Welcome to the Akoya Biosciences First Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to your host, Mr. Priyam Shah, Head of Investor Relations. Please go ahead, sir..

Thank you, operator, and thank you to everyone who is joining us today on this call. I'm Priyam Shah, Head of Investor Relations at Akoya Biosciences. On the call today, we have Brian McKelligon, Chief Executive Officer; and Joe Driscoll, Chief Financial Officer.

Earlier today, Akoya released financial results for the first quarter ended March 31, 2022. A copy of the press release is available on the company's website.

Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of Federal Securities Laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors.

For the list and description of the risks and uncertainties associated with Akoya's business, please refer to the Risk Factors section of our Form 10-K filed with the Securities and Exchange Commission on March 15, 2022.

We urge you to consider these factors and you should be aware that these statements should be considered estimates only and are not a guarantee of future performance. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 5, 2022.

Akoya disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. Lastly Akoya will be participating in the upcoming Bank of America, UBS and H.C.

Wainwright investor conferences throughout May, and we hope to see many of you in-person while we're on the road. And with that, I will turn the call over to Brian..

First, continued adoption of our newly launched Fusion instruments standalone or paired with a PhenoCycler. Second, drive further workflow and speed improvements on the PhenoCycler-Fusion and launch additional protein panels, RNA capabilities in our new universal chemistry.

And third, continue to partner with leading biopharma and industry KOLs to drive the adoption of our platform in translational and clinical research. And with that, I will now turn the call over to Joe to discuss our financial results.

Joe?.

Thanks, Brian. Hello, everyone. As Brian highlighted, total revenue for the first quarter of 2022 was $16.9 million, as compared to $12.2 million in the first quarter of 2021, representing 38% growth.

Product revenue, which includes instruments, reagents and software was $13.3 million, compared to $10 million in the prior year period, representing 34% growth. Within product revenue, instrument revenue was $8.3 million, compared to $6.7 million in the prior year period, representing growth of 24%.

We had another strong quarter with 51 total instruments sold, of which 14 were PhenoCyclers and 37 were from the PhenoImager portfolio. The total installed base of instruments is now 748 as of March 31, 2022, which includes 196 PhenoCyclers and 552 PhenoImagers.

We are pleased to announce that as of March 31, 28 Fusion instruments have already been shipped, including four early access purchases shipped in Q4 of 2021, and we now have a total installed base of 23 for the combined PhenoCycler Fusion System sold either directly as a combined system or upgraded from a previous standalone instrument.

The five additional Fusion instruments were sold as standalone units. We are currently tracking a very impressive Fusion to PhenoCycler attach rate driven by the ongoing global launch efforts that Brian described.

However, our longer-term estimates remain at a 50% to 60% attachment rate, factoring in that many labs who have purchased or will purchase the PhenoCycler may already have an existing microscope or may prefer another microscope based on their specific needs.

We will have more clarity over subsequent quarters on purchasing patterns of standalone versus combined units of the PhenoCycler and Fusion. Reagent revenue was $4.6 million for the quarter versus $2.5 million in the prior year period, representing growth of 82%.

Reagent revenue is a crucial part of Akoya's business model that has started to show tremendous strength since Q2 of 2021. Recall that in Q2 of 2021, we saw a significant improvement in customer activity as COVID shutdowns started to pull back and we saw a corresponding increase in our reagent revenue to $4.3 million.

Therefore reagent growth in Q2 2022 is expected to be in the 10% to 20% range compared with the 82% growth we experienced in the first quarter. Our annualized pull-through exceeds $30,000 per instrument for both the PhenoCycler and the PhenoImager HT.

It is still early days with the PhenoCycler Fusion, but over time we expect two to three times the annualized pull-through of the combined unit compared to the PhenoCycler standalone given that the increased speed and higher plex will in turn increase utilization.

We have disclosed in previous earnings calls that our high volume PhenoCycler users achieve annual pull-through of more than $175,000 per instrument and high volume PhenoImager HT users achieve annual pull-through of more than 200,000 per instrument.

So there is a precedent for significantly higher pull-through based on the legacy instruments and reagent chemistry.

Looking at the utilization experience of these power users, we are seeing that the discovery to translational high-volume users are either individual or core labs that were often early adopters of the PhenoCycler with a strong focus on a single cell whole slide multi-omics approach primarily in oncology.

The PhenoImager HT high-volume users are more varied consisting of core labs at academic medical centers, biopharma companies and CROs participating in high-volume clinical trials, drug development and a variety of I/O applications.

