Quanterix Corp Q2 FY2023 Earnings Call

Good day, and thank you for standing by. Welcome to the Quanterix Corporation Q2 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's 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 first speaker today, Ed Joyce, VP of Investor Relations. Ed, the floor is yours.

Thank you, Stacy, and good morning. With me on today's call is Masoud Toloue, President and CEO of Quanterix, and Mike Doyle, Chief Financial Officer. Before we begin, I'd like to remind you of 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 Reform Act. These forward-looking statements are based on management's beliefs and assumptions and on information available as of the date of the 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 operating performance in a manner that allows for meaningful period-to-period comparison and analysis of trends in its business. The company believes that such measures are important to comparing current results to the results of other periods and are useful 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 the presentation posted to our website and in the earnings release issued today. With that, I'll turn the call over to Masoud.

Thank you, Ed. Good morning. Before getting to results, I would like to start by acknowledging the intense effort and progress the talented Quanterix team has made with our corporate transformation started last year. The magnitude of the improvements made while continuing strong operational execution is testament to the capabilities of our people, and these improvements have set a solid foundation to drive long-term future growth. This quarter those strides became more apparent in our business and financial performance. Second quarter revenue increased 32% to $31 million and our non-GAAP gross margin increased to 56.4% versus prior year with significant sequential improvement. We're seeing strong customer demand, driven by consumables and Accelerator lab business, with increases of 65% and 94% respectively. Our corporate transformation is also already positively impacting bottom line performance. This quarter, we achieved a breakeven cash flow milestone. With our accelerating redevelopment progress, we increased our full year 2023 revenue guidance to be in the range of $110 million to $116 million, and full year non-GAAP gross margin percentage in the high 40s. We also expect less cash burn and now estimate to be in the range of $30 million to $35 million this year. To remind you, we initiated our corporate transformation a year ago following a strategic business review with the prime objective of maximizing the potential of our Simoa technology and delivering high-quality assays at scale with strong margins. We're now in the last two quarters of our transformation process and remain on track. Work that remains includes launching new assay kit SKUs and further implementation of newly scaled systems and modern processes in our operations lines. The intensity at which our team at Quanterix has made progress is remarkable. These efforts will directly impact our long-term growth and drive future positive cash flow. In early July, we launched LucentAD, a test to aid in the Alzheimer's disease diagnostic process. This blood-based biomarker test measures an isoform of plasma phosphorylated-tau tau protein 181. Using our high-sensitivity platform this protein has been positively correlated with the presence of amyloid pathology in the brain, a hallmark of Alzheimer's disease. LucentAD provides measurements with cut points to indicate unlikely or possible amyloid pathology. With the recent approval of Leqembi, one of the first promising therapies for Alzheimer's disease, we anticipate this test will enable access to quick and scalable screening. There's a lot of attention on Alzheimer's disease, and we will deploy focused effort on building global infrastructure as well as patient and provider education around these tests. Moving to recent events. There were two notable announcements from the Alzheimer's Association International Conference that I'd like to bring to your attention. First, new guidelines were recommended by the National Institute on Aging and the Alzheimer's Association for the use of blood biomarkers to detect and diagnose Alzheimer's disease. All of the biomarkers listed are available on Simoa. This makes a lot of sense as being able to screen large numbers of people with suspected cognitive symptoms requires scalable, cost-effective testing. Numerous studies within our Simoa technology have demonstrated high correlation between blood-based biomarkers like those measured by LucentAD to the more expensive and invasive methods of testing in Alzheimer's such as spinal fluid analysis and amyloid PET scans. Any lab, anywhere in the globe can order the Simoa platform and begin running every biomarker listed in the guidelines today. That reach along with the scale of our CLIA lab puts us in a great position to help build the global testing infrastructure needed for Alzheimer's therapies. Second, data from a study was presented demonstrating the possibility for home blood collection for Alzheimer's biomarkers. Researchers at the University of Gothenburg in Sweden used Simoa technology to test for biomarkers from dry blood spot cards collected from a finger prick. That's not a lot of blood; we're talking tens of microliters. Starting card samples were shipped to a testing facility without temperature control and results showed high correlation to regular blood drawn samples for all biomarkers tested including p-tau181, p-tau217, NFL and GFAP. Although this was an early study, it demonstrates the ultrasensitive capabilities of our Simoa platform as well as promise for patients and providers as the potential for a home test would be a significant advance over traditional blood collection, pretty incredible events. This decade, we expect a number of emerging disease-modifying neurological therapies. Most of these will need early cascade diagnosis and routine monitoring, which will require ultrasensitivity to identify biomarkers in blood. As we discussed last quarter with the approval of Tofersen measuring neurofilament light chain or NfL, we're seeing increasing attention on this biomarker for neuro-injury conditions. However, normal NFL levels vary between adults and adolescents and there's a need for a comprehensive reference data set by age. Recently published in Lancet Neurology, Simoa enabled a study to produce a robust data set for pediatric NfL levels. This data set will provide a foundation for the clinical use and management of neuroconditions in children. This work was a significant step forward and further establishes Simoa as the go-to test for blood NfL measurements. Moving to our clinical efforts this quarter, we achieved positive top line readout of our BioHermes clinical trial, which was a 1000-patient prospective validation study done in collaboration with the global Alzheimer's platform foundation. The study had 18 sites and aimed for a diverse demographic to better represent the entire base of potential patients, an important consideration by physicians and regulators. I'm pleased to announce our primary objective for the study to show a correlation between 181 and amyloid positive PET scans was achieved. This work supported both our new LucentAD LDT and is expected to support our IBD filing with the FDA. Now, before I turn the call over to Mike, I want to take a moment to recap. Our corporate transformation while not yet complete is bearing accelerated gains because of the focus, discipline and execution of people at all levels of the organization at Quanterix. Discoveries in the next 10 years will change the way we currently understand test and treat neurological disease and we expect that much of that work will be performed on Quanterix' Simoa platform.

