Quantum-Si incorporated (NASDAQ:QSI) Q1 2023 Earnings Call Transcript

Quantum-Si incorporated (NASDAQ:QSI) Q1 2023 Earnings Call Transcript May 11, 2023

Quantum-Si incorporated beats earnings expectations. Reported EPS is $-0.17, expectations were $-0.19.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Quantum-Si First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised today’s conference is being recorded. I would now like to turn the conference over to Juan Avendano, Head of Investor Relations for Quantum-Si. Juan, please go ahead.

Juan Avendano: Good evening, everyone. Thank you for joining us. Today, after market close, Quantum-Si released financial results for the first quarter ended March 31, 2023. A copy of the press release is available on the company’s website. Joining me today are Jeff Hawkins, Chief Executive Officer; Patrick Schneider, President and Chief Operating Officer; and Claudia Drayton, Chief Financial Officer. Before we begin, I’d 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 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 today, May 11, 2023. 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 also be referring to certain financial measures that are not prepared in accordance with U.S. Generally Accepted Accounting Principles, or GAAP including adjusted EBITDA. A reconciliation of 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.

Jeff Hawkins: Thank you, Juan. Good evening everyone and thank you for joining us. In today’s call, we will provide a business update, present our first quarter financial performance and provide an outlook for 2023. We will then open the line for questions. The goal of Quantum-Si is to bring next-generation protein sequencing to every lab, everywhere. Our proprietary technology delivers deeper unbiased proteomics insights that we believe will accelerate scientific research, enable the discovery of new biomarkers and ultimately power the development of new therapies and diagnostic tests that will positively impact human health. In the first quarter of 2023, we started delivering on this mission with the initial shipments of our Platinum protein sequencing system.

As we have shared on previous calls, Quantum-Si has established 3 corporate priorities for 2023. I would like to provide an update on our progress in the quarter against each of these priorities. Our first priority is to commercialize Platinum, Carbon and the 2M chip. We were pleased with customer orders in the first quarter of 2023, which totaled $449,000 and were slightly above our internal plan. We reported revenue of $254,000 in the first quarter. This difference is due to a delay in the shipment of two international orders we received in the quarter but were not able to ship until recently. To provide a bit more color, to ship these international orders, we needed to obtain specific import codes and engage with an international logistics partner, which we have since done and these two orders were successfully shipped in the current quarter.

I would also like to provide more insights from our commercialization activities in the first quarter. Geographically, we have been pleasantly surprised by the level of customer interest from potential European customers. In fact, our advanced sales funnel is made up of approximately 60% U.S. and 40% European customers. By end market, most of our internal customers are in academic research centers as expected. However, looking closer into how the sales funnel is evolving, we are pleased to see interest from a wide range of end markets, including academia, biotech, pharma, industrial and government. By application, we are seeing the most interest in proteoform and PTM analysis, followed by protein identification, an emerging interest in protein bar coding and antibody validation and QA, QC through sequencing.

Customer feedback continues to be positive. We are observing customers embrace our Platinum system for its convenience, simplicity, accessibility and the ability to enable deep and unbiased proteomics studies at the individual amino acid level. On one end of the spectrum, these customers are proteomic researchers looking to do more in-depth, unbiased proteomic studies with a technology such as ours. They value single molecule sensitivity and individual amino acid resolution as it unlocks the novel analysis of proteoforms and post-translational modifications in their research. On the other end, there are customers who are new to proteomics and only Quantum-Si’s protein sequencing platform can provide a convenient, accessible solution that is easy to use and affordable.

Overall, we are encouraged by the level of customer interest in our technology and are pleased with the sales funnel we have been able to generate with a small commercial team and based largely from inbound customer interest and trade shows. That said, we expect to continue to be deliberate with our rollout in this early phase of commercialization to ensure customers have the best possible experience. Given this, we expect Q2 orders to be similar to Q1, which is consistent with our internal plan entering the year. Over the next few months, we plan to turn on outbound marketing and increase our direct sales efforts to support revenue growth in the second half of the year. To facilitate this, we have added talent to our commercial team across marketing, sales and customer support.

Based on these initiatives and our existing sales funnel, we remain on track to further accelerate placements and revenue in the second half of this year. Our second priority is to lead with innovation. Quantum-Si is the leader in the protein sequencing space, and we will continue to leverage our deep technical expertise and novel technologies to transform and democratize the field of proteomics Recently we executed one of our proof-of-concept engagements with a major academic institution. This study demonstrated that we could sequence and distinguish spike protein from various SARS-CoV-2 variants. Later in the call, Patrick can provide more details about this study as well as highlight some of the other data that has been recently presented at industry conferences.

