Thank you for standing by, and welcome to the Fluidigm Third Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today Ms. Agnes Lee. Thank you. Please go ahead.

Thank you, Rosanne. Good afternoon, everyone. Welcome to Fluidigm's Third Quarter 2020 Earnings Conference Call. At the close of the market today, Fluidigm released its financial results for the quarter ended September 30, 2020. During this call, we will review our results and provide commentary on our financial and operational performance, market trends, strategic initiatives and our response to the COVID-19 pandemic. 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 expected financial performance, the anticipated positive impact of various strategic and operational initiatives, market and revenue growth, technology and research trends, product development plans, prospects for our products and technologies, potential customers and collaborators, and trends in competition, markets, research funding and customer demand. 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, 2019, 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. The ongoing global pandemic has impacted every facet of our business and has driven a need for speed as well as crisp execution. Our disciplined operations, our relentless focus on employees' safety, addressing urgent COVID market needs through innovation, and a focused capital deployment plan has delivered results. I am proud of the entire Fluidigm team for rising to the occasion in a manner reflective of our shared values, including a commitment and a passion to serve the community in this crisis. We are humbled to be playing a role in both virus detection and decoding the complex immune system response to the pathogen, which will be critical to the next phase of pandemic response. The unfortunate events of 2020 have further validated our strategic vision, and suggest we can play an increasingly meaningful role in healthcare in the years ahead across many fronts. In 90 days, in a historically challenging operating environment, we accomplished goals normally tackled over a span of a year or more. We received the first FDA emergency use authorization for a kitted extraction-free saliva-based PCR test for detecting SARS-CoV-2 combining best-in-class throughput with minimal sample input. We powered groundbreaking multi-site and large single-site clinical trials and studies bringing the number of new trials year-to-date to 25, including three on our imaging platform for a total of 113 trials ongoing or complete. We secured a $34 million contract in the first class of the NIH RADx awardee group earmarked for COVID-19 test manufacturing scale-up and new product development. We delivered almost 800,000 tests in the quarter with the majority of the tests linked to the authorized kit released in late August. We placed 31 Biomarks in the quarter, with a total of 43 Biomark systems enabled for diagnostics year-to-date. These new…

Thanks Chris and good afternoon. Total revenue was $39.9 million in Q3 2020 50% growth compared to Q3 2019. Changes in foreign exchange rates had minimal impact on revenues. Product and service revenue of $35.3 million grew 34% compared to Q3 2019. I'm pleased to note that Q3 2020 revenue was the highest quarterly revenue ever recorded by Fluidigm. With the grant of the EUA for our SARS-CoV-2 test on August 25, 2020 we saw COVID-19 tailwinds accelerate in the quarter contributing $11 million of quarterly revenues with over 90% of that revenue from diagnostic tests driving growth in our microfluidics business. In the third quarter, we saw strong sequential growth in both mass cytometry and microfluidics revenue from our base business as customer labs gradually reopened. At the end of the second quarter, we had estimated approximately 30% to 40% of our global academic research community was either closed or working at a slower pace. As we entered the latter part of Q3 most of our customers had reopened and we exited September with an estimated 10% of our global academic research community still closed or working at a slower pace. Given the recent resurgence of infections in both Europe and the United States and announced lockdowns in Europe we are carefully watching the pace at which this reopening continues. Both our mass cytometry and microfluidics-based business continued to experience headwinds from the pandemic in the third quarter although these headwinds were considerably diminished compared to the second quarter. With that context I will move into the details of our third quarter financial performance. Mass cytometry product and service revenue of $15.1 million in the third quarter decreased 3% year-over-year mainly due to lower instrument revenues offset by higher consumables revenue. We continue to experience the effects of lab…

