Standard BioTools Inc (LAB) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Fluidigm Third-Quarter 2015 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 be given at that time. (Operator Instructions). As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Ana Petrovic. Please go ahead, ma'am.

Thank you, good afternoon everyone. Welcome to the Fluidigm Third-Quarter 2015 Earnings Conference Call. At the close of the market today, Fluidigm released financial results for the third quarter ended September 30, 2015. During this call, we will review our results and provide commentary on recent commercial activity and market trends. Following these comments, we will host a Q&A session.

Presenting for Fluidigm today will be Gajus Worthington, our President and CEO; and Vikram Jog, our Chief Financial Officer. This call is being recorded and the audio portion will be archived on the Investor's section of our website.

During the call and subsequent Q&A session, we will be discussing plans and projections for our business, future financial results and market trends and opportunities including, among others, statements regarding plans and strategies for our business and product lines and anticipated results there from, anticipated product revenue trends and contributions from new products, and estimates of 2015 total revenue GAAP and non-GAAP, operating expenses, stock-based compensation expense, depreciation, amortization expense, interest expense, capital spending and currency-related impact on 2015 revenue.

These statements are forward-looking and are based on management's current expectations and beliefs. As a result, these forward-looking statements are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from currently anticipated events or results.

The risks and uncertainties relate, without limitation, to the accuracy of assumptions underlying the financial forecast provided today. The impact, if any, on our future operating results of our organizational and operational changes in strategies, employee recruitment and retention, and the manufacturing supply or performance of our products.

Information on these and additional risks and uncertainties and other information affecting our business and operating results are contained in our Form 10-Q for the quarter ended June 30, 2015 and will be set forth in our Form 10-Q for the quarter ended September 30, 2015 to be filed with the SEC. We advise investors to review these risks 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 a non-GAAP basis. Reconciliation between GAAP and non-GAAP results are presented in a table accompanying our earnings results which can be found on the Investor section of our website.

I will now turn the call over to Gajus.

Thanks, Ana. Good afternoon, everyone.

In the third quarter of 2015, we made progress in stabilizing our near term performance and expanding our commercial organization to improve execution.

Total revenue of $28.6 million was down 3% year-over-year and up 3% on a constant currency basis. The primary drivers of our results were as we projected.

Our single-cell proteomics CyTOF product line continues to grow strongly on a year-over-year basis. However, topline growth was moderated by decreased consumables consumption by production genomics customers, core single-cell genomics instrument sales, and a modest contribution from new products.

We expect these dynamics to persist through the end of the year and are narrowing our full-year revenue guidance to $111 million to $114 million from $110 million to $115 million.

Our flagship C1 Single-Cell AutoPrep system continues to lead the single-cell genomics sample preparation market that we pioneered. Our C1 install base now stands at approximately 375 units. The throughput of all these instruments can now be increased by nearly an order of magnitude simply by purchasing our new high throughput single-cell mRNA sequencing chips which began shipping in the quarter. Encouragingly, this new product accounted for approximately 20% of C1 consumable sales.

Our new [workflow] scale sample throughput, from approximately 96 cells to approximately 800 cells, while decreasing sample preparation costs by roughly 85%. This dramatic enhancement underscores the headroom we have with the C1 to improve the capability of the system with new consumables offerings. Customer reception has been positive.

We've also signaled to our customer base that another order of magnitude increase in throughput is within the C1's capability. This is important as a future direction of the single-cell genomics market will require higher throughput and lower cost per sample. We are committed to continuing to innovate and push the envelope along both these axes.

We're pleased with the growth of our single-cell proteomics product line in the quarter. Clearly, single-cell proteomics is a growth opportunity and Helios has struck a resonant chord. Specifically, Helios's improved sensitivity, capture efficiency and ease of use are appealing to both our existing and new customer base.

Our available base is also expanding. For example, approximately 40% of Helios systems sold in the quarter were driven by non-academic customers such as biopharma. Our pipeline of Helios instrument opportunities is strong and we continue to feel positive about the outlook for the Helios platform.

