Good afternoon ladies and gentlemen and welcome to the Quanterix Corporation Quarter One 2020 Earnings Call. At this time, all lines are open and all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I will now turn the conference over to your speaker today Mr. Amol Chaubal. Thank you. You may begin.

Thank you, Christie. Good afternoon everyone and thanks for joining us today. With me on today's call is Kevin Hrusovsky, our CEO, President and Chairman. Before we begin, I would like to remind you about a few things. Today's call will be recorded and will be available on the Investor Resources section of our website. Today's call will contain forward-looking statements that are based on management's beliefs and assumptions and information available as of the date of this call. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties assumptions and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks and the uncertainties that we face are described in our most recent filings with the Securities and Exchange Commission. During today's conference call, we will discuss some financial measures that are not presented in accordance with U.S. generally accepted accounting principles or non-GAAP financial measures. In the Q1 earnings release and in the Appendix of our presentation, which are available on our website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to comparative GAAP measures. We believe that these non-GAAP financial measures provide investors with relevant period-to-period comparison of our operations. These financial measures are not recognized under GAAP and should not be considered in isolation or as a substitute for a measure of financial performance prepared in accordance with GAAP. With that, I would like to turn the call over to Kevin.

Thank you, Amol. Today, I’d like to review our Q1 highlights, our vision and strategy, focusing on both execution and value creation. Although the impact of COVID-19 is a significant point of discussion today, we are maintaining our commitment to neuro and our near-term CAC pivot, which refers to the COVID Accelerator in China pivot. We will also address topics beyond COVID-19. Amol will share a financial update, after which I'll open the floor for Q&A and conclude the call. On slide 4, you'll see a familiar slide illustrating our rapidly evolving publications. This aspect of our business is crucial, and we are witnessing acceleration in areas beyond neuro, particularly in infectious diseases. We've added eight more biomarkers, bringing our total to 330. Q1 has shown strong results in both neuro and infectious disease categories, as well as our Accelerator, with 116 drug trials and studies currently ongoing. Our installed base stands at 429 instruments, and we’ve achieved a 27% growth in Q1 despite COVID and various global challenges. If we exclude the Uman acquisition, our organic growth is actually 34%, and it’s 38% if we discount a significant one-time order from Novartis in the previous year for MS trials. On slide 5, our growth rates are still at 27%, rising to 38% when excluding that one-time event. Additionally, we are overhauling our installed base by transitioning from HD-1 to HD-X, which is a significant improvement. The HD-X delivers greater throughput, increased reliability, and is better suited for clinical trials. The impact of COVID-19 on our operations was minimal in Q1, primarily affecting only the last month in North America. We took proactive measures to protect our employees and have implemented a resilience plan, relocating 100 people outside the facility, resulting in a total of 180 personnel working remotely. Our team has excelled over the past month despite COVID-related concerns. After securing safety precautions early on, we adapted our sensitivity technologies to assist in combatting the COVID virus. Over the last month and a half, we've engaged our global Precision Health networks to leverage data on immune response to COVID, along with drug interactions affecting that response. This is crucial, as a heightened immune response can lead to severe complications. Monitoring the innate immune system is vital, and we are introducing serology testing for research purposes this quarter. We continue to broaden our Accelerator, supporting customers during lab closures—this will foster growth, as many labs adapted to conduct COVID-related testing, transitioning from their usual operations. Industry reports indicate that a significant percentage of labs have shut down, but we are still actively collaborating with our Precision Health partners worldwide to sustain publication momentum. Our Simoa technology is proving valuable in neurology, illustrated by a 17% growth in consumables during this COVID-affected period. We have also nearly doubled our revenue from lab services this quarter. Our gross margins are improving, and without the HD-1 to HD-X conversion, we anticipate even greater margin expansion. Slide 6 presents our demographic distribution, which remains roughly evenly split between pharma, CROs, and academia. As we indicated previously, we are transitioning from invasive procedures to non-invasive testing, allowing for earlier detection, which you can see illustrated on slide 7. Slide 8 shows that while there are about 1,300 protein biomarkers currently in RSU markets, only 205 have moved into IVD with high-content proteins. The opportunities for insights into clinical relevance are vast, especially as we deploy our Simoa technology. Our technology is now instrumental in supporting the understanding and monitoring of critical cytokines related to COVID-19, as shown in slide 9. We see a significant opportunity for drug companies to secure approvals by utilizing biomarkers to target cohorts before disease symptoms arise, which can lead to better efficacy at lower dosing. This growing demand reflects our journey from minimal revenue to $57 million in 2019, with Q1 continuing our growth trajectory. We're re-engaging with the infectious disease sector, having previously seen success with HIV, and recognize its future importance from both a global and research perspective. Our Precision Health ecosystem remains actively engaged with several studies and publications emerging, including accelerator projects focused on COVID cohorts. We also plan to introduce our technology into serology and adaptive immune testing to support drug development and the detection of cytokine storms. We have plans to evolve our tests in response to the COVID-19 pandemic, while continuing to explore IVD partnerships and potential strategic M&A opportunities to support our objectives. Our balance sheet remains strong, and we aim to sustain long-term growth even amidst current challenges. Our revenue targets and gross margin goals reflect an upward trajectory, supported by ongoing advancements in our R&D, and we aim to showcase our technologies as opportunistic growth avenues during the latter half of the year. Amol, I will now turn the call over to you.

