Good afternoon ladies and gentlemen and welcome to the Fluidigm Fourth Quarter 2019 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 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, ma'am.

Thank you. Good afternoon everyone. Welcome to the Fluidigm fourth quarter 2019 earnings conference call. At the close of the market today, Fluidigm released its financial results for the quarter and full year ended December 31, 2019. During this call, we will review our results and provide commentary on recent commercial activity, market trends, and our strategic business initiative. 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 have not yet occurred, including plans and projections for our future 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, trends in competition, markets, research funding and customer demand, and guidance for revenues and operating loss for the full year 2020. 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 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. Thank you for joining our fourth quarter and full year 2019 earnings call. The discovery and deployment of new biomarkers for disease insight and treatment is becoming more and more important to our industry, particularly biomarkers related to the immune system. We think this will be one of the biggest trends in life science research in the coming decade. As new biomarkers are revealed, integrating them in the clinical study requires technologies that allow many simultaneous measurements. Fluidigm is unique in the life sciences tool space because we provide innovative tools powering biomarker discovery and deployment at single-cell resolution for DNA, RNA, and protein. Furthermore, our tools are transforming biological understanding through spatial interrogation of tissue, including elucidating the tumor microenvironment. We sell our instrument platforms and consumables to leading academic medical centers, research centers, contract research organizations, and industrial biopharma entities for this purpose. In addition, our tools are useful in adjacent industries, including ag-bio, a broad category of companies. We are continuing to develop and improve consumables software and services for our customers to provide more complete, integrated workflows with recurring revenue streams and enjoy strong intellectual property protection for our technologies. We harness the power of two technology platforms; mass cytometry and microfluidics in new and compelling formats, enabling large panels as well as the processing of a broad range of sample numbers. In other words, we believe our prospects are bright as the science moves forward into our areas of strength. As a result of these trends, in Q4, we exceeded our guidance, increasing revenue on a sequential basis by $6 million and delivering 4% growth net of FX effects. On a full year basis, in particular, I'm pleased with the progress we made in delivering broader adoption of mass cytometry…

Thanks Chris and good afternoon everyone. Total revenue was $32.4 million in Q4 2019, flat compared to Q4 2018 and up sequentially 22% or about $6 million. Total revenue for the full year 2019 was $117.2 million or up 4% compared to full year 2018. Changes in foreign exchange rates had a minimal net impact on revenues for the fourth quarter of 2019 and negatively impacted revenues by 1% for the full year period. Mass cytometry revenue of $21.5 million in the fourth quarter increased 13% year-over-year. For the full year 2019, mass cytometry grew 23% year-over-year. Revenue in both the fourth quarter and full year reflected strong growth across all categories, including instruments, consumables and service. Mass cytometry consumables and service revenue delivered strong double-digit year-over-year growth in the fourth quarter and the full year, including solid revenue growth from our Maxpar Direct Immune Profiling Assay and new metals. Consumables pull-through in the quarter was close to our guidance range. Mass cytometry instruments grew in the fourth quarter and delivered strong double-digit year-over-year growth for the full year 2019. Our total installed base of instruments at year-end was 292, including 85 that are enabled for imaging applications. Microfluidics revenue of $10.9 million decreased 18% year-over-year, driven by a decline in consumables, partially offset by instruments. RNA-Seq revenue for Q4 was in our guidance range at approximately $340,000 with most of the revenue from Juno instrument placements. We expect consumables to ramp up later in the year as these instruments are validated at customer sites. We have seen microfluidics revenue remained fairly steady over the last four quarters and are seeing good early progress with the new RNA-Seq product. As Chris has mentioned, we are executing on our microfluidics strategy to target new key accounts and grow the business longer…

Thank you, Vikram. Last quarter, we completed our second year of growth on the heels of some fundamental changes namely new product innovation, operational investments, business focus on proteomics and tissue imaging, expanded organizational footprint investments and improvements to our balance sheet. We have demonstrated operational execution as well as strategic agility as we take the steps to drive increased market penetration for key customer segments. Overall, the mass cytometry business is growing rapidly, particularly our recurring revenue streams of consumables and services. We are making the requisite investments to sustain this growth. On the heels of recent innovation, we are increasing our commercial footprint to return microfluidics to growth with enhanced specialist sales coverage for each franchise. Looking to 2020 expectations, while our higher ASP instruments may continue to drive quarterly variability, our sales funnel remains strong. On an absolute basis, the second half of the year will likely be stronger than the first half as we realize the full benefits of our sales channel investment in the first part of 2020. To supplement our organic initiatives, we have secured new collaborations and partnerships, and we are pursuing more opportunities to further expand share of wallet; commercialize improved workflows; generate more channel reach; and identify novel content for disease, diagnosis, and treatment. From an investor perspective, we have an improved balance sheet with greatly reduced debt obligations. I am confident in our ability to deliver new innovation and additional revenue growth while maintaining financial discipline and continued operational improvements. We believe these activities will drive sustained growth and tremendous long-term value creation. As always, I thank our over 500 employees for their contributions this past quarter. We are honored to be recognized for launching the best cell product of the year, the Maxpar Direct Immune Profiling System. Furthermore, our fastest-growing office in Canada was recognized as a 2020 best place to work in Toronto. Finally, our thoughts are with our colleagues and customers in China as well as employees who may have recently traveled to the regions impacted. We hope to do our part in the fight against these infectious diseases now and in the years ahead. With that, I'd like to open the line for questions.

