Good day, and welcome to the Standard BioTools, Inc. First Quarter 2024 Earnings Conference Call. [Operator Instructions]. Please note, today's event is being recorded. It is now my pleasure to introduce David Holmes of Investor Relations.

Thank you, operator, and good afternoon, everyone. Welcome to Standard BioTools First Quarter 2024 Earnings Conference Call. Leading the call today is Michael Egholm, President and Chief Executive Officer; and Jeff Black, Chief Financial Officer. At the close of market today, Standard BioTools released its financial results for the quarter ended March 31, 2024. During the call, we will review our results and provide an update on our financial and operational performance, 2024 outlook, market trends and strategic initiatives. During this call, we will be making forward-looking statements about events and circumstances that have not yet occurred, including plans, projections of our business, our outlook for 2024 and future financial results, market trends and opportunities, and our expectations related to the combined operations with SomaLogic, including potential synergies and our business outlook for the combined company. These statements are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from current expectations. The forward-looking statements on this call are based on information currently available to us, and we disclaim any obligation to update these statements, except as may be required by law. During the call, we will also present some financial information on a non-GAAP basis. We believe these non-GAAP financial measures are useful in evaluating our core performance and is a baseline for assessing the future earnings potential of the company. We use these non-GAAP measures in our own evaluation of continuing operating performance. We encourage you to carefully consider our results on a GAAP and non-GAAP basis. The reconciliation between non-GAAP measures and their GAAP equivalents are provided in the tables accompanying today's press release and as an appendix to today's presentation slides. Please note, management will be referring to a slide presentation, including updated supplemental financial information within the webcast today. Following management's remarks, we will host a Q&A session. Today's slide presentation, along with a replay of the webcast, are available on the Investors section of our website. I would now like to turn the call over to Michael Egholm, President and CEO of Standard BioTools. Michael?

Thank you, David. We greatly appreciate everyone joining us on today's call after successful first year of operation at Standard BioTools. And now on to our first full quarter with an integrated SomaScan platform and SomaLogic team. Integrating technologies is hard, integrating culture is harder, but this has been one of the smoothest of the dozens I've been involved in all my career. Thanks go to the management team at SomaLogic who leaned in and helped the operating team at Standard through the hard work of bringing diverse organizations and platforms together. It is a testament to both cultures and clear recognition that each believed in the statement that we are indeed better together. So thank you to everyone involved. Now on to the realization of that teamwork on the power of scale in life sciences. We are ahead of plan on operating synergy target and now expect to achieve EUR 50 million of the EUR 80 million expected synergies we projected by the end of this year. Next year, we'll capture the remaining $30 million of that initial synergy target. As an organization, we are laser focused on reducing cash burn and accelerating profitability while maintaining long-term growth prospects to focus investments in our commercial organization and our R&D pipeline. Importantly, in addition to the operational technological and financial leverage achieved in the combination, we are experiencing the early benefits of a more diversified revenue and customer mix. As our peers have discussed this quarter, it remains a challenging market for capital equipment sales in Life Sciences, perhaps one of the most challenging in the last decade. At Standard, while we are seeing similar headwinds, our consumable and service business, which now includes SomaScan and its high-quality service offering, are helping to smooth our growth while we continue to…

Thank you, Michael, and thank you all for joining our call today. As a reminder, our first quarter results on an as-reported basis include the combined operations of Standard BioTools and SomaLogic since the close of the merger on January 5 of this year, while the first quarter of 2023 as reported includes the financial results of the Standard BioTools' legacy business only. So for comparative purposes, we think it's much more meaningful to look at the combined results of operations for both businesses. So my commentary today will focus on the pro forma combined results for both Standard BioTools and SomaLogic for both the first quarter '23 and '24, and that includes the stub period between January 1st, '24 and the close of the merger on January 5th. As a reminder, please refer to today's press release and the appendix to our investor deck for more information, including a reconciliation of GAAP to the non-GAAP measures I'll be discussing here. So starting off with revenue. In the first quarter, our pro forma combined revenue was just over $46 million. It grew about 2%, as Michael said, largely in line with expectations. And again, all while continue to navigate the lingering headwinds from a challenging macroeconomic environment. The SomaScan-related business contributed about $24 million in revenue for the quarter, grew over 20% and that's on healthy demand from SomaScan customers, growth in our kits business to authorize sites and the initiation of the early access program with Illumina, which, as Michael mentioned, is on track for full commercial launch in 2025. And again, not only do we see the SomaScan-related business as a growth driver for us, it's also a valuable source of revenue diversification for the combined business, and we saw that reflected in our first quarter results. On…

