Akoya Biosciences, Inc. (NASDAQ:AKYA) Q1 2023 Earnings Call Transcript May 9, 2023

Operator: Good day and thank you for standing by. Welcome to the Akoya Biosciences First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. I would now like to hand it over to our first speaker.

Priyam Shah: Thank you, operator and thank you to everyone who’s joining us today on this call. I am Priyam Shah, Head of Investor Relations at Akoya Biosciences. On the call today, we have Brian McKelligon, Chief Executive Officer and John Ek, our newly appointed Chief Financial Officer. Earlier today, Akoya released financial results for the first quarter ended March 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 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, 2022, filed on March 6, 2023, and subsequent filings with the SEC, including our quarterly report on Form 10-Q for the quarter ended March 31, 2023, filed today, May 8, 2023.

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, May 8, 2023. 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. On today’s call, we will discuss our performance for the first quarter, review our product strategy and give updates on the upcoming product launches. And John will then provide a more detailed look at our financials, business trends, and outlook. I’d like to start by extending a warm welcome to John Ek who joined Akoya’s leadership team as Chief Financial Officer in March. John brings more than 20 years of financial and operational leadership across the diagnostics and life sciences industries, including leading companies like Atimetrix, GenMark and most recently, Specific Diagnostics. John succeeds Joe Driscoll following his retirement.

Joe was an integral part of Akoya’s success over the last 4 years and guided the company through an incredible growth trajectory, including our IPO. He will be missed, and I wish him a wonderful and well-deserved retirement. Additionally, we announced the appointment of Jennifer Kamocsay as our new General Counsel. She will be a vital member of the executive leadership team and will oversee all the company’s legal activities. So let me move on briefly to summarize our performance in Q1. Akoya had a very strong start to 2023, highlighted by the placement of our 1,000th instrument in the field in April. This was a major milestone for the company. We also reported record revenue of $21.4 million for the first quarter, a 27% growth over the prior year.

Our continued robust growth is a byproduct of our leadership in spatial biology, delivering the portfolio of products and services that spans the full continuum of market opportunities from early discovery to translational and, ultimately, the clinical markets. Now this is an important and valuable differentiator for Akoya. That is, we are achieving success across a broad range of market segments with complete end-to-end solutions, purpose-built to serve the unique needs of each customer type. This range and diversity of products provide the company with a strong foundation and the core fundamentals for both near-term and long-term sustained growth. A key demonstration of our current and predictor of our ongoing success is the continued and rapid growth of publications featuring Akoya’s platforms.

As of March 31, there are now 860 publications featuring our solutions, a 62% growth from the prior year period. Additional highlights for the quarter include $5.7 million in reagent revenue, a 27% sequential quarter-over-quarter growth, and the largest quarterly reagent revenue in Akoya’s history. We reported $5.9 million in service and other revenue, a 64% year-over-year growth driven by the continued success of our lab services business. Prior to reviewing our forthcoming strategic initiatives, I want to spend a minute to review and reiterate Akoya’s multiyear strategy initiated following our IPO in April of 2021. Our primary goal was to establish Akoya as the market leader in spatial biology from discovery to diagnostics. Now there’s 2 phases to this strategy.

The first phase was initiated following the IPO and lasted through the end of 2022 and included three distinct strategic objectives. First, following the IPO, we made immediate investments in R&D to develop and deliver a complete and industry-leading portfolio of instruments and solutions to serve the discovery, translational and clinical markets. Second, we expanded our SG&A organization to have the scale, the expertise, the processes and the systems in place to immediately capitalize on these product launches to drive revenue growth. Third, we solidified the clinical readiness of our organization and our product portfolio to set the foundation to achieve our long-term goal of penetrating the large spatial biology clinical TAM. And by all accounts, we successfully executed on this, the first phase of our strategy.

Specifically, we delivered solid revenue growth ahead of expectations every quarter since our IPO in April of 2021 through Q1 of this year. We successfully launched new products like the Fusion as key drivers of this growth. And we launched and expanded our lab services business and achieved CLIA certification, culminating in our first companion diagnostic partnership. Our revenue performance, 1,000 instruments in the field, and nearly 900 publications are the most obvious metrics that highlight our solid R&D and commercial execution. And now in 2023, we are embarking on the second phase of this multiyear strategy to lead in spatial biology from discovery to diagnostics. And now underway, the objectives of the second phase include the following.

First, with our organization now at a scale to deliver on our strategic priorities, we will focus on improving operational leverage by limiting and targeting our investments while also continuing to deliver robust top-line growth. Second, we’re focusing our R&D initiatives on workflow improvements and reagent solutions that drive increases in consumable revenue and system pull-through. We expect that these high-margin reagents will contribute a growing percentage of our total overall revenue, driving an increase in our gross margins. Third, we will continue to focus on advancing our clinical market development efforts, lab services and advancing and expanding key partnerships like Aquabona and Agilent to begin to address the significant spatial clinical opportunity.

