Quanterix Corporation (NASDAQ:QTRX) Q1 2024 Earnings Call Transcript May 8, 2024
Quanterix Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the Quanterix Corporation Q1 2024 Earnings Call Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker for today, Francis Pruell of Investor Relations. Please go ahead.
Francis Pruell: Thank you and good morning. With me on today’s call are Masoud Toloue, Quanterix’s President and CEO, as well as Vandana Sriram, our Chief Financial Officer. Before we begin, I would like to remind you of a few things. This call will be recorded and a replay will be available on the Investor Relations 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 may not 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 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. To supplement our financial statements presented on a GAAP basis, we have provided certain non-GAAP financial measures. These non-GAAP measures are used to evaluate operating performance in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business. We believe that such measures are important in comparing current results with other period’s results and are useful in assessing our operating performance. Non-GAAP financial information presented herein should be considered in conjunction with 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 their most directly comparable GAAP financial measures set forth in the appendix of the presentation posted to our website and in the earnings release issued today. Finally, any percentage changes we discuss will be on a year-over-year basis unless otherwise noted. Now, I’d like to turn the call over to Masoud Toloue.
Masoud Toloue: Thank you, Francis. Starting with our first quarter results, total revenue of $32 million grew 13%. This strong performance was driven by 22% growth from our consumables business and 57% growth in our Accelerator Lab, more than offsetting softness and instrument revenue, which was anticipated due to a challenging capital environment. Our Accelerator Lab continues to provide nice buffer to these macro CapEx headwinds. The lab has completed over 2,300 projects for more than 480 customers from all over the world using our similar platforms. First quarter non-GAAP gross margin of 54.5% grew approximately 140 basis points and our balance sheet remains strong with $305 million of liquidity. Our cash usage in the period was approximately $19 million, which was higher than the prior year given timing of certain working capital items.
Vandana will touch on these results in more detail later in the call. Moving on from the quarter’s financial performance, I’ll expand on our leadership and innovation, focusing on new assay development and the durable moat advantaged by our incredible sensitive Simoa technology. Simoa provides researchers the ability to examine and detect critical proteins at ultra low levels with digital single molecule readout. Breaking sensitivity barriers is the key reason why we have been a pioneer in the discovery of biomarkers and a trusted partner to our pharma and academic customers evidenced by more than 2,900 publications. Building on the foundation, our incredible team has built over the last year and a half we have a new product development engine.
We remain on target to introduce approximately 20 new biomarker assays by the end of the year in the areas of neurology, immunology, and oncology. First, we are working on a comprehensive approach for Parkinson’s disease, a neurological disorder that impacts millions of people around the world. There remains a critical need to identify treatment pathways to slow the disease’s progression over time, with nearly 140 Parkinson’s therapies in active clinical trials. To-date, biomarkers such as NfL and GFAP, have been implemented as key tools to monitor Parkinson’s disease development. For example, in January publication of the scientific journal, Nature, researchers used Quanterix’s NfL assay to measure whether late stage Parkinson’s disease is associated with an increase in neurodegeneration.
However, this is only the beginning. Last month, we launched our sTREM2 assay, a microglial marker implicated in Parkinson’s and other diseases. And we continue to focus on clinically relevant forms of alpha-synuclein and lysosomal storage biomarkers. These are important efforts requiring similar level of sensitivity and supported by our partners such as the Michael J. Fox Foundation. Turning next to a biomarker that has garnered a significant amount of recent intention, Tau, the Alzheimer’s disease research community is just getting started and holistically evaluating this powerful protein and its many phospho-isoforms. Quanterix has been the leader of pushing forward the measurement and correlative data behind an evolution of Tau biomarkers, not only with p-Tau 181 and p-Tau 217, but also for less discussed markers such as p-Tau 205, 212 and 231.
Each of these specific isoforms may have unique characteristics that are useful in a diagnostic setting, with the potential to improve clinical utility, if included in a multi marker assay. Today, the NIA-AA recommends p-Tau 217 as the best biomarker for accurately diagnosing amyloid pathology. However, progress with Tau does not end with p-Tau 217. Quanterix is leading the way to develop further evidence that more specific biomarkers and robust panels of related brain specific analytes may add diagnostic sensitivity to the detection and monitoring of Alzheimer’s disease. In an April Nature publication, researchers led by a group from the University of Gothenburg in Sweden, using our Simoa technology determined that brain derived Tau or BD-Tau is a marker that has elevated levels in the presence of amyloid beta pathology and may provide additive sensitivity to a standalone p-Tau 217 assay.
