Thank you for standing by. My name is Kathleen and I will be your conference operator today. At this time, I would like to welcome everyone to the Seer Incorporated Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Carrie Mendivil, Investor Relations. Please go ahead.

Thank you. Earlier today, Seer released financial results for the quarter ended June 30, 2024. If you have not received this news release, or if you'd like to be added to the company's distribution list, please send an email to investor@seer.bio. Joining me today from Seer is Omid Farokhzad, Chief Executive Officer and Chair; and David Horn, Chief Financial Officer and President. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal security flaws. 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 Seer 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 June 30, 2024, and in its other filings of 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 August 8, 2024. 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 by providing updates on our business, and I will then turn the call over to David to provide more details on our financial results for the second quarter of 2024 and our outlook for the year. Second quarter revenue came in at $3.1 million as we continue to navigate a challenging macro environment for the adoption of novel technology. We're continuing to focus our resources on enhancing access to the Proteograph product suite and assisting our customers to generate novel data while reducing our operating cash burn to preserve our strong balance sheet with approximately $344 million in cash, cash equivalents, and investments. Starting with enhancing access. During the second quarter, we significantly expanded our sales and marketing team, including the addition of multiple new regional business managers. While these new team members are ramping up, we're already seeing their contributions and uptick in new customer interest and lead generation. We're excited about the talented individuals that have come on board to capture the large opportunity in proteomics ahead. We continue to serve our customers through the Seer Technology Access Center, or STAC, which allows for the Proteograph user to run samples in their own lab and have Seer run the mass spec, or alternatively, provide end-to-end study services from sample to data. We continue to see strong demand for STAC, which is an important accelerator in the accessibility of unbiased proteomics data, given elongated sales cycles for CapEx resulting from a conservative funding environment. Increased accessibility to the Proteograph will continue to catalyze the generation of third-party data and publications, further highlighting the transformative potential of our technology and facilitating adoption. In line with this focus on generating data to catalyze broader…

Thanks, Omid. Total revenue for the second quarter of 2024 was $3.1 million, representing a decrease of 23% compared to $4 million in the second quarter of 2023. It was primarily due to a decrease in related party and grant revenue. Revenue recognized primarily consisted of sales of the Proteograph SP-100 instrument, consumable kits, and service revenue, of which $583,000 was attributed to related parties. Product revenue for the second quarter of 2024 was $2.2 million, including $420,000 of related party revenue, and consisted of sales of SP-100 instruments and consumable kits. During the second quarter, we continued to see pressure on CapEx budgets and elongated sales cycles for the outright purchase of new instrumentation. Excluding related party revenue, product revenue grew year-over-year, primarily driven by an increase in consumable kit sales. Service revenue was $845,000 in the second quarter of 2024, including $163,000 of related party revenue, and primarily consisted of revenue related to STAC service projects. While service revenue grew sequentially and year-over-year driven by STAC in the second quarter, we continued to prioritize running projects for key strategic studies that will result in additional presentations and publications in the near term, but were conducted at a lower price point than our typical STAC service projects. This had the effect of lowering the amount of service revenue that was realized in the second quarter. Grant and other revenue was $46,000 for the second quarter of 2024, and consisted of lease and shipping revenue. Total gross profit was $1.7 million for the second quarter of 2024, representing a gross margin of 56%, compared to $2.3 million in the second quarter of 2023, representing a gross margin of 57%. Gross margins were driven by a higher percentage of consumable and service sales in the second quarter relative to instrument sales.…

Thank you, David. While we continue to navigate a challenging macroenvironment for the adoption of novel technology, I have never been more confident in the power of our technology to change the trajectory of proteomics research. We remain focused on enhancing access to the Proteograph product suite and assisting our customers to generate novel data in order to capture the huge opportunity ahead. I'm grateful to our team for their hard work and dedication, and I look forward to keeping you updated on our progress. With that, we will now open it up for questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Yuko Oku of Morgan Stanley. Please go ahead.

Hi, this is Jason on for Yuko. Thank you for taking our questions. So, first, maybe just to start off. So, you noted seeing some elongated sales cycles. Could you comment on the length of the sales cycle that you saw in the second quarter? And how does the length compare to what you would consider to be a normalized sales cycle? How did this trend over the quarter, and in particular in June and July? Did it worsen? Did it stabilize? So, any comment on the length and trend you're seeing would be appreciated. Thank you.

Sure. Thanks, Jason. It's David. Look, in terms of the overall sales cycle, as I said in the comments, we have a good pipeline of opportunities. And certainly, we expected to see more of those come to fruition in the second quarter than we did. So in terms of what it's doing to the sales cycle, I think it's just pushing it out. We hope it moves out a quarter or maybe two. It's really around budgets and budget cycles for folks. I think it just reflects more broadly into what we're seeing in terms of constrained capital budgets around instrumentation and just people not having the dollars right now to purchase it, especially around novel technologies such as the Proteograph.

