Q4 2023 Bionano Genomics Inc Earnings Call
Participants
David Holmes; Investor Relations Officer; Bionano Genomics Inc
R. Erik Holmlin; President, Chief Executive Officer, Director; Bionano Genomics Inc
Gulsen Kama; Chief Financial Officer; Bionano Genomics Inc
Sung Ji Nam; Analyst; Scotiabank GBM
Mark Massaro; Analyst; BTIG
Jeff Cohen; Analyst; Ladenburg Thalmann & Co. Inc.
Presentation
Operator
Good day. And welcome to the Bionano fourth quarter and full year 2023 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to David Holmes from Investor Relations. Please go.
David Holmes
Thank you, operator, and good afternoon, everyone. Welcome to the Bionano third quarter 2023 financial results conference call. Leading the call today is Dr. Erik Holmlin, CEO of Bionano. He is joined by Gulsen Kama, CFO of Bionano.
After market closed today, Bionano issued a press release announcing its financial results for the fourth quarter and full year of 2023. A copy of the release can be found on the Investor Relations page of the company's website.
So I'd like to remind everyone that certain statements made during the conference call are forward looking, including statements about Bionano, strategic and commercialization plans, sales pipeline, future fundraising activities and prospects, cash runway, expected cost savings initiatives and the estimated impact on annualized operating expenses, the timing of expected benefits and such initiatives, expected reductions in head count, anticipated benefits or improvements to Stratos' Saphyr and Ionic purification system and there are advantages over current technologies goals and anticipated milestones for 2024.
And achievements of the Elevate growth strategy, our anticipated compound annual growth rate, the size of our ability to access our estimated target markets, the anticipated benefits of recent acquisitions, expectations regarding the timing and the content study results and the anticipated benefits of these studies in driving adoption of the Stretta system Saphyr system and the Ionic purification system. Such forward-looking statements are based on current expectations, and there can be no assurances that the results contemplated in these statements will be realized.
Actual results may differ materially from such statements due to a number of factors and risks, some of which are identified in bioanalysis press release and bio announced reported reports filing with the SEC. These forward-looking statements are based on information available to Bionano today, and the Company assumes no obligation to update statements as circumstances change.
In addition to supplement Bionano's financial results reported in accordance with the U.S. generally accepted accounting principles or GAAP. The Company is reporting non-GAAP operating expense. This non-GAAP financial measure is not meant to be considered in isolation or as a substitute to comparable GAAP measures should be read in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP and has no standardized, meaning prescribed by GAAP and is not prepared under any comprehensive set of accounting rules or principles.
A description of non-GAAP operating expense and reconciliation of non GAAP operating expense to GAAP operating expense are included at the end of the Company's earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website, an audio recording and webcast replay for today's conference call will be available online on the Investor Relations page of the company's website.
And with that I will turn the call over to Eric.
R. Erik Holmlin
Thanks, David. Good afternoon, everyone, and thank you for joining us today. Today's call is an important one for Bionano. We want to cover a lot of ground starting with an update on Q4 and the full year 2023. And then we want to cover the 2024 outlook, including important progress we are making to address our capital structure and cash burn. I would like to first turn the call over to Gulsen to cover the financial results for Q4 and full year 2023. Gulsen?
Gulsen Kama
Thanks, Eric. Consistent with our preannouncement in January, Q4 revenues were $10.7 million, which is up 30% versus Q4 2022. 2023 revenue totaled $36.1 million, which reflects an increase of 30% over 2022 revenues. Our installed base of optical genome mapping systems grew by 25% from the third to the fourth quarter of 2023 for a total of 326 on December 31st, 2023, which reflects a 36% increase from year-end 2022.
We sold 7,984 sales in the quarter, which reflects 67% growth over Q4 2022. For the full year, we saw 72% growth in the number of flow cells sold from 2022 to 2023 with a total of 26,444. This growth is important to note as we believe it indicates higher consumable utilization. Given that consumables growth is outpacing installed base growth by a factor of two, we expect utilization to increase even more as the higher throughput Stratos' system becomes a larger percentage of our total installed base.
