Singular Genomics Systems, Inc.
Q4 2023 Earnings Call Transcript

Published: 18 Mar 2024

[Operator:]

Good afternoon, everyone, and welcome to Singular Genomics Fourth Quarter and Full Year 2023 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Philip Taylor. Sir, the floor is yours.

[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 December 31, 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, Monday March 18th, 2024 only, and will include forward-looking statements and opinion statements, including predictions, estimates, plans, expectations, and other information related to our financial and operating results, plans, and strategies. Actual results may differ materially from those expressed or implied by these statements as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission, including our most recent Form 10-K filings and the Form 8-K filed with today's press release. Our SEC filings can be found on our website or on 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 Presentations and Events section. With that, I will turn the call over to CEO, Drew Spaventa.

[Drew Spaventa:]

Good afternoon, and welcome to Singular Genomics' fourth quarter 2023 earnings call. It was a productive quarter to finish off an important year for the company and I am pleased to update you on our progress. We will focus our call on the following areas

[Dalen Meeter:]

Thank you, Drew. I'll start with financial results for Q4 2023 and talk briefly about 2024. As previously discussed, we shipped eight G4 instruments in the fourth quarter of 2023. Revenue for the fourth quarter was $1.1 million, predominantly made up of $0.9 million from revenue recognized on four capital purchased instrument placements and consumables pullthrough of $0.2 million. We expect revenue from the remaining four instrument shipments to be recognized over time as these customers purchase consumables. Gross profit was negative $0.5 million in the fourth quarter of 2023, compared to approximately flat in the fourth quarter of 2022. Our gross margin was negative because of both additional discounts we provided to certain customers, as well as higher costs associated with the installation, training, and support of our system placements. Operating expenses in the fourth quarter of 2023 totaled $24.8 million, compared to $22.5 million in the fourth quarter of 2022. These totals included non-cash stock-based compensation expenses of $2.7 million in Q4 2023 and $3.1 million in Q4 2022. The year-over-year increase was primarily driven by the timing of expenses related to certain compensation and benefits and severance costs. Net loss in the fourth quarter of 2023 was $23.2 million or $0.32 per share, compared to $21.1 million or $0.29 per share in the fourth quarter of 2022. The weighted average share count for the fourth quarter of 2023 used to calculate net loss per share was approximately $73.6 million. Ending cash, cash equivalents and short-term investments, excluding restricted cash totaled $173.9 million. Turning to 2024, as Drew discussed, we recently implemented a reduction force of approximately 20% of our workforce. We have also taken actions to reduce our non-personnel related operating expenses in 2024 to further decreased our cash burn. These actions were incremental to the cost savings initiatives implemented in October of 2023 and discussed on our last earnings call. In total, we estimate the combined savings from these actions will reduce annualized operating expenses by approximately $20 million and extend our cash runway to late 2026. While these actions were not easy we believed right-sizing the cost base of the organization was a necessary step to position us for success in the long term. Back to you, Drew.

[Drew Spaventa:]

Thank you, Dalen. I'm excited as we look ahead to 2024. This will be a pivotal phase for Singular Genomics. Singular has spent the last seven years developing incredible technology. We have invested approximately $300 million and in doing so created a powerful sequencing platform with significant modes around our system, our chemistries and methods, our IP and our products. Over the last few years, we have increasingly focused on leveraging our NGS Technology and Foundation to address the spatial and multiomics markets. Our NGS Foundation and continued innovation has resulted in a unique and powerful on ramp to spatial sequencing. Our many years of investment in both NGS and spatial sequencing now positions Singular to enter these high growth markets with a highly differentiated product. The recent restructuring of our business will provide extended runway, give us time to get this product to market and scale commercially. The synergies and footprint of our current NGS business and customer base will allow us to onboard existing customers and leverage our current commercial operations. Now, let's open it up to questions. Operator.

[Operator:]

[Operator Instructions] Your first question is coming from Dan Brennan from TD Cowen. Your line is live.

[Dan Brennan:]

Great, thank you. Thanks for the questions guys. Congrats on the quarter and on the G4X. Yes, so, it sounds like we need to get more color at 1Q, but could you unpack a little bit their strategic shifts from the sequencing side to the G4X? And can you just give us some sense of what that entails, like are you still selling – are you just still going to be charging ahead on the G4X impact that this shift and kind of what it means?