The goal of this second phase of our strategy will be to deliver sustained high top-line growth with increasing margins, achieve cash flow positivity in 2025, and to expand on our success in the clinical market. So now let me walk through our product roadmap for this year with the goal of continued workflow simplification and consumable revenue growth. We have coordinated priorities for investments and improvements across reagents, instruments, and software. We expect that our expanded reagent menu with our Fineco Discovery and Signature panels will drive an increase in system utilization, plex, and pull-through. Our planned hardware upgrades on both the PhenoCycler-Fusion and the HT will further simplify our workflows and also contributing to utilization and pull-through growth.

And our expanding ecosystem of software partners will reduce our customers’ time from data to answer. Let me talk in more detail on each of these, first, starting with our reagent strategy. We are expanding our reagent menu this year with ready-made panels for both the PhenoCycler-Fusion for high-flux discovery and the PhenoImager HT for high-throughput translational states. These biomarker panels fall under our PhenoCode reagent brand and include our PhenoCode discovery panels for the PhenoCycler-Fusion and the PhenoCode signature panels for the PhenoImager HT. The discovery panels will have a rolling launch throughout 2023. The first panel focused on immune profiling was launched at this year’s AACR. The next 3 panels were launched throughout the second half of this year.

These panels are designed in a modular fashion of 10 to 20 markers, providing our customers the ability to combine them while also including additional Akoya catalog antibodies or their own as needed. For the translational clinical markets, we’re launching 5 PhenoCode signature panels for the PhenoImager HT. The first three panels were launched in Q1 and the next two are due in the second half of this year. These panels were created for the rapidly advancing immuno-oncology therapy landscape that includes nearly 6,000 ongoing clinical trials. The signature panels enable fast and scalable assay to development and deployment and accelerate utilization and higher revenue per sample on our HT system. With the launch of these high-value reagent panels, we’re also making continued workflow improvements across all of our systems to simplify and accelerate our workflows.

As previously discussed, the Fusion 2.0 instrument field upgrade is planned for the second quarter and will deliver an increase in throughput and workflow simplification for our customers. This upgrade includes a multi-slide carrier on the fusion for parallel processing of tissue samples, which effectively doubles the system throughput from approximately 10 samples per week to up to 20 or more samples per week. This upgrade also includes the necessary hardware and software components to support Bio-Techne’s RNA scope to be used on PhenoCycler-Fusion. On the PhenoImager HT, we are continuing our efforts to simplify and streamline our informatics workflow and post-processing to a true clinical standard. In mid-2023, we plan to introduce further improvements to the HT that moves the post-processing and tissue analysis steps directly onto the HT for on-instrument real-time computing.

The result will be a severalfold reduction in image postprocessing and turnaround time. This upgrade supports our translational and clinical customers’ demand for a rapid and standardized workflow to drive throughput and standardization. Expanding our content menu and streamlining our workflows are two out of the three necessary improvements to drive increased system use. We continue to advance and improve our data analysis and software solutions is the final piece. As we have discussed, our software strategy is grounded in two assumptions that are absolutely proving true. First, the rapidly expanding spatial biology market is driving the introduction of many new powerful data analysis solutions from both industry and academia. Our customers benefit the most if we can partner with these groups to ensure compatibility with our platforms.

Second, our resources are better spent enabling these partners versus building a single solution that must serve a broad range of customer needs. And to remind you, Akoya’s platforms leverage an on-instrument image processing and file compression technology that reduces file sizes by 30-fold from terabytes to gigabytes into a standardized bioformat called QPT. Now this novel and proprietary technology enables an ease of data transfer through this standardized format to help simplify and accelerate the development of third-party software solutions. At AACR, we announced the newest member of a software partner ecosystem, Enable Medicine. Enable is now commercializing a cloud platform specifically optimized for PhenoCycler datasets. To-date, they have already established a platform’s robustness, having analyzed over 20,000 samples on the Enable Cloud platform.

Available as a software as a solution package, it will accelerate the ability of Akoya’s customers to go from data to cell phenotypes to insights in minutes or hours instead of days or weeks. In addition to this partnership, we have also partnered with other established industry leaders like Visiopharm, Indicalabs, PathAI, and Oracle Bio. We expect the continued growth of spatial biology will spur ongoing developments of additional software solutions, the discovery translation-owned clinical markets. In addition to the upstream discovery market, we continue to make great progress in the downstream translational and clinical diagnostic markets, leveraging the PhenoImager HT and our Advanced Biopharma Solutions, CLIA Lab, or ADS. Our partnership with Agilent has already generated meaningful customer engagements with top biopharmaceutical precision medicine groups driving and expanding our ABS pipeline.

In addition, our agreement with Acrivon Therapeutics to exclusively co-develop and commercialize a first-of-its-kind spatial signature companion diagnostics continues to advance. Acrivon recently announced that it anticipates initial clinical data from the Phase 2 multicenter open-label trial in patients with partner-resistant ovarian, endometrial, and urothelial cancer during the second half of 2023. Now to review, we’re focused on the following initiatives throughout the rest of 2023. First, continue to deliver new applications and drive further workflow and speed improvements to increase the recent pull-through on the PhenoCycler-Fusion in the discovery market and the PhenoImager HT for the translational clinical markets. Second, continue to partner with leading biopharma, medical centers, CROs, and diagnostic leaders to drive the adoption of the PhenoImager HT and the translational research and clinical diagnostic markets.

