Earnings Transcript for SLGCW - Q1 Fiscal Year 2022

Operator: Good day ladies and gentlemen, and thank you for standing by. Welcome to the SomaLogic's First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] At this time, I would now like to turn the conference over to Ms. Marissa Bych. Ma'am please begin.

Marissa Bych: Thank you. Today, SomaLogic released financial results for the quarter ended March 31, 2022. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make forward-looking statements during this call within the meaning of federal securities laws, which are made pursuant to the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relates to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including without limitation, those relating to our market opportunity, gross margin, and future financial performance, protein content, and database growth, customer base, diagnostic pipeline, expectations for hiring, and growth in our organization are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements for a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our Form 10-Q filed with the Securities and Exchange Commission -- excuse me, Form 10-K with the Securities and Exchange Commission in March 2022. This conference call contains time-sensitive information and is actuate only as of the live broadcast today, May 12, 2022. SomaLogic disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I will turn the call over to Roy Smythe, Chief Executive Officer.

Roy Smythe: Good afternoon and welcome everyone to our 2022 first quarter earnings call. I'd like to start off by expressing my sincere gratitude for all who are contributing to our success here at SomaLogic as we work every day to relieve human suffering and prolonged meaningful life by harnessing and applying the power of the human proteome. We're extremely pleased with the progress we've made in the first quarter of this year as we have advanced several meaningful scientific and customer-facing initiatives. We drove record first quarter revenue for the company of $23 million, reflecting 21.8% year-over-year growth as we continue to serve a growing list of customers across basic research and biopharma. This is a year of focused execution at SomaLogic to drive growth across all aspects of our business nd we have a great moment. This first quarter kicks off what will be another truly transformational year for our company, as we leverage our capital position to systematically put the building blocks in place to continue to differentiate ourselves and substantially grow our ability to generate both human and financial value. As a reminder, we have a healthy balance sheet with over $645 million in cash, cash equivalents, and short-term investments. This is especially important in the current market environment, allowing our team to stay focused as we continue growing and scaling our core operations and investing in areas of our business that should result in higher returns. To be absolutely clear SomaLogic approach, platform, and business model are different. Our platform includes our unique proprietary proteomics technology we market as SomaScan, our database, and our bespoke bioinformatics capabilities. Our foundational technology, SomaScan leverages proprietary flexible, synthetic nucleic acid reagents to currently identify and measure approximately 7,000 proteins, which is two times what any other platform can measure at commercial scale. Our world's largest commercial proteomics database contains more than 2.5 billion protein measurements in over 15 million clinical data points. And our bioinformatics platform includes bespoke tools and capabilities built over a decade. This platform powers our Life Sciences Tools business and our ability to develop applications from data only our platform can produce including first-in-class high Plex proteomics SomaSignal diagnostic tests across a large spectrum of use cases. In all respects, we have traveled further and faster down the evolutionary path of proteomics than any other enterprise, the largest protein measurement identification offering, and the most sophisticated and impactful diagnostics products and pipelines. These distinct advantages, capabilities, and proprietary tools offer us a substantial first-mover advantage and a large number of near and longer term opportunities which we expect to significantly contribute diversifying and growing our sources of topline revenue. And to substantially expand our share of the rapidly growing proteomics total addressable market, estimated to grow as much as 10 times over the next several years. Our team's efforts to realize the full potential of our technology and platform has led to several exciting developments in the first quarter of 2022. To start here, we announced a co-exclusive partnership with Illumina, effectively combining genomics and proteomics to empower and enable the future of multiomics research. The partnership combines the power and scale of Illumina's global commercial infrastructure and install base with our proteomics platform to develop a co-exclusive co-branded next generation sequencing based diploid proteomics kit product. While this partnership accelerates our next-generation sequencing based capabilities, over time, we will develop a variety of protein measurement solutions on several different platforms, including next-generation sequencing, but also arrays and emerging chip-based approaches to best meet the needs of all customers and collaborators, regardless their technology cost or throughput needs and preferences. Later in the quarter, in support of our ongoing efforts to build our database and harness the power of the proteome to create and validate impactful diagnostics, we announced partnerships with two large biobanks. In February, as a part of the Multi-Ethnic Study of Atherosclerosis or MESA, a study sponsored by the National Heart, Lung, and Blood Institute at the National Institutes of Health, we will created 105 million protein measurements from 15,000 samples, spanning 15 years of clinical interactions representing the largest proteomic study of an ethnically diverse population, an important contribution as we work to help solve the problem of global health inequity. More recently, we announced our engagement with the European Prospective Investigation for Cancer and Nutrition or EPIC biobank, a cooperative project between the Imperial College London, the International Agency for Research on Cancer, and the World Health Organization. We