Ana Petrovic - Director, IR & Strategy Gajus Worthington - President & CEO Vikram Jog - CFO.

Bill Quirk - Piper Jaffray Sung Ji Nam - Cantor Doug Schenkel - Cowen and Company Dan Leonard - Leerink Bryan Brokmeier - Maxim Group Peter Lawson - Mizuho.

Welcome to the Fluidigm First Quarter 2015 Financial Results Conference Call. [Operator Instructions]. I would now like to introduce your host for today's conference, Ana Petrovic. Please go ahead..

Thank you. Good afternoon, everyone. Welcome to the Fluidigm first quarter 2015 earnings conference call. At the close of the market today Fluidigm released financial results for the first quarter ended March 31, 2015. During this call we will review our results and provide commentary on recent commercial activity and market trends.

Following these comments we will host a Q&A session. Presenting for Fluidigm today will be Gajus Worthington, our President and CEO and Vikram Jog, our Chief Financial Officer. This call is being recorded and the audio portion will be archived in the Investor section of our website.

During the call and subsequent Q&A session we will be discussing plans and projections for our business, future financial results and market trends and opportunities, including, among others, statements regarding the single-cell biology and production genomics markets and our prospects and growth opportunities in such markets; plans, strategies and expectations for our business; anticipated product launches and their estimated revenue contribution; product revenue trends and growth projections; expectations for Q2 revenue and current estimates of 2015 total revenue, GAAP and non-GAAP operating expenses, stock-based compensation expense, interest expense, capital spending and currency-related impact on 2015 revenue.

These statements are forward looking and are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from currently anticipated events or results.

Information on these and additional risks, uncertainties and other information affecting our business and operating results are contained in our Annual Report on Form 10-K for the Year Ended December 31, 2014 and other filings with the SEC.

Additional information will also be set forth in our Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2015, to be filed with the SEC. We advise investors to review these risk factors carefully. Fluidigm disclaims any obligation to update these forward-looking statements except as may be required by law.

During the call we will also present certain financial information on a non-GAAP basis. Reconciliation between GAAP and non-GAAP results are presented in a table accompanying our earnings release which can be found in the Investor section of our website. I will now turn the call over to Gajus..

Thanks, Ana. Hello, everyone and thank you for joining our call today. We had a tough start to 2015. In this call I'm going to be very transparent about issues and struggles, those that we believe are one-time only and others that are more difficult to categorize or perhaps are the beginning of a trend.

I'll explain why we've decided it is most prudent to lower our revenue guidance for the year and at the same time why I remain convinced we can deliver substantial medium- and long-term growth. Total revenue in the first quarter of 2015 was $26.7 million, up 4% year over year and 10% on a constant currency basis.

Three areas of our business were weaker than our expectation; CyTOF systems, Biomark systems and genomics analytical consumables. This was partly offset by a solid instrument quarter for production genomics applications, including EP1 and our new Juno platform. The C1 also had another strong quarter.

Finally, currency impact was $1.5 million or about $600,000 worse than we had assumed. The CyTOF shortfall was approximately $2 million, yet of all the things that are disappointing in the quarter, this one is the least disconcerting to us.

The revenue gap in Q1 was due to the timing of system orders, subsequent shipment of new system orders and recognition of revenue against backlog. Orders arrived very late in the quarter and those outside the U.S. couldn't be converted to revenue in Q1.

Also, a customer surprised us with a substantially pushed-out delivery date due to site readiness issues. As a result, we were unable to convert backlog in accordance with our plan. And, finally, a couple of orders that we expected in Q1 moved into Q2.

Given our challenges when we first acquired DVS Sciences last year, I recognize many of you may be concerned that you've seen this movie play out before. High-growth company makes its first acquisition. Acquisition struggles. company gets a handle on the business, but then it goes off the rails, never to recover.

I want to reassure you that this is not the film you are watching. Acceptance of the CyTOF continues to improve. Our pipeline is stronger than it was a quarter ago. In fact, our sales force is more bullish than ever about the CyTOF and our customers continue to make important discoveries with it. There are other strong indicators of growth.

As an example, we recently confirmed that a prominent European agency has funded multiple CyTOF purchases for this year. We have made substantial progress in building up and consolidating the sales of support infrastructure and capturing cross-selling synergies with our single-cell genomics portfolio.

As with previous quarters, we booked and shipped yet another bundle of a Biomark, C1 and a CyTOF. From our perspective, the power of combining single-cell genomics and proteomics is beyond dispute. Put succinctly, the prospects for the CyTOF and the market it serves continue to brighten.

Nothing that I have seen in this quarter dampens my enthusiasm for the long-term performance of the CyTOF line. The second issue in the quarter related to Biomark instruments. This one is tougher to categorize, so we have taken a far more cautious view towards Biomark sales in our revised guidance.

Specifically, single-cell Biomark placements were substantially lower than we expected. While historically approximately 25% of C1 units have been sold with a Biomark HD, in Q1 this combination rate was only 10%. We were surprised by this result, given that we continue to see opportunity for the Biomark as a validation tool for single-cell sequencing.

