Q3 2023 Quantum-Si Inc Earnings Call
Good day and thank you for standing by welcome to the Quanta National I Q3, 2023 earnings call. At this time, all participants are in a listen only mode.
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Now I'd like to hand, the conference over to your Speaker today Catherine Atkinson. Please go ahead.
Okay.
Okay.
Good afternoon, everyone. Thank you for joining us earlier today quantum of <unk> released financial results for the third quarter ended September 32023, a copy of the press release is available on the company's website. Joining me today are Jeff Hawkins, President and Chief Executive Officer and Jeff.
Its 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 materially differ from those anticipated additional information regarding these risks and uncertainties appears in the section.
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 today November nine 2023, except as required by law the company does.
Claims any intention or obligation to update or revise any forward looking statements.
During this call we will also 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 financial measures to the most directly comparable GAAP financial measures is included in the press release filed earlier today with that I will turn the call over to Jeff Hawkins.
Thank you Catherine good afternoon, everyone and thank you for joining us in today's call. We will provide a business update present, our third quarter financial performance and provide an outlook for the remainder of 2023.
To open the line for questions.
As you are aware the golar quantum that size to bring next generation protein sequencing to every lab everywhere, our proprietary technology delivery deeper unbiased proteomics insights that we believe will accelerate scientific research enabled the discovery of new Biomarkers and ultimately power the development of new therapies.
<unk> and diagnostic tests that will positively impact human health.
Before sharing updates on our progress during the quarter I wanted to take an opportunity to look back on the significant progress that we've made as a company during my first year as CEO.
First we have enhanced the leadership team with the addition of proven industry leaders across key roles, including our Chief Financial Officer, Chief Commercial Officer.
Vice President of operations, and senior Vice President of product development.
Second we commercially launched platinum the world's first next generation protein sequencing platform.
Third we have augmented our board of directors through the addition of three new independent directors, all with CEO or CFO experience from across life Sciences medical devices diagnostics and biotech. In addition, we established an independent chair of our nominating and governance Committee as we strive to continue.
Can we improve our board governance and performance.
Fourth we have completely retooled, our reagent and consumable manufacturing model from one that was largely outsource to one that is majority in sourced. This has provided us with greater control over quality and cost and should result in improved gross margins as we achieve scale.
Finally, we have completed a reorganization of our R&D team and focused our R&D projects on the capabilities and applications customers want most we.
We have shifted a greater percentage of our investments into near to mid term opportunities, while retaining a focused investment into a compelling set of next generation technologies.
Overall, the progress over the past 12 months has fundamentally improved all aspects of our business, putting us on a strong foundation for growth in 2024 and beyond.
I would now like to provide an update on our progress during the quarter.
Our first corporate priority is to commercialize platinum and the <unk> chip.
Our sales funnel continues to grow and remains well ahead of our expectations for 2023.
Quantum ESI technology addresses gaps in currently marketed technologies and it is clear customers are interested in using platinum in their research.
From a geographic standpoint, we continue to see interest across both the United States and Europe.
During the quarter, we participated in the <unk> World Congress in Bousada in South Korea.
<unk> gave us our first opportunity to meet with potential customers and distributors in the Asia Pacific region.
The team came back from this event energized about the opportunity to launch platinum in the Asia Pacific region in 2024.
In October the first customer data using platinum was presented during a webinar Dr.
Dr. <unk> from northwestern University needs, a lab that focuses on protein engineering spanning both therapeutic and industrial applications.
During the webinar to discuss some of the methods. They use for characterizing engineered proteins in our lab and she presented data generated on platinum that was used for studying secreted protein variance she.
She also talked about how they plan to use platinum for other protein engineering applications, such as Barcoding and selecting for genotype phenotype linkage and proteins.
Beyond the specific applications of interest. The webinar also include a discussion of the overall time savings of the platinum workflow that the lab has experienced.
As we look out across the remainder of 2023, we expect the first customer generated manuscript will also be submitted for publication.
We're excited about the momentum we are building in the market and believe it will position us well as we move from our current controlled commercial launch to full commercial launch in early 2024.
Our second priority is to lead with innovation.
During the quarter, we completed the strategic review of our research and development programs and our organizational design and capacity that we had discussed on our last call.
I'd like to share some key outcomes from this process.
