Earnings Call Transcript - LAB Q3 2020

Operator, Operator

Thank you for standing by, and welcome to the Fluidigm Third Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Ms. Agnes Lee. Thank you. Please go ahead. Thank you, Rosanne. Good afternoon, everyone. Welcome to Fluidigm's Third Quarter 2020 Earnings Conference Call. At the close of the market today, Fluidigm released its financial results for the quarter ended September 30, 2020. During this call, we will review our results and provide commentary on our financial and operational performance, market trends, strategic initiatives, and our response to the COVID-19 pandemic. Presenting for Fluidigm today will be Chris Linthwaite, our President and CEO; and Vikram Jog, our CFO. During the call and subsequent Q&A session, we will make forward-looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, future financial results and market trends, and opportunities. Examples include statements about expected financial performance, the anticipated positive impact of various strategic and operational initiatives, market and revenue growth, technology and research trends, product development plans, prospects for our products and technologies, potential customers and collaborators, and trends in competition, markets, research funding, and customer demand. These statements are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from current expectations. Information on these risks and uncertainties and other information affecting our business and operating results is contained in our annual report on Form 10-K for the year ended December 31, 2019, as well as our other filings with the SEC. The forward-looking statements in this call are based on information currently available to us and Fluidigm disclaims any obligation to update these forward-looking statements, except as may be required by law. During the call, we will also present some financial information on a non-GAAP basis. Non-GAAP information is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company's operating results as reported under U.S. GAAP. We encourage you to carefully consider our results under GAAP as well as our supplemental non-GAAP information and the reconciliation between these presentations. Reconciliations between GAAP and non-GAAP operating results are presented in the table accompanying our earnings release, which can be found in the Investors section of our website. I will now turn the call over to Chris, our President and CEO.

