Bionano Genomics Inc
NASDAQ:BNGO
Earnings Call Analysis
Q4-2023 Analysis
Bionano Genomics Inc
The company's performance in Q4 2023 showed a significant stride, with revenues climbing 30% to reach $10.7 million, compared to Q4 2022. Over the full year, revenue grew by an identical percentage, totaling $36.1 million. This growth momentum was partly fueled by a 36% increase in the installed base of optical genome mapping systems, reaching 326 by the end of 2023, and a 67% growth over Q4 2022 in the sale of flowcells used with these systems.
A defining move for the company's financial health was the successful completion of an $80 million financing in convertible notes and warrants, ending Q4 with a robust $102.3 million in cash, cash equivalents, and securities. Retrospectively, the conversion of notes and warrants and strategic covenants adjustments reduced the minimum required liquidity and totaled outstanding debt to $24.3 million, positioning the company on a more stable fiscal base.
The gross margin inched up to 23% in Q4 2023 from 22% in the same period of 2022. Coupled with a full-year total gross margin improvement from 21% to 26%, it's clear cost-control measures are taking effect. Operating expenses also saw a decline, from $39.3 million in Q4 2022 to $27.4 million in Q4 2023, partly due to reduced headcount-related expenses and the beginnings of a substantial cost-savings initiative aimed at cutting $65 million to $75 million annually.
The company remains a trailblazer in its field with VIA software and Stratys system, enhancing the agility and efficiency of optical genome mapping. These technologies have garnered significant interest, with the early access program for Stratys exceeding supply. This suggests an appetite in the market for higher throughput solutions and holds promise for continued growth and adoption rates.
Although the company is progressing, there's an air of caution. Full-year 2024 revenues are anticipated to be between $37 million to $41 million, bearing in mind the first quarter's estimated revenues of between $8.25 million and $8.75 million. This cautious outlook reflects the market's difficulties, prudently steering the company towards stable growth rather than aggressive expansion, especially in the international markets.
The pursuit of a new draft policy on coverage, expected to see the light in early 2025, and a close watch on the advancing application for a CPT code are two key regulatory challenges ahead. The timelines for these have vital implications for reimbursement and broader market adoption, hence these processes are critical areas of focus for the company.
To align with its strategy and development focal points, the company is undergoing a substantial operational overhaul. This includes prioritizing spending and potentially impacting heads count across all areas, a step enforced by tougher market conditions but seen as necessary for long-term sustainability and focus on core applications.
Clinical study programs are set to concentrate mainly on hematologic malignancies. This approach is designed to support medical guidelines and reimbursement decisions that are critical for the adoption of the company's proprietary optical genome mapping technology. Furthermore, the decision to discontinue certain legacy services reflects an evolutionary step as the business continues shaping its priorities towards more promising growth segments.
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Good day and welcome to the Bionano Fourth Quarter and Full Year 2023 Earnings Conference Call. Today's conference is being recorded.At this time, I would like to turn the conference over to David Holmes from Investor Relations. Please go ahead.
Thank you and good afternoon, everyone. Welcome to the Bionano Fourth Quarter and Full Year 2023 Financial Results Conference Call. Leading the call today is Dr. Erik Holmlin, CEO of Bionano. He's joined by Gulsen Kama, CFO of Bionano. After market closed today, Bionano issued a press release announcing its financial results for the fourth quarter and full year 2023. A copy of the release can be found on the Investor Relations page of the company's website.I would like to remind everyone that certain statements made during the conference call are forward-looking, including statements about Bionano's strategic and commercialization plans, sales pipeline, future fundraising activities and prospects, cash runway, expected cost savings initiatives and the estimated impact on annualized operating expenses, the timing of expected benefits and such initiatives, expected reductions in head count, anticipated benefits or improvements to the Stratys, Saphyr and Ionic Purification System and their advantages over current technologies, goals and anticipated milestones for 2024 and achievements of the ELEVATE growth strategy, our anticipated compound annual growth rate, the size of our ability to access our estimated target markets, the anticipated benefits of recent acquisitions, expectations regarding the timing and the content study results and the anticipated benefits of these studies, in driving adoption of the Stratys system, Saphyr system and the Ionic Purification system.Such forward-looking statements are based on current expectations and there can be no assurances that the results contemplated in these statements will be realized. Actual results may differ materially from such statements due to a number of factors and risks, some of which are identified in Bionano's press release and Bionano's reported reports filing with the SEC. These forward-looking statements are based on information available to Bionano today and the company assumes no obligation to update statements as circumstances change.In addition, to supplement Bionano's financial results reported in accordance with the U.S. Generally Accepted Accounting Principles, or GAAP, the company is reporting non-GAAP operating expense. This non-GAAP financial measure is not meant to be considered in isolation or as a substitute to comparable GAAP measures. Should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP and has no standardized meaning prescribed by GAAP.It is not prepared under any comprehensive set of accounting rules or principles. A description of non-GAAP operating expense and reconciliation of non-GAAP operating expense to GAAP operating expense are included at the end of the company's earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website.An audio recording and webcast replay for today's conference call will be available online on the Investor Relations page of the company's website. With that, I will turn the call over to Erik.
