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Q1 2023 Standard BioTools Inc Earnings Call


Michael Egholm; President, CEO & Director; Standard BioTools Inc.

Peter Denardo

Vikram Jog; CFO; Standard BioTools Inc.



Hello, and welcome to the Standard BioTools Inc. 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 DeNardo, Investor Relations. Thank you, Mr. DeNardo, you may begin.

Peter Denardo

Thank you, operator. Good afternoon, everyone. Welcome to Standard BioTools First Quarter 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. Presenting for Standard BioTools today will be Michael Egholm, Chief Executive Officer and President; and Vikram Jog, 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 in this call are based on information currently available to us, and we disclaim any obligation to update these statements, except as may be required by law.
During the call, we will also present some financial information on a non-GAAP basis. We encourage you to carefully consider our results under GAAP as well as our supplemental non-GAAP information and the reconciliation between these presentations, which are disclosed in the table accompanying our earnings release.
Please note that management will be referring to a slide presentation, 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 question-and-answer session following prepared remarks during today's conference call.
I will now turn the call over to Michael Egholm, our Chief Executive Officer and President. Michael?

Michael Egholm

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 by more than 50% from the fourth quarter of 2022. We're running our playbook and are committed to building the next diversified 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 BioTools Business Systems or SBS for short. I want to recognize all our employees for their 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 Standard BioTools 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 increase productivity to drive this business to profitability; and the second was to rationalize and stabilize the core business, pushing it back towards growth. With these 2 operating goals, we indicated a third, expand the product offerings by acquiring complementary assets that leverage our infrastructure and accelerate our growth.
During the call today, I'll provide a summary of our first quarter financial performance and operational highlights in the context of these 3 strategic priorities and discuss where the business is headed. 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 first quarter was down to $8.5 million, significantly below the $19.2 million consumed in the fourth quarter and the $15.6 million burned in the first quarter 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&A spending while also improving our internal processes.
Most of this restructuring was executed last year, with some residual reductions in the first quarter, 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, Ontario facilities. 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 to continuous improvement. There's always more that can be done, and we are relentlessly getting after it.
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 $24.3 million compared to $23.9 million a year ago. 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 fourth quarter target of 65% to 68%.
The margin increase was primarily driven by product mix, pricing discipline and the benefits of our lean manufacturing initiatives. And as I just mentioned, our operating cash burn was $8.5 million in the quarter compared to $19.2 million in the fourth quarter, resulting in a cash balance of $154.5 million at the end of the first quarter.
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 margins, sticky recurring consumables and service revenues.
With respect to our consumables and services, over 75% of our core product and service revenue in the first quarter 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 increase in growth, up 12% year-over-year in the first quarter. There are 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 Hyperion XTi is 5x faster than our legacy system at 40 slides per day and contrast with cyclic flourescent approaches that typically takes days to scan for a few slides. The XTi has also an improved workflow that approaches a walk-up user experience, and with lack of auto-flourescence, digital-like resolution, quickly expected to become the standard for peer-reviewed papers for more than 20 protein markers.
We also launched another exciting product line that increases the utility and pull-through on 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 flow cytometry technology is inherently advantaged over fluorescent-based spectral flow. And to this point, we are heading to the CYTO meeting in Montreal later this month, where we're excited to showcase our capabilities and compare and quantify the advantages over flourescent-based approaches.
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 first quarter, 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 leads us to our third priority, adding to our instruments, reagents and services through inorganic growth. 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 is 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. 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?

Vikram Jog

Thanks, Michael, and good afternoon, everyone. As Michael noted, we are pleased with our results for the first quarter, 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 $25.1 million, while core product and service revenue was $24.3 million compared to $23.9 million in Q1 2022. Core product and service revenue excludes revenue from discontinued products, including COVID-19-related products and other revenue.
Year-over-year, core revenue performance by segment was as follows: Proteomics revenue grew 12% to $15.2 million, driven by recurring consumables and service revenues; and Genomics revenue declined 12% to $9.1 million, 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 fourth quarter of 2022 to 46.6%. Non-GAAP product and service margin, which excludes noncash charges primarily for amortization of developed technology, grew by 792 basis points in the same period.
Operating expenses in the first quarter declined sequentially by 11% to $28.7 million on a GAAP basis and by 16% to $25.4 million on a non-GAAP basis, which primarily excludes noncash charges for stock-based compensation. GAAP net loss for the quarter was $16.8 million compared to $76.3 million for Q1 last year. Non-GAAP net loss for the quarter was $8.9 million compared to $19.5 million for the year-ago quarter.
Non-GAAP measures exclude certain nonoperating and noncash items. And reconciliation tables between our GAAP and non-GAAP measures are provided at the 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 first quarter was $8.5 million, down $10.7 million from $19.2 million in the fourth quarter of 2022. In November 2022, we announced a $20 million stock repurchase program. We repurchased approximately 1.25 million shares at a cost of $2.5 million in the first quarter.
Cumulative repurchases through March 31, 2023, amounted to approximately 1.7 million shares at a cost of $3 million. Our repurchases were limited by our daily trading volumes and applicable SEC regulations. Cash, cash equivalents and short-term investments were $154.5 million at the end of the first quarter compared to $165.8 million at year-end 2022.
And finally, turning to our business outlook for 2023. We are maintaining the guidance issued in February 2023. 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 fourth quarter of 2023.
Our margins can be variable from period to period, depending upon the achievement of benefits from our business improvement programs, price realization and revenue mix as instruments, consumables and service have significantly different margins. We continue to expect operating expenses of $118 million to $123 million on a GAAP basis and $102 million to $107 million on a non-GAAP basis, which primarily excludes approximately $13 million of noncash stock-based compensation charges.
And with that, I conclude my remarks. I'll now turn the call over to Peter.

Peter Denardo

Thank you, Vikram. This concludes our first quarter 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.


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