Telesis Bio Inc (TBIO) 2022 Q3 法說會逐字稿

And thank you for standing by. Welcome to the Q3 2022 Telesis Bio earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to turn the call over to your speaker today, CEO, Todd Nelson. Please go ahead.

Thank you. Good afternoon, and thanks for joining us for Telesis Bio's third-quarter 2022 earnings call. With me on the call today are Chief Operating Officer, Eric Esser; Dan Gibson, Co-founder and CTO; and our VP of Finance, Brent Hunter. Our third-quarter press release is available now on the investors section of the website.

Before we begin, I'd like to inform you that certain statements we make during the call will be forward-looking. These statements involve known and unknown risks and uncertainties and may cause actual results to differ materially from those expressed or implied. Such factors include those referenced in the safe harbor statement included in our earnings release and in our filings with the SEC.

This conference call contains time-sensitive information and is accurate only as of the live broadcast on November 8, 2022. Finally, any percentage changes we discuss will be on a year-over-year basis unless otherwise noted. And with that, we can get started.

At Telesis Bio, our mission is to inspire and empower scientific breakthroughs across life sciences in translational research applications. Our automated, on-demand, multiomic, and synthetic biology solutions enable scientists to streamline and standardize both building and testing of DNA and mRNA, allowing us to address large unmet needs in our target markets.

Our customers and collaborators include premier academic research institutions, rapidly growing biotech companies nearly all -- top 25 biopharma companies. Our systems are utilized by academic and industry scientists worldwide in various discovery activities ranging from the discovery of novel infectious disease vaccines, developing precision immunotherapies for cancer, and antibody therapeutics to the creation of engineered meat substitutes and sustainable cellular agricultural products.

Our BioXp automation solutions allow scientists to synthesize and assemble DNA and mRNA with a push of a button allowing our customers to bring critical products to the market in an unprecedented amount of time. We believe that our strong financial momentum will support long-term mission of the company. And with that, I'll turn the discussion to our recently reported financial results and corporate updates.

To start, I'd like to review highlights from the third quarter into the first nine months of 2022. In the third quarter of 2022, we grew total revenue by nearly 140% compared to the prior-year period. Excluding contributions from Eton Bioscience acquired in Q4 of last year, overall growth for the third quarter was 83%. For the nine-month period ending September 30, 2022, total growth excluding Eton was 69%.

We sold 13 BioXp units during the third quarter bringing the number of units sold during the first nine months of 2022 to 47 units. Instrument revenue was up 28% and 37%, respectively, for the third-quarter and nine-month period ending September 30. We also experienced a record quarter for BioXp kit sales, which has continued a strong growth trajectory posting 69% growth over the prior period and 58% for the first nine months of the year compared to the same period in 2021. And we are very pleased with the initial market uptake of the recently launched BioXp 9600.

Collaborations, royalties, and other revenue grew at 224% in the third fiscal quarter and 170% for the first nine months of the year respectively. Gross margin improved significantly during the third quarter from 41.7% in Q3 of 2021 to 54.8% in Q3 of 2022. For the first nine months of 2022, gross margin improved from 42.9% to 50.9%. Margin expansion for the third quarter as compared to the same period a year ago is largely driven by a positive mix shift to higher margin products including BioXp 9600, mRNA, and lower costs of DNA raw materials.

Our vision has never felt more achievable. We have made significant progress developing new, innovative applications for existing BioXp systems that drive sales with on-market products. And we are developing paradigm shift in future technologies. These innovations have the potential to fundamentally transform our industry and at the same time, position Telesis Bio to serve significantly larger and broader addressable markets. Inherent in this vision is our path towards improving our gross and operating margin, becoming a profitable company in the second half of 2024, and delivering value to our stakeholders.

With that, I'll pass it over to Brent to review our financials and updated 2023 financial guidance.

Thank you, Todd. Detailed financial results for the third quarter were included in today's press release. In my remarks today, I am going to walk through our income statement, touch on a few key financial metrics, and finish up with our updated financial guidance for 2022.

Telesis Bio is well-capitalized with cash and short-term investments of $49.9 million as of September 30, 2022. Revenue was $6.7 million for the third quarter 2022, which was 140% increase in total revenue from $2.8 million for the same period in the prior year. The strong growth was driven by a record quarter for BioXp kit revenue, totaling approximately $884,000, up 69% year over year, and solid contributions from Eton's sequencing services and oligo production revenue, which totaled $1.6 million.

Royalties and other revenue also grew due to revenue related to the Pfizer collaboration agreement. Organic growth for the core business, net of Eton's contributions, was 83% -- for the first nine-month period, the growth was 83%. And for the first nine-month period, the growth was 69%.

Gross margin for the third quarter was 54.8% compared to 41.7% for the same period in the prior year. The increase of 13.1% or 1,310 basis points was primarily driven by collaboration and licensing revenue, improved product margins resulting from price increases, and increasing contributions from higher margin products such as mRNA and the launch of the BioXp 9600. For the first nine months of 2022, gross margins were 50.9% compared to 42.9% for the prior-year period.

