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spk00: Good day, ladies and gentlemen, and welcome to the Singular Genomics Systems Inc. Third Quarter 2022 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments following the presentation. If you wish to enter the Q&A queue, please press star 1 on your phone at any time. It is now my pleasure to turn the floor over to your host, Philip Taylor, Investor Relations for Singular Genomics. Sir, the floor is yours.
spk05: Thank you, Operator. Presenting today are Singular Genomics Founder and Chief Executive Officer, Drew Spaventa, and Chief Financial Officer, Daylan Meter. Earlier today, Singular Genomics released financial results for the three months ended September 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, November 7th, 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 by 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, the Form 8-K filed with today's press release. The SEC filings can be found on our website or 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'll turn the call over to CEO, Bruce Leventa.
spk06: Good afternoon, and welcome to Singular Genomics third quarter 2022 earnings call. It was a very productive quarter, and we look forward to updating you on the progress we've made across the business. We'll focus on three topics. One, operations progress in supply chain and manufacturing scale-up. Two, factors driving our continued conviction in the G4's commercial success. And three, our product roadmap. First, on the operations side, as projected, we are on track to shift the G4 in the fourth quarter of this year and continue gradual scale-up through 2023. We've made strong progress on the supply chain and manufacturing scale-up, which has been a key area of our focus. To provide more color, the challenges we've highlighted in previous earnings calls related largely to a handful of third-party subsystems being reliable and meeting specifications and related system integration. This quarter, we made significant progress identifying and resolving these issues. We've also strengthened the quality control processes to test subsystems and parts prior to assembly. While we have made significant progress, this remains an area of critical focus with continued work to be done, as is to be expected with any new product of this nature. We are pleased to now have a better line of sight to streamline the manufacturing of the G4. We aim to build reliable, high-quality instruments that will delight and serve our customers. We will continue to learn more about the G4 in terms of robustness and reliability as we scale and deploy production units internally and to the field. We expect to continue to make improvements based on these learnings, both in terms of robustness and performance KPIs. We are dedicated to delivering the highest level of performance and reliability available. The second update focuses on the factors driving our continued conviction on the G4 commercial success. This past quarter's sector activities and announcements revealed more information on competitive roadmaps and reaffirmed singular's opportunity and room to succeed given key areas of product differentiation in an increasingly transparent competitive landscape. We are increasingly excited about the opportunity in front of us within the Bench Top Sequencing category, and we are bullish on the opportunity to create a strong business in large and growing markets and application segments. We remain optimistic about our TAM, or total addressable market, product market fit major markets, and commercial execution. I will share our thoughts on each of these, starting with TAM. From a top-down perspective of the roughly $6 billion NGS market today, we believe that over half of this market is broadly addressable by mid-throughput sequencers such as the G4. This portion of the market is predominantly made up of about two-thirds research and translational labs and one-third clinical labs, largely running applications such as target panels, RNA-seq, and single-cell RNA-seq. The G4 addresses these customers' needs and provides a compelling alternative from both a performance and value perspective in a market that is today largely served by a single MGS provider. Grilling down further into the opportunity as it relates to the G4's market fit, we believe the G4 provides an even more differentiated solution for approximately one-third of the overall MGS market. The G4 is the only desktop sequencer that is differentiated across a KPI combination of power, speed, and flexibility without compromising on accuracy or workflow. The G4 offers superior performance in specs and metrics that matter most to customers across our TAM. such as data output rate, run time, flow cell and lane-to-lane flexibility, and number of reads per run. This performance is ideally suited for all labs across academic, translational, or clinical markets that would like to minimize turnaround time, avoid unnecessary delays from inefficient sample batching, or improve their ability to scale experiment sizes up or down at cost-effective economics. This has resonated across target customers and application types. The translation of these performance facts to tangible benefits that will drive customer buying decisions is becoming clearer as we engage with customers in the field. Turning to commercial execution and how we intend to win these markets, our Chief Commercial Officer, Sam Bronson, has been on board for four months now and is underway with building a world-class commercial team. engaging with customers, evolving our sales processes, and implementing the right set of tools. We have found