This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good afternoon and welcome to SomaLogic's third quarter 2023 earnings conference call. At this time, all participants are in listening mode. We will be facilitating a question and answer session toward the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to call over to Noah Koren with Gilmartin Group Investor Relations for introductory comments.
spk01: Thank you. Today, Somalogic released financial results for the quarter ended September 30th, 2023. 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 factor section of our latest Form 10-Q and 10-K filed with the Securities and Exchange Commission. In addition, today's discussion will include references to non-GAAP financial measures including adjusted EBITDA. This non-GAAP measure is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. Please see our press release on file with the SEC as of this afternoon for a reconciliation between GAAP net loss and non-GAAP adjusted EBITDA. This call contains time-sensitive information and is accurate as of the live broadcast today, November 8, 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. And with that, I will now turn the call over to Adam Tate, Interim Chief Executive Officer.
spk05: Thanks, Noah. Good afternoon, and thank you for joining Somalogic's third quarter 2023 earnings conference call. I'm pleased to report another solid quarter marked by consistent progress on our commercial initiatives and increased operational rigor throughout the organization. Despite a challenging macroeconomic environment, we achieved third quarter revenue of $22 million, reflecting 14% year-over-year growth when excluding non-recurring licensing revenue that we received in the third quarter of last year. Given our progress, we are raising our full year 2023 revenue expectations, to 82 to 85 million from the prior range of 80 to 84 million. Before turning to our results in more detail, I'd like to highlight our recent merger announcement. In early October, following a comprehensive review of strategic options, we announced our intention to combine in an all-stock merger with Standard BioTools, a leading provider of mass cytometry and microfluidic technologies. The merger establishes a leading platform of multiomic technologies to power research insights across a broad and growing market while expediting Somalogic's path to scale and cash flow breakeven. It expands our commercial reach with cross-selling opportunities and complimentary offerings. We believe the combined business will be positioned to meaningfully accelerate our path to profitability, and we continue to expect the merger to close in the first quarter of 2024. We expect our proxy to be on file shortly, which will provide additional background and details regarding the transaction. Now shifting to our third quarter results, starting with our core SomaScan services offering. Customer retention and acquisition remain the focus of our commercial efforts, and we are finding new ways to validate the therapeutic pipelines of our customers. For example, the recent rise in GLP-1 agonists have increased interest in the use of SomaScan to identify early indications of efficacy across clinical trial candidates. In a recent paper published by Diabetes Care, investigators were able to identify meaningful changes in cardiovascular risk, glucose tolerance, liver fat, body fat, and cardiopulmonary fitness as a result of weight loss intervention by utilizing the SomaScan platform. By attaining an early read on efficacy, pharma investigators can allocate resources to the most promising therapeutic candidates before expensive and time-consuming longitudinal studies are undertaken. This represents just one of the many promises of the SomaScan platform. In the third quarter, we continue to execute on our authorized site strategy. The primary goal of this strategy is to expand the ways in which customers can adopt and utilize SomaScan. We've been especially focused on expansion in Europe and Asia Pacific, as it is often more difficult for customers in those regions to send samples into our world-class services lab in Boulder, Colorado. As we establish more sites and generate higher sample volumes, we expect our authorized sites to offer more predictable and higher margin revenue while reducing sample delivery times for researchers globally. In March, We shared that we had established eight distinct authorized sites, and we committed to doubling that base by year end. As of today, we have 14 sites up and running, and we remain on track to meet our commitment. Turning to progress with Illumina. In the third quarter, we also advanced our effort to grow our distributed business through our partnership with Illumina. The partnership is focused on delivering a co-exclusive, co-branded, NGS-based distributed solution. Our work remains on track, and we continue to expect early access for customers in Q1 of 2024. This joint proteomics product will combine Illumina's market-leading install base and commercial force with the breadth and depth of the SomaScan assay to deliver differentiated insights to researchers across a wide range of customer segments. While attending the American Society of Human Genetics meeting in Washington, D.C. last week, I had the opportunity to speak to a number of prospective customers who were really excited about being able to leverage their Illumina NGS instrumentation to gain deeper proteomic insights in their research. The energy around this effort is palpable, and the level of interest from customers is high. Finally, we are incredibly excited to announce the commercial launch of the 11K SomaScan assay. The new HyPlex platform provides 11,000 total protein measurements and is the largest proteomics offering available on the market. We now have the ability to measure more than half of the human proteome in a single assay. Following the 7K SomaScan offering, our prior core technology, the 11K SomaScan platform is expected to give researchers a considerable edge in the discovery of biomarkers, and drug targets for translational medicine. Proteins make up more than 90% of all known drug targets, and having a broader view of the human proteome provided by this expanded platform gives our customers more opportunities to make unique and novel biological discoveries. The aptamer-based platform retains the previous version's low coefficients of variation, which is the standard measure of reproducibility, versus the 10 to 20 percent in antibody-based platforms. This improves accuracy with fewer, smaller samples, which is often critical in population studies with limited sample volumes. As early innovators in this space, we know that the discovery and development of disruptive therapeutics benefits substantially from a more complete view of the proteome. We look forward to driving adoption of this platform for the benefit of researchers across our customer base. Now, before I turn the call over to Elliot Lurier, our Interim Chief Financial Officer, I'd like to reiterate that we are making strong progress towards our business objectives, and we remain excited for our future as part of the combined company with Standard Biotools. We look forward to the close of our merger and the realization of shareholder value that we can unlock together. With that, I'll turn the call over to Elliot Lurier, our Interim Chief Financial Officer, to review our financials.
