Ladies and gentlemen, thank you for standby and welcome to Fluidigm's Third Quarter 2019 Financial Results. 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 conference call is being recorded. I would now like to turn the conference over to your host, Ms. Agnes Lee, Vice President, Investor Relations. Please go ahead.

Thank you, Charlie. Good afternoon, everyone. Welcome to Fluidigm's third quarter 2019 earnings conference call. At the close of the market today Fluidigm released its financial results for the quarter ended September 30, 2019. 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 Chief Executive Officer; and Vikram Jog, our Chief Financial Officer. During the call and subsequent Q&A session, we will make forward-looking statements about events and circumstances that are not yet occurred including plans and projections for our business, future financial results and market trends and opportunities. Examples include statements about expected revenue growth, the anticipated positive impact of various strategic and operational initiatives, prospects for our products and technologies, potential customers and collaborators, projected sales for recently introduced products and guidance for revenues, operating expenses, cash flow and consumables pull-through for the fourth 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, 2018 as well as our 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 and 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 a 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. Thank you for joining our third quarter 2019 earnings call. As you might expect, we are deeply disappointed in the revenue results for Q3 which fell $500,000 below our guidance range of $27 million to $30 million. We made excellent progress in consumables and services growth but suspension mass cytometry unit placements in the Americas fell short of our projections. So we did not achieve our expectations for the period, we remain optimistic and encouraged by the broad market interest in our solutions. As we went through our analysis of the quarter results, we observed in particular that within certain academic sub-markets some prospects are taking significantly longer to secure funding for equipment purchasing. As belt tightening [ph] slows the release of grants, institutional money and other capital sources in our price category. In some instances sponsoring investigators are asking for more help from us to develop return on investment models for their management. These are issues that we can address and this extended sales cycle is primarily impacting previously un-penetrated accounts. Building on this observation, I'm going to elaborate on our few overarching themes starting with perspectives on our markets followed by our customer segments, and then our products. First, for the mass cytometry business and then for microfluidics. As you will see, we are confident that we can make adjustments and overcome the headwinds we faced. First the cytometry market. Across all regions our underlying major markets remain generally healthy. Market demand for solutions and high parameter protein across tissue and cell is good. As evidenced by the strength in our recurring revenue streams of consumables and services. In the U.S. market, we've observed a capital spending above $500,000 is seeing more scrutiny and as a result, sales cycles outside of the most…

Thanks, Chris, and good afternoon. Total revenue was $26.5 million in Q3, 2019 a decrease of 8.5% year-over-year. On a year-to-date basis revenue grew 5% to $84.8 million in 2019. Changes in foreign exchange rates had a minimal net impact on revenues for the third quarter of 2019 and negatively impacted revenues by 1% for the year-to-date period. Mass cytometry revenue of $15.6 million in the third quarter decreased 13% year-over-year. As you may remember mass cytometry revenue experienced a significant sequential increase between Q2 and Q3 of 2018. The year-over-year decline in mass cytometry revenue, was due to lower instrument revenues primarily in the United States, offset by strong growth in consumables and service revenues. We continue to experience delays in mass cytometry instrument orders in the third quarter, similar to the previous quarter primarily due to longer sales cycles. Year-to-date mass cytometry instrument growth has been strong in-line with the year-to-date growth in total mass cytometry revenue. And over a third of our instrument placements this quarter represented incremental units to existing customers. Mass cytometry consumables and service revenue delivered strong double-digit year-over-year growth in the third quarter, including solid revenue growth from our Maxpar direct-immune profiling assay that was launched at the end of March 2019. We also saw a good initial orders for labeling kits for seven new metals that were launched in mid-September. Consumables pull through in the third quarter was in-line with Q2 but still below our 2019 guidance. Also notably we had strong growth in service revenue in the quarter. We expect mass cytometry pull through to be close to our guidance range in the fourth quarter of 2019 as customers ramp-up usage of their instruments. Microfluidics revenue of $10.9 million decreased 2% year-over-year driven by a decline in instrument sales. We saw…

