Standard BioTools Inc (LAB) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Fluidigm first quarter 2014 financial results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will follow at that time.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now to turn the conference to our host, Un Kwon-Casado. Ma'am, you may begin.

Thank you. Good afternoon, everyone, and welcome to the Fluidigm first Presenting for Fluidigm today will be Gajus Worthington, our president CEO and Vikram Jog, our chief financial officer. This call is being recorded and the audio portion will be archived in the investor section of our website.

During the call and subsequent Q&A section, we will be discussing plans and projections for our business, future financial results and market trends and opportunities including, among others, statements regarding expectations for the single-cell biology and production genomics market including future market conditions, prospects and growth opportunities, our future product launches and other business strategies, the integration of our proteomics product line, expectations regarding future sales, revenue, opportunities, objectives, and financial performance of our proteomics product line, and current estimates of 2014 total revenue growth, organic revenue growth, GAAP and non-GAAP operating expenses, stock-based competition expense, interest expense and capital spending. These statements are forward-looking and are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from currently anticipated events or results such as risks is related to the integration of our recently acquired proteomics product line with our business and operations, the execution of marketing and sales strategy for our genomics and proteomics product line, intellectual property rights, the launch of new products, and the manufacturing or supply of our products.

Information on these and additional risks, uncertainties and other information affecting our business and operating results are contained in our annual report on Form 10K for the year ended December 31, 2013 and our other filings with the SEC. Additional information will also be set forth in our quarterly report on Form 10-Q for the quarter ended March 31, 2014 to be filed with the SEC. We advise investors to review these risk factors carefully.

Fluidigm disclaims any obligation to update these forward-looking statements, except as may be required by law. During the call we will also present certain financial information on the non-GAAP basis. Reconciliation between GAAP and non-GAAP results are presented in a table accompanying our earnings results, which can be found in the Investors section of our website. With that, I will now turn the call over to Gajus.

Thanks, Un. Good afternoon, everyone, thank you for joining us today. We begin 2014 with a record quarter. Total revenue of $25.7 million was up 77% year-over-year. We closed a transformational acquisition of DVS Sciences Incorporated, bringing single-cell protein expression into our suite of single-cell biology offerings. Excluding the partial quarterly revenue contribution from the recently acquired single-cell proteomics product line, organic revenue growth in the first quarter of 2014 came in at 58% year over year. This is the strongest quarterly revenue growth we have delivered as a public Company, and it was balanced across both instruments and consumables, up 62% and 55% year over year on an organic basis respectively.

Given our performance in Q1, we health of our end markets, our planned product introductions and our visibility into the remaining quarters of the year, we expect total revenues for 2014 to eclipse the $100 million mark in 2014 to between $111 million and $116 million, which implies between 56% and 63% growth over our 2013 revenues of $71.2 million. The key theme supporting our growth in the quarter remained consistent with previous quarters. First, we are leading and driving the single-cell genomics market, and second, increasing utilization by high throughput production genomics customers drove a robust consumables pull-through.

The single-cell genomics market is very healthy. There is new and important science as a consequence of experimentation at the level of the individual cell, and this in turn is attracting more researchers and more funding into this arena. The overall market continues to develop in line with our expectations, and we continue to expand our share within it.

In the first quarter of 2014, our single-cell genomics revenues more than doubled, and we shipped record numbers of C1s and BioMarks to single-cell researchers. This is particularly noteworthy, given that this occurred in Q1, which in previous years has always been lighter than Q4 of the previous year. All of our geographies performed well and demand for our single-cell products was particularly strong in Japan. We believe that regional market will continue to grow.

Recently, it was announced that the Ministry of Education, Culture, Science and Technology in Japan has initiated a funding program dedicated to single-cell omics analysis. This makes Japan the third country to specifically fund single-cell research, and indeed, the program was initiated in part to respond to competition from the US and United Kingdom who have already established dedicated funding for single-cell research.

