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spk07: Welcome to SummerLogic's fourth quarter and full year 2022 earnings call. All participants are in a listen-only mode. We will take questions following prepared remarks. I will now turn the call over to Marisa Baez of Gilmartin Group for introductory disclosures.
spk00: Thank you. Today, Somalogic released financial results for the quarter and year ended December 31, 2022.
spk01: A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make forward-looking statements during this call within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events results, or performance are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our market opportunity, gross margin and future financial performance, protein content and database growth, customer base, diagnostic pipeline, expectations for hiring, and growth in our organization are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties, that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our Form 10-K filed with the Securities and Exchange Commission today. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 28, 2023. Somalogic disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. I will now turn the call over to Troy Cox, Executive Chairman of Somalogic's Board of Directors.
spk05: Troy Cox Thanks, Marisa. Good afternoon, and thanks for joining us. As a longtime believer in the potential of proteomics, I had the opportunity to join the Somalogic board in 2021 and was appointed executive chairman in October of last year. Before Adam and Sean discuss our fourth quarter results and outlook for 2023, I'd like to address the management and leadership transition we announced today. Roy Smyth has stepped down as CEO and board member, effective today, March 28th. Roy has been an important contributor to the company advancing the technology, and overseeing the process to becoming a public company, and we'd like to thank him for his efforts. Over the last six months, working at a more operational level, I've gained a better understanding of the company and the people. Given my extensive background running commercial functions, it was clear that Sumo Logic was at a stage that it needed seasoned leaders to accelerate market adoption. Adam Taich is an example of that kind of talent, having joined Somalogic over a year ago with highly relevant and diverse experience across multiple senior roles at Thermo Fisher Scientific. In the third quarter of last year, we promoted Adam to Senior Vice President of Life Sciences with ownership of all commercial activities and operations functions, which is about half of Somalogic's employees. There was more work to do, but together with Adam and the rest of the management team and board, we made some really important decisions to focus the company and deliver results in a more efficient manner. Adam will talk about this as well as how he has strengthened our commercial foundation and pipeline. Adam has earned the confidence of his peers and the board that he's the right leader for Somalogic as we make this important transition. To help fuel the company's next chapter, we are bringing some really impressive talent to the Somalogic Board of Directors with the addition of industry veterans Jason Ryan, Kathy Hibbs, Tom Carey, and Tycho Peterson. I'm very pleased that Jason Ryan will join the board as chairman. I will remain on the board and support Jason's transition. I personally had the opportunity to see Jason's unmatched ability to move from strategy to tactical execution and connect all the dots in between when we work together at Foundation Medicine. Since then, Jason has further demonstrated his proven track record in expanded and diverse roles. Kathy Hibbs will also join our board, bringing towering strengths in many areas such as regulatory, legal, compliance, quality, privacy, technology, and public company considerations, all coming from diverse experiences in the areas of Somalogic's focus. I've personally seen Kathy deliver impressive value from these strengths and much more over the last few years from our work together with Sophia Genetics. When it comes to people-related competencies, There's no one better than Tom Carey. I'm thrilled that Tom will also join our board. Tom has strengthened leadership and teams across so many companies while gaining a deep knowledge of the landscape, players, strategies, and adjacencies that will serve Simologic well. His expanded breadth via leadership and growth life science companies, including over eight years on the Exact Sciences board, will bring tremendous value. I don't think it's possible to be in our industry and not know Tycho Peterson, who will also join our board. I'm excited for the board and the company to benefit from his unprecedented experience from 23 years at J.P. Morgan as managing director and lead equity analyst covering medical devices, life science tools, and diagnostics. This experience is being leveraged and enriched from serving as the CFO of another innovative life sciences growth company, Adaptive Biotechnologies. So welcome, Tycho, Tom, Kathy, and Jason. Our next chapter is fueled by great leadership with some of industry's top talent. Before I turn it over to Adam, I want to reiterate what I said in the press release. We recognize that it is a dynamic time in the industry and a volatile one in the broader market. It puts Sumo Logic in a unique position. Having an attractive and growing core market, combined with our strong balance sheet, we are well positioned to pursue strategic options. As mentioned, we plan to work with our advisors and our newly strengthened board leadership to evaluate strategic and transformative opportunities and will provide updates as appropriate. Now I'll turn the call over to Adam to review 2022 key achievements and strategic priorities looking forward. Great. Thank you, Troy. And thank you all for joining us here on the call this afternoon. I'm absolutely thrilled to have the opportunity to lead this company into the next phase of growth and evolution. Having taken on broader commercial leadership responsibilities in the third quarter of last year, I've been encouraged by the early momentum and opportunity to expand our reach in the proteomics market. There is work to do, but the mandate is clear and I'm committed to it, driving sustainable growth while importantly bringing improved operational discipline and cash management to this organization. I am accountable for this mandate. Before I dive in, I'd first like to thank our committed teams across the globe. I took over broader leadership in the second half of last year and have watched the organization undergo significant changes in that time. While challenging, the team has been impressive in their dedication and focus, and I'm confident that as we navigate through this leadership transition, it will continue to remain focused on consistent execution and improving every day to meet our customers' needs and expand our commercial impact. Together with the board, we are employing a deliberately simple business strategy, bringing an acute focus on delivering innovative solutions to our expanding global customer base of biopharma, academia, and government institutions, while maintaining tight expense and cash discipline. Everything flows from this strategy and is built on the core business belief that if we build an efficient and profitable business, that can accelerate and improve customers' R&D productivity, we will, as a company, increase value for customers and, importantly, for you, our shareholders. We need to recognize that while Somalogic is a 25-year-old leading innovation company, it is only a two-year-old commercially-focused enterprise. It has been a journey to transition the company, but we are firmly on pace now. In the coming quarters and years, that pace will accelerate with a target of getting back to 20% top line growth exiting this year. That is our commitment. To help do it, we need the right people and right processes. Success is all about the team, and we recently brought on a new global commercial leader, Mike DiMeo, to add significant industry depth and global experience to the commercial effort. We have a great product. We just need to do the basic blocking and tackling of commercial execution to make that product easier and better for customers to use. Mike and his team are doing the necessary work and building the right processes, and early indications are that it is having an impact. And of course, if you can't measure it, you can't manage it. Simple yet informative metrics are now in place and visible daily to monitor our forward progress. To achieve commercial growth in our core Aptimer-based proteomic solution, we must continue to make it easier to access our technology platform, and we need to diversify the number of users on it. We have two strategies to do this. One is through the work we are doing with Illumina, which brings the flexibility and