Phenomex Inc (BLI) 2022 Q2 法說會逐字稿

Thank you for standing by. Welcome to the Berkeley Lights conference call.

I would now like to turn the call over to Suzanne Hatcher. Ms. Hatcher, please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to Berkeley Lights Second Quarter 2022 Earnings Call, reporting financial results for the quarter ended June 30, 2022.

My name is Suzanne Hatcher, Vice President of Communications and Investor Relations at Berkeley Lights. I'm joined today by Dr. Siddhartha Kadia, Chief Executive Officer; Mehul Joshi, Chief Financial Officer; and others from the management team.

Before we begin, I'd like to remind you that management will be making statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. For more information, please refer to the risk uncertainties and other factors discussed in our SEC filings.

Except as required by law, Berkeley Lights disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as the live broadcast on August 9, 2022.

With that, I would like to turn the call over to Siddhartha.

Thanks, Suzanne, and thank you, everyone, for joining us. In our call today, I'll spend a fair amount of time discussing Berkeley Lights updated near-term strategic plan, and then, Mehul, our new Chief Financial Officer, will review our second quarter 2022 results.

Since joining Berkeley Lights in early March, I've become even more confident in our market opportunity and enthusiastic about the advantages of our differentiated technology. On our last earnings call in early May, I shared my plan to spend my first 100 days at Berkeley Lights reviewing of business strategy, recruiting for key leadership positions and engaging with key stakeholders. I have assessed the company's current situation comprehensively, speaking with customers, investors, employees and industry partners to make informed decisions on how to move the company forward.

It is clear to me that the Berkeley Lights technology has pioneered an entirely new process by which functional biology at a cellular level could be researched and applied in therapeutic discoveries with unprecedented speed. However, to enable adoption of this technology, we must evolve our organization. The new Berkeley Lights leadership team and I are turning the page and focusing on building a diverse life sciences tools and services company with a culture of innovation, customer centricity and a commitment to excellence in quality.

We have updated our near-term strategy and execution plans focusing on 5 key pillars. Number one, generate positive operating cash flow by early 2025. We will do this by building a growing profitable and sustainable business versus pursuing growth at any cost. This will be accomplished through revenue acceleration, supported by updated market-driven product portfolio and pricing strategy and disciplined expense and cash management.

We expect to generate positive operating cash flow at $150 million of revenue. The management has taken an initial step to reduce operating costs through a global workforce reduction of approximately 12% in July 2022 and an optimized business structure and processes. This resulted in an immediate decrease in operating cost and working capital requirements. In conjunction with other cost-saving initiatives, we expect to reduce our cash burn to approximately $30 million in 2023.

Number two, prioritize R&D return on investment through increased focus and rigor on development initiatives. We will only dedicate resources for the highest value projects. In our partnership and services business, this means that the high throughput functional screening service agreements must support our margin and profitability goals as well as create the opportunity to participate in downstream economics such as milestone payments and royalties where appropriate. In the near term, we are committing resources to partnership and services business to accommodate the growing interest from a diverse set of companies in partnering with us, specifically in the gene therapy via vector development and manufacturing space, where there is significant market demand, and our technology provides a highly differentiated solution.

In Q2, Berkeley Lights validated the unique capability of our platform to select and retrieve high-value, stable producer cell lines that will improve the cost and therapeutic relevant yields for manufacturing AAV-based gene therapies. The Berkeley Lights workflow takes roughly 10 days to screen up to 3,000 cell lines, enabling an unprecedented time line and throughput that allows us to discover rare clones at a speed and cost that no other technology can match. The cost of AAV production is widely regarded as the most significant constraint in this segment of the gene therapy industry, and we believe that Berkeley Lights technology is the long-sought solution.

There are a growing number of AAV clinical trials every year, with 353 clinical trials and clinical studies in 2021 and projected to reach 850 by 2025. We will partner with CDMOs and gene therapy companies to enable them to meet the largely unmet demand of the significant number of potential growth to hit the market in the next 10 years. Given initial market and customer interest in this Berkeley Lights capability, this could be game changing in the industry and the company's largest return on investment opportunity in the near term.