Another important metric that we believe points to the utility of our single-cell research tools is the number of publications. The total number of single-cell publications citing Fluidigm technology is now 156 as of the end of the first quarter, including approximately 35 publications utilizing mass cytometry technology. There are several new C1 publications in the quarter with a total count at eight. At the beginning of the current quarter, we broadly released our single-cell targeted DNA sequencing protocol and chip and have seen customer interest in the expansion of our application breadth to now include DNA-based analysis. We remain on track and expect to launch single-cell whole exome and single-cell whole genome sequencing protocols in the second half of the year.

We are also very pleased with the number of bundled instrument sales. The ratio of C1 to BioMark instrument bundles tracked within range of our historical patterns. Approximately 20% of C1 sales occurred with the BioMark. BioMark sales were particularly robust in Q1, and 80% of these were motivated by single-cell research.

As a science of single-cell analysis unfolds, it is clear to us the field is evolving in several important ways. First, there is an increasing need for higher throughput to enable large volume studies. We are having discussions with a number of academic groups who are interested in pursuing 100,000 cell projects utilizing our existing single-cell genomics portfolio. The scientific ramifications of these studies are broad, and we expect they will stimulate others to substantially increase the number of cells they analyze per sample.

Another trend is that the experimentation is moving from a focus on genomics to a need for broader analysis, particularly protein expression. As a result, we now characterize this field as single-cell biology to underscore the requirement for genomics and proteomics, as well as other important experimental workflows that will be needed in the future. This includes cell culture, cell imaging, whole genome sequencing, epigenetics, and nucleic acid and protein interactions. It is a very exciting time in the single-cell biology market, and we are privileged to be leading it.

As I noted earlier, our production genomics business also fared well in Q1. Our products for genotyping, gene expression and sample preparation for next generation sequencing are particularly efficient for very high throughput operations. And as a consequence, we focus our commercial activities in this space on industrial applications of genomics, including clinical and agricultural applications. During the quarter, several large customers substantially increased their usage of our products as their businesses expanded or they converted more of their work to our platforms. This helped to drive our consumable pull-through and support our 55% organic growth in consumable sales. We are very pleased with the momentum in our core genomics business, and based on our visibility into the remaining quarters of the year, we are revising our organic revenue guidance to $91 million to $94 million, an increase of 28% to 32% year over year, up from our previous guidance of between 23% and 28%.

As I noted earlier, the field of single-cell biology has evolved to include a need for single-cell protein expression. We see more and more evidence to this effect as researchers who are discovering genomic signatures need a means to validate their impact on the proteomics of proteins in the cell. This was the primary reason we acquired DVS Sciences and the CyTOF product line. As we have embraced this technology and its customers, the validity of our thesis has only become more clear to us.

During the quarter, we had the opportunity to interact extensively with existing and potential users of the CyTOF system, and we were delighted to hear how enabling this technology is to single-cell science. In addition, we have now seen multiple opportunities for cross selling to our existing customers. As the field generally expands, we are confident that there will be robust demand for the CyTOF system.

These interactions with customers and prospects help to substantiate our belief in the growth prospects for the CyTOF system, and they also educated us in other important ways. Specifically, as we took control of the sales pipe and dealt directly with future customers, we learned that the sales opportunities we had inherited from DVS Sciences were not sufficiently nurtured to support its near-term revenue targets. That is, there wasn't enough attention placed on advancing opportunities in the sales pipeline through earlier stages of their development as opposed to closing more imminent ones. This is fixable with more mature, disciplined and effective commercial processes, things Fluidigm are good at, and we're confident that the CyTOF line will exhibit growth as we work through this integration challenge.

It takes a couple of quarters to fix this kind of thing, so we are anticipating the first half of 2014 will be more challenged from a revenue and growth perspective with bookings growth resuming in the second half. So, we are reducing our outlook for the single-cell proteomics product line for the full year and now project total single-cell proteomics included with the total Fluidigm revenue to range between $20 million and $22 million, including $3.8 million of revenue that DVS recognized in Q1 prior to acquisition close, our full-year pro forma single-cell proteomic outlook ranges between approximately $24 million to $26 million versus our previous revenue target of $33 million to $35 million.