Thanks, David. Good afternoon, everyone and thank you for joining us today. Today's call is an important one for Bionano. We want to cover a lot of ground starting with an update on Q4 and the full year 2023. And then we want to cover the 2024 outlook, including important progress we are making to address our capital structure and cash burn.I would like to first turn the call over to Gulsen to cover the financial results for Q4 and full year 2023. Gulsen?
Thanks, Erik. Consistent with our preannouncement in January, Q4 revenues were $10.7 million, which is up 30% versus Q4 2022. 2023 revenue totaled $36.1 million, which reflects an increase of 30% over 2022 revenues.Our installed base of optical genome mapping systems grew by 25 from the third to the fourth quarter of 2023 for a total of 326 on December 31, 2023, which reflects a 36% increase from year-end 2022. We sold 7,980 flowcells in the quarter, which reflects 67% growth over Q4 2022. For the full year, we saw 72% growth in the number of flowcells sold from 2022 to 2023 with a total of 26,444.This growth is important to note as we believe it indicates higher consumables utilization given that consumables growth is outpacing installed base growth by a factor of 2. We expect utilization to increase even more as the higher throughput Stratys system becomes a larger percentage of our total installed base.In October 2023, we completed an $80 million financing of convertible notes and warrants and we ended the fourth quarter with $102.3 million in cash, cash equivalents and available-for-sale securities, of which $35.5 million were subject to some restrictions. On February 28, 2024, we announced an important restructuring of the convertible notes, which lowered the minimum available liquidity covenant from $50 million to $25 million, lowered the restricted cash covenant from $35 million to $25 million, which can be further reduced as remaining principal is retired, canceled the March partial redemption payment and delayed the April partial redemption payment to April 20th and redeemed $27.7 million in principal, leaving the outstanding debt at $24.3 million.This restructuring effectively unlocked $30 million with the potential to free up an additional $25 million as further principal is retired.Regarding operating expense. GAAP gross margin for the fourth quarter of 2023 was 23%, which is slightly higher than the 22% GAAP gross margin reported for the fourth quarter of 2022. Full year 2023 total gross margin was 26%, up from 21% in full year 2022. Fourth quarter 2023 GAAP operating expense was $27.4 million compared to $39.3 million in the fourth quarter of 2022.The year-over-year decrease was primarily due to a decrease in the fair value of contingent consideration of Purigen milestones and reduced head count-related expense partly attributed to the cost savings initiatives outlined in our Q2 2023 and Q3 2023 earnings releases.Fourth quarter 2023 non-GAAP operating expense was $27.3 million compared to $30.6 million in the fourth quarter of 2022. Full year 2023 GAAP operating expense was $224.8 million and non-GAAP operating expense was $127.3 million. Full year 2023 non-GAAP operating expense excludes a one-time impairment charge of $77.3 million, $14.5 million in stock-based compensation and $7.2 million in amortization of intangibles, partially offset by $1.5 million in reductions of contingency-based obligations.Since joining Bionano, I have been focused on driving increased discipline to our spending while we work to extend our cash runway. In October 2023, we announced a cost savings initiative that we believe together with reductions that began in May will save approximately $33 million annually, including a reduction in head count of approximately 83 employees and reductions in discretionary spending on various projects.Some of those savings were evident in our fourth quarter OpEx. But for timing of employee expenses coming off the books, we expect to see the full benefit of the reductions starting in the first quarter of 2024.Today, Erik and I are announcing that we are implementing new plans that will further reduce expenses. Streamlining operations is possible because of the product launches behind us and addresses the current equity capital environment for tools and diagnostics companies, which is requiring companies to become much more efficient with resources and to reduce cash burn.With this 2024 initiative, our goal will be reducing annualized operating expense by another estimated $35 million to $40 million, including a potential reduction in head count by an additional 110 to 125 employees, bringing the total number of employees down to approximately 200 from approximately 324 today.Overall, since May 2023 through the completion of the initiatives announced today, we aim to have reduced head count by approximately 200 people and reduced annualized operating expenses by about $65 million to $75 million. We expect the savings initiatives we're announcing today to have associated costs. We will provide that information as appropriate once we have more completely finalized the costs associated with these plans.As we streamline our operating structure, we believe we're cementing the path forward now. Our core product development is mostly completed and we're targeting segments of the genome analysis market, where we believe we face no direct competition seeking to replace the classical cytogenetic methods with a single assay in contrast to the sequencing and spatial genomics markets, which have become incredibly crowded.With that, I will turn the call back to Erik to discuss our 2024 anticipated business plans before we take your questions. Erik?
