Singular Genomics Systems, Inc.
Q3 2023 Earnings Call Transcript

Published: 14 Nov 2023

[Operator:]

Greetings. Welcome to the Singular Genomics Systems, Inc. Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. I will now turn the conference over to your host, Philip Taylor. You may begin.

[Philip Taylor:]

Thank you, operator. Presenting today are Singular Genomics' Founder, Chair, and Chief Executive Officer, Drew Spaventa; and the company's Chief Financial Officer, Dalen Meeter. Earlier today, Singular Genomics released financial results for the three months ended September 30, 2023. A copy of the press release is available on the company's website. Before we begin, I would like to inform you that comments and responses to your questions during today's call reflect management's views as of today, November 14, 2023 only, and will include forward-looking statements and opinion statements with predictions, estimates, plans, expectations and other information related to our financial and operating results, plans, and strategies. Actual risk bolts may differ materially from those expressed or implied by these statements as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission, including our most recent Form 10-Q and 10-K filings and the Form 8-K filed with today's press release. Our SEC filings can be found on our website or the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. Please note that this conference call will be available for audio replay on our website at investor.singulargenomics.com in the Presentation & Events section. With that, I will turn the call over to CEO, Drew Spaventa.

[Drew Spaventa:]

Good afternoon, and welcome to Singular Genomics third quarter 2023 earnings call. It was another busy quarter, and I am pleased to update you on our company's performance. We will focus our update on the following three key areas

[Dalen Meeter:]

Thank you, Drew. I'll start by covering the Q3 2023 financials, then I'll provide additional directional remarks for the rest of 2023. Revenue for the third quarter of 2023 was approximately $0.5 million, predominantly made up of revenue recognized on one instrument during the quarter. We expect revenue from the remaining four instrument shipments to be recognized over time as our customers purchase consumables for these instruments. Operating expenses for the third quarter of 2023 totaled $24.5 million, compared to $24.7 million for the third quarter of 2022. These totals included non-cash stock based compensation expense of $2.8 million in Q3 2023, and $3.4 million in Q3 2022. Year-over-year d ecrease in total operating expenses was driven primarily by a decrease in research and development materials and other general lab supply costs as w e transitioned from development to commercialization of the G4. Net loss for the third quarter of 2023 was $22.4 million, or $0.31 per share, compared to $23.8 million or $0.33 per share in the third quarter of 2022. Our weighted average share count for the third quarter used to calculate the net loss per share was approximately $73.2 million. Ending cash, cash equivalents and short-term investments, excluding restricted cash, totaled $190.7 million. Turning to directional comments on the rest of 2023. We expect the number of G4 placements in the fourth quarter to be slightly higher than the third quarter and for consumable pull through to continue increasing as utilization increases with more kits. Customers rentals and evaluations versus the traditional capital purchase sales models during the third quarter, a nd we expect that trend to continue in the fourth quarter and into 2024. Regarding operating expenses, we recently implemented expense reduction measures to reduce our quarterly burn going forward. These measures included a reduction of approximately 10% of our headcount, termination of a long-term lease obligation and other non-labor expense reductions. We believe these measures will allow us to extend cash runway into early 2026. Thank you and back to Drew for closing remarks.

[Drew Spaventa:]

Thank you, Dalen. In closing, Q3 was a busy quarter for our team as we shipped another five systems, supported customer installations and upgrades, and launched new higher throughput consumable kit offerings. We have now been shipping our G4 sequencing platform for just over a year, and we continue to evaluate our strategy. We are sensitive to the fact that 2023 has been slower than anticipated and to the fact that the macroenvironment shows little sign of improvement in the near term. We also remain steadfast in our conviction that the G4 sequencer and Singular's technology offers important and meaningful value to the field of science and medicine. We have a thorough understanding of the challenges facing us and other early-stage companies in our space. We are addressing these challenges through prudent actions such as shifting our sales strategy to accommodate customer sales model preferences, refining our roadmap and company priorities, streamline our headcount and organizational structure, and ultimately reducing our burn to extend runway into 2026. Despite these challenges, we remain confident about the opportunity in front of us. Our recent product launches, including the F3 flow cells and consumable kits and our mastery kit for single-cell sequencing are expected to be important catalysts for commercial demand. We continue to receive validation for our customers that we designed the right product with a feature set and value proposition that meets the need of many of the largest and fastest growing segments of the market. Now, let's open it up to questions. Operator?

[Operator:]

[Operator Instructions]. Your first question for today is coming from Dan Brennan with TD Cowen.

[Dan Brennan:]

Maybe the first one would just be on the shift to more reagent rental versus outright sale, g iven the environment. Could you speak to it little bit like, what are the normal terms of like a reagent rental with these customers? Any color you can provide on like required consumable spending over the course of whatever it is 12, 24, 36 months just so we can get a sense of what the attached revenue stream could look like?

