SomaLogic, Inc. (NASDAQ:SLGC) Q2 2023 Earnings Call Transcript

SomaLogic, Inc. (NASDAQ:SLGC) Q2 2023 Earnings Call Transcript August 14, 2023

SomaLogic, Inc. misses on earnings expectations. Reported EPS is $-0.13 EPS, expectations were $0.18.

Operator: Good afternoon, and welcome to SomaLogic’s Second Quarter 2023 Earnings Conference Call. [Operator Instructions]. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Marissa Bych with Gil Martin, Group Investor Relations for introductory comments.

Marissa Bych: Great. Thank you. Today, SomaLogic released financial results for the quarter ended June 30, 2023. A copy of the press release is available on the company’s website. Before we begin, I’d like to remind you that management will make forward-looking statements during this call within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our market opportunity, gross margin and future financial performance; protein content and database growth, customer base, diagnostic pipeline, expectations for hiring and growth in our organization are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a listing description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our latest Form 10-Q filed with the Securities and Exchange Commission. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 14, 2023. SomaLogic disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.

And with that, I will now turn the call over to Adam Taich, Interim Chief Executive Officer.

Photo by National Cancer Institute on Unsplash

Adam Taich: Good afternoon, and thank you for joining SomaLogic’s Second Quarter 2023 Conference Call and my first full quarter since assuming the interim CEO role in late March. From Day 1, my focus has been on bringing consistent commercial execution and operating discipline to the organization with an emphasis on driving revenue while reducing spend. Our results this quarter demonstrate early progress on both of these objectives. Although substantial work remains ahead, we are taking the steps necessary to ensure SomaLogic is in a position to capture a greater share of the growing high-plex proteomics market. Revenue for the second quarter was $20.5 million, reflecting 45% year-over-year growth driven by increasing adoption of the SomaScan platform in both, assay services and a growing number of authorized sites.

Excluding the impacts of royalty revenue in the prior year, our second quarter 2023 performance reflects 55% year-over-year growth. On a sequential basis, our revenues were roughly flat versus the first quarter of 2023, in line with our expectations. As a result of our second quarter progress and ongoing trends in the business, we are reiterating our guidance of $80 million to $84 million in full year 2023 revenue. Before we discuss our results in more detail, I’d like to welcome Eliot Lurier to SomaLogic. Eliot joined as Interim Chief Financial Officer in June. He is a seasoned executive with over 35 years of experience in the life sciences industry across research and commercial organizations. Eliot brings a deep understanding of financial operations and accounting in publicly traded companies to SomaLogic, and we are thrilled to have him on board.

Turning to progress in the quarter. Let me start with our core assay services offering, our largest revenue contributor in the near term. In recent quarters, we have taken steps to stabilize the business and position it for growth. Our commercial teams are intensely focused on new customer acquisition as well as driving high levels of customer retention. We continue to expand our reach into new biopharma accounts and are broadening the impact of the SomaScan platform well beyond our traditional discovery call points. While there is plenty of work ahead, we are beginning to see more consistent execution emerge in our top line for the second quarter and in our pipeline for the year. Equally important is the expansion of our distributed solution or authorized sites program.

Since the full scale launch of this program at the beginning of 2023, we have signed agreements with several partners to enable broader access of our technology, both domestically as well as into untapped international markets. Most recently, we shared two new partnerships focused on driving volume in Europe, Citogen and Dante Genomics. Citogen is a multiomic laboratory located in Spain with a very strong track record providing services to their clients. Dante Genomics is a global leader in genomics and precision medicine and the first SomaLogic authorized site in Italy. These partnerships build upon G42 healthcare in the Middle East, BioStar in China, molecular genomics in Singapore and FonesLife in Japan as SomaLogic authorized sites serving the global proteomics market.

As we continue to scale the business, distributed solutions will allow SomaLogic to expand our presence in key markets, generate more predictable and higher-margin revenue and reduce sample delivery time lines for researchers globally. Importantly, we are making the SomaLogic platform more accessible, allowing us to better serve the specific needs of our customers. Building on this effort to grow our distributed business is our partnership with Illumina, which is progressing well and is focused on delivering a co-exclusive, co-branded NGS-based distributed solution. Our work with them remains on track, and we continue to expect early access in 2024. This joint proteomics product will combine Illumina’s market-leading installed base and commercial force with the breadth and depth of the SomaScan assay to deliver differentiated insights to researchers across a wide range of customer segments.