As communicated last quarter, we refocused our commercial activity to focus more on core products while fielding a smaller team of specialists responsible for our newer products, particularly Polaris and Callisto. As expected, our initial sales prospects have come largely from our existing single-cell biology customer based within the academic sector.

The key disciplines cut across immunology, oncology, stem cell biology and neuroscience. We're pleased to see the interest and pipeline for Polaris and Callisto continue to build.

Genomics analytical systems unit sales, which include both BioMark and EP1 systems, grew on a sequential basis. Of note, we had a large fraction of genomics analytical systems sales driven by industrial customers, including clinical and agriculture, which represented over approximately 50% of unit sales in the quarter.

In addition, approximately 25% of our genomics analytical systems sales were combined with our Juno sample preparation platform. Juno enables genotyping from extremely small and challenging samples routinely studied in clinical or agricultural applications.

We plan to launch a new targeted resequencing sample preparation workflow on Juno in the first quarter of 2016 which will broaden the addressable opportunity in clinical and agricultural markets.

We are building out a production genomics commercial organization under the leadership of Steve McPhail. This team is responsible for driving sales of our product portfolio into industrial applications.

We recently added two seasoned sales and support executives with significant leadership experience in clinical markets to our team, John Stark, our new Senior VP of Commercial Operations and Pat Cook, VP of Global Support. We are thrilled to have John and Pat as part of our team and their arrival represents an important part of our commercial strategy to drive growth and diversification into new customers and markets.

We expect these and other organizational changes to contribute positively to our 2016 performance.

In closing, we feel good about the progress we made in this past quarter in improving our commercial execution. Importantly, we continue to implement key organizational changes and add sales leadership to our commercial organization that we believe will position us for growth in 2016.

While 2015 has been challenging, we continue to be excited about the single-cell biology market and Fluidigm's positioning within it. It is clear now, within the scientific community and increasingly within biopharma and clinical markets, that single-cell resolution to elucidate biological heterogeneity and rare sales is not simply desired, but required. And as always, Fluidigm remains committed to being an enabling leader of this revolution.

I'll hand it over to Vikram now.

Thanks, Gajus and good afternoon everyone.

I will now walk you through our third-quarter 2015 operating results and highlights.

In the third quarter of 2015, total revenue of $28.6 million was down 3% year-over-year and up 3% on a constant currency basis.

Total instrument and service revenue was up 4% year-on-year in the quarter primarily due to contributions from new products, increased sales of Helios systems and higher service revenue, partly offset by decreased sales from core genomics systems. Please note that we are reporting instrument and service revenues separately in the financial statement accompanying today's earnings release.

Approximately 45% of the BioMark HD systems sold during Q3 were motivated by single-cell research with approximately 20% of C1 system sales were combined with a BioMark HD system. Our BioMark attachment rate to the C1 was generally in line with our historical pattern.

Total consumables revenue which includes IFCs, assays, reagents and antibodies was $10 million during the third quarter, down 14% year-over-year mainly due to lower sales from production genomics applications.

Annualized pull-through rates in the quarter were within our previously reported ranges and those are between $25,000 to $35,000 per system for genomics analytical IFCs, between $15,000 to $25,000 per system for genomics preparatory IFCs, and between $50,000 to $70,000 per system for proteomics consumables.

A total instrument install base was approximately 1,565 instruments at the end of the third quarter of 2015, including approximately 760 systems designated for single-cell biology research. Approximately 55% of the install base was comprised of analytical systems and the remainder were preparatory systems.

Geographic revenues, as a percentage of total product revenues for the third quarter were as follows, United States 48%, Europe 35%, Japan 4%, Asia-Pacific 8%, and 5% other. Geographically, the year-over-year revenue growth rates for the third quarter 2015 were as follows, Europe up 24%, Japan up 27% and other up 40%. US and Asia-Pacific were down 19% and 17% respectively.

Notably, we saw strength in Europe, despite foreign currency exchange headwinds primarily driven by increased sales of core genomics instruments.

Net loss for the third quarter was $9.3 million compared to a net loss of $13.8 million in the prior year's third-quarter, adjusting for stock-based compensation, escrow settlement gain, depreciation and amortization interest expense, amortization of developed technology and tax benefits from acquisition-related amortization.

