Good day, and welcome to the Standard BioTools, Inc. First Quarter 2024 Earnings Conference Call. Please note, today's event is being recorded.

Thank you, operator, and good afternoon, everyone. Welcome to Standard BioTools First Quarter 2024 Earnings Conference Call. Leading the call today is Michael Egholm, President and Chief Executive Officer; and Jeff Black, Chief Financial Officer. At the close of market today, Standard BioTools released its financial results for the quarter ended March 31, 2024. During the call, we will review our results and provide an update on our financial and operational performance, 2024 outlook, market trends and strategic initiatives. During this call, we will be making forward-looking statements about events and circumstances that have not yet occurred, including plans, projections of 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 on 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 is 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, management will be referring to a slide presentation, including updated supplemental financial information within the webcast today. Following management's remarks, we will host a Q&A session. Today's slide presentation, along with a replay of the webcast, are available on the Investors section of our website. I would now like to turn the call over to Michael Egholm, President and CEO of Standard BioTools. Michael?

Thank you, David. We greatly appreciate everyone joining us on today's call after a successful first year of operation at Standard BioTools. And now on to our first full quarter with an integrated SomaScan platform and SomaLogic team. Integrating technologies is hard, integrating culture is harder, but this has been one of the smoothest of the dozens I've been involved in throughout my career. Thanks go to the management team at SomaLogic who leaned in and helped the operating team at Standard through the hard work of bringing diverse organizations and platforms together. It is a testament to both cultures and a clear recognition that each believed in the statement that we are indeed better together. So thank you to everyone involved. Now on to the realization of that teamwork on the power of scale in life sciences. We are ahead of plan on our operating synergy target and now expect to achieve EUR 50 million of the EUR 80 million expected synergies we projected by the end of this year. Next year, we'll capture the remaining $30 million of that initial synergy target. As an organization, we are laser-focused on reducing cash burn and accelerating profitability while maintaining long-term growth prospects to focus investments in our commercial organization and our R&D pipeline. Importantly, in addition to the operational, technological, and financial leverage achieved in the combination, we are experiencing the early benefits of a more diversified revenue and customer mix. As our peers have discussed this quarter, it remains a challenging market for capital equipment sales in life sciences, perhaps one of the most challenging in the last decade. At Standard, while we are seeing similar headwinds, our consumable and service business, which now includes SomaScan and its high-quality service offering, are helping to smooth our growth while we continue to expand our overall corporate gross margins and reduce cost and cash burn. Now let's dive into our quarterly performance and some highlights from our product portfolio. In the first quarter, on a pro forma combined basis, we observed revenue growth of roughly 2% year-over-year. This is 80% revenue growth on an as-reported basis year-over-year with the impact of SomaScan revenue in 2024. This is largely in line with our expectation, considering the aforementioned ongoing macroeconomic challenges impacting the life science industry with extended sales cycles, which again pushed some instrument purchases beyond Q1. Importantly, with the benefits of cost rationalization, we delivered a 26% reduction in non-GAAP operating expenses and a 45% adjusted EBITDA improvement on a pro forma combined basis. This is the power of the Standard BioTools model, actively pursuing M&A as an augmentation to organic growth, building scale in a highly fragmented space, and using that to achieve operational leverage. Our expanded portfolio offers products across multiple distinct categories, including instruments, consumables, field-based services, and now our SomaScan service. To give you a sense of our sales mix this quarter, on a pro forma combined basis, instruments accounted for approximately 11% of revenue in Q1, consumables and kits made up 40%, instrument support service is 13%, and SomaScan service is 34%. Importantly, our combined recurring sources of consumable and instrument support services revenue, bolstered by our extensive service and kit offerings, represented about 90% of total revenue, which served as a nice offset to softer