SEER - NASDAQ

Thank you for standing by and welcome to the Seer Fourth Quarter and Full Year 2022 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] As a reminder today’s call is being recorded. I would now like to hand the call over to your host, Ms. Carrie Mendivil with Investor Relations. Please go ahead.

Thank you. Earlier today, Seer released financial results for the quarter and year ended December 31, 2022. If you’ve not received this news release or if you’d like to be added to the company’s distribution list, please send an e-mail to [email protected]. Joining me today from Seer is Omid Farokhzad, Chief Executive Officer, President, and Chair; and David Horn, Chief Financial Officer. 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 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 Seer issued today. For a more complete list and description, please see the Risk Factors section of the company’s quarterly report and Form 10-K for the year ended December 31, 2022, and in its 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 only accurate as of the live broadcast, March 2, 2023. With that, I’d like to turn the call over to Omid.

Thanks, Omid. Total revenue for the fourth quarter of 2022 was $4.6 million, representing an increase of 50% compared to $3.1 million in the fourth quarter of 2021. The increase in fourth quarter revenue was primarily due to increased consumable an SP100 instrument sales related to our Proteograph Product Suite, the completion of service projects and lease revenue related to our SP100 instruments. Product-related revenue for the fourth quarter of 2022 was $3.2 million, including related party revenue of $1.7 million and consisted of sales of SP100 instruments, consumable kits and platform evaluations. Service revenue was $708,000 in the fourth quarter of 2022 and was primarily derived from a significant project completed for a large multinational corporation. As we have mentioned previously, we will continue to be strategic in undertaking certain service projects for customers that we ultimately believe will lead to purchases of the Proteograph. Grant another revenue was 745,000 in the fourth quarter of 2022 as expected contributions from grant and research related collaborations were resumed beginning in the fourth quarter as our SBIR grant from the NIH was renewed in the third quarter. The grant period will run through May of this year. In addition, we recognized revenue from leased agreements related to the placement of our instruments in the fourth quarter. Total gross profit was $2.3 million for the fourth quarter of 2022, representing a gross margin of 49.8%. Our gross margins were in line with the prior quarter as a result of higher consumable sales in the fourth quarter offset by overhead allocations. We expect to see variability in our overall gross margin on a quarter-by-quarter basis as the proportion of instrument and consumable sales will fluctuate between any given quarter. We continue to expect our long-term gross margins to be between 70% and 75%. Total operating expenses for the fourth quarter of 2022 were $27.2 million, including $8.2 million of stock-based compensation compared to $21.3 million, including $6.7 million of stock-based compensation in the fourth quarter of 2021. Research and development expenses for the fourth quarter of 2022 were $12.6 million, an increase of 54% compared to $8.2 million in the fourth quarter of 2021. The increase in R&D expenses was primarily due to an increase in product development efforts related to the Proteograph Product Suite, including employee compensation costs due to growth in R&D personnel and expenses associated with the build-out of our facility. Selling, general and administrative expenses for the fourth quarter of 2022 were $14.6 million, an increase of 12% compared to the $13.1 million in the fourth quarter of 2021. The increase in SG&A expenses was primarily driven by greater employee compensation expenses due primarily to growth in personnel for our global commercial organization. Net loss for the fourth quarter was $22.5 million compared to $19.7 million in the fourth quarter of 2021. Turning to the full year. Total revenue for the full year 2022 was $15.5 million compared to $6.6 million in 2021. Representing growth of 134% year-over-year. Product related revenue was $13.8 million compared to $5.9 million in 2021. The increase in revenue is primarily attributable to increased sales of products related to the Proteograph Product Suite and primarily consisted of sales of the