Quantum-Si incorporated (NASDAQ:QSI) Q3 2022 Earnings Conference Call November 7, 2022 4:30 PM ET
Company Participants
Juan Avendano – Head, Investor Relations
Dr. Jonathan Rothberg – Founder and Chairman
Jeff Hawkins – Chief Executive Officer
Patrick Schneider – President and COO
Claudia Drayton – Chief Financial Officer
Conference Call Participants
Alex Vukasin – Canaccord Genuity
Brandon Carney – B. Riley
Operator
Ladies and gentlemen, thank you for standing by. Welcome to Quantum-Si Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]
Please be advised today’s conference is being recorded. I would now like to turn the conference 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 third quarter ending September 30, 2022. A copy of the press release is available on the company’s website.
Joining me today are Dr. Jonathan Rothberg, Founder and Chairman of the Board; Jeff Hawkins, our newly appointed 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, November 7, 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 to 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.
Dr. Jonathan Rothberg
As a testament to the promise of our pioneering work, Quantum-Si’s next-generation single-molecule protein sequencing technology was recently published in science. This is the first paper from any company demonstrating next-generation protein sequencing published in a major peer-reviewed journal.
The paper demonstrates the use of Quantum-Si’s proprietary time domain sequencing method to enable digital massively parallel protein sequencing at amino acid resolution in the semiconductor chip.
By decoding the linear sequence of amino acids and post-translational modifications that make up a protein and determine its function, Quantum-Si’s next-generation protein sequencing technology will unlock a new understanding of health and disease.
I was lucky enough to work with the team that brought the world the first next-generation DNA sequencing technology. Earlier this year, I was pleased to see one of my first next-gen collaborators, Svante Pääbo, won a Noble Prize for his work with next-generation DNA sequencing. In a similar manner, I am confident that early adopters of Quantum-Si’s next-generation protein sequencing will make equally transformative advances in the life sciences.
While I had a productive eight months at the helm of the company as interim CEO, I am very excited to pass the baton to Jeff Hawkins, our new CEO. Jeff is a proven business leader with 20 years of experience at some of the world’s leading life science and diagnostic companies, including Illumina.
His experience in scaling up next-generation DNA sequencing and opening up key markets will be a key factor enabling Quantum-Si success. I want to express my sincere gratitude to the team and all who continue to support and invest in Quantum-Si. Remaining focused on execution and under Jeff’s leadership, I am confident that we can own the forking history we create.
I will now turn the call over to Jeff to provide a business update.
Jeff Hawkins
Thank you, Jonathan. Good afternoon, everyone, and thank you for joining us. In today’s call, we will provide a business update and present our third quarter financial performance and outlook for 2022. We will then open the line for questions.
Quantum-Si’s mission is to transform life science research and proteomics by becoming the first company to launch next-generation protein sequencing. I am pleased to join Quantum-Si, an innovative company with deep technical expertise and a disruptive technology on its quest to transform and democratize the field of proteomics.
Having spent over 20 years in life sciences and diagnostics, I am keenly aware of the potential for proteomics tools to transform a wide range of markets from research to drug discovery to diagnostics. To fully execute on this transformation, novel technologies like Quantum-Si’s next-generation protein sequencing are needed.
As I assess the opportunity to join Quantum-Si, I was excited about two key aspects of the company’s approach. First, a benchtop system that leverages a standard laboratory workflow and includes customer-friendly analysis software will enable more researchers to have the technology in their lab, enabling a larger number of researchers with a new technology like next-generation protein sequencing will be critical to accelerating the pace of proteomics research globally.
Second, the ability to sequence not only amino acids, but also post-translational modifications and proteoforms will provide a far richer set of data than existing technologies. This expanded set of data has the potential to significantly improve the research community’s ability to study protein function, regulatory mechanisms and other complex protein interactions.
The potential to change the way drug discovery is performed or develop new biomarker tests that better predict response to therapy or diagnosed disease could truly transform the future of healthcare.
I am about one month into my role here at Quantum-Si. I am continually impressed by the caliber of people at the company and their sincere commitment to our success. Personally, I am passionate about new technologies and enjoy the challenges of building companies and creating new markets.
With an amazing technical team already in place here at Quantum-Si, I can focus more of my time on building out the commercial organization and setting the market development strategy for our next-generation protein sequencing technology.
