Good day, ladies and gentlemen, and welcome to the Fluidigm's Fourth Quarter 2018 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Mrs. Agnes Lee. Ma’am, you may begin.

Thank you and good afternoon, everyone. Welcome to the Fluidigm's fourth quarter 2018 earnings conference call. At the close of the market today, Fluidigm released its financial results for the quarter ended December 31, 2018. I'd also like to let everyone know that we have posted supplemental financials to our company website. During this call, we will review our results and provide commentary on recent commercial activity, market trends and our strategic business initiatives. Presenting for Fluidigm today will be Chris Linthwaite, our President and CEO; and Vikram Jog, our CFO. During the call and subsequent Q&A session, we will make forward-looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, future financial results, and market trends and opportunities. Examples include statements about anticipated results, our strategic initiatives, demand for our products, revenue growth and operating expense trends and guidance for consumables pull-through in 2019, and revenue, operating expenses and cash flow for the first quarter of 2019. These statements are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from current expectations. Information on these risks and uncertainties and other information affecting our business and operating results is contained in our annual report on Form 10-K for the year ended December 31, 2017, as well as in our 10-Qs and other filings with the SEC. The forward-looking statements in this call are based on information currently available to us, and Fluidigm disclaims any obligation to update these forward-looking statements, except as may be required by law. During the call, we will also present some financial information on a non-GAAP basis. Non-GAAP information is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company's operating results as reported under U.S. GAAP. We encourage you to carefully consider our results under GAAP as well as our supplemental non-GAAP information and the reconciliation between these presentations. Reconciliations between GAAP and non-GAAP operating results are presented in the table accompanying our earnings release, which can be found in the Investors section of our website. I will now turn the call over to Chris, our President and CEO.

Thank you, Agnes. Good afternoon to everyone and thank you for joining our fourth quarter and full year 2018 earnings call. In brief, we had a fantastic quarter, to cap off a year notable for our return to double-digit growth, improved cash flow dynamics and thoughtful management of the balance sheet. I am proud of the hard work and dedication of our employees around the world and I am inspired by the scientific progress in disease research we are powering. In 2018, we began sharing details of our strategic perspectives on the importance of the human immuno. We implemented a roadmap for positioning Fluidigm as a vital life sciences tools provider for unlocking the power of the immune system. The core elements of our business model revolve around three points of leverage. One, delivering customer centric innovation; two, establishing an instruction footprint at leading translational research and biopharmaceutical company; and three, integrating consumable solutions and software tools that speed up experimental design and analysis. Complementing this market oriented plan, we are investing an operational improvement and quality systems, while judiciously managing expenses. Finally, we've made major improvements in our balance sheet, restructuring our debt obligations and raising new capital through a common stock offering in December. Innovation, growth, continuous improvement, financial discipline, we think this approach is a recipe for sustained value creation. Turning to the details. We've issued several recent press releases that I encourage you all to read and digest. When read in combination with the information we will share in this call, you will get a full picture of the strong and sustainable drivers powering our business. First, as detailed in our earnings release this afternoon, we ended the year with 17% revenue growth in the fourth quarter, powered by an impressive 48% growth in mass cytometry…

Thanks, Chris, and good afternoon everyone. Total revenue was $32.3 million in Q4 2018, an increase of 17% year-over-year. Mass cytometry revenue of $19.1 million, increased 48% year-over-year and 7% sequentially. We had strong sales of both Helios and Hyperion Imaging Systems and are seeing multisystem placements as customers expand capacity to meet their needs. Mass cytometry consumables and service revenue also delivered robust year-over-year growth in the fourth quarter, reflecting increasing utilization of our installed base consumables pull-through attracted above the high end of our 2018 guidance of $60,000 to $65,000. Microfluidics revenue of $13.2 million decreased 11% year-over-year, but increased 19% percent sequentially in the fourth quarter. Consumables, which comprises the bulk of our microfluidics business, had a strong quarterly performance growing both year-over-year and sequentially. This was however offsets by declines in instrument and service revenues. Pull through from our microfluidic platforms was higher than our guidance range this quarter with the exception of C1 pull-through, which remained significantly below our projected range. As you may remember, a significant portion of our microfluidics consumables revenue is tied to a small number of customers. Similar to last year, we received a number of large orders at the year end. We continue to expect quarter-over-quarter variability in microfluidics revenue as we execute on our strategy to focus on key accounts and grow the business with new applications and partnerships that align with our strategy. Continuing a practice that we began two years ago, we are providing a snapshot of our active installed base of instruments at year end 2018 in our earnings release. Our mass cytometry installed base increased by 20% during 2018, reflecting strong growth in instruments sales while our microfluidic installed base declined by 7% due to headlands in our single cell business and our focus on…