[Drew Spaventa:]

Hey, Dan. This is Drew. Thanks for the question. Maybe I'll provide a little color on kind of the market and then Dalen can provide more specifics, if needed. Right now, just highly competitive a nd a lot of customers are, frankly, not in a position where they're leaning into buy expensive capital equipment. So it's vital for us to be able to meet demand where people want to access new sequencer, especially the benefits, given the lower running costs, faster turnaround time, the flexibility with the G4 speaks to them. So there's really three buckets. The first bucket would be the capital purchase. The second bucket would be the reagent rental. The percent uplift really depends on the volume requirement. So that's kind of a toggle between what percent above normal pricing. It could be anywhere from 30% to 100% above the normal pricing, depending on what they commit to. And then the term is typically negotiated anywhere from three to five years. The third bucket would be a strategic placement or an evaluation or a loaner unit, a nd that's an area where, again, to drive adoption for an early technology in a tough market, it's betting on the system, putting it in, letting people evaluate it as a loaner pool -- as a unit loaner pool and then converting them into one of the two aforementioned models, either a CapEx or a reagent rental once they've tried the instrument and got comfortable with it. So it's really deploying a different strategy to push equally on all three of those with the end goal of building installed base.

[Dalen Meeter:]

Dan, this is Dalen. Maybe the one thing I'll add is, there are instances where the commitment can be project or sample based rather than time-based, so we have seen that. But for the most part, typical terms would be more duration or time based.

[Dan Brennan:]

Should we assume then -- Drew, I think in your prepared remarks, you discussed -- I think you used the word significant, more instrument placements, given maybe the shift to more of this reagent rental model. Just --maybe how do we think about like, on a go-forward basis? Obviously, you gave the guidance for the fourth quarter. But if we think about any help on -- I'm sure you'll ship with the environment as needed, but just trying to think through how this might change the model as we look the forecast for '24?

[Drew Spaventa:]

For '24, we'll provide more color in '24 on the Q1 earnings call. I think for right now, we just wanted to be conservative and assume that Q4 will be a similar mix to Q3 and carry that forward. And then as we get more comfortable with how this change in strategy is received over the next few months, we'll dial in 2024 and probably provide more guidance in '24 than w e did in '23. Directional commentary versus actual guidance. So we should be able to fill it in for you in a few months.

[Dalen Meeter:]

And Dan, this is Dalen. Looking at the 16 shipments we've done to date, about 60% of those were capital purchases, 40% fell into the other bucket that Drew described. The bulk of that being in Q3. So that's really the mix that we're seeing and how it's trending. And so I think the idea here is get another quarter into the belt Q4 and provide some additional detail and color on the next call for next year.

[Dan Brennan:]

Got it. And then I guess maybe I'll just ask one more. I think on the last call you gave or you've given some color on other -- maybe not outright orders, but qualified leads, that funnel. And I know you talked about it, it's been harder to convert and you're not alone in that facet, given the market dynamics. But can you give any updated view on where we stood last quarter, where we stand this quarter? Like, what does that sales funnel look like? And if you do have any actual hard backlog you guys are carrying into Q4 or in Q4, that would be great to know that as well.

[Drew Spaventa:]

Holistically, the funnel has more opportunities qualified leads than it had ever before. What we've seen is that the ability to get those leads from the middle of the funnel down to the bottom of the funnel, which is a purchase, is just taking longer and some are falling out being candid. So we're focused on two things, continuing to fill the top of the funnel and then making sure that they don't fall out that we are able to push them forward. And then some of them are just stalling. We had it in Q2 and Q3 where we expected to have a few more click in, and you get to the end of the quarter and they just seem to be waiting and taking their time to make a decision. So it's not that the opportunity falls out, i t's just that the things are going slower. We are confident that as the system becomes more established in the field, there's more word of mouth, the reputation of the G4's is in more customer hands. That that will help. And then we also think that, again, getting F3 and Max Reads and people talking about it will help. And then we also think time will help. In a lot of ways, Dan, for a new entrant, w e do have -- we're looking at 13 to 14 quarters of runway. We have multiple products coming out next year that we're really excited about that will leverage the current install base. So our strategy right now is really build the installed base, continue to fill the funnel, do everything we can to convert through bottom of funnel, and then leverage that growing install base next year with some very exciting kits that will be released in the mid to second half of the year.

[Operator:]

Your next question is coming from Matt Sykes with Goldman Sachs.

[Matt Sykes:]

Maybe following up on one of Dan's question. Just on the increased shipment perspective that you guys gave. I know that previously you've given the context of two to four shipments per month, h ow should we think about that previous guidance in the context of the shift and the go-to-market strategy with increasing reagent rentals driving maybe higher level of shipments over time?

[Drew Spaventa:]

So we've got five out in Q3, Matt. We would expect Q4 to be an increase over Q3, although I don't think we're at a point where we have enough confidence we can tell you exactly where we'll land. I think moving into next year, that's we're planning to see a more significant jump quarter over quarter. And in terms of being more aggressive, it's -- there's been situations prior where we've made a decision not to go forward with a for various reasons. And I think we're just starting to widen the aperture in terms of what we consider for a placement and what we advance into that PO and placement. So we do think that we will be able to grow that installed base quite significantly with this change in strategy and the revised product mix and a few other things that are just trending positively internally.

