Q3 2021 Quanterix Corp Earnings Call
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Okay.
Ladies and gentlemen, thank you for standing by and welcome Silicon Terex Corporation, you see 2021 earnings conference call. At this time, all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session.
Quick question during the session you will need to press star one on your telephone keypad.
Do you require any further assistance. Please press star zero I would now like to turn the call over to Quinn Perry Chief Financial Officer, Michael Doyle Pease go ahead.
Thanks very much.
Good afternoon, everyone and thanks for joining us today with me on today's call is Kevin <unk>, our chairman and CEO.
Before we begin I would like to remind you about a few things.
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 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.
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.
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.
The Q3 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 comparisons 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 will turn the call over to Kevin.
Thank you very much March then on.
On slide three you see the agenda I'm going to talk about our accelerated growth opportunity and also what I consider to be some of the transformation around utilizing our smaller franchise to enable therapeutic drugs. Mike will then do some financial results summaries.
And I'll then close the meeting with an update to the objectives that I have.
David After our last earnings call. So that you could see some of the advances that that we're working towards between now and year end. So to start we showed this slide last time blood based biomarkers are fast becoming the gold standard.
<unk> for traditional Tau and albeit a pet imaging.
And you might have been reading that ever since the FDA approved Biogen drug in these size.
Hey.
Basically you have become a buzzword the biomarker has become a buzzword as a way to help evidence efficacy and also evidence.
In some cases safety.
So I'd like to start off on slide five.
Showcasing the fact that we received at a record pace a breakthrough device designation from the FDA for our <unk> 181.
What based assay, which will be utilized primarily with other modes of diagnostics, including imaging to help triage patients is the intent for this application that we've been given the breakthrough designation, which gives us the priority with the FDA. There also was some really important.
Publications, namely in the lancet the smaller diagnostic accuracy data were published also <unk> 17, which is a next generation of phosphorylated Tau that we're also working on Lilly showcase that they used it and trailblazer too and they have also been given accelerated.
Pathway for their drug and they actually showed that correlates to tell 217, both with the images the pet images as well as clinical benefit which is a pretty significant event. So on the financial results on a non-GAAP basis, we grew at nearly 50%.
And year to date, we've been growing actually a little greater than 60% on a non-GAAP basis base.
Basically the difference between GAAP and non-GAAP is removing all the one time items from GAAP to give us the non-GAAP.
In 2021, our utilization of consumables.
It's actually been increasing fairly formidably, but running at least the 60% level, which is significantly beyond our expectations going into the year and we do have $411 million of cash balance at the end of Q3, there are value creation chain reaction has really been ticked off by.
Utilizing biomarkers in trials, and then getting them validated, particularly for all Zheimer trials and then the utility being an opportunity for us to transition over into the diagnostics, where there's a need for scalable blood based testing of all timers too.
Able to really.
At our at its full scale level.
To be able to move patients into the drug and then monitor for drug performance and this is an area of opportunity. We also interestingly, we're able to get married.
Good progress on our <unk> and the Covid landscape and that's how we really get to know the yesterday pretty well by being able to get an asymptomatic reading on COVID-19.
Saliva test or the Delta variant for antigen and this is a pretty significant breakthrough and Theres also been a couple of major webinars that further reference cell, especially university of Emory showcasing how they've deployed four of our HD Xs and measured over 120.
<unk> thousand saliva points for Covid. So this is the kind of advance that we are continuing to try to pursue when you look at our financials on slide six we can see that we had the 4% to 6% growth very good movement on the non-GAAP basis.
What's also really impressive is the product growth both instruments and consumables in Q3.
<unk>, particularly almost 100% growth in lab services, which we had projected would be down this year compared to at.
At least last year, we had very significant one time events with Covid.
We knew for the full year, we would probably be about the same level of lab services is 2020, but on a two year CAGR from 19 to 21.
We are continuing to progress at an 18% level. So we are still seeing nice growth.
Overall, I would say the Rad X into Abbott licenses.
Both from last year.
And then this year having right.
Those being removed from our GAAP performance to create non DAP allows you to see the real growth of 46% in Q3 on a margin basis.
On slide six you can see that our Q3 delivered almost 55% gross margin up from $61 five last year.
On a year to date same type of performance interestingly consumables is actually over 100% growth and instruments as over 70% growth in the lab services is basically flat with last year for the first three quarters of the year, but on a CAGR basis, it's up 24% to two year CAGR from.