Finally, with the support of our new and expanded leadership team, we will drive operational efficiencies and make limited and targeted investments going forward to achieve cash flow positivity in 2025. Now with that, I will now turn the call over to Johnny to discuss our financial results. Johnny?

John Ek: Thanks, Brian, for the kind introduction, and a warm welcome. It’s a pleasure to be on this call today, and I look forward to working alongside Brian and the team in leading Akoya on the next phase of its journey. And I want to thank Joe for what has been a seamless transition, and I wish him all the best in his retirement. As Brian highlighted, total revenue for the first quarter of 2023 was $21.4 million, a 27% growth over the first quarter of 2022. Our robust year-over-year growth reflects a strong portfolio, meeting the needs of a broad customer base across multiple research verticals and revenue categories. Product revenue, including instruments, reagents, and software totaled $15.5 million for the first quarter, representing 17% growth over the prior year period.

Instrument revenue was $9.6 million for the first quarter, representing 13% growth over the prior year period. We had another strong quarter with 58 total instruments sold, of which 19 were PhenoCyclers, and 39 were from the PhenoImager portfolio. We ended the first quarter of 2023 with a total installed base of 992 instruments, which includes 273 PhenoCyclers and 719 PhenoImager. As Brian highlighted, in April, we celebrated an important milestone shipping our 1,000th instrument. A total of 149 Fusion instruments have shipped since the full commercial launch at the start of 2022, and we now have a total installed base of 128 for the combined PhenoCycler-Fusion system sold either directly as a combined system or as an upgrade to a stand-alone PhenoCycler instrument that previously utilized a third-party microscope.

More than a year into the launch, the majority of the PhenoCyclers are being sold in combination with the Fusion. As expected, we see the combination of the PhenoCyclers and Fusion driving increased reagent pull-through, and we expect this to continue to increase over the coming years with new product introductions, which Brian discussed as part of our product roadmap. Reagent revenue was $5.7 million for the first quarter of 2023, representing a 27% sequential growth over the fourth quarter of 2022. In this early part of 2023, we are seeing the efforts of our focus on driving reagent growth begin to show encouraging results. Our annualized pull-through per instrument in 2022 was in the low $30,000 range for both the PhenoCycler, which was predominantly paired with third-party microscopes, and the PhenoImager HT annualized first quarter reagent pull-through was in the mid-$30,000 range as more PhenoCyclers paired with Fusion are up and running.

We are targeting annual reagent revenue growth in the 40% range per year for the next several years as we expand our installed base, realize pull-through expansion across this large installed base and as ongoing product launches in a commercial stride. Service and other revenue totaled $5.9 million for the first quarter, an increase of 64% over the prior year period. Services have been a substantial growth segment for us over the past several quarters for a couple of reasons. Lab services revenue continues to grow as more pharma customers utilize our services to drive higher-scale studies and our companion diagnostic deal with Acrivon Therapeutics continues to advance with the clinical trial underway. Gross profit was $12.3 million in the first quarter, representing 22% year-on-year growth and gross margin was 57.4%, an increase from 56.8% in Q4 of 2022.

As reagents become a bigger part of our revenue mix and as we leverage our manufacturing investments to date, we will continue to expand our gross margin over time. Operating expenses for the quarter totaled $29.9 million as compared to $29.6 million in the fourth quarter of 2022. As Brian noted, we have now begun to leverage our cost structure to drive the business toward profitability and are planning a flattening of our operating spend throughout 2023 and into 2024. With historical investments in business expansion efforts since the IPO, we have developed products, built operating infrastructure, and streamlined commercial execution to drive top-line growth with expanding operating leverage. Our plan for 2023 includes targeted investments in areas that will generate the highest returns as we work towards operating cash flow positivity in 2025.

We ended the quarter with approximately $60 million of cash and cash equivalents and approximately $11 million in additional debt capacity. The first quarter of each fiscal year is typically our highest cash usage quarter as we make bonuses and other similar annual payments. In addition, we have invested in higher inventory levels to continue to cushion against potential supply chain issues and offer a more expansive reagent menu. We expect to maintain robust top-line growth throughout 2023, with reduced cash burn as we recognize operating leverage and flatten OpEx. Common shares outstanding and fully diluted shares, including the impact of outstanding options and unvested restricted stock awards, are $38.4 million as of March 31, 2023. To summarize, we had another record quarter with $21.4 million in revenue, a 27% growth over the prior year.

We had a total installed base of 1,000 instruments as of April, the largest installed base in the spatial biology industry. We reported our highest reagent revenue in Akoya’s history this quarter of $5.7 million, representing 27% sequential quarter-over-quarter growth driven by an expanding installed base and increasing pull-through on the PhenoCycler-Fusion. And finally, with an industry-leading volume of publications featuring Akoya’s platforms now at 860 as of quarter end, representing a 62% year-over-year increase, we remain confident in our ability to deliver continued growth in 2023. Currently, we are reiterating our revenue guidance range of $95 million to $98 million for 2023 as we continue to see tailwinds for our business and the spatial biology market.

Now I’ll turn it back over to Brian for closing remarks.

Brian McKelligon: Thank you, Johnny. We’re pleased to report a strong quarter and announce multiple exciting new developments across the portfolio. 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 spatial solutions from the discovery to the clinical markets. And at this point, we will turn the call over to the operator for questions.