In October 2023, we've completed an $80 million financing of convertible notes and warrants, and we ended the fourth quarter with $102.3 million in cash, cash equivalents and available-for-sale securities, of which $35.5 million were subject to some restrictions on February 28th, 2024, we announced an important restructuring of the convertible notes, which lowered the minimum available liquidity covenants from $50 million to $25 million, lowered the restricted cash covenant from $35 million to 25 million, which can be further reduced as remaining principal is retired, canceled the March partial redemption payment and delayed the April partial redemption payments to April 20th, and redeemed $27.7 million in principal, leaving the outstanding debt at $24.3 million. This restructuring effectively unlocked $30 million with the potential to free up an additional $25 million as further principal is retired.
Regarding operating expense, GAAP gross margin for the fourth quarter of 2023 was 23%, which is slightly higher than the 22% GAAP gross margin reported for the fourth quarter of 2022. Full year 2023, total gross margin was 26%, up from 21% and full year 2022.
Fourth quarter 2023 Gaap operating expense was $27.4 million compared to $39.3 million in the fourth quarter of 2022. The year-over-year decrease was primarily due to a decrease in the fair value of contingent consideration of PureGen milestones and reduced headcount related expense, partly attributed to the cost savings initiatives outlined in our Q2 2023 and Q3 2023 earnings releases.
Fourth quarter 2023 non-GAAP operating expense was $27.3 million compared to $30.6 million in the fourth quarter of 2022. Full year 2023 GAAP operating expense was $224.8 million and non-GAAP operating expense was $127.3 million. Full year 2023 non-GAAP operating expense excludes the onetime impairment charge of $77.3 million, $14.5 million in stock-based compensation and $7.2 million in amortization of intangibles, partially offset by a $1.5 million in reductions of contingency-based obligation.
Since joining Bionano I have been focused on driving increased discipline to our spending while we work to extend our cash runway. In October 2023, we announced the cost savings initiative that we believe together with reductions that began in May will save approximately $33 million annually, including a reduction in headcount of approximately 83 employees and reductions in discretionary spending on various projects.
Some of those savings we're evident in our fourth quarter OpEx. But for timing of employee expenses coming off the books, we expect to see the full benefit of the reductions starting in the first quarter of 2024. Today, Eric and I are announcing that we are implementing new plans that will further reduce expenses. Streamlining operations is possible because of the product launches behind us and a breadth of the current equity capital environment for tools and diagnostics companies, which is requiring companies to become much more efficient with resources and to reduce cash burn.
With this 2024 initiative, our goal will be reducing annualized operating expense by another estimated $35 million to $40 million, including a potential reduction in headcount by an additional 110 to 125 employees, bringing the total number of employees down to approximately 200 from approximately 324 today. Overall since May 2023, through the completion of the initiatives announced today, we aim to have reduced headcount by approximately 200 people and reduced annualized operating expenses by about $65 million to $75 million.
We expect the savings initiatives we're announcing today to have associated costs. We will provide that information as appropriate once we have more completely finalized the cost associated with these plans. As we streamline our operating structure, we believe we're cementing the path forward now. Our core product development is mostly completed, and we're targeting segments of the genome analysis market where we believe we face no direct competition seeking to replace the core for classical cytogenetic methods with a single assay in contrast to the sequencing and spatial genomics markets which have become incredibly crowded.
With that, I will turn the call back to Eric to discuss our 2024 anticipated business plan before we take your questions. Eric?
R. Erik Holmlin
Thanks, Gulsen. 2023 was one of BioMarin as most successful years ever with solid revenue growth and achievement of all our publicly stated elevate milestones. Despite the challenging backdrop from macro economic headwinds facing the industry. Overall, we believe 2023 set the stage for a bright future for OGM. and the impact our products can make in health care, we believe the evidence is clear. Elevate is working. W
e saw substantial increase in OGM. publications in 2023 with over 5,000 clinical genomes published and the highest recorded quarter to date, with 88 publications in the fourth quarter of 2023. OGM studies, including our own clinical studies program, have now moved beyond showing concordance to focusing on demonstrations of the incremental value of ODM over classical methods.