Study suggests that blood total Tau originates principally from peripheral non-brain sources. However, BD-Tau comes directly from the brain instead of elsewhere in the body and therefore may offer greater precision compared to the current standard of measurement. BD-Tau may improve the current ATM framework for the definition and staging of Alzheimer’s disease. We believe this is an important advancement in the field and plan to release our BD-Tau assay this quarter. Staying on Alzheimer’s disease, our development of a multi-marker test continued to progress. More specifically, we plan to present 4 abstracts using data from the BioHermes and CANTATE trials in support of this effort at the upcoming Alzheimer’s Association International Conference in late July.
As a reminder, BioHermes is a diverse prospective study across 17 domestic sites, enrolling approximately 1,000 participants with 200 from underrepresented populations and CANTATE is a multiyear multi-phase study. Phase 1 of this study encompassed 1,200 retrospective samples and Phases 2 and 3 of which were currently engaged are targeting 1,200 prospective enrollees across memory clinics and primary care settings. In addition to using these data for a multi-marker test, results from BioHermes and CANTATE have been used for clinical validation of our LucentAD p-Tau 217 assay. Shifting now to progress in the field of Alzheimer’s diagnostics. During Q1, we announced that our p-Tau 217 blood test was granted breakthrough designation by the FDA.
In February, the American Medical Association confirmed new CPT codes for Aβ40, Aβ42, phospho-Tau, and total Tau. We expect CMS to price these codes later in the year. Finally, we are pleased to highlight our collaboration announced in 2022 has resulted in Eli Lilly’s launch of CertuitAD, a blood test that can provide additional diagnostic evidence for Alzheimer’s disease, measuring p-Tau 217 and run on Quanterix’s SP-X platform. This test is now available on CertuitAD.com. Moving next to recent events, in the last several weeks, a few new plasma p-Tau 217 LDTs have entered the market with varying levels of validation and approaches for interpreting results. While it is still early, this suggests several platforms will serve different use cases in the market.
Currently, we believe there are three p-Tau 217 tests available clinically that meets the Alzheimer’s association working group recommendations of 90% accuracy. Two of these three tests use Quanterix’s Simoa technology, and as such have been thoroughly validated through well-powered clinical studies. Preliminary results have been presented at recent technical conferences and journal publications are expected later this year. We are not aware of any immunoassay that provides higher sensitivity than Quanterix is similar technology. The sensitivity to precisely measure p-Tau 217 at very low levels ensures the ability to deliver clinically meaningful results across a range of use cases. First, reportable concentrations can be provided for 100% of patients, even those at the very earliest stages of disease.
LucentAD p-Tau 217 has a single femtogram/ml limit of detection and Quanterix has yet to encounter a single sample unreadable below this level in over 2,000 samples tested, including the BioHermes and VUMC cohorts and hundreds of healthy control participants. In similar patient cohorts, other technology platforms have shown up to 30% of samples were unreadable below the platform detection limit. Second, based on results from recent therapeutic trials, it has been shown that individuals at the earliest stages of the disease experience the greatest benefit from therapies. Early detection is enabled by higher sensitivity. Third, there is emerging potential to track progression or response to therapy by monitoring Tau levels. In any monitoring application, you want to start measuring early and continue to follow the patient as the disease progresses.
Resolving small changes at the lowest levels is not only important for early intervention, but also provides confirmation when therapeutic benefit has been achieved. While we believe the TAM for testing is large and infrastructure will be built by several immunoassay providers, we believe the Simoa platform will be uniquely competitive for these applications due to its sensitivity. We are expanding on this foundation with multi-marker, multiplexed testing that other platforms are unable to perform. Multi-marker testing has the potential to bring definitive results to a larger proportion of patients as well as provide guiding information for differential diagnosis of non-AD dementia. As we see therapies advance, anti-Tau therapies will require independent measurement of Tau pathology and amyloid pathology to understand how combination therapy should be managed.
