Greetings. And welcome to Bionano Genomics First Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Monique Kosse. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to the Bionano Genomics first quarter financial results conference call. Leading the call today will be Dr. Erik Holmlin, CEO of Bionano. After the market closed today, Bionano issued a press release announcing its financial results for the first quarter 2020. 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 may contain forward-looking, including statements about our strategic and commercialization plans, 2020 sales pipeline, anticipated benefits of improvements to the Saphyr system, the advantages of the Saphyr system over current technologies, our expectations regarding timing and content of study results and anticipated benefits of these studies in driving adoption of software system. Such forward-looking statements are based upon 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 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. An audio recording and webcast replay for today’s conference call will also be available online in the Investors section of the company’s website. For the benefit of those who may be listening to the replay or archived webcast, this call is being held and recorded on June 18, 2020. With that, I will turn the call over to Erik Holmlin. Erik, please go ahead.

Very good. Thank you, Monique, and good afternoon, everyone. I’m very pleased to have you join us today for this review of our first quarter financial results, which will include an update on progress in a number of areas, especially what we’re up to in educating our markets on the utility of Bionano data and the progress we’re seeing in different groups who are validating our Saphyr system as one they can replace multiple traditional genome analysis methods that are currently used in a clinical setting with a single higher resolution assay that we believe is better for labs. It’s better for clinicians. It’s better for patients because it’s easier to perform. It requires less labor. It’s faster than existing methods and it provides much more extensive information. I’m also going to outline some of the impact that we’ve seen from COVID-19 on our business and provide an outlook for this -- the second quarter that we’re in now and the remainder of the year. I want to say that I really appreciate everyone’s patience we use the opportunity that the SEC provided to extend the timing of our first quarter report out. And as you know, we did put some numbers out and I will reiterate those here today. But as I go through the information, I’m going to try to re-establish a baseline for everybody so that they know what we’re focused on. I will go through some of the numbers and basically providing a summary of a number of factors that includes some year-to-date progress in different areas. And I want to begin by reminding folks of something that we introduced at the beginning of the year and we talked about in our fourth quarter earnings call, and that is that this year we really transform the…

Thank you. [Operator Instructions] Our first question comes from Kevin DeGeeter with Oppenheimer. Please go ahead.

Hey. Thanks for taking my questions. Erik, really appreciate the update, a lot of positive trends going on. I guess a few questions for me. First, with some of the capital funding that might be available to certain hospitals and labs through the CARES Act. Are you seeing any change in customer appetite for capital versus raise your rent on Saphyr?

Well, what I would say is that, we’re seeing a mix and we have certainly seen customers seeking our support of their process to apply for these types of funds for capital purchase. So there are new funds available. They’re using Saphyr as one of the examples of technology they want to use to put that capital to work. At the same time, though, because of the attractiveness of the reagent rental program. We see a tremendous response there and we have quite a few of sites that are evaluating that program and taking it under consideration.

Great. That’s very helpful. And then, with regard to adoption for cytogenetics in Europe, which is pretty variable country by country in terms of the reimbursement landscape. Can you give us your perception or understanding of what level of clinical validation will be necessary to drive reimbursement in key markets such as, Germany and France, and you’ve got a lot of activity in Netherlands as well and some of the differences perhaps relative to the U.S. reimbursement models?

Yeah. I actually see that it’s a much more straightforward process in Europe and it does vary country by country. But because these systems tend to be single payer systems, there are much more transparent approaches to gaining reimbursement. And in most cases, the Saphyr system in its approach can be used under the same programs with the same amounts of reimbursement. And most of these sites and countries are viewing that as being economically favorable for them when they transition to Saphyr.

Great. Then maybe there is one more for me then I’ll get back in the queue and that is in your learnings we’ve been struck by, we’ve now seen really interesting cytogenetics validation data from at least for well respected labs always somewhat similar performance admittedly have a slightly different patient types. So from a proof-of-concept basis that’s a really interesting trend. My question is, given that sort of consistency of profile, do you think it’s appropriate to explore funding sources for a larger validation study, perhaps in a more unified structure, that might improve the visibility of the cytogenetics performance or do you think the work from some of these leading labs and upon being published will be enough to change behavior with what looks like pretty consistent data across the multiple datasets?