began to analyze what will be a total of 210 million protein measurements from 30,000 samples from this biobank. This will be the world's largest oncologic proteomics study to-date. We'll use this to develop -- both develop a suite of planned cancer prediction tests, tests that identify your biologic risk of developing cancer before it actually occurs, as well as share the data back with a consortia for extended scientific use. These investments are emblematic of SomaLogic's commitment to leveraging protein information, and power new products, solutions, and services for our customers, such as impactful diagnostic applications. This is something we have remained firmly committed to and our repeated track record of investment, followed by innovative successful development clearly validates that. In April, we published a landmark study in the Journal Science Translational Medicine, describing the development and validation of our unprecedented clinical residual cardiovascular risk test. Using the SomaScan platform, our team created a 27 protein clinical test derived from more than 30,000 clinical annotated human samples. This product accurately predicts the four-year likelihood of significant clinical events such as myocardial infarction or heart attack in patients at risk for cardiovascular disease, as it actually outperforms current clinical approaches and was reliably sensitive to longitudinal changes in the risks from multiple mechanisms including lifestyle changes in various classes of drug. This is paradigm changing. The ability to accurately predict these events and sensitivity to change meets key requirements for a surrogate endpoint for clinical trials use. As the editorial comments from Science Translational Medicine accompany the paper suggested, no single known cardiovascular biomarker can currently predict heart disease in this manner. This SomaSignal test is now available for clinical use under a laboratory developed test designation or LDT, and is in the hands of our proteomics for precision medicine partners around the country. Stay tuned for preliminary findings from this initiative later this year. Looking ahead, we continue to invest in our technology to further expand our Life Sciences Tools business. We currently offer many of over 7,000 proteins to our core SomaScan product with the intention to reach 10,000 available protein identification and measurement Aptamer reagents by the end of 2022. As a reminder, we are the inventors of this technology and the world's most sophisticated developers of these Aptamer tools. We have created thousands of these proprietary modified reagents and are constantly creating more of them at current pace of approximately 500 new Aptamer constructs each quarter to go on to the SomaScan menu. We are growing the number of proteins we can measure and identify with SomaScan. Our team continues to find other innovative ways to better serve our Life Sciences customers and collaborators. We have long known that differences in collection, handling, and storage of samples prior to SomaScan assay, or any other way of measuring identifying proteins can affect customer results as part of our commitment to ongoing innovation and leveraging our machine learning capabilities, we will soon launch a new product to accompany SomaScan results that identifies preanalytical variation in proteomics samples and therefore will improve the accuracy and reliability of customer insights. As we've discussed as a complement to our core assay services, we've also developed kitted deployed side of service products were which are currently in early access with select customers. We intend to move to open access later this year, which in addition to our deal with Illumina continues to effectively expand the modalities by which our customers may access our extensive menu. Over the past 10 years, we have invested approximately $70 million to develop our diagnostic test development capabilities and this has allowed us to create and internally validate within 20 SomaSignal tests. Many of these tests are currently in the hands of clinicians around the country and world for their use and evaluation and there are many more to come. We're growing our pipeline and expect to end of the year -- end this year with as many as 10 additional impactful protein pattern recognition tests as a result of our internal development program. Our current database has the potential to produce approximately 80 to 100 of these tests over time. In an effort to reach the market sooner, however, and build a substantial moat for our clinical products, we intend to accelerate our clinical diagnostics business by both licensing and new test development agreements. For licensing agreements, we will leverage the many existing diagnostic assets we have already developed and for development customers, we work to either leverage our database or samples and data they provide to us to develop new products that interests. For our current tester or LDT CLIA-approved, we will bring some of these tests through regulatory processes for broader dissemination. For the world's most extensive background in identifying and measuring proteins as well as analyzing and interpreting the data acquired from doing so, we are scientific leaders in the proteomics space. We have powered the publication of more than 500 proteomics research manuscripts today and this is accelerating with more than 40 published in the last quarter alone. Many of these such as our recent publication in science and translation medicine are landmark studies in human proteomics, rather than just method citations. I could not be more proud of these contributions, because these are contributions that will extend well beyond our own efforts. And finally, we continue to successfully grow our commercial team to reach new customers and support the adoption of existing customers. As a reminder, we ended the year with roughly 60 commercial team members with the intention of more than doubling this group size by year end 2022. We've supported over 400 customers on our platform and continue to grow and diversify our revenue base. In conclusion, we are clearly making measurable progress against our organizational goals and effectively balancing near-term growth drivers with longer term significant opportunities that continue to differentiate our business on a number of levels. I'd now like to turn the call over to Shaun to review our recent financial performance and our 2022 outlook. Shaun?