capital equipment purchases. While our SomaScan business is still concentrated in a few key pharma accounts, where revenue can be lumpy and is dependent on timing of projects and available budgets, these expanded revenue services further enhance our diversification. The more diversified we become, the better we can navigate capital sites like the one we currently find ourselves operating in. Furthermore, these offerings cater to a broad customer base across academic research in biopharma, positioning us well for sustained growth in these large and attractive markets. We believe the key opportunity to leverage our combined technology platforms for future offerings, particularly expanding our existing lab service business into a multimodality offering providing customers premium data with clinical solution support in a model we call multi-omics as a service. This approach is a natural extension of what we are and provides a quicker path to technology adoption while avoiding some of the capital budget constraints currently facing the broader biopharma market. We are also exploring new models to sell SomaScan both with a lower plex, more cost-effective model and a single SOMAmer reagent. One of the most exciting aspects is the early traction from our partnership with Illumina, which will broaden market access to the Illumina NGS partnership. We are off to a strong start as Illumina began its early access program with a small number of customers in the first quarter. Early feedback has been overwhelmingly positive. As a reminder, this jointly developed product allows customers to run the high plex SomaScan and utilize the installed base of next generation flow cytometry readout. As demonstrated by our successful authorized program, there's clear demand from our customers to be able to run the assay on a distributed basis or kit basis. The teams from both companies are working closely together, and Illumina is on track for a full commercial release in early 2025. Standard BioTools is a true enabler for scientists, allowing them to answer the most difficult questions they have. While we focus on building omic solutions, our job is to supply services, instruments, and consumables for researchers to produce the omic answer that's relevant to their scientific question. This is how we fundamentally look at our business and business units. If you look at our business today through an omic lens, our performance was as follows: proteomics accounted for roughly 80% of our total revenue this quarter, representing a 3% increase year-over-year. We continue to lead with the industry's most comprehensive and differentiated proteomics platform, comprising high plex plasma proteomics, flow cytometry, and spatial biology. Despite the modest year-over-year growth, we have high conviction that these technologies represent exciting near- and long-term growth opportunities due to innovative applications and strong end-market demand. Our genomic solutions are currently in decline. As discussed before, we manage our legacy microfluidic solutions for profitability, not growth, while down 6% year-over-year. The bright spot is our strategic transition to use this technology as an OEM provider and strategic enabler to a core set of customers. Including another leading proteomics company, which currently has approximately 200 of the OEM instruments in the field, again dependent on our microfluidics consumables. Finally, we have been laser focused on strategic capital allocation to drive long-term value creation. We are committed to targeted investments in our existing technologies and platforms and to M&A, of which we have a full pipeline of potential partners. We also preserve shareholder value via share buybacks and opportunistically simplifying our capital structure. To that end, in mid-March, we announced an agreement with our two largest shareholders, Viking Global and Casdin Capital, to exchange all outstanding shares of the CSB convertible preferred stock for shares of common stock and eliminate all associated CSB preferred rights and privileges. Coupled with our share buyback, these actions represent major steps forward in streamlining and simplifying our capital structure, which we believe will ultimately make us more attractive to new long-term investors and potential M&A partners. Standard BioTools today is a growing leader in the life science tools sector, which remains fragmented, under-resourced and for most companies unprofitable. Today, I'm excited to address you as a unified company with a fortified balance sheet, a diverse product mix, and a scaled platform that integrates critical life science solutions under one roof and equally important on a firm path to profitability in early '26. Looking ahead, we are reaffirming our full-year revenue guidance of $200 million to $205 million for '24, and we are on track to achieve approximately $300 million in revenue in 2026.