power of SomaScan to Illumina's market-leading install base of instruments. Theirs is the largest. solution. Once our SomaScan assay is available on NGS, it will change the way proteomic research is done at scale across the world. Second, we are going to accelerate the expansion of our authorized sites for kids' business and open up more Somalogic authorized sites to allow institutions around the world to run the SomaScan assay in their own labs. This is the type of format solution that other vendors use, and we've been slow to catch up. We only formally launched this initiative late last year, but are now in full-scale launch of our authorized sites program and see growth in it over the years ahead. As of today, we have eight authorized sites up and running, and we are expecting that number to more than double exiting the year. Across all of our biopharma engagements, we must continue to operate as a thoughtful partner to our customers, ingraining ourselves into their clinical, translational, and early discovery projects by helping them understand how to maximize the application of our technology. In the long term, we expect our positioning with these key accounts to enable migration to larger multi-year partnerships. We are also expanding our geographic reach to better serve the needs of the global scientific community. Our team is focused on establishing footholds in EMEA and Asia Pacific. In December of last year, Tokyo-based Bonus Life Corporation signed on as the first Somalogic authorized site in Asia. Early in 2023, G42 Healthcare became the first announced site in the Middle East. Many more agreements are in the works with a substantial increase in our pipeline since we first announced the program. It is critical to say that while growth is important, we must manage the business efficiently and with more disciplined cash management. As stewards of shareholder capital, I am committed to diligent spending, tight investment prioritization, and commercial initiatives that deliver results consistently. I recognize that our balance sheet is one of our key assets, and I and the team will make sure to protect it. Sean will provide more details on our financial performance and historic spend with some cash burn expectations later in the call. There are more efficiencies to drive in this business, and my day one focus is to deliver them The Life Science Tools business model, when run at scale and run well, is one of the most lucrative in the industry. We will do everything operationally, organically, and as Troy said, inorganically, to get to that scale and profitability. Now, let me conclude with a couple of product development objectives for 2023 to look out for. The launch of our 10K SomaScan product is on track to launch by the end of the year, which will extend our leadership in proteomics measurement capabilities. we remain confident that our leadership and content allows our customers to discover even more biologically important proteins in a precise manner. Our work with Illumina to develop NGS proteomics products also remains on track with expectations to fully commercialize in 2024. Based on the focused and disciplined approach I've just described, we are optimistic that we are repositioning the business for success. I look forward to providing updates on these strategic and product milestones over the coming year. I will now turn the call to Sean Blankman, CFO, to review our financial performance and outlook. Thanks, Adam. Turning to our financial results for the fourth quarter and full year, revenue for the three months ended December 31, 2022, with $18.8 million. an 18% decrease from $23 million in the same period of the prior year. Revenue for the full year of 2022 was $97.7 million, a 20% increase from $81.6 million in the prior year. Fourth quarter 2022 revenue reflects early traction in our kit rollout, nearly tripling our kit business over Q4 2021, which to echo what Adam said, is a critical component of our strategy to return to above market growth. But the current quarter also reflects the change in our new England BioLabs royalties recognition with zero recognized this quarter versus $1.9 million in the fourth quarter of 2021. Gross margin for the fourth quarter of 2022 was 31.1% compared to 54.5% in the fourth quarter of the prior year. Gross margin for the full year 2022 was 55.6% compared to 59% in the prior year. Full year margins were in line with expectations, and our fourth quarter growth margins were primarily in effect of human technical or HTI volume, as signaled in previous earnings calls. Net of HTI, our core service margins remained approximately 50%. Total operating expenses for the fourth quarter of 2022 were $60.4 million, a 48% increase from $40.9 million in the fourth quarter of 2021. Operating expenses for the full year 2022 were $230.1 million, an 89% increase from $121.5 million in the prior year. R&D expenses for the fourth quarter of 2022 were $22.6 million, compared to $11.2 million in the fourth quarter of 2021. Full year 2022 R&D expenses were $73.4 million compared to $43.5 million in the prior year. Sales, general, and administrative expenses for the fourth quarter of 2022 were $37.8 million compared to $29.7 million in the fourth quarter of 2021. compared to $78 million in 2021. The year-over-year increase in our expenses was primarily associated with our commercial team expansion, public readiness, and stock-based compensation charges associated with restructuring. Adjusted EBITDA for the fourth quarter of 2022 was a loss of $49.9 million compared to an adjusted EBITDA loss of $27.7 million in the fourth quarter of 2021. FULL YEAR 2022 ADJUSTED EBITDA WAS A LOSS OF $160.5 MILLION COMPARED TO AN ADJUSTED EBITDA LOSS OF $63.6 MILLION IN 2021. PLEASE SEE OUR PRESS RELEASE ON FILE WITH THE SEC AS OF THIS AFTERNOON FOR A RECONCILIATION BETWEEN GAP NET LOSS AND NON-GAP ADJUSTED EBITDA. AND WE ENDED THE YEAR WITH $539.6 MILLION OF CASH, CASH APPLIED ONCE IN SHORT-TERM INVESTMENT. Turning to our full-year outlook, we project 2023 revenues to be within the range of $80 to $84 million. Taking into effect the significant accounting impact of our new NEB agreement, this represents 12% to 17% growth on an apples-to-apples basis at the midpoint of our guidance. As we continue to ramp up our distributing kit business, our guidance is also driven by a return of substantial growth in our service business as we are starting to see the benefits of our commercial expansion. NATIONAL PRESENCE. OUR Q4 2022 RESULTS ARE REFLECTIVE OF OPERATIONS GOING INTO Q1, SO WE EXPECT SIMILAR REVENUE. IN TERMS OF GROWTH MARGINS, WE EXPECT FULL-YEAR GROWTH MARGINS IN THE LOW 50% RANGE, WHICH IS A RESULT OF OUR ASSUMPTION FOR LITTLE OR NO NEV REVENUE THIS YEAR. HOWEVER, THERE WILL BE A PHASING AS WE HAVE SOME CARRY-OVER HTI SAMPLE IMPACT IN Q1, WHICH WILL DRIVE Q1 MARGINS IN THE LOW 40% back over 50%. And as promised, we've made significant expense reductions for 2023 to reduce our cash burn. Excluding M&A-related cash burn, our Q3 2022 burn rate was an organic high point at nearly $40 million, and our expense reductions are expected to drive that down by 50% to a year-end burn rate of approximately $20 million a quarter this year. Keep in mind that in Q1, we will see the cash impact of our 2022 restructuring our cash burns start significantly declining to reflect our improved cost structure. Including these restructuring-related items, we still anticipate 2023 cash burns will be less than $120 million. As Adam expressed, our primary objective in 2023 is to continue to focus on applying process and fiscal discipline to the commercial strategy to remove costs and preserve cash. We see opportunities to make meaningful improvements over what is projected above. and look forward to updating you in the coming quarters on our success. At this point, I would like to turn the call back to Adam. Great, thank you, Sean. Operator, we are now ready for Q&A.
spk07: Thank you. As a reminder, if you'd like to ask a question, please press star one one on your telephone, and please limit yourself to one question and one follow-up. One moment while we compile the Q&A roster. And our first question will be coming from Dan Brennan of Power. Your line is open.
spk06: Great. Thank you. Thanks for taking the questions. Congrats on the new role, Adam, and team. Maybe, Adam, could you start off? It was listed as interim CEO in the press release. It sounds like you are the full-time CEO. I just want to clarify that if you don't mind. And then, B, you laid out a lot of the things that you've already seen traction with in your current role. But I'm just wondering, like, as we look ahead, you talked about making products easier to use, better for customers to use them, building the right processes. Could you just maybe speak to, as we think about 23 and 24, how you would articulate what are the kind of key changes or initiatives that you'll be deploying to drive more efficient growth?
