Ana Petrovic - Director, IR Gajus Worthington - President, CEO, Co-Founder Vikram Jog - CFO.

Dan Leonard - Leerink Partners Bill Quirk - Piper Jaffray Doug Schenkel - Cowen and Company Peter Lawson - Mizuho Securities Bryan Brokmeier - Cantor Fitzgerald.

Good day, ladies and gentlemen, and welcome to the Fluidigm Third Quarter 2015 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later there will conduct a questions and answer session and instructions will be given at that time. [Operator Instructions] And as a reminder, this call is being recorded.

I'd now like to introduce your host for today's conference, Ana Petrovic. Please go ahead ma'am...

Thank you. Good afternoon, everyone. Welcome to the Fluidigm third quarter 2015 earnings conference call. At the close of the market today, Fluidigm released financial results for the third quarter ended September 30, 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 Web site.

During this 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 plans and strategies for our business and product line and anticipated results there from, anticipated product revenue trends and contribution from new products, and estimates of 2015 total revenue, GAAP and non-GAAP operating expenses, stock-based compensation expense, depreciations and amortization expense, interest expense, capital spending and currency related impact on 2015 revenue.

These statements are forward-looking and are based on our management current expectations and beliefs. As a result these forward-looking statements are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from currently anticipated events or results.

The risks and uncertainties relate without limitation to the accuracy of assumptions underlying the financial forecast provided today. The impact, if any on our future operating results of our organizational and operational changes and strategies, employee recruitment and retention and the manufacturing, supply or performance of our products.

Information on these and additional risks, uncertainties and other information effecting our business and operating results are contained in our Form 10-Q for the quarter ended June 30, 2015 and will be set forth in our Form 10-Q for the quarter ended September 30, 2015, to be filed with the SEC. We advise investors to review these risks 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 results which can be found in the Investor section of our Web site. I will now turn the call over to Gajus..

Thanks, Ana. Good afternoon, everyone. In the third quarter of 2015 we made progress in stabilizing our near-term performance and expanding our commercial organization to improve execution. Total revenue of 28.6 million was down 3% year-old-year and up 3% on a constant currency basis. The primary drivers of our results were as we projected.

Our single-cell proteomic CYTO product line continue to grow strongly on a year-or-year basis. However, top-line growth moderated by decreased consumables consumption by production ginormous customers, core single cell genomics instrument sales and a modest contribution from new products.

We expect these dynamics to persist through the end of the year and are nearing our full year revenue guidance to $111 million to $114 million from $110 million to $115 million. The flagship C1 Single-Cell AutoPrep system continues to lead the single cell genomic sample preparation market that we pioneered.

Our C1 installed base now stands at approximately 375 units. The throughput of all these instruments will now be increased by nearly an order of magnitude simply by purchasing our new high throughput single cell MRNA sequencing chips which began shipping in the quarter.

Encouragingly, this new product accounted for approximately 20% of C1 consumable sales. Our new workflow scale sample throughput from approximately 96 sales to approximately 800 sales, while decreasing sample preparation cost by roughly 85%.

This dramatic enhancement underscores the headroom we have with the C1 to improve the capability of the system with new consumables offerings. Customer reception has been positive. We have also signaled to our customer base that another order of magnitude increase in throughput is within the C1’s capability.

This is important as a future direction of the single cell genomics market will require higher throughput and lower cost per sample. We are committed to continuing to innovate and push the envelope along both these axes. We are pleased with the growth of our single cell proteomics product line in the quarter.

Clearly, single cell proteomics is a growth opportunity and Helios has struck a resident cord, specifically Helios improve sensitivity, capture efficiency and ease of use our appealing to both our existing and new customer base.

Our available base is also expanding, for example approximately 40% of Helios system sold in the quarter were driven by non-academic customers such as Biopharma. Our pipeline of Helios instrument opportunity is strong and we continue to feel positive about the outlook for Helios platform.

As communicated last quarter, we refocused our commercial activity to focus more on core products while filling a smaller team of specialists responsible for our newer products, particularly Polaris and Callisto. As expected our initial cells prospects have come largely from our existing single cell biology customer base within the academic sector.