However, that opportunity did not materialize in Q1. So, given our first quarter result, we're compelled to meaningfully reduce our outlook for Biomark sales. The third effect in the quarter was uncharacteristic weakness related to our genomics analytical consumable revenue.

Our genomics analytical pull-through tracked below our historical range of $40,000 to $50,000 per quarter. We attribute -- pardon me, $40,000 to $50,000 per year. We attribute this to volatility based on timing of large production genomics customer purchases. When it comes to pull-through, one quarter does not make a trend.

Notably, our book-to-bill ratio for consumables was in excess of one. Currency was also a stiffer headwind than we had assumed at the beginning of the year. While we're not in a position to predict future currency exchange rates, we feel it is prudent to assume the greater effect in Q1 going forward.

Given all these factors, we've reduced our 2015 revenue guidance range of $142 million to $149 million to $133 million to $143 million. While production genomics consumables had a hiccup in the quarter, we actually had a stronger than expected result for instruments in this market, due not only to better placements of EP1 but also to Juno.

Juno is off to a great start. One and a half quarters after we announced early access, sales are tracking above our expectations. We'll be introducing an important new application on the Juno platform in the second half of the year to incorporate our new Access Array library prep workflow.

Juno will then enable targeted resequencing of up to 5,000 mutations per sample, a tenfold increase in coverage that we currently support on the Access Array. We believe this new application will stimulate production genomics interest and add further appeal to Juno.

Speaking of new products, customer reception to the Polaris system has been very positive. We believe Polaris will enable the next wave of discovery in the single-cell biology market and we're on track to launch midyear with a list price of approximately $400,000. You can probably tell from my tone that I remain confident in our future.

I'd like to highlight organizational changes that contribute to my outlook, notwithstanding the disappointments in Q1. Though there were a variety of contributors to our result, one theme was common to all our various challenges in Q1 and that is focus.

As our single-cell business has grown in scope, complexity and breadth, it requires more specific attention. The same is true for production genomics which essentially has an entirely different customer base.

I and others at Fluidigm have noted that the necessary and successful attention we have brought to single-cell biology has often left us with insufficient bandwidth to address the dynamic production genomics market. And occasionally the pursuit of production genomics has defocused resources better spent on single-cell biology customers.

Production genomics remains a strategic focus area for Fluidigm, as it drives diversification in product mix and end customer. We're not in this market to participate. We're there to excel. To do this we decided we needed a separate, focused organization.

So late last year we began implementing plans to separate these two pursuits and in particular to recruit a world-class leader of our production genomics business. I'm very happy to tell you that this effort has born the best kind of result I hoped for. Today I'm delighted to introduce Steve McPhail as our General Manager for Production Genomics.

Steve has significant senior management, scientific and operational experience in a variety of life science-focused businesses. He was President and CEO of Expression Analysis, a translational genomic services business providing genomic technology solutions to a variety of market segments.

Expression Analysis sought to advance clinical research with the goal of improving the diagnosis, treatment and management of complex disease. He most recently served as President of the unit post-acquisition.

Prior to Expression Analysis Steve spent his career at a variety of diagnostic, biotech and medical device companies, including ArgoMed and Abbott Laboratories. He has extensive experience in building exceptional management teams, establishing distribution networks, developing sales, marketing and operational plans and executing against them.

I've known Steve for years as a valued customer and during that time he has become one of my most trusted advisors on market and technology development. I've watched him make very smart and prescient moves in genomics over and over, all the while building a vibrant business.

When I began thinking of who I knew that would be the very best candidate to head up our production genomics effort, Steve was at the top of my list. We welcome Steve to the Fluidigm team and believe he will be an invaluable asset to our company and pivotal to the execution of our production genomics strategy.

I'm certain our new organizational structure under Steve's leadership will have two primary effects. First, it will bring much greater focus and attention to production genomics customers, product development and regulatory approvals.

Second, it will allow the bulk of our sales force to focus their energy on the rapidly growing single-cell biology market. In closing, this is a challenging start of the year. But Fluidigm always rises to its challenges. We're justifiably enthusiastic about our market opportunities. We remain the market leader in single-cell biology.

Our growth strategy is sound. Customers are excited about our new products. And we have implemented organizational changes that add significant commercial leadership and sharpened focus. I will now hand the call over to Vikram for a more detailed view of our financial results..

Thanks, Gajus and good afternoon, everyone. I will now walk you through our first quarter 2015 operating results and highlights. In the first quarter of 2015 total revenue of $26.7 million was up 4% year over year on an as-reported basis and up 10% on a constant currency basis.

Instrument revenue grew 5% year over year on an as-reported basis, to $15.8 million, driven by increased sales of C1 and CyTOF systems and contribution from new product, offset by a decline in Biomark system sales.

Approximately 60% of the Biomark HD systems sold during Q1 were motivated by single-cell research and approximately 10% of C1 system sales were combined with a Biomark HD system which tracked lower than our historical rate of approximately 25%.

