Good day, and welcome to the Bionano Genomics First Quarter 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Amy Conrad from Investor Relations. Please go ahead..

Thank you, Jess, and good afternoon, everyone. Welcome to the Bionano Genomics' First Quarter 2022 Financial Results Conference Call. Leading the call today is Dr. Erik Holmlin, CEO of Bionano. He is joined by Chris Stewart, CFO of Bionano.

After market closed today, Bionano issued a press release announcing its financial results for the first quarter of 2022. A copy of the release can be found on the Investor Relations page of the company's website.

I would like to remind everyone that certain statements made during this conference call may be forward-looking, including statements about Bionano's revenue outlook, strategic and commercialization plans, anticipated benefits or improvements to Bionano's products, including the Saphyr system and NxClinical software, anticipated milestones for 2022 and the advantages of the Saphyr system over current technologies and Bionano's expectations regarding study results and anticipated benefits of these studies in driving adoption of OGM.

Such forward-looking statements are based upon current expectations and there can be no assurances that the results contemplated in these statements will be realized.

Actual results may differ materially from such statements due to a number of factors and risks, some of which are identified in Bionano's press release and Bionano's reports filed with the SEC.

These forward-looking statements are based on information available to Bionano today, and the company assumes no obligation to update statements as circumstances change.

In addition, to supplement Bionano's financial results recorded in accordance with US generally accepted accounting principles, or GAAP, the company is reporting non-GAAP operating expense.

This non-GAAP financial measure is not meant to be considered in isolation or as a substitute for comparable GAAP measures, should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP, has no standardized meaning prescribed by GAAP and is not prepared under any comprehensive set of accounting rules or principles.

A description of non-GAAP operating expense and reconciliation of non-GAAP operating expense to GAAP operating expense are included at the end of the company's earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website.

An audio recording and webcast replay for today's conference call will also be available online on the company's Investor Relations page. With that, I will turn the call over to Erik.

Erik?.

concordance with standard of care, increase in the success rate for finding pathogenic variants, health economic impact and the potential for revising protocols for patient management that we hope results in better outcomes.

The long-term goal of all of these studies is to provide critical data that support optical genome mapping as a standard-of-care in the field. As these studies progress, we believe the data will serve as a basis for applications of optical genome mapping on a go-forward basis, and we plan to keep you continuously updated.

And you will be seeing more and more publications on these studies going forward. Now the fourth pillar of our plan is to advance our products in a way that enables higher market adoption of current products and entry into new markets.

In addition to rolling out enhancements that we believe improve the products in customers' hands, as we've talked about, centered on robustness, we are working on major new products that we anticipate releasing over the course of this year and into 2023.

Now the first of those products is version 7.0 of our NxClinical software, which we acquired through the acquisition of BioDiscovery.

Now this version of NxClinical is being designed to fully integrate the structural variation, visualization, interpretation and reporting capabilities that NxClinical already has for next-generation sequencing and microarray data.

We believe that this combination of data types in a single software environment with the capabilities that BioDiscovery software is widely known for across cytogenetics and Cytogenomics can be that innovation that transforms the way the world sees the genome.

We believe that adding these capabilities will also enhance the value of optical genome mapping and can be a significant driver of future adoption of genome. The second key aspect of product advancement is the next version of genome mapping instrument.

We completed a prototype of that system last year, and we're focused on bringing a pre-commercial version to the field this year before we finalize development in 2023 and release the new system commercially. With our current Saphyr system, we believe we have a product that is suitable for most labs worldwide.

But those labs account for only about half of the volume of samples. The balance of volume is concentrated in a smaller number of labs, we estimate to be fewer than 500, that run very high volumes around the world.

Some of those institutions are currently evaluating the Saphyr system and establishing their plans for menu development, but we believe a higher throughput system will be important if we want to capture that volume.

Other capabilities that this new system will have include sample random access, allowing for staff processing, the ability to scale from one to six systems, working in unison and it will also be part of an integrated workflow supported with automation of sample preparation and integration of NxClinical software.

In addition to targeting these high-volume segments of the market, there are other segments, including those outside the US, that will benefit if that system is eventually taken through a process of FDA clearance. With this new generation of system, we intend to begin the process of taking it through the FDA after it's commercially released in 2023.

It's important to note that with Saphyr, which doesn't have FDA clearance, we believe we can address the majority of labs and testing volumes in markets we are currently targeting. But we also believe having FDA approval for the next instrument can expand our total available market and accelerate global adoption. So that will be a key advancement.