Thanks Masoud. For your reference for those following along, I'm starting on Slide 8. Our total revenue for the second quarter of 2023 was $31 million, an increase of 32% from the second quarter of 2022. This quarter's revenue includes $1 million for one-time revenue related to our agreement with Ultra DX Limited in China and $0.5 million related to an Abbott license deal. We had product revenue of $19.7 million in the second quarter, an increase of 33% over the second quarter of 2022. Within product revenue, instrument revenue was $3.5 million, a decline of 38% over the second quarter of 2022. As described last quarter and similar to other life science instrument providers, we continue to see global macroeconomic pressures on capital purchases. Offsetting this decline, our consumable revenue increased $6 million, or 65% compared to the second quarter of last year and up 8% versus the prior quarter. While we continue to manage production and demand for consumables as we address asset quality, we have made improvements that have allowed us to increase capacity. Services and other revenue was $10.6 million for the quarter, increasing $2 million or 23% from the second quarter of 2022, driven by strong demand for Accelerator Services. Our Accelerator Services continue to be a valuable customer offering, particularly when biotech and pharma experienced pressure on CapEx purchases. While we don't expect further decline in instruments for the second half of the year, we do expect both consumables and Accelerator Services to fully offset for the second half, until biotech and pharma return to normal purchasing patterns. Now, let's move on to gross margin for the quarter. Our GAAP gross profit margin was $19.1 million and 61.7% for the second quarter of 2023, compared to $8.7 million and 37.1% in the second quarter of 2022. Our non-GAAP gross profit margin, which includes shipping and handling costs for product sales within cost of goods sold instead of within SG&A expenses, was $17.5 million and 56.4% in the second quarter as compared to $6.8 million or 29.1% in the second quarter of last year. Overall, we're very pleased with our redevelopment progress and it is reflected in better than targeted gross margin performance. Our overall GAAP operating expenses declined $5 million from $33.7 million in the second quarter of 2022 to $28.7 million in the second quarter of 2023. Our net loss declined from $24.9 million in the second quarter of 2022 to $6.1 million in the second quarter of 2023, due to improvements from our redevelopment program, the impact of our restructuring in 2022, and improved interest income. Moving on to cash, we had a healthy cash burn improvement. We ended the second quarter with $332.2 million in cash, a small net decrease of about $100,000 from our Q1 cash balance. We essentially burned no cash during the quarter, driven by revenue mix, efficiency gains, and operating expense management. Our balance sheet remains in excellent shape and we remain well positioned to make internal investments and be opportunistic for inorganic investment. Let's turn to guidance. As Masoud mentioned, we're increasing our guidance for 2023. We now expect our revenues to be in the range of $110 million to $116 million from a previous range of $104 million to $111 million. As a reminder, we're still managing our demand and shipments as we continue our assay redevelopment efforts. Due in part to our redevelopment program as well as our anticipated revenue mix for the full year of 2023, we are adjusting our margin outlook. We now anticipate GAAP gross margin percentage to be in the low 50s and our non-GAAP gross margin percentage to be in the high 40s. We do anticipate some headwind impact in the second half of the year, with the launch of our new assay kit SKUs, but feel confident in our ability to execute on plan. We expect our cash burn for the full year to be in the range of $30 million to $35 million, a significant improvement from last year in our previous guidance.

