Quantum-Si incorporated (NASDAQ:QSI) Q2 2022 Earnings Conference Call August 8, 2022 4:30 PM ET
Company Participants
Juan Avendano – Head, Investor Relations
Jonathan Rothberg – Interim Chief Executive Officer
Patrick Schneider – President and Chief Operating Officer
Claudia Drayton – Chief Financial Officer
Conference Call Participants
Alex Vukasin – Canaccord
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Quantum-Si Second Quarter 2022 Earnings Call. [Operator Instructions] Please be advised that 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 second quarter ending June 30, 2022. A copy of the press release is available on the company’s website.
Joining me today are Dr. Jonathan Rothberg, Interim 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 these 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, August 8, 2022. 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 now 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 Dr. Jonathan Rothberg.
Jonathan Rothberg
Thank you, Juan. Good afternoon, everyone. Thank you for joining us. In today’s call, we will provide a business update and present our second quarter financial performance and outlook for 2022. We will then open the line for questions.
I would like to start by thanking our entire team for the dedication and hard work, putting us in a unique cash-rich position in an otherwise difficult market environment. Quantum-Si remains well capitalized, with approximately $401 million in cash on our balance sheet. The team is focused on execution. And based on the ongoing progress across all areas of the business, we are on track to become the first company to bring revolutionary next-generation single molecule protein sequencing to the world.
As a reminder, proteins are the machinery of life. Proteins and their modifications are real-time indicators of health and disease, making them ideal markers for disease, drug response and health. And their understanding gives us an unprecedented insight into biology. While other proteomics technologies primarily affinity-based protein or Aptamer arrays only look to confirm the presence of a pre-determined set of proteins, Quantum-Si’s next-generation protein sequencing decodes the sequence of amino acids and interrogates post-translational modifications to help identify proteins and elucidate the role of protein variations in biology and disease.
The goal of Quantum-Si is to do what we did when my team gave the world their first next-generation DNA sequencing technology, providing researchers with a transformational and convenient tool to expand our understanding of biology, create new diagnostics, and develop novel lifesaving drugs. A tool like next-generation DNA sequencing that will have a profound impact on all aspects of life sciences and make contributions that will improve and save the lives of people we love.
We are excited to share our progress in this call today. During the second quarter, we presented an update on the company’s technology advancements at the VIB Next-Generation Protein Analysis and Detection Conference. Thanks to our proprietary technology and investments in protein engineering and directed evolution approaches, we have accelerated the development of amino acid recognizers and increased the proportion of the proteome that we can detect, identify and understand modifications of.
To-date, we have now demonstrated the successful recognition of 15 of 20 amino acids. These 15 amino acids represent a path to enable over 70% coverage of the human proteome and the identification of up to 90% of the 20,000 proteins in the human body and the millions of variations as a result of post-translational modifications. Based on this technology progress, we believe that Quantum-Si is well ahead of the competition and well-positioned to be the first company to launch a system that enables digital next-generation protein sequencing at amino acid resolution and a general tool for elucidating their modifications, sometimes down to a level of single atoms.
We continue to expand our intellectual property with the addition of 20 new patents issued last quarter, bringing our intellectual property portfolio to more than 1,000 issued and pending patents and applications. Our work interviewing for a full-time CEO is ongoing. As interim CEO, I continue to be impressed by the team’s commitment. And I am even more confident in their ability to launch our platinum protein sequencing platform this year.
I will now turn the call over to Patrick, our President and Chief Operating Officer to discuss additional progress.
Patrick Schneider
Thank you, Jonathan. We are encouraged by strong momentum across all areas of our business. On the commercialization front, we are on track for launch this year. We continue to support our early access partners as they move from simple demonstration of performance and reproducing the same robust high-quality data that we generate in our own laboratories to beginning to conduct their own research projects.
Working with this sites have been invaluable for gathering voice of customer feedback and has given us the ability to not only test new hardware upgrades to the platinum instrument, but also develop and release improved sequencing protocols and workflows. Our commercialization team is actively engaging with external collaborators and industry partners on exciting applications to demonstrate the power of our technology in numerous areas of proteomics impacting all aspects of life science research, diagnostics and drug development.
As part of our marketing development activities, we shared our second application note demonstrating the ability of Quantum-Si’s technology to interrogate post-translational modifications, which is an important indicator of protein function. By way of background, there are 20,000 protein encoding genes in the human genome. While proteins undergo modifications resulting in over 1 million protein variants or proteoforms, Quantum-Si’s proprietary semiconductor enabled time domain sequencing method increases the resolution, scope and convenience at which we can understand the proteome by measuring specific changes at the amino acid level to detect protein variants, including post-translational modifications, or PTMs, that are not coded in the human genome or detected in the RNA.
