Welcome to the Singular Genomics Systems, Inc. third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Philip Taylor. You may begin. Thank you, operator. Presenting today are Singular Genomics Founder, Chair, and Chief Executive Officer, Drew Spaventa, and the company's Chief Financial Officer, Dalen Meeter. Earlier today, Singular Genomics released financial results for the three months ended September 30th, 2023. A copy of the press release is available on the company's website. Before we begin, I would like to inform you that comments and responses to your questions during today's call reflect management's views as of today, November 14th, 2023, only, and will include forward-looking statements and opinion statements, including predictions, estimates, plans, expectations, and other information related to our financial and operating results, plans, and strategies. Actual results may differ materially from those expressed or implied by these statements as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission, including our most recent Form 10-Q and 10-K filings, and the Form 8-K filed with today's press release. Our SEC filings can be found on our website or the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. Please note that this conference call will be available for audio replay on our website at investor.singulargenomics.com in the Presentation and Events section. With that, I will turn the call over to CEO, Drew Spaventa. Good afternoon, and welcome to Singular Genomics' third quarter 2023 earnings call. It was another busy quarter, and I am pleased to update you on our company's performance. We will focus our update on the following three key areas: one, commercial execution, two, operational execution, and three, our innovation pipeline. In addition, I will provide commentary on the overall state of the business, including what is going well, what challenges we are experiencing, and most importantly, what we are doing differently to address these challenges. To address the last topic directly and concisely up front, we see many encouraging trends, have high conviction in the G4 platform and product roadmap, and see a clear path to build a successful business. Macro and market conditions do present challenges. We are being thoughtful and adapting our strategy in light of both internal and external factors. We have made changes to our business in Q3. This includes organizational structure, product roadmap, commercial strategy, and how we are thinking about managing cash runway forward in order to give the company time to execute. We will talk more about each of these topics later in the call. Now, I'll turn to an update on our third quarter. Let's start with commercial execution. We shipped five G4 systems during the quarter, our largest quarterly shipment total yet, which was made up of four shipments to four academic core labs and one commercial clinical lab. We progressed qualified leads through the sales funnel, increased our order book, and saw increasing utilization in the field, giving us confidence in the utilization and pull-through capability of the G4. We are excited to continue growing our installed base and delivering the unmatched speed, power, flexibility, and accuracy of the G4 to our customers. The G4's value proposition is increasingly resonating with our customers. For instance, the Broad Institute noted that, quote, "The instrument was purchased to replace old equipment, augment our sequencing capacity, and lower our sequencing costs while addressing new needs from our users. Its four flow cells and 16-lane design gave us the ability to streamline our single-cell sequencing operation. The four-color chemistry allows us to successfully and consistently sequence extremely difficult libraries that were a challenge for a very long time, while generating superb, reproducible data." End quote. System utilization and the ramp in consumable pull-through is increasing, but it's still early. We are learning more about initial customer utilization patterns and seeing encouraging signs. Consumables revenues more than doubled in Q3 over Q2, and this growth trend is carrying through in early Q4. We believe higher utilization will increasingly be enabled by two things: the usability of the platform and new consumable kit availability. Regarding usability, we continue to make significant progress during the quarter, supporting field upgrades of hardware components and software, and improving the reliability and uptime of the instrument. We expect this trend of increased utilization to continue. Regarding new kit availability, most of our customers are currently converting over to the newly launched F3 flow cells. As a reminder, the F3 flow cell doubles the number of reads and gigabase output from our F2 flow cell, providing customers a significantly higher throughput kit at a lower cost per gigabase. In addition, we completed the early access program for our Max Read for single-cell sequencing and are now making this kit broadly available to customers. All these things contributed to a quarter-over-quarter increase of more than 50% in the number of consumable