Akoya Biosciences, Inc. (NASDAQ:AKYA) Q4 2023 Earnings Call Transcript
Akoya Biosciences, Inc. (NASDAQ:AKYA) Q4 2023 Earnings Call Transcript March 4, 2024
Akoya Biosciences, Inc. beats earnings expectations. Reported EPS is $-0.22, expectations were $-0.27. AKYA isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the Akoya Biosciences Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I'll now hand the conference over to your first speaker today, Priyam Shah, Head of Investor Relations. Please go ahead.
Priyam Shah: Thank you, Operator, and thank you to everyone who is joining us today on this call. I'm Priyam Shah, Head of Investor Relations at Akoya Biosciences. On the call today, we have Brian McKelligon, Chief Executive Officer; and Johnny Ek, Chief Financial Officer. Earlier today, Akoya released financial results for the fourth quarter ended December 31, 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 statements during this call that include forward-looking statements 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.
Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. For a list and description of the risks and uncertainties associated with the Akoya's business, please refer to the risks identified in our filings with the U.S. Securities and Exchange Commission, including in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2023, to be filed today March 4, 2024. We urge you to consider these factors. And you should be aware that these statements are considered estimates only and are not a guarantee of future performance. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 4, 2024.
Akoya 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. The audio portion of this call will be archived on the Investors section of our website later today under the heading, Events. And with that, I will now turn the call over to Brian.
Brian McKelligon: Thank you, Priyam, and good afternoon or evening to everyone. We appreciate you joining us today. During today's conference call, I will begin by giving a broad overview of our performance in the fourth quarter and full year 2023. I will review our business advancements and provide insights into the latest developments in our product offerings. Following that, Johnny, will go deeper into our financials, key trends, and provide an outlook for the future of the business. As preannounced at the J.P. Morgan Healthcare Conference in January, Akoya had a strong fourth quarter in 2023, with record breaking revenue of $26.5 million and full year 2023 revenue of $96.6 million, representing a 29% annual growth from prior year.
We exited the year with gross margin of 62.7% in the fourth quarter. In parallel to a strong top-line growth and margin expansion throughout the year, we made efforts to leverage our cost structure, limiting our 2023 operating expenses to only a 4% growth from prior year, enabling a more substantial portion of revenue growth to fall to our bottom line. Within our 2024 forecast, we expect both strong top-line growth and margin expansion, while we continue to manage our costs and we are projecting operating cash flow breakeven by the end of this year. Johnny will touch upon this in greater detail later in the call. Our cumulated installed base now stands at nearly 1,200 instruments, the largest in the field, and covers the entire spectrum of spatial biology markets from discovery to translational and ultimately to clinical.
Throughout 2023, we invested in key strategic areas including reagent menu expansion, throughput and workflow simplification and improved software capabilities, collectively contributing to meaningful reagent revenue expansion and increases in the pull-through across our platforms. In the fourth quarter, we saw continued signs of the return on these investments as reagent revenue grew 52% from the prior year period. We are pleased to report that we now have over 1,160 peer-reviewed publications citing Akoya's technologies as of year-end 2023, a 50% growth from the prior year period, demonstrating the widening adoption and utility of Akoya solutions by our customers. Akoya has achieved important milestones in a short period of time that had solidified our market leadership position and will continue to pay dividends.
As noted, Akoya has the largest and an actively publishing customer base that will continue to highlight and scientifically promote the current and future capabilities of our offerings. Next, we provide complete end-to-end solutions with high throughput workflows that deliver high quality spatial phenotyping at any level of multiplexing. And finally, our solutions span the entire continuum from discovery to clinical applications. The result, as noted, is a clear path to operating cash flow breakeven by year's end. Our R&D and operational efforts have been optimized to deliver enhancements in workflow efficiencies and drive an expanding menu of high value applications. Let me briefly review our key recent product line of improvements and two additional high value partnerships.
First, the recent rollout of the PhenoCycler-Fusion 2.0 represents a noteworthy milestone, setting a new industry standard in capacity, multiplexing, and data quality. Customers can now process twice as many samples per week compared to previous capabilities, establishing the PhenoCycler-Fusion 2.0 as the highest throughput spatial discovery platform available in the market, providing multiplexing across a broad range from just a few proteins to up to 100. In parallel, we released our PhenoImager HT 2.0 upgrade for our translational and clinical research customers. Like the Fusion 2.0, this upgrade similarly represents a transformative enhancement, resulting in a fivefold increase in workflow speed. More than half of our customers have received a 2.0 fuel upgrade across both platforms as of year-end 2023.
