Singular Genomics Systems, Inc. (NASDAQ:OMIC) Q4 2022 Earnings Call Transcript

Singular Genomics Systems, Inc. (NASDAQ:OMIC) Q4 2022 Earnings Call Transcript March 2, 2023

Operator: Greetings, and welcome to the Singular Genomics Systems, Incorporated Fourth Quarter 2022 Earnings Conference Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Philip Taylor. Sir, you may begin.

Philip Taylor: Thank you, operator. Presenting today are Singular Genomics’ Founder and Chief Executive Officer, Drew Spaventa; and Chief Financial Officer, Dalen Meeter. Earlier today, Singular Genomics released financial results for the 3 months ended December 31, 2022. A copy of the press release is available on the company’s Web site. 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, March 2, 2023 only, and will include forward-looking statements and opinion statements, including predictions, estimates, plans, expectations and other information related to our financial and operating results, plans and strategies. Actual results 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-K or 10-Q and the Form 8-K filed with today’s press release. Our SEC filings can be found on our website or on 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 singulargenomics.com on the Events page of the News and Events section on our Investors page. With that, I will turn the call over to CEO, Drew Spaventa.

Drew Spaventa: Good afternoon, and welcome to Singular Genomics’ fourth quarter 2022 earnings call. We are pleased to update you on a very important and productive quarter as well as a milestone year for our company. We will focus on three key areas: first, business highlights and key accomplishments from 2022; second, new data and product announcements; and third, the 2023 pillars of success. Starting with business highlights from 2022, first and foremost, we delivered our first quarterly revenue as we brought the G4 to market and shipped five instruments to customers, a key company goal and a major milestone achievement. Initial customers span a variety of market segments, including academic core labs, a commercial lab and a hospital research lab.

Feedbacks from customers has been positive, and the value proposition is resonating. Three of our five initial shipments were to academic core labs, including Harvard’s Beth Israel Deaconess Medical Center, the Medical College of Wisconsin and the University of New Mexico. At Harvard, the flexibility and speed of the G4 has been a key in allowing them to utilize a single instrument to run single cell and spatial experiments with varying sample volumes and output requirements. At the Medical College of Wisconsin, the team has been impressed with the high quality of the sequencing data and single day turnaround times. At the University of New Mexico, the flexibility of the G4 is ideally suited to address their diversity of applications. It is exciting that our initial customers have been able to demonstrate the G4’s industry-leading combination of power, speed, flexibility and accuracy.

To achieve this important commercial milestone in Q4, our team addressed the challenges experienced with scaling, manufacturing and supply chain we discussed mid last year. The team moved swiftly to qualify alternative suppliers, redesigned certain components that have long lead times, implemented supplemental QC testing to ensure complex subcomponents from suppliers with meeting specifications and reliability metrics, and advanced our final assembly, integration and testing of instruments. The end result ultimately reduced the time required to build and bring up a G4 system by 25%. In addition to achieving our G4 shipment goals, we had several other key accomplishments for the year to note. We continue to build out our North American sales team with nine key territories to continue driving demand and growing the funnel of leads and opportunities.

We expanded our marketing presence at 14 industry trade conferences and talks, including ASHG, AGBT, AMP and PMWC, increasing our brand awareness and communicating the value proposition of the G4. We signed partnerships with 12 library prep and analysis partners, bringing the total as of year-end to 18. This is designed to remove barriers to adoption of the G4 and facilitate a seamless integration into existing library prep workflows and data analysis pipelines. In operations, we successfully completed an ISO-9001 audit of our dedicated manufacturing facility and commissioned state-of-the-art clean rooms and lab space for scaling production of enzymes, nucleotides, flow cells and reagents. We progressed R&D work on our G4 instrument and consumables road map to bring improved flow cell specs and new kits to market.

Lastly, we progressed the PX, our second system in our product development pipeline. This system is developing the capabilities and methods for high-throughput in-situ spatial and single cell analysis, building several prototype systems during the year and, more recently, signing our first partner for the technology access program. All of these accomplishments play an important role in establishing a foundation for cross-functional success going forward. I want to thank the entire team at Singular for their amazing contributions made in 2022. Turning to new data and product announcements. It was all on display at the AGBT Conference in early February. We hosted a successful customer and KOL event with over 60 lab directors and scientific leaders in attendance.