Non-GAAP net loss was for the third quarter of 2015 was $4.4 million compared to $3.1 million of non-GAAP net loss for the third quarter of 2014. Please refer to the reconciliation of GAAP to non-GAAP information attached to the third quarter 2015 earnings release for details.

GAAP product margin was 58% in the third quarter of 2015 versus 61% in the year ago period, and 57% in Q2 2015, after adjusting for amortization of developed technologies, stock-based compensation, non-cash revaluation of acquired inventory and depreciation and other amortization.

Non-GAAP product margin was 72% in Q3 2015 versus 74% in the third quarter of 2014 and 71% in Q2 2015. The sequential increase in non-GAAP product margin was primarily driven by favorable overall instrument selling prices and production costs.

Turning now to OpEx, research and development expenses were $9.4 million in the third quarter of 2015, compared to $12.7 million in the third quarter of 2014 and $10.1 million in Q2 2015. The year-over-year decrease in research and development expenses was primarily due to one-time acquisition-related stock-based compensation expenses.

SG&A expenses were $19.6 million in the third quarter of 2015, compared to $18.6 million in the year ago period and $21.2 million in Q2 2015. The year-over-year increase in SG&A expenses was primarily driven by continued investments in our commercial infrastructure.

Moving onto the balance sheet, total cash, cash equivalents and investments were $114 million at the end of the third quarter, compared to $127 million at the end of Q2 2015. The $13 million decline in cash and investment balance was higher than our quarterly cash run rate for the first half of 2015 primarily due to an increase in accounts receivable in Q3, particularly in Europe driven by a higher volume of [tender] business with longer payment terms.

Based upon our visibility into payment terms and expected timing of payments, a significant fraction of these increased receivables should be realized in the fourth quarter.

Net cash used in operating activities was $30.3 million in the first nine months of 2015 versus $19.1 million in the same period last year. The increase in the first nine months of 2015 compared to the prior year period was due to an increase in net loss, adjusted for non-cash items and working capital.

Accounts receivable were $26.2 million at the end of the third quarter 2015 compared to $21.8 million at the end of the second quarter of 2015. DSO at the end of the third quarter was 82 days compared to 69 days in Q2 2015.

Inventory was $19.1 million at the end of the third quarter 2015, up from $18.8 million at the end of the second quarter of 2015.

Now moving onto our financial guidance for 2015. We're narrowing our 2015 revenue guidance range to between $111 million and $114 million from our previous range of $110 million to $115 million. This includes an estimated negative currency-related impact of approximately four to five percentage points at the midpoint of the range.

Operating expenses are now projected on a GAAP basis to be between $121 million and $124 million versus prior guidance of $123 million to $128 million. Operating expenses on a non-GAAP basis are now expected to be between $101 million and $104 million compared to prior guidance of $101 million to $106 million.

This excludes approximately $16 million of estimated stock-based compensation expense and $4 million of estimated depreciation and amortization expense.

Interest expense is projected to be $6 million. And finally, capital spending is now expected to be between $4 million to $5 million compared to prior guidance of $6 million to $8 million.

I will now turn the call over to the operator to open it up for questions.

(Operator Instructions).

Dan Leonard, Leerink Partners.

My first question is can you elaborate, Gajus, further on how the funnel is building for both Polaris and Callisto heading into the end of the year?

I'm not going to provide specific numbers there, Dan. But as I mentioned, the low hanging fruit for us is the existing single-cell genomics customer base who have realized, as we did some time ago, that the biological context, the environment, the way you treat cells, the way you handle them prior to doing genomic analysis is critical to understanding cellular function, and although we've curtailed the number of people who have the authority and the responsibility to go out and develop the pipeline for both Polaris and Callisto.

We've done that really worldwide. That's been effective. And we're encouraged by the rate at which we see that pipeline growing.

On the high throughput C1 chips, you mentioned that 20% of consumables were high throughput. Would you expect that number to trend well higher and what would that do to pull-through per box?