[Operator Instructions] We have your first question from Sung Ji Nam from BTIG. Your line is open.

Hi, thanks for taking the question. Just a few clarifications. Maybe starting out with Covance and Georgetown, did these customers acquire multiple systems? And for Covance, is there a potential for them to acquire the Hyperion Imaging System in the future as well?

Hi Sung Ji. Can you hear me?

Yes.

Okay, great. So, with regards to Covance -- and actually with George Mason, we did not reveal any details related to either one of those transactions. Although it is true on the Covance opportunity. We talk about Helios as a placement. And I do believe that there's Hyperion opportunities also at the account. But I don't -- I believe both institutions could represent a significant strategic value for us over the long period of time. Certainly, in the call, we gave some color related to Covance and the importance of their global footprint. And in this case, it's around suspension. And I think there's plenty of opportunity on the imaging side and then George Mason is specifically for Hyperion -- it was for Georgetown, sorry. I lived in Virginia for too long. But yes, for Georgetown University and Lombardi Cancer Center, it is a Hyperion opportunity. But they also have interest in both -- using both technologies in dual-use format.

Okay, great. And then, Vikram, when you talked about lower ASP impacting margins in the quarter, was that pretty much across the Board -- across both product categories? Or was it more skewed towards one versus the other?

No, we didn't break that out Sung Ji. So, it was a factor that affected gross margins, as I said in my script, but it was mostly offset by mix and capacity utilization.

Okay. And then just lastly, did you say that the consumable revenue for mass cytometry grew this quarter year-over-year?

Yes, we did.

Okay, great. Thank you so much.

We have your next question from Bill Quirk from Piper Sandler. Your line is open.

Great. Thanks. Good afternoon everybody. So, I guess, first question, certainly heard you loud and clear that we're not going to include anything in guidance for coronavirus. And I also appreciate that your team is just getting back from an extended holiday. But any intel whatsoever around the logistics of moving products around the country? Have they given you any feedback on whether or not they can get instruments and consumables and such to customers? We've been hearing different stories about the state of logistics over there.

Hi Bill, this is Chris. Yes, so with regards to -- we're still getting a lot of details, I think, out of the region at this moment as far as our products are involved. So, for us, it's shipment getting permits into the country, primarily tax-based permits. So, we don't have a lot of details on the logistics and logistics flow at this time. So, that's really all we can provide at this moment. I think the secondary component is -- our manufacturing supply chain primarily is outside of China as a primary basis for manufacturing in Singapore, Toronto, and the U.S. There's always a potential impact from the secondary supply sources, of course. But for the amount of visibility we have at this moment, we have to stand by the comments that we made in the call.

Okay, got it. And then, Chris, maybe you can just elaborate on the timing around the comments concerning splitting up some of the sales functions between the mass cytometry business broadly and microfluidics. A couple of years ago, I think when maybe it's a little tighter on capital, you guys decided to combine those two teams. And so maybe you can just elaborate on why the time is right now to split those two back up into specialty teams? Thanks.

You're actually absolutely spot on and we did make the decision actually right when I came into the organization that we had the team split. At that time, they were actually split around applied markets differences. So, there was one around -- and then that was the fundamental difference. So, we reunited instead of being -- differentiating between end-customer segments, we went to one integrated team. Now, it is also true that in the Q3 time period and really on the heels, I think, of the RNA-Seq launch that we really see a catalyst with the new significantly differentiated product that we think it presents a real winner and provides a halo for really driving the broader microfluidics story that it makes sense for us to catalyze this expansion by product area. So, one mass cytometry-focused team; a second, on microfluidics. And really, the third, I think, is that we've continued to accelerate our overall footprint in terms of mass cytometry. So, that's really -- that's been really the primary catalyst for us for making this transition in the two teams.

Got it. Thanks very much.

We have your next question from Doug Schenkel from Cowen and Company. Your line is open.

Hi guys. This is Adam Wieschhaus on for Doug. Thanks for taking my questions. As you know already, with a very strong mass cytometry instrument revenue quarter, we have you adding 17 mass cytometry instruments in the period and enabling around 15 instruments in the quarter for imaging. I just want to make sure those numbers sound approximately correct. And do the lengthening sales cycles and funding dynamics that you saw in Q3 subside? Or was it just more that they were offset by the positive drivers that you mentioned in your prepared remarks?

Well, as far as the first question, I may -- did you repeat the second part of the question. I didn't fully get it. But I'll come back to that second. On the first part, as you know, we gave a Q3 snapshot of our installed base. And in the fourth quarter, we obviously gave a revised update here in the most recent call. So, you have the real mass directly to mass cytometry as well as it relates to imaging, specifically imaging enabled? Can you repeat the second part of the question, please?