Our product development team has brought two new transformative products to the market, which are key to the end to end solution for ODM via software and the Stratus system via software. It makes the visualization interpretation and reporting of OGM. data incredibly fast, automated and easy to digest it also enables analysis of chromosomal microarray and next-generation sequencing data together with OGM., which is a feature that is totally unique in the market.
Stratos' system increases the throughput of OGM data generation by as much as four bold compared to the Saphyr system, and we have a roadmap to further increase that throughput over time. Stratus was released in an early access program in Q4 and demand mix exceeded our planned supply of 10 systems. We ended up with orders for 11 early access strata systems, 70% of which went to new customers.
We're excited to introduce Stratos' live to the market at the upcoming ACMG meeting in Toronto, March 13th through the 16th, including at a pre conference scientific event, hosted by Bionano on March 12th were Stratos' users will present their progress and at a reception for conference attendees on March 13th. The next component of the streamlined end to end solution to come out is, I say, attack of Reese's or ITP. for OGM. on the Ionic system, which is currently in pre-commercial evaluation in the field now. And we expect ITP. for OGM. to be released commercially in the second half of this year.
Looking ahead to executing elevate in 2024 with a further streamlined operating structure for aiming to limit the impact of downsizing on revenue growth in the core OGM. products as part of that streamlining. However, we have made the difficult decision to phase out some of our clinical services products that we sell directly to physicians, namely our first step and next step DX products and our Fragile X tests, which are legacy non OGM tests.
In 2023, these products generated around $7 million of the overall $36.1 million in revenues. Therefore, after taking into account discontinued products, we are guiding full year 2020 for revenues to be in the range of $37 million to $41 million and First Quarter 2024 revenues to be between $8.25million and $8.75 million. We expect to install between 80 and 100 new optical genome mapping systems in 2024, but we think the net increase to the installed base, it may reflect some Saphyr to Stratos' upgrades. So we expect we expect the OGM install base by the end of 2024 to be in the range of 381 to 401 system.
Regarding next steps on the path to ODM reimbursement, bio national labs submitted the dossier for local coverage determination coverage policy for HE malignancies from multi ex Palmetto in the fourth quarter of 2023. And the application was accepted, which is the first step in the process, BioD analogues is working with other ODM users to seek local coverage determinations from other Medicare administrative contractors or MACs in the US. In the meantime, customers continue to be successful in obtaining and using PLA codes to get reimbursement for OGM. applications.
We believe a category one CPT code is a more general solution to reimbursement coding for ODM in the U.S. according to the AMA website, an application for a category one, CPT code for OGM. in the 2024 cycle has been submitted to process is confidential, and we are not able to confirm if it is one of our users in the US as the applicant name is not public information, widespread utilization of OGM. is one criterion that the AMA will use in the evaluation of a CPT code application, and we believe it will be more meaningful.
OGM nusers are able to directly speak to the utility of the workflow, the CPT code application process unfolds over the next few months. And so we're hopeful of a good outcome towards the end of the second quarter 2024 in 2020 for our clinical studies, programs will focus mainly on heme malignancies in an effort to support the medical guidelines and reimbursement decisions connected to this application for OGM. Going forward, we will also maintain efforts to address regulatory requirements where they represent opportunities to clear the path for adoption.
In closing, I want to emphasize that while we are facing challenges from the situation related to equity capital markets. Our core business is healthy. Reducing expenses is a difficult but important step in addressing our financing overhang as we continue our mission to transform the way the world sees the genome.
With that, operator, we are ready to take questions to ask a question.
Question and Answer Session
Operator
(Operator Instructions)
Sung Ji Nam, Scotiabank.
Sung Ji Nam
Hi, thanks for taking the questions. So just a clarification to start off. For the $7 million, the revenue that's being discontinued from the our next steps and first step in Fragile X, are they all coming from the service revenue segment? And then would you be able to kind of comment on kind of what the growth rate has been for that business over the years?
