Participants

Eric Abdo; IR; MaxCyte, Inc

Maher Masoud; President, Chief Executive Officer, Director; MaxCyte Inc

Douglas Swirsky; Chief Financial Officer; MaxCyte Inc

Dan Arias; Analyst; Stifel, Nicolaus & Company, Incorporated

Matt Larew; Analyst; William Blair

Jacob Johnson; Analyst; Stephens

Jacqueline Kesa; Analyst; Cowen Inc.

Presentation

Operator

Good day and thank you for standing by, and welcome to the MaxCyte first quarter of 2024 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Eric Abdo, Investor Relations. Please go ahead.

Eric Abdo

Good afternoon, everyone. Thank you for participating in today's conference call. On the call from MaxCyte, we have Maher Masoud, President and Chief Executive Officer; and Douglas Swirsky, Chief Financial Officer. Earlier today, Maxim released financial results for the first quarter ended March 31, 2024 a copy of the press release is available on the company's website.
Before we begin, I need to read the following statement. Statements or comments made during this call may be forward-looking statements within the meaning of federal securities laws. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements and actual results may differ materially from those expressed or implied in any forward-looking statements due to a variety of factors which are discussed in detail on our SEC filings. The Company has no obligation to publicly update any forward-looking statements, whether because of new information, future events or otherwise. And with that, I will turn the call over to Maher.

Maher Masoud

Thank you, Eric. Good afternoon, everyone, and thank you for joining MaxCyte's First Quarter 2024 earnings call. MaxCyte $11.3 million of total revenue in the first quarter, including core revenue of $8.2 million and $3.2 million of SPL program related revenue. We were pleased with the results in our core business, which delivered in line with our plan, along with Estelle program related revenue, which came in above our expectations.
We're also thrilled with our progress in signing new SPL with four already signed in 2024, including B. biopharma, most recently following the first quarter. We remain on track to meet our financial projections for the year and are confident in the trajectory of the overall business. The operating environment for our customers remain largely unchanged from our last earnings call. We believe the funding environment has improved as evidenced by the capital markets activity during the first quarter.
We have seen several existing and prospective STL partners raise capital in recent months. Over the past couple of years, we saw cell therapy companies prioritize their lead programs and de-prioritize other programs resulting in variable levels of demand for our instruments NPAs in 2023. So there are fewer new cell therapy programs throughout the industry today due to program reprioritization. We believe this has resulted in an industry focus on assets that are further along in their development or have a higher probability of making into the clinic.
Additionally, Mac Sykes, late stage preclinical and early-stage clinical customers who have reevaluate their programs over the past couple of years continue to utilize our platform for the lead programs. We are becoming increasingly optimistic on the market outlook for cell therapy developers and continue to assess initial demand levels based on direct conversations with our existing and prospective customers, the timeframe from when a customer secures funding to when they make research and clinical spending decisions can take time, and our business is not directly correlated with the level of funding in any given quarter general trends in the non-viral cell therapy market continue to bode well for the use of our export platform. Companies continue to pursue more complex cell therapies across a variety of different indications with multiple engineering steps, which maximize electroporation technology is well-equipped to deliver.
Looking specifically at the quarter, the core business performed as expected across cell therapy and drug discovery. We saw a return to growth in our cell therapy business compared to last year's first quarter and were relatively flat in drug discovery revenue compared to last year. Doug will cover that in more detail, but I will point out that our installed base of instruments expand to 708 as of March 31st, 2024, we executed well against our pipeline instrument opportunities in the first quarter and are positioned as planned for the remainder of the year.