Chris Linthwaite, President and CEO

Thank you, Agnes. Good afternoon. The ongoing global pandemic has impacted every facet of our business and has driven a need for speed as well as crisp execution. Our disciplined operations, our relentless focus on employee safety, addressing urgent COVID market needs through innovation, and a focused capital deployment plan has delivered results. I am proud of the entire Fluidigm team for rising to the occasion in a manner reflective of our shared values, including a commitment and a passion to serve the community in this crisis. We are humbled to be playing a role in both virus detection and decoding the complex immune system response to the pathogen, which will be critical to the next phase of pandemic response. The unfortunate events of 2020 have further validated our strategic vision and suggest we can play an increasingly meaningful role in healthcare in the years ahead across many fronts. In 90 days, in a historically challenging operating environment, we accomplished goals normally tackled over a span of a year or more. We received the first FDA emergency use authorization for a kitted extraction-free saliva-based PCR test for detecting SARS-CoV-2, combining best-in-class throughput with minimal sample input. We powered groundbreaking multi-site and large single-site clinical trials and studies bringing the number of new trials year-to-date to 25, including three on our imaging platform for a total of 113 trials ongoing or complete. We secured a $34 million contract in the first class of the NIH RADx awardee group earmarked for COVID-19 test manufacturing scale-up and new product development. We delivered almost 800,000 tests in the quarter, with the majority of the tests linked to the authorized kit released in late August. We placed 31 Biomarks in the quarter, with a total of 43 Biomark systems enabled for diagnostics year-to-date. These new accounts or customers are broadening our installed base into clinical labs poised to ramp production in coming quarters. We established partnerships with multiple CROs as well as a leading health IT provider, Healthvana, a mobile platform for integrating data from labs and delivering results to patients to better serve COVID testing market segment needs. Healthvana has helped more than three million patients receive test results since April. We announced an innovative Campus Safeguard Program, showcasing our opportunity to play a major role in helping to keep students and staff safe in higher education, navigating the global health crisis. We believe this program is increasing brand awareness of the Fluidigm solution to multiple stakeholders. Vikram will address key financial details and break down the quarter in a few minutes, but I'd like to add a bit more color on these accomplishments and their implications for the future. Since I became CEO four years ago, my mandate has been to shift from being a general-purpose research tools product push company towards a more end customer market-oriented solutions provider. We have great technology, a resilient, nimble, and determined culture. And steadily, over the last few years, we have been shifting from quarterly instrument placements in academia towards recurring revenue streams in translational and clinical research settings as well as commercial molecular testing labs. We are entering larger markets and adding new high-value customers who conduct cutting-edge research, with an intent to move these insights into broad deployment. New partnerships are also critical to our success, and they are reflected in our announcements over the last 12 months. We expect to provide more of these kinds of announcements in the future as we execute on this strategy. In the last two years, we aligned around an investment thesis that understanding the immunome—a scientific area with a huge impact on health care that requires insights into single-cells, bulk-cells, and tissue—was the future. We built robust solutions that hold the promise to create new standards for health care management across many diseases. With this pandemic, we are seeing those solutions actively being used to drive a deeper understanding of COVID-19 patient immune profiling. The SARS-CoV-2 pathogen and accompanying health care crisis illustrates the importance and the value of the strategic pivot. Early and accurate detection of the virus is critical to containment and the efficient deployment of health care assets such as hospital beds, clinics, and personnel. Our Biomark solution combines the flexibility to detect the virus, add new data points or pathogen strains to our platform and upscale or downscale throughput based on the operational environmental needs. This flexibility provides critical decision-making information that covers multiple market segments, including markets beyond diagnostics. Our innovation work is not done and we have an exciting array of new products in development, including bar-coded assays that increase testing throughput, new chips to improve workflows and expanded test menu, as well as a next-generation Biomark system earmarked for release around midyear 2021. These products will extend our technology leadership and research in regulated markets while providing a platform for additional partnerships as we expand our diagnostics market presence in the future. I will share more details in the months ahead as well as commentary on how we envision the current COVID testing market might evolve in the coming years. From our perspective, COVID testing demand will be robust in 2021, the competitive landscape will be dynamic and the nimble, focused, and execution-oriented companies will flourish. On the COVID research front, our mass cytometry suspension and imaging platforms have had a significant impact. Our Maxpar Direct Immune Profiling Assay released last year—a 37-marker panel with a customized analytical package for measuring immune response—has provided a standard method for assessing immune system response in infected populations. The suspension platform could be impactful for second-stage vaccine development programs and novel therapeutic intervention studies. Our imaging platform is providing insights on immune response and tissue damage triggered by COVID infection. And our Therapeutic Insights Service has executed 20 studies, including several oriented on COVID-related research. We have more innovation in our mass cytometry business on the horizon. In areas beyond COVID-19, our previously announced large OEM collaboration continues to progress well and we anticipate a product launch next year. We added an additional undisclosed partnership in Q3 and we have more discussions underway with prospects. Compared to Q2, we saw improvements in our core business, with notable upticks in service calls, system installations, and general consumables orders, although most labs are not operating at historical levels. We also saw great results from our shift to digital marketing channels, including an extremely successful 9th Annual Mass Cytometry Summit with 700 live participants, including 50% of the registrants who are new contacts. The Mass Cytometry Summit has become a showcase Fluidigm asset that our competitors are trying to emulate. In Q3 alone, our digital events attracted 1800 self-identified prospects for the sales organization to nurture. These numbers reflect a return to historic trend lines as we shift from in-person events to digital events. Clearly, we are optimistic about our future. However, in the near term, with the emergence of significant new outbreaks and associated regional lockdowns, it is hard to predict performance in Q3 or Q4, let alone 2021. Our shift in diagnostics is new and we are starting from a modest footprint with a number of our customers not yet in full production mode. So we are cautious about predicting the ramp-up in testing volume. However, we remain very confident in our long-term prospects, with the shape of our growth depending on a mix of factors including future research spending and an expansion of our diagnostic space. Turning to a discussion of longer-term strategy. In the background, while we are executing on the COVID testing opportunity, we have been updating our long-term planning to incorporate the opportunities that have surfaced with this pandemic and the new assets we have built, including new customer relationships, new tools, and a significant expansion of manufacturing capacity. We believe that we have access to a durable diagnostics business powered by microfluidics. In addition, we're well positioned in our suspension and imaging mass cytometry franchises for double-digit growth in translational clinical research and pathology markets. Across the company, we are executing on a pipeline of innovative new products including content, workflows, and instruments strengthened by partnerships. I feel the company is on stronger footing to drive sustained future growth. Now I'd like to transition to Vikram for a detailed discussion of our operating results.