The key disciplines cut across immunology, oncology, stem-cell biology and neuroscience. We are pleased to see the interest and pipeline for Polaris and Callisto continue to build. Analytical systems unit sales which include both Biomark and EP1 systems grew on a sequential basis.

Of note we have a large fraction of genomic analytical system sales driven by industrial customers including clinical and agriculture which represented of or approximately 50% of unit sales in the quarter. In addition approximately 25% of our genomics analytical system sales were combined with our [geno] sample preparation platform.

Geno enables genotyping from extremely small and challenging samples routinely studied in clinical our agricultural applications. We plan to launch a new targeted resequencing sample preparation workflow on geno in the first quarter of 2016 which is broadly addressable opportunity in clinical and agricultural market.

We are building out our production genomics commotion organization under the leadership of Steve McPhail. This team is responsible for driving sales of our product portfolio into industrial applications. We recently added to seasoned sales and support executives with significant leadership experience in clinical market to our team.

John Starks, our new senior VP of commercial operations and Pat Cook, VP of global support. We are thrilled to have John and Pat as part of our team and their arrival represents an important part of our commercial strategy to drive growth and diversification into new customers and market.

We expect these and other organizational changes to contribute positively to our 2016 performance. In closing, we feel good about the progress we made in the past quarter in improving our commercial execution.

Importantly, we continue to implement key organizational changes and add sales leadership to our commercial organization that we believe will position us for growth in 2016. While 2015 has been challenging we continue to be excited about this single cell biology market and Fluidigm is positioning within it.

It is clear now within the scientific community and increasingly within biopharma and clinic in markets that single cell resolution to elucidate biological heterogeneity and a rare sales is not simply desired, but required. And as always Fluidigm remain committed to being an enabling leader of this revolution. I'll hand it over to Vikram now..

Thanks, Gajus, and good afternoon, everyone. I will now walk you through our third quarter 2015 operating results and highlights. In the third quarter of 2015, total revenue of $28.6 million was down 3% year-over-year and up 3% on a constant currency basis.

Total instrument and service revenue was up 4% year-on-year in the quarter primarily due to contribution from new products, increased sales of Helios systems and higher service revenue, but the offset by decreased sales from core genomic systems.

Please note that we are reporting instrument and service revenue separately in the financial statements accompanied in today's earnings release. Approximately 45% of the BioMark HD systems sold during Q3 were motivated by single-cell research with approximately 20% of C1 systems sales combined with a BioMark HD system.

Our BioMark attachment rate to the C1 was generally in line with our historical pattern. Total consumables revenue, which includes IFC, assays, reagents and antibodies was $10 million during the third quarter, down 14% year-over-year, mainly due to lower sales from production genomics applications.

Annualized pull through rates in the quarter were within our previously reported ranges, and those are between $25,000 to $35,000 per system for genomic analytical IFC, between $15,000 to $25,000 per system for genomic preparatory IFC, and between $50,000 to $70,000 per system for proteomics consumables.

Our total instrument installed base was approximately 1,565 instruments at the end of the third quarter of 2015 including approximately 760 systems designated for single-cell biology research. Approximately 55% of the installed base was comprised of analytical systems and the remainders were preparatory system.

Geographic revenue as a percentage of total product revenues for the third quarter were as follows; United States 48%, Europe 35%, Japan 4%, Asia-Pacific 8% and 5% other. Geographically, the year-over-year revenue growth rates for the third quarter 2015 were as follows; Europe up 24%, Japan up 27% and other up 40%. The U.S.

and Asia-Pacific were down 19% and 17% respectively. Notably, we saw strength in Europe despite foreign currency exchange headwinds primarily driven by increased sales of core genomic instruments. Net loss for the third quarter was $9.3 million compared to a net loss of $13.8 million in the prior year third quarter.

Adjusting for stock-based compensation, escrow settlement gain, depreciation and amortization, interest expense, amortization of developed technology and tax benefits from acquisition related amortization; non-GAAP net loss for the third quarter of 2015 was $4.4 million compared to $3.1 million of non-GAAP net loss of the third quarter of 2014.