Thanks, Gulsen. 2023 was one of Bionano's most successful years ever with solid revenue growth and achievement of all our publicly stated ELEVATE milestones. Despite the challenging backdrop from macroeconomic headwinds facing the industry overall, we believe 2023 set the stage for a bright future for OGM and the impact our products can make in health care.We believe the evidence is clear, ELEVATE is working. We saw a substantial increase in OGM publications in 2023 with over 5,000 clinical genomes published and the highest recorded quarter-to-date with 88 publications in the fourth quarter of 2023. OGM studies, including our own clinical studies program have now moved beyond showing concordance to focusing on demonstrations of the incremental value of OGM over classical methods.Our product development teams brought 2 new transformative products to the market, which are key to the end-to-end solution for OGM, VIA software and the Stratys system. VIA software makes the visualization, interpretation and reporting of OGM data incredibly fast, automated and easy to digest. It also enables analysis of chromosomal microarray and next-generation sequencing data together with OGM, which is a feature that is totally unique in the market.The Stratys system increases the throughput of OGM data generation by as much as fourfold compared to the Saphyr system and we have a road map to further increase that throughput over time. Stratys was released in an early access program in Q4 and demand exceeded our planned supply of 10 systems. We ended up with orders for 11 early access Stratys systems, 70% of which went to new customers.We're excited to introduce Stratys live to the market at the upcoming ACMG meeting in Toronto, March 13th through the 16th, including at a preconference scientific event hosted by Bionano on March 12, where Stratys users will present their progress and at a reception for conference attendees on March 13.The next component of the streamlined end-to-end solution to come out is isotachophoresis or ITP for OGM on the Ionic system, which is currently in pre-commercial evaluation in the field now and we expect ITP for OGM to be released commercially in the second half of this year.Looking ahead to executing ELEVATE in 2024 with a further streamlined operating structure, we're aiming to limit the impact of downsizing on revenue growth in the core OGM products. As part of that streamlining, however, we have made the difficult decision to phase out some of our clinical services products that we sell directly to physicians, namely our First Step and Next Step Dx products and our Fragile X test, which are legacy non-OGM tests.In 2023, these products generated around $7 million of the overall $36.1 million in revenues. Therefore, after taking into account discontinued products, we are guiding full year 2024 revenues to be in the range of $37 million to $41 million and first quarter 2024 revenues to be between $8.25 million and $8.75 million.We expect to install between 80 and 100 new optical genome mapping systems in 2024, but we think the net increase to the installed base may reflect some Saphyr to Stratys upgrades. So we expect the OGM installed base by the end of 2024 to be in the range of 381 to 401 systems.Regarding Next Steps on the path to OGM reimbursement, Bionano Labs submitted the dossier for a local coverage determination coverage policy for heme malignancies from MolDX Palmetto in the fourth quarter of 2023 and the application was accepted, which is the first step in the process. Bionano Labs is working with other OGM users to seek local coverage determinations from other Medicare administrative contractors or MAX in the U.S. In the meantime, customers continue to be successful in obtaining and using PLA codes to get reimbursement for OGM applications.We believe the Category 1 CPT code is a more general solution to reimbursement coding for OGM in the U.S. According to the AMA website, an application for a Category 1 CPT code for OGM in the 2024 cycle has been submitted. The process is confidential and we are not able to confirm if it is one of our users in the U.S. as the applicant's name is not public information.Widespread utilization of OGM is one criterion that the AMA will use in the evaluation of a CPT code application. And we believe it will be more meaningful if OGM users are able to directly speak to the utility of the workflow. The CPT code application process unfolds over the next few months. And so we're hopeful of a good outcome towards the end of the second quarter 2024.In 2024, our clinical studies programs will focus mainly on heme malignancies in an effort to support the medical guidelines and reimbursement decisions connected to this application for OGM going forward. We will also maintain efforts to address regulatory requirements where they represent opportunities to clear the path for adoption.In closing, I want to emphasize that while we are facing challenges from the situation related to equity capital markets, our core business is healthy. Reducing expenses is a difficult, but important step in addressing our financing overhang as we continue our mission to transform the way the world sees the genome.With that, operator, we are ready to take questions.
