Singular Genomics Systems, Inc.

Greetings. Welcome to the Singular Genomics Systems, Inc. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Philip Taylor. You may begin.

Thank you, operator. Presenting today are Singular Genomics founder, chair, and chief executive officer, Drew Spaventa, and the company's chief financial officer, Daylon Meter. Earlier today, Singular Genomics released financial results for the three months ended September 30, 2023. A copy of the press release is available on the company's websites. 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 14, 2023 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-Q and 10-K filings and the Form 8-K filed with today's press release. Our 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 investor.singulargenomics.com in the presentation and events section. With that, I will turn the call over to CEO Drew Spaventa.

Good afternoon, and welcome to Singular Genomics third quarter 2023 earnings call. It was another busy quarter, and I am pleased to update you on our company's performance. We will focus our update on the following three key areas. One, commercial execution. Two, operational execution. And three, our innovation pipeline. In addition, I will provide commentary on the overall state of the business, including what is going well, what challenges we are experiencing, and most importantly, what we are doing differently to address these challenges. To address the last topic directly and concisely up front, we see many encouraging trends, have high conviction in the G4 platform and product roadmap, and see a clear path to build a successful business. Macro and market conditions do present challenges. We are being thoughtful and adapting our strategy in light of both internal and external factors. We have made changes to our business in Q3. This includes organizational structure, product roadmap, commercial strategy, and how we are thinking about managing cash runway forward in order to give the company time to execute. We will talk more about each of these topics later in the call. Now, I'll turn to an update on our third quarter. Let's start with commercial execution. We shipped five G4 systems during the quarter, our largest quarterly shipment total yet, which was made up of four shipments to four academic core labs and one commercial clinical lab. We progressed qualified leads through the sales funnel, increased our order book, and saw increasing utilization in the field. giving us confidence in the utilization and pull-through capability of the G4. We are excited to continue growing our installed base and delivering the unmatched speed, power, flexibility, and accuracy of the G4 to our customers. The G4's value proposition is increasingly resonating with our customers. For instance, the Broad Institute noted that, quote, the instrument was purchased to replace old equipment, augment our sequencing capacity, and lower our sequencing costs while addressing new needs from our users. It's four flow cells and 16 lane design gave us the ability to streamline our single cell sequencing operation. The four color chemistry allows us to successfully and consistently sequence extremely difficult libraries that were a challenge for a very long time while generating superb reproducible data, end quote. System utilization and the rampant consumable pull through is increasing, but it's still early. We are learning more about initial customer utilization patterns and seeing encouraging signs. Consumables revenues more than doubled in Q3 over Q2, and this growth trend is carrying through in early Q4. We believe higher utilization will increasingly be enabled by two things, the usability of the platform and new consumable kit availability. Regarding usability, we continue to make significant progress during the quarter. Supporting field upgrades of hardware components and software and improving the reliability and uptime of the instrument. We expect this trend of increased utilization to continue. Regarding new kit availability, most of our customers are currently converting over to the newly launched F3 flow cells. As a reminder, the F3 flow cell doubles the number of reads and gigabase output from our F2 flow cell, providing customers a significantly higher throughput kit at a lower cost per gigabase. In addition, We completed the early access program for our max reads for single-cell sequencing and are now making this kit broadly available to customers. All these things contributed to a quarter-over-quarter increase of more than 50% in the number of consumable kits ordered and shipped. In fact, one of our earliest customer placements has ramped their utilization over the last nine months to an expected annualized pull-through rate of approximately $170,000. We are encouraged by these trends in utilization and orders, which we are already seeing translate in early Q4. Turning to operational execution, our focus in the third quarter was on streamlining and scaling consumable manufacturing processes for our newly launched F3 flow cells and enhancing the G-force usability and reliability. In operations and manufacturing, we implemented steps in our production processes around consumables raw materials and intermediate component QC testing, which were designed to increase the quality and consistency of consumables and reduce assay variability. In customer service and support, we rolled out several instrument hardware and software upgrades, providing new features and enhancements to improve the usability of the system. Turning to innovation in our