Seer, Inc. (NASDAQ:SEER) Q1 2024 Earnings Call Transcript May 8, 2024
Seer, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the Seer, Inc. First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Carrie Mendivil, Investor Relations. Please go ahead.
Carrie Mendivil: Thank you. Earlier today, Seer released financial results for the quarter ended March 31st, 2023. If you’ve not received this news release or if you’d like to be added to the company’s distribution list, please send an e-mail to investor@seer.bio. Joining me today from Seer is, Omid Farokhzad, Chief Executive Officer and Chair; and David Horn, President and Chief Financial Officer. Before we begin, I’d like to remind you that management will make statements during this call that are forward-looking statements within the meaning of Federal Securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled forward-looking statements in the press release Seer issued today.
For a more complete list and description, please see the Risk Factors section of the company’s quarterly report on Form 10-Q for the year ended March 31st, 2023, and its other filings with the Securities and Exchange Commission. Except as required by law, Seer disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast May 8, 2024. With that, I’d like to turn the call over to Omid.
Omid Farokhzad: Thanks, Carrie, and thank you everyone for joining us this afternoon. I will begin our call today by providing updates on our business, and I will then turn the call over to David to provide more details on our financial results for the first quarter of 2024 and our outlook for the year. We remain incredibly bullish on the potential of our technology to transform our understanding of the proteome. Proteograph data produced and presented by our customers is truly outstanding, and we fundamentally believe in the long-term value of our differentiated technology. However, the pace of adoption and utilization of the Proteograph platform is not yet on track with our expectations. As we have previously stated, an important factor to driving adoption and utilization is a demonstration of the biological insight provided by the Proteograph in the form of peer-reviewed publications from our customers.
To that end, we have had several important papers published in the recent months and have a strong pipeline of customer publications that will be forthcoming in high-impact journal throughout the year. First quarter revenue came in at $3.1 million as we continued to experience headwinds to adoption of the Proteograph Product Suite in large part due to the elongated sales cycles from the past Seer publications as well as ongoing macro challenges. Given our performance in the first quarter and the current pace of adoption, we now expect 2024 revenue to be in the range of $16 million to $18 million. Until we see an inflection in revenue, we’re focusing our resources on our commercial organization, while reducing our cash burn to preserve our strong balance sheet.
In line with the strategic direction, we’re taking the following actions. First, we’re continuing to invest in and expand our commercial team to ensure we have the right people in place to drive adoption, education and awareness of the Proteograph Product Suite. Second, we’re launching additional Seer Technology Access Center located in Europe, providing end-to-end services from sample to data for our European customers. Third, we’re implementing an approximately 10% reduction in force outside of our commercial organization to further reduce our use of capital until adoption and revenue growth accelerate. Finally, given our strong balance sheet, prudent use of capital, and fundamental belief in the long-term value of the Seer platform, we believe there is a dislocation in our long-term value relative to our current share price.
Therefore, we’re putting in place an open market share repurchase program for up to $25 million. We’re confident our cash balance provides us with ample runway to reach our strategic objectives of becoming the definitive two leaders in proteomics. Now, I’d like to share some of the progress we’ve made across our business, starting with enhancing access to the Proteograph Product Suite. Our Strategic Instrument Placement Program or SIP has continued to remove barriers by utilizing available operating budgets, allowing researchers to begin using the Proteograph right away. Notably, during the first quarter, we saw multiple customers purchased their instruments that had been placed through the SIP, a testament to the value and quality of the data generated by the Proteograph.
Additionally, we continue to serve customers through the STAC, which allows the Proteograph user to run samples in their own lab and have Seer run the mass spec or alternatively provide end-to-end study services from sample to answer. STAC is an important accelerator in the extensibility of unbiased proteomics data. Given the elongated sales cycles due to continued funding and macro challenges, increased accessibility will continue to catalyze the generation of third-party data and publications, further highlighting the transformative potential of the Proteograph. During the first quarter, we prioritized running samples for high-value accounts with larger studies at lower price points that will serve as a key reference customers to drive continued adoption of our technology.