Our total consumables revenue which includes IFCs, assays, reagents and antibodies, was $10.8 million during the first quarter on an as-reported basis, up 5% year over year, driven by increased sales from single-cell biology applications, offset by decreased sales from production genomics applications.

Our genomics analytical pull-through in the first quarter of 2015 tracked below our historical range of $40,000 to $50,000 per system per year. In the first quarter of 2014 our genomics analytical pull-through tracked slightly above its historical range. The year-over-year decrease was primarily driven by lower production genomics consumable sales.

Our genomics preparatory pull-through in the first quarter of 2015 tracked within its historical range of $15,000 to $25,000 and our proteomics analytical pull-through in the first quarter of 2015 tracked within our historical range of $50,000 to $70,000 per system per year.

Both the genomics preparatory and proteomics analytical pull-through in Q1 2015 were consistent with the year-ago period. Our total instrument installed base was approximately 1,410 instruments at the end of the first quarter of 2015, including approximately 660 systems designated for single-cell biology research.

55% of the installed base was comprised of analytical systems and 45% were preparatory systems. Geographic revenues as a percentage of total product revenues for the first quarter were as follows; United States 51%, Europe 26%, Japan 7%, Asia Pacific 13% and 3% other.

Geographically year-over-year revenue growth rates for the first quarter 2015 were as follows; United States up 22%, Europe up 8% and Asia Pacific up 59%. Japan and other were down 57% and 41%, respectively. I would note that most of our negative foreign currency exchange impact occurred in Europe.

In Japan, similar to the second half of 2014, we believe delays in funding disbursement contributed to the weakness in the quarter. In addition, unfavorable foreign exchange rates and a tough comp in Q1 of last year which benefited from a uniquely favorable funding environment, also contributed to the year-over-year decline.

Excluding Japan, our overall revenues were up 17% year over year. Net loss for the quarter was $15.9 million, compared to a net loss of $15.4 million in the prior-year first quarter.

Adjusting for stock-based compensation, depreciation and amortization, interest expense, amortization of developed technology, inventory revaluation and other acquisition-related expenses and benefits, non-GAAP net loss for the first quarter of 2015 was $7.3 million, compared to $75,000 of non-GAAP net income for the first quarter of 2014.

Please refer to the reconciliation of GAAP to non-GAAP information attached to the first quarter 2015 earnings release for details. GAAP product margin was 60% in the first quarter of 2015 versus 66% in the year-ago period and 62% in Q4 of 2014.

After adjusting for acquisition-related noncash charges, including amortization of developed technology and inventory revaluation, stock-based compensation and depreciation and amortization, non-GAAP product margin was approximately 73.3% in Q1 2015 versus approximately 75.2% in the first quarter of 2014 and 72.5% in Q4 2014.

The year-over-year decline was mainly due to higher consumables manufacturing cost offset by lower instrument warranty and royalty cost. Turning now to OpEx, research and development expenses were $10 million in the first quarter of 2015, compared to $7.6 million in the first quarter of 2014 and $11.7 million in Q4 2014.

The year-over-year increase in R&D expenses was primarily driven by higher headcount and compensation-related costs, increases in lab supplies and equipment costs and other expenses. SG&A expenses were $20.1 million in the first quarter of 2015, compared to $15.3 million in the year-ago period and $18.8 million in Q4 2014.

The year-over-year increase in SG&A expenses was primarily driven by higher headcount, trade shows and professional fees. Moving on to the balance sheet, total cash, cash equivalents and investments were $134.9 million at the end of the first quarter, compared to $142.8 million at the end of December 31, 2014.

Net cash used in operating activities was $9.8 million in the first quarter of 2015, versus $10.5 million in the first quarter of 2014. Accounts receivable were $19.6 million at the end of the first quarter of 2015, compared to $22.4 million at the end of the fourth quarter of 2014.

DSO at the end of the first quarter were 66 days, compared to 60 days in Q4 2014. Inventory was $17.4 million at the end of the first quarter 2015, up from $16 million at the end of the fourth quarter of 2014.

Moving on now to our financial guidance for 2015, as we mentioned earlier in the call today, given our first quarter results and greater uncertainty on our outlook, we're lowering and widening our annual revenue guidance for 2015 to a range of $133 million to $143 million.

This includes an estimated negative currency-related impact of approximately 4 to 5 percentage points at the midpoint of the range which is up from our prior range of 3 to 4 percentage points. Our guidance assumes that some of the impacts we experienced in Q1 persist through the second quarter.

We would note that we do not expect new products to contribute meaningfully until the back half of the year and overall we expect new product revenue contribution to be in the high-single digit percentage at the midpoint of the guidance range. The remainder of our previously provided financial guidance is unchanged.

Operating expenses are projected to be between $129 million and $134 million on a GAAP basis and between $105 million and $110 million on a non-GAAP basis, excluding approximately $19 million of estimated stock-based compensation expense and $5 million of estimated depreciation and amortization expense.