That ratio is actually a bit surprising in the first quarter. It's encouraging, quite frankly. So, we don't have specific expectations right about what percentage that will be in the fourth quarter, the second quarter of full sales.

And the effect on pull-through really depends on the scale of the projects. If they're very large projects, then it would tend to trend it upwards. If they're not, then it would probably continue to have it be flat.

What I can say, though, and will say is that we'll advise you and other folks about changes in pull-through on the C1 as they occur and we won't change our pull-through numbers until we see that happening for multiple quarters and for reasons that we really understand.

But the net is that we're very encouraged by the initial response to and purchase of the high throughput chip.

Bill Quirk, Piper Jaffray.

First question is just the mix of analytical versus preparatory systems. And I realize that your install base is getting pretty big here, so there's obviously some rounding and such that happens. But just kind of working the math back from last quarter, it looks actually like your analytical systems took a pretty big step up versus prep. So, I guess could you just kind of comment on that and again maybe it's just rounding that I'm coming up with that, with these figures.

Well, we did note that genomics analytical systems grew sequentially and we also called out some of the reasons for that. We've seen an uptick in interest in biopharma and in some of the industrial applications for the BioMark.

And we're encouraged by that. We think the biopharma is a good opportunity for us. And note that in the quarter our sales through the biopharmaceutical sector was about 16% of our total pharma biotech, 16% of our total sales versus 8% in the year ago quarter.

Second question is just thinking about the broader single-cell market, Gajus, you guys obviously have long been big advocates of that and your competitors are starting to pick up and take notice. In fact, we had several system introductions at the recent ASHG Conference.

And so I'd love to just get an update from you in terms of how you're feeling about the competitive dynamic and what you guys are seeing out there? Is this having any effect on customers in terms of them wanting to maybe kick the tires on some of these newer systems before they eventually settle on something like a C1 or a Polaris?

So, there's nothing new. There are no product announcements. I think a precious few product launches. I think WaferGen is in an evaluation phase right now and the other things were announcements of things that are mostly still yet to come.

So, there's no surprises there. These are technologies and potential solutions that have been in the works for quite a while, many of them have had peer review publication in months or even years prior to ASHG.

So, there's really nothing new there. And there are some customers, as we've noted for the last couple of calls, that want to understand what the competitive landscape looks like and what's being promised and what might come to pass. And, as in previous quarters, that has really resulted in a very small number of delays to our current sales.

But the net is that the, if you want to do single-cell genomics today, in an integrated system, the C1 continues to be the only commercial system that's available.

Doug Schenkel, Cowen & Co.

My first question is I don't believe you guys have previously provided services revenue in the press release. It looks like you generated some pretty robust growth there year-over-year. How does this compare to the last few quarters and I guess just curious why this new disclosure this quarter?

Well, Doug, we're breaking it out because really we're required to. It's become a significant enough percentage of revenues that we're really obligated to report that out separately and Vikram can comment on it in a moment if he likes.

So, previously we've included service as part of instrument revenue. We would have continued that practice but for the requirements that we break it out separately given that it was over 10% of total revenues.

As you know, it grew sharply in the quarter. Service revenue has done well for us for some time. It's been a strong area for us. We have a very capable service team that does a really good job delighting customers and they've been very effective for quite some time at securing service contracts.

From my perspective, and I think from others too, that's also a good indication about the intent of use of the systems going forward.

That is helpful.

Vikram, did you want to comment?

Yeah, I just wanted to point out, Doug, that we have attached a table in our earnings press release to give you the information that you're looking for.

In terms of (inaudible), great.

And then I guess a follow up to Bill's first question. When you take the install base numbers from this quarter and last quarter and then also take the figures you provided for the percentage of the install base that is analytical in both periods, there are some error bars, but even recognizing the error bars, if I'm doing the math right, it suggests that prep systems were probably in the neighborhood of 20 in the quarter?

However, your commentary on C1 suggests things maybe went better than that in the quarter. So, could you just provide some clarity? If nothing else, could you just tell us if C1 placements were at least stable sequentially?

In a previous earnings call, we indicated that the sales of core genomics systems was going to be challenged in the back half of the year. And that was why we reduced guidance. And that's indeed what we saw during the quarter.

