Q1 2024 Earnings Summary
- SomaScan Business Growth and Illumina Partnership: The SomaScan-related business contributed about $24 million in revenue for the quarter, growing over 20% year-over-year due to healthy demand from SomaScan customers and early traction from the partnership with Illumina. Early feedback from the Illumina collaboration has been overwhelmingly positive, with a full commercial launch on track for early 2025, indicating strong future growth potential.
- Achievement of Cost Synergies and Progress Toward Profitability: The company is ahead of plan on operating synergy targets, expecting to achieve $50 million of the $80 million in expected synergies by the end of the year. They delivered a 26% reduction in non-GAAP operating expenses and a 45% adjusted EBITDA improvement on a pro forma combined basis, demonstrating significant progress toward profitability.
- Strong Financial Position Supporting Strategic Initiatives: With approximately $464 million in cash and equivalents, the company is well-positioned to fund operations and strategic investments, including M&A opportunities and share buybacks. This robust financial position enables them to pursue growth initiatives while aiming for cash flow breakeven by 2026.
- Delayed Realization of Cost Synergies and Profitability Improvements: The company expects to achieve only $20 million to $25 million of the anticipated $50 million in annual operating expense savings in the second half of 2024, with the full P&L impact not reflected until 2025. This delay means that the full benefits of the cost reductions and merger synergies will not be immediate, potentially impacting near-term profitability.
- Dependence on Project-Based Revenue and Revenue Concentration Risk: The SomaScan business, despite showing strong growth, is still concentrated among a few key pharma accounts where revenue can be lumpy and dependent on the timing of projects and available budgets. This reliance on a limited number of customers introduces revenue volatility and risk if any major customer reduces or delays spending.
- Cash Burn Remains High with Continued Negative Cash Flow: The company reported an adjusted operating cash burn of approximately $29 million in the first quarter of 2024, with expectations of similar levels in the second quarter. Despite plans for cost reductions, the ongoing cash burn may raise concerns about the company's ability to achieve cash flow breakeven as planned by 2026.
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Growth Outlook and Guidance
Q: Thoughts on Q2 consensus and H2 growth assumptions?
A: Management is confident in long-term and mid-term growth despite CapEx challenges affecting the market. Sales funnels are getting larger with no cancellations, only purchase delays. New product launches, like the GeoMx slide loader and advances in high-parameter flow cytometry, give optimism for growth in H2 2024 and into 2025–2026. -
Illumina Partnership Progress
Q: Can you update us on the Illumina partnership and its contributions?
A: Early findings from the Illumina partnership are overwhelmingly positive. The full launch is expected in early 2025, based on 11,000 assays. There was a $30 million upfront payment from Illumina, still unrecognized revenue. Current contributions are in the very low single millions, with revenue not broken out specifically. -
Sustainability of SomaLogic Growth
Q: Is the ~20% growth in SomaLogic sustainable this year?
A: Management is bullish long-term due to strong assay validation and upcoming favorable comparisons with competitors. However, since big customers are project-based and in discovery phases, growth may be variable. They were pleased with the strong quarter on the legacy SomaScan side. -
Operating Expenses and Synergies
Q: Can you discuss OpEx pacing and synergy realization this year?
A: They have operationalized $50 million in savings, expecting the full P&L impact in 2025. About $20–25 million will hit the P&L in H2 2024, reflecting 40–50% of the total savings, primarily in SG&A. -
M&A Strategy and Capacity
Q: What's your appetite for M&A given current integrations?
A: While integration is the top priority, they have capacity for M&A due to a strong team. The company will be disciplined and opportunistic, avoiding deals that would significantly reduce their buffer to profitability. -
Competitiveness with Olink in NGS Readout
Q: Will you be competitive with Olink's NGS readout technology?
A: Management believes their solution with Illumina is highly competitive. Their SomaScan assay is scalable, detecting more proteins with lower CVs, offering greater discovery power. Upcoming head-to-head comparisons are expected to be favorable. -
Long-Term OEM Microfluidics Strategy
Q: Do you see continued supply of microfluidics technology to OEM partners?
A: They view their microfluidics solution as highly differentiated and will continue supplying OEM partners. They have existing partnerships with around 200 units in the field and expect to maintain and grow these relationships, including new ones like NextGen Diagnostics. -
Cash Usage and Operating Burn
Q: Does the $71 million cash usage include the $11 million buyback?
A: Yes, the $71 million includes the $11 million share buyback, $8 million debt retirement, and $34 million in merger-related payments. Adjusted operating burn is approximately $29–30 million, expected to remain similar in Q2.