Thank you, Michael, and thank you all for joining our call today. As a reminder, our first-quarter results on an as-reported basis include the combined operations of Standard BioTools and SomaLogic since the close of the merger on January 5 of this year, while the first quarter of 2023 as reported includes the financial results of the Standard BioTools legacy business only. So for comparative purposes, we think it's much more meaningful to look at the combined results of operations for both businesses. My commentary today will focus on the pro forma combined results for both Standard BioTools and SomaLogic for both the first quarter '23 and '24, and that includes the stub period between January 1st, '24 and the close of the merger on January 5th. As a reminder, please refer to today's press release and the appendix to our investor deck for more information, including a reconciliation of GAAP to the non-GAAP measures I'll be discussing here. So starting off with revenue. In the first quarter, our pro forma combined revenue was just over $46 million. It grew about 2%, as Michael said, largely in line with expectations, all while continuing to navigate the lingering headwinds from a challenging macroeconomic environment. The SomaScan-related business contributed about $24 million in revenue for the quarter, growing over 20% and that's on healthy demand from SomaScan customers, growth in our kits business to authorized sites, and the initiation of the early access program with Illumina, which, as Michael mentioned, is on track for full commercial launch in 2025. And again, not only do we see the SomaScan-related business as a growth driver for us, it's also a valuable source of revenue diversification for the combined business, and we saw that reflected in our first-quarter results. On the Standard BioTools, instruments, consumables, and instrument support services side of the business, revenues were $22 million, down 12% over last year, and that's due primarily to the lingering economic headwinds we mentioned, most notably affecting capital budgets in both biopharma, academic research, as well as continuing pressure outside the U.S. With that said, we do see a robust and growing pipeline of opportunities. We expect to return to growth in the second half of 2024 as macroeconomics are expected to improve and budgetary constraints begin to lift. Overall, consumables and services in both proteomics and genomics were impacted by our pre-2023 declines in our legacy installed base, and we do expect to see pull-through begin to expand in late 2024 as our '23 and '24 installations continue to ramp up. Proteomics as a whole was up 3% year-over-year, while genomics was down 6% as we continue to manage this business through its planned transition. We've now rightsized our operating expenses in genomics to a positive contribution margin and will continue to drive profitable growth in that segment. Moving on to our operating performance. On margins, our non-GAAP gross margin on a pro forma combined basis expanded by 300 basis points from 53% to 56%, driven by a combination of product mix and pricing. But it's also important to note that this includes over 350 basis points of offset due to the classification of certain operations, services, and quality-related operating expenses that we moved into COGS to align accounting policies between Standard BioTools and SomaLogic as a result of the merger. We expect this will have a similar impact on gross margin for the full year in 2024. As we stated before, we continue to make significant strides in aggressively managing residual headwinds related to legacy service and warranty-related costs. Often on a customer-specific basis, we expect this could continue to create pressure throughout 2024, but we remain confident in our ability to drive our non-GAAP gross margins into the mid-60s over time, especially as we move past these transitory headwinds, grow sales, and drive cost improvements through continued deployment of SBS and lean principles across our combined operations. Moving to operating expenses, we are very pleased to report that we are ahead of plan on our operating expense reduction initiatives. On a combined pro forma basis, non-GAAP OpEx of just over $49 million decreased by about $17 million or 26%, reflecting early traction on expense reduction initiatives that began in the second half of last year. Keep in mind that our first-quarter OpEx excludes about $1.7 million of expenses related to the classification of OpEx in COGS, as I mentioned. But even excluding this impact, our combined non-GAAP operating expenses were down over $15 million or 23%, and that's before we see any impact from the operational restructuring initiatives that we recently implemented. As a reminder, on overall cost out, we've previously announced our intention to remove $80 million in non-GAAP operating costs compared to our jumping-off point of $250 million, based on the combined first half 2023 run rate. We broke out that target reduction as follows: $40 million in G&A, $20 million in R&D, and $20 million in sales and marketing. We also previously announced that we expect to achieve the full $80 million in annualized cost synergies by fiscal '26, with at least 50% or $40 million operationalized in 2024, and the full P&L impact of those savings reflected in '25. Based on our recently announced reorganization and restructuring initiatives, we now expect to have operationalized $50 million in annual operating expense savings for the full year in 2025, with $40 million to $45 million coming from SG&A and $5 million to $10 million from R&D, net of a number of planned focused reinvestments. We expect approximately $20 million to $25 million of these savings to show up in the P&L in 2024, with the full P&L impact reflected in 2025. Based on these efforts, we are very enthusiastic, more than ever, about the value we expect to generate under our combined cost structure, leveraging the scale and reach of our portfolio and managing to a positive adjusted EBITDA target in 2026. Meanwhile, we believe we will continue to maintain focused investments in our commercial organization and our R&D pipeline to support sustained long-term revenue growth. That brings me to cash flow and the balance sheet. We ended the first quarter with about $464 million in cash equivalents, restricted cash, and short-term investments. As expected, cash burn was unusually high in the quarter due to several merger-related and other non-operating uses of cash. In the aggregate during the first quarter, we made about $70 million in cash payments for settlement of year-end operating accruals, merger-related expenses, term debt retirement, and share repurchases. Excluding the impact of these items, our adjusted operating cash burn was about $29 million, representing about a $5 million or 14% reduction over pro forma combined burn a year ago, before the impact of any of the cost initiatives we recently announced. Some of this quarter's burn is a function of the timing of payments for merger transaction costs. When we announced the merger last October, we gave an expected 2023 year-end cash outlook of around $500 million. We actually ended the year at $565 million, with a big driver of this difference being payments that we expected to make in '23 that were pushed into the first quarter. We expect our operating cash burn to reduce significantly over the next few quarters. While not at the levels that we saw in the first quarter, we expect continued cash outlays for merger-related costs, restructuring activities, as well as additional share buybacks we've executed since the end of the first quarter, before having recently terminated that program. We're well-positioned to fund both these non-operating cash needs and support the combined business to cash flow breakeven, with a target of 2026. Lastly, regarding any future funding for M&A, you can remain assured that we'll be thoughtful about additional strategic M&A when such opportunities arise, including the related use of cash. One final update on our capital structure initiatives: As we previously announced in February, the Board approved a new share repurchase program of up to $50 million. With our enhanced balance sheet, this has enabled us to repurchase common shares to offset future dilution from possible future equity issuance arising from our convertible debt and other instruments in our capital structure. We saw this as responsible housekeeping, providing flexibility to preserve long-term shareholder value. Including the $11 million in share buybacks through our first quarter, year-to-date, we purchased approximately 13.6 million shares, or about 3.5% of our common outstanding shares, for a total of about $36 million in cash at an average repurchase price of $2.68 per share. While we still have room available under the $50 million plan authorized by the Board, we did terminate the existing buyback plan on May 2. In summary, we are executing our operating and financial objectives. We remain responsible stewards of our assets and are committed to creating long-term value for our shareholders.