Shaun Blakeman: Thanks Roy. We are pleased to report that revenue for the first quarter of 2022 was $23 million, 21.8% increase from $18.9 million in the same period of the prior year. We continue to see very strong new customer growth and diversification driving our core. The bottom-line is our commercial team is growing and executing as expected, as we continue to expand and diversify our customer base across pharma, biotech, and academia, which also continues to decrease our reliance on any one customer and positioning us to grow with our innovative partners as they also scale. No one can measure as many proteins as SomaLogic, or create as many applications that result from that measurement and we are poised to win share. Gross margin for the first quarter of 2022 was 49.3% compared to 66.9% in the first quarter of the prior year and 54.5% in the fourth quarter of 2021. As a reminder, our core service business is a mid-50s percent plus gross margin business at this time. Our ASPs remain strong and our year-over-year gross margin decline was primarily due to the timing of cost accounting adjustments this quarter, and the impacts of a modest capacity ramp up and support of the EPIC and MESA samples which start coming in Q2. Outside of potential investments and partnerships such as population-based studies, which can affect COGS, I expect our gross margins will normalize over the course of the year, with the opportunity to recover margin this year as we leverage much larger sample volumes in the future quarters. Total operating expenses for the first quarter of 2022 were $56.3 million, a 107% increase from $27.2 million in the first quarter of 2021. R&D expenses for the first quarter of 2022 were $13.8 million compared to $8.1 million in the first quarter of 2021. Sales, general, and administrative expenses for the first quarter of 2022 were $30.8 million compared to $12.8 million in the first quarter of 2021. This increase in expenses is in line with our expectations as we continue to build out SomaLogic and our technology to support our endeavor to become the most comprehensive proteomics company in the market. Adjusted EBITDA for the first quarter of 2022 was a loss of $32.5 million compared to an adjusted EBITDA loss of $7.6 million in the first quarter of 2021, again, aligned with the investment and spin guidance we previously indicated. Please see our press release on file with the SEC as of this afternoon for a reconciliation between GAAP net loss and non-GAAP adjusted EBITDA. The bulk of the reconciliation being in the non-cash valuation adjustments related to warrant and earn out liabilities on our balance sheet. We ended the quarter with $647.8 million of cash, cash equivalents, and short-term investments. As Roy mentioned, our cash position gives us a unique and substantial capacity and flexibility to execute our strategy. Some comments I would want to give you with regarding cash flow are that we are executing on fulfilling the SomaLogic thesis to become the most comprehensive proteomics company in the world. We will continue to execute this strategy and accompany investments responsibly and thoughtfully, with our aim to have enough runway to achieving positive free cash flow. Regarding potential M&A activity, our bar is high in assessing the quality of any apps that we consider both in terms of strategic and financial contribution. Turning to our 2022 outlook, we are reaffirming our formal 2022 guidance of $105 million to $110 million in revenue, representing growth of 29% to 35% over 2021 revenue of $81.6 million. At this point, I would like to turn the call back to Roy for closing comments.

Roy Smythe: Thanks Shaun. Over the course of the year ahead, we intend to continue sharing our progress regarding our revenue growth and supporting initiatives including expansion, and diversification of our customer base, ongoing additions to our commercial team, completion of the development of the reagents needed for our 10,000 Plex product, development of new SomaSignal tests, and clinical diagnostics, licensing or co-development deals In SomaLogic, our decades of experience and track record of continual innovation places on the leading edge of the rapidly evolving proteomics industry. We pride ourselves in leading protein content and technical specifications. We know that the future of this field is not only the measurement identification of proteins, but the use of the information that's derived from doing so, the power applications that impact human lives in a variety of ways. From a better understanding of animal model on human biology to the development of new therapeutics and diagnostics to better predict, manage, and prevent disease. This evolution from measurement identification of things to using the insights gained from doing so to create increasingly powerful applications has happened before in genomics. However, based on the real-time insights, it provides the breadth and depth of applications that produce human value derived from the proteome, in time, will greatly exceed those of the genome. Our growing clinical proteomics database, our informatics capabilities, and our synthetic nucleic acid reagents offer Life Sciences Tools and diagnostics development trajectory for us to do these things, far exceeding any traditional approach, including antibodies. We're providing more than just measurements at SomaLogic, we're building solutions and we're really just beginning to do so. I want to thank you all for joining us today and I'll now turn it over to the operator for our Q&A time. Operator?

