Good day, and welcome to the Bionano Third Quarter 2024 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, operator, and good afternoon, everyone. Welcome to the Bionano third quarter 2024 financial results conference call. Leading the call today is Dr. Erik Holmlin, CEO and Principal Financial Officer of Bionano. And he is joined by Mark Adamchak, Bionano's Vice President of Accounting and Principal Accounting Officer. After market today, Bionano issued a press release announcing its financial results for the third quarter 2024. A copy of the release can be found on the Investor Relations page of the company's website. Bionano expects to file its Form 10-Q no later than 530 p.m. Eastern time tomorrow, November 14th. Certain statements made during this conference call may be forward-looking statements, including statements about Bionano's revenue outlook, profitability, cash runway, cost savings initiatives, and commercialization and product plans. Such 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 risks and factors, some of which are identified in Bionano's press release and Bionano's reports filed with the SEC. These forward-looking statements are based on information available to Bionano today, November 13, 2024, and the company assumes no obligation to update statements as circumstances change. In addition, to supplement Bionano's financial results reported in accordance with US generally accepted accounting principles, or GAAP, the company reports certain non-GAAP financial measures. A description of these non-GAAP financial measures, as well as a reconciliation to the nearest GAAP financial measures, 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. These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP, have no standardized meeting prescribed by GAAP, and are not prepared under any comprehensive set of accounting rules or principles. An audio recording and webcast replay for today's conference call will be available online on the company's Investor Relations page. With that, I would like to turn the call over to Eric. Please go ahead.

Thank you, David, and good afternoon, everyone. I'm pleased to provide you all with an update on the third quarter of 2024, as well as a report on our ongoing efforts to position Bionano to be more cash efficient while still driving the advancement of optical genome mapping for routine use in cytogenetics as well as our software business. In May of 2023, we began to systematically lower operating expenses and cash burn by reducing headcount, then discontinuing non-core products and services, scaling back certain development initiatives, and shifting our strategic focus toward driving utilization of consumables across our customers who use or plan to use optical genome mapping on a routine basis, which is a group we estimate to be about 150 customers. Since then, our headcount has come down from around 426 employees in May of 2023 to 125 as of September 30th, 2024, which we further expect to come down to less than 100 employees entering 2025. In September of 2024, to further reduce expenses and cash burn, we implemented a shift in the go-to-market strategy that went away from heavy spending on growth of the OGM installed base in any geography to a focus on conserving cash and concentrating on those customers who use their Saphyr and Stratys systems routinely in cytogenomics. We estimate that during the six to seven trailing quarters, we have reduced non-GAAP operating expenses by approximately $100 million on an annualized basis and reduced the cash needed to reach profitability substantially. The transition in operating and go-to-market strategies is not without challenges. The results in this quarter reflect the transition the operation is undergoing, which is resulting in several one-time charges that affect the P&L and the balance sheet. Overall, these are transitory non-cash charges that we don't anticipate seeing again at…

[Operator Instructions] And the first question will be coming from Sung Ji Nam of Scotiabank. Your line is open.

Hi, thanks for taking the questions. Eric, I'm sorry if I missed it, but did you guys update on the status of the Ionic sample prep system? Is that still slated for launch later this year? I'm just kind of curious kind of what the early feedback is.

We didn’t update -- I didn't specifically update and we've seen amazing data. In fact, at ASHG earlier this month, some of the beta users gave talks about the progress. We don't expect the rollout, like, the full commercial rollout yet this year, and would anticipate that being into next year, but nevertheless, the program is progressing and demand is high for that system.

Got it. And then just great to see the target accounts, there's significant room for growth there. Could you maybe talk about kind of what's the growth potential for that -- for the 150 customers that you are targeting could be? And also curious, these are -- I think you mentioned they're higher volume users historically speaking. And curious, kind of, at what capacity they're currently running, do you expect more of the growth to come from additional instrument placements or through just continued increase in utilization, if you could just provide more color there.

