Good day and thank you for standing by. Welcome to the Seer Inc. Third Quarter 2022 Earnings 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] Please be advised that today's conference is being recorded. I would now like to hand the call over to your speaker today, Carrie Mendivil, Investor Relations. You may begin.

Thank you. Earlier today, Seer released financial results for the quarter ended September 30th, 2022. If you've not received this news release or if you'd like to be added to the company's distribution list, please send an e-mail to investor@seer.bio. Joining me today from Seer is Omid Farokhzad, Chairman, Chief Executive Officer, President, and Chair; and David Horn, Chief Financial Officer. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward Looking Statements in the press release Seer issued today. For a more complete list and description, please see the Risk Factors section of the company's quarterly report on Form 10-Q for the quarter ended September 30th, 2022, and in its other filings with the Securities and Exchange Commission. Except as required by law, Seer disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is only accurate as of the live broadcast, November 8th, 2022. With that, I'd like to turn the call over to Omid.

Thanks, Carrie, and thanks, everyone, for joining us this afternoon. I'm encouraged by the growing enthusiasm for the Proteograph Product Suite we across a variety of applications spanning discovery, translational, and clinical research. During the third quarter, our team continued to make important progress against our strategic plan and we ended the quarter with $4 million in revenue, and approximately $441 million of cash, cash equivalents, and investments on our balance sheets. I have never been more bullish than I am today about the future of Seer. Our technology will meaningfully enable researchers to undertake population scale studies that can uncover the complexity of the proteome, including the discovery and identification of previously unknown protein variants. Identifying and elucidating the biological role of these protein variants is the next frontier in the quest to understand human health and disease. To that end, key leaders in proteomics are calling for the establishment of the Human Proteoform Project, similar to the Human Genome Project, which was profoundly important in the transformation and acceleration of biological and medical research using genomics. The ambitious goal of this proposed initiative is to map the entire human proteome by generating a definitive reference set of protein variants produced from the genome. The needed discovery work simply cannot be done without the deep unbiased access to the proteome at scale that Seer uniquely enables today. We believe that initiatives like the Human Proteome Project are key in enabling the proteomic community to vastly increase the resolution of proteomic studies. For this to become a reality, we will need the synergistic combination of two distinct technologies. First, an unbiased detector with peptide level resolution to identify and differentiate protein variants. And second, a platform to capture the vast array of protein variants at scale and in an unbiased…

Thanks Omid. Total revenue for the third quarter of 2022 was $4 million, representing an increase of 84% compared to $2.2 million in the third quarter of 2021. The increase in third quarter revenue was primarily due to increased sales of the Proteograph Product Suite and its related products. Product revenue for the third quarter of 2022 was $3.9 million, including related party revenue of $1.3 million and consistent of sales of SP100 instruments, consumable kits, and platform evaluations. Related party revenue of $1.3 million represents product sales to proteogenomic. Since our SBIR grant from the NIH was renewed in the third quarter, we expect a resumption of revenue contributions from grant and research-related collaborations, beginning in the fourth quarter. Total gross profit was $1.9 million for the third quarter of 2022, representing a gross margin of 49%. Our gross margins improved sequentially as a result of higher consumable sales in the third quarter, particularly as our early customers begin to ramp. We will continue to see variability in our overall gross margin on a quarter-by-quarter basis, as a proportion of instrument and consumable sales will fluctuate between any given quarter. We continue to expect our long-term gross margins to be between 70% and 75%. Total operating expenses for the third quarter of 2022 or $27 million, including $9.1 million of stock-based compensation, compared to $19.6 million, including $6.8 million of stock-based compensation in the third quarter of 2021. Research and development expenses for the third quarter of 2022 were $11.6 million, an increase of 49% compared to $7.7 million in the third quarter of 2021. The increase in R&D expenses was primarily due to an increase in product development efforts related to the Proteograph Product Suite, including $2.7 million in employee compensation costs and other related expenses, including stock-based…

Thanks David. We made great strides this quarter and we continue to work closely with our customers as they scale their studies is exciting to see the Proteograph Product Suite being adopted by customers around the world to conduct first of their kind studies that explore the proteome at a depth, resolution, and scale that was not possible previously. As we move ahead, we're excited about our opportunity, focused on our goals, and committed to enabling our [Indiscernible]. I look forward to updating you on our progress. With that, we will now open it up for questions.

And thank you. [Operator Instructions] And our first question comes from Dan Brennan from Cowen. Your line is now open.

Great. Thank you for taking the questions. I guess the first one would be me, Omid you talked about seeing significant interest from would-be customers or existing customers to explore a broad range of, I guess, trials or your different research, can you just discuss some more color on the funnel, what it looks like? And kind of, what you've assumed within the full year guidance, particularly in light of the elongated closed rates that you discussed?