We expect these customers will present and publish their studies in the upcoming months, further reinforcing the differentiated value proposition of our technology. While we continue to operate STAC and its capacity, the prioritization of these studies resulted in the lower STAC revenue for the quarter. Given the success we’ve seen with the STAC in the US, we’re excited to expand into Europe with the launch of this STAC lab in Germany next month. This will give researchers in Europe, the ability to unlock biological insight through comprehensive deep unbiased proteomics research. We look forward to continuing to address a major unmet need for researchers across the region. Last month, we were excited to launch our 2024 Seer insights grant program aimed to support innovative and collaborative researchers who require access to comprehensive unbiased proteomic insights to advance scientific discovery.
Six awardees will receive grants to support studies ranging from 40 to 160 samples, leveraging our cutting-edge technology and expertise from sample preparation to data analysis. We’re looking forward to working with the scientific community to facilitate breakthroughs in oncology, cardiometabolic and neurology fields. We see these three therapeutic areas as key areas of growth for the Proteograph Product Suite. We’re accepting applications through mid June and the grant awards will be made in the third quarter. We will complete the studies in our STAC and grantees will have an opportunity to present our findings at a prominent scientific conference in 2025. Moving on to the validation of our technology. To date, we have seven preprints, four peer reviewed Seer publications and three peer reviewed customer publication, showcasing the value of this new technology.
Since our last earnings call, we were excited to see tumor manuscript from researchers at Auburn University, go through the peer review process and the published. One paper was published in facet and showcasing the power of the Proteograph beyond plasma and by a fluid sample that was exemplified in our applications lab. This paper shows how the Proteograph enables the proteomic analysis of highly complex issues such as skeletal muscle and provides insights into the cellular changes that happen during cellular senescence and aging. This tissue type has a wide dynamic range of protein expression levels with the dominance of certain key proteins similar to plasma. As such, skeletal muscle has been previously difficult to access for deep, unbiased proteomic analysis.
This paper provides yet another example of the flexibility of the power of the Proteograph Product Suite to analyze novel sample types and provide differentiated insights. The second paper was published in aging, and uses skeletal muscle samples to understand molecular intricacies of aging and effects of aging and resistance training on the proteomic profiling of skeletal muscle cells. Specifically, the study found that differences in non-myotubular and myotubular proteome were evident between the younger and middle age cohorts. In addition, the most differentially expressed non-myotubular proteins were more enriched in middle-aged participants than younger participants. In summary, they found that aging and resistance training predominantly affect non-contract our protein skeletal muscle.
The novel approach of this study allows researchers to identify exercise related protein targets and uncover previously undetected protein isoforms. These studies further exemplify the differentiated biological insights that can be gained by investigating tissue samples using the Proteograph Product Suite to better understand aging, specifically and human health and biology more generally. In addition to these publications, we continue to see customers submitting manuscripts to preprint servers, which is commonly the first step to make a study publicly available while the manuscript is undergoing the peer review process for publication. In April, researchers from Columbia University, Irving Medical Center submitted a manuscript to research Square, investigating the significance of various bio fluids as important repositories or biomarkers for early detection of diseases.
When comparing the Proteograph XT workflow with conventional approaches such as the plasma workflow, the researchers found the Proteograph actually demonstrated versatility when applied to various bio fluids and outperforms other workflows in terms of plasma proteome depth, quantitive accuracy and reproducibility, while offering complete automation of sample prep. This study underscores the critical role of the Proteograph XT in advancing large studies to enable biomarker discovery and ultimately has the potential to improve the quality of patient care. We expect to see the number of presentations and publications continue to grow throughout the year. Last month at the American Association for Cancer Research or AACR annual meeting, Streck, a leader in quality control and sample stabilization in blood presented data from the proof-of-principle study they conducted with Seer.