Yeah, sure. So, the 150, and this is a rough estimate, but that number comprises, I think, two groups, groups which are already in routine use and what we would call a well-established or maybe a mature user. Mature implies that they're not still growing and that -- I don't want to imply that here. But it includes users that are familiar with the system up and running, fully trained and running on a routine basis. And it includes a group of users that are going in that direction, working hard to validate an assay, an initial assay, and ramping up for live production scale use. And so that's roughly 150 in total. And what I want to say directionally is that this group accounts for the vast majority of the consumables that are purchased, probably 80-or-so-percent of consumables revenues. And so while we don't break out their specific, like, revenue per system per se, I think you can kind of connect the dots there and 80% of what we've reported across this roughly 150 systems. Now it's still pretty skewed between those that are running routinely and still those that are getting there, but I think that's where they're at currently. And we see the significant potential for them to grow because almost every lab, not every single one, but almost every lab that's counted in the 150 is running one single indication. There are a handful that have run, that have validated multiple, but that's the minority, certainly less than 25. And so as they add additional indications, their consumables need will grow and therefore consumables purchases and revenues will grow. Typically, not always, but typically they pick their highest volume indication first and go for that. And so, I think that as they add additional indications, revenues will grow, but it's not like they're going to double overnight, but there's the potential for consumable revenues to expand significantly. And I think on average you'll see labs running probably two to three to four indications. We have certainly anecdotal examples of that. And it's going to be a combination of hematological malignancies and constitutional genetic diseases.

Got it, that's super helpful. And then just lastly for me, just on your COGS, are there still big levers that you can pull there from manufacturing efficiency side of things, or is it largely kind of overhead absorption from here on out, just from the volume growth? Thank you.

Yeah, sure. No, it's both. So, there are cost reductions that we can realize by transitioning in the foundries that we work with to produce some of the critical components of the chip consumable. And so those will be lower cost providers. There is a volume component to that, but those will be lower cost providers overall. So that'll just reduce the materials cost. A lot of the reduction in headcount is combined with a consolidation of facilities and so forth. So there are going to be some reduction in overhead costs that are not necessarily variable or volume based. And then of course there will be the variable component so that overhead that remains will be spread over more and more units. And so I think we have quite a lot of factors in play in connection with the reduction of the cost of goods sold. And so we see a lot of room for margin to improve. And these are initiatives we've been working on for a while in terms of like foundries and stuff like that. So, we expect them to take hold in the near future.

Great. Appreciate it.

Thank you, Sung Ji.

Thank you, and one moment for the next question. Our next question will be coming from the line of Jeff Cohen of Laden -- I'm sorry, Ladenburg Thalmann. Your line is open.

Hi, thank you for taking our questions. This is Destiny on for Jeff. I wanted to quickly start with just a couple P&L related questions. I'm curious, this is kind of a two-parter. I'm curious to know what you see the growth rate for the consumables being moving into 2025 and do you think it could be greater than typically expected that you are expecting based on the fact that CPT code will come into effect. So you'll kind of have all that -- what's the word I'm looking for? You'll have all that momentum from your sales force focusing on that as well as the CPT code. So I guess how are you looking at consumable growth going forward?

So, I'm gonna speak just generally about what is reasonable to expect, and I want to fall short of giving any specific guidance, but there are a couple of elements that would drive an acceleration in growth. Number one is the CPT code and other initiatives related to reimbursement, which would enable customers who are currently running samples but using a different methodology to switch without a negative economic impact in their lab, right? So the reimbursement initiatives across the board, whether that's in the US where CPT code and coverage determinations come into effect or outside the United States where there are other initiatives that play a role. Reimbursement will help labs transition away from the standard of care and use optical genome mapping in more first line. That's number one. Number two is something that I mentioned in response to a question that Sung Ji asked, and that is really within the breakdown of this universe of routine using customers, many of them are ambitious about their plans for routine use but have not actually crossed over into that threshold. So there's nothing wrong and this is the norm, this is the sort of standard trajectory that they undertake, right? So they bring the system in, the system gets installed, they get trained, they begin to sort of explore its scope and limitations and then they make a decision about what -- how they're going to use it. And so there are quite a number of systems that are in that stage and as they progress through and become routine users, then they will start buying consumables at a higher rate. So it's really about existing installed systems switching over from onboarding to routine use and becoming kind of what we call a mature site. And so that would cause consumables growth. Those things are going to be our focus going forward. The other lever is something which is perhaps a little bit more subtle. It's connected to this idea of menu expansion, but it's really as more and more users adopt the VIA software for optical genome mapping, that streamlines their workflow and effectively increases their capacity and enables them to run more samples. And so menu expansion, VIA adoption, these are big factors that will drive utilization consumables revenue. And so when we look at our plan, our plan is for these consumables to continue to grow and accelerate in growth in the future.