Stock-based compensation expense is projected to be between $18 million and $20 million. Substantially all of our stock-based compensation expense is reflected in operating expenses. Interest expense is projected to be $6 million. And, finally, capital spending is expected to be between $6 million and $9 million.

I will now turn the call over to the operator to open it up for questions..

[Operator Instructions]. Our first question will come from the line of Bill Quirk from Piper Jaffray. Your line is now open..

I guess first question, not surprisingly, is on Biomark and I guess I'm curious, Gajus, what are you hearing from the customers in terms of why they slowed down the overall purchasing process? Maybe you can talk to that in conjunction with maybe some comments around the pipeline.

And does it have anything to do with maybe foregoing single-cell expression studies and moving it straight on to, say, RNA seq expression?.

Yes, so there's no market phenomenon, no market slowdown or anything of that sort. So the Biomark, its role in single-cell biology is to conduct high-throughput single-cell expression profiling studies.

And these are very much part of the same ecosystem as single-cell RNA seq which is a way of doing expression studies at the whole transcriptome level or all the coding RNA level.

And subsequent to any RNA seq study that's going to be sufficiently robust for publication which is effectively all of our customers in single-cell, you need to validate that with orthogonal technology and PCR is by far the best way to do that.

So as I mentioned in the prepared remarks, it seems clear to us that there is an opportunity for the Biomark in validation and indeed that's been one of the primary uses for it in single-cell up to this point. We also hear from customers the same sort of satisfaction and delight that they've expressed about the Biomark for years now.

So it is a little confusing to us, to be quite frank with you, Bill. But, given that, we feel that it's prudent to assume that there's a continued effect with the Biomark and that unless we see that reverse or there are actions that we take that cause that to reverse that it will be a significantly muted contribution to our revenues in 2015..

Okay and then just two additional ones from me and I'll jump in the queue. I guess, adjusting for Forex on the instruments, it looks like pricing was for the most part pretty stable.

Was there any weakness in Biomark pricing in particular? And then secondly, Gajus, with respect to your comment regarding production consumables having a book to bill above 1, was that significantly above 1 or was that kind of, not to split hairs here, but was it essentially just a little over 1? Thanks..

It definitely wasn't a split hairs type of thing. It was above 1. Then, I'm sorry, your first --.

First question was simply just overall instrument pricing trend specifically around Biomarker..

Yes, ASPs on Biomark, yes. ASPs on Biomark. So there was some effect there, but some of it is geographic. So, as you may recall, in first quarter of last year we had a really strong quarter in Japan and we actually had quite a few Biomarks that sold into Japan and Japan always has a much higher ASP.

So on a year-on-year basis there was some decline on ASP. On a -- from a sequential basis, if you look at Q4 and then there is some effect, but ex-currency there really probably isn't any meaningful change there at all..

Thank you. Our next question will come from the line of Sung Ji Nam from Cantor. Your line is open..

Maybe starting with the CyTOF, Gajus, given you guys have had some -- a few quarters of experience with that platform and given that it's a higher priced system, was wondering if this kind of lumpiness is what we should kind of anticipate over the long haul.

And as you are introducing another kind of high-priced system, the Polaris, was wondering your kind of quarter to quarter -- we might see more volatility in terms of your revenues on a quarter-to-quarter basis..

Sure. So the CyTOF, well, let's say, with unit numbers less than 10 or in low-single digits, 1 or 2 units moving around is a pretty meaningful impact. And that is what we saw in Q1. Like I said, we had a customer who we were going to ship to who then didn't have the site ready, so that was revenue from backlog that we didn't -- couldn't convert.

And then when you get orders very late in the quarter, it's just -- it's very difficult to convert those into revenue. So we're expecting some lumpiness on that going forward, but not indefinitely. As the unit numbers get larger and also as the consumable portion of the revenue stream gets to be larger, that'll dampen that effect.

And then your next question about Polaris, we really think that Polaris will be very much like Biomark in terms of how it'll contribute.

There's an additional level of complexity with the CyTOF and that is that there are very specific site requirements as a result of it having a mass spectrometry engine inside of it and that does lead to some additional complexity about fulfillment of orders and customers being ready for that.

No such requirement exists for Polaris, so we really don't expect it to have that same level of complexity and therefore a similar level of lumpiness..

And then my follow-up is in terms of the Biomark weakness was wondering, are you seeing anything on the competitive side? And, I mean, I guess another way to look at it is how confident are you that there isn't some competitive force at play here? Thank you..

Sure. That's one of the confounding parts of this is that there really isn't some new competitive entry or another system that we're losing things to. And that's part of what, frankly, has been a bit confusing for us as we try to sort through whether or not this is just a close-in, near-term effect or a longer term trend.

We've assumed the latter, of course, in our guidance..

Thank you. Our next question will come from the line of Doug Schenkel from Cowen and Company. Your line is now open..

My first question is really just related to, I guess, trying to get a guidance bridge, if you will. You reduced full-year revenue guidance, I believe, by $7.5 million at the midpoint. It sounds like FX was between $1 million and $1.5 million of this. It sounds like you believe the DVS issues are largely timing related.