Thank you, Vikram. We execute well on our innovation strategy in the period and we have taken steps forward in driving market expansion. We must improve our commercial execution and agility in response to the feedback of the new market segments we are targeting. Overall, the mass cytometry business is growing. For microfluidics we must close funnel opportunities and untethered ourselves from the dynamics of our legacy business. Success on these vectors will drive enterprise wide revenue growth. In summary, we are increasing our installed base, and we see headroom for growth around the world for all of our platform. Adoptions of our workflows and instruments for clinical trial work is growing and we are seeing excellent uptake of our mass cytometry consumables, as well as customer signing up for two and three yearlong service contracts. Yes, we have work to do to expand Americas suspension mass cytometry instrument adoption, but we are already executing on that strategy while scaling up selling efforts in our sizable microfluidics franchise. From an investor perspective, I know we are asking for more patients but I remain absolutely confident in the Fluidigm management team and our ability to deliver more innovation and more revenue growth while maintaining financial discipline and demonstrating operational improvements. These activities will drive sustained growth and tremendous long-term value. As always, I thank our over 500 employees for their contributions this past quarter as we delivered on a number of significant product launches in parallel across our portfolio. We now need to convert these launches in a meaningful new revenue streams. We are healthier today than three years ago when I arrived. Our aspirations are growing along with your increased expectations and shifting our gains from quarterly updates to the longer-term vision of success, we are confident, we are going to have a major impact on healthcare and healthcare research. With that, I'd like to open the line for questions.

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

Hi, thanks for taking my questions. Maybe starting out with the RNA-seq Library Prep Kit that you guys launched talked about the funnel building out nicely there, was curious, are you seeing demand globally, are there certain regions where you're seeing greater demand and then also, what's kind of the split between your existing customers versus new customers that might be interested?

Thank you very much for the question Sung Ji. So with regards to RNA-seq yes, so overall, we're extremely pleased with the early pipeline development that now exceeds more than $2 million. From a geographic perspective, we did prioritize more of our market development activities in the Americas in the first few weeks, so there is a heavy skewing of that funnel for now that sits in the U.S., although we see no reason why that market won't expand into other regions and as we stated early in that maybe the comments in the prepared comments, we've already had as placements in sales of kits into all major geographies. So I think it's early days, but the balance of the funnel right at this moment is more biased towards the American market. I think overall from a mix of new customers we're actually seeing a significant number of new customers for this so it's as you may recall that we talked about, we have a relatively small market share in microfluidics and genomics as compared to the total addressable market for next-generation sequencing, plugging to next generation sequencing. So we think this is going to represent a significant new opportunities in terms of incremental Juno placements over time as well as strong consumables pull through.

And then just on the mass cytometry side, you talked about from the suspension platform seeing delays in terms of purchasing decisions, et cetera was curious, are there any competitive dynamics at play recognizing obviously there might not be direct competitors or customers also taking longer to evaluate platforms just given there are potentially other alternative options out there?

From a - the question obviously relates to suspension of the dynamics related to suspension and I think as we kind of made a comment in our prepared remarks, we have seen a shift in the last few quarters in particular and more scrutiny of expenses above or capital equipment investments above the $500,000 mark. I think as we've been reflecting on some of the other print that are coming out, it seems to be, there may be other analytical instrument providers, different categories, but kind of in similar price points maybe seeing some similar dynamics overall in their placements. So I think we can attribute it more overall to the general higher scrutiny across all categories of spend in this area of versus direct competitive influences.

And then just lastly, I guess, looking ahead was curious between the suspension cytometry versus the imaging platform. Where do you see kind of the greater demand going forward based on kind of the publications that are coming out as well as where the customer demand might be?

So, I guess is your question on which markets are going to be the larger markets and still over what time and I couldn't quite follow exactly how you reject supposing that against publications. Did you mean by application or questions that are being asked or customer segment?

Yes, just in terms of applications and just in terms of customer interest, the types of research I guess projects that are getting funded etcetera driving potential growth in the future for suspension versus imaging?