We remain convinced of enthusiastic about the disruptiveness of the technology and the strategic fit with our single-cell biology focus and leadership. We believe we know what we need to do to get the sickle-cell proteomics product line back on track from a commercial execution standpoint, and management is firmly committed to realizing the strategic and financial benefits of this acquisition for our shareholders.

In summary, there are three main points I would like you to take away from this call. First, we had an outstanding first quarter with broad-based strength across target markets and geography and successfully closed a transformational acquisition. Second, the single-cell biology market is vibrant and growing rapidly, and Fluidigm is positioned as the clear leader in terms of revenue growth and technology breadth. And finally, while we had a near-term integration challenge in our single-cell proteomics product line, we are actively addressing this and continue to believe the strategic rationale supporting our combination remains firmly intact. I will now hand the call over to Vikram for a more detailed review our financial results. Vikram?

Thanks, guys, and good afternoon, everyone. I will now walk you through our first quarter 2014 operating results and highlights. In the first quarter of 2014, our product revenue grew 79% to $25.4 million. As Gajus mentioned, we had a strong quarter for both instruments and consumables. Instrument revenue grew 91% year-over-year to $15.1 million, driven by sales of the C1 and BioMark systems and contributions from the newly acquired CyTOF system. On an organic basis, instrument revenue grew 62% year over year.

Single-cell genomics continues to be a strong growth driver for the Company and for instrument revenues in particular. Approximately 80% of the BioMark systems sold during Q1 were motivated by single-cell research. Our total consumables revenue, both IFCs and assays, was $10.3 million during the first quarter, up 63% year over year and 55% organically, driven by production genomics application. Consumables revenue was driven by production genomics applications represented approximately 50% of our total consumables revenue in the quarter and was up over 70% year over year.

Our genomics analytical pull-through in the first quarter tracked slightly higher than our historical range of $40,000 to $50,000 per system per year and within our recently increased expected range of $15,000 to $25,000 per system per year for our genomics prepatory systems. Proteomics analytical pull-through for the full quarter, including the period prior to the acquisition, tracked within its historical range of $50,000 to $70,000 per system per year. Total single-cell proteomics revenue in the quarter was $6.6 million, with approximately $2.8 million recognized after the close of the acquisition and hence, included in our total reported revenues. The total instrument install base increased to 1,072 instruments at the end of the first quarter of 2014. With 633 analytical systems, including 77 proteomics systems and 435 prepatory systems which include C1 systems.

Geographic revenues as a percentage of total product revenues were the first quarter were as follows. United States 44%, Europe 25%, Japan 17%, Asia-Pacific 8%, and 6% other. We were pleased with the year-over-year growth across all of our territories, but note Japan grew the fastest, followed by Europe and other. In Japan, we benefited from a uniquely favorable funding environment in the quarter.

Net loss for the quarter was $15.4 million compared to a net loss of $3.6 million in the prior-year first quarter. Adjusting for non-recurring acquisition related expenses, stock-based compensation, interest expense, depreciation and amortization, and other acquisition related non-cash charges and benefits, non-GAAP net income for the first quarter of 2014 was $75,000 compared to the $3.5 million non-GAAP net loss for the first quarter of 2013. Please refer to the reconciliation of GAAP to non-GAAP information attached to the first quarter 2014 earnings release for details.

GAAP product margin as 66% in the first quarter of 2014 versus 70% in the year-ago period. After adjusting for acquisition related non-cash charges, including amortization of developed technology and inventory revaluation, stock-based compensation and depreciation, non-GAAP product margin was 75% versus 72% in the year-ago period. The increase is in part due to lower IFC costs resulting from higher production volumes related to higher sales and in preparation for the move of our manufacturing facility to a new site. In addition, instrument margins increased, mainly due to favorable average selling prices, a higher mix of C1 instruments which have a higher margin than other instruments, and favorable freight costs.