So what's the breakdown of the other $6 million? Is it almost solely Biomark or are there other areas where you're taking a more conservative stance?.

So, Doug, you also have to take the Q1 -- round figures take $4 million of Q1 out of that map also. The main effect really is the Biomark there. We -- there is some effect due to CyTOF lumpiness. But really the bulk of it is reduction from Biomark..

Okay. And there has been a question or two already on Biomark's challenges and what's behind this. And clearly you guys are taking what you think might be a conservative stance, but you don't know given what sounds like a lot of unknowns at this point.

You did get a question on whether some of this or a lot of this is attributable to maybe customers using C1s in front of next-gen sequencing instead of Biomarks increasingly. Doesn't sound like you think that is what's going on here.

So is that correct, you don't think that's the case? And I guess two related questions, did this pop up really late in the quarter? Because certainly at the time of the Q4 call and in your public appearances over the course of the quarter it didn't seem like this was something that you were contemplating.

And what is the process you are undertaking right now to identify what's going on with Biomark and when would you expect to be able to provide us with a more detailed update on the outlook?.

So, C1s are being increasingly used on the front end of next-generation sequencing. But, as I mentioned earlier, so let me back up here just a little bit. So when you do sequencing at a single-cell level, the data are far more noisy than they are for bulk.

And so while one can get reproducible data and publications from next-generation sequencing off of bulk tissue without doing some orthogonal technology validation, that has ceased to be the case in the world of single-cell.

So anyone who's doing single-cell RNA seq is going to require an orthogonal validation technology and PCR is just the -- it is the technology of choice for that kind of work. So even though more and more customers are doing RNA seq with C1s, our belief is that should actually create a growing opportunity for Biomark.

And the fact that we really didn't see that in Q1 is part of the conundrum. In terms of when this transpired, indeed, it was quite late in the quarter. And then our business is characterized by orders, particularly for instruments and particularly for the higher priced instruments, tend to be back-end loaded.

Q1 of this year was even more so than usual. So indeed prior to our usual quiet period which begins some weeks before the end of the quarter, it wasn't clear that this kind of shortfall was going to really transpire. And it did.

And then lastly, what is the process by which we're digging into this, one really important thing that we're doing is organizational and I highlighted that. The Biomark is used for both production genomics and for single-cell. The major shortfall here was single-cell.

So by separating, in this case, the marketing organization such that the people who are really fretting about single-cell can really dig into what went down here and understand it, just that alone, that focus that I was referring to earlier in my prepared remarks will certainly help out.

But, as you can probably imagine, we're and have been doing a very deep dive on this with our customers, the sales force, the pipeline, with all of that and engaging external inputs, as well, to really understand what the future for the Biomark is and what we need to do in order to influence that..

Okay. And maybe one more, if I could. In your prepared remarks you indicated you expect new products to account for high-single digit. I believe -- it was unclear to me exactly in what context you were using that terminology. I guess your guidance is for about 25% FX and revenue growth this year.

Does this mean you expect roughly one-third of your growth to come from new products? And if so what products are included in this bucket? Is that Polaris, the HD chip for C1 and I guess Callisto, would those be the three major drivers?.

Doug, that's right. This is Vikram. So first question was the high-single digit percentages refers to the midpoint of the revised guidance.

And the products are just exactly like you pointed out, Polaris, Juno to a large extent -- even though that was introduced last year, we consider -- still consider it a new product, Callisto and the various other consumables, some of which you already referred to..

Thank you. Our next question will be coming from the line of Dan Leonard from Leerink. Your line is now open. .

As you think about the quarter, is there any chance that some of the performance you saw in Q1 reflected perhaps a pause? You have a number of new products coming in midyear between Callisto, between Polaris, between the new chip on C1.

Is there any chance that customers just wanted to hold onto their wallets until they saw what the new boxes could do?.

That's always a risk. No, in this case the -- well, start one by one here. The Biomark doesn't overlap with any of the new products that we're rolling out. It's an entirely different application than Polaris or Callisto or the high-throughput chip on the C1. In the case of the C1, we had another strong quarter. So there was no effect there.

One might've expected that people might wait for the high-throughput chip to show up, but they didn't. I think the customers actually have confidence now that when we roadmap to something, particularly when it's relatively close in, that they can count on us to deliver that.

I do know that some customers who bought C1s in the quarter were looking forward to the high-throughput chip when it comes out. Also, there is really no overlap between Juno and the other products that we sell. It's an enabler to other parts of it. So I don't think there was a customer phenomenon there.

But I will riff off your question here a little bit. I do think that there was probably an effect on our own selling organization, particularly as it relates to the distinction between production genomics and single-cell biology.

I think that there was likely some distraction from people in single-cell when we launched Juno which is really focused on production genomics and the converse, when we started talking about Polaris which is focused on single-cell and that among our -- on our production genomics sales folks.

And this goes back, again, to the rationale for why we're creating two organizations here and why we've recruited very strong leadership for production genomics. We think that'll help a lot..