Thank you, Vikram. In 2018, with each passing quarter, we generated momentum around the world. We entered 2019 or we enter 2019 with a solid backlog and an exciting funnel of sales opportunities across academic, translational research, CROs and cancer centers. There is ample headroom for growth across all of our lines of business, including mass cytometry, where for the third consecutive quarter placements at new accounts represent about two thirds of total unit sales in the period. We are a major market participant empowering immuno research via multi-omic platforms including Helios, Juno, Access Array, C1 and Biomark. We are the clear market leader in multiplex image analysis of tissue via Hyperion. From a shareholder perspective, I'm confident that our long-term strategy of innovation, revenue growth, and operating excellence coupled with smart balance sheet management, will drive value. Increasingly, we will see an acceleration of recurring revenue streams as our installed base grows. I'd like to thank our over 500 employees for their contributions to this quarter and over the course of the year. After two years of effort, we are leaner and more productive than ever. Collectively, we've made huge strides to move Fluidigm forward after a challenging period in our history. We are humbled by our customers’ ambition to transform the treatment of human disease through a greater understanding of immune function. We are inspired to make their job easier through continued innovation and reward shareholders for their trust in our organization and our management team. With that, I'd like to open the line for questions.

Thank you. [Operator Instructions] Our first question comes from Doug Schenkel of Cowen and Company. Your line is open.

Hi, there. This is Adam Wieschhaus on for Doug. Thanks for taking my questions. There was a raise in pull-through guidance for each of the three segments you disclosed with mass cytometry being the most pronounced. Is the increased mass cytometry utilization being primarily driven by a particular customer segments such as the pharma success you've noted in your prepared remarks, CROs or maybe those that receive the imaging module or that pretty much across the board?

Hi, Adam. This is Chris. So, yeah, I think I can't point – we can't point to one segment I think you've grabbed some – generally across the board, we've seen good pull-through from all segments. There is probably a slight bias towards certainly CROs as we have seen some of those rapid acceleration, hence the capacity expansion story that we shared during the course of the call as far as the split between Hyperion or imaging based consumables and suspension-based. We've actually – I think we've talked about this in the past that we had modeled that there might be some potential deterioration in our pull-through, but as you can see from our recommended guidance that we're not seeing any declination or decrease in the pull-through rates based between the mix of Hyperion imaging technology versus suspension. Anything you want to add there, Vikram?

Yeah, so in addition to customer type, clearly, it's our intent to increase the routine use of our technology. And hence the news releases that we've been putting out regarding the adoption of our technology by CRO. So that's clearly one driver as the technology goes more and more into routine use, that pull-through will increase. The other driver is the release of panel products that we've been putting out from time to time. The human immune monitoring panel is one example and we've had previous examples. So we are driving on both vectors to increase the pull-through of our mass cytometry platform.

Okay, great. Thank you. And I think you also noted that your installed base in your microfluidics segment declined over the course of 2018. I was just hoping to get any color on how we should think about the placement of – placement versus retirement for that segment over 2019? Are we at a point where you think that that installed base has stabilized? Thank you.

As we have said and pointed out, there is a couple of factors that I would refer to. One is that the bulk of this business is now consumables. We haven't released the exact numbers, but to more and more consumables is the significant portion of the microfluidics business. And the other way to think about this is that a lot of the decline in the active installed base has been as a result of the headwinds that we experienced in our single cell business. And as those headwinds dissipate and as the year-over-year comparison becomes less challenging that factor will become less pronounced. The other factor that we pointed to is that we are increasingly going to be focused and had been focused on high throughput customers. So more and more this business will be characterized by fewer number of instrument placements and higher throughput. And one manifestation of that is the continuing increase in the pull-through guidance that we put out for the Biomark, EP1 platform in 2019 even as compared to 2018.