Turning now to OpEx. Research and development expenses were up $7.6 million in the first quarter of 2014 compared to $4.2 million in the first quarter of 2013 and $5.8 million in Q4 2013. The year-over-year increase in R&D expenses was driven by the acquisition of the single-cell proteomics product line which contributed over half of the year-over-year increase and headcount increases. Excluding acquisition related expenses of $10.7 million, SG&A expenses were $15.3 million in the first quarter of 2014 compared $11.1 million in the year-ago period and $13.6 million in Q4 2013. Approximately 60% of the year-over-year increase was driven by increased headcount, trade shows, promotions, and accounting expenses. The addition of the single-cell proteomics product line contributed approximately 40% of the year-over-year increase. Stock-based composition expense was $3.4 million in the first quarter of 2014 compared to $1.3 million in the first quarter of 2013 and $1.8 million in Q4 2013.

Moving on to the balance sheet, total cash, cash equivalents and investments were $158.3 million at the end of the first quarter compared to $86.3 million at the end of December 31 2013 and $86.9 million at the end of Q1 2013. The $72 million sequential increase in cash, cash equivalents and investments is primarily due to the issuance of our senior convertible debt net of cash spent on the DVS acquisition. Net cash used in operating activities, excluding cash outflows related to the acquisition, was $4.1 million in Q1 2014 versus $900,000 in 2013. Accounts receivable were $18.8 million compared to $10.6 million at the end of the fourth quarter of 2013. DSO at the end of first quarter of 2014 was 66 days compared to 45 days in Q4 2013. Organic DSO, excluding the effect of the acquisition, remained at 45 days. For modeling purposes, including the impact of the acquisition, we recommend using a DSO of 60 to 65 days.

Inventory was $13.4 million, up from $8.1 million at the end of the fourth quarter 2013. A substantial portion of this sequential increase was due to the addition of single-cell proteomics product inventory. The remainder of the increase was due to organic sales growth and inventory buildup to support the planned Q3 Singapore plant move.

Shifting gears now toward our financial guidance for 2014. We currently project 2014 total revenue to be between $111 million and $116 million. Organic revenue is now projected to be between $91 million to $94 million, an increase of 28% to 32% over 2013, up from our previous range of 23% to 28% growth.

As Gajus previously mentioned, we are revising our full-year revenue expectations for the single-cell proteomics product line to a range of between $24 million to $26 million, of which $20 million to $22 million is expected to be included in Fluidigm's reported revenue. Operating expenses on a GAAP basis are projected to be between $134 million and $136 million. Non-GAAP operating expenses, excluding approximately $11 million of estimated acquisition related expenses, $19 million of estimated stock-based compensation expense and $4 million of estimated depreciation and amortization expense are projected to be between $100 million and $102 million.

Stock-based compensation expense is projected to be between $21 million and $22 million, including $9 million related to assumed share based awards from the DVS acquisition. Substantially, all of our stock-based competition expense is reflected in operating expenses. Interest expense is projected to be $5.3 million, and finally, capital spending is projected to between $11 million and $13 million. 2014 CapEx projections include expenditures related to the move and expansion of our Singapore manufacturing facility and expenditures related to the newly acquired proteomics product line. I will now turn the call over to the operator to open it up for questions.

Thank you.

(Operator Instructions)

Dan Leonard, Leerink

Great. Thank you. My first question on DVS, can you elaborate a bit on what the fix is there? Are you hiring more salespeople? Are you integrating them on your CRM system? What specifically are the actions?

Hello, Dan, it's Gajus. It includes the things that you mentioned there. It also includes a different kind of management. You have three number that DVS Sciences was a private company. It can have a substantially different execution style as a private company versus, of course, a public company.