Proteograph SP100 instrument consumable kits and platform evaluations, of which $5.2 million was attributed to related parties. Service revenue was $913,000 for the full year 2022 compared to $500,000 for the full year 2021. Revenue related to grant and other revenue was $808,000 in 2022 and consisted of our grant funded activities related to our SBIR grant from the NIH and lease revenue related to our SP100 instruments. As we meet highlighted, we shipped 22 SP100 instruments in 2022, more than doubling our instruments placed year-over-year and bringing our cumulative shipments to 39 instruments as of December 31, 2022. We continue to see a mix of commercial and academic customers with the majority of placements continuing to be with commercial customers at this stage. Last year was our first year of broad commercial release and our emphasis was on providing access to the Proteograph and allowing customers to experience the power of deep unbiased proteomics at scale. Given the disruptive nature of our technology and the broad macroeconomic uncertainty, we experienced an elongated sales cycle for the placement of our Proteograph SP100 instruments. However, a subset of these perspective customers chose to pursue their studies through a service project and for our existing and new customers that did adopt the Proteograph we experienced higher than anticipated pull through of consumables since they ran significant sample sets. In addition, our Centers of Excellence proof to be valuable partners in providing access to the Proteograph for select customers who want to access the technology through an outsource service model. Finally, as I mentioned, we selectively entered leasing arrangements in the fourth quarter that also help customers adopt the Proteograph more rapidly. During these early days of commercialization for our first of its kind product and while we wait for customer data to be published, we will continue to work to reduce the hurdles for adoption, including access through our Centers of Excellence in the Proteogenomics Consortium. For new customers, while encouraging increased utilization and pull through for our existing customers. Total gross profit for the year was $7.1 million, representing a gross margin of 45.8%. Full year gross margins benefited from strong consumable kit sales platform evaluations, service projects, and grant revenue. Total operating expenses for 2022 were $104.3 million inclusive of $33.7 million in stock-based compensation compared to $74.9 million inclusive of $25.9 million in stock-based compensation in 2021. Research and development expenses for 2022 were $45.8 million compared to $29.1 million in 2021. SG&A expenses for 2022 were $58.5 million compared to $45.8 million in 2021. The increase in R&D expense was primarily due to an increase in product development efforts related to the Proteograph Product Suite including $10.3 million in employee compensation costs and other related expenses, including stock-based compensation due to growth in R&D personnel and a $4 million increase in allocated overhead related to the allocation of facility expense associated with the build-out of our facilities to support our R&D efforts. The increase in SG&A expense was primarily due to an $8.3 million increase in employee compensation and other related expenses including stock-based compensation, mainly due to growth in personnel in our commercial organization. Net loss for 2022 is $93 million compared to $71.2 million in 2021. We ended the year with approximately $426.4 million in cash, cash equivalents and investments with our extremely strong balance sheet in discipline deployment of capital, we believe we are well funded to execute on our strategic plan for many years to come. Turning to our outlook for the year, we expect revenue to be in the range of $23 million to $25 million for 2023, representing significant year-over-year growth of 48% to 61%. Similar to this past year, we expect revenue to be more weighted to the second half of the year. We continue to see challenges in the macroeconomic environment globally and continued limited customer access and certain geographies such as China that is elongating customers purchasing decisions, especially as it relates to new disruptive technologies like the Proteograph. That said, we continue to see strong interest in the Proteograph and its value proposition for customers, which is reflected in our robust revenue growth outlook for 2023. At this point, I would like to turn the call back to Omid for closing comments.