Their study highlighted the performance of Streck’s newly developed Protein Plus BCT, a blood collection tube, designed specifically for proteomic applications. The Streck data demonstrated unprecedented protein stability at room temperature across 4,000 proteins in plasma that can be quantitatively measure with a Proteograph XT and a mass spectrometer. Seer uniquely provides the ability to look at low abundance proteins given the sensitivity of the Proteograph assay and the combination of the Protein Plus BCT and the Proteograph Product Suite is equally powerful for the research, translational and clinical communities. By decreasing pre-analytical variability using a robust and standardized sample collection process and pairing that with a robust and standardized proteomics analysis workflow, you pave the path for deep unbiased proteomics to be as easily accessible and scalable across different labs and organizations.
This is particularly important as applications for proteomics continue to expand across a growing set of end markets exactly as Genomics has done over the past 20 years. Beyond Access, we’ve made important enhancements to our technology. Earlier this year, we made our protein discovery catalog broadly available. Our customers and prospective customers can now utilize the discovery catalog to prepare their research protocols and support grant submissions with publicly available data under breadth of proteins that have been identified through the use of the Proteograph. We have made excellent progress expanding this library in the last few months as we currently have over 36,000 proteins across human mouse and multiple model organisms to 10,000 human proteins at launch across 1,900 pathways that can be detected and interrogated using the Proteograph, the number of identified proteins will continue to grow as more mass spec based proteomics data becomes available.
Feedback has been overwhelmingly positive as scientists are able to add precision, insights and opportunities for biomarker discovery to genomics and proteomics studies. We also continue to receive positive feedback on the power of the Proteograph XT assay. As we’ve said, it has been extensively demonstrated the Proteograph XT robustly amplifies the performance of any mass spectrometer between five and eight-fold in achieving depth of proteomics coverage in complex samples. Importantly, the magnitude of this amplification has been consistent despite improvements in generation of the mass specs over the past several years. This is because the Proteograph fundamentally solves a different problem than the mass spec systems. For example, the number of proteins identified in complex samples such as plasma with the leading Bruker timsTOF HDis approximately 500 to 700 proteins.
However, when paired with the Proteograph XT, the number of protein IDs increases to 4,000 to 5,000 in any given sample. Similarly, the leading Thermo Fisher Scientific Orbitrap Astral can identify 700 to 900 proteins in plasma. However, when paired with the Proteograph XT., the number of protein IDs in a given sample can increase to 6,000 to 7,000 and often 8,000 or more proteins can be identified across a given study. Importantly, the Proteograph enhances proteomics coverage using a simple and robust automated workflow. It’s clear that this will be an important driver to unlock biological insights through proteomic data, and we’re continuing to work to drive the inflection point of adoption of this technology. Looking ahead to the rest of 2024, we continue to execute against our core strategies of driving evidence and publications, continuing to enhance access to the Proteograph, innovate with our products and expand our applications.
With that, I will now turn the call over to David.
David Horn: Thanks, Omid. Total revenue for the first quarter of 2024 was $3.1 million, representing a decrease of 24% compared to $4.1 million in the first quarter of 2023, and was primarily due to a decrease in product and related party revenue. Revenue recognized primarily consisted of sales of the Proteograph SP100 instrument, consumable kits, and service revenue, of which $1 million was attributed to related parties. Product revenue for the first quarter of 2024 was $2.5 million, including $828,000 of related party revenue, and consisted of sales of SP100 instruments and consumable kits. This quarter, several customers purchased instruments that were placed through our SIP program, demonstrating the value these customers see in the Proteograph once it is in their hands.
However, we did see continued pressure on CapEx budgets and elongated sales cycles for the outright purchase of new instrumentation. Consumable kit purchases were also lower, primarily related to lower related party consumable sales. Service revenue was $534,000 in the first quarter of 2024, including $126,000 of related party revenue, and primarily consisted of revenue related to STAC service projects. As Omid mentioned, in the first quarter, we prioritized running projects for key strategic studies that will result in additional presentations and publications in the near term, but were conducted at a lower price point than our typical STAC service projects. Grant and other revenue was $36,000 for the first quarter of 2024, and consisted of leasing and shipping revenue.