We went through that as a private company and then, really, I think at this point can lay claim to having built a really world-class commercial organization. And that includes a lot of different discipline and different styles of selling, different ways in which you engage customers. Ways in which you teach customers as opposed to just simply trying to move them through the pipe. Indeed, we are adding resources; actually, adding quite a few resources all around the world. And the electronic integration that you referred to, at the CRM is important. But probably more important, actually, is the style of execution and the way that that is managed.

Got it. That's helpful, and then my follow-up question. Gajus, can you elaborate a bit on the government funding in Japan for single-cell work? Is this funding for pure research work or is it tech development? And when would you expect to benefit from that, because of you are obviously doing very well in Japan without that funding.

Yes, so first off, we don't have a ton of details because frankly, everything is in Japanese, and it has been taking a while to get it all translated. We haven't been able to find, actually an English version of the release and of the site that describes the funding. But what we know is that this was established, actually specifically in response to other countries funding it, and in fact, even things like the Geome Institute of Singapore Omics center were referenced in the rationale for the funding. It is for research, and it is for much more dedicated towards actual experimentation as opposed to technology development, although it appears that there is some funding for technology development also. It's exciting, and it's something that we expected to see.

We didn't know it was going to happen in Japan, but frankly, we expect that there will be more of this. There is international competition now in this field is becoming important to funding agencies all around the world to establish a position. And then just to underscore, again, this is for both genomics and proteomics. It fits, obviously, our product offering really well. The final thing that you note, yes, Japan has been a really strong for us and frankly, a lot of that has to do with our change in management there. You may remember that it was choppier for us for a while. Certainly some of the success is a result of the funding environment there, but we are very bullish about Japan going forward.

Great. Thank you.

Peter Lawson of Mizuho Securities

Vikram, I might have missed this, but the revenues seem to be breakeven (technical difficulties) What is that now for the DVS business?

This quarter -- I'm not sure I quite got the question, Peter. I think I understood it. This quarter, top line revenue are $25.7 million, and we had a -- basically a $75,000 non-GAAP profit. Is that what you were asking?

No, my question was based around the run rate of revenues that you will be breakeven upon now?

I see. We haven't revised that. Obviously, we had the tiny profit this quarter, but we have not revised that on a go-forward basis. If you note on a non-GAAP basis, and again, you have to refer to all of the exclusions for the year, right now we are projecting that on a non-GAAP basis, we will be slightly profitable for the year.

Got you. Thank you. And then the change in expectations around the DVS business, when did that hit you? When did you realize that you had to change expectations for that business?

When did we realize that?

Yes.

Well, it was something that unfolded, Peter, as we were -- as I mentioned earlier, it took us a while to get to -- to be in a position where we could really interact with customers. You can get a lot of data about sales pipes that are the number of dollars that are there, the number of prospects at the various different levels, what have you. But you don't really know how close these folks are actually to buying until you sit across the table from them, until you interact with them directly. And of course, as soon as we had control of the commercial execution, we engaged vigorously with meeting customers all around the world, myself included. And it was as a result of those interactions that we realized that the way that these customers were categorized in terms of their -- how much they had been developed that it was aggressive relative to the revenue objectives in the near term.

Should we look at that as just you being more conservative? Or was there --

This is really our assessment of the situation. The sales pipe is large, and in terms of dollar figures, it is large and it's very healthy. But we have to do more work in moving people along in their buying process. What does that mean? That means things like sometimes you have to do demonstrations or you have to do technical reviews, or perhaps oftentimes, the job of a sales person is in helping the customers figure out how to get funding.

There is a lot of things that require help there. Sometimes it can be rallying support from their institution more broadly if the funding is coming from some common pool, things like that. There is work to do there. It is stuff we know how to do, stuff that we have done very successfully, obviously with the single-cell genomics business. The overall end market is extremely healthy, and with the funding that is coming around now, if anything, there is more money available specifically for single-cell omics than there has been. And like I've said before, we're confident that we know what to do here.

Great. Thanks so much.

You bet.

Sung Ji Nam, Cantor.