In contrast, affinity-based protein and Aptamer arrays only look to confirm the presence of a subset of the proteins coded by our genes. They are not scalable for post-translational modifications as they cannot have a million different regions. Given this, Quantum-Si’s size technology can play a unique role in helping researchers study these critical molecular on/off switches that make up the proteoforms. Once again, bringing the protein world from a hard to understand and difficult to use analog method to a new digital frontier. It is these proteins variants that can tell us where someone is in the progression of a disease or whether or not a drug is going to work. Protein variants represent key untapped biomarkers that can transform the future of how we detect disease and develop novel therapies and our technology can help unlock this potential. This new application note builds on other recently released Quantum-Si application and tech notes along with our foundational white paper, which can be found on the resource page of the company website.
We are excited to continue to demonstrate the power of platinum protein sequencing through additional application notes over the next few months. The advantages that the platinum protein sequencing platform provides over competitors in the field of proteomics, includes single molecule detection powered by time domain sequencing. Our platform is built to allow ultimate access to interrogate the human proteome for labs, all sizes, with a low upfront investment and ease-of-use that can complement existing lab workflows or supplant legacy technologies as a full end-to-end proteomics solution.
In addition, we continue to refine and ramp up our business development activities. We are targeting several industry conferences later this year, including American Society for Human Genetics, Society for Neuroscience, and the Human Proteome Organization World Congress. On an operations front, we are executing well on our supply chain initiatives to support the launch this year, continue to build up inventory of platinum instruments through our contract manufacturer, the scale up of our chip assembly and packaging capacity is underway at our Garnet Valley, Pennsylvania facility, and while our initial commercial launch will take place on a semiconductor chip with 2 million wells, we continue to advance our product roadmap with the power of Moore’s law behind it. Lastly, we continue to work closely with our vendors to scale up our reagent and finished kit supply.
I’d now like to turn the call over to Claudia to review our financial results.
Claudia Drayton
Thank you, Patrick. Hello, everyone. Let’s discuss the details of our Q2 2022 financial performance. Research and development expenses for second quarter of 2022 were $18.5 million compared to $13.1 million in the second quarter of 2021. The increase in R&D expenses was primarily driven by the increased number of employees, including stock-based compensation expenses and product development activities.
Selling, general and administrative expenses in the second quarter of 2022 were $11.7 million compared to $19.1 million in the second quarter of 2021. The decrease in SG&A expenses was primarily driven by one-time transaction cost incurred in 2021 to complete SPAC based combination offset by an increase in headcount scale-up costs and costs related to being a public company. In aggregate, total operating expenses in the second quarter of 2022 were $30.2 million compared to $32.2 million in the second quarter of 2021. Net loss for the quarter was $32.4 million compared to $35.7 million in the second quarter of 2021. Adjusted EBITDA was a loss of $25.8 million compared to a loss of $15 million in the second quarter of 2021. A reconciliation table of adjusted EBITDA to GAAP net loss is provided in our press release filed earlier today.
As of June 30, 2022, we had $400.7 million in cash, cash equivalents and marketable securities, providing us with a cash runway through the year 2024. That being said, in recognition of the current macroeconomic environment, we have increased our efforts to manage cost and improve efficiencies. As a result, we now expect operating expenses to grow 40% to 50% year-over-year in 2022, down from a prior expectation of 70% to 80%. Our entire team understands that this is the time to get more out of our expenditures for our investors.
I would now like to turn the call back over to Jonathan for closing remarks.
Jonathan Rothberg
Thank you, Claudia. We are excited about what lies ahead for Quantum-Si. We are grateful to the team, our business partners, and investors for joining us on our mission to advance proteomics research, diagnostics and drug development. We continue to make good progress and look forward to updating you along the way as we push forward towards commercialization of our platform and beyond.
Operator, please open the lines for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question will come from the line of Alex Vukasin from Canaccord. Your line is open.
Alex Vukasin
Hi, everyone. This is Alex Vukasin on for Kyle Mikson. Thank you for the updates. I just got a few questions, while I am trying to get elaborate a few things you just discussed. I guess, a good time to start would be on a product development. You kind of rehash some of the points you made at the next-gen protein analysis and detection conference about the ability to potentially detect up to 15 of the roughly 20 amino acids. I was just wondering if you could elaborate at all on this? And additionally, I was wondering if there has been any sort of updated target – sort of target number of amino acids that you wish to reach prior to launch now given all these great technological updates? Thank you.
