Jen Carroll: Thank you, Justin. Good afternoon, and thanks for joining us for Telesis Bio’s Fourth Quarter and Year-end 2022 Earnings Call. With me on the call today are Telesis Bio Founder and Chief Executive Officer, Todd Nelson; Chief Operating Officer, Eric Esser; and Decky Goodrich, Senior Vice President of Commercial Operations. Our fourth quarter and full year 2022 financial results press release is now available on the Investors section of our website. Before we begin, I would like to inform you that certain statements we make during the call will be forward-looking statements that involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Such factors include those referenced in the safe harbor statement included in our earnings release and in our filings with the SEC. This conference call contains time-sensitive information and is accurate only as of the live broadcast on March 21, 2023. Finally, any percentage changes we discuss will be on a year-over-year basis unless otherwise noted. And with that, I will hand the call over to our CEO, and we can get started.
Todd Nelson: Thanks, Jen. Welcome, everyone. Thank you for joining today’s call. First, I would like to thank our entire Telesis Bio team for their tremendous efforts resulting in a stellar 2022, where we exceeded revenue expectations, delivered meaningful expansion of gross margin and, in recognition of the current macroeconomic environment, delivered on reducing our operating expenses as a measure to extend our cash reserves. We have done this at the same time as funding our growth initiatives and executing commercially. Our overall plan this year is to continue to expand our BioXp customer base and drive the adoption of new BioXp kits. And to do this, we’ll be focused on 3 things. First, expanding access to the synthetic biology market. We will do this by introducing our Select kit line of BioXp products that will allow customers to use their own DNA as a starting point. Second, we’ll be entering a new market for NGS library prep. We will launch an NGS library prep kit that will run on our existing BioXp installed base. And later in the year, we will launch a 9600 version for high throughput NGS sample prep. And third, we will expand in the fourth quarter, our genome engineering workflow applications through the launch of CRISPR guide RNA based upon our proprietary enzymatic DNA synthesis chemistry referred to as SOLA. Telesis Bio is a leader in automated multi-omic and synthetic biology solutions. At our heart, we are an instrumentation company offering unique first-to-market benchtop automation platforms that are driving production of DNA, mRNA and protein to the benchtop for a global customer base. Our systems enable decentralization of rapid, accurate and reproducible writing of biology. Our vision at Telesis Bio has always been to provide researchers with the tools to build biology in their own laboratory without any constraints. The ability to create novel synthetic biology-enabled solutions allows us to address large unmet needs in our targeted markets. Scientists around the world are using our comprehensive solutions to accelerate a design-build-test paradigm for novel, high-value products for biologics and vaccine discovery, genome editing and cell and gene therapies, just to name a few. Now moving on to our fourth quarter and year-end results. I’d like to remind everyone that our detailed financial results for the fourth quarter were also included in today’s press release. Total revenue for the fourth quarter and full year 2022 was $9.5 million and $27.4 million, representing growth of 208% and 148% for the respective periods. Notably, our core BioXp revenue, which consists of instruments and kits grew at 158% and 67% for the fourth quarter and full year, respectively. This strong growth was the direct result of demand for both the BioXp 3250 and our recently launched BioXp 9600 systems and increased utilization resulting from new kits launched during the year. In the fourth quarter, we sold a total of 19 BioXp units, representing 138% increase over Q4 of 2021. And similarly, for the year, we sold 66 additional instruments representing 32% growth, which brings the total installed base to in excess of 250 instruments. Overall, we continue to be very pleased with the demand for the 3250 and the initial uptake within the market of the 9600. The launch of the BioXp 9600 system brings significant revenue potential stemming from higher instrument ASPs, higher BioXp kit utilization rates and an ability to expand into new and adjacent markets. Gross margins came in at 68% for the fourth quarter and 57% for the full year of 2022, reflecting positive mix shift in revenue towards higher-priced BioXp kits launched during the year for mRNA, long fragment builds, cell-free DNA scale-up as well as the receipt of Pfizer technical milestone payment resulting from the successful achievement of our first of 4 milestones. Operating expenses were $14.3 million for the fourth quarter of 2022 compared to $13 million for the same period in the prior year. For the full year, operating expenses, including noncash charges, totaled $62 million, reflecting prudent efforts in the second quarter to reduce our annual run rate expenses. This increase in operating expenses was driven by personnel costs and expansion across our business, primarily our commercial organization to support our increased revenues. Net loss was $8.1 million for the fourth quarter 2022 compared to $12.5 million in the same period the prior year. The net loss per share was $0.27 for the