Okay. Maybe I could just get one more in. I think your press release mentioned a trend in multisystem places for the Helios, but I think in the back half of your comments, you mentioned that two thirds of the instruments are still going to new customers. Can you provide any color on what that funnel looks like for the Helios instrument? Is it largely related to existing customers? Or is that largely towards new customers? Thank you.

Yeah, I think the simplest answer is that we're continuing – we're seeing a continuation of the three quarter trend in which we continue to recruit new customers to the technology base and there's not a material shift in the kind of forward looking funnel as it relates to that mix. We really talked about relatively small numbers here, so the percentages could shift from period to period, but the overall trend has been quite consistent. And it's extremely encouraging. I think this kind of continues to reinforce our hypothesis that we're – we have a relatively small market share in a very large market that's got tremendous opportunity and it's probably expanding on two vectors, both the absolute amount of the market growth opportunities expanding as well as the total addressable market for us.

Great, thank you, Chris.

Thank you. Our next question comes from Paul Knight of Janney Montgomery. Your line is open.

Hi, Chris. Congratulations on the quarter. On the customer base, is it specifically an immuno-oncology? Is that the application do you believe? And then the follow onto that is – tell me the things that they're saying about why this intake/uptake is happening now. Is it the number of probes you can do? Is it the speed? What are they liking here?

There's couple ways to answer the question. As we've talked about, we can see in a rearward facing view, thanks Paul, first of all for the compliment. Second is we can look in a rearward facing view when we see the publications to see what the mix of those publications are and as you can – as we can see in the numbers that immuno-oncology and IO [indiscernible] is probably the single largest demand driver as you look at publications. However, there's a number of segments that are coming on quite strong. And that's why I think opportunities or situations similar to the TIMID announcement that we had earlier today really highlights we've talked to hundreds of diseases that are impacted by the immune system and immune function. So understanding the immune system and its implications for diseases such as diabetes and IBS and celiacs disease and so on and so forth, we think this is just the tip of the iceberg for what the potential is for the instrument system. So we don't have always perfect knowledge as far as the exact primary driver for why the customer has purchased the system. We can see the patterns after it's used to then really totally discern how they're unlocking that technology. And we're certainly seeing the stories broaden as it relates to the applications. As far as the into overall other drivers, as you talked about, so the data for instance incurred shoppers presentation, this will be on imaging. So he highlighted a panel that he designed that was – I believe it's a 28 marker panel at Yale. And so he talked about kind of the unparalleled capabilities that there's no other technology quite like it that allows from an imaging perspective to get both the sensitivity levels that he requires, the real images that he as a pathologist want to be able to see and assess, so that you can look at percentage of the tumors into an absolute scoring system based upon how he traditionally had scored tumors and then be able to deduce that or reduce that down to a digital and absolutely analytical number. And then to be able to – to hit against that a very high parameter panel, I think this is really indicative of where the headroom that we have available to us and how researchers as they're realizing how many – what they can do with this larger design space. They're finding more and more – they’re running into their experiments more and more scenarios where they can lock into this large design space overall.

And Chris did you talk to the level of backlog build, nature of backlog as it – as you wrapped up the quarter?

We did not address that question or that topic specifically on our prepared remarks, but I can assure you that this was not a situation which we burn backlog. Really we feel very comfortable with what we're setting up to come into the year and we're just – we have [indiscernible] strong growth throughout the back half of the year in general. And we talked about at the very beginning of the year of – entering 2018 that we thought it was maybe back end loaded story. We could see the opportunities building in the pipeline and we had a really good – we did really nice job in the back half of 2018 in turning those opportunities into sales. And we didn't have to do it. We mean all we kept – we continue to add to the overall, I think the volume of the breadth and the quality and the depth of the funnel. So as we kind of shared in the prepared comments, we're seeing around the world multiple geographies, it’s not a one segment story. We're seeing some more industrial players come online now. We added an additional cancer center in the United States during the period although we didn't talk about that in the highlights. So we're really pleased about the progress that we're making.