Jonathan Rothberg
This is Jonathan, I can take the question. We have made tremendous progress in directly recognizing 15 out of 20 amino acids. That means we can actually directly recognize 70% of that linear sequence, but indirectly recognize up to 90%. If you look at the history of mass spec, and the entire cumulative history of mass spec, we have only recognized about 70% of the proteins that are expressed. And when the sequence of protein, they only cover 70%. So, we are on track to give people a tool that in a day or two days in their laboratory, they can do as well as people have done in the last few decades of mass spec. So, we are quite confident that we have a general tool that in a massively parallel way you can interrogate samples. In terms of the complexity of the samples, we are on a semiconductor chip, we are leveraging Moore’s Law and we will start by able to look at panels of 5 to 50 proteins over three to four orders of magnitude concentration. This again is completely analogous to DNA sequencing, where most of the work is on amplicon, where you have 5 to 50 genes of interest, and you want to interrogate that. So, we are launching on Moore’s Law, with a technology that directly can potentially interrogate 70% of the proteome, indirectly interrogate 90% of the protein, and do it in a convenient way, where you can see single atom or up to single atom changes in those proteoforms, which represent over a million variations of those 20,000 proteins. And again, this is true next generation protein sequencing massively parallel, leveraging Moore’s Law, and convenient for any laboratory.
Alex Vukasin
Thank you very much for that very in depth response. So, just to kind of switch gears a little bit here. So, you briefly touched on the search for a full time CEO, having been put in place, and sort of have interim one in February. I was just curious, in terms of how is that going, more color. And I guess number two, is there kind of like a timeline in terms of like, time period in which you plan on kind of hiring the CEO or is it still very open ended at this point? And then I have one more after that, if that’s okay.
Jonathan Rothberg
That’s a great question. With the addition of Patrick, we have the opportunity to take some time in our charts and make sure we find the right person. The last 6 months really speak for themselves. We have been able to make tremendous advances in our technology. As shown in our submitted publication, we have been able to make tremendous progress with real samples, as shown in our tech notes. And Patrick has put us in a great position with our products ready to launch in the last quarter of this year. So, this has given us the flexibility with Patrick serving as Chief Operating Officer and President to make sure we bring in a CEO that can not only allow us to be the people that invented and launch the first next generation protein sequencing, but own this Horkan history. So, the pressure is off. We are executing well. We have raised the bar. And when we have a candidate that can give great impact to the market and inspire our team and make sure your investment does even better, we will bring him on-board.
Alex Vukasin
Excellent. Thank you very much. That is very helpful as well. And then just one last one. So, in 2022, some of the goals for this year that’s been primarily provided by white papers and peer-reviewed publications. So, you highlighted one new application and new publication in your press release. I was just curious if you could kind of highlight any more broad takeaways from it as well as are there any plans for any to kind of highlight any more applications in the second half of ’22, if there is any other kind of areas you are looking at, that would be helpful as well for investors? Thank you.
Jonathan Rothberg
Great question. Any new technology is only successful if you fit into existing workflows. We have been able to take over 500 incoming inquiries, talk to a tremendous amount of people doing proteomics, and understand the workflow. What are people doing now, what do they want to do faster, and what are they doing the most up, so we are focusing on our white papers to make sure we give examples of each of those major workflows. And those workflows can be around immunoprecipitations, can be around gel purified proteins, can be about understanding of biomarkers, and co-immunoprecipitation and drug pathways. So, we are targeting white papers to show we have worked the way that our customers do. So, one of the great things about having Patrick is it really understands the voice of those customers, and really understand how to launch a product to make sure we don’t just get those early adopters. But those early adopters that buy the first 25 or 50 systems, that’s the example for the next 2,000. We were lucky enough that my team launched first next generation DNA sequencing. And we were able to identify major uses. And at Ion Torrent when we launched the first semiconductor DNA sequencing, we made sure those placements were in laboratories that would publish and bring the next as I said, 2,000 customers. So, our strategy is pretty focused. Our white papers are made to fit into existing work plans. We have done this multiple times before. And we really have an opportunity to change the world and how they do protein research. No longer waiting 6 weeks for your mass spec results to come back from a facility. Patrick, feel free to chime in.
Patrick Schneider
Thanks Jonathan. Yes, that’s exactly right. As we think about the workflows, as we were discussing with potential customers, we are really identifying those areas that have significant relevance to their work. And you know it’s interesting with the level of diversity that customers have in terms of their experimentation. They very much center around a couple of themes, which is protein identification and protein characterization. And what does that mean from a proteome perspective, it means that customers are really interested in post-translational modifications. And then of course, there are many different post-translational modifications, and we are showcasing our technology around a lot of those different post-translational modifications. And we will see more of that, as we launch and publish more of our app notes. So, you will start to see a good sense of the customers and how we are targeting for those high-impact customers relating to their current workflows, and their experimental designs and their experimental workflows.
Alex Vukasin
Got it. Thank you very much. And that’s all the questions I have. Thank you everyone, I really appreciate it.
Operator
Thank you. I am not showing any further questions in the queue. I would like to turn the call back over to Juan Avendano 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
This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
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