Operator: [Operator Instructions] Our first question or comment comes from the line of Brandon Couillard from Jefferies. Your line is open.

Brandon Couillard: Hey, thanks. Good afternoon. Roy, you kind of mentioned that the commercial team build out is progressing as expected. Can you give us an update on the headcount there at the end of the first quarter and how you're getting about the productivity ramp of the expanded team?

Roy Smythe: Yes, well, we're right on pace to achieve the growth in our commercial team, as we've described, in other words, to more than double the contingent of those that we have on the team at the end of 2021. And the great news is that people really want to work at Soma Logic. We've managed to grow this team and the company in general, we actually doubled the size of the company in 2021, during the period of the great resignation. So, we're right on track to achieve that doubling of the size of that commercial team and first quarter results are commensurate with that in regards to hiring and retention. As far as the training time and the ramp up for these individuals, it you know, it varies depending on where the individuals come from. And we've been very fortunate over the last year to hire a number of individuals, directly from jobs in proteomics or similar jobs in genomics. And as we grow the team, we may or may not be able to attract as many people from those because that pool may get depleted eventually. But we certainly are experiencing a great deal of success in the recruitment and, and training and the time to productivity is on the order of weeks, to a few months at most for these individuals, and we don't expect that to change during the course of the year.

Brandon Couillard: Okay. Thanks. I think you mentioned launching a new product to identify preanalytical variations in samples. Should we think about that as a revenue driver? How exactly will that service work and or product work? And -- or should we think about the way to just improve customer confidence and kind of the quality, test standardized, help standardized samples?

Roy Smythe: Well, I'll make a couple of general comments and I'll ask Steve to talk perhaps -- Dr. Steve Williams, who's on the call with us, our Chief Medical Officer to talk a little bit about the importance of this product to our customers and collaborators. Certainly this will generate revenue for us over time. In general, most data products that are used in conjunction with genomics or proteomics tools don't tend to be the primary drivers of revenue, they tend to create a great deal of stickiness with your customers on your platform. In other words, these accoutrements that either give you insights about samples or in the future insights about pathways or drug targets related to your sample tend to be the types of products that encourage people to both come on to and stay on the platform. Steve, would you comment a bit on the utility of this tool for our customers and collaborators?

Stephen Williams: Yes, this is fundamentally really important. In fact, when I joined SomaLogic 12 years ago, the first experiment that we'd ever done was in lung cancer and it turned out that the biggest effect in the samples we had was the difference between New York University and the University of Pittsburgh. And it really all arises because when blood is a living tissue, and when you leave it out on the bench, the cells start to leak their products or their intracellular proteins, platelets get activated, complement gets activated. So, if you have a precise measurement tool for measuring those proteins, you'll see the impact of those issues, the pre-analytic issues. And what we've done since then, is to develop individual models for each of the ways that blood might have been abused. So, I like to think of these pre-analytic variability models, effectively as a criminal record for each sample. And if you know the criminal record when a sample comes, because of course, it doesn't really matter what you tell, your collection says -- are often not well detailed. But if you know what the record is, then you can manage the effect when you analyze your samples. You can eliminate the worst samples, or you could choose to use proteins which are immune to those effects. You can look at how different centers if you're running a multicenter clinical trial, you can look at which centers are the best, and which are the worst. And you can adjust for those factors in the results. So, I think these are really important, they add a lot of statistical power and interpretability to your results.

Roy Smythe: Thank you, Stephen. I would add Brandon that this is the first in a planned number of many data products that we have in development to place alongside SomaScan to give -- again to give our customers and collaborators more information about their sample, both in terms of sample quality, but also as I mentioned earlier, things like, what biologic pathways are activated, what drug targets may be present and so forth. So we're dedicated to creating these data products to support our customers and collaborators alongside our superior measurement capabilities.

Brandon Couillard: Okay, that's helpful. And then one for Shaun just on the gross margin in the quarter, are you able to quantify the effect of the population samples that we're running The quarter as well as elaborate a little more on the cost accounting adjustments.

Roy Smythe: Shaun, please go ahead.