Okay.

And to the degree that the Biomark is becoming more of a validation tool in the single-cell workflow than maybe perhaps it was in 2013, what does that mean, do you think, in terms of the number or the ratio of Biomarks you need in a lab, Biomarks to C1, Biomarks to next-gen sequencers, whatever it may be, if its role really is a validation tool as opposed to a primary data generation tool?.

I wouldn't discount the importance of the validation. Again, it was a very different dynamic in single-cell expression profiling than there is in bulk tissue analysis. So, while that may be a less interesting role in bulk tissue analysis, in single-cell it's vital.

So I wouldn't -- in calling out that application, we're not relegating it to that application, it's a very critical application in the single-cell genomics workflow. But to the question of ratios and what have you, these really depend on the level of throughput that the studies require.

And the reason why we developed a high-throughput chip for the C1 is because the sample dimension, that is, the number of cells that customers want to run for their experiments, is going up very rapidly. And as such that very high throughput requires high throughput in the validation phase, as well.

We know of multiple publications, maybe even dozens at this point, that are doing large numbers of single-cells for RNA seq and then require a similar number -- by large numbers I mean thousands and thousands -- and require a similarly large number in order to successfully validate the results that they obtain on RNA seq.

And if that continues to be the trend, then there should be a pretty high ratio. That is, you wouldn't be using the Biomark just every once in a while. It'd get a lot of use as part of a validation tool for a single sequencer. But to specifically answer your question, that's something that we're digging into right now.

It'll be part of our updates coming forward. I think I neglected to answer a question from Doug earlier when he asked when can you expect more clarity from us on what's transpiring with the Biomark. I mean, certainly by the time that we're doing this call again we expect to have a lot more clarity about what's happening there..

Thank you. Our next question comes from the line of Bryan Brokmeier from Maxim Group..

Was there any difference across different geographies in what you saw transpire for the Biomark over the course of the quarter?.

Yes, there was, actually. So, first off, I mentioned earlier Japan had a very strong Biomark quarter a year ago and so that was part of what made it a really tough comp. And there was some differences between Europe and North America.

There was more utility of the Biomark, more use of the Biomark in single-cell in Europe than there was, at least ratiometrically, in North America..

You mean historically there has been or in this quarter?.

I was commenting on Q1 only. Historically it's actually been very consistent..

Okay.

And since launching single-cell RNA seq, have you seen some of your C1 customers purchase a Biomark later in the quarter, after they've run some single-cell RNA seq studies or have all those bundled sales that you talk about in the past been truly bundled and sold together all at once?.

So all those bundled sales that we referred to in the past have always been a purchase order for both systems simultaneously. So we've never counted a bundle as a customer who bought a C1 at one point in the quarter and then later added a Biomark. That doesn't count as a bundle.

A bundled sale means at the time of purchase they purchased both instruments. Both were shipped to them and installed essentially at the same time. So just to clarify that. Now, regarding your question, we definitely have seen customers buy C1s to do RNA seq and then later come back to buy Biomarks.

Sometimes that has happened very quickly in some cases, within a quarter, usually not within the quarter. And then in other cases it's happened over longer periods of time, maybe even up to a year. It's one of the reasons why -- and we've seen this repeatedly. We've seen it in different geographies.

It's one of the reasons why we know that the requirement for validation is very much real.

I can tell you also that we had customers who bought C1s for RNA seq at that time with no intention of ever buying a Biomark, but then they only came to understand once they started producing the RNA seq data that it was so much more noisy than bulk tissue data that they required an orthogonal technology to really confirm their findings..

Okay.

And moving on to production genomics, were there any customers in particular that worked down their inventory? Do you have any visibility into that? Or is it kind of a black box once you sell the consumables out to those customers? Or maybe what were some of the contributing factors behind the consumable revenue decline?.

Well some of our larger production genomics customers can have lumpy buying behavior. I mean, they have their own -- you have to remember that a lot of these customers are businesses themselves and they go through their own forecasting processes and their businesses can be up and down or they can be rapid growth modes or what have you.

So, as we've gotten more and more of those customers, that lumpiness has tended to smooth out. But this quarter there were several that didn't purchase in the way that we had maybe expected. However, as I mentioned earlier, we did actually have a strong order book. The book to bill was in excess of 1.

So what that means is that there were some customers who purchased but not for delivery within the quarter or just late enough in the quarter that it wasn't something that we could fulfill. There isn't any one customer or something of that sort that caused this to transpire. It was really just -- there is not any one thing to point at.

I think it's overall more that several customers around the world didn't purchase for delivery in the quarter as we expected.

As I said with the prepared remarks, there have been many quarters that in the past where we've exceeded the range for a quarter or two and we've always said, look one quarter's worth of data here is not a trend and I would say the same thing with what we're seeing here..

Thank you. Our next question comes from the line of Peter Lawson from Mizuho..

Gajus, just wondering if you could comment around Biomark again.