Thanks, Kevin. I'm going to provide some additional financial details about our Q1 2020 performance and we'll be referring to slide 31. As Kevin noted, revenue in Q1 of 2020 was $15.7 million. This represents 27% revenue growth compared to $12.3 million revenue in Q1 2019. Service revenue grew by 107% driven by Accelerator services as we have expanded capacity to support customers transitioning from HD-1 to HD-X and overcome interruptions in their operations. Instrument revenue grew by 10% and was limited by inability to access certain customer sites to complete installations due to COVID-19. Consumables revenue of $6.1 million was flat versus prior year. Prior year consumables revenue included $0.9 million in connection with a large one-time customer study. Consumables utilization was adversely impacted by customers transitioning from HD-1 to HD-X and later interruptions in their operations due to COVID-19. As stated previously, we are not providing revenue guidance. In Q2, we expect COVID-19 related challenges such as limitations accessing certain customer sites to complete installations and drop in consumables utilization due to interruptions in certain customer laboratories to continue until these customers revert to normal operations. On a non-GAAP basis, Q1 gross margin was 48.5% versus prior year Q1 gross margin of 48.7%. Q1 2020 gross margin also includes a 200 basis point negative impact from our HD-1 trade-in program. As discussed previously, while this may create a near-term unfavorable impact on gross margins, it is a compelling investment to drive future consumables growth and excitement. Our non-GAAP gross margin excludes the impact of non-cash acquisition-related purchase accounting adjustments related principally to the acquisition of Uman in 2019 and provides investors with relevant comparisons. On a GAAP basis, our Q1 gross margin was 43.3% versus prior year Q1 gross margin of 48.7%. We believe we have significant opportunity for gross margin expansion in the future beyond our current performance as we evolve the mix towards higher-margin consumables, and Accelerator services and scale our overall business while reducing product costs. Operating expenses totaled $18.5 million in Q1 2020. The balance sheet is in good shape as of March 31 with approximately $96 million in unrestricted cash. We continue to aggressively pivot and work towards enabling researchers on COVID-19 pursuits. Concurrently, we also continue to evaluate different scenarios on the COVID-19 impact including demand reductions and length of shutdowns. Beyond the COVID pivot, our emphasis is on preserving cash through managing operating expenses and CapEx to best position us for opportunistic strategic pursuits. Use of cash in Q1 is typically high due to employee bonuses and annual premiums. During Q1 2020, our cash balance decreased by $12.8 million, driven by our $7.9 million P&L loss excluding non-cash items such as stock options, depreciation, amortization and $4.9 million use of cash for working capital, largely driven by payout of employee bonuses and annual premiums. Weighted average shares outstanding for EPS totaled $28.2 million for the Q1 2020 period. Overall, we are pleased with our Q1 2020 performance and remain focused on proactively managing and navigating this crisis to protect our employees and their families while we continue to optimize our business operations for customers, collaborators, and investors. With that, I'll turn it back to Kevin.