Shaun Blakeman: So, we didn't actually really process the MESA and EPIC samples this quarter, it was just more around like, listen we're trying to provide a seamless experience, right for both our partners and our customers. And it's not always 100% predictable of how some of the customer samples are going to come in. So, we did have some modest ramp up, again, in the grand scheme of our COGS, it's not a big number, but on our revenue, it does affect the margins in just one quarter. And those are coming in through Q2. So, as I had said, I actually would anticipate that we could potentially see leverage on those increased volumes in the quarters that make up some of what we saw in Q1. It absolutely isn't being affected by anything in our core structure or the ASPs that we're seeing in our customer base. Regarding the cost accounting adjustments, Brandon, its -- our business is growing, right, but the reality is, is that we're turning over faster in terms of inventory. And not to get too technical, but that's just requiring us to recognize some variance expenses, such as a ramp up and for the MESA and EPIC studies faster than we had to in previous periods. And so it just sort of hit us in Q1 in a way that we didn't fully anticipate. Sometimes those are a little bit difficult to predict. But again, expect that will normalize throughout the year was a little bit unique in the adjustments we had to take this quarter.

Brandon Couillard: Got you. Thank you.

Operator: Thank you. Our next question or comment comes from the line of Dan Brennan from Cowen. Your line is open.

Daniel Brennan: Great, thank you. Thanks for taking the questions. Maybe the first one, obviously, there's a lot of dislocations if you will in the global market with supply chain, inflation, still worked through COVID in the first quarter and interest rates. There's a lot of noise out there. I'm just wondering, can you speak to how you guys manage that? Like any impact that you saw undo in the first quarter and in light of that and then revenue ramp that's kind of assumed in the full year guide? Any thoughts on how kind of pacing could play out throughout the year?

Roy Smythe: Sure. The first comment I would make is that we -- certainly we're not surprised by the supply chain disruptions around the world over the last year and a half. And thankfully, our operations, leadership and managers did a great job of planning for this. And so there are some items where we had concerns about inventory and so forth, we got ahead of it. The one area that I would say that the supply chain issue has potentially impacted us over the last few quarters has just been the unpredictability of when samples are going to come into the door for our service business. So, while we're not experiencing necessarily operating challenges internally from this disruption, some of our customers are, and we can have during any one quarter a large number of samples that are supposed to come in, that don't come in that towards the end of that quarter, they come into the beginning of the next quarter, because that that biopharma company, or that investigator did not have the right blood samples into because of supply chain issue. So, we have seen some unpredictability of sample delivery. And that may continue during the course of the year. We feel quite confident that that is something that will happen between quarters and will not have an impact on our overall topline revenue by the end of the year that it will even out.

Daniel Brennan: And any related comments? Just as we think about pace, I know you guiding for the full year, which is great and given the volatility, maybe it's difficult, but anything to kind of point out, particularly in light of the guide, 29% to 35% versus the way the comps play out, I think you call it like low 20s in the first quarter?

Roy Smythe: Shaun would you like to take that one?

Shaun Blakeman: I'm not sure. I'd be honest, I couldn't hear the very end of your question, Dan. I thought -- look, you're talking about the guide and the comps?

Roy Smythe: Yes.

Daniel Brennan: Yes, sorry about that. That was -- it was really just on -- full year, you guys feel great about, just anything to point out whether it be Q2 or the back half, just given the revenue acceleration and the supply chain issues, anything, you guys want to point out about this?

Shaun Blakeman: So, I mean, I think Roy summed up the supply chain situation by and again, I would reiterate that that while we certainly like everyone else in the world right now, you see little pockets of issues here and there, we've been able to overcome those constraints. And again, the -- it's not really even an issue, like Roy said, it's just that there has been a little bit more unpredictability, sometimes about when samples are going to come in, from our partner and customer side. I think what I -- the only thing I would add is to this is it's a little bit more expounding non-expectations going forward, is that -- I might even want to just like, put the takeaway here, that going back to the end of 2020, we had well like around 10, right, Roy, people in the commercial team.

Roy Smythe: That's right.

Shaun Blakeman: And we put up -- we scaled that team -- started scaling in 2021 and we put up just over $80 million, and we're going to continue to scale it to be over $100 million company this year. So, I think that bodes well, right, for future quarters in a way that again, I'm not suggesting there's upside to our guide -- our guide is our guide, but these are things that could be potential growth accelerants that we aren't considering, because I think the as you do see a lot of our sales team members, which were added in the latter half of 2021, really start hitting the stride of efficiency, you're going to see that effects, I think, most impactfully in Q3 and Q4. So, again, I think that all plays out into where our guidance coming in, but I think you're going to really start seeing that that impacts it, as we get into the latter part of Q2, Q3 Q4.