fourth quarter compared to $0.43 for the corresponding year and for the full year period of $48 million compared to $39 million during the prior period. Cash and cash equivalents were $43.8 million as of December 31, 2022, noting also that the company has approximately $20 million worth of debt outstanding as of the end of the year. In summary, during 2022, we believe that we assembled the right executive team that can drive revenues, increased gross margin and stabilized base operating costs so that we can become a profitable company in the second half of 2024 and deliver value to our shareholders. Now I’d like to briefly cover our financial guidance for the full year 2023, which will be back-end weighted in the second half of the year due to our 2023 new product launches throughout the year. For the full year 2023, we’re issuing the following guidance: Total revenue of greater than $45 million. Gross margin is expected to be in the mid- to high 50s on a percentage basis. Operating expenses, including onetime and noncash charges, are expected to be approximately $62 million to $64 million. Now let’s walk through the things that will help us achieve this plan. First of all, on revenue growth, we have a robust series of BioXp product launches, including the launch of approximately 11 additional BioXp kits and 2 new BioXp systems for NGS library prep and the SOLA-powered system that will, for the first time, allow customers to achieve same-day turnaround results or CRISPR guide RNA. The combination of our new product launches when layered on to our historical growth should, in our view, generate significant continued revenue growth in the next couple of years. And now some details on our commercial strategy. We anticipate launching several Select kits for both mRNA and cell-free DNA scale-up. These kits will add value — will add to the value proposition offered by our de novo gene synthesis kits and for the first time, as mentioned, will allow scientists to use their own DNA as a starting point in experiment. We believe these make-to-stock kits will allow our current and future customers to use their BioXp systems more frequently, thus driving up recurring revenue growth rates. These kits should help us unlock the remainder of the synbio TAM of approximately $2.6 billion, which is estimated to be growing at a rate of 27%. And by opening up our systems for customers to use their own DNA as a starting point, we’re providing scientists with further flexibility. In addition to the BioXp Select kit, we anticipate launching an additional BioXp platform focused on NGS library prep, which gives us access to an additional market opportunity of $1.6 billion, growing at 25%. One final note on product revenue. We anticipate launching the first ever version of the BioXp 9600 that will have our proprietary enzymatic DNA synthesis technology referred to as SOLA as a reagent platform. The system will be the first-to-market product for CRISPR guides, enabling same-day turnaround. This, too, is a new market for us and represents an opportunity of approximately $1.5 billion, growing at 25%. Collaboration revenue, we anticipate continuing success with our partner, Pfizer, and we anticipate we will successfully achieve 2 additional milestones during the year. Moving on now to gross margins. We have a 3-point plan for achieving our targets, which include: number one, contributions from a favorable mix of higher-margin products like the 9600 and Select kits; number two, in-sourcing initiatives related to raw materials; and three, similar in-sourcing initiatives related to the vertical integration of our instrument manufacturing. To this end, during the course of 2023, we anticipate further establishing an oligo production operation built around a fleet of proprietary oligo synthesis systems. When at full capacity, this operation will produce sufficient oligo volumes to meet our raw material needs, allowing us to effectively place existing supply from outside vendors. Additionally, we intend to internalize both the 3250 and 9600 instrument production lines throughout the year, which will also improve not only our supply chain and quality on our margins. Moving on to base costs or OpEx. We anticipate base costs will remain relatively flat during the year as we’re able to backfill growth in this category, resulting from several large onetime charges we experienced in 2022. As a reminder, as we continue to execute against our strategic plan, we continue to see a path to achieving profitability during 2024 but anticipate that we will seek access to additional capital during 2023 to further solidify our cash position. Strong revenue growth and expanding gross margins when combined with stabilizing operating costs and an experienced execution-oriented management team provides us with a potential path to profitability within a 12- to 18-month window based on timing at year-end of 2022. We are extremely pleased with the fourth quarter and full year results, and we remain encouraged by strong commercial execution and progress in our product pipeline. We are focused on executing against our near-term commercial goals, launching new products into 2 new markets, improving profit margins and decreasing costs, furthering new and existing partnerships and growing market share. We continue to stabilize operating expenses and make strategic and measured investments to drive long-term sustainable growth and a path toward profitability. And with that, I will thank you for joining our call and ask the operator to open the call for questions. Thank you.