Yeah. So it’s sort of sum of both. The results that are coming out and the Columbia study 90 AML patients is starting to be pretty significant. And it’s -- because we’re looking at indications and comparing to existing gold standards, larger studies are not necessarily required. We’re not validating a multi-marker biomarker signature for example. And so, sample sizes that 100 sample ranges are definitely adequate. And so I think that these initial studies and we need more in each geography, but that -- those data are going to are going to be coming. So I think that those studies are going to drive more and more sites to adopt. But really to get those would be sort of leading adopters, right? So, some of the more cutting edge sites will move on the basis of those, as you call them proof-of-concept studies, we will need bigger studies and future studies will also need to be covering broader indications. The hope that we have and certainly the expectation is that, the company will not need to fund those studies. In fact, almost all, not all the studies have been completed to-date, but almost all of them have not been funded by the company and these bigger ones will be funded at least significantly to a significant part by the community and so we champion those as examples of utility and pull-through on our systems. But I think what we’re going to want to see is larger studies, and importantly, in more, more indications, so AML, ALL, CML, CLL. And so it may not just be -- it may not be that we’re going to do 1000 AML patients next, but we’re going to do 100 in multiple hematologic malignancy indications, for example.

No. That makes a lot of sense. Thanks so much for taking my questions.

Yeah.

Our next question comes from Scott Henry with ROTH Capital. Please go ahead.

Thank you and good afternoon. I’ve got a couple questions. Firstly, did you give a mix of revenues between instruments and consumables? I wasn’t sure if I missed that.

I did. I did. And it’s going to be in the press release and it was $534,000 in instruments, $449,000 in consumables and $154,000 in services and others for a total of $1.1 million through March 31st.

Great. That’s helpful. And I guess, you -- I appreciate the as [ph] disclosure, I think, you’re starting to give a Saphyr unit, a current quarter and prior quarter. Could you give those for Q2 and Q3 the units place to so we can have an apples-to-apples comparison, I don’t know if you have that readily available or not.

I’m sorry, Q2 and Q3.

Of 2019, just for the…

Of 2019.

I believe you gave us Q4 on the last quarter.

Right. Right. So I’ll have to look at that. Scott, I don’t have it in front of me right now.

Fair enough. A couple other questions. In the press release, you talk about shipping 116 instruments, of which 83 have been installed. That seems like a pretty significant discrepancy. I think 33 units have been shipped but not installed, which is 30% of the base. What do you think that is? What would you attribute that to?

Well, so, let’s look, historically, a little bit because we had 100 and I think 110 or 111 systems shipped through December 31st and I think the number was 71 systems installed. And so we have narrowed the gap this quarter even in the difficult time. So we got some stuff installed before the shutdown hit. So we did narrow the gap by about five or six systems. And we always expect to have a lag and one of the reason is that some of the systems that we count as shipped are examples of upgrades and so maybe we shipped an upgraded system out and changed out a system that’s in the field and so that might count. But also we have sites that will commit to the system, take the shipment and then they need to organize their lab and buy lab equipment. So there is always a lag and sometimes that lag can be as much as three months before installation happens.

Okay. It seems lot. It seems like such a high cost item. If you want it you would install it right away. But, okay, that’s fair enough. I guess I’ll just track that quarter-to-quarter.

Yeah. Let me just comment on your comment because…

Yeah.

And I think that because when we saved up to buy that new car, we want to drive it that like night. And certainly our customers feel that way, but oftentimes this is one part of the overall program and it can be the trickiest part. So they focused on getting that nailed down first. And once that’s locked in, they build the other elements. Sometimes that means hiring people or training people or bringing in other lab equipment that is complimentary, maybe not as expensive and so it’s actually not, A, uncommon, or B, illogical.

Okay. I appreciate that color, Erik. Shifting gears though. The announcement on University of Iowa Hospitals and Clinics, certainly promising, could you tell, how big is that contract? How many kind of tests per year do you think they would do, just still exists?

