Standard BioTools Inc. (NASDAQ:LAB) Q4 2023 Earnings Call Transcript February 28, 2024
Standard BioTools Inc. beats earnings expectations. Reported EPS is $-0.08, expectations were $-0.13. LAB 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, everyone, and welcome to Standard BioTools, Inc. Fourth Quarter and Full Year 2023 Financial Results Conference Call. As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, David Holmes from Investor Relations. David? Please go ahead.
David Holmes: Thank you, operator, and good afternoon, everyone. Welcome to Standard BioTool’s fourth quarter and full year 2023 Earnings Conference Call. Leading the call today is Michael Egholm, President and Chief Executive Officer; Jeff Black, Chief Financial Officer; and Adam Taich. Chief Strategy Officer. At the close of market today, February 28, 2024, Standard BioTools released its financial results for the quarter and fiscal year ended December 31, 2023. During this call, we will review our results and provide commentary on our financial and operational performance, 2024 outlook, market trends and strategic initiatives. During the call, we will make forward-looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, our outlook for 2024 and future financial results, market trends and opportunities and our expectations related to the combined operations with SomaLogic including potential synergies and our business outlook for the combined company.
These statements are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from current expectations. The forward-looking statements in this call are based on information currently available to us, and we disclaim any obligation to update these statements, except as may be required by law. During the call, we will also present some financial information on a non-GAAP basis. We believe these non-GAAP financial measures are useful in evaluating our core performance and as a baseline for assessing the future earnings potential of the company. We use these non-GAAP measures in our own evaluation of continuing operating performance. We encourage you to carefully consider our results on a GAAP and non-GAAP basis.
The reconciliation between non-GAAP measures and their GAAP equivalents are provided in the tables accompanying today’s press release and as an appendix to today’s presentation slides. Please note that management will be referring to a slide presentation, including updated supplemental financial information within the webcast today and will not host a Q&A session following their remarks. Today’s slide presentation, along with a replay of the webcast will be available on the Investors section of our website. I would like to now turn the call over to Michael Egholm, President and CEO of Standard BioTools.
Michael Egholm: Thank you, David. We greatly appreciate everyone joining us on today’s call. 2023 was our first full year of operations as Standard BioTools, and I could not be more proud of our team and this accomplishment. And one of the more challenging times for the life science companies in recent memory, our disciplined team of operators significantly reduced costs and cash burn, expanded gross margins and returned the declining business to growth. Add to this navigating a successful closing of the merger with SomaLogic, I can say that excitement, Standard BioTools has now fully activated the business thesis to build scale in a highly fragmented space while maintaining operational focus and recognizing the all-important maxim, no margin, no mission.
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Q&A Session
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With the recent completion of the SomaLogic merger on January 5, the pro forma combined business generated $192 million in revenue in ’23 and positions the combined company not only as a front runner in spatial biology but as a business with 3 highly differentiated technologies under one roof, representing certainly the broadest next generation of solutions serving the proteomics customer end market in the beyond genomics era. Factor in the $565 million in combined pro forma cash on the balance sheet at the end of 2023 and I can certainly say today we are full speed ahead. While it’s still early days with so much more to be done, I look back at 2023 as a year of foundation building and validation of our mission to become a diversified leader in life science tools and empower our customers to do better world-changing research.
During today’s call, I will review our strategic objectives and provide a summary of our 2023 performance against those objectives, briefly review our product portfolio and thoughts on our enhanced competitive position and finally, highlight critical near-term initiatives we expect will position the combined business for success. Following my comments, I’ll turn the call over to Jeff Black, who will provide a more detailed analysis of our fourth quarter and full year 2023 financial performance. At the conclusion of Jeff’s section, Adam Taich will talk on the integration process as we advance the combined business forward in 2024. To begin, let me restate our top three objectives, which are equally important and fuel each other, highlighting our progress in 2023.
These are the objectives that guide our strategy and execution and what we and you should measure our progress against. On [indiscernible], standardized and is still operating discipline and a culture of uncompromising focus with our lean operating approach known as the Standard BioTools Business Systems or SBS at its call. From this operational platform, we drive the organization to enhance business efficiency and drive profitability. To this end, we delivered meaningful progress in 2023 including 900 basis points of non-GAAP gross margin expansion at $20 million and 17% reduction in non-GAAP operating expenses and over $475 million and 53% improvement in operating cash use. On [indiscernible] create a scaled platform that profitably can deliver breakthrough enabling life science technologies and services for our customers.
As I stated before, without margin, there’s no mission and bringing together important solutions under one roof is crucial in the heavily fragmented and unprofitable life science tools space. We are amassing a broad portfolio of highly differentiated platforms, expanding our reach across a diverse set of customers and end markets and building a distributed business model that promises 60-plus percent gross margin across a mix of instruments of recurring services and consumables revenue. The model of being better together is really the only proven business model to date in our space and the recent merger with SomaLogic has activated that plan fully. With the operational team laser-focused on successful integration with SomaLogic, the business development team continues to identify new potential acquisitions in this broad landscape.
This includes emerging and compelling technologies, proven platforms, underappreciated businesses with stellar but overly burdened teams. Our goal is to approach these opportunities as partners and bring these products, businesses and people into the Standard BioTools family. We are careful but confident that when executed well, this strategy will not only diversify collective revenue and empower our customers with truly differentiated technologies, but will also fuel growth and gross margin at scale. This leads me to our third and critical objective, Fuel More growth. Against a challenging macroeconomic environment, I’m pleased to report the return of our core business to growth in 2023 with total revenue of $106 million, representing 9% growth over 2022 with instruments revenue up more than 40% year-over-year, led by placements of our new Hyperion XTi imaging system.
We see growth in instrument revenue as a leading indicator to drive future recurring consumables and services revenue across an expanding installed customer base. In addition, the SomaLogic team delivered solid revenue growth in 2023 with $86 million in total revenue and over 20% core revenue growth when excluding certain nonrecurring royalty revenues in 2022. SomaLogic also expanded its authorized site footprint from 8 to 17 in 2023 is setting us up for growth in the distributed kits business. On a pro forma basis, our business has delivered revenue of $192 million in 2023 activating a major step to achieving operating scale for the combined business. On this objective, I will add one comment given the industry has just emerged from that. Growth at all cost period while expanding market share and customer segment was pursued at the expense of business fundamentals.
While it may have made sense in the market flushed with cash, when capital dried up as it usually does, the underfunded and/or dose without a secure path profitability experience, existential risk and deeply discounted values. We at Standard BioTools recognize the need for growth, but also appreciate that it must be and will always be pursued with an eye to profitability and long-term shareholder value. We work for our shareholders and commit to you to build sustaining value. While we enable our customers to conduct distinct OMC research, we review the Standard BioTools business and distinct product categories, including instruments, consumers, field-based instrument service and now our SomaScan service. This offering serves our customers largely in academic research and biopharma across two scientific disciplines, polyomics and genomics.
Consumables are some of the most attractive products in life sciences with a target gross margin profile, north of 70%. Today, consumables represented over 39% of our 2023 revenue. Instruments are a larger capital expense product, but once installed, have long life cycles and service with future consumable pull-through. Our instrument business has a target gross margin north of 60% and today represents about 35% of our current revenue and grew 46% in 2023. We believe this is a leading indicator as new instrument sales generally lead to future growth of recurring sales of consumables and field-based services with attractive margins. And in 2024, the legacy SomaLogic becomes part of our revenue mix. Most of this revenue today is driven by our Somascan services businesses.