We expect that the rollout of our higher plex multi-omic and universal chemistry solutions throughout 2022 and 2023 will drive meaningful growth in pull-through. Services and other revenue totaled $3.6 million, as compared to $2.2 million in the prior year period, representing 58% growth.

We are very enthusiastic about the scaling of our services business, namely our advanced biopharma solutions, CLIA lab services, and we believe this operation has a significant opportunity to contribute meaningfully to the top line.

Following the CLIA certification in November 2021, we are seeing a substantial increase in orders for our service lab and have hired aggressively to support this demand. Gross profit was $10.1 million in the first quarter, compared to $7.4 million in the prior year period. This resulted in a gross profit margin of 60%.

For the first set of PhenoCycler-Fusion orders, we did offer promotional pricing to drive early adoption of the platform. This had a slight impact on Q1 gross margin. Margin was also somewhat impacted by the investments we made in the service lab to support future growth.

Operating expenses for the quarter totaled $25.7 million, as compared to $12.8 million in the prior year period. Included in this number is $3.2 million of noncash expenses such as depreciation, amortization and other noncash items. This is a reduction from the $27 million of total OpEx we incurred in Q4 2021.

Throughout 2022, we will continue to make targeted investments in the company with a near-term focus on the commercial launch of the PhenoCycler-Fusion and R&D efforts to further enhance our speed, multi-omic menu content and ABS service capabilities. We ended the quarter with $94 million of cash.

The first quarter of each fiscal year typically is the highest cash use quarter of the year due to certain expenditures that only happen once a year, such as bonus payments and other annual payments. In addition, we are maintaining higher levels of inventory to cushion any impacts from global supply chain challenges.

This includes making certain prepayments to suppliers to secure a consistent supply of inventory. We project that cash will be in the $70 million range as of the end of fiscal 2022, which provides ample runway to continue to invest in the business.

Common shares outstanding are $37.5 million as of March 31 and fully diluted shares, including the impact of outstanding options and warrants totals $39.4 million. To summarize, we had another record-breaking quarter with $16.9 million in revenue, a 38% increase over Q1 2021.

We sold 51 instruments in Q1 across the product portfolio and the initial sales of the Fusion instrument have exceeded our expectations.

We remain very confident in our ability to deliver strong growth this year, barring extensive lockdowns in China, which may impact our distribution capability in Asia Pacific if they remain in effect longer than expected.

At this time, we are increasing our full year 2022 preliminary revenue guidance range to $70 million to $73 million as we continue to see tailwinds for our business and the spatial biology market. Now I'll turn it back over to Brian for closing remarks..

Thank you, Joe. In summary, we are very pleased to report a strong quarter and announce exciting new developments as we track the launch of the PhenoCycler-Fusion, expand our menu offerings and build on our first-mover advantage in the clinic.

We are thankful for the hard work of our fellow dedicated Akoyans, as well as for the support of our customers and shareholders. Akoya remains very well-positioned for growth and we are excited about the opportunities that lie ahead as we deliver new spatial solutions from the discovery to the clinical markets.

At this point, we will open up the call for questions.

Operator?.

Thank you. [Operator Instructions] We have a question from David Westenberg of Piper Sandler. Your line is open..

Hi, guys. Thank you for taking the question, and congrats on the good quarter here. I'm going to go ahead and -- I hope you don't mind. I mean go ahead. And I think you commented that you don't really know the behaviors of the -- it's so early in the Fusion launch. But I do think it's so important to the story.

So I'm going to try to press my luck a little bit. And if you guys say no, that's perfectly fine with me. Starting with, like placements are really good.

Can you just kind of maybe remind us about the seasonality of the business? I typically think of a business like yours is having with funding cycles in Q3 with like NIH budgets and then, of course, the budget flush in commercial with Q4, but you had a nice beat in this quarter.

So can you maybe walk us through that seasonality and how you were able to get a lot of good instruments this quarter?.

Sure. Yeah. So thanks, David. We really appreciate your time. I'll let Joe handle that question..

Yes. So the seasonality in our business has been consistent for the past few years. So Q1 is typically the lowest quarter of the year. Q2 is generally a little bit better. Q3 is a little bit better than Q2. Then Q4 is generally a step-up of several million dollars from Q3. So that's -- we expect that trajectory this year.

So from the $16.9 million we did in Q1, you should expect Q2 to be somewhat higher than that and Q3 to be a little bit higher than Q2 and then the Q4 kind of budget flush as you noted..

Okay. Well, I mean, it just makes the placements pretty exciting. So can you -- and again, I know you talked about not really wanting -- talking about how early it is, but you have mentioned that with the Fusion, you do expect the PhenoCycler consumables to increase.

