Quanterix Corporation Q1 2023 Earnings Call

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Thank you for standing by and welcome to the Terex Corporation.

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After the Speakers' presentation, there'll be a question and answer session.

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Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your speaker today, probably all Chief Financial Officer.

Thanks, very much good afternoon, everyone. Thanks for joining us today with.

With me on today's call is Masoud, <unk>, President and CEO of Quanta Eric's.

Before we begin I'd 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 U S 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 this call.

We made it 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.

<unk> 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.

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 such measures are important in comparing current results, but other peer in results.

Spoke to investors and financial analysts and 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 the most directly comparable GAAP financial measure is 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 afternoon, everyone.

On today's call I'll cover progress on our comprehensive transformation plan.

<unk> and recent developments and the clinical use of plasma biomarkers.

We see 2023 of the year of focus and disciplined execution as we build the organization for future growth.

I am pleased to say, we continue to make progress on our transformation plan.

Sure to deliver quality products to our customers.

Since initiating the plan we have identified the gaps required for industrial manufacturing.

Taken steps to improve the stability and scale of common assay components and have begun early stages of validating and transitioning these improvements into operations.

Process that will continue throughout this year.

While still early several of the recently implemented operational processes have positively impacted yield and efficiencies.

Successful outcome of our transformation will be new product skus and operating lines to efficiently manufacture those products by the end of this year and transitioning customer demand from our existing assays to new assays through 2024.

In making these changes.

We believe our customer experience will be significantly improved and operating efficiencies will benefit our margins setting us on the right trajectory to scale revenue profitably.

I've never been more confident and proud of our talented people.

Transformations like these usually don't happen in such high intensity and tight timeframes, but its the individuals in the company and their resolve that are propelling us forward.

Led by our operating commercial and service leaders and talented executive leadership team.

As a focused march towards successfully running the company, while implementing the transformation by end of year.

Moving onto first quarter results, we delivered $28 5 million in total revenue up 10% from the fourth quarter of 'twenty two.

Q1, consumable revenues increased by 25% quarter over quarter.

While collaboration in instrument revenue modestly declined collab.

Collaboration being the reduction in licensing.

A 3% decline in instruments, primarily due to softness in Asia Pac related to economic uncertainty.

One of our advantages in this area is that macro uncertainties and reluctance for capex purchases can be partially offset by customers performing research and clinical trial work through our accelerator program.

GAAP gross margin was 59, 5% and non-GAAP gross margin was 53, 1%, which both represent sequential increases of over 1000 basis points over Q4 'twenty two.

I do want to point out that we expect gross margin headwinds in the second half of 'twenty three as we began implementing assay efficiency improvements and carries two skus for our top products into our manufacturing lines.

This work is often noisy as we refine the assay in the final stages and can increase scrap and other costs in the near term.

That said, we still expect to exit 'twenty three with gross margins higher in 'twenty two.

Our cash decreased approximately $9 1 million since last quarter in line with expectations and we ended Q1 with $329 million in unrestricted cash.

Given the first quarter results, we are modestly adjusting upwards our guidance for the full year.

We are targeting revenues in the range of $104 million to $111 million and non-GAAP gross margins in the mid <unk> on a percentage basis and GAAP gross margin in the high forties.

The sales guidance increase is driven by consumables accelerator services and continued collaboration revenues offsetting potential softening of instrument revenue.

Now I'll turn over the call to Mike to discuss some more financial details Mike.

Thank you masoud.

First an overall comment about our performance.

It's nice to start the year with a solid performance out of the gate.

First quarter performance was ahead of our expectations and consensus for both revenue and gross margin.

And as Masoud mentioned, we've bumped our guidance slightly to reflect our Q1 performance and expectations for 2023.

That said our guidance also reflects our continued management of demand as we continue our work redevelop in our assays and dealing with the broader macroeconomic pressures in the global economy, which we believe is creating softness in our instrument demand.

Now let me review the details of our first quarter 2023 performance.

For your reference for those following on the call I'm starting on slide four.

Our total revenue for the first quarter of 2023 was $28 5 million a decline of $1 1 million or three 7% from the first quarter of 2022.

In the first quarter of 2022, we had $1 2 million in licensing revenues from our agreement with Lilly, which is not recurring in 2023.

Excluding the impact of this license revenue total revenue was flat year over year.

We had a product revenue of $19 3 million in the first quarter, a decline of $1 4 million or six 6% versus the first quarter of 2022.

Within product revenue instrument revenue as the biggest driver of the decrease declining $1 million or 15, 4% versus the first quarter of 2022, primarily due to reduced demand in our Asia Pac region.

First quarter consumables revenues declined slightly from the first quarter of last year down $4 million or two 8%.

As we've stated previously we continue to manage production and demand for consumables as we address the assay quality.

Services and other revenue were $8 6 million for the quarter down $2 million or two 6% from the first quarter of 2022.

Now, let's move on to gross margin for the quarter.

Our GAAP gross profit margin was $16 9 million and 59, 5% for the first quarter of 2023 compared to $14 6 million and 49, 3% in first quarter of 2022.