These upgrades and the ongoing expansion of Akoya's PhenoCode content menu were the main drivers the increases in consumable revenue in the fourth quarter. We also recently announced two groundbreaking partnerships. First, we announced our partnership with Thermo Fisher to deliver advanced spatial multiomic workflows by combining the Thermo Fisher ViewRNA technology with Akoya's spatial biology solutions. Second, along with our partners at Enable Medicine, we announced the release of MaxFuse, an AI, and reinforced learning driven multimodal data integration algorithm on the Enable Medicine cloud platform. This next-generation analytical methodology allows our customers to directly integrate into one analysis Akoya's spatial proteomic data with single cell RNA data.
As a result, our customers' single cell RNA-seq data, which is not spatial, is mapped to Akoya's spatial proteomic data, creating an informatically derived spatial multiomic data set. This transformative solution allows customers using Akoya's platforms and single cell RNA-seq platforms to leverage and integrate these independent data sets from different platforms to drive profound new multiomic discoveries. This is likely the first of many such AI-based analytical approaches to come. Our platform improvements and partnerships further strengthen our position to lead the market in offering powerful new spatial phenotyping solutions, and we remain committed to continuing to lead the market, providing the industry's best end-to-end solutions across multiple market segments.
While these new solutions certainly expand our discovery horizons downstream, we are also witnessing a continued expansion and acceleration of the clinical utility of spatial technologies. Spatial phenotyping is becoming central to emerging clinical biomarker efforts in immune-oncology and the rapidly growing antibody drug conjugate market. Our 78% growth in our services revenue compared to the prior year is a clear indication of this as we secure additional late-stage clinical trial partnerships. Our demonstrated organizational clinical expertise, the capabilities of the PhenoImager HT platform, our co-marketing partnership with Agilent, and our companion diagnostic partnership with Acrivon are all key drivers of the expansion of this part of our business.
Now importantly, Acrivon also received breakthrough device designation on the ACR-368 OncoSignature assay run on our HT platform through our CLIA Lab and fast track designation for their therapeutic ACR-368, and we look forward to their Phase 2 clinical trial interim results in the near future. We continue to expand our qualified service provider network that includes the industry's top contract research organizations. Akoya qualifies these partners and provides ongoing white glove support to help ensure their success in offering lab services on Akoya's platforms. The network serves as a valuable commercial amplifier and helps advance the adoption of our platforms in translational studies and clinical trials. We are humbled and appreciative that these successes and ongoing efforts have attracted preeminent global thought leaders in immunobiology to join our newly established scientific advisory board.
Dr. Garry Nolan, Akoya's Founder and the inventor of the PhenoCycler and co-inventor of MaxFuse, has transitioned from his role on the Board of Directors to serve as the new Chair of the Scientific Advisory Board. Accompanying him will be Dr. James Allison, 2018 Nobel laureate and the father of the immune-oncology revolution, as well as Dr. Pabi Sharma, a visionary physician scientist in the field of immune-oncology and immunotherapy, both currently at MD Anderson. These three initial members of Akoya's Scientific Advisory Board will inform Akoya's strategic direction and provide expertise in translational, clinical, and diagnostic applications of Akoya's spatial biology solutions. Lastly, like others in the industry, we observed some ongoing macro pressures impacting capital equipment purchases, prolonged instrument sales cycles and continued underperformance in our business in China.
We anticipate these challenges to persist at least through the first quarter of 2024. In summary, our focus for 2024 revolves around three key initiatives. First, expand applications and implement continued workflow efficiency improvements on the PhenoCycler-Fusion and the PhenoImager HT to drive the continued high growth of our reagent revenue resulting in increases in system pull-through. Second, achieve operating cash flow break-even by year-end 2024 by focusing on improving efficiencies, cost effectiveness and gross margin expansion. And third, continue to drive our clinical partnerships to achieve our goal of delivering a menu of high value companion diagnostics to advance patient care. With that, I will now turn the call over to Johnny to discuss our financial results.
Johnny?
Johnny Ek: Thanks, Brian. As Brian highlighted, total revenue for the fourth quarter of 2023 was $26.5 million, a 25% growth compared to the same period in 2022. Full year 2023 revenue was $96.6 million, representing a 29% growth from the prior year. Our robust year-over-year growth was seen globally across our diversified revenue channels and strong portfolio of products and services. Product revenue, including instruments, reagents and software totaled $16.7 million for the fourth quarter. We sold 51 instruments, of which 15 were PhenoCyclers and 36 were from the PhenoImager portfolio generating total instrument revenue of $9.2 million for the quarter. As Brian noted earlier, continued macro pressures and underperformance in China impacted our results and we expect this trend to continue in the near-term.