Roy Smythe: Yes. Two quick comments for me, Dan, on this point. And -- just to put a little bit of emphasis on something that that Shaun mentioned. I do think it's an important consideration for analysts and investors to remember that we generated the revenue, we generated last year was about a third of the salesforce that our closest comps had extent. So, the competence that we have in our ability to ramp our business as we grow our commercial team is based on some good information there. And the second is that in regards to this unpredictability, we certainly, the pipeline is very healthy. And the anticipated sample delivery is really sort of spread out across the year. We don't have any huge anticipated deal, for example, in the last quarter that if it gets delayed by a couple of months, we'll have a big impact on our guidance. The anticipated delivery of samples is somewhat evenly distributed through the year, but again, there could always be a quarter-to-quarter tweak based on supply chain issues of our customers.

Daniel Brennan: Got it. And then maybe just one on diagnostics, I know this year with bringing in a licensing executive and spent some time in the prepared remarks in terms of the 27 protein tests and the ability to continue to find more targets, how do we think about what's the early -- I know, it's very early days on this licensing side, but how do we think about, we're standing here 12 months from now looking back, what type of action or traction should we be expecting to see on the diagnostics, whether on your own kind of tests or more importantly on some of the licensing efforts?

Roy Smythe: Well, the good news is, without any business developments over the last year, we've had a number of opportunities come across the transom to us for both licensing and co-development. So there are a number of those active conversations right now. And again, this is without us actually doing serious business development on the side of diagnostics, which again, I take is a really good sign. We certainly are building out those business development capabilities in that segment of our business. As we've said repeatedly, we're -- the bulk of our investments right now are going into our life sciences tools business, because that's a real business and a significant near-term growth opportunity for us. But I do believe that, during the course of this year that some number of those conversations will turn into contracts and consummated deals, and we'll look forward to talking about those during the course of the year.

Operator: Thank you. Our next question or comment comes from the line of Kyle Mikson from Canaccord. Your line is open.

Kyle Mikson: Great. Thanks, guys for the questions. I guess two to start about the quarter mainly on the top line. Could you just quantify the sample push out, I guess, that you kind of referenced, Roy as it relates to the supply chain in the last question. And the second question on this I just wanted to ask how many new customers did you add? You said strong new customer growth was a driver of results but you didn't mention the specific number? Thanks.

Roy Smythe: We haven't tabulated or discussed openly the number of new customers or the number of samples that have moved out of this quarter into the next quarter. Our -- certainly, our number of new customers has grown this quarter that commensurate with our previous year. And the number of samples that have moved into next quarter we just haven't discussed that. But it's something, again, as I mentioned earlier that's going to -- that's likely going to occur over the course of the year in variable amounts.

Kyle Mikson: Okay. That's fair. Thanks for that. And I just want to revisit the soft gross margin. It is something that's been pretty common this quarter among your peers for -- I mean, for different reasons, obviously. Your explanation of the EPIC and the MESA ramp and kind of the accounting timing makes sense to me. But like, why weren't those dynamics expected when you reported the fourth quarter results in late March? And I'm not trying to be difficult, I want to understand, if there's another like population proteomics deal, if like this would happen again. And again, I hate to be kind of my app, but can you just characterize the cadence of the gradual improvement in gross margin going forward, likely they return to the third quarter, fourth quarter kind of mid-tiers levels, Shaun?

Roy Smythe: I'll make a couple of general comments, Kyle and then I'll turn it over to Shaun. The overarching comment here is that, we've clearly communicated to the market that population-based studies are important to us. They're important to the future of proteomics. They're important to those biobanks around the world that they have access to this data. We don't know oftentimes until, a contract is consummated, or until a discussion leads to a contract about the timing of these deals. But we will continue to invest in these and there may be others during the course of the year for sure, because this is something that we think is very important, not only to our own business in helps of creating a measurement standard using our reagents. But also for those biobanks around the world, and their enviable goals that we would like to support. Shaun, any comments about the other comments about the margin?

Shaun Blakeman: Yes. So regarding the predictability of it, I would go back mainly to the point that, I mean, MESA and EPIC sample volume is pretty significant for us. And so the predictability of windows would come in was a little uncertain. And so I think it's unique in terms of what you're seeing in Q1 at that -- the effect that it had. Again, it's certainly not indicative of any permanent structural issues in our cost structure or again, on ASPs. And again, I think that you'll see that come back. So this is not specifically an issue in Q1 of an investment in a population study per se. And again like Roy said, as we know about those we certainly will signal them. But the core business is, like I've always said, guidance at the end of the year Q1 of last year was a little bit unusual in its margin. Our core service business is not a 67% business right now. It's a mid-50s plus type business right now. And it still is -- so I do anticipate, you'll see margins normalize. If we do see any large deals come in and again, the way they're structured, right? Sometimes Kyle, they might hit R&D, or sometimes they might hit COGS, but it's not possible to always predict that until we've gotten into negotiations and we signed a contract and we know what's going to happen.