Our non-GAAP gross profit margin was $15 1 million and 53, 1% in the first quarter as compared to $12 8 million and 43, 2% in the first quarter of last year.

The improvement in gross margin on both a GAAP and non-GAAP basis was driven by a few things.

We have a one time benefit year over year due to the timing of our physical inventory, which was in the first two weeks of January last year. This onetime productivity benefit was approximately 300 basis points on our margin.

We did a good deal of inventory cleanup last year scrapping over $1 million in materials in Q4 alone and made a number of changes to our inventory management practices, which resulted in lower than typical inventory adjustments in the first quarter of 2023.

This had a positive benefit of approximately 500 to 600 basis points on gross margin.

We had open positions in our manufacturing organization and overall lower head count year over year due to the restructuring we executed in August of 2022. This benefit our gross margin by 250 basis points.

Overall, a strong gross margin performance for the quarter aided by a few items that are nonrecurring.

Our updated full year guidance reflects our go forward view on gross margin for 2023.

Our overall operating expenses declined $6 4 million from $32 7 million in the first quarter of 2022 to $26 3 million in the first quarter of 2023.

The primary primary driver with reduced costs due to the restructuring action. We took in August of last year.

Our net loss declined from a negative $18 2 million in the first quarter of 2022 to a negative $6 1 million in the first quarter of 2023 due to improved gross margin reduced operating expenses and a $3 $4 million increase in interest income.

I will now review cash which is on slide five.

We ended the first quarter with $332 $3 million in cash a decline of $9 1 million from our year end cash balance of $341 3 million.

First quarter of the year is often our largest cash burn period as we make our annual bonus and year end Commission payouts are.

Our balance sheet remains in excellent shape, and we remain well positioned in a difficult economic environment.

Let's turn to guidance, which is highlighted on slide seven.

As mentioned earlier, we are modestly increasing our guidance for 2023.

We expect our revenues to be in the range of $104 million to $111 million and as a reminder, we're still managing our demand in shipments as we continue our assay redevelopment.

For the full year 2023, we expect GAAP gross margin to be in the high <unk> and non-GAAP gross margin percent in the mid Forty's.

As <unk> mentioned, we expect margin headwinds in the second half of 2023, as we fill open positions and increased staffing and.

Incurred greater scrap and excess costs as we do initial runs of new assays on our production line and a slight some materials as we complete the assay redevelopment.

That I will turn it back to masoud.

Thank you Mike.

In closing I would like to mention the recent FDA decision granting accelerated approval of the sod one AOS drug tougher cents based on narrow filament light as a secondary endpoint.

As with many neuro degenerative diseases lack of quantitative primary indicators of disease has hampered the development of new therapeutics in this space for.

For example changes inside one indicate tougher sent is working as intended but it's not necessarily a predictor of clinical efficacy.

The blood biomarker, NFL, which researchers do believe has a relationship with clinical efficacy leading to what you saw was accelerated approval of the therapy.

This new approach to NFL as a neuro drug development tool will be an important long term tailwind for investment in future narrow research.

Approval and reimbursement of therapies.

Date pharma and biotech companies have already incorporated the tracking of NFL to over 100 clinical trials for Alzheimer's.

Arkansas Huntington.

MFS and we expect this to grow in the long term.

Second.

As you know the history of Alzheimers Therapeutics development has not been a happy story.

This is a graveyard of over 200 compounds tested in various clinical trials that have failed with our failure rates of over 99%.

Today over 50 million people around the world suffer from Alzheimer's disease or dementia and within the next 30 years that number was expected to triple without a therapy.

The recent announcements by ASI and Lilly are real hope that this doesn't happen.

We are encouraged by recent results and hope these therapies provide relief to the sufferers of this relentless and debilitating disease.

It is becoming clear that semi while blood based biomarkers are going to play an integral part of research.

And clinical applications. Most recently as demonstrated by <unk> 17 role as an important early blood biomarker for Alzheimer's disease.

<unk> technology is one of the very few platforms out there that can reliably detect these difficult to measure how proteins.

You need high sensitivity to detected in blood and.

And we've demonstrated that in research clinical trials and soon diagnostics.

Our expectations for the long term growth of this company and its leadership role in neuro are high the.

The combination of the FDA approving the first ever blood based narrow surrogate biomarker.

Along with recent positive readouts on Alzheimer's drugs have signaled a true kick off and start to what we believe will be a neuro decade of new discoveries and therapies.

<unk> is poised to be part of that.

Let's take some questions operator.

Thank you so much for centuries.

And can you remind me you asked a question you will note the cross fire one one on your telecom and please standby.

Sure.

Your first question comes from the line of.

Yes.

Your line is now open.

The U S health market.

Thanks for the question and congrats on the quarter.

Maybe just a question on <unk>.

Instrument revenue you mentioned softer instruments contemplated in the guide in the quarter.

It ran APAC.

Can you just elaborate on what kind of customer segments Youre seeing this in.

