Good day, and thank you for standing by. Welcome to the Seer Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now hand over conference to our first speaker today, Carrie Mendivil, Investor Relations. Please go ahead.

Thank you. Earlier today, Seer released financial results for the quarter ended September 30, 2023. If you have not received this news release, or if you would like to be added to the company's distribution list, please send us an e-mail to investor@seer.bio. Joining me today from Seer is Omid Farokhzad, Chief Executive Officer, President and Chair; and David Horn, Chief Financial Officer. Before we begin, I would like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release were issued today. For a more complete list and description, please see the Risk Factors section of the company's quarterly report on Form 10-Q for the quarter ended September 30, 2023, and in the other filings with the Securities and Exchange Commission. Except as required by law, Seer disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, November 7, 2023. With that, I'd like to turn the call over to Omid.

Thanks, Carrie, and thank you, everyone, for joining us this afternoon. I will begin our call today with a review of our third quarter results as well as the progress we are making across our core focused areas to drive growth. Then I will turn the call over to David to provide more details on our financial results. I would like to start by thanking our incredible team for their hard work and dedication to our mission at Seer. We are pushing the boundaries, enforcing an entirely new market in proteomics amidst a very challenging macroeconomic backdrop. Even in the best circumstances, developing a new market is never easy. Our team is working tirelessly to serve our customers and help them to realize what is possible using the Proteograph Product Suite. We ended the third quarter with $4.2 million in revenue, increasing 5% year-over-year and approximately $381 million of cash, cash equivalents and investments on our balance sheet. Given our performance year-to-date, as well as these ongoing challenges in the current macro environment, we now anticipate coming in at the lower half of our revenue guidance range of $16 million to $18 million. On our last earning calls, we outlined some of the challenges that are impacting near-term adoption of our technology as well as the actions we are taking to mitigate them. First, making it easier to access mass spec-based proteomic data. For proteomics or mass spec expert customers, we introduced a Strategic Instrument Placement Program or SIP to enable immediate access to the Proteograph and help generate the data needed to secure funding and sample to conduct larger subsequent studies. Probiologists and genomics’ customers we introduced the Seer Technology Access Center or STAC to enable access to a simple-to-conduct the first study and apply the biological insight provided…

Thanks, Omid. Total revenue for the third quarter of 2023 was $4.2 million, representing an increase of 5% compared to $4 million in the third quarter of 2022. The increase in third quarter revenue was primarily driven by increased instrument sales, services and grants and other revenue, offset by lower consumable kit sales. Product-related revenue for the third quarter of 2023 was $3.3 million, including related party revenue of $1.4 million and consisted of sales of SB-100 instruments and consumable kits. Service revenue was $536,000 in the third quarter of 2023. As Omid mentioned, we are seeing good customer interest and traction with our STAC program, where we will run mass spec for our customers and, in some cases, provide a full workflow solution for customers who would like to access our technology. Grants and other revenue was $348,000 in the third quarter of 2023, largely related to our SBIR grant from the NIH. We did receive an extension of our SBIR grant from the NIH in the third quarter, which allowed us to continue our work under this grant. Total gross profit was $2.2 million for the third quarter of 2023, representing a gross margin of 52% compared to $1.9 million in the third quarter of 2022, representing a gross margin of 49%. We continue to expect variability in our overall gross margin on a quarter-by-quarter basis as a proportion of instrument consumable and service revenue will fluctuate between any given quarter. Total operating expenses for the third quarter of 2023 were $28 million, including $8.3 million of stock-based compensation, an increase of 4% compared to $27 million, including $9.1 million of stock-based compensation in the third quarter of 2022. Research and development expenses for the third quarter of 2023 were $13.2 million, an increase of 14% compared to…

Thanks, David. While we continue to navigate temporary headwinds and manage through the current environment, we have made tangible progress in increasing accessibility to our technology this quarter. We're seeing a growing interest with our STAC and are seeing more customer publications moving through the peer review process. I'm so proud of our incredible team for their hard work and dedication throughout the year. I strongly believe that we will see an increase in adoption of our technology as will researchers see third-party validation of the capabilities of the Proteograph product suite. With that, we will now open it up to questions.

[Operator Instructions] Our first question today comes from Dan Brennan with TD Cowen.

Congrats on the quarter. Maybe just the first one would just be kind of on the sales funnel. Obviously, you're not alone feeling some pressure on the demand trends given the difficult kind of environment. That said, you kind of rattled off all the initiatives and you got the new product and you have some publications coming out. So I'm just wondering on the publication front, in particular, if you could just speak to kind of maybe any color on what the funnel looks at qualitatively? And have you begun to see any increase in demand as some of these publications have made their way to market.

Yes. Thanks so much. We're seeing good traction with XT and the product is performing exceptionally well in the hands of customers. We're on track to have the maturity of the installed base upgraded to the XT configuration of the instruments by the end of the year. As you would expect, the revenue ramp for new product launch takes time. We factored these elements into a revised guidance. That said, we are seeing good traction and the customer have given us very favorable reviews in what they're seeing so far.

Yes. Just to jump in on the publications front, again, as we mentioned, we now have 6 on BioArchive, which is great. Obviously, that's preprint, but they'll all be submitted. And we also know of another as we said in our remarks, another kind of handful of half a dozen that we're excited about. So hopefully, again, we don't have control over the timing of the peer review process. But hopefully, in the first half of next year, we'll start to see some nice publications and could see some as early as the beginning of the year.

Got it. And then maybe just as a follow-up, maybe a 2-parter on that STAC business, could you just speak to kind of what that opportunity looks like? Is that getting reported through the service line? So any color on kind of how meaningful that that could be? And then just be, I know we're not guiding for '24, but consensus has you guys growing 60% in 2024, looks to be pretty steep given the environment. Any early way we should be thinking about a reasonable level of kind of growth in '24 at this point?

Yes. Let me maybe comment on what the STAC means for our business, the purpose of it and what we're seeing, and then maybe I'll have David comment on the economics of it in terms of balance of the year and also heading into 2024. So the STAC really exemplifies the power of the Proteograph XT Assay together with the Thermo Fisher Orbitrap Astral. The data is just simply fantastic. We launched the STAC at the ASMS conference in June. We've seen a lot of demand, a lot of interest in being able to access the Proteograph and a service model really lowering the barrier for a customer to go from a sample to data. We actually have a backlog on in the STAC in order to process the samples on the XT and the Astral. So that's really encouraging for us. In terms of how you should model that for the balance of the year and 2024, let me have David comment on that.

Yes, Dan, just to answer your questions, yes, we do report STAC revenue through the service line. So service revenue is primarily STAC revenue. I think the only difference to think about with respect to STAC, as Omid said, we do have a nice pipeline of projects we're working on, but we do need to run those projects and deliver the data report to the customer before we can recognize revenue on that. So there will be just between when you get the PO and you get the samples in, you actually have to run and deliver the data. So there is a bit of a time lag there. And that just becomes an issue around how much capacity do you have in any given quarter. So we're optimistic about what we're able to do, but there is just an additional time component rather than with an instrument or consumable or you -- as soon as you ship, you can recognize revenue. So again, I think that's just something to keep in mind that we do have to kind of work through that each quarter. But we are optimistic about where that will come out, both for the balance of the year and the contribution it will make next year.

I think the second part of your question was outlook for next year. Again, I would say it's still -- every week, every month, we are continuing to face challenges and headwinds. I think we continue to like our pipeline and where it stands and the number of opportunities we have. I think the question is just the timing of those and how quickly those can or can't move through the funnel based on the funding at the various customers and capital budgets and that type of thing. So I think we're cautious certainly around next year. Again, I think it will probably be a year that's more back-half loaded. But obviously, we'll have a lot more information and data on our year-end call. But again, I think it's similar to other companies out there in our sector. It's just a tricky environment right now in terms of what people are doing and then you layer on the fact that we're in new technology. And I think that, again, just causes us to continue to be optimistic, but appropriately conservative as well as we look into next year.

Our next question comes from Tejas Savant from Morgan Stanley.

Just a couple of quick follow-ups on the STAC and SIP sort of initiatives. Do you view that as essentially sort of sufficient in terms of mitigating some of the macro headwinds here? Or is there anything else you're contemplating internally at the moment just in terms of tweaking your go-to-market on a go-forward basis?

Yes, Tejas, the STAC and SIP to me were meant to be a market opening strategy. In other words, as you remember, we launched -- we were adamant about a couple of principles. We said we don't want to be in the service business. We want to have a distributed model. And at the same time, we were introducing a first-of-its-kind product, the like of which did not exist in the marketplace. And at the same time, there was a total paucity of data that showed the customer what is possible to do with the proteograph. Now we managed to have a commercial success of $6.6 million in the first year. That was a limited release year and then $15.5 million the year after. But ultimately, the pace of publication from customer was lower than I had hoped. And what the STAC aimed to do was to let a customer get access to data much, much faster than bringing an instrument in-house, ramping up of studies of scale, getting to data and publishing it. I think that thesis or that hypothesis proved to be correct because there is so much demand for the capacity that we built in the STAC. By the way, we might have to actually expand that capacity because I don't want the customer experience to be such that they have to wait a long time in order to go from expressing an interest to get a sample process to us giving them data. So I think in that context [Technical Difficulty] customer access data [Technical Difficulty] different problem. And by the way, in terms of the customer profile, the STAC and the SIP also in the type of customer profile that we addressed. STAC was mostly geared toward targeting a [indiscernible] customer that is not really…

Got it. That’s super helpful, Omid. And just a couple of quick follow-ups here. So on the SIP side of things, have you sort of started loaning those first instruments yet? Or is that still ahead of you? Give us a flavor? I know you mentioned sort of good progress, but any flavor around the number of customers that are interested in accessing the Proteograph through SIP. And then a quick follow-up to your comments and just the cadence of publications and how important that is. Out of all the preprints in bioarchive at the moment, are there 1 or 2 that are particularly pivotal in your mind in terms of unlocking adoption for the XT?

Yes, I’ll take the first one, Tejas, just on the SIP. We have placed instruments under that program. And I’d say it’s a handful, maybe a little bit more than a handful. And so – and again, that came with a consumable purchase. And again, we place these in accounts, as Omid said, where we fully expect them to purchase. Again, they may or may not, but they don’t – they’re not obligated to. But certainly, we hope to get them excited about the data that they’ll run. And so we have had some good uptake with that program, both in the second quarter and the third quarter, and we expect to continue that in the fourth quarter as well.

And Tejas, let me maybe just take the one on the publication side of it, which is – the bioarchive papers, I would say about half of them – actually, probably more than half of them are currently under review at various different journals. Now here’s the interesting part of it, which is the early ones that were submitted have all gone through one round of revision, which basically means that they’re very close to kind of being accepted and to come out. And here is the most important part of it, which is those papers are in what I consider to be a very, very kind of top journal, either the top 1 or 2 journals that you can imagine or the sister journals from those. And that just really reflects kind of like the level of science that became possible when you did unbiased proteomic at scale, deep unbiased proteomic at scale. And I say that because it’s very easy to do a single shot proteomic, meaning a neat injection in the mass spec, get 500, 600 proteins and to do to that scale. But to do deep proteomic at scale, there is no other solution other than Seer, other than Seer’s Proteograph that scale. And so the papers that are coming to us are all in great journals. And by the way, you and I were in the panel together when I had predicted that by the end of next year, we’re probably going to see the first population scale, deep, unbiased proteomic study get underway. I still believe that’s going to be the case. And that just really falls in the realm of what was not possible now is possible. So I think what I’m excited about seeing is really just the value of the biological insight of this content. I think that would fundamentally has the potential to fundamentally shape so many changes in medicine and science.

Our next question comes from Rachel Vatnsdal from JPMorgan.

This is Marta Nazarovets on for Rachel Vatnsdal from JPMorgan. So you touched a little bit on macro during your prepared remarks, but perhaps you can compare and contrast what you've seen in 3Q versus 2Q on the macro front? And then what are you seeing so far in 4Q? Is there any improvement or deterioration or stabilization?

So let me take that one. In terms of what we're seeing just on the macro front, look, I think it continues to be pretty similar throughout. I think the uncertainty is something certainly in the second and third quarter around inflation and the general macro trend of are we going into a recession or are we not, really just caused our customers to kind of elongate their purchase decisions and think about their budgets. I think as we get into the end of the year here, that trend continues certainly on the commercial side where we are seeing customers just be more thoughtful. As we've said, certainly, for proven technologies, companies that need another mass spec will go by another mass spec. But for new technologies such as SEER, they're just more questions that are answered and need to be answered. And we've also seen approvals need more approvers, if you will. And so we continue to see that. I think that's just the general uncertainty. I think the only thing that may have changed a little bit in the third quarter and fourth quarter was just the uncertainty around the government funding. And so I think, again, we don't have much of any exposure around that, but we do have some. And again, I think that's just the availability of the funding will -- is the government going to shut down or not shut down. It does create an impact on some of that funding. So again, I think it's been pretty steady, if you will, in terms of the uncertainty. And hopefully, as we move in through the fourth quarter and into the new year, some of that gets resolved both in the macroeconomic, but also the government funding circles as well.

Okay. And then on your updated guidance, you're now expecting it to come in towards the lower half of the prior into 18. So can you maybe unpack for us what are the updated assumptions for 4Q? And are you assuming any type of 4Q budget flush in light of the uncertain macro?

Yes. In terms of the -- I think the guide to the lower half, I think again, it's just something around the -- really the uncertainty, if you will, of just for us, given the size of the numbers we're talking about here. Again, as we've said, 1 or 2 deals can be the difference there. And so again, I think we're just trying to -- as we see and look out for the balance of the quarter here, just some of that uncertainty creeping in, as I just talked about. And so if a deal goes one way or the other, that's the difference there. And so we're just trying to be mindful and thoughtful around that in terms of that overall uncertainty. And so I think that, that's really what's driving it is something just to kind of be mindful. I think that's really, really what we're seeing.

Thank you. This concludes our question-and-answer session. I would now like to turn it back to Omid for further thoughts.

Thanks so much, everyone. Really, really appreciate participating on this call. Thank you.

This does conclude the program. You may now disconnect. Have a good day.