that the sales process requires high-touch engagement with our initial customers. Our team engages to gain a deep understanding of specific use cases, applications, workflows, and sample volumes. This allows our commercial team to translate the G-Force performance specs into tangible real-world benefits for customers, such as how they conduct and schedule their experiments, staff their labs, turnaround time, insourcing versus outsourcing, all or some sequencing, or reducing their costs on a sample or per experiment basis. This level of deep engagement and understanding has been resonating with prospective customers as evidenced by the quantity and quality of opportunities and leads in the funnel and by direct feedback received for the basis of a purchasing decision. Lastly, turning to the product roadmap update, we are enthusiastic about the progress being made by our R&D team. We are progressing development of the S3 flow cells, which will further expand our consumable offering on the G4. Feedback from customers and KOLs on our Max Read or M-Series flow cell kits continues to be strong. We believe the M-Series kits will offer a unique solution to provide ultra-short-read sub-100s-based kits that provide NovaSeq-level recounts at more attractive pricing. We have made the M-Series a priority in our product roadmap based on customer feedback. Obviously, G4's success tops all priorities, but we want to provide a brief update on the PX. We are expanding our market research efforts around multi-helmets and the needs of research and translational labs. Throughput, number of samples, and sampleplex are all terms used to describe the same need, a higher throughput, lower cost solution to measure cells and tissue. Additionally, concurrent multi-omic readout is an area of opportunity. Current solutions are limited in their ability to look at RNA and proteins concurrently in the same sample at the same time, and we expect that PX will be able to deliver this. These labs also want spatial context of information at high resolution, most notably for FFPE samples, which the PX is uniquely suited to provide at high throughput and high resolution. We are using this information to prioritize internal R&D efforts, and are excited to begin our technology access program in Q4, where we will begin partnering with industry-leading researchers to bring samples in-house and work together to generate novel information and applications in the PX platform. We plan to expand collaborations with additional potential customers in early access programs, which we plan to initiate in late 2023. With that, I'll turn the call over to Daylon to go over the details of our third quarter financial results.
spk04: Thank you, Drew. I'll start by covering Q3 2022 financials. Then I'll provide directional remarks on key metrics for Q4 and overall cash runway. Operating expenses for the third quarter of 2022 totaled $24.7 million compared to $17.5 million for the third quarter of 2021. These totals included non-cash, stock-based compensation expense, $3.4 million in Q3 2022, and $2.9 million in Q3 2021. The year-over-year increase in total operating expenses was driven primarily by scaling headcount and infrastructure to support our growth, including the G4 launch, product pipeline, and R&D roadmap. Net loss for the third quarter of 2022 $23.8 million, or 33 cents per share, compared to $17.6 million, or 25 cents per share, in the third quarter of 2021. Our weighted average share count for the quarter used to calculate net loss per share was approximately $71.2 million. Ending cash, cash equivalents, and short-term investments, excluding restricted cash, totaled $263.8 million. Our team is focused on closing out the year on a strong note, and shipping additional G4 systems at a measured pace, consistent with our ability to manufacture, install, and support the customer acceptance process. In addition, we continue to closely manage our pace of hiring and investments. We expect investment related to our product priorities in Q4 to increase modestly across commercial manufacturing, operations, and R&D. However, we remain very mindful of the macro environment in our focusing priorities and investments to enable cash runway into the first half of 2025. Thank you and back to Drew for closing remarks.
spk06: Thank you, Dale. In closing, I want to reiterate the themes of today's update, including first, our number one priority with operational progress and resolving supply chain and related manufacturing issues and progressing towards G4 shipments in the fourth quarter as planned with steady scale up ahead through 2023. Second, our continued conviction in the G4's strong differentiation and its unique value proposition to drive commercial execution in a multi-billion dollar NGS market. And third, a focused, prioritized product roadmap to deliver G4 enhancements as well as future innovations, all supported with a strong balance sheet. Now let's open up to questions. Operator.
spk00: Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. And the first question is coming from Matt Sykes from Goldman Sachs. Matt, your line is live.
spk03: Thanks for taking my questions. Good afternoon, guys. Just maybe, Drew, first on the supply chain comments made at the outset of the call, it sounds like you've made some progress there and are kind of putting things in place to make sure that disruptions are minimal. As you think about sort of the measured pace of shipments, what kind of measures can you put in place as we go through 23 to ensure that supply chain constraints won't be an issue, or is it something that you feel like you've taken care of at this point?