On PAs, revenue was up from the comparable prior year period and improved sequentially from the fourth quarter of 2023. The PA growth that we experienced was reflective of broad-based demand across the customer base. And we were very encouraged to see an uptick in RPO revenue compared to 2023, CA sales are dependent on the activity level of customers, stage of development programs and desired inventory levels at customers, all of which can result in demand that can be lumpy from one quarter to another.
Turning to our SPL.s, we recognized $3.2 million of SBL program related revenue in the first quarter of 2024. This included regulatory pivotal milestone that we did not originally forecast for 2024. We have raised our guidance for the SBL program, really revenue line to account for this milestone, which Doug will address in more detail. Accomplishment of the previously non forecasted regulatory pivotal milestone underlies the strength of our business model as our therapeutic development customers move further into the clinic. We are positioned to receive revenue from milestone achievements on occasion sooner than anticipated.
So far, in 2024, we have signed four SPL.'s, including biopharma Fusion imaging alliance, CCR Our most recently signed SPL. that we announced in April. The biopharma is developing a proprietary class of engineered T cell medicines. Bcms designed produce therapeutic proteins specific to a certain disease, nice size platform to support the development of the BioZ BCM programs to address unmet needs of patients with genetic diseases, cancer and more. The addition of the biopharma brings the total number of S. builds on our portfolio to '27, which further showcases our position as the partner of choice with technology capability across multiple cell types to Cell and Gene innovators.
Moreover, we remain excited about the commercial opportunity of cash JV. Cash heavy has been approved for three indications in the United States, Great Britain, European Union, Saudi Arabia and Bahrain with a new drug submission has been accepted for priority review by Health Canada. As a reminder, and as stated on the last earnings call, Max, I will only recognize revenue once the patient has been infused, which can take a number of months from the time of patient roles in the therapy program, we do not have sufficient visibility to timing of patient dosing and therefore continue to exclude any cash every related commercial milestone revenue.
In our update 2024 outlook for SPL. program related revenue, we will provide updates on cash heavy as they come from Bertek current or prospective client relationships that we have built and fostered a truly unique and reflective of our platform's value proposition.
And Max, I we pride ourselves not only in our proven electrification technology, but on differentiated support that we provide to our customers. We are present throughout the entirety of our customers' programs once they begin utilizing our platform. Our support system includes scientific customer service from our 36 plus trained field sales and application scientists to provide customer research and development support as part of our Heska relationships, clients have access to our FDA Drug Master File, which can help with regulatory understanding of the manufacturing process required for approval and help derisk one part of the manufacturing process for SPL customers, desperate platform and service that we offer to our clients is truly an all-encompassing end-to-end solution.
We believe our value proposition has resonated well with existing customers and will drive substantial opportunity for Maxwell over the long term this quarter and over the course of 2024, we continue to deliberately evaluate and improve our business. We are focused on investing in our business to drive growth and to best support the programs of our current and future clients. Notably, we have invested in additional customer support for our SPL clients and are working towards ensuring we are working with customers early into development and providing them with the best known application in the process.
In summary, we are very pleased with our first quarter results and believe that we remain in a strong position to deliver our 2024 plan as the cell therapy industry continues to move towards non-viral cell engineering approaches. I'm very optimistic about the opportunity for Max site, both in the near term and long term at the premier cell engineering platform.
With that, I'll now turn the call over to Doug to discuss our financial results. Doug?