Q&A Session

Operator: Thank you. Our first question comes from Tim Chiang from Capital One. Your line is now open.

Tim Chiang: Hey, thanks. Brian, I listened to the Acrivon Therapeutics call that happened recently. Do you guys get significant milestone payments assuming that their clinical readouts and Phase 2 to assume that they are positive, would you guys get milestones from that?

Brian McKelligon: We do. We get milestones without going into too much detail, but we get milestones throughout the development phases and throughout the enrollment and clinical trial participation phases, as well as the readout on those. So it’s a fairly typical Tim, companion diagnostic agreement, but the short answer is yes.

Tim Chiang: And maybe just a follow-up to that. I mean, obviously, there is a lot of precision medicine biotech companies out there. What do you think you need to do to get more of these types of deals where you can leverage your diagnostic capabilities on the clinical side?

Brian McKelligon: Yes. And maybe it’s a great question, Tim. I appreciate it. Maybe for the benefit of those that don’t have the background, I’ll maybe just back up a little bit. So we announced the partnership with Acrivon last summer, following their IND submission of their DNA damage repair compound, their Phase 2 trial of the compound they in-licensed from Lilly. And that trial – that IND also included the CDx assay that was run on our platform. And it’s being run out of our CLIA lab. So the things that we need to accomplish to your question directly, Tim, to secure more of these is really, as we’ve spoken of prior is really to continue, I’d say, shots on goal. It’s opportunities in more and more clinical trials within our existing customer base and across multiple partners to increase their probability like we have with Acrivon where it becomes central to the actual clinical trial.

And while we don’t call out all of these details specifically as a separate line item, I think if you just look at our services line over the last five quarters or so, that’s a pretty solid indication of us growing that business, but trying to be selective about it as well, Tim and the milestones for us to continue to march along the CLIA lab was certainly an important milestone. This first companion diagnostic deal is a very important milestone because it gives our pharma partners the confidence and belief that we can handle the full submission process and end up having an improved system on the market. And then finally, more recently, it’s in January, the partnership with Agilent that provides our pharma partners the ability to have a full sort of clinical-grade workflow and a partner between us and Agilent to know how to develop and run clinical studies and commercially deploy a clinical trial.

So there is a lot that goes into it, Tim, but it really is just a sort of a slow, steady grind to broaden the menu and number of opportunities we have within our clinical trial partner base.

Tim Chiang: Okay. Great. No, that’s very helpful, Brian. And best of luck getting more of these types of partnerships this year.

Brian McKelligon: Thank you.

Operator: Thank you Our next question comes from Mason Carrico of Stephens Inc. Your line is now open.

Mason Carrico: Hey, guys. Thanks for taking the questions. Sorry, if I missed this, I’m jumping between a few calls here. But did you guys discuss revenue and growth by geography during the quarter? And if not, could you provide some color there?

Brian McKelligon: Yes, it’s a good question. We did not. It was fairly balanced across all territories and across all product lines. There was no real outliers. Last year, there were some puts and takes across multiple categories that wasn’t relegated to us. But for us, it was fairly balanced across all categories. China is starting to come back a little bit on the reagent side, but it is not fully there. But all in all, there was no sort of real outliers.

Mason Carrico: Okay. Got it, thanks. That’s helpful. And then one more here on performance, I think when you guys were talking about the pull-through per instrument, you called out a range in the mid-40s over the next couple of years. Has that changed from any prior expectations, maybe any additional color there? I know that new platform owners tend to have lower pull-through initially. So has your expectations changed around instrument placements? Has it gone up? Any additional detail there would be helpful?

Brian McKelligon: No, no changes in instrument expectations or longer-term pull-through expectations. We are beginning to realize, as Johnny alluded to in his talk track, we’re starting to see the movement of that pull-through on the PhenoCycler with many of those first-half PhenoCycler-Fusion installs getting to full production. So kind of going from the low 30s to mid-30s and I think Mason will continue, particularly on the PhenoCyclers. We will continue to see this sort of steady climb of pull-through. The overall reagent revenue of $5.7 million for this quarter was a pretty good step-up from the 4.5% in Q4 last year. So no expectations and I think everything that we’re doing on the product side is going to help drive that, as I alluded to in my opening comments.

Mason Carrico: Perfect. Okay. And then one more maybe high level question, I think historically, you guys have talked about somewhat of a bifurcation in the spatial market or discovery market, protein labs where you guys have historically focused, and then some genomic labs where competitors tend to play, but you’ve also pointed to this trend of multi-omics and the expectation that the market is moving in that direction. So with that in mind, when you think about the protein versus genomics labs, how do you think about which type of lab is going to more rapidly adopt multi-omic solutions as these roll out or even use the analyte that they historically weren’t broadly using in the research, whether it’s RNA or protein.

Brian McKelligon: Yes, that’s a great, great question. I’m going to rephrase it, Mason, to make sure I’m answering it correctly, which is we’ve talked about proteomics and genomics customers, where do we think multi-omics is going to resonate the most to rephrase it simply is that what you’re asking?

Mason Carrico: Yes, that’s right.