[Drew Spaventa:]

Hey, Dan. Thanks for the questions. This is Drew. We lost you at the end there, but I think I understood the most of the most the question. In terms of the strategic shift, it's really a confluence of factors that's driving the shift. It's really best understood kind of looking at three different aspects to the setup we talked about it on the call. The first is the value proposition of the G4X and I think there's two ways to think about it. The value proposition of the system relative to other options out there in the customers’ eyes and the value proposition relative to the current G4 and what we see with the X is, it's really resonated with customers. It's the novel ability to use sequencing in situ and do things like Direct-Seq and it's also the high throughput lower costs that our large imaging area will deliver. And that combination is really resonating and it's just a very strong value proposition. The second is the business economics on X. We expect to see you know higher ASPs for the instruments and we also expect to see a very different pullthrough profile on sequencing our kits range from around $600 to about $1200. On spatial, the cost per sample and the ability to get anywhere from five to 40 samples on a single kit gives us the ability to potentially have ASPs that are many, many times higher on the same kit - on the same system with much higher margin dollars. So the amount of time someone has to press go to have a healthy pullthrough system with significant margin dollar contribution to the bottom-line is just it's about five to ten times less. So, it's just a very different set up on those two. And then I think the last thing is that the market is growing very fast. And when you have high growth, you have areas that you can kind of find a foothold and differentiate yourself. And it's just much easier to launch and grow a business when growth is abundant whereas sequencing in a lot of ways in the academic and in the segments we’re currently selling in, it's not really growing as fast that wallet share is starting to shift towards spatial and single cell and protein and all the things that the G4X directly addresses. On the clinical side, there's still absolutely going to be growth in sequencing. But that's reimbursement-driven. It's decentralization of sequencing. And it's going to require much longer timeframes. We're still very interested in pursuing that market and ideally advancing that through partnership over time. But the G4X we think has the set up to be a much different profile of business in the short-term when we're measuring over the next quarters and years.

[Dan Brennan:]

Got it. And then in terms of just, so you will still be pushing ahead then, I guess, in terms of the clinical market, maybe not research, just wondering from a from like an operational, commercial basis as we go through ‘24. Is it - I think the street probably has somewhere in the midst of I don't know 30 or so placements of the G4. It sounds like any color on how we think about like strength of the business in ‘24 as you - this business model?

[Drew Spaventa:]

Yeah. We're still working through a lot of that. I mean, I want to be clear. We are shifting our focus and we are putting all of our resources towards getting X developed and out. And that does require difficult and challenging trade-offs. We will have more color in the next quarter’s call. But right now, we are not pounding the pavement on putting additional dollars to go drive G4 right now. We are focusing the resources on G4X. We're 100% committed to supporting our existing customers and we are also interested in advancing the G4 through partnership. And we do have efforts that are ongoing and outreach, but our focus again, we're trying to really hone in on what the highest value, best return on the dollars and resources we have and that to us is very clear at this point of X and that's where the majority of our attention is going.

[Dan Brennan:]

And maybe a last one. Just on the G4X and what's the key milestones this year that we could be watching for in terms of some of the early access customers like when we see publications. Just kind of give us a sense of what are the guideposts we can watch throughout ‘24 that'll give us confidence you guys are on the right trajectory there? Thank you.

[Drew Spaventa:]

Thanks, Dan. yeah, So, we're expanding our technology access program now. Early on a lot of these are collaborations where you're doing work to submit grants or you're doing evaluations to demonstrate the technology to potentially early adopters. We'll move into kind of a paid for services arrangement, kind of in Q2, really probably taking more effect in Q3, because there's always onboarding there's work to get people onboarded. But that'd be something to look out for services and kind of uptake in Q3. And then we're targeting early access placements with just a few select customers. Again, the idea is here these are very high volume customers in places where you're going to have a tremendous amount of demand. So, the hand selected early access customers end of the year and then moving into a full commercial launch first half of next year.

[Dan Brennan:]

Great, thank - great, thank you.

[Operator:]

Thank you. Your next question is coming from John Sourbeer or from UBS. Your line is live.

[Unidentified Analyst:]

Hi guys. This is Lucas on for John Sourbeer at UBS. Is there any commentary you could provide on the sales funnel mix between the G4 and the G4X right now? Thank you.

