Earnings Transcript for QSIAW - Q3 Fiscal Year 2024

Operator: Good day, and thank you for standing by. Welcome to the 2024 Third Quarter Quantum-Si Earnings Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Doug Farrell, Vice President of Investor Relations. Please go ahead.

Doug Farrell: Good morning, everyone, and thank you for joining us. Earlier today, Quantum-Si released financial results for the third quarter ended September 30, 2024. A copy of the press release is available on the company's website. Joining me today are Jeff Hawkins, our President and Chief Executive Officer; as well as Jeff Keyes, our Chief Financial Officer. Before we begin, I would like to remind you that management will be making certain forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to differ materially from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled forward-looking statements of our press release. For a more complete list and description of risk factors, please see the company's filings made with the Securities and Exchange Commission. This conference call contains time-sensitive information that is accurate only as of the live broadcast date today, November 12, 2024. Except as required by law, the company disclaims any intention or obligation to update or revise any forward-looking statements. During this call, we will be referring to certain financial measures that are not prepared in accordance with U.S. generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is included in the press release filed earlier today. Additionally, I'd like to remind everyone that we'll be hosting an Investor Day in New York City next Wednesday, November 20th. You can find a link to register for the event on the Investor Relations section of our website. We'll also be participating in the Canaccord Conference in New York City on November 21. We look forward to having the opportunity to meet with investors at both of these events. With that, let me turn the call over to Jeff Hawkins.

Jeffrey Hawkins: Good morning, and thank you for joining us. On today's call, we will provide a business update, review our operating results for the third quarter of 2024 and provide our guidance for the balance of the year. After that, we will open the call for questions. I will begin with an update on our three corporate priorities for 2024

Jeffry Keyes: Thanks, Jeff. Now I'll review the details of our operating results for the third quarter. Revenue in Q3 2024 was approximately $787,000, which consisted of revenue from our Platinum instrument, consumable kits and related services. Gross profit was $367,000 and gross margin was 47%. As a reminder, our gross margin percentage will be somewhat variable for the near future as we work through our initial stages of commercialization and may be impacted by the timing and mix of instruments versus consumable sales. Our margin may also be impacted in the near term by acquisition costs and any accounting adjustments to underlying inventory that predates the commercial launch of Platinum. Our gross margin for the third quarter of 2024 includes approximately a 4% impact for inventory utilized during the quarter that was carried at low or no value and dates back prior to the initial commercialization. We do expect to see more variances that will flow through our gross margin as we move forward, and I will highlight them if they are material. GAAP total operating expenses for the third quarter of 2024 were $28.5 million compared to $27.3 million in the third quarter of 2023 while adjusted operating expenses were $26 million for the third quarter of 2024 compared to $23.9 million for the third quarter of 2023. Overall, operating expenses increased year-over-year for the quarter based on the continued ramp of our commercial operations. Year-to-date 2024, our total operating expenses were $78.9 million compared to $83.6 million in the prior year, a decrease of about 6%. This includes R&D expenses of $42.7 million as compared to $50.6 million for the same period in 2023, a decrease of about 16%. If you recall, we initiated an R&D realignment in August 2023 that streamlined and focused our R&D efforts on focused product delivery to the market. The year-over-year change reflects the impact of those changes, while at the same time, funding ramping up our commercial operations. Net loss for the third quarter of 2024 was $25.3 million compared to $24.7 million in the third quarter of 2023. And our adjusted EBITDA for the third quarter of 2024 was negative $24.5 million as compared to negative $22.6 million in the third quarter of 2023. Our dividend and interest income in the third quarter of 2024 was approximately $2.7 million compared to $2.6 million in the third quarter of 2023. As of September 30, 2024, we had $196.3 million in cash and cash equivalents and investments in marketable securities. Based on our financial discipline and focused efforts on capital allocation, we expect our existing cash and cash equivalents and marketable securities will provide runway into the second half of 2026. Jeff already commented on full year 2024 revenue, but I'd also like to add some color on adjusted operating expenses and cash guidance. For the full year 2024, we now expect adjusted operating expenses of approximately $100 million versus our original guidance of less than $103 million and net cash usage of about $92 million versus our original guidance of less than $100 million. Now I'll turn the call over to the operator to open the line for questions.

Operator: Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from the line of Kyle Mikson of Canaccord Genuity. Your line is open.

Kyle Mikson: Hey, guys. Thanks for the questions. Jeff, since it's been sometime since the kind of initial launch as well as the full commercial launch and then you're still -- you're putting up -- I guess, putting up numbers that aren't huge, but it's more measured still, it feels like. Can you talk about why the visibility wasn't quite there in the third quarter, maybe like excluding some of these macro headwinds? And maybe kind of going forward, why you're confident in some of the $1 million revenue -- quarterly revenue kind of guidance that you put out there? Thanks.