spk05: Sure. Thanks, Dan. You know, let me take the second part of the question first, and then I'll hand it over to Troy to speak to the interim title. In terms of the comments around making the products easier, it's really the pivot that we're making from what is almost entirely a services business today to a distributed solution. So really getting that kits or authorized sites business up and running. Another item to mention as it relates to that sort of easier to use, frankly, is the technical support and bioinformatics required around our solutions. And what we have here is not any more complex than other innovative market-leading solutions out there in the market. At the same time, I think we were underestimating the amount of lift that's required to get a customer up and running and confident on the platform. And the last thing I would mention as we think about ease of use is really the incredible program we've got in place with our partner, Illumina. And so, in part, ease of use is really just allowing and enabling our customers out there who have NGS systems in-house who are considering buying one, to be using an NGS format as the backend readout. Troy, do you want to touch on the first part of Dan's question? Hey, Dan, it's Troy. The board is confident in Adam. He's the right leader to further strengthen our pipeline and our performance, as well as manage expenses and preserve our cash. We felt interim, as simple as this, was appropriate in the context of simultaneously bringing on four seasoned strategic leaders as new board members.
spk06: Okay, so he, I'm sorry, so he is, he's the full-time guy, or you're not conducting a simultaneous search in addition to having Adam in the seat, or you are?
spk05: Yeah, Adam's in charge of the company, effective today as CEO. In the near term, we're going to focus on onboarding our new board members and empowering Adam to execute on our strategy.
spk06: Terrific. Great. And then maybe a follow-up. I know, Troy, you mentioned this at the onset, unique position to leverage our balance sheet and new board leadership to pursue strategic and transformational options for maximum shareholder value. Can you just maybe speak to that a little bit. I mean, the balance sheet's in great shape. The technology's terrific. You guys should have a real pathway ahead to accelerate growth, hopefully. But what else are you guys considering with the balance sheet? Are you guys looking to do big deals? Are you looking to be acquired? Just maybe a little more color on what the plans are here for this balance sheet.
spk05: Sure. The overall context is, as you've mentioned, we find ourselves in a unique and fortunate position to expand our footprint further in a really super attractive and growing market of proteomics. And now with a strong team and board in place and combine that with a healthy balance sheet, we have $539 million as of the end of 2022. The board is committed to proactively pursuing strategic and transformational options that leverage that unique position. And it's all about, you know, maximizing shareholder value You know, I think, you know, to get into more specifics, Dan, is difficult because I think this effort has diverse possible outcomes and will only be pursued if we meet that simple goal of maximizing shareholder value. So we'll keep you updated at key milestones and as we reach conclusions.
spk06: And maybe if I can just sneak one more in just on the kit business and then the base service business. Can you just give us a little color on how you're thinking about the rollout of the kits? Why is the rollout so gated? Is there a lot of technical complexity for a customer to adopt the kits? Are these ready for prime time? And, you know, is there a lot of interest rolling in the summer? So maybe a little color on the rollout itself. And then how would we think about the split implicit in your guidance for the year 80 to 84 between how much of that will be kit generated versus the service related? Thank you.
spk05: Sure, Dan. Let me just start with the second part of your question. So we're not going to break out that that difference between kits and service. But what I would say is we still expect the services business here in 2023 to be the primary driver of our growth and of our business for this year. In terms of some of those gating items that you mentioned, and I think the company mentioned it in the past, there were some supply chain challenges that, you know, sort of got in our way of getting the sites up and running. We're past that. So we're making incredible progress getting sites up and running. We've built out a field application support team that's really required to be there on site for about the week that it takes to get a site installed, trained, and up and running. And the pipeline is tremendous in terms of the opportunities that we have.
spk07: Thank you. And our next question. One moment. Our next question will be coming from Dan Asriel of Your mind is open.
spk13: Okay, that was close enough. Hi, guys. Adam, welcome aboard. I wanted to ask a question about customer growth, if I could, Adam. You guys have done a really nice job growing out the account base. I think on the slide it says 60% plus over the last year, but obviously the revenue growth is well below. So where do you see the disconnect there? Is it just that the new accounts are taking time to contribute more or less to your point on sort of underestimating the ramp up there? Or is it that they are contributing and it's just being offset by some that are existing and that are trending downward? And then I guess within that, if you could just talk to how you feel about volume growth at some of your sort of anchor pharma accounts, that would be great.
spk05: Sure, Dan. Yeah, I think, as you rightly noted, we've done a fantastic job, the commercial team out there, building up the account base. And, you know, as you would expect in a business like this, the accounts that we onboard come in and they come in, you know, typically with a small, maybe even a pilot study. So fairly small amount of revenue. They go through the cycle of analyzing and understanding, you know, how to best use and utilize that information and their discoveries. You know, and then ideally we're doing our jobs around customer retention. They come back. And so, yes, a lot of the customers that we onboarded during the course of last year do really start as small accounts. What we have demonstrated is a track record, though, of bringing on customers. And if you go back and look at customers, for instance, that came on in the second half of 2021, we've got a fairly good demonstrated track record of increasing from a sort of land and expand, when you think about getting into the account, and then expanding our reach within that, whether that's a different therapeutic area or whether that's moving from discovery into translation, and translational, a pretty good track record of working through that. And so that's really what the expectation is, and we've got the right metrics in place to be measuring that. As it relates to some of the larger accounts, we still have a tremendous relationship with Novartis, as an example. It continues to be an incredible partner for us. And we would expect that some of those large orders could be lumpy from time to time, but that's why it's so important that we diversify the customer base, which is really where we've been focusing our time and effort down.
spk13: Okay, helpful. And then maybe just from a strategic standpoint, I mean, as you think about what's most important over the next 12 or 24 months, how much of a priority do you see the work being done in the precision medicine initiative? You know, obviously a lot of promise in clinical proteomics, but assay development there is a heavy list in a lot of ways. So just curious how we should think about that as a part of your investment focus over the next year or so.
spk05: Yeah, Dan, I think the best way to think about that, and this is Adam here, is You know, really, as we announced at the end of last year, we're going to execute really on our focus related to the life sciences side of our business. Now, most certainly, some of our biopharma accounts and certainly there are accounts in academia and government who do work into that precision medicine and those types of initiatives. But for us, it's really focusing on that core RUO research market, building out the strong commercial foundation we have, and then continuing to expand the kits business.
spk13: Okay, last one for me, if I could just sneak in an additional. I mean, on the commercial team expansion, which I think for those of us that were thinking about the case around the time of the IPO was one of the more compelling aspects of the business, just in the sense that I think you had 14 commercial folks in 2020, and that was going to something like 50 to 100. So where do you think from here the commercial team ads will be most evident when it comes to growing the revenue base? Is it overseas? Is it in a particular application? What should we look for just in terms of the impact that that commercial scale-up can have?
spk05: Sure, man. Yeah, and this is Adam again. You're absolutely right. I think building out that team, I think it took, you know, it has taken longer, particularly if you're selective, which I think we have been in ensuring we get the right professionals on board. It takes time. We're in a really good spot right now as it relates to the team that we have in North America, both from a sales and a service and support standpoint. We're continuing to expand here in 2023 in EMEA, which is a focused area of growth and a particular focus on the authorized site front. And then we're building up from what was effectively a team of one or two last year in APAC to a more substantial team. We're being selective there. We want to make sure that we're targeting the markets that are already ripe for HyPlex proteomics, but there's plenty of opportunities for us to continue to build there in APAC.
