Good day, and thank you for standing by. Welcome to the Quanterix Corporation Q4 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Mike Doyle, CFO. Please go ahead.

Thanks very much. Good morning, everyone, and thanks for joining us today. With me on today's call is Masoud Toloue, President and Chief Executive Officer of Quanterix. Before we begin, I would like to remind you about a few things. The call will be recorded and will be available on the Investor Resources section of our website. Today's call will contain forward-looking statements within the meaning of the US Private Securities Litigation Act. These forward-looking statements are based on management's beliefs and assumptions and on 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 uncertainties that we face are described in our most recent filings with the Securities and Exchange Commission. To supplement the company's financial statements presented on a GAAP basis, the company has provided certain non-GAAP financial measures. Management uses these non-GAAP measures to evaluate the company's operating performance in a manner that allows for meaningful period-to-period comparison and analysis of trends in its business. Management believes that such measures are important in comparing current results with other period results and are useful to investors and financial analysts in assessing the company's operating performance. The non-GAAP financial information presented here should be considered in conjunction with, and not as a substitute for, the financial information presented in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures set forth in the appendix of this presentation and in the earnings release issued earlier today. With that, I will turn the call over to Masoud.

Thank you, Mike, and good morning, everyone. So, on today's call, I'll cover three topics. First, an update on our corporate transformation, then highlights on our Q4 and ‘22 results, and then finally, progress that we've made on our translation path. So, in August of last year, we announced a comprehensive restructuring and business realignment plan to fully realize the potential of our Simoa platforms. And we continue showing our leadership role in ultrasensitive biomarker detection. Two quarters in, I'm pleased to say we're on track. Our assay redevelopment program designed to improve our ability to manufacture and deliver high-quality assays at scale is on target and moving forward. The initial phase evaluation of our components to streamline assays for improved manufacturability and reduction in variability has been completed and will begin transition into production starting the first half of this year. As we noted on our last call, we’ll be integrating improvements into production and believe progress on our transformation can be measured by sequential gross margin improvements. We've made gross margin improvements since Q2 due to our transformation activities, and the next wave is expected to be directly linked to our assay redevelopment program. Third quarter progress was mainly due to restructuring efforts, and more recently in Q4, progress was due to assay manufacturing process improvements, which resulted in efficiencies. On a non-GAAP basis, our Q4 gross margin was 41.3% versus Q3 non-GAAP gross margin of 34.9%. This approximately 600 basis point improvement was driven by changes to manufacturing planning and a few one-time events. Moving on to the fourth quarter, we delivered $25.8 million in total revenue. As shared last quarter, we continue to manage demand during our redevelopment program. In Q4, consumable revenue increased by 13% compared to the prior quarter, while instrument placements in Q3 and Q4 were the same at around 39. Lower instrument revenue in Q4 versus Q3 was due to the timing of our collaboration with UltraDx in China. Changing focus to year-over-year, we closed ‘22 with $105.5 million of revenue, compared to ‘21 revenue of $110.6 million, which included $5.2 million of non-recurring revenue under the NIH Radx grant. In conjunction with our transformation plan, year-over-year consumable growth declined as expected, while instrument placements were nearly flat. Finally, we significantly improved operating losses related to our core operations in the second half of the year. We made solid progress in our assay redevelopment program and have begun using those learnings to prime our product development engine. Now, turning to our translation path. Following our p-Tau 181 LDT release in Q3, in early January, we announced the expansion of our LDT menu with the launch of neurofilament light, which can be used as an aid in the evaluation of individuals for possible neurodegeneration conditions or other causes of neuronal and central nervous system damage. Simoa NfL is the most widely published NfL test, with hundreds of research papers demonstrating its validity for assessing neuro damage and has become widely adopted in therapeutic clinical trial design. Now, key to our core strategy is turning proteins into measurable biomarkers to unlock proteomics research and translate those discoveries to improve human health. Eisai’s Leqembi approval on January 6 from the FDA via the accelerated approval pathway was a great example. Quanterix is leveraging its ultrasensitive detection capabilities to accurately measure Alzheimer's disease directly in plasma. Simoa p-Tau 181 was identified as a biomarker endpoint on the Leqembi label. The study concluded that Leqembi every two weeks reduced mean plasma p-Tau 181 by 24% from baseline over 79 weeks, a highly significant decrease. Overall, this is an exciting milestone for the Alzheimer's solution space. Now, I'll turn over the call to Mike to discuss some more financial details.