Our global installed base now comprises 1,183 instruments, including 342 PhenoCyclers and 841 PhenoImagers. A total of 230 fusion instruments have shipped since the full commercial launch at the start of 2022, and we now have a total installed base of 205 for the combined PhenoCycler-Fusion system. The majority of PhenoCyclers are being sold in combination with the fusion and we expect this combination to drive increased reagent pull-through with an expanding menu of panels and faster workflows from the ongoing 2.0 field upgrades. Approximately half of the installed base of PhenoCycler-Fusions and HTs in the field have been upgraded to 2.0 models as of year-end 2023, and we expect the majority of the remaining instruments in the field to upgrade throughout the remainder of 2024.
All new PhenoCycler-Fusion and HT systems are being sold directly as a 2.0 model as of the start of 2024. We delivered $6.9 million in reagent revenue in the fourth quarter, reflecting a 52% increase from the prior year period. The annualized fourth quarter reagent pull-through applicable to both PhenoCycler and HT is now in the high $30,000 range. This is a notable improvement compared to the annualized pull-through per instrument in 2022, which was in the high $20,000 range to the low $30,000 range for both the PhenoCycler and the HT. This growth can be attributed to the increased utilization of PhenoCyclers paired with a Fusion, faster workflows, and a growing utility of PhenoCode Panels across the instrument portfolio. We are strategically positioning reagents to play a more significant role in our revenue mix with customers, increasing their utility and pull-through across our platforms as we pair more PhenoCyclers with Fusions in the field, enhance instrument portfolio through the 2.0 upgrades and refine our reagent manufacturing, operations planning and supply chain efforts.
Services and other revenue totaled $9.8 million for the fourth quarter, an increase of 78% over the prior year period. Services have been a substantial growth segment for us as our instrument warranty and field service revenue have rapidly expanded in addition to our lab services business continuing to drive higher value studies through new and existing biopharma partnerships. Gross profit was $16.6 million in the fourth quarter, representing a 38% growth over the prior year period and gross margin was 62.7% for the fourth quarter versus 56.8% in the prior year period. The timing and contribution of revenue from our lab services business contributed approximately 250 basis points of margin to the strong fourth quarter gross margin results. As we drive increases in our reagent revenue mix, execute on our identified operation optimization efforts for reagents, and leverage recent manufacturing investments, we expect to further drive the expansion of our gross margin in 2024 and beyond in the range of a couple of hundred basis points annually.
Operating expense for the quarter totaled $26.1 million as compared to $29.6 million in the prior year period, indicative of a reduced spend pattern throughout 2023, while we continued our meaningful top-line growth. Total OpEx for 2023 grew only 4% while top-line revenue grew 29% from the prior year and gross margin expanded further, indicating that our efforts to leverage our cost structure have been very impactful throughout 2023. Through ongoing strategic efforts, we expect to further lower our operating costs this year, helping us achieve projected operating cash flow break-even as we exit 2024. We ended the quarter with approximately $83.1 million of cash and cash equivalents. Common shares outstanding and fully diluted shares including the impact of outstanding options and unvested restricted stock awards are 49.1 million as of December 31, 2023.
In summary, we are pleased to report another exceptional quarter with record breaking revenue of $26.5 million and full year 2023 revenue of $96.6 million, a 29% growth over the prior year. Akoya's installed base has now reached nearly 1,200 instruments, solidifying our position as an industry leader in spatial biology. Our strategic focus for 2024 remains on driving reagent revenue growth, and increasing pull-through across our growing installed base to realize the scalability of spatial biology. We've also implemented important operational changes to enhance efficiency, drive gross margin improvement, and achieve cost advantages, all while maintaining strong top-line growth. As such, we are confident in our ability to sustain strong growth throughout 2024 and beyond, and we project reaching our very important goal of operating cash flow break-even as we exit 2024.
At this time, we are providing a revenue guidance range of $114 million to $118 million for 2024. And back to you, Brian.
Brian McKelligon: Thank you, Johnny. We're pleased to report a strong quarter and announced multiple exciting new developments across our product portfolio. We look forward to executing on our strategic objectives throughout the remainder of the year as we drive the business towards positive cash flow. We're thankful for the hard work of our fellow dedicated Akoyans as well as for the support of our customers and shareholders. Akoya remains very well-positioned for growth and we're excited about the opportunities that lie ahead as we deliver new space of solutions from discovery to the clinical markets. At this point, we will open the call for questions. Operator?
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