19 to 21, and then once again you can see that our gross margins for the three quarters have gone from 48, 4% up to 56%. When you look at the demographics on slide eight youll see that geography, we continue to be very strong in North America, but also evolving very nicely.
Europe and Asia.
Primarily.
We see a lot of our of our position increasing in pharmacy Crows, but we continue to get a lot of publication pull through through our academics you can see we've had very strong growth of academics. So far in the last 12 months as well and then in neurology you can see we are up over 100% in the last 12 months and that is real.
The area that we're honed in on and you can also see in consumables over the last 12 months were up nearly 100%.
The accelerator down slightly over that 12 month period, primarily due to the onetime effect in the previous year instruments, so greater than 50%, which is a very strong indicator for future consumable pull through growth on slide nine you can see that the publications, which is the way we validate third party validation of our technology.
And that continues to accelerate and were nearly 1500 third party peer reviewed publications now and we have over 650 instruments now installed.
Around the World and you can see in the accelerator, even though we do know our growth. This year is not going to be like to spend the last the last 12 months due to COVID-19, we still have up to 160 <unk> phase one through three trials that have been run in our laboratory.
Slide 10, I would just like to showcase that we started out and researched.
It really started this company in research in Neuro and then we've moved very productively into antigen and serology for Covid and research and then we've utilized the technologies that we've got COVID-19 and creating a diagnostics and thats, how we got the two easy ways one for serology, one for antigen without taking those advances that.
We showcased at Emory working with the NIH, who gave us $20 million to scale up given our capabilities that we're now moving that down into all zimmers, and that's where we got the breakthrough designation for phosphorylated towels and.
As I think youll see any updated.
The updated objectives, we also plan and we updated these objectives at the end of Q2.
But we said at that time, we would also submit by year end the MFS NFL for breakthrough designation. So that's another key advantage for us.
Our overall objectives for the second half.
You can also see on slide 13 that we continue to have really strong growth catalysts in our research business and this breakthrough designation for <unk> hundred 81 is causing many customers to want to utilize our technology for their drug trials, given our access and our direction moving into the club.
And this has also further represented the drug trials being revitalized using biomarkers given the success finally of added home being approved by the FDA.
The accelerated growth path for Lilly is that in App. So we're pretty excited that the whole industry is now revitalized on all zheimer trials and that puts a lot of pressure on us scaling our company and also making sure. The HD X is ready for clinical use.
Pending our accelerator and we think CNN Alzheimers, even earlier before cognitive impairment is benefited by the 100 X and so youre going to see that we.
Our planning to accelerate.
Lot of our investments to really bring these four items and so until a very sharp focus of opportunity in 'twenty two 'twenty three so youll see us, making additional opex investments, particularly around.
These four items in 2004th quarter in 2022.
Also on the right hand side you can see that this is the diagnostic where we do believe the Tam is about 10 times the size of the research Tam and we see mounting evidence of these plasma phosphorylated Tau biomarkers for all timers, creating a significant opportunity on the diagnostics.
Side, it's a much sharper focus we see a lot more value and potential maybe with greater risk, but if we can get an all zimmer plasma test into the market via the breakthrough designation. It represents a way to triage screening and diagnostic lead improve the scaling and even monitoring.
Patients with Alzheimers with our Biomarkers.
For that reason, we're accelerating our LDP footprint.
In our accelerator and believe that we will be able to run LDC and Youll see US later slide in 2000.
23 at the latest payer leapfrog for health screens. We also think is a big growth catalyst longer term for our diagnostics business opportunity.
Slide 11, we've shown over the years that basically shows that by increasing the sensitivity. It's a significant opportunity to take the IBD proteins today that are measured by Abbott Roche and Siemens there was about 200 of them collected about 25 billion almost all of that being single Plex.
<unk> proportionate up again after patients have symptoms by being able to move earlier before symptoms and to even create multiplex for greater disease specificity. We think we can move the number of IBD proteins over the next 20 years from 200 proteins to as many as 1000 significantly ramping up the opportunity.
For diagnostics of protein measurement and to do that Noninvasively pre for symptoms, which we think creates a chance to revolutionize healthcare and we think that the fueling of that will come via the research products, where today. There is 13 under proteins that are being analyzed.
We think with a lot of new entrants.
Into the industry was going to be a chance to significantly ramp up the number of proteins that are tested from a research standpoint.
Mid 16, and 17 basically shows you that the sensitivity is what really is enabling in the area of neuro and cancer the ability to see the disease before symptoms present and to do it noninvasively in blood saliva and urine and our goal would be to truly jet.
<unk> from this technology in a diagnostic setting with this non invasive sometimes homecare sampling.