Thank you, Vikram. This pandemic has tested us all personally and professionally. Our hearts go out to all people around the world who have been impacted by this virus. In the midst of all of this, we are proud to be able to harness Fluidigm's technologies and products to enable more testing and better understand this virus through immune profiling studies. We have built new relationships with government agencies, public health officials, and scientific leaders who may lead the preparation for future pathogen outbreaks and we trust that our track record of execution during this crisis will ensure we are integrated into their planning. Additionally, we believe that data management and interpretation, digital integration of instruments, and delivery of important information to the right place in a timely manner are critical to meeting future market needs. We have added a Chief Digital Officer to our leadership team to coordinate and drive our digital vision. Puneet Suri, a veteran leader and innovator with more than 20 years of experience guiding digital innovation at Thermo Fisher Scientific and Bio-Rad has joined our team and I'm excited about sharing our progress in this new dimension in the years to come. I offer five takeaways from this Q3 call. First, we are executing on the COVID strategy we outlined over the last two quarters; new non-dilutive funding for innovation and capacity expansion, emergency use authorization for a COVID-19 test, new system placements, and incremental sales of tests impactful new clinical studies powered by mass cytometry technology. Second, we are growing through our COVID-19 testing business and some of the headwinds in our core business are diminishing, but there is significant uncertainty against the backdrop of escalating cases worldwide. Third, our conviction around the shape of COVID testing demand is incrementally bullish and provides an attractive, large, and growing market. We see robust demand for testing in 2021 and new market segments will emerge with differing needs. Fluidigm is well-positioned to be a meaningful market participant in this expansion phase. Fourth, new products are on the horizon that will strengthen our innovation portfolio and overall competitiveness fueling future growth. And fifth, we are committed to partnerships to expand our reach, our capabilities, and our disruptive approach to traditional paradigms. In closing, we are grateful for the incredible determination and tireless efforts of global researchers, health care workers, public health organizations, private sector life science employees, and government agencies who are working together for the common good. As always, I thank our almost 600 employees for their contributions this past quarter. I'm proud of how the team has executed on our COVID-19 goals in diagnostics and immune profiling as well as the foundation they are providing for future growth. With that I'll open up the line for questions.

[Operator Instructions] Our first question comes from the line of Dan Brennan from UBS. Your line is open.

Great. Hey guys. Thanks for the question. Congrats on the quarter obviously. So, Chris and Vikram obvious question is while visibility is maybe low just given all the fluctuations with COVID, it would be helpful just to give us some insight on how to think about the trajectory from here. So, any color you can provide first starting on the COVID side? 43 box placements pretty significant, obviously good support with volume. So, just directionally versus what you did this quarter could you just help us think about directionally what that could mean in Q4? And if you could comment on beyond that? And then B, when we think about the revenue pull-through it sounds like 800-or-so thousand tests the revenue is at the lower end. But what is the business model for the customers who are adopting? How much of it is replacing the box they're buying the box, or is it all kind of wrapped up in some minimum consumables? So, if you can discuss a little bit of the economics that you're engaging with these customers and what visibility that gives you?

I'd like to get a lot of bang for your buck there Dan on questions. So, I'll start and then I'll probably ask Vikram to add in. So, I'm going to kind of paraphrase some of it and you may need to redirect. I think on the shape -- we'll talk about the COVID portion of the business first. We shared some content in here about -- obviously, we're very pleased with the number of new placements. I think that goes right at one of the key questions people had about could we -- how would we expand our footprint into high complexity labs given that we had relatively limited footprint in that market when the COVID outbreak first began. And I think we can have good facts here to show that we're getting good traction. Of that segment that we placed about 20% or so into full production and we can give -- we gave a little bit of color on that and we can attempt to give the best color we can at this stage. It really varies on the business model. I mean for that segment, the majority of them are in the contract testing business. And so it depends on which segments of the market they're going after how they're bidding for contracts the logistics for the collection of those and how the and then we're playing a supporting role in that context. And then -- so that's also the -- whether or not they're committing to automation. So, that's another variable that sits in the background. If they have existing automation solutions or if they're installing automation solutions to take full access or full leverage out of our incredible throughput on our platform. So that's the sort of dimensions that are impacting the ramp. I…

Yes. No sorry. Chris, I think you've been very comprehensive. I don't have anything to add on the COVID part of the question. With your question related to the non-COVID as we mentioned today that's still experiencing headwinds due to the pandemic. But as we've gone from quarter-to-quarter in '20, we see those headwinds diminishing quite considerably. For example between Q2 and Q3, we saw a considerable diminishing of the headwinds for the base business.

