Bionano Genomics, Inc. (BNGO) Q4 2018 Earnings Report, Transcript and Summary

Greetings, and welcome to Bionano Genomics Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I'll now turn the conference over to Ashley Robinson, Investor Advisors. Mr. Robinson, you may now begin.

Thank you, operator and good afternoon, everyone. Welcome to the Bionano Genomics fourth quarter and year-end 2018 financial results conference call. Leading the call today will be Dr. Erik Holmlin, CEO of Bionano, and Mike Ward, Bionano's, Chief Financial Officer. After market closed today, Bionano issued a press release announcing its financial results for the fourth quarter and year-end 2018. A copy of the release can be found on the Investor Relations page of the company's website. Before we begin, I would like to remind everyone that certain statements made during this conference call will contain forward-looking statements including statements about our strategic and commercialization plans, the anticipated benefits of improvements to the Saphyr system, our expectations regarding timing and content of study results being performed by users of the Saphyr system, including key opinion leaders and anticipated benefits of these studies in driving the adoption of the Saphyr system. Such forward-looking statements are based upon current expectations and there can be no assurances that the result 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 our press release and our other reports filed 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. With that, I'll turn the call over to Erik Holmlin. Erik.

Thank you, Ashley, and good afternoon, everyone. I'm very pleased for you to join us today for an update on our progress this past quarter and our accomplishments throughout 2018. Joining me on the call today as our Chief Financial Officer, Mike Ward, who will review our quarter and year-end 2018 financial results and after our prepared remarks we'll open the call for a question-and-answer session. We have had an impressive year as a company. It was highlighted by our IPO in August of 2018 and really punctuated by our performance this past quarter. With the cash we raised in the IPO as well as an additional $41.5 million in cash commitments from two financing transactions we announced this afternoon, we believe our balance sheet remains strong, which will allow us to continue to pursue aggressively our market development efforts, our global commercialization plans, and our key product development initiatives. This past quarter we straw strong revenue growth, which we will describe in more detail later in the call. This growth is the result of the Saphyr system which our customers use for ultra-sensitive and ultra-specific detection of genomic structural variations being well-received in our target markets, especially as we gain acceptance at key institutions in translational and clinical research around the world. We continue to advance the capabilities of Saphyr throughout 2018 and culminating in a series of product launches last month. We simplified essentially every aspect of the Saphyr workflow, making it easier to run, faster to get results, all less than $500 per sample in consumables. Saphyr is now capable of processing 42 whole human genomes per week with a workflow that can be automated in steps from sample to answer. We have also expanded the capabilities of Saphyr's data analysis solutions, improving their sensitivity to all types of structural variations and importantly including those that may be present in samples at a very low abundance. We believe it's these improvements that are driving Saphyr adoptions among clinical and translational research centers, as well as cytogenetics labs where Saphyr will serve as a digital cytogenetics platform. Last year, we also collaborated with Genoox, a company that manages sequencing data analysis to develop and launch a platform that combines sequencing reads with Saphyr's structural variation calls all from a single patient sample. The output from this process is an annotated report of the small variants discovered with sequencing and the structural variants discovered with Saphyr. The annotation of variants in the report against various databases associates them with known potentially pathogenic variants as described in the clinical literature. Children's National Health System in Washington DC which is ranked number one in the United States for infant care became the initial adopter of the Genoox integrated platform running Saphyr. This integrated analytical capability offers Children's National a single platform for sensitive accurate detection of structural variation and genetic mutations for rare diseases which was not previously practicable. We're very pleased to see that the utilization of Saphyr continues to increase driving more publications and increasing the awareness and acceptance of our technology. Over the course of 2018 our users published a record number of papers detailing the application of Bionano technology, including a 70% increase in human-centered publications last year. One recent publication detailed the largest study conducted on Bionano's platform, which comprise 154 humans across 26 distinct ethnic populations and revealed never seen before, structural variations including the discovery of 60 million base pairs of genomic sequence not represented in the human genome reference. This study illustrates the power of the Saphyr system for seeing structural variations that sequencing misses. Users also published a key paper showing Saphyr is the ability to provide highly-accurate detection of structural variation to diagnose FSHD patients. FSHD is a potentially debilitating form of muscular dystrophy. The current standard of care for FSHD testing is to use Southern Blot in a cumbersome workflow based on gel electrophoresis and detection of radio isotopes. In this study, Saphyr was shown to be a superior alternative to the Southern Blot method by offering a simplified workflow that yields highly accurate results with the potential to increase clinical performance by readily incorporating new clinical markers without modifying the assay or workflow. The replacement of traditional cytogenetics techniques with Saphyr represents the transition in the field to digital cytogenetics. To pave the way for this adoption of Saphyr in cytogenetics applications, we are working with key opinion leaders to initiate a number of studies designed to show equivalency of Saphyr results to traditional cytogenetic methods in hematologic oncology indications such as ALL, AML and Multiple Myeloma. Thought leaders in cytogenetics such as Dr. Brynn Levy at Columbia University, and Dr. Alex [ph] at Rad Bowed University Medical Center in the Netherlands and others have adopted Saphyr and initiated these studies. We expect initial results from them to be presented at scientific meetings in the third quarter of this year and throughout the second half. We believe these studies will lay the groundwork for Saphyr to penetrate labs that would develop assays for cytogenetic applications, enabling Saphyr to become the first digital cytogenetics platform effectively modernizing genetic and oncology testing as we know it. Finally, we continue to execute on our commercialization efforts globally as evidenced by our strong revenue growth, especially in the fourth quarter of 2018. Last year we expanded our team on the ground in China, our sales teams in the U.S. and Western Europe all to support our growth worldwide. We recently hired a new Global Head of Marketing, Maggie Rougier-Chapman who comes from Agilent, as well as a new Head of Commercial Operations in China, Gloria Lee, who run the automation business for TCAM there. We see exciting opportunities in front of us in our focus on continuing to build on and expand the interest in Saphyr that made 2018 so strong. With that, is my pleasure to turn the call over to Mike for an update on our financials. Mike.