First we reorganized the team to drive greater focus in product development.
Post the organizational changes, we now have more than 60% of our team deployed against near to mid term opportunities.
We believe this change will allow us to more rapidly deliver their technology capabilities and applications customers want most.
As part of the reorganization, we are accelerating our efforts in biochemistry to further build upon our industry, leading next generation protein sequencing technology capabilities.
We are already seeing positive early signs from this renewed focus and are confident that it will yield strong results in 2024 and beyond.
Finally, we have retained a focused set of investments in next generation technologies to ensure we remain on the path to being the first company to deliver de novo sequencing in the future.
Another goal of the R&D strategic review what to evaluate all of our projects and define a more focused and prioritized set of initiatives.
As part of that process and consistent with our prior earnings call. We completed a review of the carbon program.
After a comprehensive review of the carbon program, we have determined that we will not move forward with commercialization of the carbon instrument at this time.
It was clear from our discussions with customers that carbon was not required for successful implementation of platform and that there were higher impact R&D programs, we could work on to advance our customers' research.
To that end during the strategic review process, we identified several product improvements across our library prep kit sequencing reagents and chips that could improve the sequencing output per sample coverage and overall robustness of the full workflow from library prep to sequencing results.
I am pleased to share that these improvements will be included in a version two of our kits, which we expect to launch in the first quarter of 2024.
We expect that these improvements will also provide greater compatibility between our next generation protein sequencing technology in the range of sample prep methods sample types and even specific proteins. Our customers are interested in studying.
Overall, we believe that the version two kit combined with the work we're doing around sample prep compatibility puts us on a strong path towards full commercial launch in early 2024.
Given this we have initiated a set of commercial activities to ensure we are well prepared for that event.
While we are still in the early days of operating in this new structure and against a more focused set of R&D projects I am optimistic that we are well positioned to deliver a steady cadence of new technology capabilities and applications throughout 2024.
Our third priority is to preserve financial strength.
As we have stated on previous calls we remain committed to continuously improving our fiscal discipline. We are committed to ensuring that the capital. We have been provided is utilized to maximize shareholder value and our financial runway given our efforts to date and our commitment to continuous improvement we remain confident that our current capital can support operations.
Into 2026.
I'll now turn the call over to Jeff <unk> to review our financial results.
Jeff.
Thank you Jeff.
Now, let's discuss the details of our third quarter 2023 financial results.
Revenue in the third quarter of 2023 was 223000, which consists of revenue from our platinum instrument and associated consumable kits.
Gross profit was 108000 any gross margin was 48%.
As I've stated before our gross margin percentage will be somewhat variable for the near future as we work through our initial stages of commercialization.
And we will also be impacted by the timing and mix of instruments versus consumable sales.
GAAP total operating expenses in the third quarter of 2023, or $27 3 million compared to $27 7 million in the third quarter of 2022.
Included within operating expenses are stock based compensation and restructuring charges removing these items, we arrive at an adjusted operating expenses, which were $23 9 million for the third quarter of 2023 compared to $23 6 million for the third quarter of 2022, reflecting an approximate three.
$300000 increase what's important here is the details of the change as a company we have been able to maintain a minimal increase to our adjusted total operating expenses year over year for the quarter.
While at the same time, we have ramped up our commercial operations team significantly.
We have been able to do this based on our recent R&D realignment efforts as well as our disciplined efforts to utilize our capital in the most effective ways as possible.
This is further displayed with our year over year adjusted total operating expenses.
For the year to date period September 2023, adjusted total operating expenses of $72 6 million.
Compared to $77 9 million for the same period in 2022.
$5 3 million decrease.
Though we are not committing to a particular operating expense and level. At this time, we are very aggressively looking at our spend to ensure maximum utilization of our capital to enhance and speed our R&D results, while ensuring that we have the resources to maximize our market penetration with our commercial team.
Net loss for the third quarter of 2023 was $24 7 million compared to $31 7 million in the third quarter of 2022, and adjusted EBITDA for the third quarter of 2023 was negative $22 6 million compared to negative $22 9 million in the third quarter of 2022.
As of September 32023, we had $274 6 million of cash cash equivalents and investments in marketable securities.