Roy Smythe: I would add that, this is an important consideration as well. You mentioned that others, there have been discussions about other companies in our sector or related sectors with margins over the last few weeks. The great news about SomaLogic is that, we have only just begun to actuate a large number of levers that we have to improve our margins over time. As we've discussed, we have been working for well over a year on cost out on the assay. We've made progress on that project from the standpoint of R&D and deciding, which approaches are more likely to work than others. We are working on our engineering project to box-up the front end of the assay. We are also in our deal with Illumina in the future, obviously those revenues come without stress on the margins that come from royalties. And we also -- once the diagnostics business comes online increasingly the margins for those diagnostic tests should be considerably better as well. So, we are just beginning to pull the levers for improved margins across all of our products and services and there's a fair bit of runway in front of us there.

Kyle Mikson: Great. Thanks, guys. Before I head off -- I'll just ask one more. So the execution has been great, over 20% growth year-over-year. I'm just curious though like would you characterize this growth as increasing market share or deeper penetration as this market kind of expands? Just curious, what you think the specific growth drivers are in the broader context?

Roy Smythe: It's really both. It's really both. We really see two big opportunities in front of us for revenue growth in the life sciences tool side. One is obviously, same-store sales with existing customers. We are only just beginning to ink or have discussions about longer-term larger sample deals from some of those customers that came online in 2021. In this business, it's really rare for a new customer to come online and ask you to run 10,000 samples is usually a pilot. So there's significant. There is a significant opportunity in same-store sales for us, over the next couple of years just because of the new customer growth that we've had. And of course, you can't have that without new customer growth. So these are both real opportunities for us. We have not even remotely tapped out same-store sales, even with some of our larger and longer-term customer's. There are significant opportunities that we'll be bearing down on. And then as I mentioned earlier, we are experiencing new customer growth at a pace at which we had suggested last year would continue into this year.

Kyle Mikson: Perfect. Thanks, guys. Appreciate the time.

Roy Smythe: Thanks, Kyle.

Operator: Thank you. Our next question or comment comes from the line of Dan Arias from Stifel. Your line is open.

Dan Arias: Good afternoon, guys. Thanks for the question. Roy on the CBD risk assay that you highlighted and that got published recently, how are you thinking about a path towards pharma usage there as a surrogate biomarker within trial work? And then what's the thought around timing for something like that and then what you'd need to do with the FDA?

Roy Smythe: Well, we're really excited about this publication. Obviously, it wasn't shocking to us that this diagnostic test had this capability. We've got a number on our docket that can do similar things, and other publications coming out relatively soon. And it is exciting as well that a test like this really has multiple use cases. So obviously, as a former physician and someone who has spent his career in professional life working toward tools that can make health care better, more equitable, more efficient, and more effective, a tool like this to be able to tell a clinician in the context a physician patient encounter that a patient has risk that might not otherwise be quantifiable or identifiable is very exciting. We know that as much, as many as 15% of acute events and cardiovascular disease occur in individuals with no-no traditional risk factors. So at the first level, this is a clinical diagnostic that will have great benefit over time. However, on the way there, that potentially has a number of uses in clinical trials and in population health management. So from the population health management standpoint, if you're a Medicare Advantage plan it would be great to know in your population, who you need to bring in this year to have a more involved look at their cardiovascular risk, because we've identified a risk that again, might not otherwise be identified until an event happens and we are at some of those conversations, I mentioned earlier with potential customers, not only in licensing and co-development but also in actual use of this test and LTD CLIA fashion. Some of those discussions are along those exact lines for population health management. And then lastly, the question about clinical trials, a number of places where tests like this can be used. We know that as many as 30% of patients that enter clinical trials should not have entered that trial either because they don't have the disease in question or the severity of their condition won't allow that trial to determine whether or not a drug has been effective, so tests like this could obviously be important for inclusion and exclusion and stratification for clinical trials at the outset. And then again, currently, the way if you're evaluating a cardiovascular risk reducing drug, the way that you know if the drug has worked in a clinical trial is to wait for events to happen. You actually have to wait for heart attacks and strokes to occur to know if the drug is effective. And even those drugs where the primary goal is not to reduce cardiovascular risk an antihypertensive, an anti-lipid drug they still look at those endpoints as well, because obviously that would be a great selling point for a new therapeutic, if it would also in a real way reduce overall risk by reducing your lipids or your blood pressure measurement, so tons of use cases for a test like this. As far as the FDA requirements to use a test like this in clinical trials it varies depending on how you're using it. So a test like this can be used as an RUO test. If you're looking back at data but if you're looking prospectively at data, there are FDA requirements potentially depending on which phase of trial you're working on and we are engaged with the FDA currently on these questions. Dr. Williams is on the call, Dr. Steve Williams runs our, not only our clinical test development program. But also heads up quality and regulatory. Steve, could you provide some additional comments about the regulatory path for a test like this?