[Operator Instructions] Our first question comes from Sung Ji Nam with Scotiabank.
So just a clarification to start off. For the $7 million, the revenue that's being discontinued from the Next Step and First Step in Fragile X. Are they all coming from the service revenue segment? And then would you be able to kind of comment on kind of what the growth rate has been for that business over the years?
Yes. Those are coming from what would be services. And they've been growing a little bit, but our expectations, as we were looking ahead to 2024 before making the decision to discontinue them, was that they would be mostly flat.
Got you. Okay. And then Erik, great to hear kind of your focus on heme malignancies this year. But could you give us kind of an update in terms of all the clinical studies underway preclinical post -- I'm sorry, prenatal, postnatal heme and also solid tumor and what the statuses are and kind of what the next steps are for all of them?
Yes, sure. So we've really made tremendous progress across all areas, perhaps with the exception of solid tumor, although we have the study, which has been IRB approved and we're really waiting to just actually have really more bandwidth to spend time on that particular study. In both prenatal and postnatal, we had landmark publications that came out over the course of the year in 2023, really demonstrating the concordance with traditional methods and beginning to show some of the incremental benefits in diagnostic yield, especially for the postnatal study.And so we feel like we've created a really solid momentum for those studies and it's going to be fine to let them sort of filter into the market and for people to digest those data. There are really large data sets that show the value of optical genome mapping as a replacement for traditional methods.And then hematologic malignancy study has also progressed significant publications, including peer-reviewed publications over the course of 2023. And our focus going forward there will be really to continue to pursue all of the endpoints that we intend to measure, which include the incremental benefits of optical genome mapping over traditional methods. We've seen a little bit of that in some of the early studies and early publications, but we're going to continue to dig deeply into that.And then we also want to be able to show changes in how cases are managed as a result of the information that comes out of these studies as well as a variety of health economic benefits. And so some of those end points for prenatal and postnatal might be a little bit delayed and we'll get them for heme first. But I think that the clinical trials program had developed such incredible momentum that a lot of the work will continue independently of our efforts and that will allow us to focus the resources that we have on heme.
Got you. Great. That's super helpful. And then just the last one for Gulsen. Could you maybe talk about the -- your expectations for gross margin cadence for this year? Good to see continuous improvement there throughout last year. I was wondering, given the full commercial launch of Stratys as well as the discontinuation of certain product lines, should we anticipate some disruptions on the margin side, at least for the early part of the year?
I don't think so. If anything, I think some of the cost reductions that we announced will actually have an impact even on cost of revenues. So just because of that, I think there will be an improvement.
Our next question comes from Mark Massaro with BTIG.
Congrats on a strong 2023. Maybe just starting with the head count reductions. So it looks like you're talking about a potential reduction number. I guess, have you -- I mean you obviously provided the number. So can you just give us a sense for what would move that from potential to moving forward?And how should we think about the timing? And then related to that, I know, Erik, you don't want to impact revenue-generating activities, but that is a large number of folks. So maybe just walk us through whether or not you think you're able to withhold cuts to commercial activities?