At least in that early trends, I mean, are you seeing an immediate bump, and I get that you said that you don't know yet, but I do want to press my luck a little bit with that..

No. Look, it's a fair question. And I think the reality is, David, with most of the shipments, frankly, all the shipments save the four happening throughout the quarter. And generally, installations and trainings happening a month or two following that. That's why we're sort of saying it's too early because they're literally just getting installed.

And then again, just to reiterate what we talked about on the prior comments in the call, with that increased speed relative to PhenoCycler, there's an expectation that the average plexing will go from, call it, a 25% would be the median up to closer to 50%. And then the samples per unit time is also going to increase.

So you have a revenue per sample bump and you have a sample per unit time bump. And that's why in the comments, we're talking about a two to three-fold expected pull-through increase over the PhenoCycler alone..

Got it. Okay. Got it. No, that's really helpful. Can we talk about a little bit about on the competitive landscape? I mean, I think some of your competitors had a little bit more challenges than you seem to have.

I definitely don't -- I'm not -- definitely not asking you to throw them under the bus, but I do want to maybe get on what might be different about your macro or your target customer that made your placement, or like you having maybe better -- meeting expectations relative to some of the others in the space..

And specifically, the challenge that you're referring to are COVID type challenges, the ones that we were talking about --.

COVID type challenges, exact -- I mean a lot of them calling out COVID type challenges getting into labs, the sales force, that kind of thing..

So I think one way to think about the specific COVID challenges, for example, as you look at China and certain other geographies, we're still 60%, 70% instrument revenue-driven. And so a lot of our revenue is driven on the instrumentation side. If we were heavily -- if we were at 80%, 70% consumables, it might be a different story.

But I think because we're so heavily instrument dominated and we're able to get those instruments placed in those geographies, that might be one reason why there was perhaps less of an impact..

Got it. Okay, no. That's helpful. And then there's a lot of attention in spatial biology at AGBT. I mean if you look at the gold, the gold, the silver, the sponsors all the way down the line. I mean, I think like two-thirds of the top-tier sponsors at AGBT are spatial biology companies.

Any thoughts to what might come out of there? Any thoughts to maybe some freeze in acquiring your product due to the fact that there are some interesting stuff coming out at AGBT?.

Well, so maybe take those in reverse order. I don't anticipate any freezing of our purchases. I think as we look at the robustness of our pipeline, it's breadth and depth and the eagerness for people to have a solution that works today that's got the capabilities that we already talked about, we don't anticipate a freeze.

But to your first part of your question, what to expect at AGBT, I think -- I don't know what they're going to come across with. But I think our main point is, I think as you noted in your note, we have largely been focused on protein.

And now the reason why we're spending so much energy at AGBT is with the capabilities now of the Fusion and the expanded RNA team, we now have the energy capabilities and technologies to go multi-omic. I think that's the trend that you're going to start to see is more multi-omic.

But again, speed is becoming a standard mantra in the market as a requirement. And I think that's an area where we still have a lot of headroom..

Got it. Okay. And actually, great. Because that's great segue into my next one here. And that is why do you think it's -- and this is my last question.

Why do you think it's going to be a protein provider adding transcriptomic or RNA versus the other way around? I mean what kind of advantages do you think you have going after it from your angle? And I'll jump off -- sorry, that's the last question..

Thank you, David. I really like that question. What first comes to mind when you ask that question is image acquisition and image processing. And we've got decades of experience in that.

So the underlying microscopy technology, the image analysis methodologies and the ability to do that at both high throughput and high plex, that is a capability that is a profound challenge to be great at.

And I think that's an area where I think starting with protein provides us as you layer into multi-omic provides us a great technology foundation to build upon..

Okay. Perfect. Thank you very much. Congrats, guys..

All right. Thanks, David..

Thank you. [Operator Instructions] Our next question comes from Tejas Savant of Morgan Stanley. Your line is open..

Hey, guys. This is Edmund on for Tejas. Thanks for taking the questions. .

Hey, Edmund..

Hey. Been hopping around calls tonight, so apologies if I missed this.

But just wondering, what is the expected pull-through revenue of the combined PhenoCycler-Fusion unit after a year after installation? And how would this pull-through different -- the pull-through revenue differ between a PhenoCycler and a PhenoImager HT?.

Yeah. So today, just with the PhenoCycler paired with a third-party microscope, we're doing about $32,000 per instrument on average of pull-through. So with the PhenoCycler paired with the Fusion, we expect two to three times that pull through just based on the higher speed, the higher plexing. So that's really the theory, right now.