Thanks, David. I’m extremely proud of the Seer team and our accomplishments over the past year. We’re seeing fantastic data being produced by our customers across the range of applications. Looking forward to 2023, we will continue to drive executions against our core strategies. And with that we will now open it up to questions.

Thank you. [Operator Instructions] Our first question comes from Derik De Bruin of Bank of America. Your line is open.

Hi, good afternoon. Thank you for taking my questions. I guess the first one is David, can you just sort of give us some color on your cash burn and OpEx outlook for this year and how should we think about it? I mean, I know you’ve got you basically saying you’ve got three years of cash on it, but just any sort of like commentary be helpful.

Sure, Derik. So as you’ll see when we file our 10-K and what we really track is our free cash flow operating cash flow plus CapEx. You’ll see at the $71 million in 2022. We expect it to be in a similar place for 2023 as well.

Got it. And I’m sort of curious, if you look at the product revenue x the related party, it’s actually down year-over-year, quarter-on-quarter. Can you just sort of talk about the dynamics and how much of that, what’s – I guess just sort of what is going on there? I just was surprised to sort of see it down on that sense, and how much of that shifted to – how much of the stuff you thought was going to be product shifted to services and just a little bit dynamics because as said, just not sure how to model that, product x third-party revenue, related party revenue line for it this year.

Yes, Derik appreciate the question. So, I think the way to think about it is again, we look for our growth globally, I mean annually, and we certainly feel like from quarter-to-quarter the composition of that, overall number is going to change just each quarter will be a little bit different. I think what we saw in the fourth quarter was more from – more some of that revenue moved into service. As we also mentioned, there was some lease revenue, that’s included in grant and other and so, and then related party had a little bit more. So, I think overall the composition was a little bit different. But I think we still feel good about, the overall momentum we have in terms of providing access. Because really what we’re trying to do, is get people access to the technology, whether that’s purchasing outright using it through a service model or potentially doing a kind of a lease arrangement of some sort. So again, I think we’re going to continue to see fluctuations, Derik, but again, I think as we look year-over-year obviously we’re looking for some nice growth on an annual basis.

Got it. And just one final one if I may. Just thinking the total instrument number for the year came in a bit below where the consensus number was, I think it was around 29 instruments and on Visible Alpha. So implying that when we look at the product revenue, it’s significantly higher consumable pull through on it. Can you just give us some sort of general sense on the consumables that are and average pull through that’s going on? Just sort of like where that’s ramping? How that’s ramped for the year and sort of see, what you sort of see that, how that sort of like goes through next year?

Yes. So again, I think on the instrument placements, as we’ve been saying, we are seeing an elongated sales cycle. So, I think that was a partial contributor. Obviously, I think on the flip side, we did see nice consumable pull through on that. And so, again that kind of made up for the shortfall, in instruments relative to consensus. And so again, I think it’s something we’re continuing to try and help people, gain access to the technology. Some of that was gained through some of these service projects. We do think those will ultimately lead to purchases, outright purchases. But again, I think just given this as our first year of commercialization, just the dynamic and the uncertainty in the back half of the year macroeconomically and with some budgets, it kind of, shifted some of the timing of that. But I think the good news is, we continue to see good pull through for those that do have the instrument.

Thank you very much.

Thank you.

Thank you. One moment please. Our next question comes from the line of Dan Brennan of Cowen. Your line is open.

Hi good afternoon. This is Kyle on for Dan. I just want to start on the guidance here. Your guidance, brackets the consensus and given the elongated sales cycle, could you maybe break down the key drivers here, like the split between instruments and consumables and sort of how you’re thinking about that through the year?

Yes, thanks Kyle. I think we’ll have a pretty consistent from those, again from those who do have it nice pull through and again, I think we’ll see as we saw this year, the majority of revenue being consumable revenue. And so again, I think the pull through has been pretty healthy. And so, we’ll continue to try and help customers drive those larger sample projects and really help that pull through in 2023.

Got it. And then on the commercial side for the commercial team, how much more do you think you need to expand headcount? Or do you feel like you’re pretty right sized right now for the current scale of the company?

Yes. Look, this is Omid. As we’ve said, the commercial organization is going to continue to expand as we’ve got access to the product globally. So that’s going to continue. Our commercial organization, which is our marketing, sales and support, is roughly a little bit more than a half of our total SG&A. And that’s going to continue to grow. The pace of growth for us is to keep headcount about one or two quarters ahead of need. So just try to hire ahead a bit and to continue that momentum as needed.

Got it. Thank you.

Thank you. One moment please. Our next question comes from the line of Tejas Savant of Morgan Stanley. Your line is open.

Hey guys, good evening. Thanks for the time here. Maybe David, one for you to kick things off sort of similar to what Derik was asking earlier. As we think about that $24 million at the midpoint of the guide, how much of a revenue contribution are you expecting from PrognomiQ in there? And I know you also mentioned the NIH grant, which runs out in May, if any guardrails around that. I’m assuming that’s a lot smaller than PrognomiQ, but just curious as to what the contributions are that are baked in at the midpoint?