While our partnership and services team has experienced strong demand for many applications, we intend to dedicate a majority of that team to the development of this workflow in the balance of 2022 and in 2023. We believe another emerging opportunity is in TCR discovery. As communicated in a press release last week, Berkeley Lights partnered with the Jaime Leandro Foundation for Therapeutic Cancer Vaccines to demonstrate that our high throughput screening platform can be used to discover novel T cell receptors from patient blood in a 1-week workflow. TCRs offer a powerful new therapeutic modality to target some of the most challenging human diseases, but has been historically limited in market adoption because the difficulty to discover TCRs that have proven to be functional against their target antigen. Now that we have validated our platform can repeatedly isolate functional TCRs, our partnerships and services team is actively exploring commercial partners interested in this significant opportunity.

I'm also excited about the strategy of our instrument platform business. We plan to launch 3 new configurations of our system in the next 3 years, details of which I will share in just a few minutes. Finally, we will seek out commercial or technology partners who are relevant or explore developing a strong out-licensing technology model. We are currently in discussions with several potential industry partners for cell therapy initiatives.

Number three, deliver consistent commercial execution through a new sales structure and enhanced product portfolio and pricing strategy. We made 2 internal appointments over the last quarter, promoting Dr. Yue Geng to General Manager of the platform business and Dr. Troy Lionberger to General Manager of the partnerships and services business. Both Yue and Troy have been with Berkeley Lights for more than 6 years. They have previously served in sales and commercial positions at the company and have a deep understanding of our technology and end markets. I'm grateful for their ongoing leadership and confident in their abilities to lead our team to the next phase of growth.

We have completed an in-depth analysis of our markets and unmet customer needs in various segments. Our well-recognized capabilities in antibody discovery and cell line development have enabled many biopharma customers, CROs and CDMOs, in their therapeutic discoveries and development. We believe our technology can also provide significant value in high-growth academic research segments, for example, gene editing and immuno-oncology applications. We have started to form academic collaboration pilot programs to help inform the design of these new applications.

Turning to our product and pricing road map. We recognize the need to provide optionality for customers to access our technology. To support this, we are materially enhancing our approach to the market with the introduction of a more flexible configuration and pricing strategy that encompasses the total cost of ownership.

Beginning in 2023, we will launch application-specific models of the Beacon system each year, culminating in the launch of the Beacon light platform in 2025, a low-cost benchtop device with segment-specific versions. We believe broadening our portfolio of platforms will allow us to access a wider array of potential customers in the market with products that are more tailored to their needs and budgets. In addition, we'll expand our access programs that offer financing options.

Number four, build a world-class leadership team with a proven track record in profitably scaling life sciences tools companies. On our last call, I shared our goal to build a world-class life sciences leadership team and bring onboard individuals with proven track record of success in our industry. Since then, we have announced 3 key executive leadership hires: Mehul Joshi as our new Chief Financial Officer; Dr. Rolando Brawer to the newly created position of Executive Vice President of Strategy and Corporate Development; and Lucas Vitale as Chief Human Resources Officer. I'm thrilled to welcome Mehul, Rolando and Lucas to the Berkeley Lights leadership team.

Mehul has more than 25 years of experience in financial leadership roles. His wealth of financial and operational knowledge, experience building and leading global finance teams and strategic mindset will be invaluable to our efforts to fully unlock the value of Berkeley Lights. Rolando is a highly experienced corporate development leader with robust scientific expertise. Rolando most recently served as Vice President of Services & Technology (sic) [Science & Technology], Alliances & Ventures at Danaher and in several corporate development positions at Exact Sciences and Genomic Health. Rolando's experience also including leading Thermo Fisher Scientific's global strategy for out-licensing and commercial supply for the company's Life Science Solutions Group.

Lucas Vitale brings more than 20 years of human resources experience in the life sciences and medical device industries. Prior to Berkeley Lights, he served as Senior Vice President of Human Resources at Arena Pharmaceuticals and Chief Human Resources Officer at NuVasive. Prior to that, Lucas spent 10 years at Life Technologies, where he was an integral member of the global HR leadership team and served on the company's acquisition and integration team where he supported the scaling of the company from several hundred to nearly 10,000 employees.

As I discussed in my first earning call in May, my own experiences helped me with scaling life sciences businesses in both public and private equity-based companies. My leadership team and I are putting in place processes to shift to a performance-driven culture across all functions. This will be critical to our efforts to effectively scale our business and advance our market position through targeted investments and strong execution. Collectively, the new leadership team has the experience needed to build a diverse life sciences tools and services company.