spk06: Hey, Matt. Thanks for the question. You know, it's a good question. I think there are certain things we're doing right now internally to make sure that we're testing components, subcomponents, subsystems, especially the complicated ones before they're put into a system. That's one part. I think from a supply chain management perspective, there are also steps we can take to have the vendor do additional QA, QC before they ship us the parts. I think a big focus is trying to make sure once we integrate a subsystem and bring a system up, we know the parts are going to work the way they're intended. That being said, beyond where we are right now, we're going to learn things about the system performance in the field as we get more reps on the systems and as, frankly, customers take them and start to use them in real-world ways. They're going to find new ways to break the system. So it will be continual learning. The other thing I will say is, in general, we do expect to have continued improvements in robustness and reliability over time as we understand the nature of the instruments and, again, the way they start to break or need help after you see high-volume usage over many, many runs. So, again, I just think you have to take a step back. And in the context of a new product coming to market that's fairly complex, There are going to be learnings, and we're doing everything we can internally, mostly on the subsystems QA side at this point, but also sufficient testing before they leave. And then once they're out in the field, it'll be closely monitoring, working with the customer, understanding kind of how they behave at scale and after repeated use, and then taking those learnings and incorporating them. So kind of a long-winded way of saying there are concrete steps we're taking internally, and we'll continue to adapt and evolve as we learn how the systems perform at scale.
spk03: Got it. Thanks for that color. And then just on the PX, recognizing that G4 launch and execution is your number one priority. As you think about the PX into 23 and look at sort of the OPEX profile that you have and wanting to maintain a certain level of conservatism there, do you feel like you have the resources in place from an OPEX and balance sheet standpoint to be able to progress with the PX? you know, kind of within the budget that you have, or will it require, you know, some shifting of priorities as you move through 23?
spk06: Yeah, we're going through our, you know, kind of financial planning right now for next year, and those are the questions that essentially we're asking ourselves. I think we really want to maintain operational flexibility in terms of how we think about runway, runway extension, and right now it really is all hands on deck on the G4 and trying to look at the organization's in a lot of ways, being as lean as possible to make sure we deliver on that first product. We do have an insulated separate team on the PX. We intend to continue investing in the PX, and part of what we're trying to figure out is how we could find either non-dilutive ways or ways to essentially attract partnership to advance the PX. The short answer to your question is we do have resources to continue developing the PX, but frankly, the interest and excitement from the market is one where We would love to be able to throw more resources at it, but in a constrained macro environment like we are right now, I think we just need to be very first principles in terms of spending on the first product and making sure that we get it to market before we get out over our skis on additional spend. So kind of a balanced, I would say, viewpoint of making sure we invest to push it forward, but certainly being very conscious of runway extension and flexibility from a balance sheet perspective.
spk03: Got it. And just one last question just on, you know, of the shipments you're making, Q4, any concentration within one of those particular customer groups that you've highlighted in the past that's been resonating?
spk06: You know, it's still pretty balanced. The Q4 and Q1 shipments will likely be a pretty even split between kind of your academic and your small to medium-sized private companies. You know, clinical or industrial, there's orders we've taken there as well, but that's probably, you know, more of a, you know, once we have robustness, reliability, track record, that's probably a profile of customer that, you know, adopts more once you have that base level of credibility. So that's kind of how we're thinking about the early funnel and early placements.
spk03: Great. Thank you.
spk00: Thank you. The next question is coming from Tom Stevens from Cowan. Tom, your line is live.
spk01: Hi, all. Thanks for taking the question. Just a brief one on the kind of involving competitive environment in the kind of lower to mid throughput space, specifically with regards to MGI and their coming presence in the U.S. I guess, what have you heard from customers when they've, you know, picked you over that coming system? And, yeah, I guess why, what have they said to you guys, which has given you confidence for the growth ramp for the G4 in general going forward?
spk06: Yeah, thanks, Tom. You know, we still see predominantly in customer engagements that the buying decision is between NextSeq or NovaSeq or an existing Illumina system or potentially buying the G4. That's typically who we're selling against. Candidly, we haven't really been in a buying decision at this point that I'm aware of where there was a customer that was, realistically looking at an MGI versus a G4. So I couldn't really speak to that specifically.