Vikram Jog, CFO

Thanks Chris and good afternoon. Total revenue was $39.9 million in Q3 2020—a 50% growth compared to Q3 2019. Changes in foreign exchange rates had minimal impact on revenues. Product and service revenue of $35.3 million grew 34% compared to Q3 2019. I'm pleased to note that Q3 2020 revenue was the highest quarterly revenue ever recorded by Fluidigm. With the grant of the EUA for our SARS-CoV-2 test on August 25, 2020, we saw COVID-19 tailwinds accelerate in the quarter, contributing $11 million of quarterly revenues with over 90% of that revenue from diagnostic tests driving growth in our microfluidics business. In the third quarter, we saw strong sequential growth in both mass cytometry and microfluidics revenue from our base business as customer labs gradually reopened. At the end of the second quarter, we had estimated approximately 30% to 40% of our global academic research community was either closed or working at a slower pace. As we entered the latter part of Q3, most of our customers had reopened and we exited September with an estimated 10% of our global academic research community still closed or working at a slower pace. Given the recent resurgence of infections in both Europe and the United States and announced lockdowns in Europe, we are carefully watching the pace at which this reopening continues. Both our mass cytometry and microfluidics-based businesses continued to experience headwinds from the pandemic in the third quarter, although these headwinds were considerably diminished compared to the second quarter. With that context, I will move into the details of our third quarter financial performance. Mass cytometry product and service revenue of $15.1 million in the third quarter decreased 3% year-over-year mainly due to lower instrument revenues, offset by higher consumables revenue. We continue to experience the effects of lab closures from the first half of 2020 in the form of delays in orders and constrained instrument sales. Additionally, we are facing budget and funding constraints with some budgets being prioritized for COVID-19 activities. Consumable sales increased year-over-year and sequentially primarily due to another record sales quarter for our Maxpar Direct Immune Profiling Assay related to COVID-19 immune profiling studies. We are also seeing customers gradually returning to their pre-pandemic consumables ordering patterns which could offset the completion of some of the large COVID-19 profiling studies. However, this is dependent on whether labs continue to operate at normal levels throughout the winter. Microfluidics product and service revenue of $20.2 million increased 88% year-over-year, driven by COVID-19 testing revenue from both instruments and consumables. As Chris has mentioned, with our EUA we saw strong instrument placements in Q3. We sold 31 Biomarks in the quarter and now have 43 total systems enabled for COVID-19 testing. Many of these placements were with new customers requiring additional time to set up and validate our instruments in their labs. We are actively working with these customers to ramp their validation programs and we estimate that on average customers take four to six weeks before they achieve production level testing. At the end of the third quarter, approximately 20% of enabled systems were being used for patient testing. During the third quarter, we sold 795,000 tests at per-test prices ranging from $5 to $20. Most of these test sales were for our EUA assay. ASP in the quarter was on the low end of the range largely driven by two orders from universities, including a historically large order related to our Campus Safeguard Program. Turning now to a regional perspective, and the main drivers for the Q3 2020 performance compared to the prior year period. Americas revenue grew 113% to $23.7 million, including $4.5 million of development grant and license revenue. Product and service revenue increased 75% to $19.1 million driven by higher microfluidics revenue related to COVID-19 testing, offset by lower mass cytometry instrument revenue. The majority of our COVID-19 microfluidics sales this quarter were in the U.S. Asia Pacific revenue increased 17% to $7.4 million driven by higher microfluidics and mass cytometry instrument revenues. EMEA revenues declined by 3% to $8.8 million driven by lower mass cytometry instrument revenue, offset by microfluidics. Microfluidics revenue was driven by COVID-19 instrument and consumable sales offsetting a slowdown in research and non-COVID project spending. To round up my commentary on the regions, in the third quarter, foreign exchange rates had a 3% positive impact on EMEA revenues. As I noted earlier, we reported development grant and license revenue of $4.5 million in Q3. This included $3.2 million of development revenue associated with an OEM supply and development agreement with a customer, and $1.3 million of revenue related to a research and development grant agreement. Moving now to operating performance. Product and service margin was 58.9% in the third quarter of 2020 compared to 52.6% in the year-ago period and 52.5% in the second quarter of 2020. GAAP product and service margin on a year-over-year basis was higher primarily due to sales of COVID-19 diagnostic consumables and lower inventory reserves. The increase