Standard BioTools Q1 2023 Earnings Call Transcript

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May 9, 2023

There are 4 speakers on the call.

Operator

Welcome to the Standard Biotools Incorporated First Quarter 2023 Financial Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Peter Donato, Investor Relations. Thank you, Mr. Donato.

Operator

You may begin.

Speaker 1

Thank you, operator. Good afternoon, everyone. Welcome to Standard BioTools' Q1 2023 earnings conference call. At the close of the market today, Standard BioTools released its financial results for the quarter ended March 31, 2023. During this call, we will review our results and provide commentary on our financial and operational performance, Market trends and strategic initiatives.

Speaker 1

Presenting for Cerner BioTools today will be Michael Egholm, Chief Executive Officer and President and Vikram Drogue, Chief Financial Officer. During the call, we may make forward looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, our outlook for 2023 and future financial results and market trends and opportunities. These statements are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from current expectations. The forward looking statements on this call are based on information currently available to us, and we disclaim any obligation to update these statements We encourage you to carefully consider our results under GAAP as well as our supplemental non GAAP information and including updated supplemental financial information within the webcast today, and this presentation is also posted on our website. I would also like to note that the company will not be hosting a I will now turn the call over to Michael Eglholm, our Chief Executive Officer and President.

Speaker 1

Michael?

Speaker 2

Thank you, Peter, and good afternoon, everyone. We appreciate you joining us on the call today. A year after closing the strategic transaction and then with a new management team in place, we are off to a solid start to 2023. We posted year over year growth in core products and service revenues and margins and significantly lowered spending, which reduced our cash burn Life Science Tools Company through industry leading operational execution and scale building strategy. The entire organization is committed to a lean culture based on Standard Bio Tools Business Systems or SBS for short.

Speaker 2

I want to recognize all our employees for the dedication, focus and execution behind these early but encouraging results. Our lean culture is our common denominator, and the team has fully embraced SBS, which we firmly believe will allow Stand Up Our Tools to become a high performance organization. In review of the quarter and the past 12 months, we made tangible progress against our 2 first order priorities outlined when we took over the helm of the company just 1 year ago. The first was to improve operating discipline And increased productivity to drive this business to profitability, and the second was to rationalize and stabilize the core business, pushing it back With these two operating goals, we indicated a third, expand the product offerings by acquiring complementary assets to leverage Our infrastructure and accelerate our growth. During the call today, I'll provide a summary of our Q1 financial performance And operational highlights in the context of these three strategic priorities and discuss where the business is headed.

Speaker 2

I will turn the call over to Vikram for a more detailed look at our financial performance. Let's begin By discussing our progress towards profitability, which is front and center fundamental to our thesis, net Cash used in operating activities in the Q1 was down to $8,500,000 significantly below the $19,200,000 consumed in the 4th quarter And the $15,600,000 burned in the Q1 of 2022. We inherited an operating budget that was inefficient and overbuilt for the business And have worked hard since day 1 across the board to improve quality and manufacturing execution, Sales efficiency and G and A spending, while also improving our internal processes. Most of this restructuring was Executed last year with some residual reductions in the Q1 as we realigned our European sales organization. This also included a consolidation of our real estate footprint, as previously discussed, as some operations moved to our Markham, Montreal area facilities.

Speaker 2

We now have subleased a total of 50% of our South San Francisco footprint and are looking for further opportunities for consolidations. While we are pleased with this progress and where we are headed, we are by no means done. Our Kaizen based approach commits us Next, to build a leading company, you need a stable core, and we believe we reached a much stronger place than where we started. Today, the core products delivered tangible signals of stability and a sign of some moderate growth. Core product and service revenue in the quarter was $24,300,000 compared to $23,900,000 a year ago.

Speaker 2

The best part was that these sales came in at better margins with non GAAP product and service margins at 60.9%, Moving towards our 4th quarter target of 65% to 68%. The margin increase was primarily driven by product mix, Pricing discipline and the benefits of our knee manufacturing initiatives. And as I just mentioned, our operating cash burn was $8,100,000 in the quarter compared to $19,200,000 in the 4th quarter, resulting in a cash balance of 150 $4,500,000 at the end of the Q1. One can think of our business in 3 categories: Instruments, consumables and services. Our strategy is to have a portfolio of high quality, high margin instruments That when installed with the right customers will enable great science and drive higher margin sticky recurring Consumables and service revenues.

Speaker 2

With respect to our consumables and services, over 75% Of our core product and service revenue in the Q1 were from these recurring revenue sources. This is a key component of both our businesses, Where high value instruments drive high levels of recurring revenue in subsequent years. If we are successful growing instrument revenues by extension, We will look for increased high margin recurring revenue the following year when the customer is fully up and running. With that in mind, I would like to provide a bit more color on the 2 current business lines. First, our proteomics business, Which is on the path to healthy margins and increasing growth, up 12% year over year in the first quarter.