Thanks, Masoud. I'm going to provide some additional financial details about our fourth quarter and full year 2022 performance. Before I get into the details, I want to make an overall comment about our performance since we announced the realignment of the business in August. We indicated in August that we've been managing demand in order to deliver quality products while we're redeveloping our assays. We achieved our revenue target in both Q3 and Q4. We indicated that sequential improvement in our gross margin would be a good indicator of our progress, and we have seen that improvement in Q3 and Q4 of 2022. Finally, our cash burn has improved in the second half of 2022, and we ended with a healthy cash balance at the end of the year. Now, I’ll review the details of our financials. For your reference, for those following on the call, I'm starting on Slide 4. Our total revenue in the fourth quarter of 2022 was $25.8 million, a decline of $4.5 million or 15% versus the fourth quarter of 2021. We had product revenue in the fourth quarter of $16.7 million, a decline of $6.8 million or 29% versus the fourth quarter of 2021. Within product revenue, consumables revenue was the biggest driver of the decrease, declining $5.6 million or 33% versus the fourth quarter of 2021. As Masoud mentioned, we continue to manage production and demand for consumables while we address assay quality. Instrument revenue decreased $1.3 million or 19% versus the fourth quarter of 2021 due to timing and the mix of instruments. Full-year instrument placements in 2022 were approximately the same as the prior year at 168. We had no grant revenue during the fourth quarter of 2022 as compared to $1 million of Radx grant revenue in Q4 of 2021. Fourth quarter services revenue increased $3.6 million or 54% versus the prior year fourth quarter to $8.8 million. Included within the services revenue is $2.7 million recognized during the fourth quarter of 2022 from our collaboration agreement with Eli Lilly. Overall, our revenue performance was in line with our expectations for the quarter and the year, and reflects the guidance we provided when we announced the realignment of the business in August of 2022. Now, I'd like to spend some time talking about gross margin for the business. As a reminder, we performed a deep dive review of the business in the second quarter of 2022. As a result of that review, we changed the cost allocation of three departments based on their focused activity on quality and operations. In addition, we are capturing freight and distribution costs recorded as operating expenses as a non-GAAP adjustment to the cost of goods sold. Slides 4 and 12 show the impact of the non-GAAP adjustments for both the quarter and full year 2022 with the appropriate comparison to prior year. Both changes result in lowering operating expense with a corresponding increase in the cost of goods sold, with no impact on the bottom line. We have made these changes to give greater visibility into our quality activity and to allow investors to better monitor our progress each quarter. We expect to continue providing the GAAP to non-GAAP reconciliation in 2023. Now, I will review gross profit performance in the quarter versus prior year. In Q4 of 2022, our GAAP gross profit was $12.6 million, and our gross margin was 48.8%, compared to $16.3 million and 53.7% in the fourth quarter of 2021. Our non-GAAP gross profit was $10.7 million, and our non-GAAP gross margin was 41.3% compared to $13.3 million and 47.2% in the fourth quarter of 2021. The approximately 590 basis point reduction drivers are approximately 100 basis points of decrease due to non-recurring Radx grant in 2021. The remaining decrease includes the change in allocation of resources associated with quality and operations in the second quarter of 2022, which negatively impacted the year-over-year margin by approximately 410 basis points, partially offset by reduced costs as a result of the restructure. However, as Masoud pointed out earlier, when we embarked on our plan to realign the company and realize the full potential of our Simoa platform, we said gross profit improvement quarter-over-quarter would be a good metric to monitor our progress. We have seen sequential improvement in each quarter since the second quarter of 2022, and non-GAAP gross profit improved approximately 640 basis points in Q4 versus Q3. Our operating expense performance in the fourth quarter improved by $1.6 million. However, we had a significant item hit restructuring-related charges. We incurred an additional impairment charge to our Bedford, Massachusetts lease facilities, which we will not be utilizing, of approximately $8.7 million, a non-cash charge to the P&L. This charge is an adjustment to reflect the softening of the commercial real estate market. SG&A expenses for the fourth quarter declined by $9.2 million versus the fourth quarter of 2021, and R&D expenses declined by $2.1 million from the fourth quarter of 2021. Both SG&A and R&D declines are primarily driven by reduced headcount and related expenses as a result of the restructuring. As detailed on Slide 5, during the fourth quarter of 2022, our cash balance decreased by $5 million from the end of the third quarter of 2022, which was better than expected and was driven by reduced operating expenses post the restructure, improved collections on aged accounts receivable, and reduced inventory. The ending unrestricted cash balance was $338.7 million at December 31, 2022, leaving us with over $9 per share in cash and no debt. Our balance sheet is in excellent shape, and we are well positioned with adequate resources to pursue our strategic objectives. Basic weighted average shares outstanding for EPS totaled $37 million for Q4 of 2022. I will now review our guidance for 2023, which is on Slide 7. We expect product and services revenue to range between $103 million to $109 million in full year ‘23, representing modest growth year-over-year at the midpoint of the guidance, with a slight decline in the first half of the year and high single-digit growth in the second half of 2023. Our 2022 revenue of $105.5 million included $11 million for the Lilly Master Collaboration agreement and $94.5 million for our core products and services. The Lilly Master Collaboration agreement in 2022 included a one-time $5 million payment for a technology license agreement that will not repeat, and a $6 million collaboration project. The collaboration project has a quarterly renewal feature, which Lilly has triggered for the first and second quarter of 2023, and we've included $3 million in our current guidance. We expect our core product and services revenue to grow in high single digits in 2023. We expect to end 2023 with GAAP gross margin in the mid-40s, and non-GAAP gross margin in the low 40s. We expect to see approximately 10% improvement in cash burn for 2023 and, with our current transformation plan, be cash flow positive at around $170 million to $190 million in revenues.