[Operator Instructions] And the first question comes Matthew Stanton with Jefferies.

Maybe first one for you, Michael. I think you talked about the early findings from Illumina as overwhelmingly positive. Can you maybe just talk a little bit more about what the initial feedback has been and then some of the important proof points from here? And how should -- we should start to think about the commercial launch into '25 obviously, you don't flip a switch, so onboarding, ramping up, things to think about. And then in terms of contribution to Soma in 1Q, is there any way to quantify what the Illumina or early access contributed, if you guys are willing to share that?

Yes. I'll let Jeff follow up on the last part of the question. So the teams have been hard at work for quite a while at this. And so putting a version of the [ 7,000 ] in the hands for customers will be the first leap and essentially able to reproduce what we've been doing internally and at a very -- like maintaining that very high hit rate on many proteins and a low CV, which is what differentiated us. The full launch will be in early '25 is what Illumina is communicating so far and will be based on the 11,000 assay. I would say I'm personally much more -- even more enthusiastic of this relationship than I was a few months when I stepped in as I've seen the early readout on the data and also seen the value in having a partner like Illumina, the market reads that they have, which, of course, far, far exceeds ours. And then to -- you had a question here on the timing, transitioning. We're still working through that. But net-net, we believe this is going to be a long-term growth driver. Maybe also just a reminder, there was a $30 million payment upfront, which basically still sits on our balance sheet as unrecognized revenue. And so anything to add, Jeff, on...

Yes. To your question, Matt, on Illumina, we don't break out revenue specific to Illumina, separately. But I can tell you, it's still early stages. It's a handful of customers. It's in the, call it, very low millions, very low single millions.

Okay. Great. That's helpful. And Michael, you talked about some of the updates coming out of the strategic plan read out some newer growth opportunities around multi-omic as a service, low plex or single some reagent models. Can you just talk about kind of timing around those as we think about those new growth opportunities and any investments or costs associated with getting those off the ground here?

Yes. So first half, no, thanks. Very good question here. As we are reporting it now, and investments we are making like the cost savings we projected here so far $50 million operationalized, and we'll see it flow through here by the end of the year is net of investments that we are making in those initiatives. So that's a really important thing to note. And our strategic review confirmed and highlighted a number of tweaks to the strategy. Number one was that SomaScan is highly, highly [ advantaged ]. And unlike any other technology we see out there is scalable, in that as we expand content, we maintain our low CV and do not increment complexity of cost. And that means that we're going to keep investing in that engine to expand that content and put a distance between us and further distance between us and the competition. Secondly, we saw a very, very high [ customer ] demand for individual SOMAmer. And we've got to recognize that SOMAmer, they're not like antibodies, but they are just another affinity reagent, just like an antibody with the same approximate affinity and specificity, and we have 11,000 monoclonal human affinity -- 11,000 affinity reagents for human proteins. And we believe this represents a unique opportunity. We're going to start small, and we're going to start operationalize it here by the middle of the year initially to our current customers and then offer much more broadly. So we think there's a very strong pull internally, but also from current customers, but we even beginning to see a much broader opportunity with SOMAmer as being a routine reagent used to as orthogonal validation to antibodies and/or be another thing up researcher sleeve when they cannot make an antibody work. And then the third piece that we recognized was around the value of the service. We run a very sophisticated service that work with very sophisticated customers and CROs. So we have the whole workflow from getting the -- getting all the samples from CROs, running them quickly, getting bioinformatics analysis and clinical guidance back to our customers, and we expect to lean into this and add some of the other products that we have, most obviously, our flow cytometry solution, which we think will be highly synergistic. And last, but not least, we are already, as I briefly alluded to in the script, beginning to look at how we can combine our microfluidic solution as a readout and maybe longer term, expand on the work flow. So maybe a longer answer than what you were asking for, but we're excited here after the strategic review.