Stephen Williams: Yes. I think you specifically asked about uses within drug development and before we designed this program. We actually discussed it at a public workshop where the FDA want to buy the FNIH. And then we ran this program that evaluates prognostic performance, sensitivity to change and the universality of the test in the publication. We designed it that way to exactly match the FDA framework for biomarker qualification. We've also presented those results at the Cardiovascular Clinical Trialist Forum in a session attended by the FDA, and we're presenting them again at a workshop to sponsored by the FNIH later this month. And so we clearly, we've been interacting with the FDA all along, as Roy said -- we haven't announced formally yet, what we'll do officially with the FDA. But I can tell you the -- we've been very aligned with their requirements for the use of a test like this as a surrogate end point in drug development and ultimately, if that's successful, it would enable accelerated approval of breakthrough drugs in cardiovascular and the assessment of safety for non-cardiovascular drugs for cardiovascular safety.

Dan Arias: Okay. Appreciate those comments, guys. Roy, maybe just as a follow-up, can you spend a minute on Asia I think that was one of the regions where the commercial team expansion seemed like it had the ability to make a difference just how -- just given how subscale you had been historically. So I would just sort of love to hear an updated thought on expectations for that geography this year?

Roy Smythe: Sure. So we -- as we've previously stated. At the beginning of last year, we had one individual in EMEA and no one in APAC. We have hired a number of individuals in both regions in APAC and Asia, we have hired a couple of regional leaders and those regional leaders are now working with us to recruit additional feet on the street in Asia. So, good progress has been made. Our goal was to find some senior folks that could lead those efforts in those regions and we've been successful both in EMEA and in APAC, and hiring the senior individuals, and they are now building out their teams. So, we're quite confident that build-outs will continue during the course of the year this year.

Dan Arias: Okay. Thank you. Last one, if I could, just Shaun, on the $30 million from Illumina, anything new on thinking around how to treat that payment I think you had talked or Roy had mentioned that most of that was thought of as being recognized when products were commercialized just 2024 by your last comment. So sorry for looking past the current year, but just for the purpose of modeling, should 2023 have anything more than the latter half of 2022 which I think you said was nominal?

Shaun Blakeman: Yes. So, the way that, it will be recognized, we now have the answer to that although it's still complex, because there's a lot of management judgment in how this will progress and then actual will hit and it could be adjusted, but it's going to be based on the provision of reagents. So in other words, it will be recognized as we provide reagents to Illumina, which again, the bulk of that will obviously be over the course of an actual commercial product, but point in fact, we will be providing reagents now right as they are developing the kit. So, I would expect it to be very nominal amount as in, yes, I don't have the exact answer right now, but you're thinking -- you're talking probably less than a few million in each year until we commercialize would be kind of a rough way to think about it 2022 and 2023. We'll have nominal amounts this year, but the bulk of that will definitely come post commercialization, when we actually are selling a lot of reagents into the commercial product.

Dan Arias: Yes. Okay. Very good. Thank you.

Shaun Blakeman: And again, I will always be explicit about any Illumina revenue in our number and there's nothing to report in Q1.

Dan Arias: Is there an explicit amount in the guide for Illumina this year since you're talking about a little bit?

Shaun Blakeman: No. The 105 to 110 excludes any Illumina.

Dan Arias: Okay.

Operator: Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Roy Smythe, CEO for any closing comments.

Roy Smythe: Well, thank you, again, all of you for joining us today. And I'd also like to thank Shaun Blakeman, and Dr. Steve Williams for SomaLogic, as well as Marissa from Gilmartin and thank you as well, operator, for your assistance today. We certainly look forward to seeing some of you, when I say seeing you, I hopefully mean increasingly in person at the upcoming Jefferies conference in June, and at other venues moving forward. Take care.

Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.