Brian McKelligon: I actually think it’s going to be more in the PhenoCycler-Fusion customer base because what they are looking at are they are looking at proteins as a really rich scaffold within which to understand cell-cell interactions as well as the key protein markers like the PD-1, PD-1 checkpoints. And they are layering in RNA as an additive tool to look at secreted molecules, chemokines, and cytokines as an added question. So I think that kind of multi-omic customer is where your classic protein player is going to resonate the most. I think over time, I think you’re going to see the genomics customers continue to focus more and more on genomics-based open-ended exploratory discovery questions and that’s the power of the transcript. So hopefully that answers your question. I think we’re in multi-omics.

Mason Carrico: Perfect. Thanks, guys.

Brian McKelligon: Thanks, Mason.

Operator: Thank you. Our next question comes from Ruizhi Qin of JPMorgan. Your line is now open.

Ruizhi Qin: Hi, good afternoon, guys. So I wanted to ask on the service revenue strength this quarter. Could you give us a little more color on whether this is mainly driven by Acrivon scaling their studies or new biopharma customers? And then also two related follow-ups on that is, are you seeing any changes in customer preference between service versus instrument just in light of the macro environment we’re in? And could you talk about the biopharma pipeline health? And what’s your latest outlook for the service business given the strength? Thank you.

Brian McKelligon: Yes. So the growth in services is sort of a balanced contribution. I appreciate the question, Julie, a balanced contribution over the last five quarters or so from both of those sources. That is both the Acrivon milestones and realizing revenue recognizing that as well as the growth in ABS. Now there is a component of that, that also includes warranties, and those sort of grow linearly with our installed base. And that’s a component of that. It’s probably a minority that is. And the second part of your question, are we seeing preferences for services versus buying instrumentation? There is nothing, Julie, I would point to that would signify a massive shift within how we go to the market with one very important Acrivon, which is we are seeing a lot more activity within our COOs and core labs.

So not services by Akoya because the services that we’re doing with ABS and Acrivon, those are very targeted. And that’s a pretty rich pipeline of targeted translational clinical studies. But more generally, Julie, I do think you’re seeing in the external markets, people shifting and enabling medicine is one of those CROs that also has software, core labs at many of our academic institutions, you’re seeing these cores be a really central component of not only how products go to market, but the first wave of adoption. That’s one of the reasons why we think it’s so important on the discovery side to focus on that throughput, that sample per unit time because then these core labs can actually have a business. If it’s a sample every 3 to 4 days, they are going to have to charge a markup of thousands and thousands of dollars per sample.

That’s why throughput is so important on the discovery side. And then on the translational side, it’s equally important to make sure that we have panels that are ready to go and are pre-automated so that these CROs can go out and market a full solution and not have to build panels anymore. So the service portion of the business that we’re serving versus providing, I actually do think there is a trend towards that. It’s a very important customer base. And then the biopharma pipeline, I think there is two ways to talk about it. As we look at our top pull-through accounts over the last few quarters for both the PhenoCycler-Fusion as well as the HT, biopharma is becoming an increasing percentage of those really high-performing accounts.

So we’re really seeing our platforms take off in biopharma as a product sale, but also our biopharma business in terms of ABS that I already spoke to, that is pretty robust. But again, it’s very targeted. So hopefully, that answers your question, Julia.

Ruizhi Qin: Great. Thank you very much.

Brian McKelligon: Thank you.

Operator: Thank you. Our next question comes from Mark Massario of BTIG. Your line is now open.

Vivian Bais: Hi, guys. This is Vivian on for Mark. Thanks for taking the question.

Brian McKelligon: Hi, Vivian.

Vivian Bais: Could you update us on what the attachment rate for the PhenoCycler-Fusion is for new customers as well as the existing installed base? I think it was hovering around 80% last quarter. And is it still your thinking that stand-alone PhenoCyclers will be in the minority going forward? Thanks.

Brian McKelligon: Your numbers are correct. And so are your assumptions, and John can correct me. But yes, our casted rate is above 80%. We think it’s going to stay there. And there is still a great opportunity for us to continue to upgrade existing PhenoCyclers customers that are using third-party scopes. And as we roll out more and more product improvements to the PhenoCycler-Fusion, it’s going to become sort of a growing attraction for those PhenoCycler customers to then upgrade to the Fusion. Did that answer your question, Vivian?

Vivian Bais: Yes. Perfect. Thanks, Brian. And just a follow-up, any preliminary thoughts on how the field upgrades for the Fusion 2.0 are progressing, and any initial feedback you’ve been receiving on the 2.0, I guess, in terms of the increase in through put?

Brian McKelligon: Yes. Those start next month. So yes, so there is a lot of excitement in anticipation for those. Those will be rolling out next month. And the pace of those is sort of customer dependent in terms of are they mid-project, do they have to wait. So I don’t think we’re giving exact guidance on how many quarters it’s going to take, but we expect that there’ll be a lot of excitement for that upgrade because of the improvements, not just on the hardware side, the multi-slide carrier, but there is also some significant improvements on the software side in terms of workflow usability.

Vivian Bais: Okay, awesome. That’s it for me. Thanks for taking the questions.

Brian McKelligon: Thank you.