Operator: . And our first question comes from Brandon Couillard from Jefferies.
Brandon Couillard: Maybe just starting with guidance. Todd, can you give us a sense of what that embeds for new BioXp instrument placements? Any color on the mix between the 3250 and the 9600? And maybe an update on just kind of how the 9600 order book is developing. Any color in terms of new versus existing customers now that we’re kind of 6 months into that rollout?
Todd Nelson: Yes. Thanks, Brandon. Appreciate the question. So let me start with the latter. First, on the 9600, we launched that effectively I think the last day of September. So in the fourth quarter, and I would say we sold 9 or 10 last year, and we disclosed that. We think the initial uptake is good. We’re happy with the uptake of the 9600, and I think that’s ramping up consistent with our expectations for this year. So getting to the first part of your question on what are we looking at for unit volumes, I would say that we sold approximately 66 units in — or we sold 66 units in 2022, and we would expect that to just about double from a unit volume perspective. And on the mix, I think it’s early to tell. But I think that we sold about 9 in the fourth quarter. There was some pent-up demand. So I’d expect that to — the year will be back-end weighted for both the 3250 and the 9600 due to the kit launches. So I’d expect that to maybe not be 9 necessarily in the first or second quarter but ramping up after that.
Brandon Couillard: Okay. Yes, that’s my second question. You mentioned kind of a back-end loaded year. Any more, I guess, color on how you expect maybe the first half versus the second half in terms of the full year weighting?
Todd Nelson: Yes. I mean I think we had a solid fourth quarter. And I think during the first half of the year, we’re launching a number of BioXp Select kits. Those need to get out in the market. We’re getting the 9600 out there. We’re getting utilization up. So I’d say from a cadence perspective, I don’t want to guide on cadence, but I think the rationale here is that we’ll have a full year of 9600 but ramping up into the second half. So I’d expect the unit volumes to have a much higher cadence, I guess, in the second half of the year, and we’ll get the benefit of the product launches on the BioXp kit line in the first half and the second half. So I don’t know how helpful that is. I think from a cadence perspective, we’d expect more than half of the revenue for sure to be in the second half of the year.
Brandon Couillard: Got you. Okay. And in terms of your in-sourcing some raw material production, what percent of oligos supply needs do you expect to be making in-house by the end of the year? And what will — what impact will that ongoing shift have on gross margins as we look after ’24?
Todd Nelson: So I’ll get started on this. We’re fortunate to have Eric here. So I’ll hand it over to him after I give you some high-level color. This is just the continued execution against something that was really important for the company, and that was to gain control over our supply chain, better control our quality and improve gross margins at the same time. So we’ve endeavored to build our own systems. We’ve invested significantly in that in the last few years. We now have a handful of systems Eric can walk through. Those are coming online throughout the course of 2023, and they will ramp up production throughout that time period. Overall, the accretion to gross margin will be mostly felt in 2024, where there should be significant accretion in gross margin as a result of that. I’ll hand it over to Eric for some detailed comments.