And the first question comes from Matthew Stanton with Jefferies.

Maybe to start with you, Michael. You mentioned that the early findings from Illumina are overwhelmingly positive. Could you elaborate on the initial feedback and highlight some key proof points? How should we approach the commercial launch in 2025? Clearly, it’s not a simple switch; there are onboarding and ramping up considerations. Additionally, can you quantify the contribution from Illumina or early access to Soma in the first quarter, if possible?

Yes. I'll let Jeff follow up on the last part of the question. So the teams have been hard at work for quite a while at this. And so putting a version of the assay in the hands of customers will be the first leap, essentially able to reproduce what we've been doing internally while maintaining that very high hit rate on many proteins and a low coefficient of variation, which is what differentiates us. The full launch will be in early '25 as Illumina is communicating so far and will be based on the 11,000 assay. I would say I'm personally even more enthusiastic about this relationship than I was a few months back when I stepped in, having seen the early readout on the data and the value in having a partner like Illumina, whose market reach far exceeds ours. Regarding the timing and transitioning, we're still working through that. Net-net, we believe this will be a long-term growth driver. Just a reminder, there was a $30 million payment upfront, which remains on our balance sheet as unrecognized revenue. And so anything to add, Jeff?

Yes. To your question, Matt, on Illumina, we don't break out revenue specific to Illumina separately. But I can tell you, it's still early stages. It's a handful of customers, very low single-digit millions.

Okay. Great. That's helpful. And Michael, you talked about some of the updates coming out of the strategic plan regarding newer growth opportunities around multi-omic as a service, low plex, or single SOMAmer reagent models. Can you just talk about the timing around those as we think about those new growth opportunities and any investments or costs associated with getting those off the ground here?