Okay, got it. Thank you for that detail. I appreciate it. And I guess last one for me. I'll take the rest offline. I know you mentioned some delays, delays that impacted your top line this quarter. Is that something that was just a timing issue and it will be reflected in Q4? And is it baked into that guidance or is that one of the things that maybe pushed off a little bit longer?

Well, so, certainly the dynamic is factored into everything that we're guiding for the fourth quarter. It's something that is just related to the sales cycle for capital equipment and in particular capital purchases. So you've been marching along with us for a while and I'm sure you remember that we have kind of two go-to-market models for new adoption. One is to sell labs the system and the other is for them to rent it. And the delays that I spoke about are delays in system purchases. And so what we found was that some key customers had underestimated themselves the time that was going to be required for them to successfully get these purchases approved. And so that's what caused the delay. All of those processes remain ongoing and we see them being completed in the near future and we're hopeful that some of them would happen in this fourth quarter, but we're being conservative about the fact that they may take longer.

Okay, got it. So definitely sounds like a timing thing. I lied and I have one more question if I may. I'm wondering if you have any plans to initiate additional studies but more in like a partnership fashion with another company and a larger player? What are your thoughts on that?

Well, I think what Alka Chaubey, the Chief Medical Officer and her team have done with our clinical studies program is, we have -- they have recruited really stellar investigators to sign on and be a part of the studies. And systematically now, we have worked with certain among those principal investigators for them to take over the trials and continued to advance them. But in each of them, as we have reported over the last several quarters, we reached our enrollment goals. So, enrollment has been completed. A lot of data collection has been completed and we are in an analysis phase. And so, we're remaining active, the sites are remaining active. And so those trials will continue. I don't want anybody to think that they are going to be paused as a result of our cost reductions. By handing the leadership over to folks for whom it's not their sole job, you can imagine that that could cause things to move a little bit more slowly, but we would expect them to continue and generate publications and important data that will be helpful in ongoing things like continuing the reimbursement advocacy and then down the road getting optical genome mapping to be included in medical society guidelines and so forth. So the trials will continue. Publications will continue. With regard to kind of the heart of your question about partnerships, we are in partnership with these institutions. And so that's a vehicle. And we do engage with and discuss potential partnerships with different companies and other groups. That's not something that we have a committed program in per se right now. We have a number of commercial relationships with different companies. And so those are drivers of revenues for us, could be something that would result in a trial and we remain opportunistic, but there's no definitive plans for that now.

Okay, thank you for taking our questions.

Thank you, Destiny.

[Operator Instructions] Our next question is coming from Mark Massaro of BTIG. Your line is open.

Hey, guys. Thanks for taking the questions. So, I guess, Eric, you placed five systems or net placements in Q3. I think the midpoint of your guidance for Q4 is seven. I recognize you have changed your strategy of focusing on your existing installed base, but that five to seven number is down materially from the 20 that you used to report in prior years. So I just -- I'm curious about the five and the seven. Do you think that those are reasonable? I'm not asking for 2025 guidance, but do you think somewhere in that five range a quarter is a decent place for us to think about 2025?

Yes.

Okay.

You needed long answers, but that's a short answer.

That's okay. That's helpful. And then as a follow-up to that, is there any way to give us a sense for how the launch of Stratys is going? I'm not sure if you're able to disclose how many you placed of the five in Q3 or how many you've placed year-to-date, but you also talked about how some of the folks that may be looking to convert over are trying to understand how it fits or how it works. So maybe can you talk about things like ease of use or just, I also of course recognize it's higher throughput. Are some labs just kind of evaluating if they need that level of throughput to justify the purchase or are there other factors that are going into how we can think about the rollout of the Stratys?