Operator: Thank you. Our next question comes from Kyle Mikson at Canaccord Genuity. Your line is open.

Kyle Mikson: Hey, guys. Thanks for taking the questions. Congrats on the quarter, and thanks for providing the second phase’s strategic objectives. Those were actually pretty helpful. They are important components here that you kind of walked through the road map and so worth it. But on the cash flow positivity by 2025, I just want to walk through some stuff there. So really, like how do you get there? I think I heard like you guys talking about – I think, John, you went into in some detail. R&D efficiency is limited and targeted spending. Maybe you could just expand on it a little bit. I mean it was good to hear that stuff. And then maybe the assumptions just P&L-wise, so flattening OpEx, top-line growth. And importantly, if you guys could just talk through if you’re contemplating any additional financing? Because based on the burn here, I mean it kind of seems possible. So I just would appreciate that. Thanks.

John Ek: Yes. I’ll take this one. Certainly, hey, Kyle, thank you. So maybe it’s helpful to kind of give building blocks, right? If we think about – as you mentioned, we exited the quarter $60 million and change with $11 million in change as additional debt capacity. So starting the quarter with $70 million in capacity and then we look at what we’re going to do for this year as we flatten OpEx as we drive our revenue growth, right? We’ve talked externally about sort of this 30% growth was our goal for the coming years. And as we look at gross margin improvement, when you put those building blocks together and you truly flatten OpEx and have targeted investment and careful diligence on all your spend, you really start to drive cash – end the year with a cash number that allows you to move into ‘24 with the momentum to get to cash flow positivity, operating cash flow positivity in ‘25.

It’s really with those building blocks it’s sort of how we get there. We will make targeted investments and we will continue to fund the growth in sales and marketing. We have built a tremendous sales force and great products, which will drive that revenue growth. We have the ability to really focus on costs within cost of goods as we have grown the company in the last 2 years since IPO, the focus naturally is on growing that revenue. And now we really have the ability to take costs out from a cost of goods perspective, driving that margin up. And then we have a good base of OpEx that we don’t expect to grow. We will be able to flatten that OpEx. And when you put those components together, you get to the cash number we think we need to hit and the cash that we have on hand to meet our near-term goals.

Kyle Mikson: I mean that was great. Did you want to just clarify the financing potential or just…?

John Ek: Okay. I mean like I have said, right now, we have gotten the cash on hand we needed to execute against our near-term goal.

Kyle Mikson: Okay. No, that was great. Thanks Johnny. Just moving on to the industry, the company really, so you had a great quarter, like I said, the other special companies focused on transcriptomics did as well, they raised guidance. And are you seeing anything interesting in the funding environment or overall budget allocations given the number of all these capital equipment options right now? And then specifically, just kind of curious if you are seeing labs purchase a box with a focus on analyte or maybe some other metric? In other words, are you kind of like sort of on your own with spatial proteomics?

John Ek: So, let me take that last part first. The dynamics that we have spoken about a broadly growing spatial biology market, but still, in terms of buying behavior, customer type I think – and I suspect that our colleagues at 10X and Nanostring, we think similarly that it’s not really a head-to-head with Akoya. We are still in a market segment, Kyle, where we are really not running into those customers. They are field force very much at all. I think those dynamics may start to change towards the latter part of this year as perhaps both of our portfolios pivot to include the other analyte. But I would hark-in back to Mason’s question on how we think about that market opportunity for us. So, even a slight amount of – some moderate success in the genomics market for us would be, I think a significant upside for us.

In terms of the funding environment, Kyle, we are not really seeing anything dramatic to the negative. I would say similar trends to what we talked about in Q1 in terms of diligence around capital purchases, some resin pull-through resurgence in China, but not quite back yet.

Kyle Mikson: Okay. Awesome. And that’s the first part there. I mean I have received some questions about that in the past, but there is some maybe misunderstanding of some of this stuff out there. So, that’s all good. Maybe just a quick one, I want to hop off after this. Any inbound interest or order funnel commentary for the discovery panels right now on the RNA side, would love to hear that because it is your first time doing this kind of standalone RNA.

Brian McKelligon: Yes. So, the first launch of the discovery panels, at least that wasn’t clear, Kyle, is protein. This is an immune cell profiling panel launched at AACR. So, a huge amount of interest at AACR for that component. And when you combine it with a lot of the other content, really, along with Fusion 2.0, really central to driving up the plex, but what I would also add taking some liberties with your question, those discovery panels run on the cycler with the Fusion. By their name, the Signature Panels are really biomarker signatures. Those are designed to run on the HT and we had a number of those launched in Q1, and there was a lot of inbound interest by our CRO and biopharma customers because the content there is so central and core to IO and oncology and checkpoint inhibitors and activated TIL status, etcetera.

So, those are of great interest as well the Signature Panels on the HT and remembering that for us in terms of the top line, those really help our pull-through on the HT, because historically, we have only sold the detection reagent component of that assay, so about $0.30 on the dollar. By selling these Signature Panels with that ready-made content for biopharma and CRO partners, now we are getting sort of that realizing the full value because we are putting those panels together and getting the antibodies. So, I appreciate you let me take some liberties with the question. Hopefully, that was clarifying.