Thank you, Erik and good afternoon, everyone. I will now briefly review some of the highlights from our fourth quarter and full-year 2018 financials. During 4Q '18 we recorded total revenue of $4 million compared to $2.8 million in 4Q '17 an increase of 41%. Total revenue for 2018 was $12 million compared to $9.5 million last year, 2017 an increase of 26%. Product revenue in 4Q '18 was $3.8 million compared to $2.6 million in 4Q '17 an increase of 50%. In 2018 product revenue was $11.5 million compared to $8.8 million in 2017 or an increase of 31%. 2018 operating expenses were $23.7 million, a decrease of $3 million relative to 2017. The decrease in operating expenses as our revenue continued to grow because the reflection of the success of our cost savings initiatives. While our 2018 operating expenses were lower than 2017, we expect operating expenses to grow going forward, especially as we further expand our global commercialization presence. Finally, as of December 31, our cash balance was $16.5 million. As disclosed this afternoon, we have entered into financing agreements totaling $41.5 million in debt and equity commitments from affiliates of Innovatus Capital, EastWest Bank, and Aspire Capital. Two separate financings constitute this $41.5 million. Here is more detail; we have entered into a debt-financing agreement with Innovatus and EastWest Bank; and Innovatus has agreed to provide us with upto $25 million in term loans, and EastWest has agreed to provide us with $5 million in accounts receivable revolvers facility. In addition, Innovatus purchased $1.5 million of shares of our common stock. We intend to draw down $20 million of the term loan next week and use $11 million of this amount to pay off our current debt facility with mid-cap. Between the closing of the $1.5 million equity investment and the initial $20 million drawdown, we expect to receive approximately $10.5 million of proceeds from Innovatus after the mid-cap debt repayment. And Innovatus will receive 3.75% warrant coverage on each tranche of the term loan. Also, today we have entered into a common stock purchase agreement with Aspire Capital. Pursuant to this agreement today, Aspire Capitol made the initial purchase of $1 million of shares of our common stock. In addition, Aspire Capitol has committed to purchase up to $9 million of additional shares of our common stock at our request from time to time during a 30-month period. In summary, the two financings are expected to generate approximately $11.5 million of proceeds in the near-term net of the mid-cap debt repayment. These transactions represent an additional $19 million of debt in equity commitments which are available to us subject to certain conditions disclosed in detail in our Form 8-K filed with the SEC today. We are pleased to have the opportunity to be partnering within Innovatus, EastWest and Aspire. Thank you and I will now turn it back over to Erik before going into Q&A.