Okay. I have maybe one more on the base and then I can ask one more on COVID and I'll get back in the queue. Just on the base business what kind of backlog are you carrying today? I mean it's always a question Chris that you get. Obviously the visibility and given the inability on sort of to place instruments right now with still labs opening up just wondering about what the funnel looks like on mass cytometry today and what that portends maybe for Q4?

Chris, I think you are on mute?

I would have welcomed you to jump in if you'd like then, Vikram. On backlog on instruments, I don't think we've been providing color on backlog for some time, so I can't give you specific numbers on backlog of instruments, but we anticipate placing both there's some installs that will -- that are from sales in Q3, that will get fully installed in Q4, go into production in Q4 plus additional placements in the period. But we have -- we're very comfortable with where the pipeline is right now. In fact, that's one of the areas that we put a lot of focus on. After the Q2 time period, in particular that was an area where there was the complete shelter-in place and we had to really transition the traditional events and pipeline development activities to digital channels. And that was why I tried to place a little bit additional color on the strength of our digital platforms. And in Q3 and really started on the back of Q2, we began to see a really palpable uptick in the pipeline again and really tying to prospects for both the balance of the year as well as into 2021 and '22 that is much more along the historic trend line which has supported strong 20%-ish growth in the mass cytometry portfolio or franchise over the last few years. So I think we're overall encouraged with the shape of the recovery as it's -- but there are a lot of factors as Vikram highlighted in the near-term that could have some impact just on the calendarization or timing of those transactions depending on people's availability of budgets or if the facilities are shut down, if there's any changes in their near-term purchasing behaviors. But we certainly see strong and robust interest in our technologies both the imaging platforms as well as the suspension side.

Maybe last one. In terms of your existing capacity on COVID, can you just remind us what's your ability to deliver both tests and boxes from here? And then just kind of one more follow-up too on -- could you at least share with us it sounds like there are some minimum guarantees so not really -- it doesn't sound like you want to kind of give us any sense about where this could go right now. But is there a certain minimum guarantees locked in for fourth quarter that you could give us a sense of what the floor would be on a COVID testing basis? Thanks.

Yes. I certainly appreciate the question. I don't think we'll provide any additional color on the floors, but there are delivery schedules in the fourth quarter for the customers -- from many of the customers that we have contracts with. The test capacity for COVID is something that we're really quite proud of. Actually we've stepped up our manufacturing capacity to six million tests for production capability in the fourth quarter and we're anticipating a further expansion of that manufacturing capacity tied to the deployment of the NIH RADx dollars in the first quarter of next year. So there's -- we're really pleased with how we're setting up from an inventory position and our capabilities to produce and that's part of why the Campus Safeguard Program was one of the promotional campaigns that we ran to create awareness that we had additional capacity and we're some of the early first movers into the market they're extremely supply chain constrained. And we wanted to signal very clearly that we had additional capacity that people should consider adopting Fluidigm technology in deploying against the COVID question. On the box side, we don't anticipate any near-term constraints on the boxes for the fourth quarter time period.

Okay. I will get in the back queue. Thanks guys.

You bet. Thanks, Dan.

Our next question comes from the line of Steven Mah from Piper Sandler. Your line is open.

Hello, guys. Thanks for taking questions. And congrats on the quarter.

Thank you, Steve.

So yes, just maybe to add on to Dan's questions on COVID-19 opportunity. So the 31 Biomarks placed into clinical labs, yes, that's very impressive. Can you give us a sense for the sales cycle into the clinical labs? How long it takes? And thank you for the color on the four to six weeks to get them up to speed. And then maybe also comment on the funnel size and maybe the types of potential opportunities whether they be more universities or are they small to medium reference labs?

