Somalogic Inc
NASDAQ:SLGC
Earnings Call Analysis
Q3-2023 Analysis
Somalogic Inc
Despite the global economic challenges, the company demonstrated resilience with a third quarter revenue hitting $22 million. This figure marks a substantial 14% year-over-year growth, showcasing the underlying strength of the business, particularly when considering the exclusion of nonrecurring licensing revenue from the previous year. Investors can take comfort in the company's upward revision of its full-year 2023 revenue expectations, now ranging from $82 million to $85 million, reflecting confidence in the company's trajectory and operational execution.
The company has announced a strategic all-stock merger with Standard BioTools, aimed at creating a robust platform of multi-omic technologies that will expand commercial reach and accelerate the path to profitability. Expected to close in the first quarter of 2024, this merger promises to position the business at the forefront of a broad and growing market, enriching its offerings with cross-selling opportunities and enhanced scale.
The company's authorized site strategy, particularly focused on Europe and Asia Pacific regions, is advancing well with 14 sites operational, edging closer to doubling the count by year-end. These sites are anticipated to provide more predictable and higher-margin revenue while enhancing global accessibility to the SomaScan platform. Furthermore, the commercial launch of the 11K SomaScan assay—the largest proteomics offering available—asserts the company's role as an innovator, enabling researchers to make more comprehensive biological discoveries.
The company's gross margin exhibited a mixed performance with a reported 47.2% for the third quarter of 2023, which is a decrease from 72% the prior year, but when accounting for nonrecurring items, it reflected an encouraging 7.4% year-on-year increase. Looking ahead, the company maintains an expectation to keep full-year gross margins in the mid-40% range, with prospects of improvement over the long term.
In a focused effort to streamline operations, the company successfully reduced its total operating expenses by 46% year-over-year to $38.5 million. This reduction has been achieved across various expense lines including R&D and selling, general, and administrative expenses, demonstrating the company's commitment to optimizing its cost structure as it scales its business.
The balance sheet remains solid with $454 million in cash, equivalents, and short-term investments at the end of the third quarter. A marked reduction in cash burn to $20 million for the quarter indicates strong financial discipline and improved cash management—a trend expected to continue, as indicated by the forecast of approximately $430 million in cash reserves by year-end, signaling a lower cash burn rate than previously anticipated.
The company's partnerships, such as the one with Illumina, underline a forward-looking approach. The collaboration aims to deliver a co-branded next-generation sequencing-based solution in early 2024, augmenting the company's reach across various customer segments. Moreover, the company's efforts to reduce expenses are on target, with an expected full-year operating expense of approximately $170 million, underscoring the company's drive towards improving margins and operating efficiency.
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Good afternoon, and welcome to SomaLogic's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to call over to Noah Corin with Gilmartin Group Investor Relations for introductory comments.
Thank you. Today, SomaLogic released financial results for the quarter ended September 30, 2023. A copy of the press release is available on the company's website.
Before we begin, I'd like to remind you that management will make forward-looking statements during this call within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our market opportunity, gross margin and future financial performance, protein content and database growth, customer base, diagnostic pipeline, expectations for hiring and growth in our organization, are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our latest Form 10-Q and 10-K filed with the Securities and Exchange Commission.
In addition, today's discussion will include references to non-GAAP financial measures, including adjusted EBITDA. This non-GAAP measure is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. Please see our press release on file with the SEC as of this afternoon for a reconciliation between GAAP net loss and non-GAAP adjusted EBITDA.
This call contains time-sensitive information and is accurate as of the live broadcast today, November 8, 2023. SomaLogic disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.
And with that, I will now turn the call over to Adam Taich, Interim Chief Executive Officer.
Thanks, Noah. Good afternoon, and thank you for joining SomaLogic's Third Quarter 2023 Earnings Conference Call. I'm pleased to report another solid quarter marked by consistent progress on our commercial initiatives and increased operational rigor throughout the organization.