Kyle Mikson: Yes. Very thoughtful, Brian. Appreciate it. Thanks guys.

Operator: Thank you. Our next question comes from David Westenberg from Piper Sandler. Your line is now open.

David Westenberg: Hey guys. Thank you for taking the question. So, I just want to ask about the RNA scope, the Bio-Techne deal. I believe it should be this quarter. I think it’s dependent on – if I am not mistaken, on Fusion 2.0 release. Can you talk about and maybe how much – correct me if I am wrong. And then can you talk about the time lapse between Fusion 2.0 and the launch of the RNA scope as a reminder?

Brian McKelligon: Yes. So, the 2.0 hardware and software upgrade, David, has all of the necessary components to run the RNA scope. So, as we roll that out in the field and likely get pulled to do so by those groups interested in RNA scope, it’s fully enabled with that upgrade.

David Westenberg: Got it. So, it would be the exact same time. It would be concurrently.

Brian McKelligon: It will be concurrent, yes.

David Westenberg: Okay. Perfect. Thank you very much. Got it. And then I want to pivot to something else. I think I saw a partnership or a new customer in Solgen that’s picking up your assay now. We cover them in profitability or running assays or building assays that are profitable is very central to the way they operate. So, can you talk about either them specifically or how a diagnostic customer can really use your platform here to build new profitable assays? Thank you.

Brian McKelligon: Yes. So, I won’t talk about them specifically, although that is one of the great stories that I have ever learned that as a business and how it kind of grew and what they have done there, so an incredible job by that team. But I will speak more generally to Solgen and companies like those because what we are seeing, David, is we are seeing a really accelerating recognition in the true service opportunities, CRO opportunity, and translational clinical need for a multiplexing period. We call it spatial biology, but the reality is in a CRO setting, this is multiplexing. And they are doing multiplexing on our platform because it’s fluorescence. And they are doing it with fluorescence because that allows them scientifically, and I apologize for going in the weeds to look at biomarkers that co-locate on a single cell.

That capability to do clinical-grade multiplexing for markers like PD-1 and PD-1 and CD8 and CD4 and CD20 that all co-locate, you need to have the technology that can fare out those signals. And so what our CRO customers like Solgen and others are seeing as they are seeing demand from pharma. And they are seeing an opportunity to sell services for multiplex-based immunofluorescence immunohistochemistry. And that’s exactly what we want. That’s why we built the panels. That’s why we keep improving the HT system. That’s why we did ABS, our CLIA Lab. So, you would have clinical-grade protocols that we could then share with all these groups, so we have the consistency of performance. So, this is – and I really appreciate you asking the question, David.

This is a really, really powerful dynamic where we are seeing CROs beginning to promote multiplexing on our platform as a solution. And that’s the kind of flywheel effect that we hoped for or planned for with the HT, with the Signature Panels, with the ABS methodologies, everything I just went through.

David Westenberg: Thank you very much Brian. We will chat with you I will plan in a couple of hours. Thank you.

Brian McKelligon: Thank you, David.

Operator: Thank you. Our next question comes from Tejas Savant of Morgan Stanley. Your line is now open.

Unidentified Analyst: Hey guys. This is Edmond. Thank you for taking my questions today. I just wanted to double-check on something with the Fusion 2.0 rollout. You guys said that it will meet the multicarrier slide requirements upon the software upgrade. Would there be another catalyst later on this year to unlock the full throughput of that, or is that going to be available immediately just like the RNA scope?

Brian McKelligon: Yes. So, the 2.0 is multi-slide. It’s got all the components to enable RNA scope. And then there are some software upgrades and data post-processing improvements. That is the biggest, largest set function for this year on the platform side. But what I would add, Edmond, is that additive and a driver over time is the launch of more and more of these discovery panels, because what those do is, they make it really easy for you to stitch together groups of 10 to 20, these are in modules, immune profiling modules, immune activation modules, lymphocyte profiling modules. These fixes things together and very quickly, you build a 60-70 plex versus you might have been averaging a 30 flex or so before. So, the modules and the software partners help, I hope convince our customers to take that multi-slide carrier and get full utilization of it. So, it’s sort of a flywheel effect, if that makes sense, Edmond.

Unidentified Analyst: Understood. And then in regards to your discovery panels having RNA capabilities by the second half of ‘23, will that simply be with the RNA scope? I think if I am not mistaken, that’s around a handful of plex. But what about your internal 100-plex-ish panel, is that going to be the second half of this year as well, or is that…?

Brian McKelligon: Yes. I appreciate the question. So, the current guidance that we have given is the 2.0 has everything needed to enable the RNA scope, and that’s about up to a 12-plex, high plex, RNA, high-plex, 12-plex. And then it is our own internal RNA that’s higher plex and then ultimately, multi-omic that we have talked about for the second half.

Unidentified Analyst: And then one final question on me, in terms of your Enable Medicine partnership, can you remind us how this differs from the collaborations you currently have with Visiopharm, PathAI, and Oracle? Should we just view this as another downstream analysis tool in the toolbox for researchers?