Although I think the context skus.

Do you see it possible macro impact to lag Europe clinical trials, if there is any smaller biotech exposure there.

Thanks.

Yes.

I think from.

What we've highlighted right now where we're seeing softness is in is in Asia Pac.

We have a large couple of large distributors, there and there <unk>.

Volume activity is off in Q1 versus.

Versus last year in a meaningful way.

It doesn't show itself as much in the actual revenue itself, because we're getting a better mix and were seeing some lift a little bit in Europe , but it's principally in Asia Pac right now.

And we expect that to persist throughout the year.

I think that there is masood highlighted there are some.

Tentativeness, but we get a benefit in our accelerator lab. So we think we can offset that which is why our guidance reflects what it is but I think instruments is going to it's going to be soft all year long.

Got it that makes sense.

And then maybe just a question on Alzheimer's I mean, we've seen a number of updates from pharma recently.

But just wanted to get your view on kind.

How are you thinking about like a go to market strategy for commercial assay. There can you kind of elaborate on what proteins are.

Currently would be included in your App and what kind of a final assay would look like and then potentially multiplex offering.

Yeah, absolutely I can take that so I think from.

Our screening and diagnostics.

Aspect, our plans are pretty clear and well articulated first.

Our products are right now available for all and a reference in specialty labs that are running ltte's under the clear framework and we can confirm many of our tests are being run and over tens of clear settings in the U S Europe China.

Around the world and that's something that can be done today and we are open to working with all of these lives.

The products that we have.

And so those as you've heard are going to be mainly on the <unk> side and probably a few multiplexes. So this is our <unk> <unk>.

We currently offer both service and product as.

As well as in the near future P till 2017, and then our multiplex assays and then from a reimbursement standpoint.

This is going to take in a regional reimbursement from Medicare administrative contractors.

<unk>.

Market support with uptick in clinical care and early adopters.

And so that's the first step is all of this being done in these specialty end.

Reference laboratories, and then second we think the FDA approval of these biomarkers is going to be important. So we've received a couple breakthrough designations for two of our blood tests and in the near term.

We believe that it will be an aid physicians streamlining clinical workflows.

Reducing the number of pet scans and.

What we believe.

In the future will place imaging.

Got you that makes sense.

Back in the queue.

Thank you so much.

Our next question comes from the line of mixed in with Canaccord Genuity. Your line is now.

Okay.

Hi, This is Alex for Kessler online for Carl Mixon. Thanks, So much for taking questions. One brief question. So this is kind of covering some of the stuff that you discussed at the end the call.

Could you just elaborate on the steps and the active redevelopment program that.

You've kind of hit them as of the first half the first three out of the six quarters, while specifically in our materials. We previously discussed.

<unk> implementation of the first wave.

Raw material specifications to building qualification as well as some automation I'm just curious if you kind of hit most of those.

Those targets at this point thanks.

Hi, Alex Yeah, absolutely.

I would say that.

The way to sort of think of this transformation first there's a large transformation our corporate transformation and it's part of that corporate transformation, we have an assay redevelopment roadmap, which.

Which is which is one part of that and.

I would call Q3, and Q4 of last year as completing the review.

Looking for sort of in identifying the gaps to industrial manufacturing and so as we said in prior calls success, we've identified where those are and then identifying hey, what is going to feasibly transition in this year and so I think in Q1 of 'twenty three we have identified those and.

We have begun making some changes to our raw materials and stability for those raw materials and then the next quarter, but youre going to see is some more qualification of that material.

And beginning to start to insert that into our our operating manufacturing lines and so this is obviously a long process of.

Putting this into the operating lines and <unk>.

Expect that by Q4 of 'twenty three.

Several of our top products.

Launch using this readout.

Assay program. So the next couple of quarters more insertion into manufacturing lines.

And managing some of the a couple of Skus, but.

And all the progress as expected and we're very happy with it.

Got it thank you very much.

Thank you Paul.

And your next question comes from the line of Matt Mccall.

Your line is now open.

Jake on for Matt Sykes.

Slight raising guidance it was good to see some positive momentum.

Can you give a little more color on the mix shift between instruments consumables and accelerate or that you are seeing throughout the year.

Yes.

Yes, Jake this is Mike Doyle.

As we think about it I just think that.

Obviously, you saw a meaningful movement.

And consumables and accelerated services, which were certainly very happy about.

And that benefit does help us on the margin front also I think that.

In looking at our instrument business, we believe that it's going to remain.

Soft throughout the year.

Really because we've taken up guidance a bit we believe we're going to cover it with a combination of consumables and accelerator services. So.

We did a fair amount of instruments last year in Asia Pacific, we see that slowing down.

There is definitely a macro effect there in this potentially softness within North America. So.

Look at it as higher percentage mix of accelerator services consumables, and then 4% on the instruments pretty much throughout the year.

Great. Thank you.

Thank you and there are no further questions.

Thanks.

Yes.

Okay.

Alright, well thank you so much.

Joining today's call.

This call you may now disconnect.

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