As we discussed today and previously our guidance for the rest of 2023 includes our controlled commercial launch approach, while continuing to put in place significant building blocks from our commercial capability standpoint for execution for an anticipated full commercial launch in early 2024.
Based on our R&D realignment progress and other initiatives, we expect our adjusted total operating expenses to be $100 million for 2023.
Compared to $103 2 million in 2022.
We are still very confident that our existing cash cash equivalents and investments in marketable securities will provide runway into 2026.
Now I will turn the call back over to Jeff Hawkins for closing remarks.
Thank you, Jeff we have made significant progress during the last quarter led by the completion of our R&D Strategic review, we are excited about the level of clarity and focus we achieved through this process, including the roadmap to deliver near and mid term product improvements, including our anticipated version two of our kits on track for launch.
In the first quarter of 2024.
We are looking forward to providing additional updates on the version two kits during our next call in the meantime, we are continuing to build our infrastructure to support our full commercial launch while adhering to our disciplined approach to capital deployment operator. Please open the line for questions.
In order to ask a question. Please press star one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.
Yes.
And your first question comes from the line of Kyle Nixon with Canaccord Genuity. Your line is now open.
Yes.
Hey, guys. Thanks for taking my questions.
Jeff.
I know you guys have this controlled launch ongoing and we Shouldnt expect huge.
<unk> uptake.
Particular bolus in placements anytime soon I guess that makes sense relatively appropriate given the early stage of this of this launch.
It seems to me a couple of placements again this quarter, how should we think about the place and the shipment like trajectory.
Going forward as this controlled launch really going to be kind of a couple.
Couple of placements each quarter or how should we start thinking about it in the near term at least and maybe going into 'twenty four.
Yes. Thanks for that question, Kyle So I would say two things about it I think where we are in that controlled launch through the end of this year.
As part of our preparation for a full launch early next year, we are initiating some <unk>.
Commercial activities, both in terms of some hiring and potentially distribution related partners. So you may see a little uptick in the fourth quarter over what we've done the last couple of quarters, but not not as sort of a significant rise really then to focus becomes the b two.
Kit launch in the first quarter and we really believe that's the catalyst that kit in the hands of customers and seeing that increased performance becomes sort of the catalyst to be able to move.
Move to a full launch and start to see a scale up sort of quarter over quarter after that.
Okay, Alright that was great and then I guess most of the revenue right now is coming from instruments.
Some service revenue.
That's relatively lower margin than consumables and that this new kit. It sounds like that will help drive utilization next next year and thereafter.
But 45% and kind of like the high forward is I think is what gross margin has been at thus far obviously pretty good for if youre, if youre revenue basis instrument and service so as you sort of rollout.
These improved kits then you have the utilization picking up with the expanding install base could we see gross margin get above 50% next year at some point.
Yes, maybe I'll start and then I'll turn it over to Jeff for a few comments that the one thing I wanted to.
Input here Kyle was as we've talked about on other calls.
We did do a tremendous amount of value engineering, when we built our machines. So while we are selling in.
An instrument in selling capital and they are sort of perceived margins of selling that.
We are generating an attractive gross margin with our platform even at a very low scale.
And in your own consumables, obviously at a much earlier stage, but maybe Jeff wants to comment a little bit on how we are thinking about that blend and sort of how it might change over the course of next year.
Yes, I'll, just add I am saying that as we scale, we're going to have more opportunities to bring more and more of the kit manufacturing in house.
<unk> has the ability to improve margins on that obviously, we need that scale to be able to achieve that improvement, but it's absolutely on our radar as we ramp up over the course of 2024 and beyond.
Okay that was great that was great guys and Jeff Hawkins is there anything you can.
Sure with respect to the.
Almost like the backlog.
Our customers and then kind of what the leads that you've generated thus far and.
Things like types of customers and markets.
We talked about biotech before and maybe even like regions because theres a lot to think about when you think about the.
Backlog in the pipeline so it would be good to hear like what's kind of mix.
Excited for going forward sure yes.
The first thing I would say Carlo is that the funnel tends to be sort of consistent with what we said in the second quarter. It is heaviest in the U S where we have.
Our direct presence still have.
Our strong amounts are similar levels to Q2 of them in terms of funnel in Europe.
But coming out of the Grupo World Congress as we mentioned in our prepared remarks, starting to get some of our first.