Thank you, Mike. I want to provide an update in regard to our financial leadership transition plans. As previously announced, Mike is planning to retire in early '24 and we've been searching for a new CFO and it's an exciting time clearly to join Quanterix. I'm thrilled to say that we've found someone amazing to join our team. So, we'll be making a formal announcement tomorrow morning and the official transition is set for August 21. At that time, Mike is going to transition to Executive Director of Finance, supporting our strategic growth until his retirement in March. I want to take a moment to acknowledge the pivotal role Mike has played in the transformation of Quanterix, specifically his guidance, dedication and financial leadership over the past two years has put us in a strong position. He has made a lasting impact on our business. We're appreciative of his service, thankful for the solid transition period, and look forward to what lies ahead in the coming months. Operator, let's take some questions.

Thank you. We will now conduct the question-and-answer session. Our first question comes from Puneet Souda of Leerink Partners. Puneet, please go ahead with your question.

Hey, thanks. Masoud, Mike, congratulations on the quarter. It’s been great working with you, and I wish you good luck moving forward. To start, I’d like to ask about the guidance, and then I have a follow-up regarding LucentAD and the biomarker set. Looking at the full year guidance, even at the higher end, it suggests a decline in the third and fourth quarters. You mentioned the biotech funding situation, which is commonly understood in the market. Is this mainly influencing your cautious approach, or are there other factors we should consider for the second half? I want to clarify regarding the top line and gross margins as well.

Sure. I think there are a couple of points to mention. We saw some one-time revenue this quarter. When I evaluate the 31, I consider it more like a $29.5 million quarter. We are still managing our redevelopment efforts, and the recent quarters have represented our final significant push. We anticipate some fluctuations and are aiming to ensure we have enough leeway. Our goal is clearly to outperform that, but that's how we are approaching it. I don’t believe there are any other factors affecting our revenues beyond what we've already discussed.

Yeah, I think that's right. Puneet, we clearly have a backdrop of this macroeconomic situation. I think Mike highlighted on the call that we've been able to offset that pretty effectively. And we'll see what happens in the second half. And then, as Mike said, a lot of implementation of key processes in the production lines that we want to be conservative about.

Got it. Okay. Can you clarify when the Lucent platform will include p-Tau 217 in addition to 181, and when we might see a marker set that incorporates p-Tau 181, p-Tau 217, Aβ40, and Aβ42 as a laboratory developed test, and eventually as an in vitro diagnostic? Also, could we consider including one more marker, such as GFAP? I'm trying to understand what the final market set could look like and when you think you'll be able to launch that as a lab developed test and later as an in vitro diagnostic.