Yes. Thank you for your question. As we are reporting now, the investments we are making, including the cost savings we've projected of $50 million, will be operationalized and will flow through by the end of the year, all while netting off investments in these initiatives. This is a really important point to note. Our strategic review confirmed and highlighted several tweaks to the strategy. Number one, was that SomaScan is highly advantageous. Unlike any other technology we see out there, it is scalable, and as we expand content, we maintain our low coefficient of variation without incrementing complexity or cost. This means that we will keep investing in that engine to expand content and put additional distance between us and the competition. Secondly, we observed significant customer demand for individual SOMAmers. We need to recognize these SOMAmers aren't like antibodies; they are another affinity reagent with approximately the same affinity and specificity, and we have 11,000 monoclonal human affinity reagents for human proteins. This represents a unique opportunity for us to start small and begin operationalization by the middle of the year, initially to our current customers and then offer much more broadly. We believe there is a strong pull internally but are beginning to see a much broader opportunity with SOMAmer as a routine reagent used for orthogonal validation to antibodies or as another option for researchers when they can't make an antibody work. The third piece recognized was the value of the service. We run a very sophisticated service that works with sophisticated customers and CROs. We have the entire workflow, from collecting samples from CROs to running them quickly and getting bioinformatics analysis and clinical guidance back to our customers. We expect to lean into this and add some of the other products that we have, most notably our flow cytometry solution, which we believe will be highly synergistic. Lastly, as I briefly mentioned in the script, we are already starting to look at how we can integrate our microfluidic solution as a readout and possibly expand the workflow in the long term. So, it may be a longer answer than what you were asking for, but we're excited after the strategic review.

I appreciate that. That's really helpful. I guess just a last segue to you, Michael. In terms of capital allocations related to M&A, you talked about a pretty healthy pipeline. Just speak to the appetite for deals, possibly the potential size of deals, and the general bandwidth of the team given the Soma integration and a lot of other heavy lifting you guys are doing behind the scenes?

Yes. Integration and successful integration is our top priority. Having said that, I’ve built a strong team over the last two years, so there's definitely capacity in the team. We can walk and chew gum at the same time. As I’m sure you are well aware, there is upheaval in the venture-funded part of the market, and we’re seeing more interesting assets being eager to work with us or eventually to be acquired. We will be highly disciplined and opportunistic. For the size, we won’t do anything that is so substantial that it jeopardizes our significant buffer between our current position and profitability. We will continue to pursue larger deals, as is evident from the disclosures we worked on the SomaLogic deal for 1.5 years plus.

And the next question comes from Dan Brennan with TD Cowen.

Maybe just high level on the guide for the year. Obviously, Mike, you talked about some of the CapEx challenges. The first quarter was a little better than you expected, but it does imply a nice steep ramp in the back half. So, just any thoughts on like Q2? I think consensus is at $48 million. Any thoughts on whether that’s about right? And then as you think about the growth implied in the back half of the year, any remarks on visibility or assumptions there?

Yes. We are confident in the long-term, even mid-term growth here. We are navigating, as we discussed with you previously, several transitory headwinds, including the tough capital expenditure market we’re seeing among all our peer companies reporting as well. Why are we confident? Our sales funnels are expanding, and I have not seen any cancellations; only purchases being delayed. Additionally, we’ve managed through some of the headwinds. Last but not least, at the AACR last month, we launched an extension of our Hyperion XTi, a new imaging mode that is very fast, and we introduced a long-awaited slide loader that can accommodate 40 slides, allowing customers to process them in 24 to 72 hours. I would also point out that we are the only proteomics platform that offers slide loading. So, we’re very excited about this progress and the enthusiasm around it. Finally, as we've mentioned on the legacy Standard Bio side, our CyTOF flow characteristics are being improved, and we're becoming more confident in our solution to gain a foothold in a large market, partly transforming to high-parameter flow. We had noteworthy work presented by one of our collaborators at the CYTO meeting in Edinburgh, demonstrating our competitive advantages on markers relevant to intracellular studies.