Number five, evaluate M&A opportunities that will help us accelerate profitable growth and leverage our current cost structure. Over the past quarter, we have conducted and synthesized market research to understand customers' unmet needs and competitive dynamics. This research will help us formulate data-driven decisions on what markets to expand into and what inorganic options to be complementary to our business and technology.

We expect to pursue synergistic merger and acquisition options that expand our total addressable market and/or provide leverage to our SG&A and R&D expense structure. We believe by focusing on these 5 pillars that I described, we can transform Berkeley Lights from a technology platform company to a diverse life sciences tools and services companies. We will continue to advance the important changes to our business through the rest of this year to lay a strong foundation. We have immense opportunities ahead of us, and we have a strong plan in place to achieve our strategy to create value for our shareholders.

Now I would like to turn the call over to Mehul to discuss our second quarter 2022 results.

Thank you, Siddhartha. I am excited to join the Berkeley Lights team and eager to build on the company's strong foundation as a revolutionary innovator and continue to help scientists make extraordinary breakthroughs. Looking at our results for the second quarter 2022.

Total revenue was $19.2 million, down 1% compared to second quarter 2021. By geography, North America accounted for 52% of total revenue in the second quarter, followed by APAC at 37% and EMEA at 11%. During Q2, we experienced the same macroeconomic conditions that our industry is facing, including elongated sales cycles and tightening of CapEx budgets.

Direct platform revenue was $6.4 million in the. Second quarter of 2022 compared to $11.4 million in prior year. Our installed base grew by 5 placements during the second quarter of 2022 to a total installed base of 120 platforms. Recurring revenue was up 50% to $5.9 million in the second quarter of 2022 compared to $3.9 million in prior year. Revenue from the partnership and services business increased by 74% to $6.8 million in the second quarter 2022, compared to $3.9 million in the prior year. Gross profit for the second quarter of 2022 was $12.9 million compared to $12.7 million in the prior year.

Gross margin for the second quarter of 2022 was 67% compared to 66% in the second quarter of 2021. The increase in gross margin year-over-year was due to a higher mix of recurring revenue and partnerships and services. We expect the company's strong gross margin to provide significant operating leverage as we execute our strategy. Operating expenses in the second quarter of 2022 were $38.5 million, inclusive of $6.6 million of stock-based compensation compared to $30.6 million in the prior year, inclusive of $5.6 million of stock-based compensation.

Operating expenses in Q2 2022 included $18.2 million in R&D, $13.0 million in G&A and $7.3 million in sales and marketing. Net loss for the second quarter of 2022 was $25.7 million compared to a loss of $18.2 million for the prior year period. All net loss numbers are inclusive of stock-based compensation. We ended the quarter with cash and short-term investments of $152.4 million. Our available liquidity is $162.4 million, which includes our revolving credit facility.

Now turning to revised guidance for full year 2022. Following the strategic business assessment by management, Berkeley Lights now expects full year 2022 revenue to be approximately in line with full year 2021 revenue as we put in place processes to execute against our updated business strategy. As Siddhartha discussed, we are laying a strong foundation this year to achieve our goal of generating positive operating cash flow by 2025.

With that, I will turn the call back to Siddhartha.

Thank you, Mehul. As I close out my formal remarks, I wanted to reiterate that I have enormous confidence in Berkeley Lights and our ability to capture the opportunities ahead of us as we accelerate adoption of our technology. The changes we are making will help us manage our cost and focus on the right objectives to build a growing profitable and sustainable business. We look forward to sharing progress achieved against our new operating strategy in the coming months, including an Investor Day planned for later this year.

With that, we will now open it up for questions. Operator?

(Operator Instructions) We will now take the first question from Tejas Savant with Morgan Stanley.

Siddhartha, one for you to kick things off here. I know you mentioned this plan to launch app-specific instruments starting in '23. Can you just elaborate on what that means for your subscription model? Are you now sort of deemphasizing that in favor of a more CapEx-focused model?

Great question, Tejas. No, I think we are going to continue to provide access models and, in fact, are going to add more sort of lease-to-own financing as well. But as we have learned, some customers actually like to buy it outright. And for them, we want to offer more flexible pricing and reduced features when appropriate.