Thanks, Mike. So, in closing, I would like to call attention to two recent noteworthy publications that highlight how our Simoa technology leads in converting protein signatures into biomarkers. Biomarkers are becoming critical for the near and long-term development of new drugs for MS and Alzheimer's disease and will play a diagnostic and disease-monitoring role. Researchers at the University of Basel and collaborators extended on some of the initial groundbreaking work by Jens Kuhle and colleagues that established Serum Neurofilament Light, or sNfL, as a biomarker that correlates strongly with MS and its symptoms, showing that NfL can sensitively predict disease activity at an early stage. Now, in an extension of that work, researchers using Simoa technology showed that a second biomarker, GFAP, can be used to support therapy decisions in MS. The authors provide evidence that GFAP can be used to prognostically monitor disease activity, particularly in those patients experiencing progression independent of relapse activity. So, as NfL can be used to specifically measure neuronal damage in MS, GFAP in blood specifically indicates chronic disease progression in which astrocytes specifically are involved. Both biomarkers complement each other and can help make MS therapy more individually tailored and forward-looking. Now, the second publication I want to point your attention to is a community-based cohort prospective study of about 700 participants that were followed over 17 years. The association among the blood-based biomarkers and Alzheimer's disease, vascular dementia, mixed dementia, and total dementia incidents were assessed. The study showed strong evidence that Simoa GFAP was associated with 80 incidents of nine to 17 years before diagnosis. Now, Simoa NfL 181 was also strongly associated with AD diagnosis in the study. So, really excellent work and groundbreaking publications. Now, before we get into questions, I want to reiterate our leadership position. With the new activities in the company, we have strong momentum. Five years since our IPO, we're one of the very few players in proteomics that have breakthrough technology, with strong IP protection. We're the only ones in the proteomic space that are translating across the discovery to diagnostic testing continuum. We have a full sample-to-answer platform, strong financials, and commercial scale, ultimately primed to achieve breakthroughs in what we believe will be the neural decade in therapeutics. These things don't happen overnight. We call them accelerants that come with scale and with our transformation, which will give us even more momentum to return to solid double-digit growth by ‘24, increasing our penetration of an immense discovery to diagnostics proteomics market opportunity. Let's take some questions.

And our first question comes from Matt Sykes of Goldman Sachs. Your line is open.

Hi, good morning, Masoud, and Mike. Thanks for taking my questions. So, maybe just to start out, you talk about the revenue management that you're putting in place as you work on the assay redevelopment. Could you maybe talk a little bit about customer feedback as you're doing that revenue management and how you're able to kind of retain those customers over the long term as you work on the redevelopment, and if there's been any impact from that revenue management that you've been putting in place?

Yes, thanks for that question, Matt. We have - I would call it, we're triaging and managing while we're doing this redevelopment program of the demand. So, we're managing the demand of customer inquiries coming in. And I would say, we've been doing a pretty effective job. Some of our customers are going to our accelerator where we're providing services where some of the availability of our assays is more easily accessible, and then some are waiting or some of the projects are delayed, and then some aren't experiencing delays at all. So, we've been, I would say overall, doing a decent job in managing this while we're doing the redevelopment program at the same time.

Got it. Thanks for that. And then, Mike, just a two-parter on the guidance for ‘23. When you look at that sort of high single-digit growth for core products and services, could you maybe give a little bit more color on the instrument versus consumables breakdown, as well as the accelerator lab, just so we can think about that composition of revenue growth? And then just secondly, on the gross margin cadence for 2023, you talked about sort of like year-end where you'd like to land, but can you maybe talk about the sequential cadence of gross margin improvement throughout the year?