Speaker 2

Currently approximately 400 units in the field with more than $45,000 in average wage and pull through per instrument per year. To drive placements, we are launching new products, including last month's launch of our first new spatial Imaging instrument in 6 year, the Hyperion XTi at the American Association of Cancer Research Annual Meeting. The HypeoN XTR is 5 times faster than our legacy system at 40 slots per day and contrast The cyclic fluorescent approaches that typically take days to scan for a few slides. The XTi has also an improved workflow that Protests of walk up user experience and with lack of autofluorescence, digital like resolution quickly expected to become the standard These instruments, a 33 marker mouse immune profiling panel, expanding our end to end solution to mouse and preclinical research, which will further drive our technology as the standard in immune profiling. We believe our Cyto We are heading to the SITO meeting in Montreal later this month, where we're excited to showcase our capabilities and compare and quantify the advantages over fluorescent based approaches.

Speaker 2

Turning to our genomics business. As we acknowledged when we started, our current platform is more mature and as such, We are focused on running it for profitability. Performance was in line with our expectations for this business after our product line rationalization And reduction of the headcount. While this translated into a year over year decline of 12%, on a non GAAP basis in the Q1, our Go to market strategy now emphasizes OEM partnerships and key accounts, and we expect A positive ramp in placement to maximize the wage and pull through. This lead us to our 3rd priority, adding to our instruments, reagents and services through inorganic growth.

Speaker 2

In doing so, in the smart and prudent way, we can leverage our infrastructure and balance sheet and accelerate Scale, growth and most importantly, profitability. Our thesis is that there are many innovative technologies, But few great companies that have been able to scale and build profitable businesses. We believe Standard Biotools It's well positioned, especially in the current macro environment and provides a uniquely attractive chassis for us to consolidate. Such consolidation is central to our strategy and our value proposition resonates well with founders That are excited about potentially joining a company where they can have a meaningful impact. Stay tuned.

Speaker 2

I want to reiterate that we know our mission, we know we work for our shareholders, and I'm excited to share this journey with you all. I will now turn it over to Vikram for a review of our financial results. Vikram?

Speaker 3

Thanks, Michael, and good afternoon, everyone. As Michael noted, we are pleased with our results for the Q1, Delivering year over year growth in top line core product and service revenues and margins and significant improvement in cash flow from operations. Let me begin with a review of revenue. Total revenue for the quarter was $25,100,000 While core product and service revenue was $24,300,000 compared to $23,900,000 in Q1 2022. Core product and service revenue excludes revenue from discontinued products, including COVID-nineteen related products and other revenue.

Speaker 3

Year over year, core revenue performance by segment was as follows: proteomics revenue grew 12% to $15,200,000 Driven by recurring consumables and service revenues and genomics revenue declined 12% to $9,100,000 driven by lower instrument revenue, partially offset by growth in consumables. Overall, Recurring consumables and service revenue grew 12% year over year and represented 76% of our core revenue for the quarter compared to 69% in the year ago quarter. Moving on now to our operating performance. GAAP product and service margin for the quarter expanded 567 basis points relative to the Q4 of 2022 to 46.6%. Non GAAP product and service margin, which excludes non cash charges primarily for $400,000 on a non GAAP basis, which primarily excludes non cash charges for stock based compensation.

Speaker 3

GAAP net loss for the quarter was $16,800,000 compared to $76,300,000 for Q1 last year. Non GAAP net loss for the quarter was $8,900,000 compared to $19,500,000 for the year ago quarter. Non GAAP measures exclude certain non operating and non cash items and reconciliation tables between our GAAP and non GAAP measures are provided at end of our earnings press release that was issued earlier today and in our earnings call presentation. Moving on now to cash flow and the balance sheet. Net cash used in operating activities for the Q1 was 8,500,000 down $10,700,000 from $19,200,000 in the Q4 of 2022.

Speaker 3

In November 2022, we announced a $20,000,000 stock repurchase program. We repurchased approximately 1 Amounted to approximately 1,700,000 shares at a cost of $3,000,000 Our repurchases were limited by our daily trading volumes and applicable SEC regulations. Cash, cash equivalents and short term investments were $154,500,000 at the end of the Q1 compared to $165,800,000 at year end 2022. And finally, turning to our business outlook for 2023. We are maintaining the guidance issued in February 2023.

Speaker 3

We continue to expect core product and service revenue in 2023 to be flat to moderately higher when compared to 2022. We are targeting product and service margin of 52% to 55% on a GAAP basis and 65% to 68 on a non GAAP basis in the Q4 of 2023. Our margins can be variable from period to period depending On the achievement of benefits from our business improvement programs, price realization and revenue mix, to $107,000,000 on a non GAAP basis, which primarily excludes approximately $13,000,000 of non cash Stock based compensation charges. And with that, I conclude my remarks. I'll now turn the call over to Peter.

Speaker 1

Thank you, Vikram. This concludes our Q1 2023 financial results call. We'd like to thank everyone for attending our call today. A replay of this call will be available on the Investors section of our website. Again, thank you for joining us today.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Standard BioTools Q1 2023
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