Dan, thank you so much. So, we're seeing interest, across really three different groups, proteomics folks that are mass spec experts, genomics folks that are really kind of new to proteomics, and are interested in adding proteomics to their research. And then genomic folks who are already generating proteomic data, but are looking for alternatives to current offerings, and looking to see more from their studies. So, broadly speaking, that is the bucket of customers we're dealing with. And that split is from a pipeline perspective about 50/50 between our commercial industry customers and academic customers in our both lead and our pipeline. I think as we're bringing customers from interest to a close, while the pipeline is about equally split between those two, we're seeing that the close rate for the commercial customer is higher, I think it's just a cycle of the funding dynamic differences between an academic researcher and a commercial researcher driving that more rapid sales cycle in the context of a commercial customer. That said, given the broader macro picture, we are seeing that the purchasing decisions for potential customer, both in terms of academic and commercial customers getting elongated. And the breadth of this study that folks are taking, it knows everything from basic research, to translational work, looking at cohort studies, with diseases, neurodegenerative, aging, cancer and also we're seeing studies now being done in the face of animal health. So, we actually just did a reasonable size service project focused on non-human samples.

Go ahead Dave. Thank you.

Yes. Dan, thanks for the question. Just in terms of the guidance, look I think we're trying to factor that in what we're seeing just from an interest level and then just some of the macro headwinds. And so it's trying to balance those two tailwinds and headwinds on some of these things.

Okay. Only -- having line of sight on a growing number of larger studies and also publications, which we agree we've heard, publications will certainly drive interest and maybe help to sales processes certainly should. Anything notable, we should be looking for in the next whether it be in year end, or in the first half of 2023, that could actually -- there's only one or two really large studies that could be a notable selling points here or just any -- anything on that front that would give us a sense of what to watch for?

Sure, Dan. Look, so just let me paint that picture, and then I'll kind of hone in with a high resolution. So, since we started there's been 109 presentations and conferences. And of that 109, 19 of them were from customers and this is going back to 2020. Of course, we just started in 2020, so that year had about five presentations from Seer and none from customers. So, it really picked up in 2021. But what's interesting is if you look at 2022 alone, 66 presentations from Seer and 12 from customers, this is at conferences. But importantly, we need to see peer-reviewed publications that Seer has been publishing, our first one was in Nature Communications. Then we did the PNAS paper, most recently, the Advanced Material paper. So, I look at -- publications, the visibility, at least to a handful of manuscripts among customers that my expectation is they are going to be submitted tail end of this year and then heading into next year. And I think we should then begin to see these submissions come out in the form of publications, probably the second half of 2023 and the scope of them are varied. I mean, just yesterday I was talking to a proteomics KOLs, who has an instrument in his lab. And he was just giving me an update on a study that they had ran, where they were able to see upwards of 5,000 protein and in his judgment, an unbiased proteomics with the ease of the workflow that Seer offers for a high degree of accuracy, reproducibility to give you 5,000 proteins in the market. So that is the kind of thing that's going to be getting published from an expert. But in addition to that, biomarker papers, folks looking at different diseases, there's actually one KOL, who's also has used other platforms in the past other proteomic platforms in the past, so is that -- if you would earn an expert user of the various different proteomic technologies, and has also gotten access to the Seer technology, my expectation is that data set is going to get published. Anyway, so I think what's coming then should be really validating of exceptional quality of high impact papers. Obviously, we've seen some of it. But these are really customer work, customer data were still published at their own pace.

Great. If I going to sneak one more in any guideposts as we're heading into the fourth quarter, how to think about next year, obviously, you're not going to guide here, but no consensus or revenue doubling. So I'm just wondering, given the comments on macro and elongated decisions, but at the same time, all the momentum from that customer channel, just wondering, any -- any early thoughts about how we should think about next year?

Yes, Dan. Thanks for the question. Look, as you know, we're not going to give guidance until our fourth quarter call next year. Look, I think as we as we think about it, again, sometime will pass, but certainly, macro environments not lost on us, both with inflation and raising interest rates, as well, as you know, some of the, layoffs and things people are seeing across the sector. So we're just being mindful. Again, we always want to be thoughtful and conservative as we as we approach it. So, again, I think we're just going to have to weigh everything, both, again, as we've said, the positive tailwinds from the customers, relative to just the macro constraints of budgets being tightened in CapEx, decisions being elongated, kind of how that all factors in. So we'll update you in the first quarter. But that's generally what we're -- what we're weighing as we look at it internally.