The event provided an opportunity to develop relationships, solicit feedback on the value proposition of the G4, generate new leads and drive opportunities forward. We presented 14 new data sets, 11 with industry-leading genomics partners, collectively showcasing high accuracy of the G4 system across many diverse applications including single cell sequencing, whole genome sequencing and thematical exome sequencing. These data sets reinforce the G4’s ability to fit into a robust and diverse set of workflows, putting the G4 speed, flexibility, accuracy and power on display. We launched our Max Read kits for single cell sequencing with enthusiastic customer response. The Max Read single cell kit will allow users to get up to 800 million reads per flow cell or 3.2 billion reads per run at the low cost of $200 per sample or $1 per million read.

Max Read provides a novel method to achieve NovaSeq level pricing for single cell sequencing on the bench top system. The flexibility of the G4’s flow cells allows users to scale their run up or down based on sample volumes at the same favorable economics. We intend to begin shipments in the second quarter. In addition, we were pleased to announce that Singular joined the 10x Genomics compatible partner program, demonstrating the G4’s compatibility with the 10x Genomics Chromium single-cell platform. The flexibility of theG4’s four flow cells and four independent lanes matches precisely with the most widely used sample configurations on10x’s genomics chromium runs, providing an efficient way to optimize run sizes for single cell experiments.

And lastly, we improved the specifications of the G4 F2 and F3 flow cells for both accuracy and read counts. Accuracy was raised to 80% to 90% greater than or equal to Q30. The throughput range of the F2 and F3 flow cells was increased up to 250 million and up to 450 million reads, respectively. All data sets and product specifications are posted on our website, and we encourage you to visit and see for yourself. The third topic I’d like to talk about today is how we are thinking about success this year, the 2023 four pillars of success. First, commercial execution. This means executing on and measuring the following key items: G4 system placements; reagent pull-through; and customer satisfaction. We have a good start with initial G4 placements in the field, customers starting to sequence, and we are receiving positive feedback and beginning to collect the data to set and deliver on each of these metrics.

Second, G4 TAM quantification. This means establishing G4 product market fit in specific market segments, applications and customer types with the goal of credibly framing the G4 TAM and measuring our progress in capturing market share. Third, operational excellence. This encompasses goals in the manufacturing side where we have objectives to improve supply chain, manufacturing efficiency, quality and system performance and reliability. While challenges were overcome, and progress was made on supply chain and manufacturing in 2022, this is a key area of continued focus with scale up this year. Fourth, innovation and product pipeline. We have an exciting pipeline of innovations, including improvements in performance and specs on the G4 platform, new reagent kits offering higher throughput, higher accuracy and longer read lengths, G4 specialty application kits with novel content and workflows for specific applications and of course, advancing the PX, the first high-throughput in-situ sequencing platform.

We look forward to updating you through the year as these all progress. Before I turn it over to Dalen, we would like to provide some color on the 2023 outlook. We are incredibly encouraged by the magnitude of interest and engagement from AGBT with the sales funnel well into the triple digits in terms of qualified leads. We are seeing strong interest, especially in academic labs where longer budgeting and sales cycles typically result in instrument purchases in the second half of the year. Our funnel is strong and growing with real opportunities. Engagement with customers indicates the F3 and Max Read kits will be significant adoption drivers of the G4 as they become available in the coming months. We are currently applying learnings from early placements and taking the necessary time to improve on things such as system deployment, support and service and instrument reliability to make sure we meet customers’ expectations and lay the right foundation for sustainable success.

This means a slow and moderate deployment early in 2023, ensuring a consistently positive customer experience during this early launch phase and equally important, preparing for a scaling phase later this year. We will provide additional color and updates on 2023 in our Q1 earnings call. With that, I’ll turn the call over to Dalen to go over the details of our fourth quarter financial results.

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Dalen Meeter: Thank you, Drew. I will start by covering the Q4 2022 financials. Then I will provide directional remarks on key metrics for 2023 and overall cash runway. Revenue for the fourth quarter of 2022 totaled $765,000, made up predominantly of the revenue recognized on three instrument placements during the quarter. Gross margin was approximately flat during the fourth quarter of 2022,driven by consumable and extended warranty credits as well as higher costs associated with the installation, training and support of our first system placements. Operating expenses for the fourth quarter of 2022 totaled $22.5 million compared to $19.7 million for the fourth quarter of 2021. These totals included noncash, stock-based compensation expense of $3.1 million in Q4 2022 and $2.9 million in Q4 2021.

The year-over-year increase in total operating expenses was driven primarily by scaling headcount and infrastructure to support our growth, including the G4 launch, product pipeline and R&D road map. Net loss for the fourth quarter of 2022 was $21.1 million or $0.29 per share compared to $19.8 million or $0.27 per share in the fourth quarter of 2021. Our weighted average share count for the quarter used to calculate net loss per share was approximately $71.6 million. And in cash, cash equivalents and short-term investments, excluding restricted cash, totaled $244.6 million. Turning to directional comments on 2023. As Drew mentioned, we’ve been excited by recent customer feedback, and we believe our value proposition is resonating more than ever.