Finally, as our fifth pillar, we intend to make software a strategic driver of Bionano solutions. We are using NxClinical and Nexus Copy Number, the two software products from BioDiscovery, to target the existing installed base of sequencers and arrays, which we estimate to be at least 10,000 systems installed worldwide.

We believe our software products have a strong value proposition for these customers today.

And increasing the number of NxClinical and Nexus Copy Number subscribers, meaning increasing the number of Bionano subscribers, will help us build relationships with these customers, so that when they're ready to incorporate optical genome mapping into their labs, they will be familiar with Bionano, our team and our tools.

This quarter, we launched version 6.2 of NxClinical software with an integrated genomic scar analysis for homologous recombination deficiency, or HRD.

And this feature provides a comprehensive, consistent and automated analysis of biomarkers from next-generation sequencing and microarray data that can help clinical researchers stratify therapeutic response across multiple tumor types.

This analysis allows cancer researchers to gain important insights from genetic data that they're already generating from arrays and sequencing, and we believe this product will be useful to next-generation sequencing users focused on oncology by providing them with a powerful tool for visualization and interpretation and reporting of their data.

Now once NxClinical 7.0 is available, with the integration of optical genome mapping, we believe this capability will drive more adoption of OGM solutions that we've already had data presented from Augusta University that shows the importance of combining sequencing and OGM analysis in this way, especially in hematologic malignancies.

Now, all the time, while we are executing the strategy, is on the backdrop of a challenging environment with the lasting impact of COVID and the global instability. We have faced potential challenges in staffing and supply. And so wherever possible, we believe we have anticipated these challenges.

And while we believe that they represent an ever-present risk or concern, we have managed them now for several quarters, and we will continue to be vigilant against them.

I'm very proud of what our team has done to operate the company, and I feel confident that if we maintain that vigilance, we have the opportunity to face the challenges that may come. Now, at this point, I'd like to turn the call over to Chris, our CFO, for an overview of our financials.

Chris?.

Thanks Erik. The first quarter of 2022 is another great quarter for Bionano. We demonstrated strong performance in the face of our typical Q1 seasonal softness and the macro headwinds that Erik mentioned. We recorded significant year-over-year revenue growth and continued the steady growth in the installed base of Saphyr OGM systems.

Our revenue in the first quarter of 2022 was $5.7 million, in line with our previous guidance range of $5.5 million to $5.8 million. This result is an increase of $2.5 million or 80% over the first quarter of 2021. Compared to the fourth quarter of 2021, results were consistent with the typical seasonality that we see in our business.

Gross margin for the first quarter came in at 15% compared to 33% in the first quarter of 2021 and just 4% in the fourth quarter of 2021. The year-over-year decrease was primarily due to lower yields on our chip consumables produced at one of our contract manufacturers.

We are making good progress with our supplier and have started to see improvement to our yields. However, we expect it to take a few more quarters before our yields return to historic levels and gross margins significantly improve.

First quarter 2022 GAAP operating expense was $30.8 million compared to $12.2 million in the first quarter of the prior year. Non-GAAP operating expense was $24.3 million compared to $11.8 million in the first quarter of 2021.

First quarter 2022 non-GAAP operating expense excludes $5.1 million in stock-based compensation expense and $1.4 million in amortization of intangibles. The year-over-year increase in OpEx was primarily due to increased headcount-related spending, increased R&D expense and increased marketing expense.

We ended the first quarter with 309 employees, up from 164 employees in Q1 of 2021. Going forward, we expect the growth in head count and spending to moderate from the pace of growth we saw last year. We continue to be well capitalized with $216.5 million in cash, cash equivalents and available-for-sale securities as of March 31st, 2022.

As Erik mentioned, we remain on track to our full year 2022 revenue guidance to be in the range of $24 million to $27 million. Q2 revenue is expected to be in the range of $6 million to $6.5 million. Before I turn the call back over to Erik, I'd like to take this opportunity to remind you that our annual meeting is coming up on June 9th.

You may have received your proxy and voting materials in the mail or online through your brokerage firm. Please vote your shares as soon as possible as this will help us get to a quorum to the annual meeting. Now, I'll turn it back over to Erik for closing remarks..

Great. Thank you, Chris. And I want to close with a review of our milestones for this year. And we're on track to achieve our ELEVATE! 2022 milestones.

As we outlined on our last call, we have several milestones for planned for this year across the 5 pillars of ELEVATE!, including in reimbursement, clinical studies, expanding awareness and product development.

In the first quarter, we plan to receive IRB approval for our hematologic study and to apply for a Category 1 CPT code for optical genome mapping. And I'm pleased to say that both were completed. We're enrolling subjects in the heme study and gathering feedback from the CPT code application process.