kits ordered and shipped. In fact, one of our earliest customer placements has ramped their utilization over the last nine months to an expected annualized pull-through rate of approximately $170,000. We are encouraged by these trends in utilization and orders, which we are already seeing translate in early Q4. Turning to operational execution, our focus in the third quarter was on streamlining and scaling consumable manufacturing processes for our newly launched F3 flow cells, and enhancing the G4's usability and reliability. In operations and manufacturing, we implemented steps in our production processes around consumables, raw materials, and intermediate component QC testing, which were designed to increase the quality and consistency of consumables and reduce assay variability. In customer service and support, we rolled out several instrument hardware and software upgrades, providing new features and enhancements to improve the usability of the system. Turning to innovation and our product pipeline, we launched Max Read Kits for single-cell sequencing. As a reminder, this kit is designed to allow users to get up to 800 million reads per flow cell or 3.2 billion reads per run. This enables NovaSeq level throughput and pricing for single-cell sequencing on the benchtop system. Recent feedback from early access users has been very positive. For instance, Nationwide Children's Hospital analyzed single-cell data generated from the G4 using the Max Read workflow and compared them to libraries sequenced on a NovaSeq 6000. They noted, quote, "Our interpretation of the single-cell data is indistinguishable across the various platforms. We plan to continue sequencing 10x Genomics single-cell libraries on the G4, and look forward to adopting the Max Read capability on our instrument," end quote. And finally, we have become highly focused on developing and introducing our unique spatial sequencing and multi-omics offerings, which we believe will open a new market for our products earlier than previously expected. We have a dedicated team to the development of unique and exciting assays and solutions in this space, leveraging our core chemistry and technology. We look forward to sharing more soon regarding this exciting opportunity and our expanding capabilities in this area. Now, I'd like to switch gears and provide a few comments on the overall state of our business. We have been shipping our G4 Sequencing Platform for just over a year, and have learned a lot about our go-to-market strategy, given the current macro environment. My comments will touch on what is going well, what challenges we continue to see despite recent progress, and what we are doing to address these challenges. In terms of what is going well, we are seeing significant improvements in both the reliability and usability of the G4. We saw consumable kit shipments increase by more than 50% in Q3 compared to Q2. Consumables revenues doubled in Q3 over Q2, and this growth trend has continued into early Q4. We launched the F3 flow cell, and customers are quickly converting over from the F2 kits. We believe these developments will have a positive impact on our consumables revenue and system utilization over time, as more customers order F3 flow cells and Max Read Kits, which carry a higher ASP, given the increased read count and throughput. We also have growing conviction in the clinical opportunity, given the nature of that segment and the G4's profile. In terms of the challenges, the sales cycle and our ability to convert qualified opportunities to orders has progressed slower than expected. As a result, the mix of requested sales models for near-term opportunities has shifted to fewer capital purchases and more reagent rentals and evaluations. This has delayed the timing for our revenue ramp, as the value gets recognized over time and in line with consumable pull-through versus upfront delivery and acceptance of the instrument. Given the positive trends in reliability improvement, system usage, product ordering patterns, new product introductions, increased customer satisfaction, and our significant sales funnel, we do feel confident we will see a faster pace of placements and scale in the consumables revenue moving forward. While we are experiencing increasing positive momentum, we recognize we are not where we expected to be at this point, and we are taking the following steps to address this. First, we have prioritized G4 scale-up above all else. This includes a more focused effort across the organization to prepare for more accelerated G4 shipments, a growing installation base, and increasing consumables demand. Second, is to leverage our recently launched F3 and Max Read Kits. We are working diligently to deliver these kits to as many customers as possible. We will also double down on outward communications to potential customers, highlighting the benefits of these new kits and encouraging sample testing and system evaluations. As we think about the G4's product profile moving forward, we are focused on higher value kits that differentiate from the competition and bringing these kits to market robustly and on