Finally, our Carbon sample prep instrument is on track to enter beta testing in the second quarter of 2023. We also remain on track for the launch of carbon in the second half of this year. Our third priority is to preserve financial strength. As I’ve stated on previous calls, we are committed to continuously improving our fiscal discipline. In a similar way, we are laser focused on supply chain and operations and our first quarter gross margin at 48.8% is a reflection of that effort. We are pleased with this result as we are far from operating at scale. Patrick will provide additional color on the efficiency initiatives our supply chain and operations teams are executed. Going forward, although there may be some fluctuations quarter-to-quarter, we expect full year 2023 gross margins to be similar to the level observed in the first quarter of 2023.

Lastly, with regards to operating expenses, we reiterate non-GAAP operating expense growth to be flat year-over-year in 2023. It is worth highlighting that we are keeping operating expenses flat while still making meaningful investments into building out the commercial team and executing the marketing programs required to successfully drive adoption of our platinum system. Before turning the call over to Patrick, I would like to briefly comment on the CFO transition we recently announced. Last week, we announced the appointment of a new Chief Financial Officer, Jeff Keyes, who will join QSI on May 15. Jeff brings more than 25 years of experience in senior financial positions providing transformational leadership in both public and private companies.

He has extensive experience managing public company requirements, including interacting with auditors, investors and analysts. In addition to leading the typical functions within the CFO scope, Jeff has also led operations, legal and HR at various points in his career, giving him a unique perspective and understanding of company operations and strategy. We look forward to welcoming Jeff to the company on May 15. Claudia will continue to serve as our CFO until then. Upon Jeff’s start date with the company, Claudia will transition into a senior adviser role through the end of June to ensure a smooth transition. Claudia played a significant role in taking Quantum-Si public. I want to thank Claudia personally for her contributions to Quantum-Si over the past 2 years.

I would now like to turn the call over to Patrick, our President and Chief Operating Officer, to discuss additional business updates. Patrick?

Patrick Schneider: Thank you, Jeff. Starting with product development, as I’ve explained before, we have a world-class team in the area of protein engineering and directed evolution. Our internal team generates high-quality differentiated amino acid recognizers, and aminopeptidases that result in our ability to sequence proteins with a small set of recognizers that bind to multiple amino acids with different affinities. This is a major advantage over other approaches that require a specific recognizer for each of the 20 amino acids. Our R&D pipeline continues to make advancements on all aspects of the technology. Stay tuned for more to come later this year. We continue to develop our strategic partnerships with key opinion leaders to help seed the market and support our internal development efforts.

As Jeff mentioned, we’ve been collaborating with a large institution on SARS-CoV-2 variants. We published an application note describing our ability to sequence and distinguish spike protein from three variants: Omicron, Alpha and Beta. This is an important capability for researchers when RNA is not accessible, but proteins are still present. The ability to simply and affordably discern these variants from COVID and other diseases could be highly impactful for human health. We view these ongoing efforts to generate additional data as an important element of our strategic growth plan. You can find more details of this work in our application note published on our website this week. One of our value propositions is easy access to protein identification and characterization.

Whether a researcher wants to validate that their antibody is specific to its intended target or they just want to determine what proteins are in their sample, they can use next-generation protein sequencing to achieve their objectives. Often researchers send their samples to a mass spec contract lab or core facility for an identification of the protein in their samples, this can be costly and time-consuming. Our Platinum next-generation single molecule protein sequencing instrument can often provide the same level of protein identification without spending a sample out or buying an instrument that can cost 5 to 10x more than our platinum. To demonstrate that capability, we took a protein sample and sent half of the sample to a mass spec core facility, and we sequence the other half.

And the results show that both methods identified the same protein. This will be a game changer for protein identification as we continue to advance the technology with respect to coverage and throughput. You can find this mass spec comparison to protein sequencing using our Platinum in application note on the website. I want to pause here and express my appreciation for the team’s effort in generating all of this new sequencing data. I’m honored to work with such a dedicated and passionate group of professionals that is discovering new insights along with our collaborators and customers. The volume of sequencing data being generated every day is impressive. To keep up, we started a weekly post on social media, our protein of the week. This is where we’ve been showcasing examples of the protein sequence every week.

On the supply chain front, although we remain in a good position, we are conducting a thorough review of our supply chain and manufacturing operations as we look to the future. Even though we are pleased with our gross margin performance in Q1 at almost 50%, which is very strong for a newly launched product offering, we’re being diligent in looking for operational efficiencies and economies of scale as commercialization continues to ramp up. Our engineering team designed the Platinum instrument with simplicity and margin in mind. And now we’re seeing the results of that early effort. We have established initiatives in other areas, including procurement, automation and have kicked off a strategic review of some outsourced contract manufacturing arrangements versus in-sourcing.

