Bionano Genomics, Inc. Q2 FY2025 Earnings Call

Good day, and welcome to the Bionano Second Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Kelly Gura from Investor Relations.

Thank you, and good afternoon, everyone. Welcome to the Bionano Second Quarter 2025 Financial Results Conference Call. Leading the call today is Dr. Erik Holmlin, CEO and Principal Financial Officer of Bionano. And he is joined by Mark Adamchak, Bionano's Vice President of Accounting and Principal Accounting Officer. After the market closed today, Bionano issued a press release announcing its financial results for the second quarter of 2025. A copy of the release can be found on the Investor Relations page of the company's website. Certain statements made during this conference call may be forward-looking statements. Actual results may differ materially from such statements due to several factors and risks, some of which are identified in Bionano's press release and Bionano's reports filed with the SEC. These forward-looking statements are based on information available to Bionano today, August 14, 2025, and the company assumes no obligation to update statements as circumstances change. During our call, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors. A reconciliation of these measures to GAAP can be found in our press release and slide deck. An audio recording and webcast replay for today's call will also be available online on the company's Investor Relations page. With that, I will turn the call over to Erik.

Thank you, Kelly, and good afternoon, everyone. The second quarter of 2025 was solid. Today, in addition to discussing our quarterly results, we want to highlight several signs that we believe indicate the strategic shift we implemented in September of 2024, moving our focus from heavy spending on customer acquisition associated with new instrument placements toward those customers who use our optical genome mapping or OGM products and our VIA software routinely inside their genetics, having a positive impact on our business. I would like to start off by discussing the broader markets where our opportunities lie. In general, our focus is on bringing solutions to pathology, which is the broad field that investigates disease, including its causes, developments, and effects. In fact, Bionano has become a digital pathology company. While there are many branches and subspecialties of pathology, our solutions concentrate primarily on cytogenetics and molecular pathology; we can see an opportunity to expand into clinical and anatomic pathology over time. Clinically, these branches of pathology globally currently rely on multiple technology platforms to function. The mainstay in cytogenetics, for example, is karyotyping. It's the standard for first-line analysis in hematologic cancers in nearly every country around the world, and it hasn't changed in the past 50 years. Other techniques such as FISH and microarrays are similarly antiquated and limited. Optical genome mapping consolidates these workflows and the fusion analysis from molecular pathology into one digital workflow. Sequencing is also impacting pathology with multiple workflows already adapted to sequencing, and techniques like single-cell spatial and protein analysis showing promise for standardized sequencing readout that may eventually reach clinical scale. It's possible to imagine a large consolidation across molecular, anatomic, and clinical pathology into sequencing as well. One critical component that will underpin this transformation and consolidation in the future is AI-driven software, such as our VIA software. VIA streamlines the visualization, interpretation, annotation, or reporting of variance in a format that is easy for clinical researchers to use. VIA is best-in-class for OGM analysis and widely accepted as a gold standard for CNV analysis for microarrays and sequencing. Some labs running long-read sequencing have shared their excitement about using VIA for their data analysis as well, which is particularly encouraging. Our mission is to make our technology and workflows easy for customers to use. While we still have a lot of work to do, we have made tremendous progress and see substantial opportunity to advance this area of digital pathology, both now and in the future. With that overview, I'd like to shift gears and talk about our current strategy, where we are concentrated on driving utilization of our solution within a subset of our OGM and VIA user base. We call these users routine users. These customers tend to have an established flow of samples to run on our systems, and we believe this group will drive most of our revenue and profit growth in the near term. Our strategy to address them has four pillars, which form the basis of how we execute. First, we support and sustain the installed base of routine OGM and VIA software users. Second, we drive utilization through the adoption of VIA software across the routine OGM user base and facilitate their menu expansion. Third, we build support needed for optical genome mapping reimbursement and inclusion in medical society guidelines and recommendations. And fourth, we are focused on improving profitability and scalability by lowering costs and driving higher volumes. Now taking a closer look at our results in the second quarter, where we have made excellent progress against this new strategy. Total revenue for the second quarter was $6.7 million, a decrease of 13% when compared to the second quarter of 2024, which included $700,000 in revenues from discontinued services, which do not contribute to our second quarter 2025 revenues. When adjusting for these discontinued clinical services, the revenue decrease was 5% year-over-year. Now we sold 7,233 flow cells in the second quarter of 2025. This amount reflects a 17% increase compared to the same period last year. We're extremely pleased to see this double-digit growth in flow cell sales year-over-year, and we believe it's a strong indicator of our efforts towards driving utilization within this routine customer group. Now non-GAAP gross margin for the second quarter of 2025 was 52%, which is significantly