was partially offset by a higher mix of microfluidics instruments as well as lower prices and lower production volumes for mass cytometry instruments. Sequentially, gross margins were higher due to sales of COVID-19 diagnostics consumables, partially offset by a higher mix of microfluidics instruments. GAAP margin, both sequentially and year-over-year, was positively impacted by fixed amortization expenses over higher revenue. Non-GAAP product and service margin was 68.3% in the third quarter of 2020 compared to 65.2% in the year-ago period and 67.1% in the second quarter of 2020. The year-over-year increase in non-GAAP product and service margin was due to the same factors that drove the improvement in GAAP margin with the exception of fixed amortization expenses over higher revenue. Operating expenses on a GAAP basis in the 2020 third quarter increased by 11% year-over-year to $30.8 million. Operating expenses on a non-GAAP basis of $25.8 million increased by 7% compared to the year-ago period. The increase in GAAP operating expenses was primarily due to increased facilities costs, compensation expenses, R&D costs, and higher litigation expenses. These increases were partially offset by lower expenses for travel, trade shows, and severance and pandemic-related foreign government subsidies. The increase in non-GAAP operating expenses resulted from the same drivers with the exception of stock-based compensation expense. GAAP operating loss for the 2020 third quarter was $5.5 million compared to $13.8 million for the same period last year. The year-over-year decrease in GAAP operating loss was primarily due to higher product and service revenue and the margin impact of other revenue in the third quarter of 2020, partially offset by higher operating expenses. The non-GAAP operating income for the third quarter was $2.9 million compared to an operating loss of $6.8 million for the year-ago period. Please note that the reconciliation tables between our GAAP and non-GAAP measures are provided at the end of our earnings press release that was issued earlier today. Moving on now to cash flow and the balance sheet. Cash and cash equivalents, short-term investments and restricted cash at the end of the third quarter of 2020 totaled $73.4 million compared to $46.5 million at the end of the second quarter of 2020, reflecting a net increase of $26.9 million. Cash flow in the third quarter of 2020 included $20.1 million of net proceeds from sales of common stock under an at-the-market equity offering program and about $10 million of unspent milestone payments under our NIH RADx contract. Excluding these items, cash burn was $3.5 million in the third quarter. Accounts receivable days sales outstanding increased to 40 days at the end of the third quarter compared to 34 days at the end of the second quarter. And at quarter end, the borrowing base under our asset-based revolving credit facility was $15 million, none of which was utilized. We have withdrawn our annual guidance in light of the uncertainty surrounding the ongoing and evolving COVID-19 pandemic. We expect to update our outlook at such time as the effects of the pandemic on our business become clearer. To help guide investors on revenue, we can provide a little color on our thinking as of today. We saw growth in overall bookings and revenue in October 2020 compared to the prior year, primarily attributable to COVID-19-related opportunities for microfluidics products. Excluding these opportunities, our base business in both mass cytometry and microfluidics continued to experience headwinds from the pandemic in October, although these headwinds are continuing to diminish. As Chris mentioned in his remarks, we believe we have a large market opportunity for COVID-19 testing, and we saw strong placement of microfluidics instruments and consumable sales in the third quarter. Ramp-up time for new customers is significant, and we expect to see the benefits of these installs in the quarters ahead. The trend of re-openings that we saw at the end of the second quarter continued into the third quarter. More recently, however, we are seeing new lockdowns in Europe and an increase in infection rates in the U.S., creating some uncertainty around our customers' operations and travel across our EMEA and Asia-Pacific regions. As customers return to work, we expect a pick-up in orders, followed in subsequent periods by revenue increases. However, the timing of this recovery remains uncertain. We continue to expect that due to the length of the selling cycle, some non-COVID instrument purchases in our base business that were expected to have been made in 2020 would move to 2021. We do not expect to catch up the lost consumables business. Absent additional waves of infection and the return of more severe lockdowns, 2021 should be a stronger year as our customers come back to a more normal state with their current projects and as our diagnostics base expands. Of course, our outlook and all of these expectations depend on the outcome of many factors, including the timing and pace of our customers' return to work, impact of additional waves of infection, as well as any changes in national priorities, or slowdown in activities after the U.S. elections. And with that, I will turn the call back to Chris for closing remarks.

