues in real time. For parts and supplies, we have engaged and qualified secondary vendors across many components. We are pushing our current vendors to meet their obligations. Right now, in terms of ability to scale G4 instruments, We estimate that we are running about three months behind where we'd like to be and anticipate some limitations on how quickly we can scale production units in the near term. These supply and vendor-related delays are manageable. We are revisiting our instrument delivery schedules and looking ahead to minimize additional scale delays in future quarters. Our priority is to ensure that every customer has a positive experience as we ship, install, and bring up instruments in the field. Second, The macroeconomic environment has changed, and many growth-orientated companies have shifted to leaner operating budgets and a focus on extension of cash runway or near-term profitability. We, too, are adapting, taking a leaner approach to building our business with less aggressive near-term hiring and spend. This will likely have some impact on how fast we can scale our teams to support growth. However, this is a tradeoff that we believe must be made in the current environment to maintain flexibility. We have the right team in place, to understand manufacturing scale-up, system installation, field support, and sales. We intend to stay lean until we better understand the scale-up of production units and ultimately the ramp in revenue. Lastly, the macroeconomic environment will likely influence customer buying behavior and demand dynamics. We are working to anticipate the impact, adapt, and implement sales tactics to address down-cycle sales dynamics where the pace of investment in new technologies may be less aggressive or more driven by near-term cost savings. One of the positives of our G4 value proposition is that for a wide range of users, switching to a G4 or purchasing it over other instruments is a cost savings investment. We believe the G4 will offer consumable savings between 20% to 50% across most kits when compared to a NexSeq. MaxRead kits should deliver even higher savings. Our approach is to focus on value. cost savings and provide the right simple analysis so customers can view the G4 as a cost savings decision. Additionally, we have added more purchasing models to our sales team's toolkit, offering leases, reagent rentals, and subscriptions to best align with our customers' needs. In summation, Q2 has been a busy quarter with a lot of positive progress. This is also a quarter where some real challenges have emerged. We are addressing these challenges and are confident they are both manageable and and of a transient nature. Translating progress and these learnings to instrument placements and revenues will require a growing understanding of four primary operational and commercial factors. The ability to manufacture and scale unit availability, the timeframe and resources to install systems, bring up customers, and understand consumable pull-through, the level of ongoing field support for existing placements, and finally, how demand continues to grow and translate into purchase orders as macro conditions unfold. I look forward to revisiting these topics on our quarterly calls going forward. With that, I will now turn the call over to Dale and to go over the details of our second quarter financial results and some commentary on expectations going forward.