Yes, so the rollout is going well. Let me speak about the demand side of it. It's significant And I think a part of that is that labs want, recognize the need for the higher throughput. But, labs also want to take advantage of some of the other workflow advantages that Stratys has, one of which is, like, we call it jump the queue, so you could have a random access and introduce a stat sample and it could be processed without waiting for the batch to finish. So, these are some features that Stratys has that Saphyr doesn't, and so those are also attractive to labs. But I think overall the demand and interest in Stratys is related to the higher throughput because labs see optical genome mapping as becoming actually standard. When we look at something like, analysis of FSHD, facioscapulohumeral dystrophy, which is a constitutional genetic disorder, that is the global standard. Optical genome mapping is the global standard in analysis for that particular application. And so, there's definitely an increasing understanding that optical genome mapping is going to become standard, and so people are seeking to adopt Stratys because of the higher throughput. With regard to your question about the quantities, we don't break that out yet. But it's significant numbers. I mean, compared to the early days of Saphyr going out, I mean, we've well-eclipsed entire annual -- initial annual output of or uptake of Saphyr. So it's meaningful and significant. Now, when we talk about the Stratys system getting adopted and implemented at lab sites, I guess we have kind of like two camps, one which is completely new to Stratys. They don't have a Saphyr and then labs that have Saphyr. So labs that have Saphyr, what they need to do, especially if…

Okay, that's helpful. And then I wanted to ask about the guidance, the reduction of the guidance here again. Maybe can you walk me through some of the components. I understand that if you place fewer systems, there will be fewer, less capital equipment revenue realized in the quarter, if that makes sense. I just wanted to ask about the other line items and the other product categories. In Q3, you had really solid 27% growth in flow cells. I'm just curious how we should think about the rest of the business. And as we think about 2025, are you confident that you can generate growth in flow cells and consumables?

So, yeah, let's sort of walk through the stuff. Starting with the consumables, I mean, I think, we've had a good track record of consumables growth, the sort of flatness that we saw in the second quarter was anomalous. The return to growth, 27%, is solid. What we're optimistic about and what we do feel confident about is that consumables utilization and therefore revenues will continue to grow. I think we've got to be cautious about quantifying that growth too precisely. A driver of growth of flow cells sold in past quarters has been some of the new purchases. So when somebody buys a new system or rents a new system, they get consumables with it up front. And so as we lower the number of new systems that are going out, that contribution will be lower. And so we've got to be careful about it. And so will the growth and utilization amongst the existing install base make up for that? That would be the question. But we remain confident that OGM consumables revenues will continue to grow and that's really a principal revenue growth driver into 2025. When we talk about what's moving around with guidance, it's really adjusting to the change in go-to-market, but also digesting this discontinuation of these clinical services products. So we had about a $500,000 write-down associated with aged receivables. They're tied to those discontinued services products and they remain about, I would say, $500,000 or so in receivables on the books. And so we'll have to see how those are treated in some of the future quarters. And so there's the possibility of additional write-downs. I want to kind of give you some awareness of that. We've tried to factor that into guidance. So, there's some ambiguity there. We just have to work through it as we start to work through the fourth quarter results. But sort of digesting that discontinuation has been having its impact on the top line, perhaps in some unexpected ways. And then, yes, the shift away from capital equipment sales, that has an impact on revenues. Having said that, these new instruments, unless we're selling them to labs that are highly strategic and going to use at a really high rate, or labs that have reached the capacity of their Saphyr system and therefore wanted Stratys, but are otherwise experts in OGM, like, those are the customers that we want to focus on now importantly. But if we're selling them to any lab that just wants to buy OGM, that turns out to be very expensive for us and a little bit counterproductive. So, the top line may suffer as a result of that, but cash out the door goes down. We're hopeful that consumables' revenues goes up and that will drive higher margins. So it will be better business for Bionano going forward.

Okay. That's all very helpful. Thank you.

Thank you. And that does conclude today's Q&A session. I would like to turn the call back over to Erik Holmlin for closing remarks. Please go ahead.

Great. Thank you, Lisa, and thank you to everybody who joined the call today. And we look forward to updating you on our future progress. Thank you very much.

Thank you all for joining today's conference call. This is the conclusion of the call. You may now disconnect.