Despite a challenging macroeconomic environment, we achieved third quarter revenue of $22 million, reflecting 14% year-over-year growth when excluding nonrecurring licensing revenue that we received in the third quarter of last year. Given our progress, we are raising our full year 2023 revenue expectations to $82 million to $85 million from the prior range of $80 million to $84 million.
Before turning to our results in more detail, I'd like to highlight our recent merger announcement. In early October, following a comprehensive review of strategic options, we announced our intention to combine in an all-stock merger with Standard BioTools, a leading provider of mass cytometry and microfluidic technologies. The merger establishes a leading platform of multi-omic technologies to power research insights across a broad and growing market while expediting SomaLogic's path to scale and cash flow breakeven.
It expands our commercial reach with cross-selling opportunities and complementary offerings. We believe the combined business will be positioned to meaningfully accelerate our path to probability, and we continue to expect the merger to close in the first quarter of 2024. We expect our proxy to be on file shortly, which will provide additional background and details regarding the transaction.
Now shifting to our third quarter results, starting with our core SomaScan services offering. Customer retention and acquisition remain the focus of our commercial efforts, and we are finding new ways to validate the therapeutic pipelines of our customers. For example, the recent rise in GLP-1 agonists have increased interest in the use of SomaScan to identify early indications of efficacy across clinical trial candidates.
In a recent paper published by Diabetes Care, investigators were able to identify meaningful changes in cardiovascular risk, glucose tolerance, liver fat, body fat and cardiopulmonary fitness as a result of weight loss intervention by utilizing the SomaScan platform. By attaining an early read on efficacy, pharma investigators can allocate resources to the most promising therapeutic candidates before expensive and time-consuming longitudinal studies are undertaken. This represents just one of the many promises of the SomaScan platform.
In the third quarter, we continued to execute on our authorized site strategy. The primary goal of this strategy is to expand the ways in which customers can adopt and utilize SomaScan. We've been especially focused on expansion in Europe and Asia Pacific, as it is often more difficult for customers in those regions to send samples into our world-class services lab in Boulder, Colorado. As we establish more sites and generate higher sample volumes, we expect our authorized sites to offer more predictable and higher-margin revenue while reducing sample delivery times for researchers globally.
In March, we shared that we had established 8 distinct authorized sites, and we committed to doubling that base by year-end. As of today, we have 14 sites up and running, and we remain on track to meet our commitment.
Turning to progress with Illumina. In the third quarter, we also advanced our effort to grow our distributed business through our partnership with Illumina. The partnership is focused on delivering a co-exclusive, co-branded NGS-based distributed solution.
Our work remains on track, and we continue to expect early access for customers in Q1 of 2024. This joint proteomics product will combine Illumina's market-leading installed base and commercial force with the breadth and depth of the SomaScan assay to deliver differentiated insights to researchers across a wide range of customer segments.
While attending the American Society of Human Genetics meeting in Washington, D.C. last week, I had the opportunity to speak to a number of prospective customers who are really excited about being able to leverage their Illumina NGS instrumentation to gain deeper proteomic insights in their research. The energy around this effort is palpable, and the level of interest from customers is high.
Finally, we are incredibly excited to announce the commercial launch of the 11K SomaScan assay. The new high-plex platform provides 11,000 total protein measurements and is the largest proteomics offering available on the market. We now have the ability to measure more than half of the human proteome in a single assay.
Following the 7K SomaScan offering, our prior core technology, the 11K SomaScan platform is expected to give researchers a considerable edge in the discovery of biomarkers and drug targets for translational medicine. Proteins make up more than 90% of all known drug targets. And having a broader view of the human proteome provided by this expanded platform gives our customers more opportunities to make unique and novel biological discoveries.
The aptamer-based platform retains the previous version's low coefficient of variation, which is the standard measure of reproducibility versus the 10% to 20% in antibody-based platforms. This improves accuracy with fewer, smaller samples, which is often critical in population studies with limited sample volumes.