So we are going to actually bring down the sort of continuum of our pricing all the way to the launch of the benchtop device. But throughout the next 3 years, we will actually focus on total cost of ownership. So not just focusing on a platform itself, but what will the price of consumers going forward. And we have a pretty good model that we run through that creates net-net sort of positive value by doing that over the next 3 years.

Got it. That's helpful. And then in terms of your plan to launch low-cost Beacon light, I think you mentioned 2025 there. How exactly would that be different from the Lighting platform that you have on the market today?

It's going to be significantly reduced version of the Beacon. Lighting and Beacon are very different in -- sort of not going into all the technical details. But there are some features about Beacon that customers just absolutely love and have come to appreciate.

Lightning was a good concept for an academic market, but the price point was still significantly high. And as we look at sort of broader adoption of our technology in cell biology community, we believe that we can significantly reduce the cost structure and bring the applications that are specific to generating workflows, immuno-oncology workflows as well as the lower cell biology level at the environment. So it's a totally different platform compared to what Lightning was.

Got it. And just a follow-up there. So is it fair to assume that the Lightning is now essentially shelved? And then last one for me. Just curious as to your thoughts on the cell therapy manufacturing system and time lines for that.

Yes, great question. So on Lightning, it is not shelved as much as we're going to use the Lightning as a way to collaborate with the academic community. So that we can see the next innovation platform is designed to fulfill all of their needs and no more and no less. So we're going to use sort of reduced versions of Beacon as well as Lightning to work with the academic community in the next 2 years to inform our sort of full launch of that Beacon light platform.

On the cell therapy manufacturing systems, we have decided that we will not do that alone, that we will actually find a commercial partner. As you know, it's an incredibly hot area. I mean a lot of sort of regulatory expertise required and investment required that, frankly, Berkeley Lights alone should not do. And as such, we have very unique and differentiated things we bring to table, but we don't bring the commercial capabilities on the real table. So we are in active discussions with multiple players who are very interested in accessing our technology for the cell therapy manufacturing space.

Your next question comes from the line of Dan Arias with Stifel.

[Siddhartha], you mentioned that focus on total cost of ownership. It sounds like you have your hands around the model there. I'm just curious what that model sort of spits out and suggests might be the breakeven time line for a customer where a lab can recoup the investment that's made.

I think it depends on the customer's application. For some customers, Dan, I think they are actually already getting significant benefits from Berkeley Lights platform. And the ROI is paid up as soon as they buy it and as the workhorse Beacon tool actually becomes live in their lab.

In some customers' case, depending on the application need, it may be a longer cycle. And that's exactly what we are focusing on is to meet the customers where they are on their workflow needs.

Okay. Helpful. And then just maybe on the general strategy and going back to the prioritization exercise that you've undertaken. Can you just maybe give us a sense of what isn't making the cut and maybe what you won't pursue just so we can draw a distinction between sort of the old scope of the business and the new scope of the business?

Yes. Good question. I think it's actually not that inconsistent except for one very large theme, which is that we are not pursuing growth for the sake of growth. We are absolutely focused on profitable growth and becoming cash flow positive by 2025. So it is not as such which initiative, it's really which projects we would pursue and which projects we would not pursue. We are still going to be in a business of launching technology platforms that I described. In fact, more of them, but with an increased focus and doing that quickly enough to meet the customers' needs.

And then second, on services and partnership side, we are not going to try to be everything to every single potential customer. Even though we possibly could apply our tools to a large variety of applications, we're going to pick our battles for where we think is the highest potential return of our investment of working with our customers where there's a very significant market demand. And I think the AAV vector workflow is a great example of that.

We were working with several different customers on multiple applications, but we are finding that AAV vector workflow is so powerful and such a large demand from a variety of participants in the market, CDMOs, CROs, but also gene therapy target companies themselves that we believe that, that's a place where we would like to dedicate more resources than reduce some resources from other projects.

Okay. Okay. And if I could just squeeze a third one here just on the executive hires and the C-suite, what percentage of the key leadership positions do you have filled out at this point? And if there are some key roles that still need a person to be slotted in there. What's the outlook for getting that done?

I think, we are largely there. I would call it 80% mission accomplished.

Your next question comes from the line of Brian Weinstein with William Blair.

So maybe you could talk a little bit about the reduction in force that you guys are implementing the 12%. I don't think I heard and if you said that, I apologize, but specifically, where the workforce reductions are hitting the most in terms of the different pieces of the business. And then I have a couple of other follow-ups for you after that.