higher than the 35% non-GAAP gross margin reported a year ago. Second quarter 2025 non-GAAP operating expenses were $8.8 million compared to $18.8 million in the second quarter of 2024, which reflects a 53% reduction year-over-year. And we installed seven new optical genome mapping systems in the quarter and brought back eight for a net decrease of one in the installed base to 378 systems installed. That reflects an increase of 4% over the 363 systems installed as of June 30, 2024. In the first half of 2025, through June 30, we have installed 16 new systems. And we ended the quarter with $27.4 million in cash, cash equivalents, and available-for-sale securities, of which $11 million was subject to certain restrictions. Now the fundamental thesis of our current strategy is that we can support a committed group of routine users who repeatedly purchase and use our consumables and software at higher rates overall. We're taking a closer look at two metrics: the number of flow cells sold and revenues for consumables and software combined; we can see support for this idea. Flow cells, as we reported, grew 17% in the quarter compared to last year. And we can look deeper into that number by removing the number of flow cells sold to new customers in the second quarter of 2024 and 2025. And in doing so, the number of flow cells sold to the remaining existing customers grew by 14%. So growth for flow cells sold to the existing customers in the first half of 2025 compared to the first half of 2024, overall, has grown by 7%. We believe these data suggest that existing customers are using the product and repurchasing it at higher volumes. We intend to continue our efforts to expand this growth. For recurring routine-use revenue, we looked at the combination of consumables and software sales, which grew 16% year-over-year in the second quarter of 2025 and 8% year-over-year for the first half of 2025. As a percentage of the total product mix, consumables and software revenue increased from 55% in the second quarter of 2024 to 73% in the second quarter of this year, and from 57% in the first half of 2024 to 77% in the first half of 2025. We believe this shift is driven by growth in utilization as well as a reduction in new instrument sales, both of which are key elements to our strategy. Moving down the P&L, we are also focused on operating efficiently to reduce costs and improve our gross margins to make the business more profitable. We have made noticeable progress reducing our non-GAAP operating expenses really since the first half of 2023. In fact, we have taken out over $100 million of annual non-GAAP operating expense and materially reduced headcount over that period by more than 300 people since the second quarter of 2023. In the first half of this year, non-GAAP operating expense was roughly flat at $8.5 million for Q1 and $8.8 million for Q2, with Q2 representing a 53% year-over-year reduction. Turning to non-GAAP gross margin; cost reduction, along with improvements to our product manufacturing costs have enabled margin expansion from 23% back in the first quarter of 2023 steadily to 52% this quarter. It's the first time that we're reporting a margin in this range for this product mix. We expect to see continued margin expansion over time but expect to remain around the current levels for the near term. Importantly, these improvements in cost and margin are strong indicators that we are improving our financial profile. Turning now to a few key milestones in the quarter, which we believe are tied to our strategy and will enable our customers to more easily adopt and increase their use of OGM. We released an incredibly powerful update to our software suite and compute solutions with VIA 7.2, Solve 3.8.3 and updates to the software that enable our GPU-based Stratys Compute platform. They have all been released in a first wave to select customers, and we expect a broad commercial release later this year. In fact, installations have begun. Amongst key features, VIA 7.2 now offers the same transformative, AI-driven workflow users have adopted for hematologic malignancies to the workflow for analysis of constitutional genetic disorders, which we believe can be a game changer for analysis of these conditions. Solve updates expand its database substantially and improve the accuracy of structural variant detection, while updates to the Stratys Compute are expected to double its capacity for weekly analysis of cancer samples. We are making the OGM workflow easier with these advancements. Now in building the support needed for OGM reimbursement, we believe a growing number of publications illustrating the utility of optical genome mapping in cytogenetics and the number of clinical research genomes published are positive leading indicators. The second quarter of 2025 had the highest number of publications in any quarter in the history of optical genome mapping. And the optical genome mapping community has now surpassed 10,000 published clinical research genomes, which is an incredible milestone. These publications provide the support for new customers to adopt existing customers to expand applications and for third parties to support OGM in reimbursement. This June, in fact, the Editorial Board of the American Medical Association established a second Category I CPT code for OGM, this one for use of OGM in evaluation of constitutional genetic disorders, which is yet another incredible milestone for our community. We believe this CPT code may pave the way for even more routine use of optical genome mapping and cytogenetics as part of this digital pathology strategy. To wrap up, I would like to provide our outlook for the remainder of the year. We are reiterating our full-year revenue guidance of $26 million to $30 million. We expect Q3 revenues to be in the range of $6.7 million to $7.2 million. And given the 16 new OGM systems installed already in the first half of the year, we are raising our expectations for new OGM installations in 2025 to be in the range of 20 to 25 compared to the prior range of 15 to 20. So with that, Deedee, please go ahead and open the line for questions.