As early innovators in this space, we know that the discovery and development of disruptive therapeutics benefit substantially from a more complete view of the proteome. We look forward to driving adoption of this platform for the benefit of researchers across our customer base.
Now before I turn the call over to Eliot Lurier, our Interim Chief Financial Officer, I'd like to reiterate that we are making strong progress towards our business objectives. And we remain excited for our future as part of the combined company with Standard BioTools. We look forward to the close of our merger and the realization of shareholder value that we can unlock together.
With that, I'll turn the call over to Eliot Lurier, our Interim Chief Financial Officer, to review our financials.
Thank you, Adam. Revenue for the 3 months ended September 30, 2023, was $22 million as compared to $41.7 million in the third quarter of 2022, a 47% year-over-year decline on a GAAP basis. Excluding $22.3 million in royalty revenue in the third quarter of 2022 from NEB, our revenue increased by 14% year-on-year.
Our underlying third quarter performance was driven by increasing adoption of the SomaScan platform as well as an increase in revenue through our authorized sites. Product revenue associated with our authorized site strategy was up close to $2.5 million versus Q3 '22 and up $0.5 million or 17% sequentially from Q2 of this year.
Gross margin for the third quarter of 2023 was 47.2%, a decrease from 72% in the prior year period. Excluding the NEB royalty revenue in the third quarter of 2022, gross margin increased by 7.4% year-on-year. As we noted earlier in the year, we continue to expect full year 2023 gross margins in the mid-40% range and expect our margin profile to improve long term from our combined distributed solution and future royalty revenues.
Total operating expenses for the third quarter of 2023 were $38.5 million, a 46% decrease from $70.7 million in the third quarter of 2022. R&D expenses for the third quarter of 2023 were $10.5 million compared to $19.4 million in the third quarter of 2022.
Selling, general and administrative expenses for the third quarter of 2023 were $23.9 million compared to $49.5 million in the third quarter of 2022. Transaction expenses for the third quarter of '23 were $4.2 million compared to [indiscernible] in the third quarter of 2022. Transaction costs in third quarter are related to our upcoming [Technical Difficulty] Q3 '22 were related to the [indiscernible].
Lastly, I would like to note the prior year's operating expenses include [Technical Difficulty]. Our third quarter results reflect substantial progress across ongoing expense reduction initiatives. We remain on track to recognize approximately $170 million in full year operating expenses.
Adjusted EBITDA for the third quarter of 2023 was a loss of $20.1 million compared to an adjusted EBITDA loss of $30.2 million in the third quarter of 2022. Accounting for the NEB royalty in Q3 '22, the adjusted EBITDA would have been a loss of $52.5 million.
We ended the third quarter with $454 million of cash, cash equivalents and short-term investments. Our cash burn in the quarter was $20 million, reflecting a significantly sequential decrease as we implement greater spending control.
We anticipate ending the year with approximately $430 million in cash, equivalents and short-term investments, implying a significantly lower cash burn rate than we had originally guided for the year. Ending with our full year outlook, as Adam mentioned, we are raising our 2023 revenue guidance to $82 million to $85 million.
At this point, I'd like to turn the call back to Adam.
Thanks, Eliot. In a moment, I will turn the line over to our operator, Shannon, to open up the queue for questions. Before I do, I would like to ask that our audience to focus our questions on our third quarter business results and progress rather than on the announced merger with Standard BioTools as our proxy statement has not yet been filed.
Shannon, we're now ready for questions.
[Operator Instructions] Our first question comes from the line of Kyle Mikson with Canaccord Genuity.
So looking at the enhanced [indiscernible] library, I was just curious sort of new indications that you've seen [indiscernible]. I know it's, obviously, very early days. And I guess more so [indiscernible].
Shannon, I think as you just saw from the -- Eliot and I are unable to -- we weren't able to hear the question.