Sure. I'll give you my perspective, and then I think Masoud can add some color. I would say that certainly in the first part of the year, I would think you'll see a continuation of sort of our existing performance, both in instruments and consumables. Accelerator services probably will continue to be strong. So, I wouldn't look for spike ups in instruments and consumables in the first quarter of the year. I think it's going to be sort of what I would call steady improvement. I think margin similarly, we had a pretty dramatic improvement in the fourth quarter. I expect from here on out, it's going to be much smaller increments. Ideally, our goal is always to exceed, but I think we're still keeping our targets in the mid-40s on non-GAAP to end the year and in the low 40s in non-GAAP. Again, slow steady improvement as the year progresses. When you look at year-over-year comparisons, we're going to be down a bit in the first half, but I think you're going to see us accelerate in the back half of the year. Our core products, we will end at high single digits for the year.

Great. Thanks very much for taking my questions.

One moment for our next question, and our next question will come from Puneet Souda of SVB Securities. Your line is open.

Yes. Hi, Masoud, and Mike. Thanks for your questions. So, first one, just wanted to clarify with just given the reductions here that you have implemented, how should we think about the total sort of OpEx expectations for the year, and sort of what the cadence for that is? And then I have couple of follow-ups.

Yes. As I think about OpEx, Puneet, I would say that - and I would take out sort of when you look at it, the impairment. We've taken two hits to impairment on real estate for the quarters. So, that says, I expect that's going to be much smaller, if in fact that changes. Ideally, the market gets a little better, but we've taken the bulk of the hit there. I would say the core expenses, when you look at R&D and SG&A, I would expect them to stay pretty consistent. We'll have some slight bump up because of a normal merit increase that occurs in Q1, but nothing dramatic. Then towards the back half of the year, you may see some increase as we start ramping for double-digit growth. You could see some increase in selling costs. But again, I don't expect a dramatic bump up. It's going to be slow and steady for SG&A and R&D.

Got it. Okay. And then Masoud, when we look at the Leqembi label, there are obviously biomarker plasma Aβ42 and 40 and p-Tau that are mentioned on the label with the study results. Could you just help us clarify how those tests can be utilized? Now, on the label, it also says that those - both of those plasma biomarkers should be interpreted with caution due to uncertainties in bioanalysis. And at least for administering the dose, the presence of amyloid beta pathology is required prior to initiating the treatment. So, it's not clear the plasma biomarkers are required. So, maybe just help us understand sort of how you think the plasma biomarkers would be utilized here? Mostly rather they're restricted to clinical trials or sort of where they can be potentially used in commercial as well?

Hey, Puneet. Yes. To clarify a little bit on that label and the use of the Quanterix biomarkers. First, in addition to 181, GFAP and NfL were also used. The 181 results were most remarkable. I think that's kind of highlighted - so that's why it was highlighted on the label. The key thing is clinical trials, yes, clearly is not just this study, but several other pharma companies are using many of our biomarkers actively in clinical trials. The question, I mean, you're kind of pointing to is, hey, what's the next step? And there's nothing prescriptive on the label. However, I think what's becoming clearer is that in order to scale any sort of therapy for Alzheimer's, you're going to need a blood test. You have to be able to screen the sort of 40 to 55 million people who have the disease, and traditional methods of PET scan or a spinal tap just aren't scalable. I think you see the early steps of, okay, let's get some results in blood so that we can have an aid to a diagnostic so that we can use blood in addition to the memory test to make a decision on whether someone goes to a PET or another more invasive study, and we believe in the future it will ultimately replace that invasive study. So, nothing prescriptive on the label that you have to use this or you don't have to use that. In fact, the only thing required is the memory test in that study. But we think it's a very important first step for the disease.

Okay, that's helpful. And then as we think about the potential readouts through the year, can you just outline, with the number of Alzheimer's trials ongoing, maybe some MS trials as well, so what we ought to be looking out for in terms of data releases where Quanterix data could be meaningful? Thank you.