For testing that.
Much noninvasive for even if there is infectious disease that might plagued society. If you can get home care testing and or at least sampling and then seed disease before symptoms. It has a profound effect on the overall opportunity on slide 19, we are simply showing that traditionally the diagnostic industry is <unk>.
<unk> 1 billion in revenue roughly and the pharma industry is more like $300 billion 10 times the size and you can see that many of the pharma and diagnostics to a lot of research on antibodies and proteins that lead to this incredible two markets for life Sciences.
Side of this we're showing the brain and all of the different.
Biomarkers that we now can see in blood that some of them were actually multiplexing and advancing the field for both diagnostics and pharmaceuticals, and we think Theres a theres a whole new category of neuro diagnostic therapies, it's really about getting the therapy into the patient before symptoms, we think that the earth.
Earlier, you can get these these diagnostics to teach you when a patient has the pathology and you can then deploy the drug you can do it safer greater efficacy is a lot of what we're seeing drug companies now attempting to achieve with our technologies and so on slide 20, you can see that the Tam over on the left.
Hans side, when it's simply a researched biomarker for all timers.
Only like to have a $1 billion for the drug trials and we do have the probability we think of significantly increasing the probability of a drug getting approved by using these biomarkers for earlier phase disease.
In the center you can see one of the game changing publications that came out where it showed that you could actually create correlations by measured in blood are biomarkers with what you would use to see in a spinal tap sample result, as well as a pet image or an MRI and that breakthrough of that correlation we think is allow.
A much lesser in base of high throughput approach to move into utility in diagnostics, which we think the Tam could be as much as 11 billion versus the original $5 billion and Thats a lot of what we're focused on is trying to capture 10% of those pam's someday on slide 21 Lilly has got me.
The accelerated pathway for their drug and they are utilizing our technologies is as they've stated in there in their press releases. So we're really excited to see if we can continue to evolve. It slide 20, just shows that the area under the curve for phosphorylated pizza out what are the one where we get the breakthrough designation.
Third party peer reviewed published show that the area under the curve is 80% roughly if it's before cognitive impairment, but it's as high as 90%. After you start to see cognitive impairment and so that's why we want to continue to advance our sensitivity because on slide 23, you can see theres different biomarkers that can measure.
The fall of the disease pathology, sometimes as early as 10 to 15 years before dementia starts in the earlier you can see this pathology the better chance drugs have been approved using these biomarkers as well as longer term moving patients into these drugs utilizing these same biomarkers and so on slide 24.
We just wanted to show that today, there is 55 million people that have all timers with dementia and it is projected by 2000 $50 million to $152 million three times the level and if you just assume that 10% of the world.
Has access to diagnostics and that those would get that.
Actually get diagnosed with Alzheimer's would utilize our technology four times a year to make sure that the biomarkers are progressing it would suggest that the tam could be as large as seven 5 billion today.
And someday as large as $22 5 billion.
The emergence of greater levels of agent population around the world and the greater.
Population of Alzheimer's So on slide 25, we just show that our overall approach is to start out with an LD Chi, which youre, saying conservatively, we feel like by the end of 2023.
The opportunity to be an LDC for alzheimers using our phosphorylated Tau <unk>, even beyond that in a multiplex for even greater specificity. We think there is an investment of 10% to $15 million to achieve that.
And then to get a single site IBD or a laboratory IBD with has FDA approval that gives you to dual source of reimbursement of Medicare with the actual regulatory approval. We think it's more like 40% to $60 million and we feel like our 2024. This is achievable if we can continue advancing.
The way we are and then ultimately we do think distributed IBD would be beneficial for the Alzheimer landscape and there are new platform would be required and we have relationships as you know already with with.
With Abbott and we also have an NFL relationship with Siemens maybe this is done via partner, but there's probably as much as $100 million required to achieve those Tam you see on the right hand side, so up above the title, we basically say partnering this could further derisked and accelerate our ability to get into the <unk>.
Diagnostic landscape initially as triage, but ultimately as a screen. So we're pretty excited that we are making these advances and we would like to increase our investment given this uncertainty has been improved and while we don't know right now is from a.
Clinical perspective will rule out the way in which many neurologists want to use the test, which would need to maximize sensitivity or would rule win.
Saying that for sure. This patient has all timers, which would require maximum specificity. We think that both of these are achievable with different cutoffs with our technology and that's a lot of what we're trying to deploy right now and then finally I would say that we.
We did.
Say that we would plan some time as I've said in the update of the second quarter objectives, We would plan sometime in 2022 to file.