Meaning in their case, they have made a commitment to analyze a few hundred genomes in the first year. And the system has the capacity to expand beyond that and we would expect them to grow beyond just the sort of low single-digit hundreds into the mid hundreds of samples and that that’s the type of per system productivity you can expect out of a clinical testing center like that.

Okay. Great. And if I could just shift over to the model, just getting a sense on SG&A a trend, I think it was about $7.4 million call it, but minus $1 million for the bad debt expense is $6.4 million. That still seems like pretty high number. Should I expect that to come down in Q2, particularly since sounds like there are a couple of less bodies around there and there was the pay cuts people took? What’s kind of the -- how should we think of what’s kind of the new normal for SG&A and I think as well there’s less travel. I would think that number would be coming down and I’m just curious if I am…

Yes. So there are a handful of things. I mean, some of the rationalization of salaries is really going to hit later, but, yeah, big time, SG&A is plotlines. I mean, we haven’t been to any conferences. We’re calling customers on the phone and doing Zoom meetings. We’re not sitting on airplanes and so there’s going to be, I think, notable savings in those areas for the second quarter, which aren’t really reflected in the first quarter.

Okay. And I mean, I guess, I don’t know if we talked about it. So I was jumping around on a couple things. But how do you think about 2Q, obviously, right in the middle of COVID-19, Q2 relative to Q1, clearly a lot of extracurricular stuff going on. How should we think about that quarter since we are two and a half months through it already?

Yeah. I think it’s going to look similar to the first quarter in most respects. Our systems that are installed, they’re starting to use more. We are seeing here at the back end of the quarter some easing that is allowing us to receive orders and ship against them. But it’s going to be a similar quarter to what we saw in the first quarter here in the second quarter.

Okay. And then final question, obviously with the lower revenues right now and the new kind of business model lease versus sale, that has an impact on gross margins, which came down in Q1. But how should we think, I mean, with Q1 get a little tougher than normal? Should we see some improvement the rest of the year or should we expect them to be lower, maybe not this low, but just how -- just trying to get a sense of how…

That’s right. I mean, I think…

…about gross margin?

I think that, I mean, we just do have a reset around how we’re marketing and one of the things important to pay attention to is kind of as we incentivize customers to make larger commitments to consumables by giving them volume pricing, that there’s -- and that volume adds up will benefit, right? So our production volumes will go up and there will be a cost reduction that comes as a result of that but not at the same time, right? So the higher volume comes after we sold. The chips that we produced at higher costs, so I do think it’s reasonable to have an expectation for margins to improve that, but we are also seeing a little bit of a reset. I think it’s early to focus on exactly what that number is right now other than the fact that it’s hopefully kind of a low watermark.

Okay. Great. Thank you for taking the question.

Thanks, Scott.

Next question comes from Jason McCarthy with Maxim Group. Please go ahead.

Hey, guys. This is Mike Okunewitch on for Jason. Thanks for taking my questions. And so -- my first one, I’d like to touch on the COVID study. You mentioned that you’re starting to get some samples done. They’re starting to get some initial data. And so, as COVID-19 is starting to kind of wane in the public eye, without mentioning whether there’s going to be a second wave or if we can test the first one. I’d like to see if, as you get data from the COVID-19 research, does that potentially open up another avenue, another fields drive adoption of Saphyr in determining susceptibility for other infectious diseases more broadly?

Sure. I think that’s reasonable. But the focused on COVID within the medical and genetic and genomic research communities is only going to continue to increase. Scientists are shifting their careers away from some areas toward the study of COVID genetics. I also agree with you though that this is not only an example of a line of research that’s relevant to COVID, but how other infectious diseases are driving an immune response in patients is already known to have an effect as a result of genomic variants and sub-structural variation is known to be protective in some cases and deleterious in others. And so this can be a whole new field, but with regard to Bionano, I want to say very strongly that, this is a new area of keen applied interest. And I would think that for all of the companies that you’re looking at that have some COVID related value that it’s going to be something that will support them for a while.