Our first question comes from Jason McCarthy of the Maxim Group.

This is Michael Okunewitch on the line for Jason. Congrats on the great progress. So I guess I wanted to ask with regards to VIA, how universal is the use of VIA software among the OGM users? Is it fairly one-to-one over there? Or are there some opportunities to expand VIA use among your existing OGM base?

The answer is that when we look across the entire installed base of OGM systems, VIA is likely installed in about one-third of them. However, among our routine-use customers, the adoption rate is significantly higher. There is still an opportunity to drive further adoption, which we believe can help us increase utilization. Even at the sites that have adopted it, not all of them have integrated it into their routine use. This is a major focus for us in terms of training, and we believe that the new updates will assist by introducing this workflow for constitutional genetic disorders. Therefore, while adoption is robust among the customers we are currently concentrating on in this routine-use context, there remains a substantial opportunity to install it at additional sites and enhance utilization across all those sites.

Are you putting any effort towards marketing VIA in non-OGM users? You mentioned there are a couple of people out there using VIA for applications like long-read sequencing. And do those customers represent an opportunity for cross-selling to place OGM units without the high acquisition cost of going out and finding completely new users?

I think the answer is yes. And let me just be clear, in the quarter and over the course of the year, we do sell a substantial amount of software for non-OGM applications, structural variation detection, analysis, reporting off of NGS and microarrays. And so that's a significant portion of the business. And we do believe that those customers who are using VIA for non-OGM applications can expand their relationship with the company and become OGM users. And so yes, maybe you could say it's a little bit of a Trojan horse. There are some intricacies about how labs within the pathology universe are constructed and how samples flow. And so it's not a one-for-one where you would expect to see direct adoption, but it certainly is an opportunity. And I think really, VIA performs incredibly well for these applications. And so it's a way for the Bionano name to be present at institutions.

All right. And then just one last one for me, and I'll hop back into the queue. You did mention that the newest iteration of VIA does include an AI component. So what role does AI play in the VIA software?

When you think about what happens in this workflow, and I think you have probably worked on some of these projects, when variants are identified, it's possible that they have been seen before and so that there are publications associated with them. Similarly, there may be other labs that are looking for variants of this type. And then there are a variety of databases that exist that can score and categorize these variants and help researchers to determine ways in which they want to report these variants. And so this type of analysis of these databases is an example where the computational power that AI brings can accelerate and improve the results that are generated through this analysis.

All right. Thank you for the insightful answers and congrats on the great progress this quarter.

And our next question comes from Yi Chen of H.C. Wainwright & Company.

So your press release mentioned that you brought back eight systems during the quarter and placed, installed seven new systems. So I assume the eight systems you brought back are users that are not routine users, correct?

Yes. We have a reagent rental program, and so labs can bring a system on and test it out and evaluate it. And in the cases of these examples, they went through their rental contract. And at the end, decided that they were not going to move forward. I think that one common theme amongst the majority of the systems that are returned is that the initial application is much more of a research-oriented application. And so I think in the current environment where there are a lot of constraints around funding, I think that may be one of the effects, but we shouldn't think of that as a reduction to the routine-use customer pool.

So the new systems you placed in the second quarter or the coming quarters all have to go through the evaluation period too. At the end, they have to decide whether they want to keep the system or return it. Is that the right idea?

It depends somewhat on how the customer contracts with the company. If they rent the instrument, committing to a set volume of consumables over time, they can have it for a minimum of one year, and there's a possibility of returning it after that year. If they purchase the system, they own it and can choose whether to use it going forward. We have a mix of rentals and purchases, and currently, it's about evenly split between the two. It is also true that customers who rent have the option to discontinue their rental at the end of the contract, which is quite common in the industry.

Got it. So at this point, I don't know if you can provide a rough estimate as to the return rate among the new systems placed or attrition rate. Like what percentage of new systems placed will eventually be returned?

It's a good question. When we consider the new systems being implemented, it's a bit early to discuss the return rate among these current users because they represent a change in our strategy. We're not selling the system to labs engaged in speculative research, so we expect these systems to remain with the customers. While there may be a chance of returns, it's too early to provide a specific return rate for this segment. It's not zero—we have accepted some returns—but it's very close to zero.