It’s a great question, Puneet. Our plan is to have the 217 LDT this year. Some other future announcement we'll talk about including that into our Lucent series of testing. And then on your question about the multi-marker test, just as you know, the multi-marker test today already exists at Quanterix as an RUO offering. And then, to your point, we intend to add that to the LucentAD offering, after we complete some of our clinical trial work. We have talked about the results of Bio-Hermes specific to 181. We're expanding that and looking at multi-marker with that study. We have a very exhaustive large study with ADDF where we're looking at all the markets that you just mentioned, with an algorithm to look at amyloid pathology for patients. So that's also upcoming. And again on the regulatory side, our intention is that we'll be submitting these to the FDA, along with the clinical trial findings.

Can you discuss the current level of validation for your assays? What is required for the diagnostic assay for the LDT and potentially for the IVD as well? Additionally, what is your readiness as Leqembi and Donanemab enter the market? How do you plan to manage scalability if rapid scalability becomes necessary? I'm interested in understanding how validated these assays are and how they are positioned in terms of scalability. Thank you.

Thank you, Puneet. I would like to begin by discussing the foundation of our assays. Over the past several years, there have been numerous peer-reviewed publications demonstrating a strong correlation between the biomarkers we are focusing on—181, 217, NfL, and GFAP—and amyloid pathology. This evidence is substantial, forming the basis for our RUO. We are also advancing our work with prospective clinical trials. For instance, the Bio-Hermes trial, which supports our P-tau181 LDT, was conducted at 18 sites across the US, with over 20% of samples coming from underserved populations, which is crucial for Alzheimer’s testing and is likely to be increasingly highlighted in media. We have analyzed imaging, clinical, and other essential data to back our LDT. Our focus is on patients who are cognitively unimpaired, have mild cognitive impairment, or are in the mild stage of Alzheimer’s disease, and we compare our tests against imaging and CSF data. This is the data we have for 181, and we plan to apply the same thorough approach for all tests released as LDTs. We believe the strength of our data will also support future regulatory applications. Clinically, our team is doing excellent work, and from a scalability perspective, we see scaling these assays as vital. Blood-based testing will be essential for initiating therapies. Our goal is to scale the test effectively. First, all the markers in the current guidelines can be assessed using Simoa, and we would support any new lab globally in acquiring a Simoa platform to facilitate testing. Additionally, we can process thousands of samples weekly in our CLIA laboratory, which will require some support in building this global infrastructure. Overall, we have a robust plan, including a solid clinical trial strategy and an effective go-to-market approach for this NAD. We are genuinely excited about what lies ahead in the coming months.

Okay. Super, good. Thanks.

Our next question comes from Kyle Mikson of Canaccord Genuity. Kyle, go ahead with your question.

Hey, guys. Thanks for taking the questions. Congrats on the quarter. And congrats on the progress on this redevelopment program. On the program Masoud, I just wanted to ask how you've been able to convey to customers that reproducibility, the scalability of your assays has now improved. And how that approach and how the customer response kind of differs between those RUO and the biopharma customers?

Yes. Hey, Kyle, thanks for the kind words. I would say that if you look at our consumables, Kyle, or our Accelerator, we're hitting levels of demand that the company has never seen before. We’re able to manage and ensure that if it's a product that's leaving the doors at Quanterix, it's a quality product in the customers' hands. I would say we've done a great job at doing that. Over the next several quarters, we'll ensure that those SKUs leaving the door are also scalable and accretive to our margins. A couple of quarters of work left, but right now today, we're getting good assays to customers and we're providing solid work through our Accelerator program. I think the results speak for themselves.

Okay. That was great. And then just following up on the BioHermes. So are we completely done with readouts for that trial? And then did you comment on the timing for the diabetes approval?