Eric Esser: Yes. I think you covered most of it, Todd. So by the end of this year in Q4, we would expect something approaching 100% offset of our external supply of oligos. So internally, we’ll have the capacity that we need to offset the vast majority of our external oligo — of the needs today that we have for oligos that we currently purchase from outside vendors. And so as we look in 2024, most of our 2024 oligo supply will come from that internal capability. And as Todd said, the margin impact will be mostly felt in 2024 because we are ramping up through this year. And I think we’re — on a total blended product basis, we’ll be expanding pretty significantly multiple hundred basis points in 2024.
Brandon Couillard: Got it. And then lastly, just to confirm in terms of the Pfizer technical milestones, so I think there’s 3 left. How many have you contemplated in the guide? Just want to confirm — each of them are $2.5 million, is that right? And then what’s left to recognize in ’24 from that?
Todd Nelson: Yes. So in ’24 or ’23?
Brandon Couillard: That’s right. I think there’s another tranche in ’24.
Todd Nelson: Yes. Okay. So — yes, sorry, Brandon, I understand the question. Yes, so we had an $8 million upfront technology access fee that will continue to be amortized throughout the course of 2023, but that will go away at the end of the research period which is the fourth quarter roughly of 2023. During 2023, we’d anticipate achieving 2 additional Pfizer milestones, and they’re all, to the best of my knowledge, priced about the same, if you will, from an accomplishment perspective. And the first one that we disclosed was about $2.5 million. Then there will be another one that we’d anticipate achieving in 2024. So there’s typically a milestone and then a little bit of time to do the work and then another milestone. So just noting that we accomplished the first milestone in the fourth quarter of 2022.
Operator: And our next question comes from Harrison Schrage from KeyBanc Capital Markets.
Harrison Schrage: Congrats on the great quarter. If I could just follow up on the Pfizer milestone payments. I think I understand generally what that’s going to be here in FY ’23 but if you could just provide a little bit more detail into ’24 and ’25 on that.
Todd Nelson: Yes, Harrison, I don’t know how much — so we’ve disclosed, I think, publicly, generally at a high level what those categories are. So just again, by way of review, the Pfizer deal had an upfront fee that we’re amortizing. And I just mentioned that there are 4 milestones that need to be achieved during the research period. And then there are some pretty significant milestones in 2024 related to potentially exclusivity or non-exclusivity. And then after that, there are commercial milestones as well as clinical milestones and royalties on sales. So the cadence of revenue from ’24 and ’25, I think we’re anticipating the successful achievement of a milestone in ’24. And then there’s the opportunity for us to receive some additional large onetime milestones related to the exercise of exclusivity, if appropriate. And then I would say for ’24, that’s it, and then ’25 would kick in some commercial milestones and clinical milestones. I think what we disclosed also is that per exclusive product, it all adds up to about $280 million per product.
Harrison Schrage: Got it. Okay. That’s helpful. And then again on the guide, I think we understand the systems outlook here pretty well, but it seems like your kits are certainly starting to gain some traction. And so if you could just kind of quantify what you’re expecting in terms of kit revenue or kit growth in ’23. And then maybe directionally, how we should be thinking about kits into ’24 and beyond, and then same with the services business as well?
Todd Nelson: Yes. So let me handle the products first in the order that you’ve asked on the BioXp kit side. And just by way of review, we’ve got, right now, everything that we’ve done at the company has been built around de novo gene synthesis and 8 or so kits that do that. We’re now adding beginning in the first quarter of this year to that, the Select kits, which will allow customers to use their own DNA as a starting point, including NGS, and we expect to launch about 11 kits during the course of this year, that being 2023. I believe revenue for kits grew at approximately 64% to 67% for a year-on-year period. We’d expect that category to continue to grow, being the de novo gene synthesis category at about that same rate or higher and would layer on top of that the additional revenue from the Select kits. So overall revenue guide of $45 million, I think you can back into a product number that’s kind of in the — you can get there by backing out the Pfizer milestones and the royalties. And then on services, that business, the plan for the Eton business is to grow that business in the Sanger sequencing business this year. And then with excess capacity that we have for oligo production off of our proprietary systems to give those systems then and any excess capacity to Eton to enter into the oligo market, and that will happen in 2024.