spk01: Great. Thanks for that. And then just one more on the kind of G4 QAQC ramp. So now you're seeing some kind of supply chain kinks even out on the semi side and potentially some of the custom side too. What kind of management changes have you made to that QAQC team which you think insulates that going forward? Thanks.
spk06: Yeah, we haven't made management or personnel changes. I think more of it's been just making sure that we're focusing on testing subsystems and we're working with the vendor to make sure they test and have kind of quality control before they release parts to us. There's another part to it as well. It's not just getting the subsystems of the parts. It's also building the machine and bringing the machine up. And bring up basically means working through all the small but nuanced things to get a sequencer working robustly and properly, and that does take time. With early instruments, there's always variability in small things you learn as you start to bring up multiple units, eventually dozens of units, and a lot of it's making sure that you have predictability and consistency on bring-up and that you're able to transfer bring-up from an R&D to a development to a manufacturing environment kind of part of your business. And that's a big part of being able to scale up is transferring into your manufacturing. And those are all things that take time. So I just want to make sure that, you know, the comment you made, it's not just the supply chain, it's the related downstream integration time that you need to get these systems robust and reliable and transfer to manufacturing. We've made great strides on that as well. So, yeah, I think that's, no personnel change at this point, just really, you know, understanding the system, bring up QA, QC, and a real focus on transfer to manufacturing.
spk01: Good stuff. Thanks.
spk00: Thank you. The next question is coming from John Sarabier from UBS. John, your line is live.
spk02: Hi. Thanks for taking the question. You said you're on track to ship units in 4Q. Does that mean you plan on generating revenues next quarter? And does any commentary or way to quantify what the backlog currently looks like? And I think you previously mentioned shipping or the capacity to ship one to two instruments per month in 4Q. Is that still on track?
spk04: Yeah. Hi, John. This is Dalen. We're not disclosing a backlog metric at this point. I don't think we have plans to do that. I think what – Commentary that we gave previously around manufacturing capacity and our ability to deploy about one to two systems per month here in Q4, kind of gradually scaling up into 2023 as we know more about the ramp. I think that still holds. From a revenue recognition standpoint, there's a customer acceptance process tied to some of these initial units. which is pretty typical for, you know, an early product launch like this. You know, we are engaged with the customers, you know, trying to work through the installation and that acceptance process. You know, our aim is to get that done in about 30 days, kind of post-shipment, but, you know, each situation is a little bit different. But that's our target, so you can kind of expect that each system that goes out here in Q4 will have that acceptance process tied to it as well from a Red Rec standpoint.
spk02: Got it. And then I guess just on the sales cycle and the conversations you're having, it sounds like it's mostly with existing Illumina customers. Have those conversations changed at all since the XSleep announcement a couple months ago and potential for XSleep on the next week in 2024?
spk06: Hey, John, this is Drew. I wouldn't say there's been really a change. Most of the customers that we're speaking with are typically in the mid throughput. So they're running next seeks or they're running the low end of the Nova seek. Increasingly, we're talking with customers that are sending out a lot of their sequencing. So some of them might have a lower throughput instrument doing internal sequencing and they're sending out certain types of sequencing or higher throughput. And that's turning out to be an area where I think there's a real opportunity to catch customers with the flexibility and the ability to scale both up and down with the G4. So we've had a lot of traction with those types of customers. I think, again, back to your original question on XSleep, I haven't really heard much come through my office in terms of XSleep specifically. I think there was a little bit of a wait and see if Illumina was going to do anything on mid-throughput. It looks like that's not happening for quite some time, and I don't think there's clarity on what subset of features that were released for the new NovaSeq line will be available retrofit versus having to wait for a new benchtop sequencer, which looks like it's probably out in 25 at some point. So I think, if anything, it was probably a clearing event for us in a little bit in that our target segment, again, is not super high throughput genome factories or high throughput labs. So in a lot of ways, I think it's actually the opportunity is very real and with all the cards kind of flipped on the table now with all the different, you know, existing and new entrants in terms of systems coming to market, you know, we feel like it's very highly differentiated and fits really well within the customer feedback that we're getting.
spk02: Got it. And then I guess this one last clarification just on the shipments in 4Q, the question earlier, just given that we're about a third of the way through, a little over a third of the way through the quarter, have you shipped any instruments yet so far or are those still anticipated later in the quarter?