For MFS the breakthrough designation so that remains our goal for the second half.
To make sure that that's done.
<unk> in the second half and so with that Mike I'll turn it back over to you for some financial group.
That's great. Thanks, Kevin.
To provide some additional financial details about our third quarter of 2021 performance and for you referenced for the phone on the call it will be slide 27.
As Kevin noted our GAAP revenues in the third quarter of 2021, $27 7 million and included a $1 million of revenue from erratic awards.
Excluding this nonrecurring items, our non-GAAP third quarter 2020, 'twenty revenue was $26 7 million.
The 6% increase versus the prior year third quarter non-GAAP revenue we.
We had record record product revenue in the third quarter of $20 7 million, an increase of 77% versus third quarter of 2020.
Within product revenue consumables revenue grew 98% in the third quarter versus the prior year third quarter to a record of $14 $2 million driven by our strong demand for <unk> 181, and our neuro multiplex assays.
Like Q2, our revenue performance in Q3 May include some recovery of previously deferred demand due to pandemic as customers returned to more normal operations.
Service revenue decreased 10% in the third quarter to $5 9 million.
2020 was a strong year for services revenue was onetime COVID-19 related activities Forest lab closures and drove increased activity to our accelerator lab.
Looking at our services business revenue over two years, the CAGR as Kevin mentioned earlier, just for the third quarter was 18% and it's 24% on a year to date basis.
Year to date total revenues were $80 $3 million, excluding revenue from our nonrecurring <unk> Awards non-GAAP year to date total revenues or $76 million or 61% increase from the year to date 2020 non-GAAP revenue.
I stated previously we are not providing revenue guidance customer activity has returned to pre COVID-19 levels. However, potential renewed spread of new variants could force renewed locked down potentially impact installations and utilization.
On a GAAP basis, our Q3 gross margin was 55, 1% compared to 67, 2% in the third quarter of 2020.
Our third quarter 2020, gross margin was positively impacted by a one time license fee of $10 million from Abbott.
Our non-GAAP gross margin was 54, 8% in the third quarter, which is an approximate 330 basis point improvement compared to non-GAAP gross margin of 51, 5% in the same quarter of last year.
Non-GAAP gross margin was 56, 1% for the year to date 2021 period, and approximately 770 basis points improvement from non-GAAP gross margin in the same period 2020.
Our non-GAAP gross margin excludes the impact of <unk> awards as well as noncash acquisition related purchase accounting adjustments relating to our 2019 acquisition of Oman, thus, providing investors with relevant period to period comparison of our operations.
Gross margin expansion has been driven by volume, particularly in consumables productivity gains and pricing.
Our GAAP operating expenses totaled $30 5 million in the third quarter of 2021.
Non-GAAP operating expenses, which primarily exclude nonrecurring expenses associated with <unk> Grant revenue totaled $30 million for the third quarter of 2021, an increase of $12 $5 million versus non-GAAP operating expenses in the third quarter of 2020.
Major expense drivers were volume related activity accelerated over laboratory expansion.
Expense and always skew the operation scale <unk> expenses.
During the third quarter of 2021, our cash balance decreased by $19 8 million driven by our scaling efforts and debt repayment.
Ending unrestricted cash balance was $410 7 million at September 30th 2021, and basic weighted average shares outstanding for EPS totaled $36 5 million for the third quarter of 2021 period.
Overall, we're pleased with our third quarter 'twenty, one performance and progress made on our strategic priorities and remain committed to delivering solid 2021 results in line with expectations.
With that I'll turn it back to Kevin.
Thank you very much.
The one area that we are deferring in order to accommodate what we're doing in neurology Covid is immunology, we are slowing down some of those investments in order to stay prioritized around the the increased opportunity.
Around Abu helm as well as the night of Mab as well as even other all cymer drugs that are now in trials and so immunology will pick back up in the later years, but for the moment, we decided it's better to stay highly focused on.
Neurology in Covid and then on the financials. The one thing we're saying here is we want to accelerate our diagnostic investments and the 100 X opex investments and so as I stated earlier, I think getting to probably more of an opex around $121 million for 2000.
21 is probably more reasonable and for next year I think we probably will be looking to try to increase our opex by another.
25% somewhere probably.
To a level.
30% of where we were in 2020.
I agree.
Dance for our own diagnostic revenues. It takes time to get established into that landscape and from our vantage point. We don't believe the diagnostic revenues for Covid are going to be a long term sustainable area for growth focus. So we are doing everything we can to support.