Thank you, Mike and good job. We are optimistic as we look forward and see the opportunities ahead, we are fully focused on executing and growing sales globally. Some of the things you can expect from us include a continued focus on expanding our reach into target markets with investigator-led studies that document Saphyr's performance in digital cytogenetics, ongoing improvements to the Saphyr workflow to expand applications and continued execution on our go-to market strategy. With that, I will open up the call for questions and answers. Operator.

[Operator Instructions] First question is coming from the line of Scott McHenry with ROTH Capital. Please proceed with your questions.

Thank you, and good afternoon. A couple of questions. I'm not sure how much granularity you want to give, but I certainly want to give you the opportunity if you do. How many Saphyr units did you sell on the quarter?

So, we have decided that we are not providing instrument revenue and consumable revenue delineation in our disclosure. The number of units is something that we would consider disclosing in the future.

Okay, fair enough. Perhaps I asked a different way. There was an improvement sequentially from Q3 to Q3. Did you feel that the improvement was balanced across both instruments or consumables or was there any categories that drove that more than the other? I don't know if that's okay.

Yes. So, it was growth all across the board, both consumables and instruments and a meaningful growth for each category.

Okay, great. And then when we think about 2019, I recognize you don't want to give us any guidance, but when we think about the revenue growth, do you expect 2019 to - if you look more like full-year 2018, which is around that 25% growth or Q4 was obviously a little bit higher, closer to 40% growth. How should we think about the organic rate of growth when we think about 2019?

So, we have decided not to provide guidance to feature performance in terms of our financials. I think what we do, I know is that we now have a very long track record spending multiple years of growth, it has generally expanded in the ranges that you were just discussing. And I think we feel very good about that continuing. So, specific percentages and guiding towards one percentage versus another of the ones you just mentioned. That's just something we're not really prepared to do just yet. It is something that we have under consideration to provide such guidance in the future.

Okay, fair enough. And I guess looking at some of the line items, it looks at gross margins sort of get down in Q4 relative to the first half of 2018. How should we - did anything happen there that was a one-time event or just any color there would be great.

Sure. So, there's always fluctuations quarter-to-quarter. I think what's important is that when you look at our gross margin, it is expanding year-over-year, 2018 over 2017, both in terms of absolute dollars as well as gross margin as a percentage when the calculation is done with the inventory write-offs taking into account. So, we think it's important to note that all the footnotes should be read with regards to what's exactly in the cost of sales that you may be looking at for any given quarter. And overall though, even those fluctuations between different quarters including the fourth quarter where they may have just been a couple of machines that were sold at a lower price. The overall trend is exactly what we want to be, which is up both in terms of margin percentage and absolute dollars.

Okay, great. And then almost done, but SG&A looked a little high in the quarter relative to prior quarters. One, was there anything unique in this quarter? And two, how reflective is the high watermark in Q4 looking out to 2019?

I think it should be noted that now that we're a public company, we have additional expenses that we did not have in a lot of our historical statements as we were a private company and only having turned public in August of 2018. The fourth quarter of 2018 was our first full quarter being a public company and then expense SG&A wise is reflected there and most of the differential can be attributed to that. And as for 2019, I think it's very notable that we've done a great job of while our revenues are growing at the percentage that we disclosed in 2018, we managed to keep OpEx low, $3 million lower than the prior year. We said before early on the call that we do expect it to grow, but it will be in moderation. You know, the allocation may be a little different going forward with more going into commercial, less meaning to go into R&D proportionately. And you can just expect a nice steady growth of OpEx going forward.