We're hearing a lot of background static.
Kyle, could you please repeat your question?
Yes. So [indiscernible]. So regarding the enhanced protein library, I was just curious what new indications that you're seeing researchers use the library for? I know it's early days, but just kind of curious kind of where -- what type of research to [indiscernible]?
Yes. [indiscernible] But we also wanted to ensure that we were looking on [indiscernible] in the areas of scientific interest [indiscernible] gathering proteins with new menu. I hope that's audible. And I'll defer that, Shannon, to you.
Got it. I could definitely hear you loud and clear. And then my other question just would be I guess looking at the performance, would you say that this [indiscernible]. Would you say some of this performance is driven more so the [indiscernible] research or like on the biopharma?
Yes. I would say most of the -- we're seeing fantastic growth in both customer segments, but we're really starting to accelerate and penetrate more deeply in the biopharma. Those, as I've discussed earlier, can oftentimes [indiscernible] along the road, and then you'll see those customer bases. And we're starting to see more and more growth different therapeutic areas [indiscernible] discovery aspect all the way [indiscernible] highlighted on GLP-1 in our comments. We're finding ourselves also in those clinical discussions as well.
Our next question is coming from the line of Dan Brennan with TD Cowen.
It's Kyle on for Dan. I had one on the kits business in regards to the authorized sites. You said you're up to 14 sites. How is the activity level with each of those sites? And do you have plans to expand this in '24?
Yes. So [indiscernible] some of those new sites that we've gotten up and running, but [indiscernible] one of the things we've tried to do over the last several quarters is selecting great partner. And we've done so thus far. So activity level is great and [indiscernible].
Got it. And how should we sort of think about the Q-over-Q growth in the kits business? It picked up sequentially. And I think you guys beat the quarter by about $1.5 million relative to The Street and raised the midpoint of the guide. Should we just carry the speed sort of over in Q4? The Street numbers look relatively fine where they are. How should we think about that?
I apologize. Can you repeat the question?
Yes, we might be having some technical difficulties here. So you beat the quarter by about $1.5 million rate at the midpoint of the guide, about $1.5 million. Are you comfortable where The Street is for the fourth quarter? Or I guess what are sort of the puts and takes of 4Q?
Yes. I think part of the reason that we increased guidance is we're expecting the fourth quarter to look more similar to the third quarter. And so we're feeling good about that. Our business [indiscernible].
[Operator Instructions] Our next question comes from the line of Daniel Arias with Stifel.
It's Paul on for Dan. Apologies if this has been asked. I'm having trouble hearing, but I think the audio [indiscernible]. Just wondering in terms of setting up these authorized sites, now that you're up to 14 becoming, I guess, a little more frequent. Can you talk about -- are you starting to see any improvement in terms of faster pace of training or customers staying up to speed and sort of in terms of the normalized pull-through. Is that kind of something that you're seeing as more and more authorized sites are getting out there? Or is it just more status quo as new customers [indiscernible]?
No, I think [indiscernible] as we learn [indiscernible]. We continue to increase in the site [indiscernible].
Okay. Great. And then the last one is in terms of the guidance raise, is that something that -- is there a specific geography that's contributed more so to that? Or you're seeing more strength than you expected a quarter ago or is that relatively broad-based?
It's fairly broad based, to be honest with you. It isn't any ERP. In particular, I think [indiscernible] so what we're seeing is really more broad-based growth as we extend our [indiscernible] in Europe historically, we're seeing really nice uptick in [indiscernible].
I would now like to turn the call back over to Adam Taich for closing remarks.
Great. Thanks, Shannon. And apologies for a little bit of technical difficulty right at the Q&A. I hope it's audible. I just really want to thank you for your time and your efforts to join this call. And we look forward to another strong quarter and closing the merger with Standard BioTools. Thank you so much.
This concludes today's conference call. Thank you for participating. You may now disconnect.