Okay. All right. Great, guys. Thank you.

Thanks, Dan.

Thank you. And one moment for our next question. And our next question comes from Derik De Bruin from Bank of America. Your line is now open.

Hi, good. Good afternoon. So Dan just asked the question that was sort of the one I was getting from investors, which is sort of the outlook for next year. But to explain that a bit, can you talk a little about sort of your OpEx plans? I mean, you have as you have a ton of cash on the balance sheet, but just how should we think about your spending patterns for next year and hiring and such things?

Yes, Derik, thanks for the question. Look, we are very prudent with our spend and our deployment of capital. I think you can expect us to continue to be so. We've also been real thoughtful about how we're going to spend that capital. And so I don't think, in the metric we tend to use is free cash flow and looking at, our free cash flow, burn. And look, we're going to be very thoughtful about keeping that in check, and not doing anything that's imprudent. And we certainly feel like our at -- we do have a huge asset and our cash and we want to preserve that and deploy that as appropriately as we can over the course of next year, so that we're in good position to weather -- to weather the storm, however long it lasts, and when it comes. So again, I think we're going to be really, really mindful in terms of -- in terms of our spend.

And I guess, sort of asking, asking prior question, another way it's like, are there when you talk about major studies and things are kicking off -- the larger scale proteomics studies, I mean, are those likely to kick-in in 2023? To be sort of like more meaningful contributors?

The answer is, it depends on how you define large. Do I have visibility to a 50,000? sample study next year? I don't? Do I have visibility to multi 1000 Samples study next year? I absolutely do. But I think the key point to keep in mind is that the premise that the underlying foundational premise for starting this company is consistently proving to be exactly correct, which is, this field is directionally moving towards deciphering the complexity of the protein at the protein variant and the proteomics form level, we're beginning to see the scientific community talk about it in that way, and see as uniquely offers that solution with them. So we started off before Seer, we're the largest unbiased study in plasma doing the proteomic was 48 samples. Now we've got customers that are talking about doing multi 1000 sample studies, shortly after launch, so this is remarkable. And by the way, I have every expectation that are that we will absolutely see that multi 10s of 1000s of sample studies also come it's just not as these today. I don't have visibility for that to be a 2023 event.

Great. Thanks.

Thanks, Derik.

And thank you. And one moment for our next question. And our next question comes from Tejas Savant from Morgan Stanley. Your line is now open.

Hi. This is Neel on Tejas. So one of the build off that question on elongation purchasing cycles are these trends divergent as far as the different geographies that you're targeting? And what is your current handle on the risk of push-ups to these decisions that could swing placements between say year end and early 2023?

Yes, thanks, Neel. Yes, so in terms of the purchasing decisions, I think the question is really around geography? And are we seeing it different in different places? So certainly, China remains China, in terms of the lock downs, and just lack of access to customers, depending on -- on how that's rolling through, and so that that continues to be a factor, just access, if you will. In terms of Europe, I think that's certainly something where, certainly with the, the inflation headwinds that they're seeing there, not to mention, the FX risk, I mean, obviously, we sell in dollars, and our products become more expensive. Look, to convert that into Euro. So, again, that just adds to the elongation of, people thinking about it constraint CapEx budgets and the like. And then in the US, again, I think, as we've mentioned on previous calls, again, it's really just the macro of, not only inflation, but then capital budgets, that people are, looking at reassessing, we've seen, approval levels get kicked up a level for people. So they need to go up a level to get approvals where they wouldn't have had to in the past. We've actually heard of a couple of customers, putting a freeze on all CapEx budget or CapEx spend for the rest of the year. So, these anecdotes just kind of add up to people are just taking longer to think about things. And I think it's globally with various factors, factoring in terms of the global -- the global picture in terms of headwinds.

Got it. And on that second part, does the current guidance kind of contemplate that risk of any swings between quarter-to-quarter or?

Yes, I mean, again, we're trying to, we left the guidance at 14 to 16. And as we said, we do expect it in the upper half of that range. But as you know, I mean, look wonder given we're on a very small revenue base, one or two, one or two deals can swing it either way. So, again, we're just we're just trying to be prudent. But as we sit here today, we are we are trying to factor in those various factors in our remarks.

Appreciate the color and one more for me. So, as you progress towards those initial customer sample runs for the Proteogenomics Consortium, by year end, any high level thoughts on, how you see this partnership beginning into to scale through 2023?