R. Erik Holmlin
Yes, those are coming from what would be on services and on dividend growing a little bit. But our expectations as we were looking ahead to 2024 before making the decision to discontinue them was that they would be mostly flat.
Sung Ji Nam
Got you. Okay. And then, Eric, great to hear kind of your focus on heme malignancies this year. Could you give us kind of an update on in terms of all the clinical studies underway? Preclinical post I'm sorry, prenatal postnatal team and also solid tumor and what the status are and kind of what the next steps are for all of them?
R. Erik Holmlin
Yes, sure. So we've really made tremendous progress across all areas, perhaps with the exception of solid tumor, although we have the study which has been IRB approved and we're really waiting to just actually have really more bandwidth to and spent time on that particular study in both prenatal and postnatal. We had landmark publications that came out over the course of the year in 2023, really demonstrating the concordance with traditional methods and beginning to show some of the incremental benefits in diagnostic yield, especially for the postnatal study.
And so we feel like we've created a really solid momentum for those studies, and it's going to be fine to let them sort of yes, filter into the market and for people to digest those data, there's really large data sets that show the the value of optical genome mapping as a replacement for traditional methods. And then hematologic malignancy study has also progressed significant publications, including peer-reviewed publications over the course of 2023 and our focus going forward.
There will build really to continue to pursue all of the endpoints that we intend to measure, which include the incremental benefits of optical genome mapping over traditional methods. We've seen a little bit of that in some of the early studies and early publications, but we're going to continue to dig deeply into that. And then we also want to be able to show changes in how cases are managed as a result of the information that comes out of these studies as well as a variety of health economic benefits.
And so yes, some of those endpoints for prenatal and postnatal might be a little bit delayed and we'll get them for him first. But I think that this clinical trials program had developed such incredible momentum that a lot of the work will continue independently of our efforts, and that will allow us to focus the resources that we have on hand.
Sung Ji Nam
That's great. That's super helpful. And then just the last one for Gulsen. Could you maybe talk about the your expectations for gross margin cadence for this year? I'm good to see continuous improvement there last throughout last year. But I was wondering given the on the full commercial launch of Stratos' as well as the discontinuation of certain product lines, should we anticipate some disruption on the margin side, at least for the early part of the year?
Gulsen Kama
No, I don't think so. Is anything I think on some of the cost reductions that we announced will actually have an impact even on cost of revenues. So just because of that, I think there will be an improvement.
Sung Ji Nam
Got it. Great. Thank you so much.
R. Erik Holmlin
Thank you, Sung.
Operator
Mark Massaro, BTIG.
Mark Massaro
Hey guys, thank you for the questions. And congrats on a strong 2023, maybe just starting with them, the headcount reductions. So it looks like you're talking about a potential reduction number, I guess, have you I mean, you obviously provided the number. So can you just give us a sense for what would move that from potential to moving it moving forward? And how should we think about the timing and then related to that, I know, Eric, you don't want to impact revenue or generating activities, but you know, that is a large number of folks. So maybe just walk us through whether or not you think you're able to withhold cuts to commercial activities?
R. Erik Holmlin
Sure. So I think with regard to the language that we're using, I think a fair takeaway is that we're seeking to come from about 324, which is the head count that we're at now down to 200 and our experience when we did reductions in the fourth quarter was that for a variety of reasons, a few people here and there had to be taking in and moved out of the plan. So we want to leave some room around the 200, but that's certainly the target that we're aiming for. So that would suggest a reduction right around 125 people.
And so as has been pointed out, as we discussed, these steps were and our incredible employees. And as you can imagine, it's such a difficult decision to make to reduce these costs. Those that sort of magnitude exceeds a third of the Company. And so essentially, all areas of the Company will be impacted. And one of the reasons that we decided to discontinue the services products was that there are a fair number of people associated with generating those revenues.
And so that allows us to meet part of that headcount target in a single move the other. The other reason is that and what is important is that product flow is in the samples coming in the door and they provide some benefit to the advancement of OGM. overall, they're not really core. And so a key driver as we think about going forward is that we really wanted to be deeply focused on optical genome mapping and have all of our management resources dedicated to that. So that helps with some of the numbers.