Sure. So in terms of PrognomiQ, Tejas, I’m sure you’re aware that they completed their thousand sample study in their kicking off their 15,000 sample prospective study. So, we expect for this year for them to be pretty consistent, pretty steady with where they’ve been historically. We may see some small fluctuations quarter-to-quarter, but I think overall for the year, they’re going to be pretty steady in just in terms of where they have been in terms of dollars. So that’s really the assumption around PrognomiQ. Again, there may be some time shifting from quarter-to-quarter, but overall for the year we expect them to kind of be in a similar place. And then on the grant revenue, it’ll run, we should recognize it through the second quarter. We may choose to try and renew it and get some additional grant revenue, but I think you can assume it’s pretty minimal. Just so you know most of that revenue in grant and another was related to the lease agreements this quarter.

Got it. That’s helpful. And then David you mentioned sort of the phasing being a little bit backend loaded similar to this year. So are you sort of pointing to essentially a 40/60 split? Is that fair? Or could it be a little bit more even than that?

No, I think that’s, that’s fair Tejas. That’s kind of how we’re thinking about it.

Got it. Okay. And then in terms of just on the ground situation in China, given the surgeon COVID cases and the subsequent sort of reopening are you baking in at the midpoint, a normalization in the back half of the year, or not really?

Yes, Tejas, our assumption is that our access to China is going to continue to be constrained from an assumption perspective. We just have no visibility. I mean, we would’ve thought that with the opening that access would free up and we certainly didn’t see that. So, we’re going to continue to be a bit guarded about our view of access in China. And so the assumption assumes that the status quo will continue for the year.

Got it. Okay. And then last one for me, you’re on the Proteogenomics Consortium. You said you’re now – they’re now open to receive samples from customers. How are you thinking about the ramp through the year here? Obviously I think in the past you’ve talked about, potentially a 100,000 samples a year, but just walk us through the cadence of the ramp here, and then on the Center of Excellence side help us dimension, the size of that contribution of you can Omid, in terms of the guide.

Yes, let me take the Proteogenomics Consortium and then Omid can do the Centers of Excellence. On the PGC, you’re correct, Tejas, the ultimate goal is a 100,000 samples annually. Certainly it’s going to take them a few years to get that. And so this year we are assuming a pretty modest ramp. As you know, they said they are open for business, and so they’re working through, going out with their marketing efforts and doing a great job. They’ve been a great partner. But again, we’re tending to be pretty modest in terms of that contribution this year as they kind of see the demand out there. I think they certainly see it. And again, this is part of the overall DLS proteomic services group, which offers a full range of proteomic services. And so, but again, we’re super excited about what they can do in terms of the Seer platform and unbiased proteomics. But we’ve been relatively modest assumptions around this year in terms of actual sample volumes.

And then Tejas, building on the Proteogenomic Consortium kind of I’m thinking more broadly about our COEs. I mentioned the Evotec webinar. So they’re getting started. They’re getting up and running. They’ve now done customer projects going forward. Again, I think that you should assume in terms of sample number volume, something in the neighborhood of maybe 5% to 10% of our of revenue this year is going to be services. And for the most part, we are not in the services business model. So, you can assume a lot of that is going to come from our COEs. Now, on occasion for strategic reasons, we may do a service contract. In fact, Q4 is a good example of that. And you can, you saw that in the revenue breakdown that we did do a service contract. Now just in the case of that particular example, and I don’t think that’s going to be the case in every example, that particular customer is now in discussion with us to take an instrument in house. So, we may do a service from a Seer perspective. Strategically, the balance of those service revenues, you can assume is coming from our COEs.

Very helpful. Thanks guys.

Thank you, Tejas.

Thank you. I’m showing no further questions at this time. I’ll turn the call back over to Omid for any closing remarks.

Thank you all very much. We look forward to keeping you up to date.

Thanks so much everyone.