Jeffrey Hawkins: Yeah. Thanks for the question, Kyle. So I'll start by saying, as we said in the prepared remarks, the revenue in the quarter was a bit below our expectations. And it really ties to the remark, which was a couple of sales that move in or out really are the difference. You're talking about an instrument with a list price around $85,000 and one or two of those moving in or out can be the difference between hitting that expectation and not. And in this case, we had -- we thought we had good line of sight to the timing. We were getting consistent feedback from the customer. But in the end, some of these deals are moving out by a month or so and that can really change the outcome from just a couple of deals. As we look at Q4, Kyle, I think we're really looking at the forecast from our commercial team. We're assessing those various headwinds and tailwinds. We're also really looking at the potential for some level of budget flush to occur. We're not expecting that to be a significant level, but we are seeing some indications that we might see a couple of deals that could materialize in such a way. And I think our -- on balance, we really look at it and we say, okay, what's the potential path here? Are there reasonable paths to get back to or very close to our guidance? We think there are some ways to get very close to that number, and we feel very confident that we'll surpass that $1 million. It's really the question of where in that range will we fall from sort of $1 million on the low end to hitting the low end of our guidance. And we have confidence there's plans to land us in that range, and we're going to push, of course, as hard as we can to get to the guidance.

Kyle Mikson: All right. That was helpful. And then maybe like just going a bit deeper from like an end-user perspective, what are some of the bottlenecks that still kind of exist given it's pretty early in the whole sequencing kind of paradigm? The bottlenecks that exist that are preventing people from -- or preventing you guys from having quarters where you're having double-digit placements or something like that. I mean, what is really -- what's out there -- what isn't out there yet that you kind of need? Is that the evidence? Is it locations? Or is it like your consumables, like the output range issues, yield, things like that? I mean, not the kind of get too nitty-gritty because I know you have the Investor Day next week, but just kind of curious what still remains as like -- again, remains to be seen, like what could improve the technology further.

Jeffrey Hawkins: Yeah. I think, Kyle, it's a good question. There's probably a mix of things that impact the rate, which we're bringing on new customers. I would say that there's not sort of like one thing I would say that is the hang-up for customers. Certainly, to your point, more evidence coming out, which I think you've seen more of our customers presenting at conferences, posters in sessions and most recently with the preprint that has been issued from the University of Virginia, I think those things will help. But I don't want to overlook the fact that we also have a very -- a reasonably new number of sales professionals in the U.S., really. We talked about that back in the second quarter earnings call that we were expanding that team. We filled most of those roles during Q3. And those folks are not yet fully ramped, as we discussed in our prepared remarks. They've been onboarded. They've been trained. They're out in the field, really building their pipelines and advancing deals through the funnel. So I don't think we've seen their full capability to sort of contribute to that revenue either at this stage. So I really think it's got a lot to do with just that scale of activity, the number of people that are out there and productive, not some specific limitation in technology or some missing piece of evidence. It really is just about getting those folks out there, getting them trained, working a larger number of opportunities at a time to see that acceleration in the revenue we can deliver every quarter.

Kyle Mikson: Got it. That's great. And on that point, have the sales -- the placements to date for Platinum, have they been primarily direct sales driven or like distribution partner driven?

Jeffrey Hawkins: We've had a mix of both. Obviously, we're direct in the United States and we're direct in some of the key markets in Western Europe. But we're, of course, also expanding our distribution network. So there's been a mix of both. And some of our early distribution partners that we talked about back at the start of the year, some of those distribution partners have also started to place instruments and sell instruments into the end users. So there's a mix of directly placed boxes, our distribution partners directly selling to end users and then some of us selling to our new channel partners as well.

Kyle Mikson: Got it. Okay. And maybe I was curious about the version 3 kits and how that was sort of like ramping or any feedback you've gotten so far given that it was launched three months ago or so. Anything you could share on that?

Jeffrey Hawkins: Yeah. I think on the version 3 kit, similar to what we've seen in past releases, when we bring out a new release like this, given the increase in performance that customers see, we had a very smooth and rapid transition from the prior version to this version. So our customers have moved over to the version 3. I think what we're seeing is showing up in those posters and in that paper and in other presentations, which is that customers are capable of going after each of those new applications they want to pursue. They're seeing better output. They're seeing that consistent sort of reproducibility between the lots that they get. It's just that general lift and overall performance improvement opens up more applications and really makes their research move forward in a very smooth way.

Kyle Mikson: Okay. And I guess, maybe just a final one, looking again to next week. How -- what -- at this point, what are your thoughts or the company's thoughts on kind of the clinical potential of, I guess, protein sequencing, when that could occur. And that's kind of like it sort of overlaps with the therapeutic potential. I feel like it's kind of -- it's penetrating the biopharma world, it sounded like in past quarters. How do these two areas sort of like stand today and what's the most near-term opportunity for you?

Jeffrey Hawkins: Yeah, it's a good question, Kyle, and we'll save some of the discussion on that for the Investor Day. I will say that you're correct. We're continuing to see adoption in both smaller biotechs as well as larger pharmas. As we mentioned in our remarks, we had our first contract manufacturer adopt the product that services that space. So we're very pleased with the traction there. We've talked about on prior calls some of those opportunities, they take longer to work through the funnel and materialize. So what we've delivered so far is not the end. We're in many of those processes with other large pharma and biotech opportunities. So we feel good about the potential of our product in that market segment. Exactly when that intersects with a clinical stage program or intersects with a clinical diagnostics, I think that's still out in the future a bit, but we'll get into that in a little more detail at our Investor Day.

Kyle Mikson: All right. Great. Look forward to it, Jeff. Thanks a lot.

Jeffrey Hawkins: Thank you.

Operator: Thank you. I'm showing no further questions at this time. I will now turn it back to Jeff Hawkins for closing remarks.

Jeffrey Hawkins: Thank you, everyone for attending today. We look forward to providing you more updates on our innovation pipeline at our November 20 Investor Day and at future conference calls.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.