As we mentioned on our previous earnings call, we utilized the remaining funds available under the SBIR grant and do not anticipate booking any more revenue under this grant in 2024. Total gross profit was $1.4 million for the first quarter of 2024, representing a gross margin of 44%, compared to $2.1 million in the first quarter of 2023, representing a gross margin of 51%. Gross margins were impacted by higher installation, training, and warranty costs, and lower overhead absorption due to lower overall volumes in the quarter. We continue to expect variability in our gross margin on a quarter-by-quarter basis, since the proportion of instrument, consumable, and service revenue will fluctuate for any given quarter. Total operating expenses for the first quarter of 2024 were $26.6 million, including $7.6 million of stock-based compensation, a decrease of 10% compared to $29.5 million, including $8.7 million of stock-based compensation in the first quarter of 2023.
Research and development expenses for the first quarter of 2024 were $12.3 million, a decrease of 15% compared to $14.5 million in the first quarter of 2023. The decrease in R&D expenses was primarily due to a decrease in employee and stock-based compensation expenses and a decrease in laboratory expenses. Selling general and administrative expenses for the first quarter of 2024 were $14.3 million, a decrease of 5% compared to $15 million in the first quarter of 2023. The decrease in SG&A expenses was primarily driven by a decrease in employee and stock-based compensation expenses. Net loss for the first quarter of 2024 was $20.7 million, compared to $24 million in the first quarter of 2023. We ended the quarter with approximately $359.2 million in cash, cash equivalents, and investments.
Given our strong cash position, the fundamental belief in the long-term value of our solution and the continued dislocation in our current share price, our Board of Directors has authorized an open market share repurchase program of up to $25 million. This authorized share repurchase program will be effective upon the opening of our trading window, which will allow us to repurchase shares in the open market from time-to-time. Even with this return of capital to our shareholders, we are confident our balance sheet provides us with ample cash runway to reach our strategic objectives over the long-term. Turning to our outlook for the year. We now expect revenue to be in the range of $16 to $18 million for 2024, which is in line with our revenue from 2023.
We continue to expect revenue to be more weighted to the second half of the year. We are committed to maintaining a strong financial position and are taking a very disciplined approach with our spend. Given that our revenue ramp continues to develop more slowly than anticipated, we feel it is necessary to reduce our operating expenses in order to align our cash burn with our revised revenue expectations. As Omid shared, we have implemented a reduction in force of approximately 10% of our workforce. This action represents a strategically alignment of our resources towards our commercial efforts. We are also taking measures to reduce our non-personal operating expenses for 2024. While it is always difficult to make these changes, we feel this is a necessary step for us to position the organization for success over the long term.
Free cash flow loss was approximately $11.2 million for the first quarter of 2024. And as previously stated, we estimate that our 2024 free cash flow loss will be less than our free cash flow loss in 2023. At this point, I would like to turn the call back to Omid for closing comments.
Omid Farokhzad : Thank you, David. We remain committed to reducing barriers to the commercial adoption of our technology. The journey to commercialize innovative technology is never linear. I continue to be grateful to our team for their hard work and dedication they are putting in every day. I am confident in our technology and believe that as our publication base expands, we will see increased adoption of our technology. I look forward to keeping you updated on our progress. With that, we will now open it up to questions. Operator?
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Q&A Session
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Operator: Thank you. At this time, we will open the question-and-answer session. [Operator Instructions] Our first question comes from the line of Yuko Oku of Morgan Stanley. Your line is now open.
Yuko Oku: Hello. Thank you for taking my questions. With respect to lowering the barrier for access to mass-spec via STAC for Genomic customers, could you talk to the proportion of STAC customers coming Genomic researchers versus traditional mass-spec researchers?