spk06: We have. We have shipped. We're probably not going to go into much more detail yet since it's all, you know, recent and unfolding. But we have shipped instruments, and we should ship more instruments over the next couple months. And, you know, we look forward to updating you at the next earnings call on, you know, how those shipments are going, the installation, the placement, customer feedback. So it's a really exciting time for us. And, yeah, we're excited. Got it. Thanks for taking the questions. Thanks, John.
spk00: Thank you. And once again, ladies and gentlemen, the floor still remains open for questions. If you have any questions, please press star 1 on your phone at this time. And the next question is coming from Michael Ryskin from Bank of America. Michael, your line is live.
spk07: Hey, this is Nisir Khan from Mike. Thank you for the question. So to start off, have you seen any change in customer conversations since the second quarter? You know, we've seen the competitive landscape develop here, and I was wondering if you have some insight on how customers are evaluating all these options.
spk06: Yeah. Again, I think there's not really much of a change for the customers that are in our target markets. And, again, as we think about target markets, there's a few ways we can dice it. But essentially the, you know, conversations that I think had the most customer mindshare were really around the super high-end and what Illumina was going to do on the new NovaSeq and potentially other high-end entrants. I would say within our general market segment, which is largely high-throughput mid-sequencers or benchtop sequencers, largely academics, core labs, and then small and medium-sized businesses, most of those profiles of customers weren't one that were going to be buying a super high-throughput instrument. So for For us, I don't think there's much that's changed since Q2. I think the big thing, frankly, is going to be credibility and track record. And I think once we have the G4 out there and there's a few dozen in the market and people know it's reliable and it works and they can get their data, I think all of a sudden the value proposition of the speed, the flexibility, and the cost is really going to reflect the true value in the G4. So I think it's still early. I know everyone's trying to figure out who they place where in the market, but I think until everyone's really been out there and had time to get systems used and credibility established, it's hard to figure out which value proposition resonates when beneath that there's still that reliability, trustworthiness that needs to be checked off.
spk07: That makes sense. Another one on budgets and funding. Have you seen much change for customer spending ability during macro environments in the quarter at all?
spk06: For the academics, No, I couldn't speak of any change. I think likely because they have budgets in place and the nature of the funding is different. Kind of small and medium-scale businesses, a lot of them, they still have to invest in their own R&D, and a lot of times they're thinking about how do I save money on sequencing, and one of the value propositions that I think has become more popular you know, kind of clear to us is people that are sending out to a core lab with an upcharge on sequencing as a service. And so for the small and medium-sized companies, I don't think we've seen much of a buying change other than just really making sure they're bottom line cost conscious on whatever they buy, making sure that it makes sense financially. I think one area where, you know, potentially it's a little bit different is the larger scale super high throughput, or not super high throughput, but the high use mid-level market, so either clinical or industrial people that are next-seek shops. I think there, if you're thinking about an upgrade cycle or trading in a fleet of old next-seeks, I think right now there's probably a little bit more scrutiny on upfront capital outlay, even if there is long-term savings. And for those types of customers, I think you just have to think through how you make sure that there's an attractive ROI near-term, not just a long tail of how they make their money back. But For the most part, those larger scale customers and the kind of CLIA type customers are probably more of our customer profile that we're going after in Q3, Q4 next year once we have kind of established credibility in some of the lower hanging fruit in terms of earlier adopters.
spk07: That makes sense. And one more quick one here, just following up on the last quarter, on the manufacturing supply chain, are you seeing any pressures on either instruments or consumables, and how should we kind of think about it going into the back quarter this year in early 2023?
spk06: I think we have seen across the board increases in costs, not extreme, but there's been modest increases of costs across the board, so it's something we're definitely cautious and conscious of. The challenges that we had cited previously were more specifically related to the G4 instrument, You know, we haven't really spoke of nor experienced any challenges on the consumables yet, but I think, you know, cost and margin profile is absolutely something we're thinking about, although I would say it's a second-order focus right now. First order is robustness, reliability, performance, getting the systems up and running, and then very quickly, you know, that will start shifting to, you know, margin profile and building materials and those types of things. So, yeah, I think, you know, definitely some upward pressure on price, but nothing extreme.
spk07: Got it. Thank you.
spk00: Thank you. There were no other questions in queue at this time. Ladies and gentlemen, this does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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