Yes, absolutely. So, just a little bit of an update. As you know, we're collaborating with ADDF on a plasma diagnostic test. We're collaborating with the VUMC, Amsterdam University Medical Center on four phases of a clinical trial that we announced last quarter, and this is for a multianalyte test. We believe with a multianalyte test, we can begin to replace more invasive tests. I'm happy to say that phase one was completed in Q4. We looked at over 1,200 patient samples, and Phase 1b is going to be our retrospective cohort, and Phase 2 will be the prospective trial, and those are expected to start this quarter. The second clinical test we're working on is in collaboration with the Global Alzheimer's Platform Foundation. That closed in November 2022, and we're beginning to do the data analysis. We expect that data to be fully analyzed by Q2 of this year. This global Alzheimer's test is a prospective validation trial expected to support our regulatory filing for the FDA on the p-Tau 181 test.

Got it. Okay. Thanks, guys.

One moment for our next question. Your next question comes from Kyle Mikson of Canaccord. Your line is open.

Yes. Hey, guys, thanks for taking the questions, Masoud, and Mike. In the guidance, what's the implied revenue growth in the first half of 2023 compared to the second half? Like, what's the revenue mix, I guess? And then jumping off that, do you expect the topline growth rate and the gross margins will kind of continue to expand sequentially each quarter heading into the second half of ‘24 when the assay redevelopment program is scheduled to be completed? If margins are stable or decline a bit sequentially in any quarter here going forward, should we be concerned by that, or could it be a little bit lumpy? Thanks.

Yes. I would say the best way to think about it, at the low end of our guidance, it would imply a decline in the first half of the year, Kyle, and then single-digit growth. At the midpoint though is the best way to think about it, probably a slight decline in first half and then high single-digit in the second half of the year. So, that's how we're thinking about revenue growth. I'd say gross margin, I would think about it in steady increments sequentially. That said, in any given quarter, we could have a mix shift that could create a little bit of a move backwards, but I don't think anything would be dramatic, and we'd be able to articulate the what and the why. Right now, we're just looking at steady improvements. I expect that to continue. As growth accelerates, we'll begin to get even more leverage there. So, I expect that gross margin should continue to increase into ‘24.

All right. Thanks, Mike. And maybe just one more on the financials. You noted the company should achieve cash breakeven, or at least positive cash flow at that like $170 million, $190 million revenue range. So, you guys are doing under 170 in 2025, maybe 168 or so? So, regarding the timing of that quarterly positive cash flow, would during ‘25 be a reasonable fit for that?

Yes. I think that's how we're thinking about it. We would like to be exiting approximately 2025 as hitting cash flow breakeven. Of course, things could move a bit, but that's kind of ‘25, ‘26, how we're thinking about it. When you look at managing cash burn, I feel pretty good about that. Our cash balances indicate that we're not going to need to go to the market to sustain our existing business before we hit breakeven. So, I feel pretty good about that.

Right, yes. And sorry for cutting you off there, Mike. Maybe Masoud, you guys are almost halfway through this assay redevelopment program. Is most of the heavy lifting kind of done and the remainder here just smooth sailing, or is the second half of the plan more challenging?

Yes, great question, Kyle. I wouldn't say that necessarily one part is more challenging than the other. I would say that I think the beginning phase, the first quarter - we're actually two quarters in. We said it would be six quarters. The first sort of quarter is kind of identifying the changes that are going to be most beneficial to scale and identifying the gaps that we currently have to scale. I would say that the team has pretty thoroughly accomplished that and begun to tackle some of those biggest gaps to scale production and making these assays. The next phases involve blocking and tackling, implementing changes, and putting them into production. We feel confident that things are on track and according to our progress.

Great. If I could ask one final one on, I guess the competitive landscape in neurology diagnostics as that evolves here. Not all of these newer tests are detecting p-Tau 181 or 217, but the field has become more crowded clearly, and some of these companies already have launched tests or have reimbursements, so it’s interesting. Just was wondering, Masoud, if you could speak to the recent dynamics in the space and how your 181 LDT is kind of faring in the research and clinical markets, and any revenue expected this year from the LDTs, including MS this year or in ‘24?

Yes, I would break the LDT revenue into two phases. One, I would say I think ‘23 revenue from the LDT isn't going to have a significant impact. The two phases I would break that down to are clinical studies. Many cases where the LDT is being used in a clinical phase where the results are reported back to a patient. I think that will be substantial. The other phase involves aid to a diagnostic or therapy. I think for that to pick up any materiality would require a drug in the market. That's how we view the LDT phase. On your question about competitors, yes, we've looked at this. Clearly, the folks coming and doing work on the neuro side is a great validation that this is a really important field. Other companies feel that this will be a neural decade in the upcoming years. When you look at who has a sample to answer platform where you can input blood and get results out to scale, I don't think anyone does it better than us.

Okay. That was great, Masoud. Thanks a lot for that. Congrats on the progress, guys. Appreciate it.

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