spk07: Thank you. One moment while we prepare for the next question. And our next question is coming from Brandon Colliard of Jack. Please, your line is open.
spk04: Hey, thanks. Good afternoon. Maybe it's a question for Adam. You just touched on the Novartis contract revision. You know, why now? What do you get out of the new terms and Do you have any better line of sight in terms of the annual minimums associated with that contract? Will those be higher or lower now than they were before?
spk05: Yeah, thanks, Brandon. It's Adam here. I think the key point I want to mention as it relates to Novartis, we've had a long history with them, an extremely deep relationship with Novartis in various areas of their research, various geographic areas in which we serve them. And the key thing that we were working through as it related to that was the extension, right? And so, you know, from a Novartis perspective, we're very excited to be their proteomics provider of choice, you know, for many, many years to come. And we continue to try to find ways, innovative ways, to add value to that partnership.
spk04: Okay. And then maybe one for Sean, just in terms of the revenue outlook for the year. Any color in terms of phasing? I mean, 22 was more of a seesaw pattern, but historically revenues have been more 4Q weighted. How do you see 23 playing out, and how would you sort of, I guess, describe the degree of maybe added conservatism you've embedded in the outlook given all the change going on in the organization right now?
spk05: Yeah, I mean, you know, I would say, you know, we've always kind of put out there that as a service business, it's, you know, hard sometimes to predict any given quarter, and we don't really, you know, factor in a certain significant material seasonality. I mean, you know, you heard in my remarks that I put that Q1 will look substantially like Q4, you know, going into this year. And so, you know, I would model it with, you know, kind of really a mild phasing going up. I wouldn't, you know, we don't expect to We don't have a back-loaded forecast, you know, but it will be a slight ramp up. We are driven more or less by more kids coming online, but as Adam pointed out, that's not a huge material number, so it's not adding this huge hockey stick at the end.
spk08: Thank you. On to our next question.
spk07: And our next question will be coming from Kyle Mikeson of Canaccord. Your line is open.
spk02: Yeah, hi. Thanks, guys. Thanks for taking the questions. Congrats to Adam. Good to have you on board. So let me just ask one, I guess, for Troy here about kind of like the why now and why now is the right time for this evolution, these board additions as well. You mentioned there was not enough seasoned market leaders. I mean, the company's performance has been Not spectacular, but not really terrible either. So just given that trajectory you were seeing, like what are the main areas you want the company to improve on going forward, whether that's profitability, the account productivity, or diversifying the customer base? I guess basically like what was not going up to your standards and what will the company be laser focused on kind of going forward? Thanks.
spk05: You know, Kyle, it's Troy. You know, our announcements are grounded on we want to do the most with the resources and assets that we have and at the center of that is something really special. There's a special sauce with regards to our technology at Semologic and then particularly how we advance that technology going forward. So we have a great deal of confidence in our business. And I've personally seen Adam take the reins from mid last year. And you'll see that if you look at our corporate deck, how he's moved the needle on the key metrics. And indeed the cycle, the sales cycle time It can be lengthy, but Adam has done all the right things and has helped bend those curves in terms of bringing on new customers and pulling on our land and expand strategy. In terms of the strategies of how to grow the company going forward, Adam has a clear plan for that, and I'll turn it over to him. Sure. Yeah, thanks, Troy. Yeah, Kyle, I think the strategy is fairly straightforward for us in terms of growth here. Really, when you think about it from a short-term perspective, we've got to execute. So we had arguably too many priorities and we were spreading ourselves fairly thin. We've got an incredibly talented and passionate employee base. At the same time, if everyone's working on seven to ten programs, it's tough to do any of them well. So we've made a significant shift there. We've really focused on a a far fewer set of priorities focused on serving our life sciences customers. The second thing is really continue to build out and strengthen that commercial foundation. I touched on that earlier in terms of where we're expanding geographically, and I also touched on what we need to be doing to really support our customers in both that pre-sales and post-sales journey. And lastly, from a strategic perspective that gives us the confidence is expanding our offering. So we've got the authorized sites, program up and running, a great pipeline to be getting those sites installed, giving customers the convenience of either sending in samples to us in Boulder or running the SomaScan assay in the comfort of their own labs, as well as what we're doing with Illumina. And I'd be remiss if I didn't mention, because there's been a heck of a lot of hard work going, frankly, for years here at Somalogic to launch the 10K SomaScan assay by the end of this year. which will continue to extend our market leadership as it relates to content, which we're highly confident will provide greater discoveries for our customer base.
spk02: Okay, that was great. Thanks, guys. And then, Adam, I just want for you on, I'm just kind of wondering, would you have to make any structural changes, I guess, to the company as it stands today in order to kind of enable and potentially accelerate the decentralized kids strategy and then related to that? Is there any update on the diagnostics, you know, strategic alternative to the strategy that was announced a few months ago?
spk05: Sure, Kyle. I think as it relates to structural changes, those are well in flight. Those are consistent with what we mentioned at the end of last year, maybe in advance of J.P. Morgan, meaning we're going to focus on the life sciences side of our business. So we have pivoted the organization. fairly firmly in a way that's focused on serving both that customer base commercially, as well as ensuring that the innovations, the products that we've got in our R&D pipeline and product management pipeline are all focused really on that life sciences core set of customers. As it relates to the DX side, yeah, I think as we mentioned, we were going to explore strategic options there. And we did that. And at this point, We don't intend to formally spin out our DS platform. It's absolutely critical to the continuum and the needs of many of our biopharma life sciences customers, and it's a key differentiator for us. So we want to be able to continue to support their needs on that entire journey from discovery all the way through translational and clinical.
spk02: Gotcha. If I could just ask one more. I was curious about the commitment to Palometrox. I noticed that it's in your long-term kind of roadmap here. 2025 is when that chip-based prototype could be announced. But, you know, Adam, you were with the company when the deal was announced, but Troy, you came on after, I believe. How excited are you guys for that asset, and are there other companies or technologies that they kind of have your eyes on, like for the future, that, you know, just given your balance sheet could be attractive kind of going forward?
spk05: Sure, Kyle. Yeah. And you're right. I was on board when that deal was announced and closed. I'm extremely excited about the work that team in San Diego is doing. You know, in addition to strong intellectual property and other intangible assets, we got an incredibly smart group of scientists and professionals there. And so diversifying our base of operations just modestly out of the Boulder area into that team there in San Diego, we're already seeing some amazing synergy and really some amazing output from that team.
spk07: Thank you. That concludes today's Q&A session. I would like to turn the call over to Adam Tosh for closing remarks. Please go ahead.
spk05: Great. Thank you so much, Operator. And thank you, everyone, just for listening in. I want to give a special thanks to the investment community, our dedicated employees, and, of course, our customers. Thank you very much. Goodbye.
spk07: This concludes today's conference call. Thank you all for joining. You may disconnect now, and please enjoy the rest of your evening. Thank you. you you Thank you.