And then in order to address the remaining, we recognize that we've gone through some significant product developments via software is in the market. The Stratus system is in the market. And so the incredible people who have helped us get to this point, we don't need as many of them going forward. So that's a part of the transition. And then commercially, we do have some impact across sales and marketing and the way that we're balancing that is to really leverage where we have distribution partners and third parties that support our products in the market.
We're really going to lean on them and they're going to have to they're going to have to deliver. And so what you'll see is that maybe we're not going to be as ambitious about growing our commercial footprint and globally and internationally across Asia Pac and rest of world, and we'll maintain our very successful focus in Europe and United States and Canada. So we are certainly going to impact head count there, but we want to want to keep the momentum in place that that we've built so far.
Mark Massaro
Okay. And then maybe a clarification on the install base and the guidance looks like you're expecting a range of 80 to 100 systems this year. You did indicate you expect some conversions from Saphyr to Stratos. Is it right that if I just do the math, you might have, let's see an increase of 65 systems overall, but the delta between the 65 and the 90 at the midpoint would be the conversions. I mean, is that based on that math right? And then is that based on conversations you're having with customers? And then maybe lastly, could you talk about mix between capital, reagent rental, how you think that might play out this year?
R. Erik Holmlin
Sure. Yes. I think that your sort of math is correct there. Yes, we feel we feel confident about this. This 80 to 100 new installs and there's the potential to get past that. But we we wanted to make sure that we deliver against what we're signing up for here. And these conversions or upgrades, if you will on -- we have some visibility into that. But I think aside from the early access program, we're only about 45 days into the full commercial release of Stratus. And so the information that we're getting is is fairly new. And so the 25 upgrades is an estimate. And so we'll just have to see how things play out going forward.
Mark Massaro
Okay. And then last question for me is it's nice to see you submit the dossier to Palmetto Goldex on. Is it your expectation that 2024 is a year, obviously for them to review it maybe come up with a draft decision. Do you think that might hit by year end? And then maybe go final next year? Maybe just help us think about how you're thinking about timing?
R. Erik Holmlin
Yes. So I can share some additional information that we've learned as part of the process EO, some kind of pre submission. And then subsequently is that there needs to be, you know, a determination as to whether this application is ultimately treated as a request for a completely new coverage policy or if it can be attached to any of the existing ones. And we're fairly certain that it's likely to be a new policy. And so for our own thinking in our own planning versus purposes, we treat it that way. And I think it's reasonable to expect that it could take all of 2024 for a new draft coverage policy to come out. So the earliest that we would see it at it. I think it's safe to say that we would see the draft policy early 2025. And with the potential for it to become final in 2025. Maybe that may be maybe the folks working on it beat that, but I think that's a safe estimate.
Mark Massaro
Yes, that makes sense. Alright, thanks for all the time.
R. Erik Holmlin
Thank you, Mark.
Operator
(Operator Instructions) Jeff Cohen, Ladenburg Thalmann.
Jeff Cohen
Well, good afternoon. Thanks for taking our questions. I wanted to follow up on Mark's previous question. Could you comment a little bit on the count one CPT code and DNA from what you know currently and how might that play out over '24 and as that plays out well, then when would that take effect?
R. Erik Holmlin
Sure. Thanks, Jeff. So I think in contrast to prior years where Bionano has led the process to apply for the CPT code. I think what we learned in that process is that as the manufacturer of the technology is it's difficult for us to really provide the information. And so we were pleased to see that an application for a CPT code has been made this year and what we know with with certainty is that we were not the applicant. And so it's reasonable to conclude that the applicant is a user.
And as we sort of indicated in our prepared remarks, we're not able to sort of confirmed their identity because it's a confidential process. Having said that, the process is standardized and plays out over the next two or three months. And so I think that what we're likely to see is the application proceeding and the applicants will know sometime in late May early June, where it stands and then us as observers from the outside.
We will know if the code is advanced into the agenda of the final meetings, which take place in June. That agenda is published shortly before the meeting. So I think we'll all be watching very closely over the next couple of months to see how the situation unfolds.