Harrison Schrage: Got it. Okay. And then last one for me, just on the instruments and new systems outlook. I think you guys have previously talked about the BioXp oligo printer as well as the DBC platforms and possibly delaying them in light of the cost-cutting measures. Could you just kind of refresh the timing and outlook of new systems to be released?
Todd Nelson: Sure. Happy to. So as far as systems go in 2023, we’re looking at a third quarter launch of a proprietary 9600-based, purpose-built system for NGS library prep. In the fourth quarter, we pivoted our larger DBC program to CRISPR guide RNAs to get something onto the market but with a limited scope, and that would be in the fourth quarter. That product will have on board SOLA chemistry. So that will enable same-day turnaround of CRISPR guides. So two systems this year, 1 in the third quarter for NGS, 1 for CRISPR guide based upon DBC technology and SOLA reagents in the fourth quarter.
Harrison Schrage: Got it. And then, Todd, I’m so sorry, if I could just sneak one more in. On those new systems, I mean, would we expect that 9600 system in the third quarter to generally have a similar ASP to the regular 9600 that you launched during this last year as well as consumable pull-through? I mean, how should we think of ASPs and on these?
Todd Nelson: You’re talking about the system that we just called on the launch for NGS? I think we’re working through price discovery there and the business model around that. So we’ve got placeholders in there that I think are generally — I don’t want to misspeak actually, Harrison. I may have to get back to you on that, but I think they’re generally in line with the current price of the 9600 to maintain market continuity.
Operator: And our next question comes from Steven Mah from Cowen.
Poon Mah: Great. Congrats on the quarter. A lot of ground already covered. So just some follow-up questions, mostly on gross margin. So I believe you said the gross margins in 2022 were 57% and then the guide for ’23 is about around that range. Just trying to reconcile that because given you’re going to be launching kind of 11 kits. The 9600, I believe, has a better gross margin profile. Just trying to understand the gross margin guide for 2023. Is that just being conservative on your part?
Todd Nelson: Well, I think part of it is just related to the timing of the ramp-up for the internal oligo production, which will predominantly have — it’s linear. But I think from a production perspective, let’s say it’s linear with respect to getting the systems up and going but nonlinear with respect to capacity and uptime and things like that, so more of an emphasis on gross margin accretion later in the year from the oligo in-sourcing initiatives. And then I think on the mix, we said like mid- to high 50s. And I think that is generally good place for us to be right now. I wouldn’t say it’s necessarily inconsistent. We’re ramping up the sale of the 9600. And yes, that has a higher price point. We need to see how the mix between the 9600 and the 3250 works out. Our anticipation is that because it has higher margins, any contribution from that will be accretive to where we’re at. And then on the kits, 11 kits throughout the year. But again, from a cadence perspective, a lot of them will be in the second half. Now that is all good stuff and headed in the right direction from a margin perspective. That’s also offset slightly at the same time by a very rapidly growing gene synthesis business from our de novo kits, which has generally a lower gross margin. So as the company works to operationalize these systems for our own internal oligo production to accrete to gross margin, launches new kits throughout the course of the year. We’re also — we need to recognize that we’ve got a very rapidly growing business. It’s growing in excess of 60%, which has a typically lower gross margin for gene fragments and gene synthesis products.
Poon Mah: Okay. That’s helpful. And then on the cadence of these 11 kits, yes, you said it’s going to be mostly second half, but getting within in the second half, should we be thinking it going to be weighted more to Q4 or…
Todd Nelson: I’ll hand it over to Eric. I think the peanut butter is pretty well spread between the year. I get the sense there’s a lot going on in the second and third quarters, but I’ll hand it over to Eric.
Eric Esser: Yes, that’s right. Of the 11, let’s see, we have a couple that are launching in Q1, the majority launch in late Q2 and Q3. And then one of those kits, the last one launches together with the DBC in Q4.
Operator: And thank you. And I’m showing no further questions. This concludes today’s conference call. Thank you for participating. You may now disconnect.
Todd Nelson: Thank you, everyone.
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