Great. I know it's a question already asked on SomaLogic, but a strong quarter with nearly a 20% increase. Some of our diligence suggested this could indicate a nice growth inflection here despite the challenging markets. Do you think this growth is sustainable for the year? Any insights into the drivers behind the SomaLogic growth and if this trend can continue?

As noted in my script, we see strong validation for our assay in the market. We’re aware of some upcoming data reporting from our major competitor that appears favorable for us. Long-term, we are very bullish about this. The large customers we have in pharma are all project-based and dependent on sample and budget availability. While we aim to transition more towards translational research, where funding is typically less volatile than in discovery, we’re still predominantly in the discovery phase. So, I cannot provide a definitive answer there, but we are pleased with the quarter we had on the legacy SomaScan side.

Great. And maybe one for Jeff, in terms of the OpEx leverage, nice leverage delivered in the quarter. Any thoughts on how OpEx might evolve through the year and how the synergies flow as we approach the back half of the year?

I’ll pass that on to Jeff.

Yes, Dan, great to hear from you. As I mentioned, we operationalized $50 million in savings, which we expect to have a full P&L impact for the full year '25. This will start to layer in primarily in the second half of the year. We expect to see approximately $20 million to $25 million of that hitting the P&L in the second half of the year, primarily out of SG&A.

And the next question comes from Paul Knight with KeyBanc.

Congratulations on what must have been a lot of work to put this number set together.

Thanks, Paul.

Thanks, Paul.

The dollar you put out earlier on this SomaScan early partnership on NGF is gathering a lot of traction. Are you going to be competitive with the Olink technology on the NGF readout?

Yes. For some background, SomaLogic previously set the pace in the market for a three-year period, offering Olink an opportunity that they capitalized on superbly, leading to many more operational sites than we had. Our solution, together with Illumina, is highly competitive. Our advantage lies in the SomaScan assay, as I mentioned before, with significant scalability to detect many proteins with a much lower coefficient of variation, drastically enhancing the discovery power of our assay compared to Olink's. While I can't delve into costs, we believe we are highly advantageous for the long term, which will be solidified as we present bake-off results in the coming year.

On the genomics side, you provide some OEM partners in the market. Do you see yourself linked long-term as a supplier of microfluidic technology?

Yes. We believe it's a highly differentiated and high-performing solution for certain samples in specific contexts. Currently, we are an OEM partner to another proteomics company that we estimate currently has around 200 units in the field dependent on our proprietary consumables, the integrated fluidic circuit. We feel good about this business and expect to stay strong partners with Thermo once their acquisition concludes. However, if changes occur, as I mentioned previously, we still have 200 units in the field utilizing our consumables. We're optimistic about our current business. Furthermore, as we recently announced, we secured a second OEM relationship with Next Gen Diagnostics and are excited about the potential of growth and profits there in the coming years. We are actively pursuing additional OEM relationships. As I stated, it takes time, but once they’re operational, they can be significantly accretive.

Last question: the $71 million cash payments you mentioned includes $11 million for the share buyback?

Yes. The $71 million encompasses $11 million in share buybacks, $8 million for retiring our Silicon Valley Bank debt, and $30 to $34 million related to merger costs, alongside an elevated amount of payments clearing year-end accruals, which is typical for the first quarter. We view our adjusted operating burn more in the range of $29 million to $30 million.

Yes, that's correct. When considering normalized adjusted operating burn, we anticipate some merger-related cash payments continuing but not at the levels seen in the first quarter.

Thank you. This concludes our question-and-answer session. I would like to return the conference to Michael Egholm for any closing comments.

Great. Thank you, operator. I will close by once again thanking our team for their continued execution and dedication to our mission and to our investors for your continued support. I continue to be ever mindful of the work and challenges ahead, but we remain excited and confident in our ability to empower research to change patients' lives and, in turn, create value for all stakeholders. Stay tuned for future updates. We look forward to connecting with many of you at the upcoming Jefferies, Cowen, and Scotiabank conferences in June. I'll now turn the call back to the operator to conclude the call.

Yes. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your phone lines.