Yes. Brian, thank you for the question. We basically optimize our business structure, the business line structures, the platform business and services business. And we went through highest value projects and took reductions where needed. Most of this about 40 employees, most of this actually from our North America-based businesses, but there are some global roles. We believe this structure is actually pretty consistent for the growth that we need.

So I think it was a right thing to do. Again, going back to the principle of not pursuing growth for the sake of the growth, we are actually taking a very surgical approach to project by project and have been very critical into thinking about where are the resources needed going forward for the next 2, 3 years.

Understood. And then one kind of short-term question and one longer-term question. But on the short term, if you're talking about 2022 being similar to '21, it implies the back half really has no growth. But you have announced some recent deals here. Is that simply just a reflection of kind of what you're saying, not pursuing deals in the second half of the year that are kind of growth of any cost and being a little bit more cognizant of that? Or is that a reflection of the end markets being a little bit softer with funding concerns? I'm just curious about the flat year-over-year growth that you're talking about in the second half.

And then if I can just ask the third question now, which is you talked about operating cash flow in early '25, and I think you said that, that's kind of a $150 million run rate, which at a 70% gross margin, of course, implies operating expenses of about $100 million run rate or so.

That's well below where you guys are today, even, I think, taking into consideration some of the reduction in force. So I just want to better understand the operating expense structure that you think that you will need to kind of be at that breakeven and just sort of how you get there to dramatic difference, I think, from where you're at today. So sorry for all the questions. Hopefully, that makes sense.

Brian, this is Mehul Joshi talking here. So just on the updated guidance. So just wanted to mention again that this guidance was determined by the new management team and the structure we've put in place.

But just generally, we are experiencing some macroeconomic implications, just like the rest of our industry, tightening of budget, prolonged sales cycles, et cetera. That being said, our pipeline is still very strong. We expect acceleration of our tool sales in the second half of this fiscal year, somewhat driven by historical seasonality, but also supported by the our third pillar in the strategy around commercial execution. Recurring revenue will continue to grow year-on-year as our installed base grows and demonstrates the value of our platform.

And then finally, on the service business side, as Siddhartha mentioned, we are really focused on going after contracts and customers around those 2 areas that he talked about. But also, I'd like to mention that the R&D phase of several service projects have ended. And we are opportunistically shifting those resources to the viral vector development and manufacturing as well as TCR discovery to support our strategic pillar where we are prioritizing R&D investment. So this will create a bit of a slowdown in the second half of 2022 revenue for the partnership and services business.

Yes. And Brian, right? I think I'm going take the second question that you asked, which was about the OpEx structure. Our current OpEx structure includes stock-based compensation. So if you exclude that, you're right. You did the math correctly, we are ending up in $95 million to $100 million range. And as we did the realignment of the business, not only we have reduced the head count, we've also significantly reduced our overall cost structure for next year as well. So for example, our cash burn in 2023 is expected to be around $30 million.

Okay. I appreciate all the clarifications and comments and all the detail around the new structure.

Your next question comes from Julia Qin with JPMorgan.

Just solely on the question on guidance. Can you maybe give us some more color on your comments in hitting that full year guidance number, considering that there might be potential organizational disruptions and considering the current customer CapEx budget environment that you mentioned. I know you alluded to commercial execution. Are you mainly referring to being more flexible on pricing? Or are there other additional efforts you're pursuing that supports your confidence in the second half?

Julia, thank you. This is Siddhartha. Great question. Look, I think our guidance is inclusive of both the risk as well as upsides that are reflected in what we communicated to you. We feel pretty good about that guidance. Of course, there are significant changes that organizations continue to go through as the new management team does its job implementing -- putting in place the processes to improve our commercial execution, and which will include recruiting for new salespeople, making sure the regional management team is working well and that people are using the sales tools efficiently that we are putting in place right now. Having said that, I think we feel pretty optimistic about the guidance and pretty strong about the number we are putting out there.

Got it. That's helpful. And one clarification on the new product pipeline. Can you help me understand what's the difference between the application-specific model that you're launching next year versus Beacon light?