Okay, thank you.

Thank you. [Operator Instructions] Our next question comes from Bill Quirk of Piper Jaffray. Your line is open.

Great, thanks. Good afternoon everybody. Congratulations on a really strong quarter.

Thanks, Bill.

First question for me. I want to go back to the guidance adjustment for mass cytometry consumables, the 20% increase. I guess can you unpack that a little bit for us? How much of that – of the guidance increase is based on what you were seeing throughout 2018 versus perhaps a word on kind of how the visibility for the consumables looks as we get into 2019?

Well, I guess you're specifically asking about mass cytometry or are you talking about kind of all of the technologies build just to make sure we're very specific?

Specific to mass cytometry.

Okay, just to make sure. Okay, so as we have highlighted, we've continued to – we saw continued strength throughout the course of the year. We had – as our past practice has been we provided a guidance range at the beginning of the year and then we'd give updates when there’s a significant or material adjustment around our performance up or down around that. And as you know, each quarter we tended to see and cite kind of above target for what we have had modeled our pull-through likely to be that we were on the high end of those ranges. So we've continued to see that velocity grow or kind of intensity grow pull-through. We had some apprehension or perhaps not even apprehension, I guess, concern or sensitivity, the fact that we were new and with the Hyperion technology and we weren't sure what the impact might be on a blended basis on pull-through. We haven't seen any particular negative impact from that mix. And we continue to add to our installed base. And so that's why I think you generally see some very strong consumables numbers around the world. So that's a – this is probably our best foot forward or best guess for how that dynamic might play out going forward in 2019. And I think we're trying to just find the right sweet spot to help giving you enough information to build models.

Okay, fair enough. And then a couple of questions for Vikram. I guess first, Vikram, obviously continue to see some really nice improvement in gross margin and maybe talk to how sustainable that is as we look into 2019. And then secondly, you guys have done a really nice job here of late. You’re establishing next quarter forward guidance and beating that. Have you contemplated going back to giving annual guidance? If so, why or why not? And maybe that's something we can expect in the future. Thanks.

Thanks, Bill. On gross margin, I think we had consistently talked about – when the gross margins were deteriorating, we had talked to you about the main reason being underutilization of capacity. And as we've seen capacity being utilized with increased sales growth, those margins have come right back. So that's something that we had predicted. We are certainly pleased with the results. And I think that is definitely sustainable. We've also talked about in the past, but it's worthwhile recalling that as of April of 2018, we appointed a worldwide head of operations and his goals are to get continuous cost improvement just as a matter of course. And so the additional capacity utilization along with the emphasis on manufacturing operation – operational efficiency and supply chain management, we believe should lead to increased performance at the gross margin level. In terms of guidance right now at least for the foreseeable future, we intend going ahead with our quarterly guidance. It seems to be working for us. And right now we don't feel any compelling reason to make a change.

I’d just to add, Vikram, I think on – from a gross margin perspective, I think there's – we saw, as you said before, it's going to reinforce. There's a lot of levers we have left to pull to generate continued improvement in this area. I think Brad has really – as you touched on, really, Brad has just gotten started for us and laying out a roadmap over a multiyear plan for us. And you can look at our headcount levels, we've been flat on headcount after over two years. We actually came down significantly in our headcount levels from two years ago and we've managed to maintain increasing volumes with flat headcount. And so I think we've got a lot of levers left still for us to pull and we've reserved the flexibility to go for price as needed in order to drive volume at these key commercial accounts. And the key pivot we're making is moving more into the supplied market space, which is going to end with this nice gross margin setup and a long multi-year road maps for improvements here. It's lining up very well with our customer centric strategy to go after those higher volume accounts.

Perfect, thanks guys.

Yeah, thanks, Bill.

Thanks, Bill.

Thank you, ladies and gentlemen, that is our last question. I'd like to turn the conference back over to Agnes Lee for any closing remarks.

Great, thanks a lot Valerie. We'd like to thank everyone for attending our call today. A replay of this call will be available on the investors section of our website. This concludes the call and we look forward to the next update following the close of the first quarter of 2019. Please reach out to me if there are any further questions. Good afternoon everyone. Valerie, now close the call.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may now all disconnect.