Brian McKelligon: In short, yes, we are trying to give an array of offerings that suit the needs, the different needs of each customer. And I will come back to Visiopharm – I am sorry, Enable Medicine. But there are solutions like QuPath, and that’s freeware. That’s free. And you can plug-in into our scripts. So, that’s a freeware. OracleBio is a group that, for example, can do really powerful bespoke-based biomarker discovery and analysis. PathAI has both a lab, but also strong AI capabilities where they can take large-scale cohort studies and find the signatures themselves. And then groups like Visiopharm and Indica Labs, they have huge installed base. They have been in the market for a long time, real industry leaders and both do very well in biopharma.

Enable Medicine is a cloud-based solution and that was really built initially to serve our Discovery Market segment, that are doing real high plex studies. And as we noted in the opening comments, they have already analyzed over 20,000 samples on that platform. So, it’s been robustly tested, and they rolled this out as a Software-as-a-Service package, enabling our PhenoCycler Fusion customers to try it out initially in a very affordable manner. So, it’s a very scaled, cloud-based solution. And they also, as a company, illustrative with the fact they have done 20,000 samples. They have a real robust services lab using our platforms as well. So, again, it’s really about a continuum of offerings that meet the different needs of academia and industry alike.

Unidentified Analyst: Got it. That’s super helpful. And just one final one for me. One of your competitors has mentioned offering onboard primary and secondary analysis to their instrument, and you have also mentioned I think that’s your HT instruments as well. Is that something we should consider down the road as something you will do for your PhenoCyclers revisions?

Brian McKelligon: So short, we have done a lot of that already. I think there are some components to structure out. And you are right, I think it’s a standard that needs to take place. So, there is a compression approach. There is a compression that allows this to happen in a compute-friendly manner. So first, when you compress that data format, then the onboard, the cost of that onboard compute doesn’t have to be exorbitant. And then once you have that onboard compute like we have with HT, you can do a lot of that post-processing real-time. Whether or not we roll that into the PhenoCycler Fusion, it’s not as pressing a need, that post-processing. The reason why it’s so valuable on the HT is because you basically remove that post-processing. So, the time from sample to answer for a clinical study, you would take a big chunk off of that. So, that’s really about consistency and time to answer.

Unidentified Analyst: Got it. Thank you for the time today.

Brian McKelligon: Thank you, Edmond.

Operator: Our next question comes from Lucas Baranowski of UBS. Your line is now open.

Lucas Baranowski: Hi guys. This is Lucas on for John Sourbeer here at UBS. A lot of my questions have been asked already. But I guess going back to our PhenoCode Signature Panels and PhenoCode discovery panels, which of those two do you expect to drive more pull-through in 2023?

Brian McKelligon: That’s a really good question, Lucas. I don’t – it’s like having to choose between my children. I don’t think any one of those is an outlier. The only thing I would add is that it’s perhaps more about the schedule. So, the PhenoCode Signature Panels, we launched three of the four panels here in the first quarter. But the nature of the use of those is pharma will try those on a pilot study, analyze, and then scale. So, it’s a sort of bimodal adoption. The discovery panels are going to come out over time, and those are going to be more organic as they roll in. So, while the adoption curves look different, sort of a gradual growth versus this bimodal pop in the discovery versus the signature, respectively. I think their contributions are going to be fairly equivalent in terms of added top-line revenue.

Lucas Baranowski: Thanks. That’s really helpful. And then I guess more generally, looking at total revenue, can you talk a little bit about the pacing for the year and the biggest puts and takes we should be thinking about as we kind of forecast the next few quarters?

Brian McKelligon: Yes. I mean I think as you look at our performance in – look at sort of Q4 to Q1 and sort of the allocation of revenue across the categories, I think that’s a decent starting point. I think what we expect over the coming quarters is that reagent growth to continue to go up a little bit more. So, we think our – I think our Q4 contribution of reagents to the total will likely be more than in Q1, for example, in terms of the absolute dollars. So, I think that would be the loose guidance that we would give, and we can certainly dig a little bit more on the specific models as a follow-up. I don’t know, John, do you want to add anything to that?

John Ek: No. I think naturally, we certainly expect with the number of placements in the field as of all are live and continue to drive pull-through, it’s a relative step through the year to get to that Q4 exiting revenue.

Lucas Baranowski: Okay. Thank you very much. That’s all I had.

Brian McKelligon: Thank you, Lucas.

Operator: Thank you for your questions. At this time, I would now like to turn it back to Brian McKelligon for closing remarks.

Brian McKelligon: Well, listen, thanks. I don’t have a lot to add. I think we covered a lot of the content. I just want to thank everybody for their time to support their questions. And again, we are really encouraged by our strong performance in this Q1 of this year, consistent with prior quarters. So, we are going to continue to maintain consistent high-growth performance. And we are really excited to capitalize off of all of our product opportunities from instruments, reagents, and services, again, across this broad continuum of market segments. I think that’s, again, what’s unique and powerful about Akoya is we have a diversity of revenue, not just across product types and geographies, but also across market segments.

And it’s that market segment and being successful across all three of those, from discovery, to translation to clinical, that gives us strong foundations, not just for growth this year, but going forward into the future. So with that, I appreciate everybody’s time and we look forward to talking again soon.

Operator: Thank you. Thank you for today’s participation in today’s conference. This does conclude the program. You may now disconnect.