Given my experience in next-generation DNA sequencing and the reality that next-generation protein sequencing could have a similar or even larger impact on both research and clinical markets, we must get this right.
Next, I would like to turn to the business and update you on our progress over the past quarter. In October, we published the first next-generation protein sequencing paper in the Journal Science. This paper demonstrated the broad capabilities of our novel protein sequencing technology, which the team continues to build upon.
Some of the key findings in the paper are the following; Quantum-Si’s benchtop platform and semiconductor chip-based technology is capable of detecting hundreds of thousands of single molecules in parallel. We demonstrated the ability to sequence peptides from proteins based upon kinetic signatures. Using these kinetic signatures, we showed that we cannot only identify amino acids, but also post-translational modifications and proteoforms.
The technology demonstrated in the science paper has the potential to unmask critical regulatory mechanisms of protein function and interactions that could advance biomarker discovery, drug development and lead to the discovery and development of new diagnostic tests. The science paper is just one of many firsts that we will establish in this field over the course of the next several quarters.
Turning to the status of our product development program. The team is laser-focused on the final steps towards launch. Specifically, finalizing the customer-facing analysis software and completing transfer to manufacturing and scale-up activities. We expect to complete the remaining internal activities over the coming weeks.
Based upon that time line, we expect to launch the platinum instrument and start to take orders before the end of this year and begin shipping products in Q1. We are excited about the upcoming launch of the platinum instrument and look forward to partnering with our customers to demonstrate the capabilities of our next-generation protein sequencing technology.
Finally, I would like to provide an update with regards to our facilities. Earlier this year, we signed a lease and announced that we would be relocating our headquarters to Winchester Works, a technology and life sciences hub in New Haven, Connecticut.
Following a thorough review of our business infrastructure needs and consistent with our ongoing efforts to optimize our cost structure, we have decided not to move to this facility. Instead, we have identified a new space in Branford, Connecticut, where we can continue to grow and fulfill our infrastructure needs in a more capital-efficient way. As mentioned in our previous earnings calls, 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 over to Patrick, our President and Chief Operating Officer, to discuss additional business updates. Before doing so, I wanted to thank Patrick for his engagement and support during my time as a candidate and most recently as part of my onboarding with Quantum-Si. Patrick?
Patrick Schneider
Thank you, Jeff. Starting with development, we have made good progress on productizing our technology. We are in the last steps of the process, scaling, validating and finalizing the customer-facing software.
We are also continuing to push the technology development forward as we incorporate the new binders that we described last quarter, giving us even more proteome coverage. I can’t be more proud of the team and their accomplishments on all the development fronts.
One of the most important components of our technology is the recognizer system and we have a world-class team working at the intersections of various backgrounds, including molecular biology, computational biology, chemical biology and protein engineering to develop this key component of the system.
This last quarter, we strengthened our development partnership with ESPCI and welcome new team members in France with unique skills and expertise and directed evolution of proteins to further our advancement.
Moving into commercialization, our strategy for the next few quarters is to develop and test the market in a selection of key application areas, which include biologics discovery and protein validation through protein sequencing.
We continue to develop our leads and funnel and we will prioritize customers for these applications as we start to take orders. Our initial rollout will include the platinum sequencing instrument, the carbon sample prep instrument will go through a beta testing phase in early 2023.
We fill positions in our customer success team to continue to support early adopters and expect to ramp up the commercial team in a metered way as we build momentum for our platform over the next few quarters.
In line with our business development plans, we have also ramped up our participation at industry trade shows and academic conferences. In late October, we attended the American Society of Human Genetics Annual Meeting where we experienced significant interest in our platinum as the first next-generation protein sequencing system. We gave demonstrations of the instrument, the chips and the data output.
Last week we also attended the Single-Molecule Protein Sequencing Conference in Delft, the Netherlands. This conference brought together leading researchers pioneering the development of single-molecule protein sequencing techniques. We were pleased to present our advancements and bring our thought leadership to the topic of single-molecule protein sequencing as we are the first in this new category.
From now through the end of the year, we are looking forward to building on our business development efforts at more industry trade shows, including the Society for Neuroscience and the Human Proteome Organization World Conference.