Yes. So we are complete with our 181 study. The Bio-Hermes trial data supported both our LDT and the FDA filing. We have that exists for our pTau-181 test. Now what we're going to do next is we're taking a look at other biomarkers with that data set. There'll probably be more news in the future on Bio-Hermes. But with regard to 181, our intention is for a peer-reviewed publication on those testing results. You can already see the data for that and our sense and specs on the Lucent AD website. The second trial that we've been talking about is this multi-marker test with ADDF; that’s the global test, global trial and that's going to support the multi-marker. We haven't mentioned any sort of timing on regulatory filings. As you know, we have a breakthrough designation for 181 and we've talked about doing more work with the FDA as we progress.

Okay. That's great. Mike, if you could provide some insight on this, I want to congratulate you on the next steps and I'm looking forward to discussing it further soon. Regarding cash prioritization, you have $330 million in cash, and the net cash flow for the quarter was breakeven, which is excellent. In the past, you estimated achieving positive cash flows with revenue between $170 million to $190 million. Now that might be closer to $226 million. Is that timeline adjusted now? Could you potentially hit that mark earlier? Considering the current circumstances, how do you plan to utilize cash moving forward? Will you increase spending to drive revenue growth, or significantly scale LucentAD or something similar?

Yes. Thanks, Colin. I think, first, we haven't adjusted our projection longer-term for when we will be cash flow positive consistently. I'd say, we still keep our current guidance in place; probably updating in February. Look, we are super happy with the quarter. What it's demonstrated is, we are running ahead from a financial standpoint, and I think that we've been very focused on the assay redevelopment. I think you're going to start to see, and you've touched on some of it Kyle, is organic investments in the business, also funding more for LucentAD. I expect we're going to see cash go out. CapEx was light in the first half of the year as we stayed focused on the assay redevelopment; it's going to pick up in the second half of the year. We're looking because we have the cash to do a number of things both organically and down the road inorganically that will help us accelerate our ability to grow. We'll probably be updating guidance in February on the call and we'll probably update our targets for cash flow breakeven as well.

Perfect. Sounds good. Thanks guys. Appreciate it.

Thanks, Kyle.

Thanks, Kyle.

Our next question comes from Matt Sykes with Goldman Sachs. Matt, please go ahead with your question.

Thanks for taking my question and congrats on the quarter. And Mike congrats on the next chapter. It's been great working with you. Maybe just a first question for you Mike. You've previously talked about double-digit top line growth for 2024 just given the guidance raised last quarter and this quarter, are you still kind of thinking about that as a range for next year? And any kind of clarity on double digits, it could mean a lot of different things.

Yes, it can. You're right, Matt. It's because we've obviously had a good quarter and the point of the guidance would suggest is our core product that we're there. Our goal is to accelerate from there. We haven't fleshed out yet a 2024 forecast to get more specific about what double-digit looks like and feels like. Clearly our intent is to accelerate off of where we are today. So that's probably all we're going to say on it right now, but I expect again in February, we'll be giving a more robust view of the year and what double digit is going to look like. Clearly, we're in a good place right now and are feeling pretty good about where we sit this year, and we're obviously on the core products cracking double-digit right now.

Got it. Thanks for that. And then just you mentioned in the prepared comments about the Abbott collaboration and some of the revenue you received from that. Can you just maybe provide a little bit more color? I apologize if I've missed this in the past, but just a little more color on what you're doing with Abbott.

Yes. Actually, the Abbott deal is an expiration of an old license deal. It's not an active. Essentially, we received funds some time ago for a license that's now expired so we're recognizing it in revenue. It's not new activity per se with Abbott. The $1 million from Ultra-DX is a reflection of shares that we were issued in the Ultra-DX venture in China. In both instances, those are one-time revenue and they're not going to repeat. They impact margin in a favorable way this quarter by about 250 basis points, Matt, just to give you some perspective there.

Got it. And then just one last one for you Masoud. You talked about the study that looked at finger prick testing in the blood cards. Could you maybe just talk longer term about what you think that could do in terms of accessibility, but also kind of what the timeline potentially for that could be and how it be incorporated into your logistics and technology if that were to happen?