Sure. So I think with regard to the language that we're using, I think a fair takeaway is that we're seeking to come from about 324, which is the head count that we're at, now down to 200. And our experience when we did reductions in the fourth quarter was that for a variety of reasons, a few people here and there had to be taken in and moved out of the plan. So we want to leave some room around the 200, but that's certainly the target that we're aiming for. So that would suggest a reduction right around 125 people.And as has been pointed out, as we discussed these steps with our incredible employees and as you can imagine, it's such a difficult decision to make to reduce these costs, those -- that sort of magnitude exceeds 1/3 of the company. And so essentially, all areas of the company will be impacted. And one of the reasons that we decided to discontinue the services products was that there are a fair number of people associated with generating those revenues. And so that allows us to meet part of that head count target in a single move.The other reason is that as important as that product flow is and the samples coming in the door and they provide some benefit to the advancement of OGM overall, they're not really core. And so a key driver as we think about going forward is that we really want to be deeply focused on optical genome mapping and have all of our management resources dedicated to that. So that helps with some of the numbers.And then in order to address the remaining, we recognize that we've gone through some significant product developments. VIA software is in the market, the Stratys system is in the market. And so the incredible people who have helped us get to this point, we don't need as many of them going forward. So that's a part of the transition.And then commercially, we do have some impact across sales and marketing. And the way that we're balancing that is to really leverage where we have distribution partners and third parties that support our products in the market, we're really going to lean on them and they're going to have to deliver.And so what you'll see is that maybe we're not going to be as ambitious about growing our commercial footprint globally and internationally across APAC and rest of world and we'll maintain our very successful focus in Europe and United States and Canada. So it's -- we are certainly going to impact head count there, but we want to keep the momentum in place that we've built so far.
Okay. And then maybe a clarification on the installed base and the guidance. It looks like you're expecting a range of 80 to 100 systems this year. You did indicate you expect some conversions from Saphyr to Stratys. Is it right that if I just do the math you might have, let's say, an increase of 65 systems overall? But the delta between the 65 and the 90 at the midpoint would be the conversions. I mean, is that based on -- is that math right? And then is that based on conversations you're having with customers? And then maybe lastly, can you talk about mix between capital reagent rental? How you think that might play out this year?
Sure. Yes, I think that your sort of math is correct there. And we feel confident about this 80 to 100 new installs. And there's the potential to get past that. But we want to make sure that we deliver against what we're signing up for here. And these conversions or upgrades, if you will, we have some visibility into that. But I think aside from the early access program, we're only about 45 days into the full commercial release of Stratys. And so the information that we're getting is fairly new. And so the 25 upgrades is an estimate. And so we'll just have to see how things play out going forward.
Okay. And last question for me is it's nice to see you submit the dossier to Palmetto MolDX. Is it your expectation that 2024 is a year, obviously, for them to review it, maybe come up with a draft decision? Do you think that might hit by year-end? And then maybe go final next year? Maybe just help us think about how you're thinking about timing?
Yes. So I can share some additional information that we've learned as part of the process, kind of pre-submission and then subsequently is that there needs to be a determination as to whether this application is ultimately treated as a request for a completely new coverage policy or if it can be attached to any of the existing ones.And we're fairly certain that it's likely to be a new policy. And so for our own thinking and our own planning purposes, we treat it that way. And I think it's reasonable to expect that it could take all of 2024 for a new draft coverage policy to come out. So the earliest that we would see -- I think it's safe to say that we would see the draft policy early 2025 and with the potential for it to become final in 2025. Maybe the folks working on it beat that, but I think that's a safe estimate.
[Operator Instructions] Our next question comes from Jeff Cohen with Ladenburg Thalmann.
I wanted to follow up on Mark's previous question. Could you comment a little bit on the Cat 1 CPT code and the AMA from what you know currently? And how might that play out over '24? And if that plays out well then when would that take effect?