product pipeline, we launched MaxRead kits for single cell sequencing. As a reminder, this kit is designed to allow users to get up to 800 million reads per flow cell or 3.2 billion reads per run. This enables NovaSeq level throughput and pricing for single cell sequencing on the benchtop system. Recent feedback from early access users has been very positive. For instance, Nationwide Children's Hospital analyzed single-cell data generated from the G4 using the MaxRead workflow and compared them to libraries sequenced on a NovaSeq 6000. They noted, quote, our interpretation of the single-cell data is indistinguishable across the various platforms. We plan to continue sequencing 10X Genomics single-cell libraries on the G4 and look forward to adopting the MaxRead capability on our instrument, end quote. And finally, we have become highly focused on developing and introducing our unique spatial sequencing and multi-homux offerings, which we believe will open a new market for our products earlier than previously expected. We have a dedicated team to the development of unique and exciting assays and solutions in this space, leveraging our core chemistry and technology. We look forward to sharing more soon regarding this exciting opportunity and our expanding capabilities in this area. Now, I'd like to switch gears and provide a few comments on the overall state of our business. We have been shipping our G-force sequencing platform for just over a year and have learned a lot about our go-to-market strategy given the current macro environment. My comments will touch on what is going well, what challenges we continue to see despite recent progress, and what we are doing to address these challenges. In terms of what is going well, we are seeing significant improvements in both the reliability and usability of the G4. We saw consumable kit shipments increase by more than 50% in Q3 compared to Q2. Consumables revenues doubled in Q3 over Q2 and this growth trend has continued into early Q4. We launched the F3 flow cell and customers are quickly converting over from the F2 kits. We believe these developments will have a positive impact on our consumables revenue and system utilization over time as more customers order F3 flow cells and max read kits, which carry a higher ASP given the increased read count and throughput. We also have growing conviction in the clinical opportunity given the nature of that segment and the G-force profile. In terms of the challenges, the sales cycle and our ability to convert qualified opportunities to orders has progressed slower than expected. As a result, The mix of requested sales models for near-term opportunities has shifted to fewer capital purchases and more reagent rentals and evaluations. This has delayed the timing for our revenue ramp as the value gets recognized over time and in line with consumable pull-through versus upfront delivery and acceptance of the instrument. Given the positive trends in reliability improvement, system usage, product ordering patterns, new product introductions, increased customer satisfaction in our significant sales funnel, We do feel confident we will see a faster pace of placements and scaling of consumables revenue moving forward. While we are experiencing increasing positive momentum, we recognize we are not where we expected to be at this point, and we are taking the following steps to address this. First, we have prioritized G4 scale-up above all else. This includes a more focused effort across the organization to prepare for more accelerated G4 shipments, a growing installation base, and increasing consumables demand. Second, is to leverage our recently launched F3 and MaxFeed kits. We are working diligently to deliver these kits to as many customers as possible. We will also double down on outward communications to potential customers, highlighting the benefits of these new kits and encouraging sample testing and system evaluations. As we think about the GeForce product profile moving forward, We are focused on higher value kits that differentiate from the competition and bringing these kits to market robustly and on time. Third, to address the challenging market conditions, we believe a two-pronged shift in commercial and product strategy is needed. On the commercial side, we will be more flexible in deal structure and pricing. We will push harder on reagent rental or alternative deals to drive downstream conversions. We believe this result will be significant growth in the installation base through 2024. On the product strategy side, we will focus on leveraging our installed base and release just a couple of new differentiated high-value kits next year. The kits will be significantly differentiated and carry a much higher ASP. We will share more on the product strategy and roadmap in early 2024. And fourth, we recognize the need to manage our cash and resources prudently to deal with the aforementioned challenges. We recently made a difficult decision to reduce our headcount by approximately 10% and reduced our spending plans accordingly based on a more narrowly focused list of priorities and projects. We believe these actions will extend our cash runway into early 2026. As we focus our attention on our 2024 operating plan, we continue to identify additional potential areas of cost savings. And as always, we continue to actively evaluate strategic partnerships, investments, and other opportunities to maximize stockholder value. Now, I'll turn the call over to Dalen to go through the details of our third quarter financial results. Thank you, Drew.