Yes, definitely, Matt. We're very excited about the developments in blood draw and traditional collection methods. It's important to consider the global context, as while 90% of the US population has access to a blood draw location, there are still many regions facing challenges with low temperature storage, transportation, and centrifugation. What this study has shown is that remote collection and quantification of our biomarkers is possible. We envision this as a useful tool for screening and monitoring in secondary care and therapeutic trials, helping to increase access for underserved populations, which will be crucial for future therapies. The ability to track treatment response easily without needing regular visits for blood draws allows for tests to be conducted at home. Although it's early in the study and the sample size is small, the data showing correlations with PET and CSF is incredibly promising. We're enthusiastic about the potential of this study, and we expect interesting developments in biomarker detection in the coming year. This shift from requiring hundreds of microliters for blood draw to just tens of microliters necessitates a highly sensitive platform for blood card testing. We're genuinely excited about the possibilities these results present.

Got it. Thanks very much, guys.

Thanks, Matt.

And our final question comes from Dan Brennan with Cowen.

Thanks for the question. Congrats on the quarter. Maybe one on placements and one back on Alzheimer's. Just can you speak to instrument placements in the quarter? Sorry if I missed it. And what are the expectations throughout the year? How much of softness was due to APAC? I think you called out a distributor in 1Q. Just maybe some color there.

In the quarter, net placements were 22%, which is low for us. Historically, we've been in the high-30s to 40s, and this started to decline late last year. In Q1, placements were at 32%. We faced challenges in the Asia Pacific region in Q1. More generally, we are seeing this across the board. There seems to be a macro effect on capital expenditures that is impacting us, and we are noticing this in North America, Europe, and Asia Pacific. Interestingly, Asia Pacific performed better in the quarter compared to a year ago, so it's fluctuating. The positive aspect is that we are still generating revenue from customers who would normally make purchases. We've observed that more customers are utilizing our Accelerator lab instead of buying instruments. As the broader economic situation improves, we expect instrument sales to increase, which is a positive sign. However, for now, the situation is somewhat soft. I don’t expect it to worsen from our current status. This is how we are planning for the remainder of the year, and we anticipate returning to more normal levels in 2024.

Yeah. Dan, one of the really unique capabilities that we have is that when we've seen biotech or pharma capital equipment pressure or kind of macroeconomic challenge, we tend to see these companies outsource more and more of their work to our Accelerator lab. We're clearly seeing more of that and expect this to continue for the second half of the year. For us, Accelerator is both try before you buy, but it's also outsourcing a lot of R&D work. In the future, we expect those customers will, once there's less pressure, come back and purchase those platforms.

Great. Thank you for that. And then maybe just kind of a bigger picture one on Alzheimer's and I apologize if this was mentioned a little bit throughout, but just maybe you could give a list. If we look out over the next 12 months, what would you say the key milestones to watch that would be kind of most important just to check progress and see the opportunity materializing for Quanterix?

Yeah. So Dan, we discussed the readout of the BioHermes test and its support for our LDT and IBD filing. A prior question from Puneet on 217 is important. 217 is a biomarker that cannot be measured on just any platform. Simoa is one of the platforms that can detect 217. The interest and demand for 217 are significant. You're hearing about its importance because as new drugs and therapies emerge, data shows that the sooner you identify a patient in the disease progression, the more effective the therapy is. 217 is one of those early markers. From a screening or diagnosis perspective, it allows for a better patient cohort and improves rule-in outcomes. We’re very excited about that and see it as a major milestone. The second key area is the multimarker approach. We want to explore differential diagnosis and whether a near multi-marker could provide more insights for patients who receive a negative result, prompting questions like, "I have cognitive symptoms, but my result is negative. What now?" This reflects our commitment to developing intensive solutions for patients. I view these two areas as the next crucial milestones. Externally, the guidelines highlight the incredible potential of blood biomarkers. We anticipate increased discussions about their adoption over the next few months, not just for screening but also more for diagnosing patients, as an alternative to spinal taps or PET scans. I see these three areas as key milestones for us and the field.

Great. Thanks a lot.

Thanks, Dan.

I am showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.