Please refer to the reconciliation of GAAP to non-GAAP information attached to the third quarter 2015 earnings release for details. GAAP product margin was 58% in the third quarter of 2015 versus 61% in the year ago period and 57% in Q2 2015.

After adjusting for amortization of developed technology, stock-based compensation, non-cash revaluation of acquired inventory and depreciation and amortization, non-GAAP product margin was 72% in Q3 2015 versus 74% in the third quarter of 2014 and 71% in Q 2015.

The sequential increase in non-GAAP product margin was primarily driven by favorable overall instrument selling prices and production costs. Turning now to our OpEx, research and development expenses were $9.4 million in the third quarter of 2015, compared to $12.7 million in the third quarter of 2014 and $10.1 million in Q2 2015.

The year-over-year decrease in research and development expenses was primarily due to one-time acquisition related to stock base compensation expense.

As G&A expenses were $19.6 million in the third quarter of 2015, compared to $18.6 million in the year ago period and $21.2 million in Q2 2015, the year over year increase SG&A expenses was primarily driven by continued investments in our commercial infrastructure. Moving on to the balance sheet.

Total cash, cash equivalents and investments were $114 million at the end of the third quarter compared to $120 million at the end of Q2 2015.

The $13 million decline and cash and investment balance was higher than our quarterly cash run rate for the first half of 2015, primarily due to an increase in accounts receivable in Q3, particularly in Europe driven by high volume of tender business with longer payment terms.

Based upon our visibility into payment terms and expected timing of payments, a significant fraction of these increased receivables should be realized in the fourth quarter. Net cash used in operating activities was $30.3 million in the first nine months of 2015 versus $19.1 million in the same period last year.

The increase in the first nine months of 2015 compared to the prior year period was due to an increase in net loss, adjusted for noncash item and working capital. Accounts receivable were $26.2 million at the end of the third quarter 2015, compared to $21.8 million at the end of the second quarter of 2015.

DSO at the end of third quarter was 82 days compared to 69 days in Q2 2015. Inventory was $19.1 million at the end of the third quarter of 2015, up from $18.8 million at the end of the second quarter of 2015.

Now moving on to our financial guidance for 2015, we are narrowing our 2015 revenue guidance range to between $111 million and $114 million from our previous range of $110 million to $115 million. This includes an estimated negative, currency related impact of approximately 4 to 5 percentage point at the midpoint of the range.

Operating expenses are now projected on the GAAP basis to be $121 million and $124 million versus prior guidance of $123 million to $128 million. Operating expenses on the non-GAAP basis are now expected to be between $101 million and $104 million compared to prior guidance of $101 million to $106 million.

This excludes approximately $16 million of estimated stock based compensation expense and $4 million of estimated depreciation and amortization expense. Interest expense is projected to be $6 million and finally capital spending is now expected to be between $4 million to $5 million compared to prior guidance of $6 million to $8 million.

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

Thank you. [Operator Instructions]. Our first question comes from the line of Dan Leonard with Leerink. Your line is now open. Please go ahead..

Thank you my first question is [indiscernible] was building for both Polaris and Callisto adding here into the end of the year?.

I am not going to provide the specific numbers there Dan.

But as I mentioned the low hanging fruit for us is the existing single cell genomics customer base, who have realized as we did some time ago that biological context, the environment, the way you treat cells, the way you handle them prior to doing gnomic analysis critical to understanding cellular function and I believe curtailed the number of people who have the authority and responsibility to go out and develop the pipeline for both Polaris and Callisto.

We've done that really worldwide, that's been effective and we're encouraged by the rate at which we see that pipeline growing..

Thanks and my follow up on that.

On the high throughput C1 chip, you mention the 20% of consumables were high throughput, would you expect that number to trend well higher and what would that due to pull through per box?.

That ratio actually is a bit surprising in the first quarter. It's encouraging quite frankly. So I don't have specific expectations right now about what percentage that will be and in the fourth quarter or the second quarter of full sales and the effect on pull through really depends on the scale of the projects.