spk06: Thank you, Adam. Revenue for the three months ended September 30th, 2023 was 22 million as compared to 41.7 million in the third quarter of 2022. A 47% year over year decline on a gap basis. Excluding 22.3 million in royalty revenue in the third quarter of 2022 from NEB, our revenue increased by 14% year on year. Our underlying third quarter performance was driven by increasing adoption of the SomaScan platform, as well as an increase in revenue through our authorized sites. Product revenue associated with our authorized site strategy was up close to two and a half million versus Q3 22 and up 0.5 million or 17% sequentially from Q2 of this year. Gross margin for the third quarter of 2023 was 47.2%, a decrease from 72% in the prior year period. Excluding the NEB royalty revenue in the third quarter of 2022, gross margin increased by 7.4% year on year. As we noted earlier in the year, we continue to expect full year 2023 gross margins in the mid 40% range and expect our margin profile to improve long-term from our combined distributed solution and future royalty revenues. Total operating expenses for the third quarter of 2023 were $38.5 million, a 46% decrease from $70.7 million in the third quarter of 2022. R&D expenses for the third quarter of 2023 were 10.5 million compared to 19.4 million in the third quarter of 2022. Selling general and administrative expenses for the third quarter of 2023 were 23.9 million compared to 49.5 million in the third quarter of 2022. Transaction expenses for the third quarter of 2023 were $4.2 million compared to 2022. Transaction costs in Q322 were related to the actions shown on the map. Lastly, I would like to note the prior year's operating expenses, including non-charges, Our third quarter results reflect substantial progress across ongoing expense reduction initiatives. We remain on track to recognize approximately 170 million in full year operating expenses. Adjusted EBITDA for the third quarter of 2023 was a loss of 20.1 million. compared to an adjusted EBITDA loss of $30.2 million in the third quarter of 2022. Accounting for the NEB royalty in Q3 22, the adjusted EBITDA would have been a loss of $52.5 million. We ended the third quarter with $454 million of cash, cash equivalents, and short-term investments. Our cash burn in the quarter was $20 million, reflecting a significantly sequential decrease as we implement greater spending control. We anticipate ending the year with approximately $430 million in cash equivalents in short-term investments, implying a significantly lower cash burn rate than we had originally guided for the year. Ending with our full-year outlook, as Adam mentioned, we are raising our 2023 revenue guidance to $82 million to $85 million. At this point, I'd like to turn the call back to Adam.
spk05: Thanks, Elliot. In a moment, I will turn the line over to our operator, Shannon, to open up the queue for questions. Before I do, I would like to ask that our audience focus our questions on our third quarter business results and progress, rather than on the announced merger with Standard BioTools, as our proxy statement has not yet been filed. Shannon, we're now ready for questions.
spk00: Thank you. As a reminder, to ask a question, please press star 1-1 on your touch-tone telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Cal Mixon with Canaccord Genuity. Your line is now open.
spk03: Hi, this is Alex. I'm from the line of Cal Mixon. We've got some great Twitter guys. Just a few quick questions here. So looking at the enhanced publishing library, I was just curious, what type of new indications have you seen researchers using the library for? I know it's obviously a very early day, but I guess this is more so a question catered towards the more active users. And just sort of what are the indications there? Thank you, Shannon.
spk05: I think as you just saw from the text, Elliot and I are unable to, we weren't able to hear the question. We're hearing a lot of background static.
spk00: Cal, could you please repeat your question?