I think it's a contrast. So in the suspension side, it's a much suspension cytometry is a much larger and as you all know, a much more established market. What as you may reflect when we've been sharing our market evolution kind of growing from an early discovery based tool that was in our early proof of principle to enabling or unlocking the potential to do 20 or more sort of parameters of simultaneous analysis, we expanded that competitiveness into the mid '30s and now we've pushed those up into 50 and established ourselves as the first purveyor of highly multiplex suspension based analysis and more than 50 parameters. As debt markets a larger market we are also driving a shift from some of the lower measurements the lower parameter analysis more towards shifting dollars both the higher parameter, we're probably participating overall, that market is probably a high single-digit grower for all cytometry - cytometry and we believe we are in a faster - the fastest growing segment of that. So I think there is plenty of opportunity for us to take additional market share from the mid-flex market and also to see the market moving in our favor towards higher flexing dynamics and overall it's a larger market in a more established market and certainly our publications momentum already reflects the larger installed base in the larger, more established demand dynamics. Imaging is newer and so we were the first commercial player enter this market three years ago. We're very pleased with the both in terms of our clinical trials penetration as well as the number of new publications that are being shared by researchers on this as well as our installed base, which now expands or extends beyond 70 units. So I think it's very early days. I think imaging could be very, very big in the coming years. It's just more specialty for us because of what dimension, it will grow on, will it grow on parameters, will it grow on D&A versus RNA versus protein simultaneous detection. There are many other dynamics that will influence the imaging market and so as a first mover we need to be prepared to adapt or as we see more market opportunities in here. The interest from a scientific perspective are incredibly hot right now and they're very broad but oncology and immuno-oncology all the time primary focus and the primary drivers of demand for both segments at least from our perspective.

Great, thank you.

Your next question comes from the line of Dan Brennan with UBS. Your line is now open.

Great. Thanks for taking the questions. I guess, first one is just on Chris's on the mass cytometry, I know you mentioned others have kind of cited some, maybe some CapEx pressure but we haven't heard it to broadly. So I guess what data points can you share that indicates a shortfall is basically at the market opportunities may be smaller than you expected?

So, I guess if I'm going to try to make sure I understand the question. So I think what you're trying to say that the market the addressable market overall shrunk in the period?

No, just basically yes, no your basis in this commercial and funding and I'm just wondering, possibly that as you look at kind of a placement opportunity maybe the placement opportunity isn't as big as you expected to, maybe you can just speak to whatever kind of color on backlog or funnel or anything like that that might give us some visibility towards kind of the lack of getting something over the goal line, but that the demand is there?

I mean I think we need to look at market size across each of the segments and I know we don't break out market sizing, at least to-date we have not by unit placements. I think that we're still a relatively small percentage of the total number of unit placements that occur in the marketplace. In the academic medical centers in the larger centers as I commented, we've had extremely good penetration in that area and we continue to radiate inside of those accounts. We will see strong consumables dynamics, meaning we're attracting more and more users inside those institutions and that getting more instrument placements. We're trying to compare is the academic medical centers in the mid-tier we're an area that we were shifting some focus to as we are moving further down in the funnel between from the top part of them at the richest academic medical centers. That's an area where we saw more challenges and through either some combination of that intensity that we need to spend inside of those accounts more proof points that are required. I don't know if that means that the market size is smaller than we think or we're just going to take a little bit longer to have to unlock that full market potential. In the CRO and CRL segments. I think this is new for us. So we have some initial toehold in each one of the major geographies in this area, but I think there is a very significant amount of in the unit placements that we're only seeing a trickle of at the moment. And then pharma biotech over the long term probably the largest single market segment potential, but as we've been moving into those segments beyond the discovery groups. We have seen that there speed to an answer, meaning they want to have a system already in place today and already get a rough declining deep them to trying to drive towards service providers and because we haven't fully penetrated adequately penetrated the CRO segment that's inhibiting our ability to participate fully in the dollars that are available in the pharma and biotech market. So I think there's plenty of unit placement opportunities out there, but we've got to work through the series of gates to get ourselves to get into those larger more addressable segments.

Got it. Great, thank you for that. And then maybe related to it. So can you share any color on backlog or funnel or any metrics that might give us a view point towards the kind of the demand that's there. But yet you need to get kind of funding over the goal line as you kind of indicated in the prepared remarks?