The funding from the NIH to provide the capability and the availability for our technology, but it's not a focus of our significant go to market investment for the short term. We think it's important to kind of stay focused on research and then all zimmers for diagnostics.
Our primary focus.
Thank you very much that was extremely helpful.
One other sort of high level question. So I was just curious if you could provide.
I'll take on the competitive landscape. What you are looking at right now and I guess going into 2020, 2022 excuse me as well.
Absolutely and I do think the competitive landscape is somewhat depends on the magnitude of opportunity that you are searching for and trying to influence and so at the highest level we.
We would look at imaging as being the primary competitor to a lot of what we do with biomarkers, meaning it today. There is an opportunity to use imaging to be able to see in the brain and to see plaque and to see the deterioration of the brain through brain atrophy in other ways, but we looked at.
What we're doing as being a much greater systemic opportunity to see much less invasive Lee.
We don't see them.
As competition, we see them as partners and then the third way to look at this would be in the area.
Search we have today are sitting in what we call translational research, where we're trying to bring a lot of utility wants a protein gets identified as having a lot of clinical validity. We then move then with our sensitivity to reduce the invasiveness of the sample and then to increase.
The timing and the <unk>.
<unk> been able to create protection and so in that area of translation, we don't see a lot of competition today. When these drug trials using our biomarkers, we see this as being an area that we're pioneering with not a lot of direct competition, but there are some companies that we really respect a lot.
Are doing a lot of great work in the area of research and they're actually identifying proteins that are leading to the longer term pipeline. So we think those companies are all very complementary, but they could someday have ambitions of moving downstream into translation. So we're always watchful for partnership.
Opportunities, but that's also why we're fortifying our sensitivity we believe another 100 X brings great value to the long term translation opportunity.
Thank you very much for me.
And again, if you have any questions just press star one on your telephone keypad. Your next question comes from the line of Matt <unk> from Goldman Sachs. Your line is open.
Hey, guys. This is Dave on for Matt Thanks for the questions.
It looks like revenue and gross margin came in strong in the quarter.
But SG&A was a little heavier than what we were expecting could you tell us a little bit more about what went into that.
Yes, absolutely Dave.
And thanks for the question and I think that we're in a scenario where you.
The players were really interested in getting technologies to better diagnose and scale diagnostics for all dimers.
As well as the auditor recall it.
Kind of like evidence that the drug is performing and so this whole concept of coverage with evidence. We think the payers are interested to have biomarkers monitor whether or not a drug is giving the desired performance and so because of those opportunities that that became very real for us we are investing uhm.
More aggressively on that diagnostic side of our business as we're learning and building this out and surprisingly.
Surprisingly getting quicker returns with things like breakthrough designation and probably we even expected. So that's the reason why opex is up and I think it's one of these things that we feel makes a lot of sense to be to be investing in this opportunity for longer term returns and as you.
No strategic Optionality, we did have three raises all of them very productive over the last four years.
Raises have put up a very strong balance sheet and we did describe the fact that there could be optionality in the area of all Simers, an indoor diagnostics that are now coming to fruition.
Got it that's helpful and then on the P. Tao breakthrough designation.
Any additional color you can give on how you think about the timeline with the FDA there.
Yeah.
First of all I would caution investors I think we probably always are taking a very cautious.
Kind of a posture when it comes to the diagnostic landscape, particularly because it can be fraught with delays and regulatory challenges et cetera.
It's not common that you get breakthrough designation 55 days after you submit.
Applications. So this was somewhat unprecedented and so I would say that don't count on that being the pace moving forward because we know it's a delicate process of really proven the area under the curve and to further advanced the utility of of the actual diagnostic.
And so that and you know.
What.
Kind of inbounds here that suggests that these were pretty incredible results and we've made some massive advances strategically, but what I would say here is that we've got an employee base that some of the most special people that I've ever worked with in my career that have been working around the clock at breakneck speed.
Throughout the pandemic and have been advancing our company on so many levels, we have a board of directors as well Thats one of the best.
I've seen.
And all of my work over the 25 years that I've been a CEO and I'm very impressed with the team of Dawn Mattoon in.
Mark Roski in and just the overall breadth of the leadership that we've now been able to attract into <unk> and so we will continue working at this primarily because of the greater purpose opportunity to have a material impact on all <unk> over the next several years and helping Cds.
These lethal diseases earlier less than basically so thank you for all your support and we look forward to talking to you at year end results. Thank you very much.
Yeah.
And that concludes today's conference call. Thank you for participating you may now disconnect.
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