Thanks for taking my questions. Was wondering if you could comment on the pricing environment for you guys, across all of your product lines.

(Multiple Speakers) pricing environment? Your pricing environment?

Just in terms of ASP. I am just curious as to (multiple speakers) are you holding or --

No, they are doing fine. They are doing fine. Let's see here, just let me pull this up specifically.

Again, this is doing this is a year-on-year comparison. We actually have formal price raised for the C1 that took us effect during the quarter. Not all of the quarter was affected by that, but that's part of the reason why we had uplift in the C1 price. We did that in conjunction with launching the first DNA -- single-cell DNA protocols. Chip ASPs were also up year-over-year for gene expression, for the access array and for the C1, and genotyping chip ASPs were also up, although more slightly. ASPs did very, very well generally.

Okay, great. And then my follow-up is, you're obviously seeing a lot of growth in single-cell genomics, was wondering if a lot of that growth is coming from new customers versus some of the existing customers adding on more. More systems or increasing utilization.

Increasing utilization -- yes, so it is still dominated by adding new customers. However, we are seeing the effects, as I noted earlier, of existing customers really bulking up for very high throughput studies. I mentioned 100,000 cell initiatives. There are multiple initiatives like that that are currently working through their various funding and approval processes.

Some that have actually even been approved funding-wise at this point. And those are obviously -- maybe not obviously, those are existing customers right now, so they are bulking up. But in general, the lion's share of the growth is coming from new customers, and that is a worldwide phenomenon.

Great. Thank you.

Bill Quirk Piper Jaffray

Hello, thanks, good afternoon, everybody. Firstly guys, you guys called out the increase, what sounds like a significant increase in the pull-through for production genomics. And so I was curious, how long or how sustainable do you guys see that being as it relates to that specific subsegment of the business?

Bill, can you repeat that? You were -- I couldn't quite hear.

Sure. The question is just that, production genotyping was up significantly in the quarter, so just curious how sustainable that is.

It wasn't just genotyping. It was also -- we have production customers that are doing gene expression and doing next-generation sequencing sample preparation. It was actually in all of the categories there, and frankly, more so in gene expression and in -- with the access array than genotyping. Actually, in fact, those two were substantially higher than genotyping.

Is that sustainable? We certainly believe so. Our penetration into the production genomics market is still pretty small. We estimate that that's about a $285 million opportunity today, then we have a tiny fraction of that at this point. We are being -- our growth is being assisted by what is happening with next generation sequencing, of course, but we're also seeing other customers that are moving more of their work on platform -- on our platform, rather, from other platforms that they may have been using in the lab and consolidating on that.

Okay, got it. And then I don't think you specifically called it out, but it looks, if I am backing into the numbers correctly, that the C1 consumables were up nicely as well. You did reference these very large single-cell studies. Is my math correct here? That C1 consumables are up nicely sequentially and year over year?

C1 consumables were up year over year, but the -- remember, a year ago they were still really bouncing around as they are subject to transience as -- that were part of the initial adoption of the system. They have been healthy now for a while, which is one of the reasons why, one of the main reasons why we raised our range -- projected range of chip pull-through on our prepatory systems from $10,000 to $15,000 to $15,000 to $25,000. I think we did that last quarter, so they have been healthy for a while now.

Perfect.

I'm sorry, just to interject here, I realize that I made a mistake in something that I said earlier. I think it was -- Peter was asking me about profitability run rate, and I said we expect to be slightly profitable for the year. That is not correct. I am sorry, I was adding two different numbers together. Actually, if you work through the numbers that Vikram provided in his script, it actually -- we're not profitable for the year. It actually is about a $22 million roughly net loss on a non-GAAP basis. I apologize for that.

Duly noted. The last question for me, guys, is if we think about some of the longer range metrics that you guys have laid out regarding the size of the single-cell market, the 250 and then obviously continue to grow pretty dramatically in the out years. How do you feel -- I should say, do you feel that you're tracking well to this metric? It's obviously not necessarily just -- well, maybe it is just linear, but I would love to hear your thoughts, updated thoughts there. Thanks.