We believe it will be essential to focus on and support early placements, and we intend to moderate G4 placements in the first year of launch as appropriate. As such, we expect the G4 placements in the first half of the year to be lumpy and trends around the lower end of the range as previously discussed. One of our highest priorities is to ensure the installation, system bring up, training and support experiences are positive. This is foundational to our long-term success as we are still in the early days of establishing credibility as an emerging company in the space. We expect 2023 investment related to our product priorities to increase across commercial, manufacturing, operations and R&D. However, we are mindful of the macro environment and need for focused capital management.

Our intent is to manage existing resources to extend cash runway into the second half of 2025. Thank you, and back to Drew for closing remarks.

Drew Spaventa: Thank you, Dalen. In closing, I want to reiterate the themes of today’s update. First, I’m incredibly proud of the Singular team in 2022. It was a busy and productive year filled with many milestones for our company. We brought the G4 to market, placed initial systems in customer labs and generated our first revenues, all while navigating challenges in scaling the supply chain and manufacturing. Second, recent product announcements like the Max Read kits for single cell sequencing and spec improvements in quality and throughput for the F2 and F3 flow cells have enriched our portfolio, continuing to differentiate the G4 from the competition. Customer interactions and feedback from prospective partners continue to validate product market fit.

Simply stated, we built the right system. And third, we’re excited about the opportunities in front of us for 2023, a year in which we will largely measure success across four pillars: First, commercial execution in the form of installed base revenue and customer satisfaction; second, G4 TAM and product market fit, evidenced by customer profiles and growing adoption in our target market segments; third, operational excellence measured by our ability to improve manufacturing efficiency, manage supply chains and deliver high-quality products at greater scale; and fourth, innovation pipeline, which in 2023 includes bringing additional G4 kits to market and advancing R&D on the first in-situ sequencing platform, the PX. Now let’s open it up to questions.

Operator?

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Q&A Session

Operator: Thank you. Our first question is coming from John Sourbeer with UBS. Please post your question.

John Sourbeer: Hi. Thanks for taking the question. Maybe just digging into a little bit of the manufacturing headwinds that you had there. Do you see these now behind you and resolved? And just, I guess, on that to clarify, it sounds like you’re going to be at the lower end of that 2 to 4 for months. Initially for the first half of the year is what your thinking is for instrument placements?

Drew Spaventa: Yes. Hey, John. Thanks for the question. I guess I will take it in two parts. On the manufacturing side, we made tremendous progress. We talked about it in the prepared remarks. Significant progress, but still work to be done. Anytime you’re developing, deploying a complex instrument, you’re going to learn things in the field when you have instruments in your first few customers’ hands running repeatedly that you didn’t see internally, they break things in new ways. So there’s obviously going to be ongoing improvements there. Also improvements on how long it takes us to manufacture, which we build an instrument and then bring up, which is kind of testing and hand off to either internal customer or external. There’s definitely going to be improvement on how quickly we can do that.

It’s measured in weeks and we have internal goals to get the current time down even further. We mentioned 25% improvement from where we were at the end of last year to where we are now. On the instrument side, yes, we will be on the lower side in the first half of the year. We took a little bit of a pause to apply learnings from the first five shipments for the first part of Q1. And we expect kind of Q1 and Q2 to kind of be on the lower side with much more, kind of steeper ramp in deployments moving into the second half of the year.

John Sourbeer: Thanks. That kind of leads to my next question. Just any additional color on learning maybe across software, installation or feedback from those initial five customers out there that you can share with us?

Drew Spaventa: Yes. Yes. I mean, overall, everyone is really happy. And the sequencers are up and running, producing data. And we have five happy customers that will service five reference sites. I think that’s an important point. We want every early placement, every placement for the foreseeable future to be a reference site. The learnings really are across the board, shipping. How do you make sure you ship an instrument and you don’t have to spend extra time once it shows up, making sure it’s calibrated or it wasn’t damaged in shipping. Installation learnings, learnings on customer bring up, and then ongoing support. And then there’s also learnings obviously on the instrument side, certain areas of robustness and reliability, a lot having to do with customer training, packaging and kits.

I mean it’s really across the board. Overall, we’re exactly where we want to be, and they’re working very well and producing high quality data. But there’s also learnings that you want to apply before you put more units out there and make sure that you have that consistency of customer experience before you really go pedal to the metal on putting units out there. So we are just working through that as kind of we expected and feel really good about where we are. And that’s kind of the learnings are really across the board.