Sure Steve. I'll do what we can here. So the sales cycle on placements has been incredibly variable. We've had opportunities that have come into the funnel and closed within days and weeks. So much shorter timelines than we were used to historically. In this business another additional dimension is expansion of capacity or redundancy that they want to put into the labs that represents incremental placement opportunities, which also have a relatively short close cycle. The range of opportunities in the funnel is quite dramatic. So it's -- we have very, very large order potential. Most of the -- many of them are in industrial. So we have a heavy bias towards industrial opportunities, I'd say at the moment versus the academic segment. I think the academic segment has kind of struggled for finding what's the kind of -- there's a lot of factors that are influencing the academic segment adoption. And the industrial side has been much more robust. And we're also seeing the emergence of more direct-to-consumer and other types of models that are -- and you're even seeing return to work and you're seeing new additional market segments starting to come online as people are adapting around the new normal, I believe, which will feed an incremental expansion in testing demand entering into the 2021 cycle. So you have small and medium-sized labs that are moving in. We're seeing expansion opportunities in larger labs. We are seeing more academic opportunities on the back end of the Campus Safeguard Program. We had tremendous -- that was the first time we've tried a program like that and we had very, very strong awareness or a very, very strong inbound interest. It may be one of the strongest promotional campaigns we've ever run for lead generation. So I have to say, it's across the board. That's why it makes it really hard to make a strong call for this quarter. And we're just trying to be tempered in our enthusiasm. There's plenty of opportunity. What we have to do is to focus. And so we're not -- we're trying to focus on the highest value opportunities the more strategic opportunities. And then the opportunity to expand capacity and obviously drive volume into our existing partners is a really strong near-term catalyst for us.

Okay. Got it. Yes. That's helpful. And on about 800,000 tests that -- in the quarter. Could you give us a sense of the breakdown of industrial customers versus academic? Sounds looks like it's a little more industrial, but…

Vikram, do you want to take that?

Yes. Steve I had made in my remarks described the ASP for the quarter. I think that gave you an indication that this quarter we had a large concentration from a -- just an overall revenue perspective from university sales particularly two large orders from universities, including a historically large order under our Campus Safeguard Program. So we do have a big mix, but the -- from a quantitative standpoint, this was a focus more on the university segment in this quarter.

Okay. Got it.

Yeah. I was just going to say, Steve I think about this quarter as being a heavier instrument placement cycle in the industrial segment and a larger mix of testing sales into the academic segment as reflected by those large orders.

Okay. Got it. Got it. And maybe a little bit on the testing ASP spread. You mentioned it's between $5 and $20. Is that ASP spread primarily volume driven? And if you can give us a sense of the margins on the test?

Vikram, why don't you take that one since you had some color on that in your segment?

Yeah. I think it's a combination of volume drivers and the types of customers I would say at a very high level. And then between that there are nuances whether we are selling to the more commercial labs that will get reimbursed versus other segments including the segment that Chris talked about that are still emerging that do not get reimbursed. We have an extremely good value proposition here. And as you could see from our gross margin performance despite the fact that this quarter our ASP was weighted towards the low end of the range, we had improvement in our gross margin. So we are quite comfortable with our ability to drive margins as the business expands into more commercial sectors.

Yeah. Okay. Yeah. No, that's great color. And then my last question I'll hop back into the queue. Chris you mentioned in 1Q, there's going to be -- I think you said there's going to be a capacity expansion of the Biomark, a second-generation Biomark. Is that related to the RADx-funded bar-coding initiative? And if it is or maybe if it's not could you then give us some color on where that RADx bar-coding initiative is at?

Hi Steve. Thanks for the question also. So actually it's two separate things that kind of got co-mingled there. So first I talked about a next-generation Biomark platform, which we're super excited to start sharing the details about. That's anticipated to come out after Q1. So I said first half of the year. So we'll talk about midpoint of the year for the new next generation system. The second part was around capacity expansion on testing. So our absolute manufacturing capacity of the chips and the related kits that is directly linked to the RADx investment of which we've been on a capacity expansion journey that started in the Q3 time period. We saw a step-up in capacity as we entered Q3 and we'll execute for with more capacity and continue to add more incremental capacity in first quarter of next year.

Okay. Great. Thank you, Chris.

Yeah. Thank you.

I see no further questions at this time. I would like to turn it back over to Agnes Lee for closing remarks.

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