On the supply chain front, the team stands ready to support commercialization. We continue to work closely with our contract manufacturers to build up our inventory of platinum instruments, the validation of our chip assembly and packaging capacity ramp-up at our Garnet Valley, Pennsylvania facility is in progress according to plan and we are on track to meet our monthly chip and cartridge production goals. We are also working diligently to incorporate our latest chemistry improvements into our reagent consumables and scaling to meet demand.
I will now 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 Q3 2022 financial performance. Research and development expenses in the third quarter of 2022 were $16.7 million, compared to $11.1 million in the third quarter of 2021. The increase was primarily due to higher internal and external product development activities and higher personnel costs as a result of increased headcount.
Selling, general and administrative expenses in the third quarter of 2022 were $11 million, compared to $14.1 million in the third quarter of 2021. The decrease was primarily the result of lower stock-based compensation expense associated with the business combination that took place last year, a reduction in consulting services, insurance and other professional fees, partially offset by an increase in compensation costs as a result of higher headcount.
In aggregate, total operating expenses in the third quarter of 2022 were $27.7 million, compared to $25.2 million in the third quarter of 2021. Net loss for the quarter was $31.7 million, compared to $18.1 million in the third quarter of 2021.
Adjusted EBITDA was a loss of $22.9 million, compared to a loss of $17.5 million in the third quarter of 2021. A reconciliation table of adjusted EBITDA to GAAP net loss is provided in our press release filed earlier today.
As of September 30, 2022, we had $372.1 million in cash and cash equivalents and investments and marketable securities. We believe that this cash position can support our operations through the year 2024.
In addition, we continue to increase our efforts to manage costs and improve efficiencies. As a result, we are lowering our operating expense guidance for a second consecutive time. We now expect GAAP operating expenses to grow 25% to 30% year-over-year in 2022, down from a prior expectation of 40% to 50%.
I would now like to turn the call back over to Jeff for closing remarks.
Jeff Hawkins
Thank you, Claudia. Quantum-Si is hitting an inflection point in terms of progress and the company is at the cusp of revolutionizing proteomics. I am looking forward to leading this exceptional team as we advance the launch of our revolutionary next-generation single molecule protein sequencing platform and work to make it an indispensable tool for life science researchers.
Operator, please open the line for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And our first question comes from the line of Alex Vukasin with Canaccord Genuity. Your line is open.
Alex Vukasin
Thank you very much. Hi. This is Alex Vukasin online for Kyle Mikson. Thank you very much for great updates. I just had a few questions and I was wondering if you elaborate on a few things you have discussed. So I think a good place to start is that, we were wondering if you could discuss whether you will be providing any revenue guidance for 2023 in the immediate to near-term? Thanks.
Jeff Hawkins
Yeah. Alex, this is Jeff. I will take that one. We are not providing any guidance yet for 2023. Obviously, the focus right now is getting the product launched and opening up the order, so we can begin to see what that backlog would look like. Guidance for next year, I think, will be something we will look to do once we get the initial read on the uptake.
Alex Vukasin
Got it. Thank you. And then kind of changing gears a bit here. So additionally, you previously discussed the ability to potentially to take up to 50, roughly 20 amino acids. I was wondering if you could update us on things like the target amino acid detection levels as well, any other recent prelaunch updates that will be implemented to the system that will be launched in 4Q? Thanks.
Jeff Hawkins
Yes. Thanks, Alex. We will let Patrick take that one.
Patrick Schneider
Hi, Alex. Thank you for that question. So, yeah, so we discussed last quarter five recognizer system that gets us to roughly 15 amino acids. We are absolutely continuing on the development process as we look for more binders and more access to more amino acids.
The interesting thing, though, is that, with the system that we have now, we can get a lot of information. So we have access to a lot of the proteome even with the recognizer system we have now. So we are certainly satisfied with launching. That being said, we are continuing to put our development efforts into accessing given more of the proteome.
Alex Vukasin
Got it. Thank you very much. And I had one last one for Jeff. So I was wondering if you could highlight some of the things that attracted you to the business you have discussed it previously. And also, are there any other strategic initiatives that you could discuss in detail perhaps that you hope to lead or address in the near- to medium-term besides some of the more obvious ones that you have already discussed? Thank you.