Operating expenses were $14.9 million for the third quarter compared to $10.6 million for the same period in the prior year. This increase was driven by headcount expansion primarily in our commercial, R&D, and G&A organizations. The increased personal expense related to sales and marketing efforts, increased product development efforts, and hiring of new leadership and professional support staff. Operating expenses for the first nine months of 2022 totaled $47.8 million compared to $26.7 million for the same period in the prior year.

Net loss was $12.3 million or $0.42 per share and $40.3 million and $1.37 per share for the third quarter and first nine months of 2022, respectively. This compares to a net loss of $9.8 million or $0.34 per share and $26.5 million or $1.83 per share in the same period in the prior year, respectively.

Now, I'd like to briefly cover our updated financial guidance for 2022. Due to our continued strong results in 2022, we are again raising full-year revenue guidance accordingly. As a reminder, during our Q2 earnings call, we increased our guidance revenue to $22 million to $24 million for 2022. Based on our third-quarter results, we are further increasing our revenue guidance to $23 million to $25 million.

And with that, I will now turn the call back over to Todd.

Thanks, Brent. Telesis is executing against the plan that will allow us to achieve profitability during 2024. So I'm going to take a few moments now to walk you through the high-level landscape of that plan. On revenue growth, excuse me, I would remind investors that we have grown the business the four-year compound annual growth rate of 48%and that we have a robust series of new BioXp product launches that should generate significant continued revenue growth in the next couple of years.

As an example, the launch of the BioXp 9600 system brings with it a significant revenue potential stemming from higher instrument ASP, higher BioXp kit utilization rates, and an ability to extend a new adjacent market. Additionally, we plan to launch of the first-in-a-series of BioXp DBC benchtop instruments that will allow for the same-day turnaround of CRISPR-guided RNAs, and all of those for gene synthesis on a single integrated device.

Moreover, in the first quarter of 2023, we plan to launch a new series of modular kits for rapid cell-free DNA scale up and mRNA synthesis for customers and use their own DNA as a starting point. This new product offering will allow customers to use this system at their convenience. And provided they have on hand or make the stock modular kits, they can use the system every day and multiple times a week. Results of this product launch is that we will be able to rapidly go after the largest part of the customer base that requires or desires to start with their own DNA.

The advantage to Telesis Bio is that we believe we will see increased velocity in placements of these instruments, increased utilization of our Gibson Assembly kits for de novo gene synthesis, and strong potential adoption of the modular kit at higher gross margins. And we remain on track to launch internal oligo synthesis capability that will allow us to offset a portion of the raw materials purchases.

All told, we believe gross margin in the next 18 to 24 months should turn upwards to between the high 50s to low- to mid-60s. On cash, currently we estimate that by the end of the year, we will have a cash position of approximately $40 million, additional debt capacity, and over the next 12- to 18-month period, the potential to earn through the achievement of technical and licensing milestones, an additional $30 million.

In conclusion, let me say that we are pleased with our overall third-quarter and the first nine-month results and that we remain encouraged by continued strong commercial execution and progress in our product pipeline. We are focused on executing against our near-term commercial goals, launching new products, furthering new and existing partnerships, growing market share, improving profit margins, and decreasing costs. We continue to invest in talent, technology, and processes to drive long-term sustainable growth and a path toward profitability.

With that, I will ask the operator to open the call for questions. Thank you.

Thank you. At this time, we will conduct a question-and-answer session. (Operator Instructions) Brandon Couillard, Jefferies.

Hey, Brandon.

Hey. Thanks. Good afternoon, guys. Todd, could you just elaborate a little bit more on just how you're seeing the order book develop for the new 9600 system, maybe the mix of new and existing users? And then how many of the 13 systems that you placed in the third quarter were comprised of the new 9600 units?

Yeah, Brandon, thanks for the question. We'll probably bounce around the room a little bit here on the answer. What I would say to start is that we are very pleased with the initial market uptake of the 9600. It seems to fit very well with customers. We did a lot of BOC on that. So for higher throughput customers, it seems to resonate very well.

In the third quarter, we shipped 13 instruments. We had a bit of a mixed shift as we launched early the 9600. And that accounted for about three to four systems. So we're really to happy with that. I would say, looking forward into the fourth quarter as the book of business builds for the instruments, I think that we are very comfortable that the 9600 is going to continue to ramp, and we're happy with that.

And I will hand it over to, I guess, Eric to answer the rest of the question.

Yes. I think the other part of the question was how many of the orders that we have for 9600s on the books right now come from or have come from the existing customers versus new customers. And I think that's close to a 50-50 ratio. I don't have the exact data in front of me right now. It's a little bit less then 50% existing customers, and the rest new customers.

Yeah. So Brandon, we are happy with that, because I think we -- it's a new system. And so obviously, you would think, well, a lot of it would be upgrades. I think we're really happy with the exposure and adoption within new customer segments.

A lot of customers, I think, have been waiting for a higher throughput solution. We have now brought that to the market. And looking forward into 2023, which is clearly forward-looking, but I think we are really excited in several customers about the ability to open up that particular system to open modular kits.

Does that answer your question?