We are excited about this effort and the level of interest from customers is high. Finally, bolstering our current and future offerings is the continued content expansion within our SomaScan platform. As we drive forward in content, we are pleased to reiterate that our SomaScan 10K Plex solution is on track for a fourth quarter launch. We are beginning to see increasing recognition for the importance of a more comprehensive view of the proteome as customers come up the adoption curve and apply the SomaScan platform to a diverse set of use cases. As early innovators in this space, we know that the discovery and development of disruptive therapeutics benefits substantially from a more complete view of the proteome. We believe SomaLogic is a well differentiated leader in this growing market.

Before I turn the call over to Eliot, I’d like to provide an update on our initiatives to reduce expenses across the organization. As we continue to expand our business, we must also reduce our cost base. We are realigning our spend to account for this by focusing resources solely on inputs to our core Life Sciences business. We’ve made early progress, and this quarter’s operating expenses reflect a 26% reduction over the same quarter last year. We are focusing our organization to preserve our substantial cash position and allow for operational flexibility into the future. We are on track to spend approximately $170 million in operating expenses for the full year, a significant reduction versus 2022 and remain committed to even more disciplined spending into 2024 and beyond.

With that, I will turn the call over to Eliot to review our financial results for the quarter. Eliot?

Eliot Lurier: Thank you, Adam, for the warm welcome. And thank you, everyone, for joining us today. I’ll start with our results for the quarter. Revenue for the 3 months ended June 30, 2023, was $20.5 million, a 45% increase from $14.1 million in the same period of the prior year. Quarterly revenue was driven by increasing adoption of the SomaScan platform. Excluding the impacts of royalty revenues in the prior year, revenue grew 55%. Gross margin for the second quarter of 2023 was 45.4% compared to 50% in the second quarter of the prior year. Gross margin was impacted by lower royalty revenue in comparison to the same period in the prior year. As a result, we now expect full year gross margin in the mid- to high 40% range. Combined with our distributed solution and future royalty revenues, we expect our margin profile to improve long term.

Total operating expenses for the second quarter of 2023 were $40.4 million, a 26% decrease from $54.4 million in the second quarter of 2022. R&D expenses for the second quarter of 2023 were $10.8 million compared to $17.6 million in the second quarter of 2022. Sales, general and administrative expenses for the second quarter of 2023 were $29.6 million compared to $36.8 million in the second quarter of 2022. With our ongoing initiatives to reduce spend, we remain on track to deliver approximately $170 million in full year operating expenses. Adjusted EBITDA for the second quarter of 2023 was a loss of $28.9 million compared to an adjusted EBITDA loss of $46.4 million in the second quarter of 2022. Please see our press release on file with the SEC as of this afternoon for a reconciliation between GAAP net loss and non-GAAP adjusted EBITDA.

And we ended the quarter with $474.2 million of cash, cash equivalents and short-term investments, offering substantial flexibility to drive current and future commercial and R&D initiatives. Our cash burn in the second quarter of 2023 was $26 million, reflecting a sequential decrease from the prior quarter’s cash burn of $39 million. We continue to anticipate cash burn to be $120 million or less for the full year. Ending with our full year outlook, as Adam mentioned, we are reiterating our 2023 revenue guidance of $80 million to $84 million. We continue to see 2023 as a building year for the organization while our teams worked diligently on the many growth drivers ahead. As Adam expressed, our focus is to drive the operational rigor required to grow revenue sustainably and predictably while preserving our strong capital position.

At this point, I’d like to turn the call back to Adam.

Adam Taich: Thanks, Eliot. Operator, we’re now ready for questions.

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Q&A Session

Operator: [Operator Instructions]. Our first question comes from the line of Kyle Mikson of Canaccord Genuity.