Thank you very much, Amol. What I'd like to do now is open up for questions.

Our first question comes from the line of Sung Ji Nam from BTIG.

Hi. Thanks for taking the question. Hope everyone's staying healthy and safe.

Thanks, Sung Ji.

Kevin, I was curious about your service revenue, which clearly shows strong growth. Could you provide more details on what is driving this? Is it primarily coming from your existing customers, or are you successfully attracting new customers as well? Additionally, could you discuss the impact of COVID-related activity on this growth for the quarter?

Kevin, are you there?

He has disconnected his line. One moment please, just a minute.

Sung Ji, give us a couple of minutes. Kevin should be dialing in.

Hello.

Okay, Kevin you…

Hi Kevin, we can hear you now.

Okay, great. Sorry about that. Somehow I got kicked out. Basically, I would say that the demand profile for our services, we knew going into the quarter that we were going to see a significant uptick because of the HD-1 to HD-X revalidation of the HD-Xs was a critical component and customers couldn't use the HD-Xs during that time. So I would say...

Okay. He was kicked out again. One moment.

Folks may I request a couple of minutes? We're trying to connect, Kevin.

Okay. Kevin is now live.

Okay. Sorry about that. A little bit of technical problems working from home here. My apologies. Most of that demand came via the HD-1 to HD-X. We wouldn't expect seeing demand for the COVID-related activities. The earliest would be late Q2. Most of what we have seen around COVID would not be related to COVID actual trials running infectious disease biomarkers. It would be more that some of the labs of customers were shut down and that they would rely on us as a result. So I would say that probably one-third to maybe 10% of that demand was from customer shutdown, because most of the shutdown from customers didn't occur until later in the quarter, so most of this was just due to that HD-1, HD-X, which we did predict. Is there any other questions?

Christie, can you hear us?

Yes, I'm here. Our next question comes from the line of Puneet Souda.

Yes. Hi, Kevin. Thanks for the questions and hopefully you can hear me well.

Yes.

So I just want to understand a little bit. Obviously, services were strong accelerator opportunities here, those customers are coming to you. But just wanted to sort of get a sense of that and how much of that could continue going forward. How much are you seeing that on an ongoing basis? And I apologize if I missed the comments earlier, but could you give us a view of sort of how that plays out in the next couple of months here before we all emerge from this crisis?

Yes, absolutely Puneet. Again, we're very fortunate to build that capacity up of Accelerator planning for a lot of this to have occurred in the first half of the year. So we did further expand that and again getting our employees safe and effective in that facility was paramount. We've got great employees that have adopted all of the right principles of social distancing protective gear deep cleaning etc. So our operations have been pretty much flawless because of this incredible performance. There are companies, even like Biogen that are tied into a lot of the COVID activities early on. They would be one of our top 20 customers. When companies shut down their facilities, our facility gives them a chance to continue running, particularly retrospective trials where the samples have already been collected. So I would expect that we're going to see a good surge of demand and fulfillment that demand, assuming we continue with our flawless operations to fill that demand in our Accelerator for the next, I would say, not only in the next couple of months, but probably into Q3 as well. So on a full-year basis, clearly, I see the Accelerator this year, given the circumstance of what's occurred, the combination of HD-1, HD-X, plus the ability to help customers through disrupted labs, plus our evolution of being able to actually run biomarkers towards COVID population studies. Those three things bode well for our ability to respond in the current year to provide a nice growth of that Accelerator Lab. I think you're going to see it through, at least, the first three quarters, and I wouldn't be surprised if we see it in Q4 as well.