Appreciate that. That's really helpful. I guess just last segue to you, Michael. In terms of capital allocations related to M&A, you talked about a pretty healthy pipeline. Just talk about appetite for deals, maybe potential size of deals and just the general bandwidth of the team given the Soma integration and a lot of other heavy lifting you guys are doing behind the scenes?

Yes. So integration and successful integration is job #1, 2 and 3. Having said that, I did build out a very strong team here over the last 2 years. So there's definitely capacity in the team. And we can walk in to gamut the same time. Secondly, as I'm sure you are all well aware, it is really upheavel in the venture funded part of the market, and we're seeing even more interesting assets being eager to work with us or eventually to be acquired for us. So we'll be highly disciplined and opportunistic. And we will, for sure, just on the size we won't do anything that's so big that it burns down on the very significant buffer we have between where we are now and profitability. And we'll keep working the bigger deals. As everyone know from the disclosures, we worked on the SomaLogic deal, what was 1.5 years plus. And so we'll keep doing that.

And the next question comes from Dan Brennan with TD Cowen.

Maybe just kind of high level, just on the guide for the year. Obviously, Mike, you talked about some of the CapEx challenges. The first quarter was kind of a little bit better than you guys expected, but it does imply a nice steep ramp in the back half. So just any -- any thoughts on like Q2, I think consensus sits at $48 million. Any thoughts of that, that's about right? And then as you think about like the growth that's implied in the back half of the year, I guess, kind of what can you say about either visibility or just some of the assumptions there?

Yes. So we are confident in the long term even the midterm growth here. So we are navigating, as we talked to all of you about here over the last few months for a number of transitory headwinds, one of them simply being this very, very tough CapEx market as I'm now seeing all our peer companies report as well. So what confidence do we have? We're seeing our sales funnels are getting larger. I have not seen any cancellations. I've only seen purchases being pushed out. And then we're getting all or some of the headwinds we had. And then last, but not least, at the AACR last month, we launched sort of the next extension on our Hyperion XTi, new imaging mode with lightning fast, and we launched a long awaited slide loader which can take 40 slides and customers could crank through those in 24 to 72 hours. I would add here, we're the only proteomics platform that need the slide load out there. So very excited on the progress and excitement around that. And then last but not least, as we have talked about on the legacy Standard Bio side our [ CyTOF ] flow. There are a number of issues we're working through, and we're really getting confident in the solution and see this our ability to chip away of what is a very big flow market that will the time or part of that market will transition to high parameter flow. And to that end, at the CYTO meeting, I think it actually was yesterday, CYTO Meeting in Edinburgh, that was work presented by one of our collaborators to show that not only do we have fast panel design up to 50 markers, we are hugely advantaged over any other technology on looking at intracellular markets such as cytokines and that really, if you want to study that biology, which is really important, we're really the only solution. All that give us hope for the back end and for '25 and '26.

Okay. Great. And then I know it's a question that's already on SomaLogic but really strong quarter, up almost 20%. Some of our diligence reflected that could be hitting a nice growth inflection here despite the challenging markets. So is that kind of growth sustainable for the year? Do you think just any color kind of what you saw? I know you talked a lot about the Illumina partnership for '25 but kind of the driver to that in SomaLogic and is this kind of growth sustainable for the year?

As I noted in my script, we see really like strong validation for our assay out there. We are aware of a couple of backups that will be reported out soon with our major competitor which is hugely favorable to us. So long term, we're really bullish on this. The big customers we have in pharma are all project-based and subject to sample availability and budget availability. And we still -- while we have a view to move more to translational research, where funding typically is not as temperamental as in discovery. We're still mostly in discovery. So I don't really have a good answer for you there. So -- but we love the quarter we just had on the legacy SomaScan side.