Yes. You mentioned--

I'll just remind you on the first part of it; sorry to interrupt you that even the Hyperion are dual-use. So, it also that -- it can get complicated from a mix perspective, just keep in mind, I know you guys will work hard on the modeling from -- we have Helios, we have an imaging upgrade, and then we sell a Hyperion configuration. So, there's three elements to that sales line.

Okay, understood. The second part of the question was just asking about the lengthening sales cycles and funding dynamics that you pointed out in the Q3 call. Just trying to understand have those subsided or if they were just more than offset by the positive commentary you mentioned on broadening customer base and new applications driving the strength in the Q4?

Yes, I think adding additional color; it's really more the latter. As we had commented that historically, even in the 2017, 2016 time period, the sales cycles were longer than what we experienced in 2018. We saw a lengthening in the 2019 time period. And so really, the size of the funnel has -- and we started -- we've accommodated those elements in our forecasting.

Okay. And your Biomark installed base increased by around 50 instruments this year -- or in 2019. Access Array and Juno installed basis decreased by around 12, we believe. Do you think further attrition, it's possible in 2020? Or do you expect those installed bases will grow this year as you target new customers and applications?

Yes, that's correct. That reflects the update and the snapshot that we gave between the last year and then this year on both of those line items. On the Access, Juno line item, I think it's important to put colors, as you know, the Access Array is an older piece of equipment, and we've been legacy wind-down of the Access Arrays and so new geno placements are partially offsetting that. I can't only be speculating on what the net effect would be for the 2020 time period at the stage, but that general trend is not a surprise to us, and I think you can see a deceleration of that wind-down of the Access Arrays. Biomark also is -- reflects, I think, many of the Biomark placements in the earlier cycles were tied to single-cell and C1 placements, in particular. So, we have seen some decline from that line item as far as active installed base, more related to the conjoint relationship with C1. And we've offset that partially with new placements of Biomarks, largely in connection with our proteomic applications and new customer acquisition.

Okay. Thanks for the color.

You're welcome.

We have your next question from Paul Knight from Janney. Your line is open.

Hi Chris. Regarding the distribution move you are making, is that you are hiring additional people on the distribution force and also going more direct and also having them sell broader portfolio of products? Is that the way I should read it?

Hi Paul. First, not exactly. So, I'd say, approximately, we're investing or increasing our investment in direct-selling heads by about 20% on a worldwide basis. And simultaneously, we're also creating more a direct microfluidic selling organization. So, we're enhancing. We had a very small one in the United States, which we're significantly expanding. And then in select geographies, outside of the U.S., we are also adding a direct microfluidic selling capability. In addition, we're also adding incremental mass cytometry selling capacity in a number of geographies. So, it's a two dimension. So, it's both creating a dedicated team in some geographies and expanding the two teams, respectively speaking.

And how is your war on penetration of the biotechnology in the -- let's call it, the commercial nonacademic market. How -- what was the -- how was the progress in 4Q?

Overall, I think we're pretty pleased with our continued acquisition of biotech and non-academic customers. We do maintain that our current installed base today and a significant amount portion of our sales are closer in the academic space and increasingly more and more in the translational setting. But you have examples in our lexicon of installations like the one you've heard about today. Covance represents a significant expansion for us in accessing the biopharma spend. So, we think that biopharma industrial spend is a very significant portion of the potential spend in this area, and we'll acquire that through a mix of system placements and then also through services contracts that reach into CROs. And so I think we're pleased, but we're going to make a lot more progress in this area over the coming year.

And then lastly, on the U.S. was, I guess, softer in terms of your geographical split, was it capital equipment flow through not happening in 4Q?

Actually, one more time, do you mind asking the question on the academic -- on the America side?

Yes. U.S., down in the quarter. What was behind that, was it capital spending constraints. Could you just talk to that?

It feels like to us, I mean, partially, the U.S. both had a very strong comp in the prior year period and the Q4 2018 time period. But to us, it felt more as a coverage issue. So, we have a significant pipeline, but we are having trouble getting the full yield out of that pipeline. I don't think there's an issue in the U.S. I just think it's an opportunity for us to do more investment in that particular area to increase -- to maintain the rate of growth that's required for us to show absolute growth for the Americas. So, it's -- primarily the microfluidics business is there that swaps some of the vitality out of there. And assuming we've had areas that where we had a series of levered accounts and there that have -- as we talked about in historically legacy accounts that have kind of ebbed and flowed and so that certainly impacted the Americas number.

Okay. Thanks.

And I'd just add -- thank you very much, Paul. And then on the hiring basis, we made good progress in the fourth quarter. Our hiring plans. So, we started those activities in Q3. And so we continue to feel very pleased about the progress that we've made through Q1 and then we'll expect to be, I think, at full staff in the Q2 time period.

I'm showing no further questions at this time. I would now like to turn the conference back to Ms. Agnes Lee. Please continue.

Thank you, Alexander. 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 2020. Please reach out to us if there are further questions. Good afternoon, everyone. Alexander, you may now close the call.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful day. You may all disconnect.