Jeff Cohen
Okay. Got it. That's helpful. Could you talk a little bit about the Stratus placements. I know it's a reflection phone that you had mentioned seven out of 10 were new customers. Can you walk us through perhaps the methodology or the thinking there as far as those customers wanting a higher throughput system and perhaps some flavor as far as what types of accounts they were?
R. Erik Holmlin
Yes, across the board, our accounts and I think that this has been a consistent pattern now for a while and we should start emphasizing it more with the these are all either academic medical centers like hospitals or some regional reference labs or commercial labs. And and we also have systems go into pharmaceutical companies. So what we don't see anymore, and I think that this is a really important transition that we've undergone. We don't see the academic research centers who are buying optical genome mapping to create the next reference genome for this species or that species on there's a little bit of genetic and genomic mechanistic work going on.
But just about ICE of substantially all of our adoption is really in our target market of routine use in hematologic malignancy research on constitutional genetic disease research and then applications in cell and gene therapy. So I'm super pleased about that. And then when we look at the Stratos' system and the folks who've raised their hands without a doubt, they see it as the the thing that they've been waiting for that provides them new, higher throughput. There are also other characteristics of the Stratos' system that make it attractive to users, which include really a lot of flexibility coming to introducing samples into the system and generating data.
For example, the strata system can run 12 samples at a time, but also accommodate up to three additional samples in a it just in time sort of fashion where you can jump the queue and get ahead and wrap run urgent samples. And so the flexibility in the workflow, coupled with the higher throughput is something that labs are finding very interesting and very attractive and something else that we're seeing is that of your accounts that had been in our pipeline in the process of purchasing optical genome mapping are are making the shift from Saphyr to Stratos. And I don't know if markets still.
And but he had also asked about the kind of distribution of rentals to capital purchases. And for a while now we've seen a very rough 50 50 distribution, but we're actually seeing a little bit more of purchases with Stratos'. And that's that's encouraging.
Jeff Cohen
That's helpful. And then finally for us, your goals, in particular, when we talk about the OEM OpEx reductions for '24. If we do some quick math off the 23 numbers less the impairment and where you're leaning toward, we're getting call it about at one 15 to 1 20 for full year '24. And could you maybe comment on that and then perhaps give us a little insight into how you see that breaking down between our R & D and on SG&A?
Gulsen Kama
So in terms of 2024 impact, specifically not the annualized on savings numbers, which of what we announced it will take some time to implement the savings initiatives. And so we'll most likely see a partial year impact as a result of the most recent announced ones and the ones that we announced in October should be in full effect by now. So yes, the number that you mentioned, I would please divide by two, I guess in terms of some of the impact in 2020 for specifically.
And, I'm sorry, what was the second part of your question?
Jeff Cohen
Should you wish to change your view of the growth expectations on all the orange bar and international loans?
Gulsen Kama
Yes, I think as Eric mentioned, it's both are new product development with with Stratos already rolled out, but it's also on the commercial side. So on for now again, I can get back to you, but I would expect equals what Ahmass.
Jeff Cohen
Got it. Okay, that's super helpful. Thanks for your questions. Congrats on the quarter.
R. Erik Holmlin
Thank you.
Jason McCarthy, Maxim Group.
Hey, guys, this is Michael accumulates on the line for Jason. Thank you so much for taking my questions today. It might go up because I guess I guess just the first question I just wanted to get a point of clarification. Is the full year '24 revenue guidance fully factoring in the removal of those legacy legacy tests? I'm trying to understand if it's appropriate to consider the core growth rate there to be 47% to 40%.
R. Erik Holmlin
Yes, it is fully factoring in the reduction and or removal of those revenues. We're probably going to see a little bit of them in the first quarter. So I think at the high end of that range, we're really aiming to get to 30% growth in the core.
Operator
Thank you. I'm showing no further questions at this time. I would now like to (inaudible) closing remarks.
R. Erik Holmlin
Okay. Thank you, Daniel. And I want to thank everybody for joining in the call, and we look forward to updating you shortly on our progress here in the first quarter of 2024. Thank you very much.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.