Kyle Mikson: [Indiscernible] eyes on the quarter. I want to talk about the top line basically. So service revenue kind of soft quarter-over-quarter, was that due to any macro headwinds or something? I was just wondering if you could just kind of double click on that. And then with product revenue, I mean, very strong, very, very encouraging to see this kind of happen so quickly. What’s going on there, I guess? And on that note, I mean, the gross margin for product revenue is not — it’s still high 40s. Last year, that was low 60s, kind of interesting to see this kind of playing out. Just could you walk through some of these dynamics with the top line? .

Adam Taich: Sure, of course, Kyle. Thanks for the message. Yes, on the top line as it relates to service revenue is consistent with the expectations that we have. As we reiterated the guide of $80million to $84 million, that’s effectively where we would expect the service business to come in as we pick up more steam within our authorized sites. And so then on the product revenue, as you mentioned, look, it’s still very early days for us as it relates to getting site installations. We are on track to double the number of sites for our discussions over the last several months, a really nice successful couple of installs during the course of the quarter. And I think as we continue to evolve that business and gain efficiencies within our manufacturing, we’ll continue to see those margins move up per the expectation.

Kyle Mikson: Okay. That was great. And then Adam, on the Illumina, I guess agreement, high level of interest, that sounds good. But I mean, what gives you confidence that you’re not going to be freezing the market kind of heading to that early access in 2024, given there is some interest out there? And then secondly, you met at the collaboration in like June, I guess, when you announced that. Can you just clarify what changed and how that affects your ability to commercialize those codeveloped kits as well as generate revenue from the agreement? .

Adam Taich: Sure. So yes, I mean, we actually announced the Illumina agreement back, I think, at JPMorgan 2022. And you’re absolutely right in that there are certain customers. And our sort of goal all along has been to meet our customers where they want to be met, right? So not everyone wants to participate from a services perspective, so we’ve launched the authorized sites. And we certainly have with incredible installed base that Illumina has a great opportunity for us from an NGS perspective. So we don’t see, at this point, freezing the market per se. We do certainly know that there are customers who have sequencing capacity and will probably sit on the sidelines. And that’s factored in the guide at this point.

Operator: Our next question comes from the line of Dan Arias of Stifel.

Daniel Arias: Adam, just a follow-up on the Illumina partnership there. Early access in 2024, do you think broad-based commercialization also lands in ’24? Or does that feel more like a 2025 event?

Adam Taich: Sure, Dan. We’re sticking to the plan, we articulated actually back there in early 2022. So early customer access in 2024, full commercial release is slated for 2025.

Daniel Arias: Okay. Okay. And then just maybe on the quarterly pacing for the $20 million or so that kind of feels like you’re tracking pretty consistently. Is the simple way to think about the back half of the year and the roughly $40 million left under the guide to divide them equally? And along those lines, are there any differences that you would call out when it comes to the sources of that revenue, new customer formation or ups and downs in terms of account types, et cetera?

Adam Taich: Sure, Dan. I think the way you’re thinking about that is great. I mean, I don’t want to provide specific quarterly guidance on the top line. But I mean you can — we’re halfway through. And so the math is fairly simple from that point out. We do expect we’ll continue to see uptake on the authorized sites. So you start to see more of that as we progress through the year. That said, it’s still a fairly small number of sites. We would expect that to be a little lumpy. And we’ve got a really nice pipeline on the services side of the business. And so I would expect the complexion of the business certainly won’t change overnight. There’s going to be ebbs and flows as it relates to mix between services and the product revenue, the kit revenue. But I think we would expect more of sort of what we’ve been seeing here in the first half.

Operator: Our next question comes from the line of Dan Brennan of Cowen.

Daniel Brennan: Maybe just on the kit business. You talked about doubling the number of sites. How many are in total today? So where do you expect to end the year? And then can you walk through some of the experience that the customers are having with these kits, namely what’s the kind of output they’re getting versus if they were to send the results to your lab to run in Colorado? Are they the same? Kind of what’s the training required for that? And then kind of any flavor just on the initial spending per customer for kit how that’s working out.