Douglas Swirsky

Thanks, Maher. Total revenue in the first quarter of 2024 was $11.3 million compared to $8.6 million in the first quarter of 2023, representing an increase of 32%. We reported core revenue of $8.2 million compared to $7.8 million in the comparable prior year quarter, representing an increase of 5%. This includes revenue from Cell Therapy customers of $6.4 million, which increased 7% year over year and revenue from drug discovery customers of $1.8 million, relatively flat year over year.
Within core revenue, instrument revenue was $1.9 million compared to $2.2 million in the first quarter of 2023. Lease revenue was $2.6 million compared to $2.8 million in the first quarter of 2023 and processing assembly or PA revenue was $3.4 million compared to $2.6 million in the first quarter of 2023. We are pleased with the strong performance of PA's, which was a little better than planned, which we'll continue to monitor as we move through the course of the year.
Please note, we have added an appendix slide to our corporate presentation with the new quarterly historical disclosure for these new metrics, we recognized $3.2 million of SPL program related revenue in the first quarter of 2024 compared to $0.8 million of SPL program related revenue in the first quarter of 2023. We exceeded our initial milestone expectations for the first quarter, driven by a regulatory pivotal milestone that we had not forecasted or anticipated in 2024 due to a positive timing development at one of our SPL. customers.
Moving down the P&L, gross margin was 88% in the first quarter of 2024, which was comparable to 88% in the first quarter of the prior year. Our margins came in lower than our historical levels over the past year. When excluding SPL program related revenue due to fixed overhead cost absorption. We believe that as we move closer towards previous revenue levels, margins should improve.
Total operating expenses for the first quarter of 2024 were $22.2 million compared to $20.8 million in the first quarter of 2023. The overall increase in operating expenses was primarily driven by growth in sales and marketing expenses as well as R&D expenses with specific investments in product development and application know-how going forward, the Company continues to be disciplined, making moderated and targeted investments to drive long-term growth, including an innovative product development and field application scientists and additional technological capabilities.
We finished the first quarter with combined total cash, cash equivalents and investments of $202.5 million and no debt. Moving to our full year 2024 guidance, we are reiterating our core revenue outlook and raising our initial SPL program related revenue guidance. Core revenue is expected to be flat to 5% growth compared to 2023.
As Maher discussed, our guidance assumes an operating environment for our customers that has remained largely unchanged from our prior earnings call. We now expect SPL program related revenue to be approximately $5 million in 2024, the increase in our SPL program related revenue outlook is a result of the unexpected record pivotal milestone we achieved in the first quarter, which was previously not incorporated in our 2024 guidance. As a reminder, our 2024 outlook also does not include royalty revenue from Cat Jebi.
Finally, Max side has maintained a strong financial position and continue to expect to end 2024 with at least $175 million in cash, cash equivalents and investments and no debt on our balance sheet. I would like to close by reiterating that we remain well-positioned to execute on our 2024 revenue outlook and remain laser focused on managing our spend and balance sheet to deliver long-term growth.
Now I'll turn the call back over to Maher.

Maher Masoud

Overall we are very excited by our progress so far in 2024. We look forward to supporting our customers in their development stages as they progress through the clinic and remain committed to further expanding our SBL portfolio. We believe that we continue to be the premier enabler of non-viral cell therapies, and we'd like to thank our max I. team for their continued hard work.
With that, I'll turn the call back over to the operator for the Q&A. Operator?

Question and Answer Session

Operator

(Operator Instructions) Dan Arias, Stifel.

Dan Arias

Afternoon, guys. Thanks for the questions here. Maybe just talk about some of the components of the revenue. The revenue bolus for the quarter, PA revenues up sequentially to your point. And so when we think about the rest of the year and I hear you on your comments about there being lumpiness there, but it also seems like what you record there on the PA side is largely a function of activity and just project intensity, which I think you alluded to as well. So it feels like the funding environment is trending in the right direction. Is there a reason why PA revenues wouldn't continue to just push higher here across the year?
And now that you're you're out of what is the choppiness quarter of the four?

Maher Masoud

Yes, absolutely, Dan. So obviously, thank you for the question. Obviously, we're still holding steady in terms of our guidance for the year. We're still cautiously optimistic in terms of the rest of the year. We were not pleasantly surprised us what we expected coming out of last year. This is the end of last year. We saw some stabilization. We're seeing it continue through the year. It makes us broad-based Rystad just being related to necessarily one particular customer. We see that that increase is across the customer base. We're seeing it, but we're not ready just yet to to in any way, increased revenues throughout the year. We're still seeing how do you plan on what plays out, but we're cautiously optimistic.
And I mean, Doug, anything else to add there?

Douglas Swirsky

No.
I mean, we're I think we're pleased with our PAs were this quarter.
But I think it's too soon to tell whether some of that's timing or whether we're going to have significantly higher ARPU revenue than we were expecting when we projected out there. So we're holding our guidance construct at the levels we provided on the March call for core revenue.
Yes.

Dan Arias

Okay. Makes perfect sense. And then maybe just higher level there can you just talk to the tone from customers? Are you hearing right now? I mean, it does feel like there's a little bit of a sigh of relief there. Just given where financing activities have gone in the last couple of months. So to your point on project prioritizations, are you starting to see things open up a little bit that maybe felt like they were less likely to be worked on a couple of months ago or 6 to 12 months ago.
And can you just maybe talk about confidence that the industry is seeing what it needs in order to keep adding them in this direction in terms of increased activity from preclinical and commercial?