Leads into the funnel for the Asia Pacific region. So I think as we get more visibility into those other markets.
Interface with both customers and distributors will start to pick up in that regard.
In terms of the split the academic market remains the biggest portion of our funnel, but as we said earlier in the year, we expected that academic customers would represent those first customers in the majority of the funnel and then we would work and over time, we'd see it start to build in the pharma biotech.
And even government and industrial space and I think that's what's transpiring. So the funnel continues to be overweighted to academic, but we are seeing more traction and we're getting sort of further into the funnel and the process with some of the pharma biotechs and government sort of accounts. So excited to see those types of customer.
<unk> progressing obviously those types of customers can.
<unk> be very helpful in terms of your pull through.
And such so excited about that trend as we look out to 2024.
Okay, and then is there anyone in the in the curve.
Our installed base.
Our non beta user because I think youre like most of these handful of play.
Placements out there in the field are probably with those initial.
Early access program users and then with this with the funnel I mean that could be that can be many potential placements over time.
<unk> renewed.
Proteomics, possibly customers does that represent.
So our current installed base is almost all are new to <unk> they were not.
Necessarily part of the early access program. So the vast majority of those.
Placements, we've made throughout the year Kyle are net new to us.
In terms of not having been a part of the early access program.
Yeah, Okay. That's great that's great. Let me just ask another one.
The last move wrap up on the <unk>.
Pipeline and possibly that the kits and everything so you talked about how with carbon is going to be.
I guess <unk>.
Not going to be commercialized for anymore and your next question makes sense I know it was touched on last quarter as well and it sounded like that was kind of the.
The cards, so it's not surprising.
As you look forward, though I mean, what type of hardware.
Updates or improvements do you sort of envision for quantum of silent could there be a new a new box anytime soon is that necessary maybe to get a feel.
Can proteomics or some of these attributes and features that have to be kind of a pretty robust and that does require a.
Legitimate hardware type of upgrade rather than just reagents, but.
That's one side of the question the other is the burn.
Two cats I know, we'll hear more about those is that mainly around like increasing density of.
Chips or.
Or is this completely new just chemistry base or something like that.
Sure, Yes, let's take the two questions. So in terms of hardware.
Versus kits I would say that there is the existing platinum instrument and the existing <unk> chip have a lot of headroom in terms of their capabilities and performance. The majority of what we need to do right now to unlock that is around.
A combination of the library prep.
Sequencing.
Agent kit.
<unk> been somewhat the surface chemistry of the chip that can influence things like loading so.
A lot of the focus is there we certainly are.
We're working through our plans as it relates to what.
New types of hardware, we might want to introduce over the coming years, we haven't really set a firm date on what the next platform would be but we do see opportunities to continue to sort of grow the hardware portfolio to address other other attributes that platinum doesn't necessary.
We address today in terms of the version two kit Kyle the way I would think about it is we are we are touching upon improvements sort of across the set of kits that we sell to our customer everything from enhancements to the library prep kit.
Kit and protocol enhancements to the sequencing reagents, including the addition of a new recognizer for glutamic acid or E.
And just for your reference right Thats the third most abundant amino acid in the in the proteome and then just overall increasing through some improvements to surface chemistry.
Sort of the amount of reach the amount of output we're getting per run on the current chip. So we expect to have more quantitative data to share.
When we get to the launch in the first quarter of next year, but early early data here internally and development.
Really market improvement over the current version of the chemistry, and also seeing a lot lower sort of sample input requirement with the new library prep.
Sort of kit and protocol, which should help us really with that compatibility with the various sample prep kits and sample types. So we think that might improve some of those interfaces with what the customer is trying to do upfront of our kits.
Okay. So it sounds like a pretty solid comprehensive update and look forward to that alright. Thanks, guys. Appreciate the time. Thank you.
One moment for the next question.
And your next question comes from the line Onsweep Aquilera MOFCOM.
Your line is now open.
Thank you.
Good afternoon, Jeff and Jeff.
Good afternoon.
So.
Yeah.
You are planning to initiate the full launch early next year.
And at the same time also launched second version of the kit.
I'm just trying to understand.
Yes.
<unk>.
Okay.
Is there any reason for us to think.
One would happen before the other or are they going to have them together.
Yes.
Are they dependent on each other in terms of.