Yes. I'm not going to comment on 2023 yet with respect to the partnership, I will say DLS and SCIEX have been fantastic partners, I think we all have the same goal to get it up and running and scaling as quickly as we can, and working closely with them. Again, we've got great interest. In fact, we both had booths at ASHG, DLS, and SCIEX, and the team was jointly talking to different people. There were certain genomics customers who said sounds great, would love to just get access to data, how can I do that quickly. And for those customers, it's not -- probably not buying an instrument, but it's going through one of our COEs including the Proteogenomics Consortium. So being able to kind of have them talk to DLS, at the same time they're talking to us, I think was great. And just kind of shows you the interest that people have and trying to access our data on a relatively quickly -- quick basis. And so we're really encouraged by that, and look forward to working closely with both the DLS and SCIEX next year to ramping the consortium further.

That's great. Appreciate the time.

Thank you. And one moment for our final question. And our final question comes from Julia Qin from JP Morgan. Your line is now open.

Hi. This is Amy on for Julia. Thank you for taking my question. So my first question is about the gross margin. I noticed this quarter, you guys see a 5% increase in gross margin. Can you share a little bit about what are the contributors to the improvement in the growth and also moving forward, right? What other incremental sources that you guys seen that can help improve the gross margin to the downtrend 70% goal other than needles go up in volume?

Got it. Thanks, Amy. So yes, I mean, I think the big contributor this quarter was, we did see higher consumable sales, which is in our view a positive in terms of people are ordering kits and using the system. And so, we feel like that is something that will can continue to contribute. I will say, just as note of caution, the mix is going to change quarter to quarter. So we will continue to see fluctuations, again, a relatively small revenue base, will lead to some fluctuations. In terms of the long-term getting to the long-term gross margins, I think there's lots of areas we see to being able to drive that. The first is certainly improvement in the gross margins on our instrument. We feel like there are ways we can help improve that. And that will certainly be a contributor. And then we also see significant ways to improve our overall gross margins on our kits, not only -- the kits consists of not only our nanoparticles with all the reagents and enzymes and buffers, you need to run the experiment, as well as plastic. So as we continue to optimize that, I think over time, not only from an assay perspective, but also in the kit, and how we source those products in the kit will allow us to significantly improve the gross margins on the kits themselves. And so the combination of that we feel, and then you add in volume, just the inherent benefits of increased volume that we'll be able to drive to those long-term gross margins. And again, don't forget we only broadly commercial launch the beginning of this year. So we're still early on the journey here, in terms of that process improvement, but we are, we are working on it. And over the course of the next couple of years, we'll continue to see the gross margins turned upward.

Thank you. Yes, that's very helpful. My second question is about the revenue from the research customers. I hope I remember correctly. You mentioned like starting in Q4, the grant again improved the revenue from research customers or academic customers is going to start coming in. So I'm just curious, what's the scope of this part of revenue? Like how much is going to be spend on instrument? How much is going to be on consumable and what's the run rate of that part of revenue?

Yes. Let me clarify that a little bit, Amy. So what we were talking about there, as you may recall, we've had a small business innovation research grant from the National Institutes of Health, and that was always characterized as grant revenue. And what that is, is that essentially, grant revenue that allows us to conduct some research internally that then is reimbursed under this SBIR grant from the NIH. So that grant actually expired at the end of May. And we applied to renew that grant to get dollars that had expired, and a lot of this was dragged out [Technical Difficulty] And so we applied in the third quarter and got approved. So that grant revenue, in other words, revenue from getting reimbursed for our research under this grant will start to get reimbursed again in the fourth quarter. So it's simply a grant revenue process that now is going to start again, and as you can see, historically, again, those that was in anywhere from 10s of 1,000s to low 100s of 1,000s of types of revenue in any given quarter. And that's simply just a pass through reimbursement for research that we're doing under that grant.

Okay, yes. Thank you for the clarification. My last question is about the clinical market. Just curious about like, are you guys talking or have plans to work with liquid biopsy companies to integrate the proteomics into the genomic analysis in the -- for the clinical settings? Just curious.

Yes, so of course, the answer to that question is yes to all of it. Number one, we spun off a company out of Seer proteomics that is squarely focused on multiomic Core two, which is deep unbiased proteomics, but in addition, looking at other omics, as well, Transcriptomics, metabolomics, lipidomics. And in addition to proteomics, we've had a number of dialog with just about anyone that you can imagine, in terms of the possibility of integrating to see a Proteograph into the workflow. And of course, we're not disclosing the number of existing with the name of the existing customers in that liquidity box, the space that have adopted the platform or are considering it. So, in general, we said that we will not disclose the name of our existing customers, a certain set of customers who themselves have publicly announced or using the Proteograph, those customers we discussed, but otherwise, we don't but want answer your question very unequivocally, the answer is yes.

Okay. That's very helpful. Thank you so much.

And thank you. And I'm showing no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect.