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 is 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 headcount; 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 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 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 and 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 pre-announcement 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 revenue. Our installed base of optical genome mapping system 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 sold 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 two. 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 have 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 principle is retired, canceled the March partial redemption payments and delayed the April partial redemption payments to April 20; and redeemed $27.7 million in principle, 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 per their principal is retired. Regarding operating expense,…

Thanks, Gulsen. 2023 was one of the 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 healthcare. We believe the evidence is clear. Elevate is working. We saw 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 team has brought two 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 roadmap 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 are excited to introduce Stratys Live to the market at the upcoming ACMG meeting in Toronto, March 13 through the 16, including at a pre-conference scientific event hosted by Bionano on March 12, where Stratys users…

[Operator Instructions] Our first question comes from Sung Ji Nam with Scotiabank. Your line is now open.

Hi, thanks for taking the questions. So just a clarification to start off for the $7 million, the revenue that’s being discontinued from the Next Step and First Step and 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 it. 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 am sorry, prenatal, postnatal team, and also solid tumor? And what the status is 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’s really large datasets that show the value of optical genome mapping as a replacement for traditional methods. And then hematologic malignancy study has also progress, 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 in 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 endpoints 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 it. 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? I’m good to see continuous improvement there last – throughout last year, 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.

Got it. Great. Thank you so much.

Thank you, Sung Ji.

[Operator Instructions] Our next question comes from Mark Massaro with BTIG. Your line is now open.

Hey, guys, thank you for the questions, and congrats on strong 2023. Maybe just starting with the headcount reductions. So it looks like you are talking about a potential reduction number, I guess, have you – I mean, you obviously provided the numbers. So I – 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 headcount 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 taking in and move 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 that sort of magnitude exceeds a third 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 headcount target in a single move. The other 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 headcount there, but we want to keep the momentum in place that we built so far.

Okay. And then maybe a clarification on the install base and the guidance, it looks like you are 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 see, 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 are 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 is the potential to get pass that. But we want to make sure that we deliver against what we are 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 are only about 45 days into the full commercial release of Stratys. And so the information that we are getting is fairly new. And so the 25 upgrades is an estimate. And so we will just have to see how things play out going forward.

Okay. The 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 are thinking about timing?

Yes. So, I can share some additional information that we have 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 a 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 are fairly certain that it’s likely to be a new policy. And so for our own thinking and our own planning versus 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 it, 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 that, maybe the folks working on it, beat that, but I think that’s a safe estimate.

Yes. That makes sense. Alright. Thanks for all the time.

Thank you, Mark.

[Operator Instructions] Our next question comes from Jeff Cohen with Ladenburg Thalmann. Your line is now open.

Well, good afternoon and thanks for taking our questions. And I wanted to follow-up on Mark’s previous question. Could you comment a little bit on the category 1 CPT code and the AMA from what you know currently, and how might that play out over ‘24? And it’s a pleasure, 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 are 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 two months or three months. And so I think that what we are 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 will all be watching very closely over the next couple of months to see how the situation unfolds.

Okay. Got it. That’s helpful. Can you talk a little bit about the Stratys placements, I know it’s really action plan. But 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 flavors for us 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 wish to 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 have 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 is a little bit of genetic and genomic mechanistic work going on, but just about substantially all of our adoption is really in our target market, routine use and 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 have 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 are 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 have seen a very rough 50-50 distribution, but we are 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 talked about the OpEx reductions for ‘24, if we do some quick math off the ‘23 numbers, less the impairment and what you are leaning towards, we are getting, call at about 115 to 120 for the full year ‘24. And 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 SGA?

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 will 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 at least divide by two, I guess in terms of the impact in 2024, specifically. And I am 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. Yes. I think as Erik mentioned, it’s both new product development with Stratys, older you 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, what’s almost.

Got it. Okay. That’s super helpful. Thanks for the questions. Congrats on the quarter.

Thank you.

Thank you. Our next question comes from Jason McCarthy with Maxim Group. Your line is now open.

Hey guys. This is Michael Okunewitch, I am on the line for Jason. Thank you so much for taking my questions today.

Hi Michael.

I guess just this 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 and 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 are probably going to see a little bit of them in the first quarter. So, I think at the high end of that range, we are really aiming to get to 30% growth in the quarter.

Thank you. I am 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.