Omid Farokhzad: So, this is Omid. Thanks for the question. I think via the — the customer base is actually relatively similar. Meaning there are customers of STAC who actually have in-house mass-spec and just because of capacity constraints they sent their mass-spec to us. Now, we don’t do any mass-spec services for any non-SEER customers, meaning the customers who send their mass-spec to us, these are Proteograph owners who are running the Proteograph in-house, have access to a mass-spec in-house, but choose because of the ease and capacity leases to leverage our mass-spec we have some customers like that understand and serve those customers. But the lion’s share of the customer base is actually customers who don’t have access to a Proteograph or a mass-spec in-house and they end up with end-to-end services at our STAC.
Yuko Oku: Got it. Thank you for that. And then with green shoots in biotech funding being called out many of your peers, while maybe too early for environment to be improving do you feel that sentiment is turning?
David Horn: Yes. Yuko, hi. This is David. Thanks for the question. What we certainly saw in the first quarter is some budget impact from biopharma for sure. Certainly, the large biopharmas, we had a couple of deals actually that we were expecting that that got pushed for budgetary reasons. So we’re still seeing an impact. That said, the use of STAC by some of our smaller biotech firms has been good. So to your point around green shoots, I do think that it kind of depends. I think in the case of large biopharma, the adoption of new technologies, especially word requires CapEx, can still be challenging, where it’s a service model STAC model, I think we’re seeing good reception there. And so again, I think it depends obviously on the company and the situation. But again, we are still seeing some headwinds depending on the account type.
Yuko Oku: Got it. Thank you.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Rachel Vatnsdal of JPMorgan. Your line is now open.
Q – Unidentified Analyst: Hi. Thank you for taking the questions. This is Martina Luther on for Rachel from JPMorgan. So I wanted to touch a little bit on your updated guidance. Can you perhaps discuss that 2Q top line expectations and then touch a little bit more on seasonality through the year and then talk about your visibility into the second half of the year. Thank you.
David Horn: I’m sorry, Martina. The first part of your question, you wanted to the two key. I missed what you asked.
Q – Unidentified Analyst: Just like our 2Q top line expectation.
David Horn: Got it. 2Q top line. Got it. Okay. So in terms of 2Q, we don’t give quarterly guidance. I think what we’re seeing is — we’re continuing to see lots of opportunities in the pipeline. It’s just a question of the elongated sales cycle through that pipeline in terms of how quickly we can move those through. So I’d say 2Q, we’re going to continue to be conservative in our outlook, just given what we see and some of the headwinds we’ve been facing. In terms of the seasonality, I do think we’ll continue to see the seasonality, we’ve seen in years past. I think certainly the revenue will be more second half weighted in terms of what we see. We certainly have some interesting publications coming out. We expect in the second — late second, early third quarter, which we think was going to help drive interest, continued interest in the platform.
And so we do experience the same seasonality that the industry generally sees, which is of a very strong kind of fourth quarter is kind of the strongest quarter of the year, given where people are and they’re cycles and things. So we would expect the same here and certainly with our year being back-end weighted.
Q – Unidentified Analyst: Thank you. That’s helpful. And then, can you talk about STAC traction, but more attribution on the call a little bit, but I remember last and quarter you talked that you have 48 organizations that are using STAC. How many do you have as of now? And then, do you still have a backlog of projects? And then lastly, on STAC, can you talk about your visibility on revenue and especially now that you opened in Central Europe? Thanks.
Omid Farokhzad: Yes, thanks so much. I don’t have an update in terms of the updated total customer number beyond what I mentioned last time. The STAC continues to run at capacity. And we expect that to be the case through Q2 and also into Q3. And my visibility for it is that the STAC was exactly what the market needed. Meaning, the purpose of establishing it in US was to lower the barrier for a potential customer to access the Proteograph data. It was also meant to lower the barrier for a potential customer to bring in a Proteograph, when they are relatively unfamiliar with the mass spec. And so we didn’t want that lack of familiarity with the mass spec to be a hindrance to our taking a Proteograph in house. In that context, the STAC has done exactly what we had hoped.