Maher Masoud

Yes, I think you hit it on the head there is that we are seeing that activity start come back. The confidence is coming back. I think that's evident slightly from we signed for SPL to start the year, but also if you look at the capital markets, a few of our partners have raised significant amount of money into capital markets in Q1, and we're seeing that confidence come back in the market we think it's the early stages of that. We're going to keep our eye on to make sure that it's not just a small little bump, but I think the work with our customers, even there are still rationalizing what programs are taking into the clinic and how many programs they take into the clinic. We feel fairly confident that we're we're cautiously optimistic as we keep saying, but the quarter is kind of a prognosticator of where we are and where the market is right now and how it seems to be coming back slowly Okay.

Dan Arias

If I could just sneak one more nuance on that last point away. When you're obviously well, maybe not obviously, but I assume you're looking at who's raising money and who's not raising money. Is it fair to say that those that have maybe not had a public raise are showing signs of improvement as well? Or does the line really get drawn down down the middle where you have some that are that are financed and therefore are in a better position. But those are the companies that are starting to open up the spigot a little bit those that haven't done that haven't really changed that dynamic.
Thanks a bunch.

Douglas Swirsky

I mean, yes, I think first off in our NPAs, I think you don't need to see the things snap back to strong levels for folks to start making investments in moving their programs forward. I think where the timing of capital raise impact things maybe on when an instrument purchase takes place. So I think those capital acquisitions are going to be more tied to that. The fundraising, then certainly the PA utilization's going to be.

Dan Arias

Okay, very good.

Maher Masoud

Thank you, Dan.

Operator

Matt Larew, William Blair.

Matt Larew

Good afternoon. Just maybe following up on that last point there, Knology and that takes some time for flow through from perhaps a successful capital raise to release of that into a budget on the instrument side, what are you starting to hear about from customers on a budget perspective, what does the perhaps the instrument pipeline look like relative to maybe the end of last year? Just because obviously, while PAs for strong instrument still a little bit softer in the quarter?

Maher Masoud

Yes, Matt, let me answer that, and I'll let Doug goes away. And so what we're seeing in terms of instrument side really is the prognosticator for that is what we're seeing on the PA side, right? That's usually where you start to see the recoveries. You normally NPAs because the CapEx spend is far less than we do for instrument side for an instrument purchase. So we're hopeful and we're you know, we're optimistic that what we're seeing on the PAs will lead later in the year to potentially E&O where now customers are willing to make purchases they maybe last year that were not willing to make. But again, it's just that leading indicators because the PAs. So I'm not so sure we want to at this point indicate that it's going to lead to future instrument sales just because the PAs have increased, Doug and your estimate is.

Douglas Swirsky

Good question, and I think it's a good opportunity to remind everybody of what makes up core revenue, right? There's the leases, which I think we've got good visibility and that's very stable and we saw some growth there. And then there's the PAs, which are a lot tougher to project. And then insurance sales instrument sales really is a if we build up our forecast based on very detailed information that comes from the commercial team on each opportunity that they're looking at.
And so when we think about the year, certainly instrument revenue wasn't as strong as PA's was this quarter, but we still feel very good about the guidance we provided when we're looking specifically at the book of business that they're working through now on the instrument sale side.

Matt Larew

I hear you referenced in the prepared remarks, I think adding additional SPL support for clients and you're starting to work with them earlier. And I'm curious if this is sort of a step function change or new for you or if there are particular services or capabilities that you're adding in terms of how you interact with clients that are different from before and whether this is something that's sort of been asked from clients or more of a push from you either from a competitive or servicing standpoint?

Maher Masoud

Yes, absolutely. Great question. Actually, it's more of a push from internal rather than being asked from clients, you know, per se. We've always if you look at what we do. We do a complete end to end solution, right? We provide support to our customers where from the time to first work with us all the way through the clinic. We want to make sure I think I said on the last call as well, and we're doubling down to support.
So we're staying ahead of the competition and we're providing support now with better communication, both electronic communication as well as face-to-face communications. So we're building out systems to ensure that the support that we provide to our STL partners, whether it's regulatory or quality or any potential issues that they have, whether it is clinical development, even potential commercial development, we stay ahead of it and the turnaround times and faster than before so we're ensuring that what we've done in the past, we're doing even more so of it and really coming of age with with where the industry is going, where we want to make sure as these therapies need to make it to the clinic faster and make it to patients faster that we derisk that step where they're working with us. So we're investing extra resources and really our capabilities in that in that area to make sure we stay ahead of the competition and keep up and align our interest with our with our partners.