Got it. Thank you for sharing that. Then maybe just as a follow-up question, could you provide some color on your confidence and visibility into the revenue ramp in 2H? It seems at midpoint of your new guidance, you're implying about 56% revenue in the second half. So, what are the key underlying assumptions around the acceleration and the top line in 2H? Is it purely based on forecasts, or do you have a backlog, or are you baking any budget flush dynamics in 4Qs? Any color on your confidence and visibility into the second half ramp would be appreciated. Thank you.

We are feeling pretty good about the second half ramp, and it really comes down to a number of factors that you mentioned. One, we do have, obviously, the pipeline. Interestingly, from the publications that we have out there now, and we have a number of those out there now that have been published in the first and second quarter, we are having more interest, more conversations, more people looking at doing some potentially larger studies. That's what gives us confidence that in the second half we will continue to see an uptick. That said, we continue to see STAC doing quite well, and so we're pretty confident that the second half and our revised guidance is we feel comfortable with.

Got it. Thank you for sharing that. And then, maybe just as a final question, so with the launch of STAC in Germany, I know it's early days, but could you provide some color around the traction it has generated so far? Could you talk a little bit about the market opportunity you see in Europe? How does the market opportunity for the Proteograph in Europe compare to the U.S.? Do you see the opportunity being larger than U.S., smaller, or more or less the same? Thank you.

Jason, Omid here. I mean, obviously, the STAC in U.S. was the right call for us for two reasons, kind of building up on the points that David made, in that there's been a CapEx constraint from the customers that we and just about everybody else is experiencing for novel technologies like the Proteograph. The STAC really lowered the barrier for customers to begin to experience Proteograph data. I expect a subset of those customers may choose to bring a Proteograph in-house. So, as you know, some customers prefer to work on a service basis anyway, and if they do, long-term, we don't want to be servicing those customers. We would ask them to work with our COEs. Now, that said, we weren't able to provide a similar type of support to our European customers, and that was the motivation to open the EU STAC in Germany. That site became operational in June. We are beginning to receive the first round of customer samples and processing those. I think the ratio in terms of the revenue that we expect from the Europe STAC versus U.S. STAC will probably be along the same lines that we're seeing in terms of sales between Europe and U.S., and so I think the service is going to basically follow the product revenue in terms of the percent of our revenue on a going forward basis. I look forward to giving you a bit more detail in terms of the EU STAC capacity and demand as we get clarity on it. It's the early days, so it's premature for me to comment on that.

I appreciate your time. Thank you, guys.

[Operator Instructions] Your next question comes from the line of Dan Brennan of TD Cowen. Please go ahead.

Hi, this is William in for Dan. My first question is you talked about some of those publications. How have these recent publications aided in your conversations with customers? How long should it ultimately take for a third-party publication to drive meaningful revenue inflation? If you could just maybe give me a timeline on that?

William, Omid here, and thank you for the question. Look, I think what drives demand for a product like the Proteograph is demonstration and validation of the differentiated biological insight that you uniquely get from the product, and that the value that product gives you is cost-effective and it's easy to use, etc. We obviously feel extremely bullish about the value proposition of the Proteograph, and we have since day one. What is fantastically rewarding to see is that that value proposition is becoming increasingly clear, probably to even a more dramatic level that I had expected, in the hands of our customers, meaning the types of studies that a customer is able to do and the kinds of biological insight that a customer is able to gain simply would not have been possible to do without the Proteograph. I'll give you two examples of that that make the point for me. One is, if you look at this study that PrognomiQ did in early detection of lungs, they investigated 2,800 subjects with lung cancer of various stages with comorbid controlled smokers that don't have cancers but are also healthy, non-smokers. The Proteograph allowed them to look at the proteome of those subjects deep to a tune of 8,500-9,000 proteins per subject. That allowed them to identify protein biomarkers for early detection that you could never do if you didn't use the Proteograph because you could either not go deep enough or you couldn't scale it to have done 2,800 subjects and both the depth and the scale was needed to achieve the data. The consequence of that was that they have now gotten the best-in-class early detection classifier for lungs that would not have been possible otherwise. And then if you look at a proteogenomics study from Karsten Suhre…

Thank you so much for that answer. I can just ask one more question, maybe a briefer question. Within your sales funnel would it be possible to discuss the split just between pharma and academic customers and how your conversations are progressing with each of these customer classes?

Yeah, that's a great question, William. Thank you. Dovetailing on what Omid just said, what's interesting about that is that we've seen a shift in the pipeline, whereas our revenue to date is about 60% commercial, 48% academic. That is actually flipped for the pipeline. And as you see, the pipeline's about 60% academic, 40% commercial in terms of opportunities. And I think that's a function of these publications coming out and the academics taking notice, starting to apply for grant funding to get funding for the technology. It's really encouraging that while the commercial folks have been quicker to move just because they have more budget flexibility to act if they want to, the academics have shown a lot of interest. And we're seeing that reflected in our pipeline of opportunities.

Thank you very much.

[Operator Instructions] As there are no further questions at this time, that concludes our Q&A session and today's call. Thank you everyone for joining. You may now disconnect.