Chris Linthwaite, President and CEO

Thank you, Vikram. This pandemic has tested us all personally and professionally. Our hearts go out to all people around the world who have been impacted by this virus. In the midst of all of this, we are proud to be able to harness Fluidigm's technologies and products to enable more testing and better understand this virus through immune profiling studies. We have built new relationships with government agencies, public health officials, and scientific leaders who may lead the preparation for future pathogen outbreaks and we trust that our track record of execution during this crisis will ensure we are integrated into their planning. Additionally, we believe that data management and interpretation, digital integration of instruments, and delivery of important information to the right place in a timely manner are critical to meeting future market needs. We have added a Chief Digital Officer to our leadership team to coordinate and drive our digital vision. Puneet Suri, a veteran leader and innovator with more than 20 years of experience guiding digital innovation at Thermo Fisher Scientific and Bio-Rad, has joined our team and I'm excited about sharing our progress in this new dimension in the years to come. I offer five takeaways from this Q3 call. First, we are executing on the COVID strategy we outlined over the last two quarters; new non-dilutive funding for innovation and capacity expansion, emergency use authorization for a COVID-19 test, new system placements, and incremental sales of tests impactful new clinical studies powered by mass cytometry technology. Second, we are growing through our COVID-19 testing business and some of the headwinds in our core business are diminishing, but there is significant uncertainty against the backdrop of escalating cases worldwide. Third, our conviction around the shape of COVID testing demand is incrementally bullish and provides an attractive, large, and growing market. We see robust demand for testing in 2021 and new market segments will emerge with differing needs. Fluidigm is well-positioned to be a meaningful market participant in this expansion phase. Fourth, new products are on the horizon that will strengthen our innovation portfolio and overall competitiveness fueling future growth. And fifth, we are committed to partnerships to expand our reach, our capabilities, and our disruptive approach to traditional paradigms. In closing, we are grateful for the incredible determination and tireless efforts of global researchers, health care workers, public health organizations, private sector life science employees, and government agencies who are working together for the common good. As always, I thank our almost 600 employees for their contributions this past quarter. I'm proud of how the team has executed on our COVID-19 goals in diagnostics and immune profiling, as well as the foundation they are providing for future growth. With that, I'll open up the line for questions.

Operator, Operator

Our first question comes from the line of Dan Brennan from UBS. Your line is open.

Dan Brennan, Analyst

Great. Hey guys. Thanks for the question. Congrats on the quarter obviously. So, Chris and Vikram, the obvious question is while visibility is maybe low just given all the fluctuations with COVID, it would be helpful just to give us some insight on how to think about the trajectory from here. So, any color you can provide first starting on the COVID side? 43 box placements pretty significant, obviously good support with volume. So, just directionally versus what you did this quarter could you just help us think about directionally what that could mean in Q4? And if you could comment on beyond that? And then B, when we think about the revenue pull-through it sounds like 800-or-so thousand tests the revenue is at the lower end. But what is the business model for the customers who are adopting? How much of it is replacing the box they're buying the box, or is it all kind of wrapped up in some minimum consumables? So, if you can discuss a little bit of the economics that you're engaging with these customers and what visibility that gives you?

Chris Linthwaite, President and CEO

I want to dive into the questions here, starting with the COVID aspect of our business. We are pleased with the number of new placements we've achieved. This addresses a key concern regarding our ability to expand into high complexity labs, especially since our initial footprint in that market was limited at the start of the COVID outbreak. We're seeing good traction, with about 20% of the segment we placed already in full production. The specifics vary depending on the business model; most of these placements are in the contract testing sector. Success in this area is determined by the market segments they target, how they bid for contracts, the logistics of sample collection, and our supportive role in that framework. Another factor is the commitment to automation; having existing automation solutions or installing new ones can significantly maximize the output of our platform. We experienced a strong placement cycle in the third quarter, building on the momentum from Q2, but we can only speculate on how quickly they will ramp up. It's not an issue of test availability on our end; it's primarily driven by their individual business models and situations. We're collaborating closely with them, and we've expanded our team to include automation specialists to assist them in ramping up their operations. We are also focusing on creating awareness about our Fluidigm saliva-based PCR testing in the end-customer market to generate more demand. In terms of the academic segment, we've secured some significant accounts, with a few having already ramped up and at least one yet to do so. These accounts represent some of the largest orders in our history and come with multi-quarter and volume commitments, contributing to our order book for future delivery. As we move forward, we expect to place a considerable number of instruments in the fourth quarter and beyond to continue driving the business. I'll ask Vikram to provide more insight on the COVID testing profile and also address the non-COVID business from his previous comments.

Vikram Jog, CFO

Yes. No sorry. Chris, I think you've been very comprehensive. I don't have anything to add on the COVID part of the question. With your question related to the non-COVID, as we mentioned today, that's still experiencing headwinds due to the pandemic. But as we've gone from quarter-to-quarter in '20, we see those headwinds diminishing quite considerably. For example, between Q2 and Q3, we saw a considerable diminishing of the headwinds for the base business.

Dan Brennan, Analyst

Okay. I have maybe one more on the base and then I can ask one more on COVID and I'll get back in the queue. Just on the base business what kind of backlog are you carrying today? I mean it's always a question Chris that you get. Obviously the visibility and given the inability on sort of to place instruments right now with still labs opening up just wondering about what the funnel looks like on mass cytometry today and what that portends maybe for Q4?

Vikram Jog, CFO

Chris, I think you are on mute?

Chris Linthwaite, President and CEO

I would have welcomed you to jump in if you'd like then, Vikram. Regarding the backlog on instruments, I can't provide specific numbers since we haven't shared that for some time, but we expect to place some installations from sales in Q3 that will be fully installed in Q4 and go into production then, plus additional placements during that period. We're very comfortable with the current state of the pipeline. In fact, we've focused heavily on this area, especially after Q2 when we had to shift our traditional events and pipeline development activities to digital channels due to the complete shelter-in-place. This transition has strengthened our digital platforms. In Q3, and really starting from Q2, we began to notice a significant increase in our pipeline, which aligns with prospects for the remainder of this year and into 2021 and 2022, following a historic trend that has supported strong growth in our mass cytometry portfolio over the past few years. Overall, we're encouraged by the recovery's trajectory, although there are several factors that could impact the timing of transactions, such as budget availability or facility shutdowns that may alter near-term purchasing behavior. Nevertheless, we see robust interest in our technologies, both in imaging platforms and the suspension side.

Dan Brennan, Analyst

Can you remind us about your current capacity to deliver both tests and boxes related to COVID? Additionally, could you share if there are minimum guarantees for the fourth quarter that would indicate the lowest expectations for COVID testing? Thank you.

Chris Linthwaite, President and CEO

I appreciate the question. We won't provide further details on the floors, but we do have delivery schedules set for the fourth quarter for several of our contracted customers. We're very proud of our COVID test capacity, having increased our manufacturing capability to six million tests for the fourth quarter. We're also expecting to expand that capacity further with the deployment of the NIH RADx funding in the first quarter of next year. We're pleased with our inventory position and our ability to produce. This was a key reason for launching the Campus Safeguard Program, which aimed to raise awareness of our additional capacity, as we were among the early leaders in a market facing significant supply chain constraints. We wanted to clearly communicate that we have extra capacity and encourage the adoption of Fluidigm technology to address the COVID challenge. Regarding the boxes, we do not foresee any immediate constraints for the fourth quarter.

Dan Brennan, Analyst

Okay. I will get in the back queue. Thanks guys.

Chris Linthwaite, President and CEO

You bet. Thanks, Dan.

Operator, Operator

Our next question comes from the line of Steven Mah from Piper Sandler. Your line is open.

Steven Mah, Analyst

Hello, guys. Thanks for taking questions. And congrats on the quarter.

Chris Linthwaite, President and CEO

Thank you, Steve.

Steven Mah, Analyst

So yes, just maybe to add on to Dan's questions on COVID-19 opportunity. So the 31 Biomarks placed into clinical labs, yes, that's very impressive. Can you give us a sense for the sales cycle into the clinical labs? How long it takes? And thank you for the color on the four to six weeks to get them up to speed. And then maybe also comment on the funnel size and maybe the types of potential opportunities whether they be more universities or are they small to medium reference labs?