[Drew Spaventa:]

Yeah, yeah, thanks. It's still early to look at the sales funnels for both and comment apples-to-apples. What we're seeing on X is, we have a growing list, a dozen plus potential service collaborators that are in the funnel and that's growing very quickly. Coming out of AGBT, we had a hundred plus interactions and it does take time to follow up with all those interested parties. And we're doing it in the very formal way where we're trying to identify specific projects where they could utilize the G4X and a lot of that that's working through to understand the details of the project to make sure it's a fit for the current capabilities of where we are. We still have a ways to go to develop kind of the full set of capabilities in the platform. But that Funnel on the services side is really starting to take shape nicely and we're executing on those now. On the funnel for instrument placement side of things, that's going to take some time. Like I said, we're only talking about early access placements later this year with commercial launch in the beginning of next year and people are going to want to see publications and services and we still have a lot of work to do to kind of launch this product the right way, which we reporting ourselves the time to do. On the sequencing side, there remains demand, but not, not ready to comment specifically on the funnel number. It's not seeing we've talked about before. But again our focus at this point is really identifying where are their G4X customers. And if those customers are interested in taking a G4 now as part of a package to step into X, those are the opportunities we would move through the funnel. But right now, we are not actively seeking G4-only opportunities. We are focusing our attention on G4X opportunities, our combination opportunities.

[Unidentified Analyst:]

Thanks. That’s all are really good color. And then, is there any commentary you could provide on revenue and just kind of the general cadence of how things could track throughout the year?

[Drew Spaventa:]

It's still very early for us. We're working through this now. A lot of this reorganization and shift has been work that we've done over the last couple months. I think we'll have more information as we work through this kind of at the next quarter call.

[Unidentified Analyst:]

Okay. Not a problem. And then lastly, on the PX, should we consider that product as still being in development? Or given the rollout of the G4X, is that kind of a replacement for the PX?

[Drew Spaventa:]

Yeah, it's a good question. I would consider that the G4X is our spatial sequencing platform we’re bringing to market. And it's all hands on deck to focus on getting that platform out. The PX platforms, we have a six beta platforms that we may revisit at some point, but right now they're on hold. Again, our mindset right now is very much focused, focused, focused on getting the G4X out.

[Unidentified Analyst:]

Okay. Thank you. That's all I had.

[Operator:]

Thank you. Your next question is coming from Matthew Sykes from Goldman Sachs. Your line is live.

[Jake Allen:]

Hi, this is Jake Allen on for Matt. Thank you for taking my question. First, for the anticipated G4X launch, do you expect a similar go to market strategy offering both reagent rental and outright instrument purchases?

[Drew Spaventa:]

I think we envisioned a somewhat different strategy. I think we're going to lean into services a lot more. And I expect that we'll be more discerning on alternative methods versus capital sales. Again, the demand profile at this point seems different and we learned a lot from the G4 launch. So, it's still early to say you're from now when we're selling units and we're commercial what we expect that mix to look like. But I think one thing that we have learned is the service can be a really nice on ramp. There's a lot of demand there. So, I think the other thing that we're planning is, a few early access placements, but really partnering with those early access customers and making sure they're at places where those very high pullthrough and that's something that uniquely the system is suited to address.

[Jake Allen:]

Got it. Thanks. That's really helpful. And then, lastly, so, as you continue to cut headcount to reduce cost, could you just talk about what you’re thinking about in terms of level of investment into the business to support the G4X launch?

[Drew Spaventa:]

Yeah, the reductions are very difficult and we've been a lean operating company to the extent possible from onset. The thought process behind reducing and focusing was really to try and eliminate anything activities and priorities that weren't critical to kind of the revised focus and that focus is supporting existing customers and existing sequencing business and then putting all R&D and product resources on G4X. A lot those into developing these systems. It's multidisciplinary teams. These are complex systems and reagents. So you can get to a point where you have really nice proof-of-concepts or really nice data, but productizing that and getting it out robustly. That's something that we know it does take resources to do that. So, we've gone as is lean as we can with the more narrow focus on G4X and supporting existing customers and we're going to try and advance as quickly as we can in that lean nature.

[Dalen Meeter:]

Hey Jake, this is Dalen. I'll maybe just add one thing. In the savings estimates that we talked about in the prepared remarks and the statement about extending our runway out to the end of 2026, we are contemplating internally some just kind of modest investment for some of the infrastructure that we think will need to stand up to support the good market strategy such as services, right? So, we are contemplating some reinvestment to get this product to market.

[Jake Allen:]

Got it. Thank you. That's it for me.

[Operator:]

Thank you. That concludes our Q&A session. I'll now hand the conference back to our host for closing remarks. Please go ahead.

[Drew Spaventa:]

Thank you everyone for joining the call today. I look forward is update you on our progress as we progress this year.

[Operator:]

Thank you everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.