What I'll do is we'll try to give you some qualitative. We obviously don't share quantitative information related to backlog from our perspective, of course awards in the backlog, the easier it will be for us to forecast for periods and clearly have not had at least in the prior period a significant or substantive enough backlog offset of opportunity sitting in our funnel. Overall, we haven't seen a diminishment in demand or interest in the technology. What we have seen is some as we've seen kind of in our stage gate process deals that have not moved across the finish line. So we continue to add opportunities into there, but we need to get more through the funnel or we need to dramatically expand the size of the overall funnel in order to get the yield we need in order to deliver more sustained growth a period-to-period. So we think there's things that we can do. There are some tweaks like I talked about in terms of coverage model also even tweaking our value proposition. In some cases to help get across some or get over with some of those hurdles that we've seen are some obstacles over the top at some of those accounts. So I think there's things that we can do. We've got a significant enough or large enough opportunity funnel, we need to get more yield out of it. And of course, we'd love to see if we can get more yield then we need to make sure we get a larger funnel overall, which mean that will be generate more leads, more opportunities in our marketing operations as well as perhaps at a few additional salespeople to help in the coverage of these key segments that we're trying to unlock. So, unfortunately, I'm not going to be able to share kind of substantive details on backlog. The funnel that I hope that helps from a qualitative perspective.

All right. And then, sorry to be kind of ask if you said then related to that comment, the comments you just made so it sounds like it's really tweaks at this point or add a few salespeople. So there isn't really a plan, yet to either have X number of new sales people or new commercial go-to-market strategy or maybe more discounting. I'm just wondering where are you in the evolution of your like plan to attack this kind of market, that seems to have slowed a lot more than you expected?

Well, what I'd say is, and I think it's, we've been the rate limiting step in some cases in here and I think that we probably have run a little too lean in terms of coverage in the Americas, in particular. And so I think that's why I think that we're seeing more yield in the other regions and in the U.S. in particular, we're more at the leading edge of unlocking to new customer segments, vis-a-vis the other regions around the world. So we've already started efforts in this area, we didn't wait. We started in Q3 in this area. It's also somewhat interrelated with our modest scale up that was occurring in microfluidics, so as we have a clear we think going to be a clear winner in terms of the new product that's gives us confidence that we can shift, we can kind of sub divide our resources have one group, it's going to work more clearly on microfluidics and another group that's going to work more clearly on mass cytometry and I think that will drive effectiveness for both segments. So we actually have already been underway with those efforts into this quarter.

And then maybe last one would be, what's baked in for the fourth quarter, could you give us some color on either instrument placements in pull through just kind of break it down given the shortfall this quarter. I'm just wondering kind of what you're baking into that $29 million and $32 million revenue outlook?

Well, as we, I think Vikram shared in his prepared comments, some commentary on pull-through. So I think he will take words out of his mouth but I think he generally guided towards that we think will be entering the range of our nearly end of the range for pull through with regards to mass cytometry not sure he made color comments on the other area and microfluidics off to clear up anything that I am saying. Do you want to head and go for a second there?

Yes, Dan. We don't normally break down our guidance but I think it would be safe to say given the implied sequential increase in revenues from Q3 to Q4 that we do expect recovery in the mass cytometry business, we definitely expect to see growth in RNA-seq. We pointed to the pipeline developing, and we've also given the number related to RNA-seq but the caution on microfluidics which we have again repeated this time is that that is subject to volatility until we get traction on the new applications. So I think, qualitatively, and in generic terms, it would be safe to say that the Q4 guidance bakes in recovery on in mass cytometry and we've also made comments that we do expect to reach the pull through guidance that we had outlined for the year, albeit at the end - in Q4.

Okay, okay.

That gives you some color on what's baked into the Q4 guidance.

Great, thank you.

[Operator Instructions] Your next question comes from the line of Bill Quirk with Piper Jaffray. Your line is now open.

Great. Thanks, good afternoon. I guess the first question I want to go back to a couple of Dan was talking about and I guess when we think about the order funnel, Chris, you had mentioned on the 2Q call that the funnel was really quite strong. I think at the time you guys didn't necessarily want to commit to it for the third quarter, but it doesn't look like it's going to be coming to fruition in the fourth and so, and I appreciate that this ties in with some of your earlier comments, but that seems like quite a push out for some deals that seemingly were in hand presumably actually originally expected to close in the second quarter. So maybe if you can help kind of unpack that and help us think about if any fallen by the wayside is everything is still in the funnel but it has everything to do with what you said in your prepared comments, just give us some additional color there? Thanks.