Matt Larew

All right.
Thank you.

Maher Masoud

Absolutely.

Operator

Jacob Johnson, Stephens.

Jacob Johnson

Hey, thanks. Good afternoon and congrats on the quarter, you guys called out kind of a pivotal trial surprise in the quarter. I'm just curious if this relates to a new or an existing therapy, I think program revenue revenues don't include cash JV. So I'm curious if it's a new customer and maybe I'll dovetail that into looking at your chart on potential commercial approvals. It looks like you're not really expecting anything until 2026. I'm just curious if this kind of surprise pivotal changes you're thinking about that.

Maher Masoud

Thank you. Yes, take Jacob. Thanks, Phil. I'll take that. It doesn't quite change our thinking on that. Obviously, we can't comment in terms of what customer it is or why it happened sooner than it should be for confidentiality reasons with our partners. However, as you know, as I mentioned, it does speak to our business model. And the sense of there are going to be times where some of our current partners that have signed licenses with us are going to are going to reach milestones sooner than we even anticipated or that we anticipated and we'll get the benefit. And that's that's what happened here, I wouldn't change the end of the '26 or '27 timeline for next generating events for us. We're still that's that's where you see that we're confident with that but this is a positive. This speaks to exactly why we have these licenses. Why provide the support and what I've mentioned in the past, which is these are not like antibody therapies. There's a high potential higher potential that you're going to have potential clinical efficacy earlier than anticipated by our partners, which will benefit us and benefit patients and our partners as well does answer your question.

Jacob Johnson

Yes, yes, that's helpful. Thanks for here. And maybe Dan asked me about your customers spending money received funding versus maybe that you had. And I'm just curious maybe like a dicing is a different way. Just curious if there's any difference in PA demand. It was maybe more skewed to customers in the clinic or if you did have some maybe preclinical or earlier demand from preclinical or earlier stage customers as well?

Maher Masoud

Yes. I'll answer then if Doug wants to win, it's I think it's spread out across. It's not just clinicals, clinical and preclinical demand as well as research. We're seeing that across the board, which is which is what we want to see when I see the healthy business both for the SPL.s and the non SQL customers. And that's what we saw sequentially from this quarter last quarter. And so it's a healthy man across the board.
Jacob.

Jacob Johnson

Got it.
Thanks for the question says.
Thank you to.

Operator

Matt Hewitt, Craig-Hallum Capital Group.

Hey, guys. This is Jack on for Matt. Congrats on a good readout on. We just have one question.
So after a flurry of new SQL agreements has started the year, could you just give us an update on that pipeline and whether do you expect additional agreements this year?

Maher Masoud

Thanks, Jack, and I can speak to that. And then, Doug, feel free at this because we're obviously very healthy start to the year. We're still what we've mentioned in the past. We're comfortable at the three to five per year, the funnel, the funnel and the pipeline itself for future spills is healthy. We're confident that we can continue to have those three to five. I won't comment on whether we're going to sign another one. This year just yet because obviously for obvious reasons.
As I mentioned last time, sometimes you see a bolus of of SPL signed to a particular time Reason being is we're oftentimes working in research working with these customers really declare in debentures with them supporting them. And then from there, it ends up being a negotiation a little bit thereafter where now we're negotiating licenses where they're about to enter into the clinic. So sometimes you might have a we have three or four lines the same time we've been working with in the past 12 months, 18 months that are about to sign licenses. So that's why you see a bolus, but we're completely confident that three to five moving forward won't speculate as to what will sign another one. And then the funnel itself is healthy, and that's what we're confident three or five moving forward as well. Jack, did that answer your question?

Yes, is helpful.
Thank you.

Maher Masoud

Absolutely.

Operator

Mark Massaro, BTIG.

Your line is now open and for Mike for taking the question, frankly, just a quick one on the DRx adoption on it, more of a lagging indicator about CPAs, but just any appetite or early feedback to report there. Thanks.