spk03: Hi, yes. So, hi. So, regarding the enhanced protein library, I was just curious what new indications you're seeing researchers use the library for. I know it's early days. I'm just kind of curious kind of where, you know, like, what type of research to do up every one day. Well, thanks.
spk05: Yes, I think we're having some technical problems. So, you talked about human resources. One of the things that we've tried to do, like, that I think is actually building out of the FHA, is build a really hard-hitting model of different customers in order to achieve that incredible customer feedback. Um, but we also, uh, wanted to ensure that we were looking out ahead into areas of scientific interest and trying to do a gathering approach into new menus to help people. I hope that's audible. Um, and I'll defer back, uh, Shannon, to you.
spk03: Got it. Thank you very much. Um, yeah, I could definitely hear you, uh, loud and clear. Um, and then my other question just would be, um, I guess looking at the performance, would you say that this, you know, the performance is very solid. Would you say some of this performance is driven more so, yeah, performance is driven by research or on the biopharma side?
spk05: Yeah, I would say most of the, you know, we're seeing fantastic growth in both customer segments, but we're really starting to accelerate and penetrate more deeply into the biopharma sector. You know, those, as I've discussed earlier, can oftentimes be a bit of a longer road. And we're starting to see more and more growth, different therapeutic areas, and moving ourselves from the discovery aspect all the way in the same place. As I highlighted on GLP-1 in our comments, we're finding ourselves also in those clinical discussions as well.
spk03: Got it. Thank you very much.
spk00: Thank you. Our next question is coming from the line of Dan Brennan with TD Cowan. Your line is now open.
spk02: Hey, good afternoon, guys. It's Kyle on for Dan. Thanks for taking the questions. I had one on the kids' business in regards to the authorized sites. You said you're up to 14 sites. How's the activity level with each of those sites? And do you have plans to expand this in 24? Yeah.
spk05: So, you know, we're engaged with some of those new sites that we've gotten up and running. But, yeah, it's fantastic. One of the things we've tried to do over the last several quarters is selecting great partners. And we've done so, you know, thus far. So activity level is great. Got it.
spk02: Thank you. How should we sort of think about the Q over Q, you know, growth of the business? It picked up sequentially, and I think you guys beat the quarter by about, you know, a million and a half relative to the street and raised the midpoint of the guide. Should we just, you know, carry this beat sort of over in Q4? The street numbers look relatively fine where they are, or How should we be thinking about that?
spk05: I apologize. Could you repeat the question?
spk02: Yeah, we might be having some technical difficulties here. So, you know, you keep the quarter by about a million and a half, raise the midpoint of the guide about a million and a half. You know, are you comfortable where the street is for the fourth quarter? Or, you know, I guess what are sort of the puts and takes of 4Q?
spk05: Yeah, I think, you know, part of the reason that we increased guidance is we're expecting the fourth quarter to look, you know, more similar to the third quarter. And so we're feeling good about that. Got it. Thank you.
spk00: Thank you. As a reminder, to ask a question at this time, please press star 1-1 on your touchtone telephone. Our next question comes from the line of Daniel Arias with Speedful. Your line is now open.
spk04: Hi, it's Paul on for Dan. Apologies if this has been asked. I was having a lot of trouble hearing, but I think the audio is good now. Just wondering, in terms of setting up these authorized sites now that you're up to 14, becoming, I guess, a little more frequent, Can you talk about, are you starting to see any improvement in terms of faster pace of training or, you know, customers getting up to speed in terms of the normalize pull-through? Is that kind of something that you're seeing as more and more authorized sites are getting out there, or is it just more and more status quo as, you know, a new customer is still in your company?
spk05: No, I think it's I think you're doing the best job. You know, as we learn with you, if you walk right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right, right. Okay, great.
spk03: And then just the last one is in terms of
spk04: The guidance raised, is that something that, is there a specific geography that's contributed more so to that, where you're seeing more strength than you expected a quarter ago, or is that relatively broad-based?
spk05: It's fairly broad-based, to be honest with you. It isn't any DRC in particular. I think it's supposed to be where we've collected the best parts of China. But our exposure to China, we don't realize, is challenging for a lot of our peers. Our exposure is quite low. And so what we're seeing is really more broad-based growth, especially in the standard defense industry, because our presence is so limited in Europe historically. we're seeing some really nice updates in this.
spk04: Great. Thanks for taking our questions.
spk00: Thank you. I would now like to turn the call back over to Adam Tate for closing remarks.
spk05: Thank you so much. This concludes today's conference call. Thank you for participating. You may now disconnect.
Disclaimer