<unk> deployment.
Just trying to understand.
What work.
Or just the sequence of the runs that division is looking out for.
Yes, RK I would I would say that the working plan is that we would launch the <unk> kit and then at some period of time shortly after that we would move to the full launch I would not expect us to move to full launch in advance of the <unk> kit, we would sort of stay in the controlled launch where.
In right now so that's the way I would think about it as <unk> kit and then somewhere between right after that to just shortly after that we would move to the full launch.
Okay.
I guess you will discuss the two later, but in general terms.
Is this going to be anything significantly different in the sense that you would need additional tweaking to the mission as it is now or do you.
You don't think there is something something maybe on the different in the kit itself. Yes. So so the machine is not impacted by this at all of the version two kits will be compatible with the existing platinum instrument that customers have this is really improvements to our mix of either the library prep.
Sequencing reagents or in improvement we've made.
To the chip.
We're not fundamentally changing the underlying <unk> chip or the hardware itself. It's really this will be very seamless for customers. They will receive the library prep and sequencing kits and run them with the same instrument in the same software they've been using that'd be fairly seamless change for them no no sort of specific upgrades they need to go through.
No.
Okay, and then in terms of the data presentations.
Data publications that Youre expecting.
This year and early next year.
<unk>.
No.
What sort of data should we be expecting from it and then.
Would that data.
Pretty much.
Portray awarded the current version of the.
Instrument, Ken Denver or is this going to be something a little bit more of them that <unk>. So so so people like us can kind of.
Think about okay. What are the next version of the instrument itself could be and what better capabilities can can be delivered.
Sure. So the we talked about in the script the webinar and the presentation from northwestern that really represents the performance that customers are generating today with the existing instrument in the existing version of the chemistry.
<unk> that we discussed that we expect to be submitted.
Before the end of the year really showing some of the capabilities of the technology in the world of post translational modifications, but again using the existing kit and instrument.
As we get into next year I would expect in the beginning of the year that that any data that comes out would be.
<unk> generated with the kits that are in the market right now and as the year progresses, more and more of that data coming out with the version two kit. So there's always some lag between a version of chemistry and data that that gets generated with that but that's sort of how I would think about the near term versus mid term.
<unk> and throughout 2004.
Okay perfect. Yes, so basically those those publications can certainly be used in marketing the products that are in the market right now yes. They can be used for that we will obviously share internal data as we as part of our launch of the version two kit to sort of prime.
Pump, but then turning immediately to working with some of these existing customers that had been part of the controlled launch to quickly implement the V. Two in their laboratories and generate some some data with that so you'll get a little bit more of a running start when you have an existing installed base when you're bringing in.
Upgraded chemistry, like we're going to do.
Okay.
And then when you were.
Talking about the ex U S launch.
<unk>.
With the way the launch is going here.
<unk>.
Ltd.
Controlled basis.
Hum.
Is the ex U S launch going to be more.
Unlike a typical launch or is that because.
It's going to be through a distributorship that it should be viewed a little bit different than what it is what is happening here in the United States.
It's a good question RK. So the way I think about it is again the version two <unk>, we think is really.
A key aspect of giving us the type of consistency of performance and capabilities.
<unk> make the implementation and adoption of sort of cycle with.
The customer as efficient as possible that said when we look at Europe, while we expect to have a small number of employees on the ground there to help support our activities. We do expect to use distributors in many markets, we haven't decided exactly.
Which markets. We may go direct in select markets, but I would expect us to use.
A reasonable number of countries being covered by distributors.
I think the <unk>.
Our experience in in markets like Europe would say that in the beginning there'll be some.
That early market development.
Instrument being placed with the Kols data being generated and presented at a major conference in the region or being coming that sort of reference account and then youll see sort of the sales pickup. So I don't expect the European launch to necessarily be in a.
Define sort of controlled launch I would expect it to be more of a traditional launch but with that initial market development.
That exist when you place an instrument either directly or with a distributor in a new region of the world.
Okay perfect. Thank you. Thank you for taking all my questions.
Youre welcome.
And that is all the time, we have for questions I will now turn the call back over to Jeff Hawkins for closing remarks.
Yeah.
Thank you everyone for attending today, we look forward to providing you with more updates on our next call.
Good evening.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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