time. Third, to address the challenging market conditions, we believe a two-pronged shift in commercial and product strategy is needed. On the commercial side, we will be more flexible in deal structure and pricing. We will push harder on reagent rental or alternative deals to drive downstream conversions. We believe this result will be significant growth in the installation base through 2024. On the product strategy side, we will focus on leveraging our installed base and release just a couple of new differentiated, high-value kits next year. The kits will be significantly differentiated and carry a much higher ASP. We will share more on the product strategy and roadmap in early 2024. And fourth, we recognize the need to manage our cash and resources prudently to deal with the aforementioned challenges. We recently made a difficult decision to reduce our headcount by approximately 10% and reduced our spending plans accordingly, based on a more narrowly focused list of priorities and projects. We believe these actions will extend our cash runway into early 2026. As we focus our attention on our 2024 operating plan, we continue to identify additional potential areas of cost savings. And as always, we continue to actively evaluate strategic partnerships, investments, and other opportunities to maximize stockholder value.... Now, I'll turn the call over to Dalen to go through the details of our third quarter financial results. Thank you, Drew. I'll start by covering the Q3 2023 financials, then I'll provide additional directional remarks for the rest of 2023. Revenue for the third quarter of 2023 was approximately $500,000, predominantly made up of revenue recognized on one instrument during the quarter. We expect revenue from the remaining four instrument shipments to be recognized over time as our customers purchase consumables for these instruments. Operating expenses for the third quarter of 2023 totaled $24.5 million, compared to $24.7 million for the third quarter of 2022. These totals included non-cash stock-based compensation expense of $2.8 million in Q3 2023, and $3.4 million in Q3 2022. The year-over-year decrease in total operating expenses was driven primarily by a decrease in research and development materials and other general lab supply costs as we transition from development to commercialization of the G4. Net loss for the third quarter of 2023 was $22.4 million, or $0.31 per share, compared to $23.8 million, or $0.33 per share, in the third quarter of 2022. Our weighted average share count for the third quarter, used to calculate net loss per share, was approximately 73.2 million. Ending cash, cash equivalents, and short-term investments, excluding restricted cash, totaled $190.7 million. Turning to directional comments on the rest of 2023, we expect the number of G4 placements in the fourth quarter to be slightly higher than the third quarter, and for consumable pull-through to continue increasing as utilization increases with more customers purchasing F3 and Max Read kits. Customers showed greater demand for reagent rentals and evaluations versus the traditional capital purchase sales models during the third quarter, and we expect that trend to continue in the fourth quarter and into 2024. Regarding operating expenses, we recently implemented expense reduction measures to reduce our quarterly burn going forward. These measures included a reduction of approximately 10% of our headcount, termination of a long-term lease obligation, and other non-labor expense reductions. We believe these measures will allow us to extend cash runway into early 2026. Thank you, and back to Drew for closing remarks. Thank you, Dalen. In closing, Q3 was a busy quarter for our team as we shipped another five systems, supported customer installations and upgrades, and launched new higher throughput consumable kit offerings. We have now been shipping our G4 Sequencing Platform for just over a year, and we continue to evaluate our strategy. We are sensitive to the fact that 2023 has been slower than anticipated, and to the fact that the macro environment shows little sign of improvement in the near term. We also remain steadfast in our conviction that the G4 sequencer and Singular's technology offers important and meaningful value to the field of science and medicine. We have a thorough understanding of the challenges facing us and other early-stage companies in our space. We are addressing these challenges through prudent actions, such as shifting our sales strategy to accommodate customer sales model preferences, refining our roadmap and company priorities, streamlining our headcount and organizational structure, and ultimately reducing our burn to extend runway into 2026. Despite these challenges, we remain confident about the opportunity in front of us. Our recent product launches, including the F3 flow cells and consumable kits, and our Max Read Kits for single-cell sequencing, are expected to be important catalysts for commercial demand. We continue to receive validation from our customers that we designed the right product with a feature set and value proposition that meets the needs of many of the largest and fastest-growing segments of the market. Now, let's open up to questions. Operator? Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is coming from Dan Brennan with TD Cowen. Great. Thanks for the questions, guys. Maybe the first one would just be on, you know, the shift to more reagent rental versus outright sale, given the environment. Could you speak through a little bit, like what are the normal terms of like a reagent rental with these customers? Any color you can provide on, like, required consumable spending over the course of whatever it is, 12, 24, 36 months, just so we can get a sense of what the, you know, the attached revenue stream could look like. Hey, Dan, this is Drew. Thanks for the question. Maybe I'll provide a little color on kind of the market, and then Dalen can provide more specifics if needed. You know, right now it's just highly competitive and, you know, a lot of customers are frankly not in a position where they're leaning in to buy expensive capital equipment. So it's vital for us to be able to meet demand, where people want to access a new sequencer, especially the benefits, given the lower running costs, faster turnaround time, the flexibility with the G4 speaks to them. So there's really three buckets. The first bucket would be the capital purchase, the second bucket would be the reagent rental. The percent uplift really depends on the volume requirement, so there's kind of a toggle between what percent above normal pricing. It could be anywhere from, you know, 30%-100% above the normal pricing, depending on what they commit to. And then the term is, you know, typically negotiated anywhere from, you know, three to five years. The third bucket would be a strategic placement or an evaluation or a loaner unit, and that's an area where, again, to drive adoption for an early technology in a tough market, you know, it's betting on the system, putting it in, letting people evaluate it as a loaner pool, as a unit in a loaner pool, and then, you know, converting them into one of the two aforementioned models, either a CapEx or a reagent rental, once they've, you know, tried the instrument and gotten comfortable with it. It's really deploying, you know, a different strategy to push equally on all three of those, with the end goal of building installed base. Yeah. Dan, this is Dale, and maybe the one thing I'll add is, you know, there are instances where the commitment can be project or sample-based rather than time-based. So we have seen that, but, for the most part, typical, you know, kind of terms would be more kind of duration or time-based. Got it. And should we assume then, Drew, I think in your prepared remarks, you discussed, I think you used the word significant more instrument placements, given maybe the shift to more of this reagent rental model. Just, you know, maybe how do we think about, like, on a go-forward basis, obviously, you know, you gave the guidance for the fourth quarter, but if we think about the mix beyond that, like, should we be thinking 80/20 kind of reagent rental, 90/10? Like, just any, any help on... I'm sure you'll shift with the environment as needed, but just trying to think through how this might change the model as we look at it, you know, kind of our forecast for 2024. For 2024, we'll provide more color in 2024 on the Q1 earnings call. I think for right now, we just want to be conservative and kind of, you know, assume that Q4 will be a similar mix to Q3 and carry that forward. And then as we get more comfortable with, you know, how this change in strategy, you know, kind of is received over the next few months, we'll dial in, you know, 2024 and probably provide, you know, more guidance in 2024 than we did in 2023, you know, directional commentary versus actual guidance. So we should be able to fill that in for you in a few months. Dan, this is Dalen. Looking at the 16 shipments we've done to date, about 60% of those were capital purchases, 40%, you know, kind of fell into the other bucket that Drew described, the bulk of that being kind of in Q3. So, that, that's really kind of the mix that we're seeing, you know, and how it's trending. And so I think, you know, the idea here is, you get another quarter under the belt with Q4 and provide some additional detail and color, you know, on the next call for next year. Got it. And then, I guess maybe just ask one more. I think on the last call you gave or you've given some color on, like, either maybe not outright orders, but, like, qualified leads, kind of that funnel. And I know you talked about it's been harder to convert, and you're not alone in that, in that facet, given the market dynamics. But can you give any updated view on where we stood last quarter, where we stand this quarter? Like, what does that sales funnel look like? And, you know, if you do have any actual hard backlog you guys are carrying into Q4 or in Q4, that would be great to know that as well. Thanks. Yeah, you know, holistically, the funnel has more opportunities in it now, qualified leads, than it has ever before. What we've seen is that the ability to get those leads from the