spk09: Thank you. music music you
spk07: Welcome to Semilogic's fourth quarter and full year 2022 earnings call. All participants are in a listen-only mode. We will take questions following prepared remarks. I will now turn the call over to Marisa Baez of Gilmartin Group for introductory disclosures.
spk00: Thank you. Today, Somalogic released financial results for the quarter and year ended December 31, 2022.
spk01: A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make forward-looking statements during this call within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events results, or performance are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our market opportunity, gross margin and future financial performance, protein content and database growth, customer base, diagnostic pipeline, expectations for hiring, and growth in our organization are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties, that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our Form 10-K filed with the Securities and Exchange Commission today. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 28, 2023. Somalogic disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. I will now turn the call over to Troy Cox, Executive Chairman of Somalogic's Board of Directors.
spk05: Troy Cox Thanks, Marisa. Good afternoon, and thanks for joining us. As a longtime believer in the potential of proteomics, I had the opportunity to join the Somalogic board in 2021 and was appointed executive chairman in October of last year. Before Adam and Sean discuss our fourth quarter results and outlook for 2023, I'd like to address the management and leadership transition we announced today. Roy Smyth has stepped down as CEO and board member, effective today, March 28th. Roy has been an important contributor to the company advancing the technology, and overseeing the process to becoming a public company, and we'd like to thank him for his efforts. Over the last six months, working at a more operational level, I've gained a better understanding of the company and the people. Given my extensive background running commercial functions, it was clear that Sumo Logic was at a stage that it needed seasoned leaders to accelerate market adoption. Adam Taitch is an example of that kind of talent, having joined Somalogic over a year ago with highly relevant and diverse experience across multiple senior roles at Thermo Fisher Scientific. In the third quarter of last year, we promoted Adam to Senior Vice President of Life Sciences with ownership of all commercial activities and operations functions, which is about half of Somalogic's employees. There was more work to do, but together with Adam and the rest of the management team and board, we made some really important decisions to focus the company and deliver results in a more efficient manner. Adam will talk about this as well as how he has strengthened our commercial foundation and pipeline. Adam has earned the confidence of his peers and the board that he's the right leader for Somalogic as we make this important transition. To help fuel the company's next chapter, we are bringing some really impressive talent to the Somalogic Board of Directors with the addition of industry veterans Jason Ryan, Kathy Hibbs, Tom Carey, and Tycho Peterson. I'm very pleased that Jason Ryan will join the board as chairman. I will remain on the board and support Jason's transition. I personally had the opportunity to see Jason's unmatched ability to move from strategy to tactical execution and connect all the dots in between when we work together at Foundation Medicine. Since then, Jason has further demonstrated his proven track record in expanded and diverse roles. Kathy Hitz will also join our board, bringing towering strengths in many areas such as regulatory, legal, compliance, quality, privacy, technology, and public company considerations, all coming from diverse experiences in the areas of Somalogic's focus. I've personally seen Kathy deliver impressive value from these strengths and much more over the last few years from our work together with Sophia Genetics. When it comes to people-related competencies, there's no one better than Tom Carey. I'm thrilled that Tom will also join our board. Tom has strengthened leadership and teams across so many companies while gaining a deep knowledge of the landscape, players, strategies, and adjacencies that will serve Simologic well. His expanded breadth via leadership and growth life science companies, including over eight years on the Exact Sciences Board, will bring tremendous value. I don't think it's possible to be in our industry and not know Tycho Peterson, who will also join our board. I'm excited for the board and the company to benefit from his unprecedented experience from 23 years at J.P. Morgan as managing director and lead equity analyst covering medical devices, life science tools, and diagnostics. This experience is being leveraged and enriched from serving as the CFO of another innovative life sciences growth company, Adaptive Biotechnologies. So welcome, Tycho. Tom, Kathy, and Jason, our next chapter is fueled by great leadership with some of industry's top talent. Before I turn it over to Adam, I want to reiterate what I said in the press release. We recognize that it is a dynamic time in the industry and a volatile one in the broader markets. It puts Sumo Logic in a unique position. Having an attractive and growing core market combined with our strong balance sheet, we are well positioned to pursue strategic options. As mentioned, we plan to work with our advisors and our newly strengthened board leadership to evaluate strategic and transformative opportunities and will provide updates as appropriate. Now I'll turn the call over to Adam to review 2022 key achievements and strategic priorities looking forward. Great. Thank you, Troy. And thank you all for joining us here on the call this afternoon. I'm absolutely thrilled to have the opportunity to lead this company into the next phase of growth and evolution. Having taken on broader commercial leadership responsibilities in the third quarter of last year, I've been encouraged by the early momentum an opportunity to expand our reach in the proteomics market. There is work to do, but the mandate is clear and I'm committed to it, driving sustainable growth while importantly bringing improved operational discipline and cash management to this organization. I am accountable for this mandate. Before I dive in, I'd first like to thank our committed teams across the globe. I took over broader leadership in the second half of last year and have watched the organization undergo significant changes in that time. While challenging, the team has been impressive in their dedication and focus, and I'm confident that as we navigate through this leadership transition, it will continue to remain focused on consistent execution and improving every day to meet our customers' needs and expand our commercial impact. Together with the board, we are employing a deliberately simple business strategy, bringing an acute focus on delivering innovative solutions to our expanding global customer base of biopharma, academia, and government institutions, while maintaining tight expense and cash discipline. Everything flows from this strategy and is built on the core business belief that if we build an efficient and profitable business that can accelerate and improve customers' R&D productivity, We will, as a company, increase value for customers, and importantly, for you, our shareholders. We need to recognize that while Somalogic is a 25-year-old leading innovation company, it is only a two-year-old commercially-focused enterprise. It has been a journey to transition the company, but we are firmly on pace now. In the coming quarters and years, that pace will accelerate with a target of getting back to 20% top-line growth exiting this year. That is our commitment. To help do it, we need the right people and right processes. Success is all about the team, and we recently brought on a new global commercial leader, Mike DiMeo, to add significant industry depth and global experience to the commercial effort. We have a great product. We just need to do the basic blocking and tackling of commercial execution to make that product easier and better for customers to use. Mike and his team are doing the necessary work and building the right processes, and early indications are that it is having an impact. And of course, if you can't measure it, you can't manage it. Simple yet informative metrics are now in place and visible daily to monitor our forward progress. To achieve commercial growth in our core afterbirth-based proteomic solution, we must continue to make it easier to access our technology platform and we need to diversify the number of users on it. We have two strategies to do this. One is through the work we are doing with Illumina, which brings the flexibility and power of SomaScan to Illumina's market-leading install base of