Yes. I think in Beacon light, we'll also have application-specific tools. One of the things we are implementing is to make sure that the customers are accessing specifically the tool only for the applications they are using. So making changes into our consumables and software. So an instrument box can work with the applications that customers were mainly interested in, which allows us to lower the cost of the tool because that tool cannot be used for other applications and actually it becomes more efficient tool for that application. In other words, a tool will be used for cell line development will only be used for cell line development and will not be able to be used for other applications, but it will be more efficient for cell line development to use.

Got you. That's helpful. Last one from me in terms of business development and M&A opportunities. Could you give us more color on what kind of opportunities or targets you're thinking of? And also, if you could touch on the out-licensing opportunities you mentioned, that will be good as well.

Yes. Thank you, Julia. So I think we have been that actually have done this before, right? As you can see from the management team that we are bringing on board, we've all kind of been there, done that in life sciences tools industry.

Life sciences tools industry is actually built for continuing to expand both the addressable market by technology acquisitions. We will only pursue technology acquisitions when they are revenue-accretive to us and that they actually makes sense to our kind of stated strategy of generating positive operating cash flow by early 2025. And as you know, we are recently taken public company with a significant infrastructure that is very capable on SG&A and R&D platform. And anything that provides us with leverage, we will continue to look at that.

We are very selective about that. We studied the market evolve. We know where we want to place our bets. And frankly, given the market dislocations that the market is experiencing right now, we believe in the next 2 years, there will be significant opportunities for a strong leadership team to go and pursue inorganic growth.

Coming back to your second question on partnership opportunities. The whole industry is kind of built -- if you go back to 25, 30 years, there's so much cross-licensing between different market participants here. Berkeley Lights has truly unique and differentiated platform that's been homegrown and only utilized by the team that is internal here. We've built a significant and formidable intellectual property position in the marketplace. And there's literally nothing else in the market that can be compared to Berkeley Lights, an ability to do 2 things. Berkeley Light cells move then with lights without [the signal]. And number two, keeping them alive. This is perhaps less understood part of Berkeley Lights platform. If we can keep ourselves alive, which means in all applications you could study those cells after we've actually done some original biological functional asset on them.

So the whole biology community is asking 2 different types of questions. What is happening to different cells under disease condition, under different conditions. And why is it happening? The only technology that can allow us to do both is our technology because we keep ourselves alive throughout that process. So instead of doing all of that ourselves, we would like to pursue opportunities to license our technologies to others who may be stronger in other parts of that question of why and partner with them. And at times, we might go and acquire the ability for us to answer the question why the sales are doing that. Hopefully, that explains you more clearly what we mean by licensing.

Your next question comes from the line of Steven Mah with Cowen.

Apologies if you guys said this already, but maybe I need a little bit more color on the application-specific instruments and the Beacon light. Is that more for the CRO and CDMO channels? Or what specific channels are those for, individual labs or companies? Give us a little color on that.

Yes, Steven, great question. Actually, CROs and CDMOs who are used to using Beacon, they use it as a workhorse, and we are not actually going after that market with these tools. These tools are more specifically designed for small- to medium-sized biopharma companies as well as sort of large academic medical centers and smaller -- call it smaller CROs and CDMOs, which are emerging, not the large ones. And as you notice both in -- all applications right now, there is a significant amount of kind of money that has gone into emergence of smaller players, which might have need for flexible budgets, and that's where we are going with these application-specific models.

Okay. That's helpful. And then a follow-up question, talking about CROs and CDMOs. Can you talk about the trends you're seeing in terms of beacons into those channels, as you know, space or just cash conservation and capital expenditure budgets get squeezed?

Yes. This is Mehul. So we are still seeing a continued growth in this CRO, CDMO space relative to beacons followed by pharma. And then the academic market is also starting to pick up in terms of sales.

Yes, just to give you a little bit more color, all 5 of our placements were for new customers. And CROs and CDMOs, when they buy vehicle, they are some of the highest users of our consumables. And I think one thing I wanted to point out, which is sort of in the numbers, but our recurring revenue numbers are starting to grow very robustly and the idea of creating a truly razor-razorblade model from Berkeley Lights platform is becoming a reality as we look forward to the next 2, 3 years of plan. And our entire plan is built on putting more beacons in place or whatever you want to call them, Beacon lights, Beacon select and Beacon lights in place over the next few years. And -- but go after that recurring revenue stream, both from a warranty-related services as well as consumers that come with that.