middle of the funnel down to the bottom of the funnel, which is a purchase, is just taking longer, and some are falling out, being candid. So we're focused on two things, continuing to fill the top of the funnel, and then making sure that they don't fall out, that we are able to push them forward. And then, you know, some of them are just stalling. We had it in Q2 and Q3, where we expected to have a few more close in, and you get to the end of the quarter, and they just seem to be waiting and taking their time to make a decision. So it's not that the opportunity falls out, it's just that things are going slower. We are confident that as, you know, the system becomes more established in the field, there's more word of mouth, the reputation of the G4 is in more customer hands, that that will help. And then we also think that, again, getting F3 and Max Reads out and people talking about it will help. And then we also think time will help. I mean, in a lot of ways, you know, Dan, for a new entrant, we, we're looking at 13-14 quarters of runway. We have multiple products coming out next year that we're really excited about that will leverage the current install base. So our strategy right now is really build the install base, you know, continue to fill the funnel, do everything we can to convert through bottom of funnel, and then, you know, leverage that growing install base next year with some very exciting kits that will be released kind of in the mid to second half of the year. Great. Thanks, guys. Your next question is coming from Matt Sykes with Goldman Sachs. Hey, good afternoon. Thanks for taking my questions. Maybe follow up, following up on one of Dan's questions, just on the increased shipment perspective that you guys gave. I know that previously you've given sort of the context of two to four shipments per month. How should we think about that previous guidance in the context of the shift in the go-to-market strategy with increasing reagent rentals driving maybe higher level of shipments over time? So we got five out in Q3, Matt. We would expect Q4 to be an increase over Q3, although I don't think we're at a point where we have enough confidence we could tell you exactly where we'll land. I think moving into next year, that's where we're planning to, you know, see a more significant jump quarter-over-quarter. And in terms of being more aggressive, it's, you know, there's been situations prior where we've made a decision not to go forward with a PO for various reasons, and I think we're just starting to, you know, widen the aperture in terms of what we consider for a placement and what we advance into that PO and placement. We do think that we will be able to, you know, grow the installed base quite significantly with this change in strategy and the revised product mix, and a few other things that are just trending positively, internally. ... Got it. And then your commentary on things dropping out of the funnel, you know, prospects dropping out of the funnel. Do you get the sense that for the ones that dropped out, are they looking at alternative purchases of competing equipment? Or is it just an overall delay in just the purchase itself, and they're thinking longer about it? Just wanna get the context for the competitive environment that you're sitting in. I think that it, it's, there's a few different reasons. I mean, first, from the competitive aspect, there is more competition. Illumina is, is being more aggressive in how they discount and try and do creative deals to, not lose placements to, to Singular. In terms of, you know, things taking longer, that's been a, you know, a trend that we've seen throughout the year, and it's still continuing, where it's not that, that, you know, a potential customer says we're not gonna buy, they just take more time and what we expect to be a Q3 decision, they say it's now a Q4 decision, and we're seeing a lot of that. And then there are, of, of course, you know, some customers that are rethinking or just saying, "I'm on hold indefinitely. You know, I'm not gonna buy a new piece of equipment, and those are falling out. You know, so I think it's a little bit of everything. I don't know if that answers your question, but it's not one thing. It's kind of, you know, a balance between those three, I'd say. Got it. No, that's helpful. And then just my last question, Dalen, for you. Just on the cost cutting that you did, I know that the R&D kind of dropped year-over-year as you kind of went commercial on G4, but can you maybe give us some context of those cost cutting that you did, kind of the splits between SG&A and R&D, and how this kind of laid out? Yes, sure, Matt. You know, in October, we completed a you know, small reduction in force of about 10% of the workforce. That was about, you know, approximately 30 people. It really was across the organization, probably, you know, more heavily weighted on, you know, the R&D, you know, side of the house just being, you know, tied to different project decisions and priorities, like Drew mentioned, you know, thinking, you know, across that holistically as part of our kind of annual strategic planning