instruments. Theirs is the largest install base in the world, and there is already significant interest from customers to utilize our combined solution. Once our SomaScan assay is available on NGS, It will change the way proteomic research is done at scale across the world. Second, we are going to accelerate the expansion of our authorized sites for kids' business and open up more Somalogic authorized sites to allow institutions around the world to run the SomaScan assay in their own labs. This is the type of format solution that other vendors use, and we've been slow to catch up. We only formally launched this initiative late last year, but are now in full-scale launch of our authorized sites program and see growth in it over the years ahead. As of today, we have eight authorized sites up and running, and we are expecting that number to more than double exiting the year. Across all of our biopharma engagements, we must continue to operate as a thoughtful partner to our customers, ingraining ourselves into their clinical, translational, and early discovery projects by helping them understand how to maximize the application of our technology. In the long term, we expect our positioning with these key accounts to enable migration to larger multi-year partnerships. We are also expanding our geographic reach to better serve the needs of the global scientific community. Our team is focused on establishing footholds in EMEA and Asia Pacific. In December of last year, Tokyo-based Bonus Life Corporation signed on as the first Somalogic authorized site in Asia. Early in 2023, G42 Healthcare became the first announced site in the Middle East. Many more agreements are in the works with a substantial increase in our pipeline since we first announced the program. It is critical to say that while growth is important, we must manage the business efficiently and with more disciplined cash management. As stewards of shareholder capital, I am committed to diligent spending, tight investment prioritization, and commercial initiatives that deliver results consistently. I recognize that our balance sheet is one of our key assets, and I and the team will make sure to protect it. Sean will provide more details on our financial performance and historic spend with some cash burn expectations later in the call. There are more efficiencies to drive in this business, and my day one focus is to deliver them The Life Science Tools business model, when run at scale and run well, is one of the most lucrative in the industry. We will do everything operationally, organically, and as Troy said, inorganically, to get to that scale and profitability. Now, let me conclude with a couple of product development objectives for 2023 to look out for. The launch of our 10K SomaScan product is on track to launch by the end of the year, which will extend our leadership in proteomics measurement capabilities. we remain confident that our leadership and content allows our customers to discover even more biologically important proteins in a precise manner. Our work with Illumina to develop NGS proteomics products also remains on track with expectations to fully commercialize in 2024. Based on the focused and disciplined approach I've just described, we are optimistic that we are repositioning the business for success. I look forward to providing updates on these strategic and product milestones over the coming year. I will now turn the call to Sean Blankman, CFO, to review our financial performance and outlook. Thanks, Adam. Turning to our financial results for the fourth quarter and full year, revenue for the three months ended December 31, 2022, with $18.8 million. an 18% decrease from $23 million in the same period of the prior year. Revenue for the full year of 2022 was $97.7 million, a 20% increase from $81.6 million in the prior year. Fourth quarter 2022 revenue reflects early traction in our kit rollout, nearly tripling our kit business over Q4 2021, which, to echo what Adam said, is a critical component of our strategy to return to above-market growth. But the current quarter also reflects the change in our new England BioLabs royalties recognition with zero recognized this quarter versus $1.9 million in the fourth quarter of 2021. Gross margin for the fourth quarter of 2022 was 31.1% compared to 54.5% in the fourth quarter of the prior year. Gross margin for the full year 2022 was 55.6% compared to 59% in the prior year. Full year margins were in line with expectations and our fourth quarter growth margins were primarily in effect of human technical or HDI volume as signaled in previous earnings calls. Net of HDI, our core service margins remained approximately 50%. Total operating expenses for the fourth quarter of 2022 were $60.4 million, a 48% increase from $40.9 million in the fourth quarter of 2021. Operating expenses for the full year 2022 were $230.1 million, an 89% increase from $121.5 million in the prior year. R&D expenses for the fourth quarter of 2022 were $22.6 million, compared to $11.2 million in the fourth quarter of 2021. Full year 2022 R&D expenses were $73.4 million compared to $43.5 million in the prior year. Sales, general, and administrative expenses for the fourth quarter of 2022 were $37.8 million compared to $29.7 million in the fourth quarter of 2021. $178 million in 2021. The year-over-year increase in our expenses was primarily associated with our commercial team expansion, public readiness, and stock-based compensation charges associated with restructuring. Adjusted EBITDA for the fourth quarter of 2022 was a loss of $49.9 million compared to an adjusted EBITDA loss of $27.7 million in the fourth quarter of 2021. FULL YEAR 2022 ADJUSTED EBITDA WAS A LOSS OF $160.5 MILLION COMPARED TO AN ADJUSTED EBITDA LOSS OF $63.6 MILLION IN 2021. PLEASE SEE OUR PRESS RELEASE ON FILE WITH THE SEC AS OF THIS AFTERNOON FOR A RECONCILIATION BETWEEN GAP NET LOSS AND NON-GAP ADJUSTED EBITDA. AND WE ENDED THE YEAR WITH $539.6 MILLION OF CASH, CASH APPLIED ONCE A SHORT-TERM INVESTMENT. Turning to our full-year outlook, we project 2023 revenues to be within the range of $80 to $84 million, taking into effect the significant accounting impact of our new NEB agreement. This represents 12% to 17% growth on an apples-to-apples basis at the midpoint of our guidance. As we continue to ramp up our distributing kit business, our guidance is also driven by a return of substantial growth in our service business as we are starting to see the benefits of our commercial expansion. OUR Q4 2022 RESULTS ARE REFLECTIVE OF OPERATIONS GOING INTO Q1, SO WE EXPECT SIMILAR REVENUE. IN TERMS OF GROWTH MARGINS, WE EXPECT FULL-YEAR GROWTH MARGINS IN THE LOW 50% RANGE, WHICH IS A RESULT OF OUR ASSUMPTION FOR LITTLE OR NO NEV REVENUE THIS YEAR. HOWEVER, THERE WILL BE A PHASING AS WE HAVE SOME CARRY-OVER HTI SAMPLE IMPACT IN Q1, WHICH WILL DRIVE Q1 MARGINS IN THE LOW 40% RANGE. year number back over 50%. And as promised, we've made significant expense reductions for 2023 to reduce our cash burn. Excluding M&A-related cash burn, our Q3 2022 burn rate was an organic high point at nearly $40 million, and our expense reductions are expected to drive that down by 50% to a year-end burn rate of approximately $20 million a quarter this year. Keep in mind that in Q1, we will see the cash impact of our 2022 restructure But from there, our cash burns start significantly declining to reflect our improved cost structure. Including these restructuring-related items, we still anticipate 2023 cash burns will be less than $120 million. As Adam expressed, our primary objective in 2023 is to continue to focus on applying process and fiscal discipline to the commercial strategy to remove costs and preserve cash. We see opportunities to make meaningful improvements over what is projected above. and look forward to updating you in the coming quarters on our success. At this point, I would like to turn the call back to Adam. Great, thank you, Sean. Operator, we are now ready for Q&A.
spk07: Thank you. As a reminder, if you'd like to ask a question, please press star one one on your telephone, and please limit yourself to one question and one follow-up. One moment while we compile the Q&A roster. And our first question will be coming from Dan Brennan of Power. Your line is open.
spk06: Great. Thank you. Thanks for taking the questions. Congrats on the new role, Adam, and team. Maybe, Adam, could you start off? It was listed as interim CEO in the press release. It sounds like you are the full-time CEO. I just want to clarify that if you don't mind. And then, B, you laid out a lot of the things that you've already seen traction with in your current role. But I'm just wondering, like, as we look ahead, you talked about making products easier to use, better for customers to use them, building the right processes. Could you just maybe speak to, as we think about 23 and 24, how you would articulate what are the kind of key changes or initiatives that you'll be deploying to drive more efficient growth?