Okay. Great. That's helpful. And if I could sneak one more in. And this is a follow-up on the reduction in force questions you already had. But I'm just wondering if the risk will potentially impact the cadence of signing of new R&D partnerships? And if -- what should we expect as far as news flow and workflow releases from your existing partnerships? And will those be impacted by the risks?

Yes. Steven, great question. On services and partnership model, I would think about the business not in terms of just the number of partnerships signed, but the value we are bringing to the partner and how deep we are going into capturing that workflow and serving our customers' needs. So an example of AAV vector workflow, the value provided is tremendous.

From what I understand, the manufacturing capacity for gene therapies is significantly constrained by this one issue. And we -- at least in the early experiments that we've proven now that we have the solution for that, a significant demand, but we can only serve so many people well.

I think -- I've run services business before, Steven, and it is important to serve the current and existing customers really well and not trying to overbuild for growth because it doesn't build a sustainable business. So this doesn't probably give you the exact answer that you will need for your models, but we are not focused on a number of customers. We are focused on growing that business robustly in strong double digits for the next 3 years.

Your next question comes from Mark Massaro with BTIG.

I guess, Siddhartha, the revenue from -- the recurring revenue grew 50% year-over-year. That's the fastest rate of growth since Q1 of '21. So I guess what I'm -- what my question is, is that a reasonable target to consider for the back half of the year? Do you think that could be a potential run rate recurring revenue growth? Recognizing it is off of small numbers. But I guess what I'm trying to get at is we all have to lower our Beacon estimates in terms of placements. So just help us figure out a way to sort of rightsize the recurring revenue run rate with what the Beacon placement run rate might look like going forward.

This is Mehul again. So I think you kind of almost answered the question yourself. As we put more placements in, the recurring revenue growth rate will likely not stay at the 50%, but it will be in somewhere between the high 30s to [250], and it will fluctuate over time.

Okay. Maybe another question. To what extent are you committed to the current configuration of the Beacon? There had been some industry concerns that at a $2 million price point, that sort of boxes out a lot of potential users. So yes, so multipart question, how committed to you are -- how committed are you to the Beacon as currently configured? And then can you just provide a little more clarity around the 3 new configurations over the next 3 years? Should we expect on each year? And when should we expect the first configuration to be deployed commercially?

Yes. Fantastic question, Mark. We are already doing a pilot in Q4 for one instrument right now. It's already been through the development cycle, pretty strong demand for cell line development application for that. We launched that commercially in 2023, most likely in the first half of 2023.

In 2024, we will launch another unit that will be even at further reduced features. That will be more specific to applications required by generating workflow and immuno-oncology applications. And then finally, that will culminate into our innovation work that is going on and significantly taking the cost out of the Beacon platform.

Remember, Beacon platform was actually launched 5, 6 years ago, and all the supply chain and all the technology used in it were 80 years ago, okay? The technology team has, for the last 6, 7 years, have continued to experiment with bringing the same technology, not all the features, but most of them that are used by customers at a reduced cost. So we've got a lot of in-house work that has gone on into taking the cost out of what we call the Beacon, which is why the Beacon light is the phase we are using for Beacon that is going to be launched in 2025. But we have significant headroom on taking the cost out there.

Okay. I also want to ask about -- go ahead. Go ahead.

But just to make sure I answer your question about how committed we are to Beacon. We are absolutely committed to supporting customers who are actually interested in buying full Beacon platform. But we are also aware of the fact that, that $2 million price point is not the right price point for everybody, which is why we are launching new versions with the reduced features in '23 and '24 as we make the bridge to the '25 with a much larger adoption by a very wide range of cell biology laboratories.

Okay. Is there a point in time where -- or maybe that point in time could be now. Can you give us a sense for -- so if $2 million might be a little out of reach for some, how are you thinking about the different pricing configurations? I mean presumably some may be below 1 million. But can you give us a sense for what you think the sort of the appetite is in terms of the capital expenditure for the system?

Yes, it's a great question. What I'd like to do is to address this at the later Investor Day. What I will give you a little bit of a hint on is that it is not just the placement of pricing of the instrument. It will also be what will be the cost of consumables when the cost to own and access the technology is reduced. We will modify the cost of consumption along with that. And we have a pretty strong model that shows that actually right from get-go, if we do it right in 9 months after the platform is acquired, it becomes a cash flow positive event for us.