Do you think that's an issue you can correct or should we just really be thinking about this as a new norm to the Biomark C1 attachments?.

Well, our forward-looking guidance right now assumes that that persists. And the main reason why we've assumed that is that we can't fully explain it and therefore without being able to fully explain it we can't articulate to you what the actions -- what the appropriate set of actions would be in order to cause it to behave differently.

So our guidance assumes that that's the new norm going forward for this fiscal year. Now, having said that, you can be sure that we're looking at what we can do in order to change that. And, as mentioned earlier, the focus in our new organization will definitely be a contributor to our ability to successfully do that.

And then, as I've also said earlier on the call, I'm encouraged by the need for these validation tools in the single-cell RNA seq. And I think that's probably a fruitful area for us to be more focused on..

Has the trend with Biomark continued in Q2?.

Again, this is a big part of our forward -- of our reduction in guidance and of our new guidance. And we noted that there were several things that we expect to persist throughout the year and this is definitely one of them..

Okay.

And then outside DVS, is there any greater volatility in revenues with other business lines or perhaps from single customers?.

No, not really. I noted that this is the first quarter in a long, long time, in fact the first quarter that I can remember, where analytical consumables were below our historical range for some reason of volatility. As you know, in the past it's usually gone the other way. But really other than that that was it..

And then just on CyTOF, are you expecting that lost revenue, pushed-out revenue from Q1, is that going to happen in Q2 or rest of the year?.

No, not necessarily, because as we get new customers in -- well, so some of the revenue from Q1 will happen in Q2, but there will -- as mentioned, some of the orders that we're expecting and indeed maybe a good chunk of them, are coming ex-U.S.

and in particular because we know now that there's been funding from a large European agency for multiple CyTOF systems. Those orders will almost certainly not be revenue within the quarter. And we've seen that now happen multiple times. In territories ex-U.S.

it's just really hard, even when you get them early in the quarter, to convert those into revenue.

So while the revenue that we would've gotten in Q1 will turn into revenue in subsequent quarters and in fact the orders that slipped into Q2 have already -- they're already in our book now, the new orders that we'll get in Q2, particularly those that are ex-U.S., will turn into revenue in subsequent quarters.

So just to be clear, then, I certainly wouldn't -- you shouldn't look at an unusually high Q2 for CyTOF. In fact, I think we'll continue to have some lumpiness in Q2..

And is there any competitive disruptions happening around that DVS business that could have contributed to it?.

No..

[Operator Instructions]. Our next question comes from the line of Bill Quirk from Piper Jaffray. Your line is now open..

Just a couple of follow-ups. In terms of Japan, it sounds like we're starting to hear about some funds being released.

So could you talk to us a little bit about your expectations over the balance of the year for that specific geography?.

We're very much in a show me mode as it relates to Japan. It's been challenging, really, since Q1 of last year. And while there's been talk about release of funds, we won't -- we've taken a very cautious outlook to Japan and we won't change that until we see some real action there that is repeatable.

As you may recall, we had a very strong quarter in Q1 of last year, only to be very surprised in Q2 when funds were not released at all. This was despite the fact that there was a specific single-cell funding initiative.

So we're going to remain cautious about Japan until we see the funds released and spent and until we see consistent behavior in that respect, i.e., over multiple quarters..

And then secondly here is are you willing to disclose what the acquisition contribution was in the quarter from CyTOF or from DVS, excuse me?.

Yes, we're not breaking that out anymore..

Okay. And then lastly is in your related press release you talked about taking some of the products through a couple of different regulatory agencies.

I guess can you speak a little bit to the associated expenses with that, not only kind of the paperwork and any associated clinical trial they'd have to do, but then also just any costs to bring the manufacturing facilities into compliance? And I guess the last piece of that is I'm assuming that's contemplated in guidance, but just want to make sure..

So, Bill, we're not contemplating any clinical trials at this stage and we have budgeted included in our operating expense guidance a few million dollars related to regulatory expenses.

And much of our manufacturing operations have already -- as you know, we moved into a larger, more modern facility in Singapore last year and we had already taken a lot of the regulatory compliance issues into account when we made the move. So we do not expect a significant burden on the manufacturing facility as such.

There's always documentation issues and design control issues that have to be taken into account. But from the larger manufacturing perspective, from a design perspective, that was already contemplated..

Thank you. We have a question from the line of Doug Schenkel from Cowen and Company. Your line is open..

Really just one question. Gajus, in your prepared remarks you said something like this is not a we've seen this movie before situation.

And I know you were just talking really specifically about DVS, but more broadly I think that that's probably a relevant way of, I guess, positioning this question because the last four quarters have been a bit of a rollercoaster and you know that as well as anyone. I'm sure you're not happy to have to do this again.

I'm sure you don't want to do it again any time soon. So with that in mind, can you just talk to us about with the reset of guidance how should we think about the error bars about the different components? I mean, I asked a question, for example, about what percentage of growth this year do you expect to get from new products.