If they're very large projects then it would tend to trended upwards. If they're not then it would probably continue to have it be flat.

But I can say but will says that we will advise you and other folks about changes and pull through on the C1 as they occur, and we won't change our pull through numbers until we see that happening from multiple quarters and for reasons that we really understand.

But the net is that we're very encouraged by the initial response to you in purchase of that [indiscernible] chip..

Our next question comes from the line of Bill Quirk with Piper Jaffray, your line us now open..

So the first question is just the mix of analytical versus preparatory systems. I realize that your installed base is getting pretty big here so we could -- there's obviously rounding and such that happens, but just kind of working the math back from last quarter it looks actually like your analytical systems took a pretty big step up versus preps.

I guess could you just kind of comment on that and again maybe it's just rounding and then I'm coming up with these figures..

We did note that genomics analytical systems grew sequentially and we also called out some of the reasons for that. We've seen an uptick in interest in biopharma and in some of the industrial applications for the Biomark and we were encouraged by that. We think that the biopharma is a good opportunity for us.

So note that in the quarter our sales to the bio pharmaceutical sector is about 18% over 16% rather of our of our total pharma biotech was 16% of our total sales versus 8% in the year quarter..

And then second question is just thinking about, I guess that the broader single cell market Gajus, you guys have obviously long been big advocates of that and your competitors are starting to pick up and take notice, in fact we had several system introductions at the recent ASHG conference.

And so I'd love to just getting an update from you in terms of how you are feeling about the competitive dynamic and what you guys are seeing out there. Is this having any effect on customers in terms of them wanting to, or maybe kick the tires in some of these newer systems before they eventually settle on something like a C1 or other player. .

So there's nothing new. There is no product announcements. I think there are a precious few product launches, I mean I think WaferGen is, and they are in an evaluation phase right now and the other things were announcements of things that are mostly still yet to come, so there are no surprises there.

These are these are technologies and potential solutions that have been in the works for quite a while but many of them have had pre-review publication in months or even years prior to ASHG. So there's really nothing new there.

And there are some customers as we've noted for the last couple of calls that want to understand what the competitive landscape looks like and what's being promised and what might come to pass. And as in previous quarters that has really resulted in a very small number of delays to our current sales.

But the net is that if you want to do single celled genomics today, in an integrated system, the C1 continues to be the only commercial system that's available. .

Our next question comes from the line of Doug Schenkel with Cowen and Company. Your line is now open..

So my first question is I don't believe you guys have previously provided services revenue in the press release. It looks like you generated some pretty robust growth there year-over-year.

How does this compare to the last few quarters? I guess just curious why this new disclosure this quarter?.

Dough, we are breaking it out, because really we're required to. It's become a significant enough percentage of revenues that we're really obligated to report that out separately and Vikram will comment on that in a moment. So previously that we concluded service as part of instrument revenue, we would continue that practice.

But for the requirements now we break it out separately, given that it was over 10% of total revenues. As you know it grew sharply in the quarter. Services revenue has done well for us for some time. It's been a strong area for us.

We have a very capable service team that does a really good job, delighting customers and they've been very effective for quite some time in securing service contracts. From my perspective I think [indiscernible] also a good indication about the intent of the use of the systems going forward..

Okay, that is helpful. Just wanted to make sure there wasn't any more --.

Vikram, do you want to comment on the figure?.

Yes, I just wanted to point out, Dough, that we have attached a table in our earnings press release to give you the information that you're looking for. .

In terms of, the diagram, okay, great. And then I guess a follow up to Bill's first question.

You know when you take the installed base numbers from this quarter and last quarter, and then also take the figures you provided for the percentage of the installed base that is analytical in both periods, there is some error bars but you know even recognizing the error bars -- if I am doing the math right, it's just that prep systems were probably in the neighborhood of 20 in the quarter.

However, your commentary on Q1 if just things may be one better than that in the quarter, so could you just provide clarity if nothing else, could you just tell us if you want placements where at least stable sequentially. Thank you sure..