spk05: Sure. Thanks, Dan. You know, let me take the second part of the question first, and then I'll hand it over to Troy to speak to the interim title. In terms of the comments around making the products easier, it's really the pivot that we're making from what is almost entirely a services business today to a distributed solution. So really getting that kits or authorized sites business up and running. Another item to mention as it relates to that sort of easier to use, frankly, is the technical support and bioinformatics required around our solutions. And what we have here, it's not any more complex than other innovative market-leading solutions out there in the market. At the same time, I think we were underestimating the amount of lift that's required to get a customer up and running and confident on the platform. And the last thing I would mention as we think about ease of use is really the incredible program we've got in place with our partner, Illumina. And so, in part, ease of use is really just allowing and enabling our customers out there who have NGS systems in-house who are considering buying one, to be using an NGS format as the back-end readout. Troy, do you want to touch on the first part of Dan's question? Hey, Dan, it's Troy. The board is confident in Adam. He's the right leader to further strengthen our pipeline and our performance, as well as manage expenses and preserve our cash. We felt interim, as simple as this, was appropriate in the context of simultaneously bringing on four seasoned strategic leaders as new board members.
spk06: Okay, so he, I'm sorry, so he is, he's the full-time guy, or you're not conducting a simultaneous search in addition to having Adam in the seat, or you are?
spk05: Yeah, Adam's in charge of the company, effective today as CEO. In the near term, we're going to focus on onboarding our new board members and empowering Adam to execute on our strategy.
spk06: Terrific. Great. And then maybe a follow-up. I know, Troy, you mentioned this at the onset, unique position to leverage our balance sheet and new board leadership to pursue strategic and transformational options for maximum shareholder value. Can you just maybe speak to that a little bit. I mean, the balance sheet's in great shape. The technology's terrific. You guys should have a real pathway ahead to accelerate growth, hopefully. But what else are you guys considering with the balance sheet? Are you guys looking to do big deals? Are you looking to be acquired? Just maybe a little more color on what the plans are here for this balance sheet.
spk05: Sure. The overall context is, as you've mentioned, we find ourselves in a unique and fortunate position to expand our footprint further in a really super attractive and growing market of proteomics. And now with a strong team and board in place and combine that with a healthy balance sheet, we have $539 million as of the end of 2022. The board is committed to proactively pursuing strategic and transformational options that leverage that unique position. And it's all about, you know, maximizing shareholder value You know, I think, you know, to get into more specifics, Dan, is difficult because I think this effort has diverse possible outcomes and will only be pursued if we meet that simple goal of maximizing shareholder value. So we'll keep you updated at key milestones and as we reach conclusions.
spk06: And maybe if I can just sneak one more in just on the kit business and then the base service business. Can you just give us a little color on how you're thinking about the rollout of the kits? Like, look, Why is the rollout so gated? Is there a lot of technical complexity for a customer to adopt the kits? Are these ready for prime time? And, you know, is there a lot of interest rolling in the summer? So maybe a little color on the rollout itself. And then how would we think about the split implicit in your guidance for the year 80 to 84 between how much of that will be kit generated versus the service related? Thank you.
spk05: Sure, Dan. Let me just start with the second part of your question. So we're not going to break out that. that difference between kits and service. But what I would say is we still expect the services business here in 2023 to be the primary driver of our growth and of our business for this year. In terms of some of those gating items that you mentioned, and I think the company mentioned it in the past, there were some supply chain challenges that sort of got in our way of getting the sites up and running. We're past that. So we're making incredible progress getting sites up and running. We've built out a field application support team that's really required to be there on site for about the week that it takes to get a site installed, trained, and up and running. And the pipeline is tremendous in terms of the opportunities that we have.
spk07: Thank you. And our next question. One moment. Our next question will be coming from Dan Asriel of Your mind is open.
spk13: Okay, that was close enough. Hi, guys. Adam, welcome aboard. I wanted to ask a question about customer growth, if I could, Adam. You guys have done a really nice job growing out the account base. I think on the slide it says 60% plus over the last year, but obviously the revenue growth is well below. So where do you see the disconnect there? Is it just that the new accounts are taking time to contribute more to your point on sort of underestimating the ramp up there, or is it that they are contributing and it's just being offset by some that are existing and that are trending downward? And then I guess within that, if you could just talk to how you feel about volume growth at some of your sort of anchor pharma accounts, that would be great.
spk05: Sure, Dan. Yeah, I think, as you rightly noted, we've done a fantastic job, the commercial team out there, building up the account base. And, you know, as you would expect in a business like this, the accounts, uh, that we onboard come in and they come in, you know, typically with a small, maybe even a pilot study. So fairly small amount of revenue. They go through the cycle of analyzing and understanding, you know, how to best use and utilize that information and their discoveries. Um, you know, and then ideally we're doing our jobs around customer retention. Uh, they come back. Um, and so yes, the, a lot of the customers that we onboarded during the course of last year. do really start as small accounts. What we have demonstrated is a track record, though, of bringing on customers. And if you go back and look at customers, for instance, that came on in the second half of 2021, we've got a fairly good demonstrated track record of increasing from a sort of land and expand, when you think about getting into the account, and then expanding our reach within that, whether that's a different therapeutic area or whether that's moving from discovery into translation, and translational, a pretty good track record of working through that. And so that's really what the expectation is, and we've got the right metrics in place to be measuring that. As it relates to some of the larger accounts, we still have a tremendous relationship with Novartis, as an example. It continues to be an incredible partner for us. And we would expect that some of those large orders could be lumpy from time to time, but that's why it's so important that we diversify the customer base, which is really where we've been focusing our time and effort down.
spk13: Okay, helpful. And then maybe just from a strategic standpoint, I mean, as you think about what's most important over the next 12 or 24 months, how much of a priority do you see the work being done in the Precision Medicine Initiative? You know, obviously a lot of promise in clinical proteomics, but assay development there is a heavy lift in a lot of ways. So just curious how we should think about that as a part of your investment focus over the next year or so.
spk05: Yeah, Dan, I think the best way to think about that, and this is Adam here, is You know, really, as we announced at the end of last year, we're going to execute really on our focus related to the life sciences side of our business. Now, most certainly, some of our biopharma accounts and certainly there are accounts in academia and government who do work into that precision medicine and those types of initiatives. But for us, it's really focusing on that core RUO research market, building out the strong commercial foundation we have, and then continuing to expand the kits business.
spk13: Okay, last one for me, if I could just sneak in an additional. I mean, on the commercial team expansion, which I think for those of us that were thinking about the case around the time of the IPO was one of the more compelling aspects of the business, just in the sense that I think you had 14 commercial folks in 2020, and that was going to something like 50 to 100. So where do you think from here the commercial team ads will be most evident when it comes to growing the revenue base? Is it overseas? Is it in a particular application? What should we look for just in terms of the impact that that commercial scale-up can have?
spk05: Sure, yeah, and this is Adam again. You're absolutely right. I think building out that team, I think it took, you know, it has taken longer, particularly if you're selective, which I think we have been in ensuring we get the right professionals on board. It takes time. We're in a really good spot right now as it relates to the team that we have in North America, both from a sales and a service and support standpoint. We're continuing to expand here in 2023 in EMEA, which is a focused area of growth and a particular focus on the authorized site front. And then we're building up from what was effectively a team of one or two last year in APAC to a more substantial team. We're being selective there. We want to make sure that we're targeting the markets that are already ripe for HyPlex proteomics, but there's plenty of opportunities for us to continue to build there in APAC.