Yes, we are tracking very well relative to all the metrics that we've put out there. That is, we see the market growing in aggregate at about the pace that we had previously projected, around 50% per year. Our results in Q1 was especially strong. I'd note historically, in all of the history of the Company in our -- as long as we have been selling products commercially, Q1 is always down from Q4. It always has been. In fact, we have tried to condition you folks to be cognizant of that, and this quarter obviously it was up substantially, even sequentially. And then, again, driven largely by strength in single-cell biology. Indeed, the dials have been in the green there. It is looking quite good.

Got it. Thanks very much guys, I appreciate it.

You bet, thanks.

(Operator Instructions)

Bryan Brokmeier, Maxim Group

Hello, thanks for taking the questions. Is sounds like the reason for the reduced guidance has to do with sales issues than with the closing in on the -- has to do with the pipeline of your proteomics business. But are there any further product development activities or any tweaks to the products that as you have been meeting with some of the customers, they are looking for slightly different performance or slightly different applications from the CyTOF? Or is it really all entirely having to help massage those customers introducing the new -- introduce yourself and the products to your previously existing customer base to meeting new customers?

It really is the commercial execution. One of the things that has been really delightful, as we're getting to know these customers and these prospects, is how excited they are about the capabilities of the system. What the system is advertised to do and it's -- in particular, the fact that it can analyze so many more parameters than anything else that is out there right now. It is compelling. The things that you run into -- that we run into are, you might have different regions where there aren't folks who are adopters yet or the people who have systems but don't have results yet, and you have the folks that want to wait until that transpires.

You can affect that by making sure you are doing a really good job with technical support, and that is another area that we're going to invest heavily in. We haven't heard anything about the product which gives us any pause there. Like I said, what feedback we get from customers has been extremely positive on its advertised performance and on the value proposition that it puts forward. This is a lot of -- I don't want to trivialize it, commercial execution isn't easy, but it is -- there's a lot of wood we've got to chop there to get going.

All right. Thanks. And then with your production genomics customers, what type of customers are these? Are they some bio pharma customers, are they diagnostic customers? Are they ag-bio type customers? Where are you realizing the higher utilization? And also, what is the driving force behind that increased utilization?

Yes, well, you've got a pretty good list there. If I were to rank order, I would say the clinical labs are fairly high on that. But of everything that you described there, including some of the bio pharma, are customers that are production-based. You have several phenomenon, and it varies by area. One is that genomics is increasingly used as an industrial tool. Genomics is used to track samples now. That is a relatively new thing. Genomics is used in agricultural in all kinds of ways that are new and different. And there has been a recent, not an explosion, but there has been certainly a lot of new molecular tests, genomic tests that have come out of clinical labs in the last several years. Those are all things that have led to more of this kind of work.

The other thing that is happened that is really just a shift from one technology to another is, of course, the adoption of next generation sequencing, really in all of these areas that you refer to, Bryan. And that isn't a, really a growth in the overall market. It's really a turnover of technology, particularly from things like Sanger sequencing to next generation sequencing. And so all of those have affected the pull-through that we are experiencing. I think the other thing that is happening is that Fluidigm's reputation within this segment has gotten better and better, and we are more widely known as a solution in this space than we were a year ago.

It's challenging sometimes to market into production genomics customers, because they don't like to talk to each other. Or they do talk to each other, but they don't like to tell each other what they are doing. It's very different in academia where academics love to tell each other what tools they are using, and you have to publish it and the methods parts of papers anyway. But in production genomics, if you have a customer who is really being successful with your product, oftentimes they don't want to share. So, the result of that is that it takes us longer and it's a little bit more challenging to build awareness within that segment. But what is happened in the last 1 or 1.5 years is that our awareness has definitely grown within this segment.

Okay. Thanks a lot.

Thank you.