Sure. Thanks, Jeff. So I think in contrast to prior years where Bionano has led the process to apply for the CPT code, I think what we learned in that process is that as the manufacturer of the technology, it's difficult for us to really provide the information.And so we were pleased to see that an application for a CPT code has been made this year. And what we know with certainty is that we were not the applicant. And so it's reasonable to conclude that the applicant is a user. And as we sort of indicated in our prepared remarks, we're not able to sort of confirm their identity because it's a confidential process.Having said that, the process is standardized and plays out over the next 2 or 3 months. And so I think that what we're likely to see is the application proceeding. And the applicants will know sometime in late May, early June, where it stands. And then us as observers from the outside, we will know if the code is advanced into the agenda of the final meetings, which take place in June, that agenda is published shortly before the meeting. So I think we'll all be watching very closely over the next couple of months to see how the situation unfolds.
Okay. Got it. That's helpful. Could you talk a little bit about the Stratys placements? I know it's a action plan where you had mentioned 7 out of 10 were new customers. Can you walk us through perhaps the methodology or the thinking there as far as those customers wanting a higher throughput system? And perhaps some flavor as far as what types of accounts they were?
Yes. Across the board, our accounts and I think that this has been a consistent pattern now for a while and we should start emphasizing it more. But these are all either academic medical centers like hospitals or regional reference labs or commercial labs. And we also have systems going to pharmaceutical companies.So what we don't see anymore and I think that this is a really important transition that we've undergone, we don't see the academic research centers who are buying optical genome mapping to create the next reference genome for this species or that species. There's a little bit of genetic and genomic mechanistic work going on.But just about substantially all of our adoption is really in our target markets, routine use in hematologic malignancy, research, constitutional genetic disease research and then applications in cell and gene therapy. So super pleased about that.And then when we look at the Stratys system and the folks who have raised their hands without a doubt, they see it as the thing that they've been waiting for that provides them new higher throughput. There are also other characteristics of the Stratys system that make it attractive to users, which include really a lot of flexibility coming to introducing samples into the system and generating data. For example, the Stratys system can run 12 samples at a time, but also accommodate up to 3 additional samples in a just-in-time sort of fashion where you can jump the queue and get ahead and run urgent samples.And so the flexibility in the workflow, coupled with the higher throughput is something that labs are finding very interesting and very attractive. And something else that we're seeing is that accounts that had been in our pipeline and in the process of purchasing optical genome mapping are making the shift from Saphyr to Stratys.And I don't know if Mark is still on, but he had also asked about the kind of distribution of rentals to capital purchases. And for a while now we've seen a very rough 50-50 distribution, but we're actually seeing a little bit more of purchases with Stratys and that's encouraging.
That's helpful. And then finally for us for Gulsen. In particular, when we talk about the OpEx reductions for '24, if we do some quick math off the '23 numbers less the impairment and where you're leading toward we're getting, call it, about [ $115 million ] to [ $120 million ] for full year '24. Could you maybe comment on that? And then perhaps give us a little insight into how you see that breaking down between R&D and SG&A?
Yes. So in terms of 2024 impact specifically, not the annualized savings numbers, which is what we announced, it will take some time to implement the savings initiatives. So we'll most likely see a partial year impact as a result of the most recent announced ones. The ones that we announced in October should be in full effect by now. So the number that you mentioned, I would please divide by 2, I guess, in terms of the impact in 2024 specifically.And I'm sorry, what was the second part of your question?
Just if you could give us a sense of the ramifications on the R&D --
R&D and SG&A?
-- line and SG&A lines? Yes.
Yes. I think, as Erik mentioned, it's both new product development with Stratys already rolled out. But it's also on the commercial side. So for now again, I can get back to you, but I would expect equal with almost.
Okay. That's super helpful. Congrats on the quarter.
Thank you.
Our next question comes from Jason McCarthy with Maxim Group.
This is Michael Okunewitch on the line for Jason. So I guess just the first question, I just want to get a point of clarification. Is the full year '24 revenue guidance fully factoring in the removal of those legacy tests? I'm trying to understand if it's appropriate to consider the core growth rate there to be like 27% to 40%?
Yes, it is fully factoring in the reduction or removal of those revenues. We're probably going to see a little bit of them in the first quarter. So I think at the high end of that range, we're really aiming to get to 30% growth in the quarter.
I'm showing no further questions at this time. I would now like to turn it back to Erik Holmlin for closing remarks.
Okay. Thank you, Daniel and I want to thank everybody for joining in the call. And we look forward to updating you shortly on our progress here in the first quarter of 2024. Thank you very much.
This concludes today's conference call. Thank you for participating. You may now disconnect.