Could you provide insights on customer orders for the HD-X platform and any expectations for shipments as we move past the crisis? Additionally, what do you foresee regarding capital equipment purchases, especially considering the anticipated decline due to the crisis? Since the HD-X is being offered at a discount, we would like to understand the underlying dynamics and your expectations for potential growth in the second half of the year.

Yes, I'm quite optimistic about the outlook for HD-X in the second half. I believe that the more we do with the Accelerator, the more it enhances our pipelines. HD-X represents a significant advancement in reliability, and its additional features, such as sensitivity and being enclosed, are particularly beneficial for infectious disease applications. Looking ahead, I anticipate that HD-X will play a significant role in the latter half of the year. I'm also hopeful for substantial success in our PPH ecosystem with serology testing as efforts to return to normalcy progress. Currently, there are many false positives and considerable frustration in serology testing, as countries work to establish immune credentials. Positive results based on previous viruses that cannot be cleared may misguide policymaking and complicate the understanding of who is truly immune. A quantitative research-use-only IgG test should effectively address many of these concerns. We believe that HD-X will be utilized globally for these research initiatives, including examining herd immunity in populations, such as Sweden, which researchers suggest should test its entire population. In contrast, Denmark has adopted a different approach with strict isolation tactics. We think that a quantitative serology RUO test will help clarify the outcomes of these differing strategies. We are hopeful for a strong demand for HD-X.

On the serology assay, could you elaborate on your research in the cytokines market and the opportunities you expect there? Additionally, within serology, do you anticipate having tighter antibody information and potentially pursuing both vaccine and convalescent plasma trials, possibly with partners? Please cover those three topics: cytokine, titer, and vaccine convalescent plasma. Thank you, Kevin.

Absolutely, Puneet. Historically, once the analysts report on our disruptive capability, investors learn a lot and then they engage companies asking them about Quanterix technology. We hope the same cascade occurs here. I appreciate your PhD insights into this market and they enhance our perspective. Firstly, in the innate immune system, we have cytokine storms. Already, we've got that deployed. New publications are emerging on interferon alpha which is the first spike in the innate system. It's interesting that it spikes quickly in serology response. We are working on products that we can launch within the next two quarters to take interferon alpha and break it into maybe as many as six to eight subtypes. Our exquisite sensitivity may allow people to further stratify. There are outstanding publications on this. Pro-inflammation markers, our SP-X can measure, present a strong growth opportunity, moving our cancer research products into this landscape of predicting cytokine storms. In the serology space, our capabilities need quantitation. Building calibration curves using chimeric antibodies may enable us to know immunity levels with IgG. By Q2 we hope to roll that out in major population studies to understand what represents immunity, observe why some experience symptoms while others don’t, and ensure that cohorts for vaccines reflect true immunity levels. We aim to position our technology for real-time usage in vaccine development. The challenges of identifying immune signatures will be important for vaccine producers conducting trials.

Right, great, thanks, Kevin.

Christie, is there any other question on the line?

Okay. Our next question comes from the line of Max Masucci.

Hi. How’s it going? Thanks for taking my question. I would like to understand services revenue.

Hi, Can you hear me?

Can you hear you, Kevin.

Can you hear me? Yeah, I can hear you.

In Q2, I wouldn’t expect significant effects from providing technologies for valid COVID. I would pay more attention to that in the second half. I have the most confidence in COVID-related instrument growth in HD-X, particularly due to the potential of our high fidelity quantitative IgG test rollout. I believe both HD-X and SP-X technologies will be crucial in the innate immune system. We could run a 6-plex on HD-X. After we develop the interferon alpha into subtypes and complete that process, we anticipate strong results in both systems. This gives us insight into COVID activity in Q2. We continue to focus on the neuro landscape where Nf-L and several new neuro markers, especially pTau, are generating interest as they are being explored for Alzheimer's.