Shaun Rodriguez, Cowen and Company

Hello, everyone. Good afternoon, thanks for taking the question. A follow-up on the lower DVS expectations. You provided a good amount of color, so I do apologize if this is redundant. But I want to bring it back to the basic assumptions in the revenue model. Are you specifically just lowering your expectations for new placements this year, or has this new data that you've come up with since the acquisition, has this also impacted assumptions for utilization, or even service contract revenue from previously placed or prospective placements as well?

It's new placements. It's just new placements.

Okay. And then over the course of our checks with some CyTOF customers, we did hear pretty consistently about a couple of things that were noted as either limiters to broader adoption or potentially limiters to more rapid utilization ramping post-adoption. And those were, first, the menu of pre-optimized assays, and then secondly, analytical tools on the back end as the number of parameters continues to increase. I was just hoping you could speak to these dynamics, but really in the context of your R&D priorities for this program over the next, call it 1, 1.5 years or so.

Those are definitely two major priorities in R&D. The number -- we have several hundred proteins that are available off the shelf today, that are already labeled and validated with the MaxPar elemental kits. That number needs to go up quite a bit. In traditional proteomics, generally speaking, there are menus that are available that are in the thousands. A big part of our effort is expanding that menu and expanding the number of parameters that can be analyzed simultaneously. The CyTOF has over 100 channels on it. At this point, probably one-half, or maybe less than one-half of those are used. Through more assay develops and development of new chemistries, we not only can increase the total number of proteins that are available off the shelf for our customers to use, but also increase the number of parameters that can be analyzed off of individual cells from where they are right now.

The data analysis is also -- it's really important. It's not simply for -- or it's not just for proteomics, it's also for genomics. The data sets that our customers are gathering are quite large and they are complicated. They are looking at -- oftentimes, it reminds me of string theory in physics which was 14 dimensional problems I was never very good at.

In this thing, you're talking about sometimes 30, 40, 50 dimensions. How you visualize that, how you analyze it, how you pick up trends in the data? That is challenging. And there are -- fortunately, there are a number of different organizations and labs that are tackling this problem, particularly in the proteomics side. There are a couple of independent companies that have developed tools that are helpful, and there is certainly more that we can do there.

But there are also users, and some of them are here in the Bay Area, who are developing some of their own algorithms and tools which also look pretty interesting. On that one, we are going to be leveraging, not just our own internal work, but we are also going to be leveraging partnerships with other companies and with collaborations with our customers. But those are two definite things that we are working hard on right now.

Thank you. Another one, I'm sorry, last one, if I could, a question on BioMark pull through. I think you noted pull-through on analytical systems was a bit above the historical range. Your commentary made it sound like it was volume increases. But it reminds me of a dynamic I think we used to talk a bit more about, and that is the potential to ramp pull-through in BioMark by getting more customers to use your custom assays (multiple speakers). Really just wanted to get an update on the trends there with regard to the proportion of BioMark customers that are running your assays or whether their performance in the quarter was really more driven by volume increases. Thank you.

It was more driven by volume in the quarter. We are making progress with our own assays, particularly with the access array where probably a majority of our customers now are buying their assays directly from us. But there is -- we -- as you know, we do have our own assays sets now, and this is going to get stronger as we develop our own enzymes to do the master mixes. And that remains an opportunity for us to continue to drive pull-through.

I see no further questions at this time. I would like to turn it back over to Un Kwon-Casado for closing remarks.

Thank you. We would like to thank everyone for attending our call this evening. A replay of this call will be available on the Investors section of our website. I just wanted to give you heads up that we will be presenting -- we will be attending the Mizuho conference in New York City tomorrow, May 6, and next week we will be at the Bank of America conference on May 13th and 14th. This concludes the call, and we look forward to the next update following the close of the second quarter of 2014. Good evening, everyone.

Ladies and gentlemen, this does conclude today's conference. Thank you for your attendance. You may now disconnect. Everyone have a great day.