Our objective is to remain in a strong supply chain and margin position as we roll out our technology and increase its availability in the market globally. Moving on to commercialization. We’re driving a controlled commercial rollout that will allow us to be reactive to early customer feedback. Most of our leads are currently coming from inbound organic activity, trade shows and the science paper. Our funnel is developing on track to our expectations. A key element of progressing our funnel is our proof-of-concept program, which allows customers to send a protein for analysis to our lab for a modest fee prior to purchase. This has been an attractive offering for some of our customers. In line with our internal plans, we are looking to place instruments in the first half of 2023 with a select number of key opinion leaders in order to manage early placements with customers diligently and collect customer feedback for new applications and development opportunities.

In April, we attended the American Association for Cancer Research, AACR, where we exhibited the platform system and presented posters entitled Detection of Arginine PTM by Single Molecule Protein Sequencing on the Quantum-Si Platform. This week, our commercial team attended the Association of Biomolecular Resource Facilities, ABRF, where we presented a poster titled Advances in Single Molecule Protein Sequencing on the Quantum-Si Platinum Platform and showcased several exciting applications, including the ability to sequence multiple proteins from a sample mixture. In addition, we presented at the booth and application nodes demonstrating the ability to identify by protein sequencing, an important biomarker in a biological sample. Albumin is one of the most abundant proteins in your blood and would it accumulates in urine is an indication of potential kidney damage.

We demonstrated the ability to identify albumin in urine by protein sequencing, which opens up the possibility to detect other protein biomarkers in liquid biopsy. Up next, we are planning to be at the American Society for Mass Spectrometry ASMS in annual conference being held in Houston, Texas in June. Now I’ll turn the call over to Claudia to review our financial results. Claudia?

Claudia Drayton: Thank you, Patrick. Hello, everyone. Let’s discuss the details of our Q1 2023 financial performance. Revenue in the first quarter of 2023 was $254,000. This was the first revenue recognized by the company on the sale of Platinum instruments and kits. As a reminder, we launched the Platinum instrument in December 2022 and began commercial shipments in January 2023. Gross profit in the first quarter of 2023 was $124,000, resulting in a gross margin of 48.8%. The gross margin was primarily driven by the Platinum instrument product mix. Operating expenses in the first quarter of 2023 were $29.3 million compared to $27.1 million in the first quarter of 2022. The increase was primarily due to higher selling, general and administrative expenses and an increase of $4.6 million in stock-based compensation.

Net loss for the first quarter of 2023 was $23.6 million compared to $35.2 million in the first quarter of 2022. Adjusted EBITDA for the first quarter of 2023 was a loss of $23.7 million compared to a loss of $27.4 million in the first quarter of 2022. A reconciliation table of adjusted EBITDA to GAAP net loss is provided in our press release filed earlier today. As of March 31, 2023, we had $322.1 million in cash and cash equivalents and investments in marketable securities. Turning to guidance. Given our early stage of commercialization, we expect to be in a better position to provide quantitative revenue guidance later in the year. However, as Jeff mentioned earlier in the call, we expect Q2 orders to be similar to Q1. Relative to the first half of the year, we expect revenue to accelerate in the second half based on our business funnel visibility and the outbound marketing and sales activities ramp up.

With regards to margins, we expect gross margin in 2023 to be similar to the level observed in Q1 2023. Lastly, we reiterate non-GAAP operating expense growth to be flat year-over-year in 2023 and a projected cash runway into 2026. I would now like to turn the call back over to Jeff for closing remarks.

Jeff Hawkins: Thank you, Claudia. We are off to a good start in 2023. First quarter customer orders came in slightly above our internal plan, and we delivered a solid margin performance. We are making strong progress across all three of our corporate priorities for 2023. Our business funnel is robust. We have a strong team in place, and we believe we are well positioned to accelerate commercial momentum in the second half of the year. Operator, please open the line for questions.

Q&A Session

Operator: [Operator Instructions] And our first question coming from the line of Kyle Mikson with Canaccord, your line is open.

Operator: Thank you. And our next question is coming from the line of Yuan Zhi with B. Riley. Your line is open.

Operator: Thank you. And I am showing no further questions in the queue at this time. I will now turn the call back over to Juan for any closing remarks.

Juan Avendano: Thank you all for your participation today. We look forward to updating you on our progress in the next quarterly earnings call. Have a good evening.

Operator: Ladies and gentlemen that does conclude conference for today. Thank you for your participation. You may now disconnect.