Adam Taich: Sure. Thanks, Dan. Yes. So when we did our year-end release, we had 8 sites — 8 authorized sites up and running. We made a commitment to double that by the end of the year. We’re well on track to do that. we’re on pace to have at least 16 sites by the time we ended the year. It’s really important that we’re not only selecting fantastic partners, which we have been. But to your point around output, it’s extremely important that these sites are successful. And so we’ve been investing, and it’s one of the areas we’ve invested in. It’s still relatively small on a sort of a broad scale, but compared to where we were a year ago, we’ve invested heavily in field application support. We really need our customers, and particularly, in those geographies that we haven’t been able to reach with the services offering, China being a great example of that.

It’s critical that the customer experience and the data and the output that they’re getting is consistent and equivalent with what they’d be getting if they were sending samples to us in boulder, and that’s what we’re seeing thus far.

Daniel Brennan: Just on gross margins, could you walk through a little bit more color about why the lowering. I know you cited royalty revenues, but they were kind of this into 1Q. So I don’t think we were aware that, that was a big driver of your guide for the year. Is there any impact from the kit versus the service side of the business? Just some more color on kind of gross margins.

Adam Taich: Sure, Dan. Let me start with that, and then I can turn it over to Eliot for additional color, if needed. What we really saw coming out in Q2 was less around sort of the product mix between service and kits and just more as we’re ramping up our manufacturing campaign as it relates to 10K. We had a significant production ramp and some associated manufacturing variances as we were ramping up in Q2. Eliot, anything you would add?

Eliot Lurier: No, I really think it’s a mixture of that. We had the variances in Q2. And then if you’re comparing the prior period, you’ve got royalty revenue with no cost of goods.

Operator: Our next question comes from the line of Brandon Couillard of Jefferies.

Brandon Couillard: Adam, on the 10K Plex assay launched in the fourth quarter, can you just talk about level of customer interest in that rollout. How much of the current services business you expect to convert to the 10K assay? Or will there still be some customers that order the old assay and maybe the power on just the pricing premium that you might capture from that expanded content?

Adam Taich: Sure. Thanks, Brandon. As it relates to pricing, we’re in the process of working through that now. So we haven’t announced pricing commercially for 10K. So stay tuned on that one. As it relates to 10K, I mean, look, the proteome is vastly underutilized and it’s undermeasured, right? So similar to what we’ve all experienced in the genome, a full mapping of the proteome over time, we firmly believe is going to lead to substantial discoveries about mechanisms of action and various other insights around disease state. And by the time we get out there with 10K, our technology is going to measure half the human proteome in every sample, which is truly remarkable and market-leading. So we’re seeing incredible enthusiasm around it.

As it relates to who will stick sort of on the 7K, certainly, there are some studies that are out there where folks are maybe only halfway through kind of a cohort, and they’ve been running it on 7K. I can see in some of those folks sticking with 7K. And we are going to make that available for customers for a period of time until we sunset that. But I would expect that we’ll see most of our customers as we move into 2024 transition immediately to the 10K content.

Brandon Couillard: Okay. Got you. And then just in terms of your interim title and then Eliot coming on board with interim titles. Can you just kind of unpack why that’s still the case and maybe any update on, I guess, what seems to be still ongoing search process, maybe hadn’t just finalize it?

Adam Taich: Sure. Sure. Well, yes, we can parse the two roles. On the CEO side, I am maintaining the interim title for the time being. The company is not conducting a CEO search. And I’ve got to say the Board has been extremely supportive of me over the last couple of months. As it relates to — on the CFO side, we’ve really just been investing our time and effort getting Eliot up to speed. So it goes without saying we need absolutely excellent financial leadership. And really since the time that Eliot stepped in the door, we’ve really just been working to get him up to speed and ensuring that he’s got the resources to do a tremendous job for us, and we’ll keep you posted on that front as we move forward.

Operator: Thank you. That does conclude our Q&A for today. I’d like to turn the call back over to Adam Taich for any closing remarks.

Adam Taich: Well, first of all, I’d just like to thank everyone for joining us today and your ongoing interest in SomaLogic. We look forward to speaking to you next quarter. Thank you so much.

Operator: Ladies and gentlemen, this does conclude today’s conference. Thank you all for participating. You may now disconnect. Have a great day.