Jeff Hawkins
Sure. Thanks, Alex. Well, as I said in my prepared remarks, I think, the approach was certainly a draw for me, benchtop and at the cost points the company was planning for. I think we are attractive to get a broader base of users that should ultimately help with the pace of discovery and also really the depth of the data we are going to get. So I think those two things hold for me.
The other thing I liked was, I like to look for complementary opportunities in terms of my skill sets with the team and I think what I learned in the process was really the quality of the technical team here, not only in what they have done to-date to get to what you saw in the science paper, but also just their thinking about what the art of possible could be with this technology over time.
And I think what was missing was additional capabilities and experience in the go-to-market and the scale upside, which I brought. So I thought that, that was a nice complement to the existing team.
Your second question was more around strategic initiatives. I am one month into the job. So really focused on immersion into the business, focused on supporting Patrick and the team with the launch, focused on helping the commercial team that’s here, really refine that strategy and be ready to go. I think as we get through this phase and get the product out the door, we will look to provide more updates on these types of initiatives at earnings calls coming up in the future.
Alex Vukasin
Okay. Thank you very much. Really appreciate your time.
Operator
[Operator Instructions] And our next question comes from Yuan Zhi with B. Riley. Your line is open.
Brandon Carney
Hi. This is Brandon Carney on for Yuan. Thanks for taking my questions. Can you talk about the market potential beyond basic research?
Jeff Hawkins
So I will start and then I will pass it over to Patrick. I think if we reflect on sort of the next-gen DNA sequencing world, right, it started with basic research, people proving out the capabilities, proving out the early applications, and over time, as more people became aware of the capability more and more applications evolved.
I would expect a very similar evolution here. So I think what it looks like on day one will look very different at year one and year three and so on. In terms of how large is the market or maybe some specific applications since we are hearing, I will turn it over to Patrick to provide a little additional color.
Patrick Schneider
Yeah. Thanks, Jeff, and thank you for the question. Yeah. Certainly, as we are developing the market, we are seeing certain areas, application areas and interest areas, a lot in the drug discovery and biologics identification and screening, a lot in very basic research. We are also seeing in protein validation, affinity reagent validation, et cetera.
And so those are on the research side, but then there’s certainly applications and not just yet, but in the future, applications around the clinical side, right? So you can imagine identifying, characterizing particular proteins in the proteoforms and then moving that into clinical applications as well.
So certainly on our roadmaps, we are continuing to develop those markets and that’s a real interest for us as we drive adoption. But first is and foremost is driving that adoption and making sure we get it right and that we are supporting the early adopters, which will amplify the message, right? We will amplify the applications that we go into.
Jeff Hawkins
Yeah.
Brandon Carney
Thanks. That’s helpful. Maybe I am wondering if you could provide some examples of how protein sequencing can be incorporated into a process that provides what diagnosis for clinical applications?
Jeff Hawkins
Yeah. I will start and again pass to Patrick maybe for a potential example. I think the important thing today is, I think, we are — as we said, we are focused in really enabling those that research community on sort of day one when we go out to the market.
I think a big part of the long-term success of the company will be about engaging with the research community and getting published evidence of the capabilities of the technology and the range of potential applications. I think, ultimately, the collective intelligence of the research community will be a powerful tool to really fully unlock all the opportunities for the technology.
Clinical obviously has many flavors. There’s the sort of the CLIA lab version of clinical where labs could validate their own test with our technology and then you have the very long-term, which is, at some point, does it become a regulated product. But maybe, Patrick, do you have anything you would like to add on population [ph].
Patrick Schneider
Yeah. I mean — that’s right, Jeff. And I guess, I would also — maybe just add a little bit of color around sort of clinical research, right? I mean there’s this — if we identify or if a researcher identifies the potential biomarker, this could help accelerate getting that biomarker into the clinical research. These are some of the things that we are thinking about and continuing to have discussions around with potential collaborators.
Brandon Carney
Okay. Thanks. That’s helpful. Thanks for taking my questions.
Jeff Hawkins
You are welcome. Thank you.
Operator
And I am showing no further questions at this time. I would now like to turn the conference back to Juan Avendano for closing remarks.
Juan Avendano
Thank you all for your participation today. We look forward to updating you on our progress in the next quarter, the earnings call. Have a good evening.
Operator
And this concludes today’s conference call. Thank you for participating. You may now disconnect.
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