Maher Masoud

Thanks for the question. On the Vilex in terms, as I mentioned last time, we're still working with early adopters. We're taking a step back to ensure that we do this where we understand the true application needs for the Vilex. And I won't mention for confidential reasons, the name those early adopters, but it's just to ensure that we understand the space that we're entering into where it's different is cell therapy where we're really trying to disrupt the industry here and not just with from the Vilex, but just in terms of production of proteins in a in a transient manner that has are at a scale that's never been done before. And so in terms of the paying users for that, we haven't disclosed that in terms of instrument sales. We haven't disclosed that, but we're still working with early adopters to truly understand the space and then launch launch in a manner that allows us to have to market adoption for the Vilex and applications around the Vilex as well. But we have not disclosed anything specifically there.

I'd like to understand. I mean just to follow up on the well from a pretty healthy balance sheet and just any tuck-in acquisitions or tech that you might look to evaluate and particularly for upstream or downstream, that's kind of like cell enrichment or harvesting and just any conversations going on.

Douglas Swirsky

We have a active corporate development effort. Clearly, we're not in a position to talk about specific targets we're looking at. I think the types of things you mentioned are sort of in the realm of opportunities we would look at. But we've got a healthy effort just to balance out our initiatives to target both inorganic and organic growth opportunities so this is one of the use of proceeds when we went public. So we're mindful that that's part of the reason why we have the healthy balance sheet that we do and our goal is to look closely at things, but be very prudent. And I think it's healthy that we're evaluating things. It's also very good that we've been very disciplined and not pulling the trigger on things that either we didn't think we were valued correctly or just weren't the right fit and taking the questions through.

Operator

Jacqueline Kesa, TD Cowen.

Jacqueline Kesa

Hi, this is Jacqueline Keith on for Stephen Martin. Thanks so much for taking the questions. Just to start off with regards to your new and ongoing BD discussions for new SPL.s, are you seeing these discussions weighted more towards the emerging biotechs or large pharma, is there like a noticeable noticeable mix or anything?

Maher Masoud

Yes. Hi, Jacqueline. Thank you for the question. And I'll take that. It's more towards some large formats more towards.
Yes, I'd say in a smaller to mid-sized biotechs, and it's a mix of what we're seeing there. Obviously, as the industry keeps changing and evolving and as in cell therapies, you have greater adoption, we could see that mix begin to change as well, whether tumor from early to mid size to larger biotechs. And it's a good mix. I mean, it's a good question. I think you're seeing it across the board. I would say large pharma. We don't have that's not our focus right now. It's more of the support that's needed for that smaller to mid to larger sized biotechs.

Jacqueline Kesa

Right, great. Thank you. And then if you look across the clinical programs you're supporting, can you speak to the diversity of the cell types and molecules that your partners are using to create their cell-based therapies and has this trended over the past 12 months and if you're willing to call any emerging trends with regards to that that would be in the quarter?

Maher Masoud

Yes, absolutely, Jack. And actually, that's that's the beauty of our of our support and what we do truly best as it's emerging across cell therapies, whether it's T cells or NK cells, whether it's T cells or TCRs is that we're working with all of them. And obviously for the indications, it's it's increasingly went from blood cancers and solid tumors, which is where we're having a presence in. And then you've seen the space really get more complex with the companies work with and eventually begin to go into other indications, you're seeing autoimmune diseases begin to really take shape here, and that's where it seems.
The space is lending itself and working with a few of our partners on autoimmune disorders. It's a cell therapy screener for autoimmune diseases, rare diseases. Some say it's the entire breadth, and that's what we anticipate. We anticipate the field continue to evolve continue to mature and really get more complex. And that's what we've built the last 15, 20 years to ensure that we're ahead of competition and working with everyone across the cell type regardless of the modality and indication. So I hope that answers your question, Jack?

Jacqueline Kesa

No, that's great. Thank you so much. I appreciate it.

Operator

Thank you. And I'm currently showing no further questions at this time, I'd like to hand the call back over to Maher Masoud for closing remarks.

Maher Masoud

Yes. Thank you, operator, and thank you all for joining today's call. I look forward, and we look forward to speaking with all of you again on our next earning call in a few months. Thank you.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.