I see. And with respect to the second Category I CPT code from AMA, could you tell us how is it different from the first code? And how is it going to facilitate the reimbursement going forward?

That's a great question. We are focused on consolidating cytogenetics into optical genome mapping, which involves two distinct applications: analyzing samples for hematologic malignancies and analyzing samples for constitutional genetic disorders. Although the methodology is similar, the workflows differ enough to justify separate CPT codes. There may also be variations in pricing. We expect to see draft pricing for the constitutional genetic condition code sometime in September. The code for hematologic malignancies has been priced at $1,263, and some of our customers have requested CMS to increase that price. While we would have preferred a single code from the outset, the process has shown that having dedicated codes for each application is beneficial, as the reasons for conducting these analyses are quite different, supported by distinct bodies of literature, which could influence pricing. We'll be keeping an eye on this in the coming weeks.

Our next question comes from Mark Massaro of BTIG.

This is Vidyun on for Mark. So I think the instrument placing guidance assumes a slight detail in the back half. Should we just think of that as conservatism? I would think that there might be a slight budget flush dynamic in Q4. So just how should we be thinking about that?

I think that, probably, yes, conservatism, right? If you double the first half, you would get 32%. On the other hand, it's probably appropriate to be conservative because even if you get a budget flush and there are orders and so forth, you're actually getting them installed could spill over into the first quarter of 2026, for example. So I think I would say that I feel very confident that we'll sort of meet this new raised guidance.

Okay. That's perfect. And then just a follow-up on the flowcells. I think you beat us there. I think you alluded to it in the prepared remarks, but could you just discuss one more time what you think drove that? And do you have a sense on how long it takes the newer customer group to reach maturity and kind of ramp their utilization there?

Yes. Really good questions. I mean I think that to be fair to you and to us and to everybody who's following the trajectory here, we expect there to be lumpiness. And the sort of routine-use user base is sizable, but it's not so big that it will just be smooth; so we expect there to be some lumpiness. Having said that, we have really focused on supporting customers to make sure that they're up and running and addressing those customers with the highest potential for utilization. Our trading programs on the VIA software and other aspects of the workflow in key applications like hematologic malignancies are underway, and this is a big concentration for us. And so I think that there have been a lot of good execution-oriented actions that we've taken, and that those are paying off, and that's why we're seeing that growth. In addition, and sort of transitioning to your question a little bit about the time to get up to speed, we had a pretty substantial number of systems get installed and people get trained towards the end of last year. And so we're probably starting to see that utilization. And I think that the time to a lab getting into a routine-use situation with OGM; it's going to be variable. It's without a doubt a minimum of three months, but I think six to nine months is a healthy time frame to be thinking about. There's just a lot of stuff that needs to happen after install that is related to requirements that the lab needs to follow depending on what their desired application is. And so it takes some time. Having said that, almost every system that goes out buys consumables upfront, and so they're churning through a wave of consumables to begin with. And it's like, when do we get them to that point of their first repurchase? Again, I think that, that's likely in that six-month time frame. Maybe six to nine months is a good way to think about it.

Okay. That's very helpful. If I could just squeeze in one last one, just maybe a higher-level question. There has been some pickup of deal-making in our space a little more recently. Just how are you thinking about strategics or partnerships here?

Well, look, I mean, I think that there's the cliché answer; every day between the hours of 9:30 and 4 Eastern Time, the company is definitively for sale. And we're a well-known entity out there. So I would expect that Bionano is certainly on the radar screen of strategics. And we have a variety of discussions that are ongoing all the time. And I think what's unique about Bionano across the space of companies, let's say, that are similarly situated to us. Early commercial stage, maybe feeling some of the constraints and difficulties of the current equity capital markets. I think Bionano is pretty far advanced. So even with everything that we've gone through, we're printing a $6.7 million quarter and guiding $6.7 million to $7.2 million for the next quarter. I think $26 million to $30 million on the top line, 52% gross margin with expenses that are no longer so significant that folks can't see a way to fold Bionano in. Having said that, I think we're very committed to our strategy of this digital pathology transformation. We know it's going to be incredibly valuable and that there's so much upside for our business, so we sort of stick to our knitting, if you will.

Thank you. This concludes our question-and-answer session. I'd like to pass it back to Erik Holmlin for closing remarks.

Okay. Thank you, Deedee, and thank you to everyone who joined. We're very happy with this quarter, and we look forward to updating you on our Q3 conference call. Thank you very much.

This concludes today's conference call. Thank you for participating, and you may now disconnect.