Okay. That's very helpful. Final question and then I'll jump back into the queue. Where were shares outstanding at the end of Q4? I don't know if the K printed up yet, but I didn't see that in the quarterly. No.

So, the figure that you'll see on the front of the 10-K indicates that as of the date chosen, that was March 11, 2019, we had 10.0 9 million shares of common stock outstanding.

Thank you. The next question is coming from the line of Jason McCarthy with Maxim. Do start with your question. Excuse me, Mr. McCarthy your line is open. Sorry, it's Mr. Hirschman, please go ahead with your question.

I know that you're not giving guidance, but [indiscernible] was clear guidance at that time. Has anything changed materially why you wouldn't give guidance and are you finding areas where you're able to fill the instruments, easier, areas where it's hard to sell the instrument, any more color?

I think what we're doing now in terms of guidance is standard relative to what we had disclosed before at the time of the IPO, which is that there's no formal guidance, no formal percentages or revenue figures being given, but really just bringing people's attention to what we now consider to be a long track record of growth that's in these percentage ranges that we're now seeing play out again for the fourth quarter of '18 and for the whole year 2018. As we've said at the time of the IPO, we generally feel that those kinds of growth rates have been happening now for a couple of years are ones that we think can continue and we feel good about the future.

And one follow-up if I may and it clearly wasn't Q4; what are you seeing in terms of the market out payer? Do they need to be more driving us than really get the thing to be explosive [ph], you know, people are coming up with those drivers. What would you say in terms of the market at large?

It was a little bit hard to hear you but you're asking about what are the drivers of adoption?

Yes. And are there new drivers needed in order to step up the growth rate. And if so, those drivers are people working on those drivers, meaning using - where only the systems could be used on long reads where people are discovering like it released new things that they haven't seen before that actually tie into disease treatment.

Sure. So I mean, over the course of the year, last year we introduced a number of product enhancements, innovations in the workflow that progressively made the system easier to use, less expensive to operate on a per sample basis and generally more powerful. And as a result, we were able to penetrate into labs that were doing larger and larger studies. And so, you saw greater adoption towards the second half of the year than the first half of the year, which is a normal pattern for the business. But we also believe that the strength over the course of the year was driven by the innovations that we introduced. In this quarter last month, we introduced a whole series of further updates and innovations and the intention of developing those solutions, such increasing the ability of the Saphyr to go from two genomes a day to 6 genomes a day or 42 genomes a week is something that will enable labs that are running much larger volumes of samples such as cytogenetics lab to adopt the system and use it more routinely as opposed to labs that might use it for purely research and development studies.

So that is key to setting up the growth rate based on what you said publicly before, and in terms of getting [indiscernible] as being something more mainstream. Anything you can highlight in terms of any early acceptance there?

Well, yes. So, as I mentioned in the remarks, in addition to the product improvements, a driver is documented proof of performance and that proof comes in the form of field trials, investigator-led studies, and we have several of them that are underway, some of which we've talked about publicly, including one at six different institutions across the U.S. led by Dr. Brynn Levy at Columbia University. It's an IRB study focusing on ALL and AML demonstrating the equivalency of the Saphyr system to the existing tools and of course, documenting the efficiency, the relative efficiency in the workflow. And so that's one such study that's underway. Another one is underway at Rad Bowed Medical University in the Netherlands looking at some of the same indications, but also including Multiple Myeloma. And in that study, it's the same type of program, a prospective study looking at existing methods compared to Saphyr. And as those results become available, those investigators will present them at scientific meetings and publish them. And so, we believe that that is a catalyst for driving future growth, but certainly, many centers are aware that these studies are under a way and that that influences their thinking and enthusiasm in a positive way about bringing the Saphyr into their labs.

[Operator Instructions] Thank you. At this time, we've reached the end of question-and-answer session and I'll turn the call back over to Mr. Erik Holmlin for closing remarks.

Very good. I want to thank everyone for joining us today and we look forward to updating you again on our next earnings call.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.