Sure, Bill. Thanks for the question. So the best we can help I think on this is as Vikram just - amplifying was Vikram said, we do see a sequential improvement in unit placements from Q3 into Q4, which will also represent sequential improvement in Q2 in terms of unit placements. So I understand the sentiment of your question, but I think in reality, we are going to see a step-up in unit placements in Q4. I guess the easiest way to kind of qualify as we had stated at the end of Q2 coming into the Q3 was that we had a lot of uncertainty about where the timing of the funds would come from in which sources of fundings that they would have to come through with and we saw that uncertainty play out throughout Q3 for a couple of the deals that fell out of the quarter. And so we did our best to handicap when we built our consensus or built our guidance model for Q3 to model a percentage of those hitting in Q3 and we were clearly incorrect on our modeling assumption. So for Q4, we've done our best to kind of revisit our lessons from Q3 and we think we've done the best we can as far as handicapped in the overall funnel. I think the size, it's really not a question of the size, it's about progression through the stage gates and even what is 75% mean when we still don't see a check in hand or we don't see a clear PO being released and they're stating the PIs maybe saying it's coming, but it doesn't come out through administration or we're waiting on federal leases of funding and it didn't release and we had a number of these sorts of situations occur and there still playing out here in Q4 and we're to the point where we're not sure until we actually see the money come through that we should kind of those coming into this time this quarter. So, I don't know the best I can say is just re-amplify what Vikram said as we tried to look at lessons learned from our Q3 experience. We tried to make some modeling assumptions based upon our lessons learned in that period and then we see a significant funnel size and we're not seeing direct competitive losses attributing to this. So, I do expect that this will snap into place, but I, but we're, it's, we've been having trouble forecasting when these larger orders are going to land.

Chris, do you think that the interest outside of your traditional customer base in mass cytometry is contributing at all to the how should we say uncertainty of timing and some of these deals closing and if that's the case is it something that you guys are taking into consideration, as you're looking at indications of interest and kind of early interest from parties outside of your traditional kind of academia landscape with mass side up? Thanks.

Yes, I think actually that point is really, really insightful question, Bill overall, I think as we have seen a shift in our call patterns and focus and less need to focus on those high-end academic medical centers, because we have more established dynamics, they fill up capacity and then they lead to the next order. The other segments are, we're back to doing more business development activities. And I think I used in some of those segments and perhaps even our selling motions didn't fully reflect all the decision makers that we're going to be involved those and the considerations that come into making decisions on technology and other segments. I think I gave a flavor of some of those insights. And that was part of the reason why I tried to break out what we tried to break out in this call, a little more color on markets a little more color on segments since that of putting them altogether in a one commission. We're trying to break them out for you. And as you might, as you've read into it. We are having learnings in each one of these segments. And we've been shifting our tactics we started that work already shifting our tactics on these segments.

Okay, got it. And then two, I think pretty quick ones from me. First is Vikram can you elaborate on the inventory reserve that you took it in microfluidics. And then secondly, with respect to the comment in the press release about the active installed mass cytometry based range systems decommissioned in the quarter just to make sure I want to make sure my models as accurate as possible? Thanks.

Yes, so let me take the second question first, we always have an active base measurement based on a service attachment and purchases over a certain look back period. And so we constantly are updating and refreshing the active base based on those two metrics. I can't speak to the delta in the quarter itself, but that's an ongoing phenomenon, but it certainly has played a role in terms of, if you're trying to reconcile your model of how many units we placed in 2019 with the active base that we disclosed today, there is a netting of the systems that went - that are not active based on our definition.

Okay, got it. Thank you. And then just a comment on the inventory reserve Vikram?

Yes, nothing I mean that is an accounting exercise, we go through every quarter based on the judgment on the realizability of inventory valuation and that's the reserve, but it wasn't a significant amount, but it played a role in the roughly 1 percentage point to 1.5 percentage point and delta is that we were trying to explain in gross profit, but it was one among the three explanations. I think the bigger ones were production capacity utilization and product mix.

Okay, got it. Thank you.

We have no further question at this time, I will now turn the call back to Ms. Agnes Lee. Please go ahead.

Thank you, Charlie. We'd like to thank everyone for attending our call today. A replay of the 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 fourth quarter of 2019. Please reach out to us, if there are further questions. Good evening, everyone. Charlie, you may now close the call.

Thank you, ma'am. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.