And so that -- we haven't really seen it in action yet. These instruments are just getting installed as we speak. But that's kind of our outlook. And then in terms of an HT pull-through, so today, on average, it's a little over $30,000, we think that number is going to grow. I mean, there's no question about it.

There's a lot of things we've got going with universal chemistry, things like that. And so we want to get that number up to 50,000 or 60,000 over the next several years. So that's kind of how we're looking at reagent pull-through..

Got it. Thank you for that color.

And I know it's still early days, but based on your conversations, are you seeing any specific customer types that seem to be gravitating more toward the PhenoCycler-Fusion?.

Today the PhenoCycler-Fusion customer base looks largely similar to the original PhenoCycler customer base. I think the one potential exception is it does have -- it is more attractive to core labs and service labs that are making money on a per sample basis.

For obvious reasons with higher throughput and higher plexing, now you can do more samples per unit time and then you can charge more per sample. So it is more attractive to the service groups.

But again, in terms of broad strokes directionally, the customer base is largely overlapping with what we see with the current PhenoCycler standalone installed base..

Got it.

And my last question, I was wondering if you guys can talk about the customer excitement around the new universal chemistry antibody that's launching at the end of this year? And what type of projects do you envision being early adopters?.

Yeah. It's a good question. So the customer base and the excitement around the Universal chemistry, it's really those groups that are currently using, for example, the current Opal chemistry on the HT system to design panels.

And the early excitement around the underlying technology of the Universal chemistry, it does -- the excitement is for two reasons. Number one, it leverages our antibody base for CODEX. So having an inventory of antibodies that have been tested.

But equally important, the excitement is around the simplification of the automation and the workflow to get panels up and running. So the excitement there is around their ability to build panels faster and to have a larger library of panels.

And I think the early customer bases, I think, like your PhenoCycler-Fusion question, are likely to be those same customers that are running large studies, large number of panels and developing new panels. So I think a lot of it is going to be, frankly, around new panel development because of the benefits it provides..

Great, thank you..

Thank you. Our next question comes from Kyle Mikson of Canaccord Genuity. Your line is open..

Thank you. So this is [indiscernible] on for Kyle Mikson. I just want to apologize in advance. I've had to jump calls a little bit, so if you've already touched upon this, apologies.

But given that it's already been on the market for a few months, what are you hearing from customers that gives you confidence that PhenoCycler-Fusion is differentiated [technical difficulty] and what attributes contribute to that differentiation? And my second question would be, can you speak to the proprietary nature of Akoya's intellectual property and moreover, are you confident that the company is not prone to litigation and other IP challenges next year and why not?.

So let me take those in reverse order. Everything that we're selling on the market is covered by issued intellectual property. So we have a really strong patent portfolio. The second part -- or the first part of your question, I was a little bit choppy. So let me answer. Hopefully, I hit your question.

So the differentiation of the PhenoCycler-Fusion versus other products on the market really comes down to two things. Number one is the speed of that workflow. The ability to do a large number of samples per unit time and an understanding that we have got a foundation to continue to build on that speed to have a platform that's future proof.

The second thing that is differentiating about it is that it is true whole slide multi-omic. That's why we just -- that's why we're talking about the forthcoming RNA chemistries at AGBT.

A huge benefit that our customers see is the ability to have this dual workflow, classically in the life sciences markets, instruments are rolled out and they're sort of monolithic standalone instruments that do a single thing.

What we have with the PhenoCycler-Fusion, as I noted in my earlier comments, is the ability for this system to really do two workflows, and that's very unique. It could do high plex multi-omic discovery.

And when you identify something that you then want to validate, you can use the Fusion as a standalone for more focused panels at much higher throughput. So you can swing your workflow between doing 100 plex, a 100-plex protein study, for example, and then you can run 100 samples in a validated manner on the Fusion standalone.

So those are really the three things, I think, the speed, the multi-omic, all of this being whole slide single cell. And thirdly, the dual workflow.

And given how quickly our pipeline has expanded since the announcement of the PhenoCycler-Fusion at Spatial Day in December 17, we feel really confident in the ability of this growing pipeline to meet our expectations for the year..

Got it. Thank you very much..

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Brian McKelligon for any closing remarks..

All right. Well, thank you, Valerie, and thank you, everyone, for your time. We really do appreciate it, and we look forward to catching up with each of you soon in the coming weeks and months. Have a great rest of the day and rest of the week..

Thank you. Ladies and gentlemen, this does conclude today's conference call. Thank you all participating. You may now disconnect. Have a great day..