Great. And maybe one for Jeff, just in terms of the OpEx leverage, nice leverage in the quarter. Can you give us some thoughts on the pacing of the OpEx through the year? And how do the synergies flow in kind of as we get towards the back half of the year?

Yes, I'll hand that one over to Jeff. .

Yes, Dan, great to hear from you. So as I said, we, what I'll call operationalized $50 million in savings. And so we expect to see the full P&L impact of that $50 million for the full year '25. That will start to layer in really second half of the year. So we expect that we'll see, call it, $20 million to $25 million of that actually hit the P&L on the second half of the year. So in the P&L, you'll see somewhere around 40% to 50% of that $50 million reflected in '24. You'll primarily see it come out of SG&A.

And the next question comes from Paul Knight with KeyBanc.

Congratulations on what must have been a lot of work to put this number set together.

Thanks, Paul.

Thanks, Paul.

The dollar you put out earlier on this SomaScan early partnership on NGF. Obviously, Olink has read out on NGF is getting a lot of traction as well. Are you going to be competitive with the Olink technology on the NGF's readout.

Yes. So maybe just for background, SomaLogic in the past set the way from the market for a 3-year period which gave an opening to Olink, which they executed beautifully on and therefore, I have many, many more sites up and running that we had. Our solution together with Illumina is highly competitive. And really the advantage really lies in the SomaScan assay, which I alluded to it before, but the underlying advantages that our technology is scalable. We see many, many more proteins, and we see them at a much, much lower CV, which means that the Discovery power of our assay is manyfold larger than that of Olink's. And without discussing cost, but they're sort of in the same ballpark. We think we are highly advantageous in the long term. And I also alluded to bake offs to be published their order the next year.

Okay. And then on the genomics side, you obviously supply some OEM partners in the marketplace. Do you see yourself really linked long term as supplying the microfluidic technology years out, Michael.

Yes. We actually believe it's a highly differentiated solution. It's a very high performing solution for certain. The certain samples less -- sample complexity points that it's a really good solution. One of them is we are an OEM partner to that other proteomics company there. And they -- like as best as we can estimate, they must have something approaching 200 units out in the field that are still reliant on our proprietary consumables, the integrated fluidic circuit. So what we have today, we actually feel really good about the business. We certainly expect to be as good partners to Thermo once that acquisition closes, and don't expect a change there. But if there should be one, as I said, we already have 200 units out there that will consume the IFC. So feeling really good about that. And as we recently announced, we added a second OEM relationship, Next Gen Diagnostics. Very excited about the prospect there. It won't yield anything fast here. But in a few years, this will be a very nice growth and profit driver and rest assured, we are working on additional OEM relationships. As I said, nothing there happens fast, but once they're often running highly accretive.

Okay. And I guess, Jeff, my last question would be, the $71 million cash payments, that includes, you said, $11 million of the share buyback.

Yes. Yes. So it's $11 million share buyback, $8 million, and we retired our Silicon Valley Bank debt and then $30 million, $34 million in merger and there was an elevated amount of payments that we're paying off year-end accruals, which is pretty typical in the first quarter. So we think about our adjusted operating burn more in that $29 million, $30 million range.

Okay. And kind of last, similar in 2Q.

Yes, I think that's right. I mean like I said, in terms of kind of normalized adjusted operating burn, yes, we do expect we'll continue to have some merger-related cash payments but nothing to the level that you saw in the first quarter.

Thank you. And this concludes our question-and-answer session. I would like to return the conference to Michael Egholm for any closing comments.

Great. Thank you, operator. I will close by once again thanking our team for their continued execution and dedication to our mission and to our investors for your continued support. I continue to be ever mindful of the work and challenges ahead, but we remain more excited and confident in our ability to empower research to change patients' lives and in turn, create value for all stakeholders. Stay tuned for future updates. We look forward to connecting with many of you at the upcoming Jefferies, Cowen and Scotiabank conferences in June. And I'll now turn the call over to the operator to conclude the call.

Yes. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your phone lines.