Good day and thank you for standing by. Welcome to the Fluidigm Second Quarter 2021 Financial Results 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 Mr. Peter DeNardo, Investor Relations. Sir?

Thank you, May, and good afternoon, everyone. Welcome to Fluidigm's second quarter 2021 earnings conference call. At the close of market today, Fluidigm released its financial results for the quarter ended June 30, 2021. During this call, we will review our results and provide commentary on our financial and operational performance, market trends, and strategic 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 expected financial performance, including guidance relating to revenues, net loss, business-line performance, margins and cash burn as well as statements about market trends, the impact of COVID-19, product releases and customer demand, collaborations and partnerships, market and revenue growth expectations and Fluidigm's strategic plans. 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, 2020, as well as our other filings with the SEC. The forward-looking statements on 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 US 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 expenses are presented in the table accompanying our earnings release, which can be found in the Investor Relations section of our website. At the conclusion of our prepared remarks, we will take questions from those participating by phone. And then time permitting, we'll take some questions from our online webcast participants who can submit the questions by clicking the ask a question button in the webcast player. I will now turn the call over to Chris, our President and CEO.

Thank you, Peter, and good afternoon. In the second quarter our base business top line revenue continued to rebound from 2020 levels with notable growth in mass cytometry services and non-COVID related microfluidics products. We advanced several key innovative initiatives including the launch of our fourth generation, industry leading CyTOF platform and made strides in our partnerships and the overall R&D pipeline. We completed significant milestones under our NIH, RADx contract as well as our DARPA, Mount Sinai program. We did experience headwinds with a rapid deceleration in our COVID testing revenues, which we believe is consistent with macro trends in the United States as vaccination levels have increased and testing of the population has decreased. Earlier this year, we outlined our five-year growth plan that we call Vision 2025. Our 2021 corporate objectives are tied to this plan, which is organized into three pillars of growth, innovation, beachheads and partnerships. During Q2 we made progress in each of these categories as we advance towards our objective to power the next generation of health care decision-making. We believe, we remain on track to achieve the 2021 objectives in this plan and I will provide more detail on that in a few minutes. Now briefly shifting to market dynamics for the period. Globally speaking we see an uneven recovery continuing across the various geographies we serve as individual countries navigate successive waves of outbreaks. We estimate that lab operations remain below pre-COVID activity levels with some marginal improvement over Q1 and with the slowest improvement in Japan among the major markets we serve. We are closely monitoring the delta variant, which introduces further uncertainty as well as the status of regional travel restrictions and supply chain challenges, which continue to create moderate operational headwinds. However, on balance based upon what we…

Thanks, Chris, and good afternoon, everyone. Before turning to our second quarter financial results, I would like to note that we have posted updated supplemental financial information in addition to our investor presentation on our website. Let me begin with a review of our financial and geographic highlights for the second quarter of 2021 and then provide some updates to our 2021 guidance. We demonstrated continued top line recovery in our base business from a difficult year ago period and we project this recovery to continue across both mass cytometry and microfluidics, supported by new product introductions. Our revenue from COVID-19 testing continued to decline and came in at $2.3 million for Q2 down sequentially from $6.5 million in Q1 and below our expectations of $3 million to $4 million as testing volumes declined both overall and for our commercial lab customers. Year-over-year COVID testing revenues were flat for the quarter. We are continuing to monitor the COVID testing landscape in view of the recent uptake in infections and the impact of the Delta variant. I note that we recently released an RUO COVID variant testing panel. But for now, we have provided updated guidance for testing revenues that does not incorporate any potential effect of that panel. Total revenue for the second quarter was $31 million an increase of 19% compared to $26.1 million for Q2 2020. Changes in foreign exchange rates contributed two percentage points to the year-over-year growth. Base product and service revenue, which excludes COVID-19 testing was $26.9 million or 33% over the year-ago period. We now expect our full year 2021 base product and service revenue to grow between 20% and 22% year-over-year. Moving on now to the performance of each of our franchises. Mass cytometry product and service revenue of $16.6 million for the…

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

Taking the question. Maybe starting out with the CyTOF XT. Great to see that there are seven orders there. You talked about two new customers your customers that are new to the CyTOF technology. I'm just curious have they used the platform through outsourcing before, or is this the first time they're adopting? And kind of curious what motivated them to adopt the system? And then also on the biopharma the pharma customers. Just curious kind of as you look at the CyTOF XT platform do you think that more pharma customers would adopt the system outright rather than outsourcing to CROs going forward?

Okay. A bunch of questions I'll roll at them one by one. Good to hear your voice again Sung Ji. So yes we are definitely excited about having the XT on the market. I want to clarify I think I made a comment in the prepared statement. So, it's six customers seven systems. I think that was clear, but I think we interchanged the use of orders and systems. So I just want to make sure that's clear. 1/3 of those customers were new to the technology. And so I think your follow-on question to that was okay, so what are some of the motivations behind that? I'm not intimately with each one of those accounts. But what I can tell you is I know at the high level they were driven by commercial needs. So either seeing an opportunity as a CRO to go out and bring in additional business or seeing demand from their customers or interest from their customers to add those into their studies. Another was -- so on the new side, I can't tell you if they had experienced the technology or not through another venue, I can get back to you with that information. So it's a noted question, but I don't know all the details off the top of my head. I seem to forget what's the final -- what was the final part? I forgot.

The pharma customers adopting the platform.