Sure. So in previous earnings call we indicated that sales of core genomic systems was going to be challenge in the back half of the year and that was why we reduce guidance and that's indeed what we saw during the quarter.

I want to make clear though that we've laid out what we believe that the root causes for these things were and we continue to have conviction that we're right about that in fact and in fact results particularly geographic which are I think plan to see their, help to underscore this.

So indeed the C1 systems unit sales were down year on year which is about what we expected.

And this is in our view largely due to the fact that we weren't doing as good a job building pipeline in early part of the year due to the overtaxed commercial organization with so many new products that they had tend to and one thing that's interesting and you see geographically is that Europe did exceedingly well and also with the ones in particular where I think that this phenomenon of distraction was not nearly as acute as it was another territories.

So in any case the sales of C1 systems you know why it was down year on year that was within our expectations.

I wasn't sure if you were, in your question alluding to competitive dynamic as part of that, I just want to make clear the root causes of what we're seeing here continue to, as the day plays out it continues to be in alignment with what our thesis has been..

Okay and last one which is really just a follow up to my prior question.

Was there any signs that maybe the market stall a little bit in anticipation of the high throughput chip launch and now that you have that out there an evaluations are ongoing are there any signs that that is now leading to a pickup and demand and building the funnel? Anything along those lines?.

It's really hard that[indiscernible] and I think in general we have a fair amount of credibility with our customers that when we say we're going to launch something that they believe us and we've been making those kinds of roadmap statements since which we first launch the C1 and in general that's accrued to our benefit.

The high throughput chip however was late, I mean the launch that was about a quarter later than we would have wanted. So it's really difficult to say Doug what the net effect of those throughputs and takes were..

Okay thank you..

[Operator instructions]. Our next question comes from the line of Bryan Brokmeier with Cantor Fitzgerald. Your line is now open..

Hi. Good afternoon. It's nice to see the stabilization in the quarter, the fourth quarter is usually seasonally strong quarter for the industry as well as for yourselves.

Are you seeing anything to give you reason not to expect that seasonality as much this year is normal?.

You never know about the seasonality until it actually shows up and we're not in a position to comment right now in the fourth quarter but we're pleased with how the third quarter played out and the visibility that we have is what gives us confidence now to narrow our guidance for the here which of course gives some indication about what we think about the fourth quarter..

You narrowed it down bringing the bottom up in the high end down and although we have focused on the midpoint of the guidance or is there anything that may give you confidence that the to come in at the prior high end is going to be challenging?.

You know the guidance. You know it is what it is that's, the range is our best thinking right now about how the year will play out. They clearly will opt out the top and the bottom because of improved visibility..

And on the high throughput C1 chip, are there any upgrades, there software upgrades that are required to use that?.

I think, it is a script..

Sorry?.

I don’t like downloadable script..

And do you expect all customers to switch over to the high throughput chip and how of you seen that market acceptance in so far of your current customer base?.

We don't expect all customers to switch over. There are a number of single cell applications where you have limited numbers or what you're seeking is limited or you are seeking to survey, native heterogeneity that is that is pretty pronounced in other words half the population, half of the sample is one population and another.

We don't necessarily need large numbers of cells for those types of studies and they're going to be more of those that that happen so we don't expect every C1 system to run the high throughput chip but is not anytime soon..

And then just lastly, have you seen any increase in your -- are any changes in general in your employee turnover, particularly within sales and marketing and whether you aren't or are you making any changes to that organization outside of the new hires the and this new leadership hires in order to ensure that you don't start to see any increases in employee turnover.

I got a LinkedIn invitation from Bill Qwirk, so I am wondering if he was looking for a job. But now there is a -- but thankfully we have a -- had a very stable employee base and I think it is characteristic of Fluidigm generally during times of challenge people hear how then a bow is really buckled down. It's part of our culture..

I am showing no further questions. I would like to turn the call back to Ana Petrovic for any concluding remarks..

We'd like to thank everyone for attending our call. A replay of this call will be available on the Investors section of our Web site. This concludes the call and we look forward to the next update following the close of the fourth quarter of 2015. Good evening, everyone..

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