Okay. I also wanted to ask about recognizing that you're both new in terms of having an operational role at the company, but just going back to the original guidance for the year, it was 30% growth. Now you're guiding roughly flat. It's a $26 million delta. So like in simple terms, that could be as little as 13 system placements, right? But maybe it's not that simple. So maybe can you help us maybe better understand what the delta is between the current guidance and what it was at the beginning of this year and what the factors are?

I think Mehul went through it again, but we can go through that again for the sake of clarity. It really is, one, I think the most important backdrop that you would appreciate is that -- if I was asked about the guidance and the forecast when I first started, which was my day number 30, and I was evaluating what the current progress is. A lot has changed in the macroeconomic environment, and the capital cycles in life sciences tools industry have leveled. There are significant challenges being faced by not just us, but many companies, a large part of it is that.

Another part of it is applying our judgment and, frankly, not pursuing growth for the sake of growth. And I can tell you that we are in a much better shape to have profitable growth. We believe that we will be turning the page as we move into 2023 with a significant growth ahead of us.

Okay. If I can ask one more, and then I'll stop, I promise. The -- you've had some time to assess the business and the end markets, of course. The initial total addressable market from the management team I think was somewhere in the $23 billion to $25 billion range, primarily driven by cell therapy at $15 billion, $6 billion for antibody therapeutics, viral vectors and synbio $2 billion each. Do you still agree with the size of the market? And maybe just comment about anything that you think may be different from how you see the opportunity now in the end markets versus how this was sort of presented to investors back at the IPO.

Yes. Good question. Right now, we are in the middle of a pretty significant customer research project. When we are ready to have an Investor Day, we will actually debrief you with a full estimate of our sort of what is the current addressable market as we study it in full depth. My instincts tell me right now, based on the early data, that it will be smaller than what was estimated at the time of the IPO. But it is still in the billions of dollars.

Your next question comes from the line of Gaurav Goparaju with Berenberg Capital Markets.

Just 2 for me, I'll run by you guys. So should we expect pretty consistent or at least similar direct platform sales segment revenues to continue to, I guess, remain at that deescalation growth that they're at right now? It seems like it's kind of hovering around 36% to 40% at that rate relatively in the near term? Or do you think this is something that we should expect to kind of have a turnaround relatively quickly?

Gaurav, this is Mehul.

Meaning, like in a year or so. Yes.

This is Mehul. So I think we're -- our guidance was relative to 2022. We haven't really provided any guidance around 2023. But as I mentioned in the 2022 guidance, we do expect acceleration of the tool sales in the second half of the year relative to the first half of the year. And again, some of it is cyclical, but it's also supported by some of the commercial execution things that will occur around the platform as well as pricing that Siddhartha kind of talked through. So we do expect acceleration in the second half of this fiscal year.

And as I mentioned, we should see a little bit of a slowdown on the subscription or the platform and services businesses as some of the contracts, the R&D contracts have now ended. And we are refocusing our resources on the higher value areas that, again, Siddhartha talked about.

Got it. That's helpful. And then just one more for me before I let you guys go. More of a general question. How do you guys look to -- looking at the public view of the company, right? How do you look to correct that messaging of the company to the market? The reason I ask is the general public perception of the company in the market, given the last 12 months or so isn't the most favorable. So any color on initiatives in that sense on communicating the strategic focus on bigger scale would be helpful.

Gaurav, that's a fantastic question. I'll tell you, I've been in the life sciences industry for 20 years. I was also new in the context of all of that, that is going on, the company and the perception.

My first task was to understand the value and the power of this technology. I was sitting on a Board for 2 quarters before them, I can tell you, by being in the company, I am super excited about the power of the technology. I think it's forgotten perhaps in the -- all the publicity event that this technology was already used in the most important public health crisis of our time, which is to discover the first COVID antibody. And since I've been here, I have seen amazing impact on things that no other technology can do and allowing scientific breakthroughs to happen through the use of Berkeley Lights technology.

I'm also incredibly encouraged by passion of our employees. We are a small company. Everybody here is here because they have a purpose. They want to change the world and have an impact. And then finally, I think what was missing from the company, and this is all only time will tell everybody, the leadership team coming here is experienced, knows what we are doing. And we are putting in place what was missing in the company, which is a commercial acumen and fiscal discipline. But as I said, only time will actually change the narrative, as you know.

There are no further questions. Thank you all for attending the Berkeley Lights second quarter call. You may now disconnect.