This requires examination of multiple markers to improve amyloid detection and support diagnosis. We look forward to sharing updates on our progress in the coming months. With that, I’ll turn the call over to Vandana to cover our financial results.
Vandana Sriram: Thank you, Masoud. I will now add color to our first quarter results and also expand on our reiterated guidance for 2024. As Masoud described, Q1 was a solid quarter and consistent with our plan. We are pleased with the momentum we have to start the year. Total revenue for the first quarter of 2024 was $32.1 million, an increase of 13% compared to the prior year. Accelerator Lab revenue was $8.7 million, an increase of 57% as customer appetite for our in-house clear lab services remains strong. Consumables revenue was $17.1 million, an increase of 22% and instrument revenue was $2.5 million, a decrease of 52%. In terms of revenue stratification, our customer mix in the period was nearly 50:50 between academia and pharma.
And 85% of our assay and accelerator sales were for neurology disease states. For the quarter, our total installed base increased by a net of 16 instruments. As others have noted, the capital budget environment remains challenging. However, we are seeing healthy demand from our Accelerator Lab to offset this weakness. Shipping next to gross margin for Q1, GAAP gross profit and margin were $19.6 million and 61.2% respectively, up $2.7 million and approximately 170 basis points compared to the prior year. First quarter non-GAAP gross profit was $17.5 million and non-GAAP gross margin was 54.5%, up $2.4 million and 140 basis points respectively compared to the first quarter of 2023. Expanding on gross margin for a moment, our non-GAAP gross margin improved considerably on a sequential basis, up approximately 800 basis points compared to the fourth quarter of 2023.
We are pleased with this performance, as the more efficiently managed inventory in the period achieved higher pricing and continue to see the benefits of our corporate transformation. Moving down the P&L. First quarter GAAP operating expenses were $33.6 million, an increase of $7.2 million compared to the prior year. Non-GAAP operating expenses were $31.4 million, an increase of $6.9 million compared to Q1 ‘23. Within operating expenses, higher spending compared to the prior year was primarily due to investments we continue to make in our R&D and commercial efforts. Moving to the balance sheet, we ended the first quarter of 2024 with $304.5 million of cash, cash equivalents, marketable securities and restricted cash. Cash flow in the period was a net outflow of $19.4 million.
Q1 for us historically is our quarter with the largest cash outlay given the timing of bonus payments, which was an outflow of $7 million in the period. In addition, the quarter’s cash results were impacted by the timing of receivables and inventory. Receivables were up $4 million due to the timing of revenue versus billings and inventory was higher by nearly $4 million to support our growth initiatives. Our liquidity remains strong and provides excellent flexibility in what remains an uncertain funding environment. Moving on from the first quarter, our full year 2024 outlook is unchanged, with a revenue range of $139 million to $144 million and a non-GAAP gross margin profile in the low to mid 50s. As a reminder, this guidance does not include revenues from diagnostics testing, which were immaterial in the first quarter.
We expect the pacing of our revenue and gross margin throughout the year to be in part dependent on the rollout of our new advantage plus assays as well as customers switching to these new products. We are still in early stages of this activity and expect the sequencing of revenue to be weighted to the second half of the year. Within our guidance, we continue to assume cash usage between $25 million to $30 million, which assumes approximately $20 million of investment in strategic initiatives, such as ramping up our commercial capabilities in diagnostics and in product innovation. I will now turn it back over to Masoud for his final comments.
Masoud Toloue: Thank you, Vandana. Our principal framework remains creating tools to enable discovery and improve health outcomes. This is a Quanterix commitment to product innovation. We are working towards pushing beyond the industry standard we set for ultra sensitivity, approaching the boundaries of physics and improving Plex across new sets of protein biomarkers. This year, we are making significant investments in menu, technology, and diagnostic testing. We are doing this with a new operating model that effectively scales and expect to realize operating leverage as we drive toward profitability. Our ability to identify new markers, translate these analytes into assays for research and now into clinical applications is unparalleled. Neurology is on the doorstep of the next era of exciting discovery and Quanterix is poised to help unlock this opportunity. We can now take some questions.
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