Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Accelerated synergy realization from the SomaLogic integration, pulling forward the $80 million cost reduction target to the end of 2024, a year ahead of plan.
- Strong operational execution with a focus on cost structure, achieving a 27% reduction in non-GAAP operating expenses in the first half of 2024.
- Commitment to achieving breakeven adjusted EBITDA for the full year 2026.
- Partnership with Illumina for the commercial release of the SomaScan assay on Illumina's NovaSeq platform, expected in the first half of 2025.
- Well-capitalized with nearly $400 million in cash, providing a significant competitive advantage in a constrained capital environment.
Negative Points
- Weaker-than-anticipated second-quarter revenue, leading to a revision of full-year 2024 revenue guidance to $170 million to $175 million.
- SomaScan services experienced contract delays, particularly in the EMEA region, impacting revenue.
- Instrument revenue was down year-over-year due to industry-wide restricted capital purchasing environment.
- Pro forma combined revenue declined 23% in the second quarter and 11% in the first half of 2024.
- Non-GAAP gross margin decreased to 45% in the second quarter from 53% in 2023, impacted by lower capacity utilization and strategic decisions to replace or upgrade instruments.
Q & A Highlights
Q: On the guidance cut, can you talk about the remainder of the bridge on the cut in terms of products for service, proteomics versus genomics? What are you assuming for each of those for the year now?
A: We are seeing encouraging signs of an uptick in some of the large pharma accounts and are encouraged by the existing pipeline on the instrument side of the business. The updated guidance reflects a mix of components that will drive a 10% sequential second half versus first half.
Q: Regarding the lumpiness on the SomaScan side, do you expect to recoup the timing-related revenue over the coming quarters?
A: Yes, it is mostly timing-related. We are working deliberately to diversify the revenue mix through authorized sites and partnerships like Illumina. The tough year-over-year comps on big service contracts are also a factor.
Q: You reiterated the commitment to adjusted breakeven in 2026 and pulled forward the rest of the cost synergies by a year. How should we be thinking about the top line from here?
A: We see healthy growth across our proteomics portfolio, which is about 80% of the revenue. We will be adjusted EBITDA positive irrespective of the top line. If we hit the higher end of our revenue outlook, no additional actions are required. If we hit the low end, we will take up more costs.
Q: Can you speak more about the decision to leave now, especially after a mixed quarter?
A: It is a personal decision, returning to an industry I know well and working with people I've worked with in the past, much closer to family and home. There are no disagreements with the management team, and I remain a loyal shareholder who believes in the vision.
Q: Can you provide more details on how you arrived at the new guidance number and what you've assumed in terms of the spending environment?
A: We have instituted a tight process on the SomaScan side with rigorous daily visual management. The updated guidance reflects the current visibility with the backdrop of a contained pharma spending environment. We are not assuming a market recovery in the second half for this guidance.
Q: What was the genomics revenue in the quarter, and is that a growing business in future years?
A: The genomics business was down 6% in the first half of the year. We expect it to be flat in the second half and see a nice uptick next year. It is accretive on a contribution basis, and we plan to grow it as a driver of profit in the coming years.
Q: Can the SomaLogic decline year-over-year be recouped?
A: Yes, the decline is due to the heavy concentration of a few big customers. We are leaning into expanding the service and moving to distributed solutions. The particular projects delayed will come later, but all projects are shifted out, hence the guidance update.
Q: Can you speak to the trends in instruments and consumables in the quarter and how you're thinking about the back half?
A: Consumables revenue, including authorized sites, was flat year-over-year. We expect an uptick in the back half, driven by the Hyperion XTi imaging platform and improvements in our CyTOF XT flow business. The consumables pull-through should increase as these issues are resolved.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