spk07: Thank you. One moment while we prepare for the next question. And our next question is coming from Brandon Collier of Jack. Please, your line is open.
spk04: Hey, thanks. Good afternoon. Maybe it's a question for Adam. You just touched on the Novartis contract revision. You know, why now? What do you get out of the new terms and Do you have any better line of sight in terms of the annual minimums associated with that contract? Will those be higher or lower now than they were before?
spk05: Yeah, thanks, Brandon. It's Adam here. I think the key point I want to mention as it relates to Novartis, we've had a long history with them, an extremely deep relationship with Novartis in various areas of their research, various geographic areas in which we serve them. And the key thing that we were working through as it related to that was the extension, right? And so, you know, from a Novartis perspective, we're very excited to be their proteomics provider of choice, you know, for many, many years to come. And we continue to try to find ways, innovative ways, to add value to that partnership.
spk04: Okay. And then maybe one for Sean, just in terms of the revenue outlook for the year. Any color in terms of phasing? I mean, 22 was more of a seesaw pattern, but historically revenues have been more 4Q weighted. How do you see 23 playing out, and how would you sort of, I guess, describe the degree of maybe added conservatism you've embedded in the outlook given all the change going on in the organization right now?
spk05: Yeah, I mean, you know, I would say, you know, we've always kind of put out there that as a service business, it's hard sometimes to predict any given quarter and we don't really. You know, factor in a certain significant material seasonality. I mean, you know, you heard in my remarks that I put the Q1 will look substantially like Q4, you know, going into this year. And so, you know, I would model it with, you know, kind of really a mild phasing going up. I wouldn't, you know, we don't expect to have any particular quarter that's heavy. We don't have a back-loaded forecast. You know, they will be a slight ramp-up. Driven more or less by more kids coming online, but as Adam pointed out, that's not a huge material number. So it's not adding this huge hockey.
spk08: Thank you. On to our next question.
spk07: And our next question will be coming from Kyle Mikeson of Canaccord. Your line is open.
spk02: Yeah, hi. Thanks, guys. Thanks for taking the questions. Congrats to Adam. Good to have you on board. So let me just ask one, I guess, for Troy here about kind of like the why now and why now is the right time for this evolution, these board additions as well. You mentioned there was not enough seasoned market leaders. I mean, the company's performance has been Not spectacular, but not really terrible either. So just given that trajectory you were seeing, like, what are the main areas you want the company to improve on going forward, whether that's profitability, the account productivity, or diversifying the customer base? I guess basically, like, what was not going up to your standards and what will the company be laser focused on kind of going forward? Thanks.
spk05: You know, Kyle, it's Troy. You know, our announcements are grounded on we want to do the most with the resources and assets that we have and at the center of that is something really special. There's a special sauce with regards to our technology at Semologic and then particularly how we advance that technology going forward. So we have a great deal of confidence in our business. And I've personally seen Adam take the reins from mid last year. And you'll see that if you look at our corporate deck, how he's moved the needle on the key metrics. And indeed, the cycle, the sales cycle time It can be lengthy, but Adam has done all the right things and has helped bend those curves in terms of bringing on new customers and pulling on our land and expand strategy. In terms of the strategies of how to grow the company going forward, Adam has a clear plan for that, and I'll turn it over to him. Sure. Yeah, thanks, Troy. Yeah, Kyle, I think the strategy is fairly straightforward for us in terms of growth here. Really, when you think about it from a short-term perspective, we've got to execute, right? So we had arguably too many priorities, you know, and we were spreading ourselves fairly thin. We've got an incredibly talented and passionate employee base. At the same time, you know, if everyone's working on seven to ten programs, it's tough to do any of them well. So we've made a significant shift there. We've really focused on... a far fewer set of priorities focused on serving our life sciences customers. The second thing is really continue to build out and strengthen that commercial foundation. I touched on that earlier in terms of where we're expanding geographically, and I also touched on what we need to be doing to really support our customers in both that pre-sales and post-sales journey. And lastly, from a strategic perspective that gives us the confidence is expanding our offering. So we've got the authorized sites, program up and running, a great pipeline to be getting those sites installed, giving customers the convenience of either sending in samples to us in Boulder or running the SomaScan assay in the comfort of their own labs, as well as what we're doing with Illumina. And I'd be remiss if I didn't mention, because there's been a heck of a lot of hard work going, frankly, for years here at Somalogic to launch the 10K SomaScan assay by the end of this year. which will continue to extend our market leadership as it relates to content, which we're highly confident will provide greater discoveries for our customer base.
spk02: Okay, that was great. Thanks, guys. And then, Adam, I just want for you on, I'm just kind of wondering, would you have to make any structural changes, I guess, to the company as it stands today in order to kind of enable and potentially accelerate the decentralized kids strategy and then related to that? Is there any update on the diagnostics, you know, strategic alternative to the strategy that was announced a few months ago?
spk05: Sure, Kyle. I think as it relates to structural changes, those are well in flight. Those are consistent with what we mentioned at the end of last year, maybe in advance of J.P. Morgan, meaning we're going to focus on the life sciences side of our business. So we have pivoted the organization. fairly firmly in a way that's focused on serving both that customer base commercially, as well as ensuring that the innovations, the products that we've got in our R&D pipeline and product management pipeline are all focused really on that life sciences core set of customers. As it relates to the DX side, yeah, I think as we mentioned, we were going to explore strategic options there. And we did that. And at this point, We don't intend to formally spin out our DS platform. It's absolutely critical to the continuum and the needs of many of our biopharma life sciences customers, and it's a key differentiator for us. So we want to be able to continue to support their needs on that entire journey from discovery all the way through translational and clinical.
spk02: Gotcha. If I could just ask one more. I was curious about the commitment to Palometrox. I noticed that it's in your long-term kind of roadmap here. 2025 is when that chip-based prototype could be announced. But, you know, Adam, you were with the company when the deal was announced, but Troy, you came on after, I believe. How excited are you guys for that asset, and are there other companies or technologies that they kind of have your eyes on, like for the future, that, you know, just given your balance sheet could be attractive kind of going forward?
spk05: Sure, Kyle. Yeah. And you're right. I was on board when that deal was announced and closed. I'm extremely excited about the work that team in San Diego is doing. You know, in addition to strong intellectual property and other intangible assets, we got an incredibly smart group of scientists and professionals there. And so diversifying our base of operations just modestly out of the Boulder area into that team there in San Diego, we're already seeing some amazing synergy and really some amazing output from that team.
spk07: Thank you. That concludes today's Q&A session. I would like to turn the call over to Adam Tosh for closing remarks. Please go ahead.
spk05: Great. Thank you so much, Operator. And thank you, everyone, just for listening in. I want to give a special thanks to the investment community, our dedicated employees, and, of course, our customers. Thank you very much. Goodbye.
spk07: This concludes today's conference call. Thank you all for joining. You may disconnect now, and please enjoy the rest of your evening.
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