And we of course, look forward to updating you on the milestones that we're going to be achieving here in the second quarter and over the course of the remainder of the year. In closing, I just want to reiterate that we're really excited about the progress that we've made so far in 2022.

And we look forward to updating you soon about this second quarter, as well as our progress for the remainder of the year. And with that, Jess, we are ready to take questions..

[Operator Instructions] Our first question comes from Michael Okunewitch at Maxim Group. Your line is open. Please go ahead. .

Hey, thank you for taking the question. I'd like to start off, I guess, with a bit of a big picture kind of question. And I ask you for a bit of speculation here.

Could you give kind of your idea of what you think of the application and utilization of Saphyr, the type of customer and what the addressable market looks like for Saphyr on the other side of the clinical programs, assuming that gets you reimbursement into the clinical guidelines? Essentially, how would a Saphyr system was validated and reimbursed, diagnostic use in those four markets be used differently from how it is today?.

Thanks, Michael. Good question. And I think that we kind of understand this roadmap because it's been followed before for other solutions such as microarrays and next-generation sequencing and certain applications. And so clearly today people who are applying optical genome mapping in their clinical research are using it to find more answers.

And increasingly, they're integrating the information they get from analysis with optical genome mapping together with sequencing analysis to provide really a comprehensive view of genome variation, which can answer questions about why a particular phenotype exists.

But in many settings, they're being used for research applications that begin to investigate patients or subjects in a clinical research study who may have been negative by traditional methods and standard testing.

And so, they are enrolled in a clinical trial to explore why they're negative by standard of care and yet clearly exhibiting the symptoms and signs of a genetic disease or cancer.

So, the answer to those questions are powerful research findings that can define future tests or future interventions and maybe even pull in some existing interventions that were missed by the standard of care for some reason. So that's a good synopsis of current use in the RUO space.

Now as clinical adoption happens more frequently, especially on the heels of inclusion of optical genome mapping as a first-line test recommended by medical society guidelines, it becomes just that. It's a first line test, so it becomes the standard of care.

And so, when the sample is submitted to the laboratory, the laboratories typically follow these guidelines very closely and so they will apply optical genome mapping first.

And there will be other analyses that follow it after and so that's what we believe will be pretty much the – that’s our goal, let me say, in conducting these studies and hopefully influencing the medical society guidelines. But that's only part of our vision because as you know, you're an expert on optical genome mapping.

It doesn't detect sequence variance. But there is a solution out there that does that really well. It's next-generation sequencing.

And so what we believe is an outstanding future state and something that we believe the market recognizes as well and is working toward is that genome sequencing is recommended as a first-line analysis for sequence variance, and optical genome mapping could potentially be recommended as a first-line analysis for structural variance.

And those two are used in combination. And that's the game changer. And so when you talk about the volume of samples that are going through cytogenetic analysis, now they're being sequenced and mapped every single time because those are the first-line recommended tests that medical societies advocate.

There's a lot of work to be done between now and then. And as you know, it's a competitive environment and there could be new technologies and new solutions, but that's the vision that we're driving toward..

Thank you. I really appreciate that answer. As just a general follow-up, I'd like to get a bit more onto the finances and specifically on your revenues or on the unit placements. You had about 12 placements this quarter. It's a bit of a decline from the fourth quarter.

Does this track with the typical seasonality of the first quarter versus the end of the year that you would normally see in previous quarters?.

Yes. For sure. So like the business as a whole, and Chris mentioned this in his comments, that we're accustomed to a seasonality there. And Q4 was very solid for installations. And I want to be clear here, we're talking about systems that we've installed and we're not measuring the definition of placement as variable in the field.

And so we're not actually talking about like deals that we did per se or POs that came in, we're just talking about systems that were installed and the growth in the installed base, that's the most objective metric.

But one of the things that I can tell you about it is that we ended the quarter with several systems that we're in a backlog for installation and that backlog was driven by some of the effects of Omicron and COVID, which reduced staffing and caused delays in installations. So I think the answer is we always expected a sequential decline.

The overall demand and success on the business side was solid. Our ability to operationally install them was impacted by COVID, and we're catching up..

All right. Thank you very much .I really appreciate you taking my questions,.

No problem. Thank you..

With no other questions holding, I'll turn the conference back to Dr. Holmlin Homeland for any additional or closing comments..

Well, thank you very much, Jess. Well, I appreciate everybody joining this call. And as I said already, we look forward to updating you on our progress during the second quarter in our next call. So thank you very much..

And ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time..