Yes, the prospects for pharma. I personally, this is my kind of one opinion is pharma is not monolithic, you're working within different groups within pharma. And the decisions to in-source or outsource, I think, traditionally about two-thirds of the activities are outsourced. One-third is brought in-house these days, partially because of the speed and the need to execute and they don't know the mix of projects exactly. So they tend to contract more externally for quick projects. So I would anticipate that we would see -- we've got great exposure. We were in nine of the 10 top pharmas in at least one part of their business. So there's plenty of incremental market opportunity. I think we partially landscape that in the Investor Day event. So we see a significant amount of expansion opportunities in incremental systems, but I think they can go -- they're not antithetical to one another. So meaning that the CROs will serve a lot of that surge demand or initial demand particularly if the pharma company -- in our experience it's been more around -- they need that project immediately or they need that project for the next two months and to go through the process of acquiring the platform, installing it, developing expertise themselves and schematics on that takes a period of time. So that's I think they will tend to do the -- a lot of projects early on through CROs then bring a portion of capacity in-house to service their core repeatable needs and then continue to use CROs as surge capacity, but that's my opinion, we'll see how things play out. But I think that's a pretty conventional model.

Got you. That's very helpful. And then for the next-gen imaging system that you're going to launch next year. Is that going to be similar? Is it on a module that you attach to an existing CyTOF system? And then just kind of if you can talk about that. But just trying to get a sense of what that launch could look like as far as the existing platforms and how customers might adopt that going forward?

Yes. We're clearly going to be really excited about sharing all the details the operational and capability details of the next-generation platform. You can imagine a lot of the experiences and inputs that we've had that informed our XT development, focus areas will be reflected also in the imaging platform rollout or improvements. I think one of the trickiest things is we're kind of unique in the imaging space and to discuss this level of nuance is that the XT as a detection platform is an analyzer. We're the unique platform that enables both imaging as well as suspension-based analysis. At this moment in time on the imaging side, we offer a Hyperion, as our first-generation state-of-the-art platform of which the detector engine is a CyTOF or as a Helios platform, or the third generation detector. And then on the suspension side we're offering both the XT now and then we offer the third-generation system both in the market. Over time, you might imagine that the laser ablation module, or imaging modules that will be introduced with the next-generation platform will be made into the XT platform for the next-generation platform. So does that clarify?

Yes. That's very helpful. And then lastly maybe one for Vikram. As we look at -- as we think about your guidance. You touched on the fourth quarter the seasonality there. It's a significant ramp-up sequentially and obviously new products driving some of that as well. Are you factoring in contributions from the next-gen sample-to-answer microfluidics platform there -- that you're launching in that equation in your assumptions, or just kind of curious what the underlying assumptions are.

Hi, Sung Ji. Yes, good to hear from you. The major drivers for the Q4 revenue cadence is the mass cytometry product launch the CyTOF XT specifically also consumables increasing relative to the first half. And then the OEM business in microfluidics, I would say, those are the major drivers for the Q4 revenue ramp.

Okay. Great. Thanks so much.

Sure.

Thank you.

No further phone questions, I am going to turn the call back over to Mr. Chris Linthwaite.

Okay. Thank you. We have received a number of questions from the online chat. So if you can just give us a second to process those and we'll come right back to you in the order we're going to tackle them. All right. Thank you. So one of the first questions we received is, can you talk about the initial CyTOF XT launch relative to expectations? And address how the new price point and improved user features have changed or impacted the sales funnel breadth in the sales cycle relative to the penetration that we laid out in the Investor Day deck? In short, we're really pleased with the early response. The sales team is extraordinarily excited to talk about and sell the product. We do believe that the price point and the positioning of both the Helios system as an entry-level product. So -- and then moving to the upsell to the XT, the latest fourth-generation state-of-the-art is very favorable plays to our strengths, which is we want to be included in every sales opportunity and have a opportunity to pitch the unique features and benefits of both platforms, and then look at the situational the context of the customer in order to best position the right product for their needs. So from our perspective, we think it's increased more shots on goal for us. It's also been very encouraging and it's hard a little bit to tease this out between the COVID dynamics of the last year in 2020, but we have seen an increase in our sales funnel versus the 2020 time period. And the XT launch certainly brought new leads and new opportunities somewhat as I alluded to in the prepared comments. So we've seen really fantastic response from our target market segments in both the…

Not at this stage, Chris, if you might be to take that question. It's still early days yet. We've just launched – or Olink has just launched their Q100 signature program, which is a venue instrument. And we still have not had much experience on how that will be utilized. It's fair to say that, our expectations are strong for the future, for the full two, but it's somewhat be mature for us to give an estimate at this stage.

It feels like a question we should circle back to when we – once we hear Olink commercial we need to understand better their positioning of the end product. And then we can perhaps provide some rules of thumb or ratios to how to think about our consumable streams, including our services contract, which we will have service contracts on these instrument platforms that Fluidigm will be providing. So there'll be multiple probably quantitative things we can provide over time. But I think we just need to see what the final end market positioning is, consumables pricing, and then we can look at the ratio of our products compared to the total pull-through, they model for each of their boxes and communicate to investors. And then we can share some rules of probably a relative range of what service contracts are worth for us. I think, you'll find over time that it will be a disproportionate over time a contribution from those recurring revenue streams versus the value to us on a single instrument placement that we provide. We anticipate over time to get a multiple return – multiple, I think that's very interesting. Okay. Let's see. I think, there was a good question in here that relates to the impact of the RADx grant, and how it fits into our long-term vision for the microfluidics business. I think mass cytometry, we've made a pretty strong case, I think. I think the microfluidics is – I got a lot of nuance to it. I think the simplest way to respond to this particular investor's question is the RADx grants the Department of Defense STARPA and ECHO program, they have provided a number of leverage points that serve our kind of overall long-term ambitions in the diagnostics space. To date, we've…

So I think with that, we have approached the end of the time, and I think we've – all of the questions that have been queued up, hit upon Teams, we've already covered to date. So with that, I want to thank all of you for attending our Q2 2021 call. Thank you, and have a good day.

Thank you, sir. This concludes today's conference call. You may all disconnect.