Singular Genomics Systems, Inc. (NASDAQ:OMIC) Q3 2023 Earnings Call Transcript
Singular Genomics Systems, Inc. (NASDAQ:OMIC) Q3 2023 Earnings Call Transcript November 14, 2023
Singular Genomics Systems, Inc. beats earnings expectations. Reported EPS is $-0.31, expectations were $-0.38.
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: one, commercial execution; two, operational execution; and three, our innovation pipeline. In addition, I'll provide commentary on the overall state of the business, including what is going well, what challenges we are experiencing, and most importantly, what we are doing differently to address these challenges. To address the last topic directly and concisely upfront, w e see many encouraging trends, have high conviction in the G4 platform, and product road map, and see a clear path to build a successful business.
Macro and market conditions do present challenges. We are being thoughtful in adapting our strategy in light of both internal and external factors. We have made changes to our business in Q3. This includes organizational structure, product roadmap, commercial strategy, and how we are thinking about managing cash runway forward in order to give the company time to execute. We will talk more about each of these topics later in the call. Now, I'll turn to an update on our third quarter. Let's start with commercial execution. We shipped five G4 four systems during the quarter, our largest quarterly shipment total yet, which was made up four shipments to four academic core labs and one commercial clinical lab. We progressed qualified leads through the sales funnel, increased our order book, and saw increasing utilization in the field, giving us ability of the G4.
We are excited to continue growing our installed base and delivering the unmatched speed, power, flexibility, and accuracy of G4 to our customers. The G4's value proposition is increasingly resonating with our customers. For instance, the Broad Institute noted that quote, the instrument was purchased to replace old equipment, augment our sequencing capacity, and lower our sequencing cost while addressing new needs from our users. Its four flow cells and 60 lane design gave us the ability to streamline our single-cell sequencing operation. The f our-color chemistry allows us to successfully and consistently sequence extremely difficult libraries that were a challenge for a very long time w hile generating superb, reproducible data, end quote.
System utilization and the ramp in consumable pull through is increasing, but it's still early. We are learning more about initial customer utilization patterns and seeing encouraging signs. Consumables revenues more than doubled in Q3 over Q2, and this growth trend is carrying through in early Q4. We believe higher utilization will increasingly be enabled by two things, t he usability of the platform and new consumable kit availability. Regarding usability, we continue to make significant progress during the quarter, supporting field upgrades of hardware components and software, and improving the reliability and uptime of the instrument. We expect this trend of increased utilization to continue. Regarding new kit availability, m ost of our customers are currently converting over to the newly launched F3 flow cells.
As a reminder, the F3 flow cell doubled the number of reads and gigabit output from our two flow cell, providing customers a significantly higher throughput kit at a lower cost per gigabyte. In addition, we completed the early access program for our Max Read for single-cell sequencing and are now making this kit broadly available to customers. All these things contributed to a quarter over quarter increase of more than 50% in the number of consumable kits ordered and shipped. In fact, one of our earliest customer placements has ramped their utilization over the last nine months to an expected annualized pull-through rate of approximately $170,000. We are encouraged by these trends in utilization and orders, which we're already seeing translate in early Q4.
Turning to operational execution. Our focus in the third quarter was on streamlining and scaling consumable manufacturing and enhancing the G4's usability and reliability. In operations and manufacturing, we have met its depth in our production processes around consumables, raw materials, and intermediates component QC testing, which were designed to increase the quality and consistency of consumables and reduce assay variability. In customer service and support, w e rolled out several instrument hardware and software upgrades, providing new features and enhancements to improve the usability of the system. Turning to innovation and our product pipeline, we launched Max Read kits for single-cell sequencing. As a reminder, this kit is designed to allow users to get up to 800 million reads per flow cell or 3.2 billion reads per run.
This enables level throughput and pricing for single-cell sequencing on the benchtop system. Recent feedback from early access users has been very positive. For instance, Nationwide Children's Hospital analyzed single cell data generated from the G4 using the Max Read workflow and compared them to library sequenced on NovaSeq 6000. They noted, quote, our interpretation of the single-cell data is indistinguishable across the various platforms, w e plan to continue sequencing genomics' single cell libraries on the G4 and look forward to adopting the maximum capability on our instrument, end quote. And finally, we have been highly focused on developing and introducing our unique special sequencing and multiomics offerings, which we believe will open a new market for our products earlier than previously expected.
We have a dedicated team to the development of unique and exciting assays and solutions in this space, leveraging our core chemistry and technology. We look forward to sharing more soon regarding this exciting opportunity and our expanding capabilities in this area. Now, I'd like to switch gears and provide a few comments on the overall state of our business. We have been shipping our G4 sequencing platform for just over a year and have learned a lot about our go-to-market strategy, given the current macro environment. My comments will touch on what is going well, what challenges w e continue to see despite recent progress, and what we're doing to address these challenges. In terms of what is going well, we are seeing significant improvements in both the reliability and usability o f the G4.
We saw consumable kit shipments increased by more than 50% in Q3, compared to Q2. Consumables revenues doubled in Q3 over Q2, and this growth trend has continued in early Q4. We lost the F3 flow cell and customers are quickly converting over from the F2 kits. We believe these after the flow cells and battery kits, which carry a higher ASP, g iven the increased read count and throughput. We also have growing conviction in the clinical opportunity, g iven the nature of that segment and the G4's profile. In terms of the challenges, the sales cycle and our ability to convert qualified opportunities to orders has progressed slower than expected. As a result, the mix of requested sales models for near term opportunities has shifted to fewer capital purchases and more reagent rentals and evaluations.
This has delayed the timing for our revenue ramp as the value gets recognized over time and is in line with consumable pull through versus upfront delivery and acceptance of the instrument. Given the positive trends in reliability, improvement, system usage, product ordering patterns, new product introductions, increased customer satisfaction, and our significant sales funnel, w e do feel confident we will see a faster pace of placements in scaling of consumables revenue moving forward. While we experienced increasing positive momentum, we recognize we are not where we expected to be at this point, and we are taking the following steps to address this. First, we have prioritized G4's scale up above all else. This include the more focused effort across the organization to prepare for more accelerated G4 shipments, the growing installation base, and increasing consumables demand.
Second is to leverage our recently launched F3 and Max Read kits. We are working diligently to deliver these kits to as many customers as possible. We will also double down on outward communications to potential customers, [indiscernible] the benefits of these new kits and encouraging sample testing and system evaluations. As we think about the G4's product profile moving forward, we are focused on higher value kits that differentiate from the competition and bringing these kits to market robustly a nd on time. Third, to address the challenging market conditions, we believe a two-pronged shift in commercial and product strategy is needed. On the commercial side, we will be more flexible in deal structure and pricing. We will push harder on reagent rental or alternative deals to drive downstream conversions.
We believe this result will be significant growth in the installation base through 2024. On the product strategy side, we will focus on leveraging our installed base and release just a couple of new differentiated high-value kits n ext year. The kits will be significantly differentiated and carry much higher ASP. We will share more on the product strategy and roadmap prudently to deal with the aforementioned challenges. We recently made a difficult decision to reduce our headcount by approximately 10% and reduced our spending plans a ccordingly based on a more narrowly focus list of priorities and projects. We believe these actions will extend our cash runway into early 2026. As we focus our attention on our 2024 operating plan, we continue to identify additional potential areas of cost savings.
And as always, we continue to actively evaluate strategic partnerships, investments, and other opportunities to maximize stockholder value. Now, I'll turn the call over to Dalen to go through the details of our third quarter financial results.
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?
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