I want to make clear, though, that we've laid out what we believe that the root causes for these things were, and we continue to have conviction that we're right about that and in fact results, particularly geographic which, I think, plain to see there, helped to underscore this.

So, indeed the C1 system sales, unit sales, were down year-on-year, which is about what we expected. And this is, in our view, largely due to the fact that we weren't doing as good a job building pipeline in the early part of the year due to an overtaxed commercial organization that had so many new products that they had to tend to.

One thing that's interesting, and we see geographically, is that Europe did exceedingly well and also with C1s in particular where I think that this phenomenon of distraction was not nearly as acute as it was in other territories.

So, in any case, the sales of C1 systems, unit-wise, was down year-on-year. That was within our expectations. I wasn't sure if you were, in your question, alluding to competitive dynamic as part of that. I just want to make clear here the root causes of what we're seeing here continue to, as the data plays out, it continues to be in alignment with what our thesis has been.

Last one which is really just a follow up to my prior question. Was there any sign that maybe the market stalled a little bit in anticipation in the high throughput chip launch? And now that you have that out there, and evaluations are ongoing, are there any signs that that is now leading to a pickup in demand and a build in the funnel? Anything along those lines?

It's really hard to tease out. I think in general we have a fair amount of credibility with our customers that when we say we're going to launch something that they believe us. And we've been making those kinds of roadmap statements since we first launched the C1 and in general that's accrued to our benefit.

The high throughput chip, however, was late. The launch of that was about a quarter later than we would have wanted. So, it's really difficult to say, Doug, what the net effect of those two puts and takes were.

(Operator Instructions).

Bryan Brokmeier, Cantor Fitzgerald.

It's nice to see the stabilization in the quarter. But the fourth quarter is usually a seasonally strong quarter for the industry as well as for yourselves. Are you seeing anything to give you reason not to expect that seasonality as much this year as normal?

You never know about the seasonality until it actually shows up. And we're not in a position to comment right now on the fourth quarter.

But we're pleased with how the third quarter played out and the visibility that we have is what gives us confidence now to narrow our guidance for the year, which of course gives some indication about what we think about the fourth quarter.

You narrowed it down, bringing the bottom up, and the high end down. Were you focused on the midpoint of the guidance or is there anything to give you confidence that, to come in at the prior high end is going to be challenging?

Yeah, the guidance, it is what it is. The range is our best thinking right now about how the year will play out. But clearly, we lopped off the top and the bottom because of improved visibility.

And on the high throughput C1 chip, are there any upgrades, software upgrades, that are required to use that?

I think, there's a script.

Sorry?

A script. A downloadable script.

And do you expect all customers to switch over to the high throughput chip and how have you seen that market acceptance so far of your current customer base?

We don't expect all customers to switch over. There are a number of single-cell applications where you have limited numbers or what you're seeking is limited or where you're seeking to survey a native heterogeneity that is pretty pronounced. In other words, half of the sample is one population or another.

You don't necessarily need large numbers of cells for those types of studies. And there are going to be more of those that happen. So, we don't expect every C1 system to run the high throughput chip, at least not anytime soon.

And then just lastly, have you seen any increase in your, or any changes in general, in your employee turnover, particularly within sales and marketing? And whether you are or you aren't, are you making any changes to that organization outside of the new hires, the new leadership hires, in order to ensure that you don't start to see any increases in employee turnover?

I got a LinkedIn invitation from Bill Quirk, so I'm wondering if he was looking for a job.

But, no, it's been, thankfully, we've had a very stable employee base. And I think it's a characteristic of Fluidigm generally. During times of challenge, people here have, and have always really, buckled down. It's part of our culture.

Thank you. I'm showing no further questions. I would like to turn the call back to Ana Petrovic for any closing remarks.

We'd like to thank everyone for attending our call. A replay of this call will be available on the Investor section of our website. This concludes the call and we look forward to the next update following the close of the fourth quarter of 2015. Good evening, everyone.

Ladies and gentlemen, thank you for participating. This does conclude today's program and you may all disconnect. Everyone have a great day.