Chris Linthwaite, President and CEO

Sure, Steve. I'll share our insights here. The sales cycle for placements has been extremely variable. We’ve seen opportunities enter the funnel and close within just days or weeks, which is much quicker than we have historically experienced. In this business, another important factor is the expansion of capacity or the redundancy that labs want to implement, which leads to additional placement opportunities that also close relatively quickly. The variety of opportunities in our funnel is quite significant. We have considerable order potential, especially in the industrial sector. Currently, we are leaning more towards industrial opportunities rather than those in the academic segment, which has been facing challenges affecting adoption. In contrast, the industrial side has shown much more resilience. Additionally, we're observing the rise of direct-to-consumer models and other market segments as people adapt to the new normal. This adaptation is expected to increase testing demand heading into 2021. Small and medium-sized labs are getting involved, and larger labs are also expanding. There are emerging academic opportunities following the Campus Safeguard Program, which was our first attempt at such an initiative and generated tremendous awareness and inbound interest. It might be one of the most successful promotional efforts we’ve ever carried out for generating leads. Therefore, it’s challenging to make definitive calls for this quarter, and we are striving to remain cautious in our optimism. There are numerous opportunities available, and our focus needs to be on the highest value and most strategic ones. Expanding capacity and driving volume with our existing partners is a strong catalyst for us in the near term.

Steven Mah, Analyst

Okay, I understand. That's helpful. Regarding the 800,000 tests conducted in the quarter, could you provide insight into the distribution of industrial customers compared to academic ones? It seems there are slightly more industrial customers, but…

Chris Linthwaite, President and CEO

Vikram, do you want to take that?

Vikram Jog, CFO

Yes, I mentioned earlier that the average selling price for the quarter indicates a significant concentration of revenue from university sales, particularly highlighted by two substantial orders from universities, including an exceptionally large order through our Campus Safeguard Program. While we have a varied mix, this quarter was predominantly focused on the university sector.

Chris Linthwaite, President and CEO

Yeah. I was just going to say, Steve, I think about this quarter as being a heavier instrument placement cycle in the industrial segment and a larger mix of testing sales into the academic segment as reflected by those large orders.

Steven Mah, Analyst

Okay. Got it. Got it. And maybe a little bit on the testing ASP spread. You mentioned it's between $5 and $20. Is that ASP spread primarily volume driven? And if you can give us a sense of the margins on the test?

Chris Linthwaite, President and CEO

Vikram, why don't you take that one since you had some color on that in your segment?

Vikram Jog, CFO

Yeah. I think it's a combination of volume drivers and the types of customers, I would say, at a very high level. And then between that, there are nuances whether we are selling to the more commercial labs that will get reimbursed versus other segments, including the segment that Chris talked about that are still emerging that do not get reimbursed. We have an extremely good value proposition here. And as you could see from our gross margin performance, despite the fact that this quarter our ASP was weighted towards the low end of the range, we had improvement in our gross margin. So we are quite comfortable with our ability to drive margins as the business expands into more commercial sectors.

Steven Mah, Analyst

Yeah, that's great information. My last question is about the capacity expansion of the second-generation Biomark that you mentioned for the first quarter. Is this related to the RADx-funded barcoding initiative? If it is or even if it's not, could you provide some details on the current status of the RADx barcoding initiative?

Chris Linthwaite, President and CEO

Hi Steve. Thanks for the question also. So actually it's two separate things that kind of got co-mingled there. So first, I talked about a next-generation Biomark platform, which we're super excited to start sharing the details about. That's anticipated to come out after Q1. So I said first half of the year. The second part was around capacity expansion on testing. So our absolute manufacturing capacity of the chips and the related kits that are directly linked to the RADx investment of which we've been on a capacity expansion journey that started in the Q3 time period. We saw a step-up in capacity as we entered Q3 and we'll execute for with more capacity and continue to add more incremental capacity in first quarter of next year.

Steven Mah, Analyst

Okay. Great. Thank you, Chris.

Chris Linthwaite, President and CEO

Yeah. Thank you.

Operator, Operator

I see no further questions at this time. I would like to turn it back over to Agnes Lee for closing remarks.

Agnes Lee, Communications Director

We'd like to thank everyone for attending our call today. A replay of this call will be available on the Investors section of our website. This concludes the call and we look forward to the next update following the close of the fourth quarter 2020. Please reach out to us if there are further questions. Good afternoon everyone. Rosanne, you may now close the call. Thank you.