Yeah. Yeah, that's helpful. In terms of the revenue guide, as you see the increase to the midpoint of about $1 million still implies a fairly wide range for the fourth quarter. Can you give us any directional color on that and to the degree to which your fourth-quarter estimates changed at all, or is that just an update for the year-to-date performance?

I think, Brandon, that -- I think the answer to that is you're right. We increased the guidance. And so 24% is in the midpoint of our new guidance. I think we remain comfortable with that midpoint guidance number for revenue.

Our estimates for Q4 internally haven't changed. I think we're pleased with commercial execution. Provided we can operationally ship against the purchase orders that we received for the 9600s, I think we are comfortable with our estimates. So I don't want to tell you I think we will be at the high-end of the range. I think we are comfortable with midpoint.

Okay. And then the gross margins improved quite a bit in the third quarter. You talked about over the next, I think 12 months, Todd, to be gross margins being in that mid-50s to low-60s range. You're touching that ballpark already in the third quarter.

Should we expect that to step down for some reason in the fourth? And then maybe help us think about the magnitude of benefit that you will get as you begin to move some of Eton's oligo production for your own in-house raw materials? Just the magnitude of the potential tailwinds from that transition.

Yeah. I think Eric and I will probably go back and forth on this one. And what I would say on the gross margin -- Brent, you can add in here too. But I think on the gross margin for the third quarter, we had -- you will see in our financials, we had a little more cash booked in collaborations, which I think helped the margin accretion. We also sold 9600s for the first time, which come with higher margins in ASP.

And our product mix is shifting from -- while it's growing very well, the Gibson Assembly kits for de novo gene synthesis, our product mix shifting towards higher margin NPI for mRNA, long-fragment builds, and RapidAMP products. So the combination of the instrument business with a 9600 more proprietary kits coming out in the accretion of gross margin as a result. I think it was an acceleration of the Pfizer milestone.

Going forward, Brandon, I would say our goal of course, and it has been since we started, is to get the product margins into that range that we discussed. And we think we have got a realistic plan to get there to discuss the magnitude of the, basically, margin recapture.

I'll hand it over to Eric. I don't think we have a prepared comment on the number of basis points of accretion. But I think in general, it will be pretty significant, because it's our largest single raw material acquisition.

Yeah, that's right. I mean we are in the process of turning on that capability. That's happening this quarter, and it will scale as we head into next year and through the year. So certainly, tailwind. It will be significant for us relative to the overall margin.

And it's one of, I think, a number of the factors that will help us in the gross margin area next year as we get into the the year, along with the other items that Todd mentioned. So we are heavily focused on gross margin. I think the trend will continue in Q4 and into next year. And we will continue to see expansion in gross margin.

Yeah. And again, just a bit of a bump in the third quarter is because of the amortization of a little bit more cash from the Pfizer milestone.

Okay. That's helpful. And lastly, just a bit on supply chain status right now. Are you encountering any component shortages that relate to kit or anything that might be a hurdle as far as shipping against the 9600 order book near term? Anything you are seeing on the supply chain front to call out?

Yes. I'll hand that over to Eric.

Yeah. Brandon, no, we don't have any significant issues right now in supply chain. I think on balance, broadly speaking, things have loosened up a bit in that regard. We don't have concerns about the supply chain around the 9600. We'll be able to fill the orders that we got.

Okay. Thank you.

Thanks, Brandon.

Paul Knight, KeyBanc.

Hey, [Alistair].

Hey, guys. Yeah, it's Alistair on for Paul. I was wondering, given the 9600 placements in the quarter, were those the placements that you were expecting for the full year? And I guess what I am trying to get at is do you expect to see some placements in the fourth quarter as well? Or are you going to be pulling 30 to 50 orders from 3Q into 4Q now?

No. I think what we had said is that we anticipated -- so the launch was early. It was scheduled for fourth quarter. We launched it in September. And we got three or four instruments shipped out in the short period of time during the third quarter.

You can expect that we will be receiving and shipping against orders for the 9600 in the fourth quarter. I believe in our last call, we said that we anticipated we would sell during the course of the year following the launch in the mid- to high-single digit numbers of BioXp systems. We remain comfortable with that -- 9600s.

Okay. Got it. And then I think you've mentioned the Pfizer milestones equaling up to about $30 million in FY23. Just wondering if we could get an update on your progress there? And what's, I guess, possible or likely in FY23 there?

Yeah. Let me get centered to those recent order around the times. We have got access to about $30 million in potential milestones, technical and otherwise, over the next 12 to 18 months. Specifically for the 2023 period, we are working to achieve three or four technical milestones. That program continues to impress. We are very excited about that.

We remain I think first to market with a large validated effort around enzymatic DNA synthesis. We're super pleased with that. I can hand it over to Dan, so he can tell you a little bit about [specific] sales around that program. But three or four milestones in 2023, and I think about that totals to around $10 million.

Yeah, this is Dan. So exactly, as Todd said, we continue to make tremendous progress around our SOLA enzymatic DNA synthesis solution. We have had a lot of success building the target genes for Pfizer, and we just continue to improve the reliability and fidelity and how quickly it takes to go from sequence to those genes using the process. But the program is going extremely well.

Great. Thank you, guys.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Thank you.

Thank you.