Q3 2024 Earnings Summary
- Strong Growth in SomaScan Assay Services Beyond Top Customers: The company reported double-digit growth in SomaScan Assay Services outside their top five large customers, indicating robust underlying demand and successful diversification of their customer base.
- Encouraging Sales Funnel and Potential Market Tailwinds: Sales funnels are building, especially for instruments, suggesting potential future growth. Additionally, the company is optimistic about a rebound in China in 2025 and notes that venture capital is flowing into biotech again, which could drive increased sales.
- Investment in Growth Areas Despite Cost Reductions: While the company is reducing costs, it continues to invest in growth initiatives such as the launch of individual SOMAmer reagents and Omics as a Service. This demonstrates a commitment to innovation and long-term growth potential.
- Instrument revenues are significantly declining, with Instruments revenue down 28% year-to-date compared to last year, due to weakness in China and other international markets. The company acknowledges selling high-cost instruments in a tough environment, and despite building sales funnels, these have not yet translated into sales.
- The company is heavily reliant on a few large customers for its Lab Services revenue, experiencing a $15 million to $20 million revenue headwind from these top five customers this year. This dependency poses a risk if these customers reduce spending or delay projects.
- There is uncertainty regarding the timing and impact of new product launches, such as the SomaScan assay on the Illumina sequencing platform and the single SOMAmer reagents. The company admits that adoption of new workflows always takes longer than expected, suggesting potential delays in revenue contribution from these initiatives.
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2025 Growth Outlook
Q: Any guidance or comments on 2025 outlook?
A: Management is not providing 2025 guidance at this time. They are focusing on closing out the year strong and will update investors on 2025 in the future. They reiterated their 2024 guidance of $170 million to $175 million but acknowledged the challenging environment. -
Instrument Sales and China Outlook
Q: Are you seeing demand improvements or green shoots, especially in China?
A: Instrument sales are down 28% year-to-date, aligning with industry peers. Funnels are building, which is encouraging, but the environment remains tough. In China, conditions are looking better, but improvements are not expected to impact Q4; they are hopeful for a tailwind in 2025. Historically, China has been a bright spot, and growth returning there is anticipated. -
Assay Services Revenue Timing
Q: What percent of assay services revenue in Q3 was timing-based?
A: The company had favorable timing in Q3 and unfavorable timing in Q2. From the five large customers, there is a $15 million to $20 million headwind for the year. Timing of large projects can impact quarterly numbers, but the business is broadening, and management is pleased with its direction. -
Cost Reductions and Growth Investments
Q: Can you discuss cost progress and areas of investment like single SOMAmers?
A: The company is reducing costs by $80 million while protecting growth investments in sales and marketing. They launched individual SOMAmers as a minimal viable product to existing customers and will expand once infrastructure is ready. They continue to invest heavily in R&D, believing there's a long runway ahead for their technologies. -
Recognition of Delayed Project Revenue
Q: Is all the delayed project work recognized now, or will some occur in Q4?
A: Favorable timing this year and unfavorable timing last year affected revenue recognition. There's a $15 million to $20 million headwind year-over-year from top five customers due to a very favorable 2023. They now have better visibility and expect to secure large projects as purchase orders and samples are received. -
Instrument Sales Outside China
Q: How are instrument sales performing outside of China?
A: The Americas are performing well. In the rest of Asia, particularly Japan and Korea, macroeconomic challenges persist. In Europe, a new leader is in place to rebuild sales funnels.
Research analysts covering STANDARD BIOTOOLS.