All right. Thank you. And then shifting gears a bit over, the past year you guys have presented a fair bit of data from top labs demonstrating that Saphyr has 100% concordance with really gold standard cytogenetic method. I’d like to see if as this data has been released and gotten out there, have you noticed an increase in interest from the cytogenetics market segment or, as you know, the COVID effect kind of obscured the impact of that research?

Well, so, if you stop the question at have you seen an increased interest in cytogenetics as a result of these data? The answer is absolutely. We have announced the sites that have committed to coming on Board. One example that just comes to mind is part of the National Health System in the U.K., King’s College in London, and I mean, their motivation is based on what they see in the market and what they hear about these data and multiple sites are examples of that. I think through our discussions, there are 11 different sites that really started engaging and coming on Board just since the announcement of the adoption of the system by PerkinElmer and really the first comprehensive update from the Radboud University Medical Center. And so as the data continue to come out, the interest goes up. Now, it’s a layer on the whole COVID effect. Who knows, I mean, so should we say that this tremendous interest that we see could have been greater that it’s potentially muted by COVID, that’s possible. COVID has definitely disrupted labs, scientists and their ability to look at things. On the other hand, many cytogeneticists have been sent home and that has given them the opportunity to look around and see what’s out there. So maybe COVID is help, maybe COVID is hurt. But the answer to your question is we’ve seen tremendous opening of interest as a result of this relative trickle of data that have come out. And so as those data continue to come out more and more, what we believe and we’re very hopeful, and of course, markets are markets, but we have an expectation that this is the beginning of more and more adoption throughout cytogenetics.

All right. Thanks very much for taking my questions.

Next question comes from Kevin DeGeeter with Oppenheimer. Please go ahead.

Hi, Erik. Can you give us the current headcount or just configuration of the commercial organization and as you think about the most relevant metric for evaluating sales force productivity, as well -- as these labs begin to reopen. What would you guide as far as our leaders towards in terms of the most productive metrics of future demand?

Yeah. So, yeah, I would tell you to -- we have -- if we look at sales and marketing, just as an example, because sometimes we combine the customer support, field applications and so forth in that commercial headcount. But we’re right around 18 to 20 in sales and marketing. If you add in the field applications and field support organizations that number goes up, and so, you probably 25 overall in sales and marketing, and another 25 in our customer solutions department.

Great. And then as we think about productivity metrics, I think, that’s an area you serve across the industry where there’s clearly an evolutions number of the metrics we use six months ago probably are not going to be the most relevant ones for the next six months. Yeah, how do you sort of evaluate that and you sort of, I recognize, yeah, you’re not yet prepared to provide any guidance or any thought on placement metrics for the year. But what selling metrics do you think are potentially most predictive of future unit placement?

Yeah. I mean, I think that -- if we just look at revenue overall, these services projects and services samples coming in, are a good indication of our ability to get some subscribers, right? I mean, really, if somebody is willing to send us a project of five samples, they’re engaging. And so, what I’m very hopeful of is that we’ll see those projects and sample numbers grow. And as you know, a lot of sites want to use services and they never want to bring a technology in house. But usually what happens is that they start sending samples out and their own institutions that say it’d be better if we ran that ourselves. But I think we’ll continue to report how services samples and projects are growing. And we believe it’s a relatively straightforward program for customers to engage in around these reagent rentals. And so, let’s look at those and monitor them, because as we expand the number of sites that are out there that have a Saphyr system. They’ll use consumables that’s going to drive awareness. And so, I think, adoption overall, and so systems add sites and the services projects and samples coming through are some of the better leading indicators of future consumables revenue and Saphyr purchases overall. And then, of course, the best leading indicator that we have at all is publications and presentations. And so we track that and we try to give updates on those when they come out. Our numbers are getting bigger and bigger, so it’s less and less straightforward to track them, but the more buzz there is in the literature, the higher our expectations grow around those other indicators.

Extremely helpful. Thanks so much, Erik.

Thank you. I would like to turn the floor over to management for closing comments.

Well, I just want to say that I thank everybody for participating and for sticking it out for the relatively long discussion. We had a lot of material that we felt was important to cover and get out for you and we hope that you found that informative and helpful. And so, with that, I believe that that concludes the call.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.