I think it's roughly mathematically something like $7 million, $8 million, $9 million, maybe $10 million in revenue. To some that may not strike people as being all that conservative. I know you took the Biomark numbers down a decent amount.

I mean, is that kind of a worst case scenario? How do we make sure that things are de-risked at this point? Because I'm sure you'd like that, as well. Thank you..

o, Doug, you're absolutely right. We do not enjoy in any respect having to revise our commitments which we take very, very seriously. And, as I mentioned earlier, there were a number of things in this quarter that were flat-out surprises to us.

But that being said, one question I haven't gotten that I expected was that why didn't you preannounce this? Why didn't you -- if you knew they had the miss of this magnitude, why didn't you do it -- come out with that news right away? Why did you wait until now in order to announce it and then lower guidance? And the answer to that question if I'd gotten it would be that we really wanted to take -- it was incumbent upon us to take the time that was necessary, really work through everything that we could, all the information that we could get, as full an understanding as we could have about the effects of the various things that happened during the quarter to arrive at guidance that was the best possible job that we could do.

Certainly the last thing that we wanted to do was to throw in our hand grenade into the mix here. I guess the short answer to your question is that we take our commitments incredibly seriously. And in the past, when we've had issues, it wasn't because we were overly and unjustifiably optimistic about our performance.

It was because something or some set of things happened that, despite hard work on our part, was not contemplated in our forward-looking guidance. And so we've done the very best and most prudent job that we can here to provide guidance that we know that we can hit.

And there is a contribution from new products and that is spread over quite a number of them. And so I would certainly encourage you not to think about that contribution all coming from one single platform.

So I guess I'd say the best I can do to reassure you there that it's not in our nature, it's not in our style to be in any way, shape or form cavalier about our guidance.

And the reason why we didn't announce -- preannounce right away is we wanted to take the time to really, really work through it and make sure we could put something out there that we could really hit..

All right. Thank you very much. And at this time I'm not showing any further questions on the phone lines. I would like to turn the call back over to Ana Petrovic for any closing remarks. I'm sorry, we actually have a follow-up question from the line of Peter Lawson from Mizuho..

Just needed to know, the biggest contributor to the miss, I think you broke out FX, but can you break out any other components, please?.

The only component that we have broken out is CyTOF. And we have talked about other issues relating to Biomark as well as the fall in the analytical pull-through. But we're not breaking out anything else..

So you're not breaking out anything further on the dollar miss..

That's right..

Okay.

And then just the distraction you've seen from within the sales force, was that corrected or do you think it's a multi-quarter effect?.

So, again, part of the reason why we're implementing this organizational change is to safeguard against that kind of thing happening in the future..

And then just the reduction in attachment rate for the Biomark, what do you think stops it from potentially dropping even further?.

The attachment rate for single-cell?.

Analytical.

You're talking about the analytical pull-through, correct?.

Yes, just kind of what we've seen with this dynamic with Biomark and the lack of C1 attachment that's been one of the components. I just wonder if that drops even further..

So I just want to make sure, so you're talking about the number of Biomarks that get sold in conjunction with C1s. I just want to make sure that's what we're talking..

Yes, exactly..

Yes, well, I mean, it's because of the fundamental need for single-cell targeted expression studies and the fact that there really isn't a strong competitive offering out there that competes with the Biomark. That hasn't changed..

Thank you. Our next question comes from the line of Bryan Brokmeier from Maxim Group. Your line is now open..

Shifting the focus a little bit away from the negative questions as we finish up here, in your prepared remarks you mentioned positive reception from customers for the Polaris.

Have you begun taking orders? And could you elaborate a bit on what customers have been saying in terms of their interest level and sort of what gives you the positive view of how it's going to be adopted?.

Yes, so thank you for switching the focus there. Interacting with customers around the capabilities of Polaris has been one of the most inspiring things that I've done in a long time, actually.

I don't think there's ever been a single product that I can remember that we've launched where you literally see people with their mouths agape and where you see them start to almost fantasize about the kind of experiments they've wanted to do that they can now do.

As an example, I had a conversation with a very senior researcher not too long ago that I've known for a long, long time. And he said, Gajus, I talked to you about this kind of experiment 10 years ago. It's been a dream ever since. I can't believe that you guys finally made this a reality.

And I know that from interacting with our sales force that we're hearing similar -- our sales force is hearing similar things. We're in a position now where we're starting to issue quotes and we'll be taking orders. As with any new product launch, we expect that that will take some time.

And people have to find budget that they didn't have lined up before and that will begin to happen.

So I guess a combination of just the sheer reaction that we're getting from customers, the number of prospects that we're now adding to our pipe, the level of activity that our prospects are going through in order to secure funds for it, the fact that we've gotten essentially no pushback on the pricing of the system is -- those are all very encouraging..

Thank you. And at this time I'm not showing any further questions. I would like to turn the call back over to Ana Petrovic for any closing remarks..

We would like to thank everyone for attending our call. A replay of this call will be available on the Investor section of our website. This concludes the call and we look forward to the next update following the close of the second quarter 2015. Good evening, everyone..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day..