Great, that's helpful. And then just one more if I can. Your company's role during COVID-19 is differentiated, as are your technological capabilities. With the surge in funding available for innovative projects addressing the pandemic, are you actively pursuing any grants? And what's your approach? Will you have a better chance of locking these down because of your unique capabilities?

Yes. There’s no doubt that some of the assays we’re developing carry potential for BARDA grants. Initially though, we emphasized awakening our commercial opportunities in pharma, biotech, particularly for vaccines, drug therapies, and for convalescent plasma. We see real chances for getting installed bases around those technologies, that demands focused attention. Once we establish ourselves in innate immune aspects and can characterize our efforts with SP-X and HD-X, stacking serology high fidelity tests will be a priority. We will then pursue funding to support this robust effort. That is not where we're currently focusing, although it is still very important.

Got it. Thanks for taking the questions.

Sure.

Our last question comes from the line of Doug Schenkel.

This is Ryan on for Doug. Thanks for taking my questions. Maybe one more COVID-19 one. In a press release over the past month, you talked about exploring the use of your Simoa technology for early antigen detection. Can you give an update on your work in that area? And could we see a product at some point over the course of this year?

Yeah. We're probably less focused on that one. That's the third priority in our COVID landscape focus. First is innate, second is serology as we've been describing. Third would be antigen. We think there's natural benefit to what our technology can do. We are exploring assay development in that landscape, but whether we roll that out in Q2 is still a question mark. It could potentially be a major breakthrough, depending on if we can establish a test in blood. We’re asking whether antigen presents in blood, and if so, how long it does. These questions require researchers to explore before we share specific insights. Securing samples has also been a challenge but we have researchers in our PPH network supporting us with samples that we could test to validate some of our serology work. I would like to think it's not just blood, but perhaps saliva as well. Sensitivity will play a crucial role too. We think that sensitivity could impact low abundant markers like home testing and we are proud to develop that assay.

Got it. Yeah. No, very helpful. And then one more. Thank you for the color on your full-year expectations for instrument placements. Is there any more insight you could provide on Q2 placements or overall revenue? Anything you could quantify to help us, obviously, it's going to be a little bit tougher environment for customer sites. But I think you could help us with just to make sure we're not over setting an unrealistic bar for you given all the uncertainty in Q2. Thank you.

Sure. I think it remains uncertain for us and we do not provide guidance, so we want to avoid that. Interestingly, we've noticed that some companies that previously provided guidance have also chosen to refrain from doing so. Estimates from other companies in our sector suggest that 30% to 60% of their installed base is down. In our situation, while we have faced some challenges, we also benefit from some positive factors. One advantage is the accelerator we have, allowing customers to continue using our services even when labs are closed. Additionally, our capability to launch products and assays that are pertinent to addressing COVID-19 contributes positively. These factors may help balance out the challenges other companies are encountering. The second quarter is likely to be difficult, but we don't know the extent. It will be worse than our initial projections for Q2, but not as severe as those of companies that cannot adapt. We anticipate that Q3 should be much more fruitful. The key concern is the impact of the COVID pandemic on our Q3 revenues. We expect a significant rebound as we move beyond the challenges of Q2, and we are confident in that expectation without offering specific guidance.

Very helpful. Thank you.

My pleasure.

There are no more questions on the phone line.

Perfect. I will close. We have a final slide in our deck that just talks about the combination of the market opportunity being unprecedented. When you can do something as disruptive as what we can do with ultra sensitivity, you start to realize that the sensitivity can focus on low abundant biomarkers but can also be deployed in less invasive samples. Home care is an opportunity as we come out of this COVID pandemic because home care testing can significantly reduce the risk of infection from centers where hospital workers strive to prevent being contaminated. Thus, less invasive sampling becomes paramount. We believe sensitivity can provide answers through upcoming tests in finger pricks and saliva. We’re very encouraged that our sensitivity can provide data through less invasive options and lead to viable solutions for COVID. Thank you to everyone for your continued support; we appreciate staying connected and showcasing our technology capabilities. Thank you very much for your time today. We'll talk to you soon. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.