and operating plan, you know, process. You know, what are the highest priority activities and projects that we're gonna focus on? So really, it was, you know, spread across kind of the entire organization, a little bit more heavily weighted, you know, on the R&D side. Got it. Thanks for the questions, guys. Appreciate it. Thanks, Matt. Your next question is coming from John Sourbeer with UBS. Hey, good evening, and, thanks for taking the question. Hey, Drew, I think in the prepared remarks, you mentioned there was a customer that had gotten up to $175K on pull-through. Just, you know, any additional color there, you know, are they using both the F3 and the Max Read? And, you know, do you think the other customers can get there, and just, you know, any additional color on where you think pull-through can, can go from there? Absolutely. Thanks. Thanks, John. Thanks for joining. Thanks for the question. And this customer is an academic core. They're servicing a number of PIs. They do a whole host of different sequencing, a lot of single-cell sequencing. They've migrated almost 100% onto the F3 now. And they will also... I think they've begun ordering Max Read Kits, which is just recently available, and they will likely do a lot of Max Read as well. So that's kind of nature of that customer. I think there are other customers that are similar. What we have found is, you know, a lot of times in these core lab environments, you know, it's really getting the people doing the work, the customers of the core, so to speak, to elect and decide to put work onto the G4, and sometimes it takes time to have them start to, you know, select that machine versus other machines. And I think this core is a really good example of that. The ramp, this instrument's been out for almost a year, and it really took a full nine months plus for them to ramp up and get to a point where they have, you know, multiple PIs putting experiments on the instrument on a routine basis. So it's very encouraging to see. There are a number of core labs that we currently have as customers and others in the queue that have similar types of customer bases, meaning they're high volume cores, where there's a ton of usage, you know, multiple sequencers. So I think it's an encouraging sign, but it also, again, you know, speaks to the fact that it is taking time. I mean, this was an early adopter, somebody very supportive of the system, an advocate for the system that still took a full nine months plus to get to the point where it's, you know, at this pull-through. So, and most of our installed base has been, you know, only out for a few months, so it's still... We're still seeing the ramp occur. Got it. And then with the increased focus here on the G4 launch, with the cost cutting, I guess, any updates on the PX, and, you know, are you still moving forward on that program? Yeah, we're moving forward with spatial. You know, we've been firm that we think there's a huge opportunity to leverage our sequencing technology and a lot of the method development we've been working on for now close to five years, and it's something we're continuing to be, you know, very excited about. We're in the middle of a TAP program right now, Technology Access Program, where we're doing sample testing in-house and working with some of the key academic institutions in the world to do, you know, new things, you know, using sequencing as a readout in situ. We plan to have more information on how we plan to bring that forward, and realize that value for the company, for the customers, and for our stockholders, at the beginning of 2024. So it's something we're actively working on, but you know, we don't have a full plan to share quite yet. Thanks. And, you know, I on the orders that kind of dropped out of the sales funnel, I guess just a clarification there, you know, have you actually seen any cancellations there that might have actually moved into, you know, like, a backlog, or are these just, you know, broader within the different groups of the sales funnel? I don't think we've seen any yet, Dalen. Yeah, we haven't seen any cancellations. And what we're seeing is, you know, if we have, you know, four different levels in our sales funnel that advances down at various stages, you know, we're just seeing we're at the middle of that funnel, where it goes from, you know, an evaluation or getting into sample testing, or once the samples are tested, getting into a PO, we're just not seeing, you know, quite the movement through that we would expect. It's kind of getting, you know, clogged and stuck in the middle. And again, I think we're really thinking about all the different ways we can address it. But it's not that people are backing out, it's more just trying to get from... There's an interested party here that wants a sequencer, but there's a budget constraint or they, you know, wanna, you know, wait for whatever reason. How do we advance those forward and, you know, reduce any barriers to get them to move forward to take a system and start using it? Great. Thanks for taking the questions. Thanks, John. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.