[Matt Sykes:]

Got it. And then your commentary on things dropping out of the -- prospects dropping out of the funnel, do you get a sense that the -- for the ones that dropped out, are they looking at alternative purchases of computing equipment, o r is it just an overall delay in just the purchase itself and they're thinking longer about it? Just want to get the context for the competitive environment that you're sitting in.

[Drew Spaventa:]

I think there's a few different reasons. First, from the competitive aspect, there is more competition. Alumina is being more aggressive in how they discount and trying to do accretive deals to not lose placements to Singular. In terms of things taking longer, t hat's been a trend that we've seen throughout the year a nd it's still continuing, where And then just my last question, Dalen, for you. Just on the cost cutting that you did. I know that the R&D dropped year over year as you kind of went commercial on G4. But can you maybe give us some context of those cost cutting that you did, the splits between SG&A and R&D? How it is kind of laid out?

[Dalen Meeter:]

Yeah. Sure, Matt. We -- in October, we completed a small reduction in force of about 10% of the workforce. Now, it's about 30 -- approximately 30 people. It really was across the organization, probably more heavily weighted on the R&D side of the house just being tied to different project decisions a nd priorities like Drew had mentioned. Thinking across that holistically is part of our annual strategic planning and operating plan process. What are the highest priority activities and projects that we're going to focus on? So really, it was spread across the entire organization, a little bit more heavily weighted on R&D side.

[Operator:]

Your next question is coming from John Sourbeer with UBS.

[John Sourbeer:]

Hey, Drew, I think in the prepared remarks you mentioned there was a customer that had gotten up to 175,000 on pull through. Just any additional color there? Are they using both the F3 and Max? Do you think the other customers can get there and just any additional color on where you think pull-through can go from there?

[Drew Spaventa:]

Absolutely. This customer is an acadmic core. They are servicing a number of PIs. They do a whole host of different sequencing, a lot of single cell sequencing. They've migrated almost 100% onto the F3 now a nd they will also, I think, has begun ordering Max Read kits, which is just recently available, and they will likely do a lot of Max Read as well. So that's kind of the nature of that customer. I think there are other customers that are similar. What we have found is a lot of times in these G's core lab environments, it's really getting the people doing the work, the customers of the core, so to speak, to elect and decide to put work onto the G4. And sometimes it takes time to have them start to select that machine versus other machines. And I think this core is a really good example of that. The ramp just instruments out for almost a year, and it really took a full nine months plus for them to ramp up and get to a point where they have multiple PI putting experiments on the instrument on a routine basis. So it's very encouraging to see. There are a number of core labs that we currently have as customers and others in the queue that have similar types of customer bases. Meaning, they're high-volume cores where there's a ton of usage, multiple sequencers. So I think it's an encouraging sign, but it also, again, speaks to the fact that it is taking time. This was an early adopter. Somebody very support of the system, an advocate for the system, it still took a full nine months plus to get to the point where it's at this pull through. So -- and most of our install base has been only out for a few months. So it's still -- we're still seeing the ramp occur.

[John Sourbeer:]

Got it. With t he focus -- increased focus here on the G4 launch with the cost cutting, I guess, any update on the PX and are you still moving forward on that program?

[Drew Spaventa:]

Yes, we're moving forward with spatial. We've been firm that we think there's a huge opportunity to leverage our sequencing technology and a lot of the method development we've been working on for now close to five years, and it's something we're continuing to be very excited about. We're in the middle of a TAP program right now, Technology Access Program, where we're doing sample testing in house and working with some of the key academic institutions in the world to do new things using sequencing of the readout in . We plan to have more information on how we plan to bring that forward and realize that value for the company, for the customers, and for our stockholders at the beginning of 2024. So it's something we're actively working on, full plan to share quite yet.

[John Sourbeer:]

On the orders that have kind of dropped out of the sales funnel, I guess just a clarification there. Have you actually seen any cancellations there that might have actually moved into a backlog or a re these just broader within the different groups of the sales funnel?

[Drew Spaventa:]

I don't think we've seen any -- Dalen, w e haven't seen any cancellations. What we're seeing is, if we have four different levels in our sales funnel that advances down at various stages, we're just seeing where -- at the middle of that funnel, where it goes from an evaluation or getting into sample testing or once the samples are tested, getting into a PO. We're just not seeing quite the movement through that w e would expect as kind of getting clogged and stuck in the middle. And again, I think, we're really thinking about all the different ways we can address it. But it's not that people are backing out, i t's more just trying to get from should party here that wants a sequencer, but there's a budget constraint or they want to wait for whatever reason. How do we advance those forward and reduce any barriers to get them to move forward to take a system and start using it.

[Operator:]

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