Quanterix Corporation (NASDAQ:QTRX) Q4 2023 Earnings Call Transcript February 29, 2024
Quanterix Corporation misses on earnings expectations. Reported EPS is $-0.33 EPS, expectations were $-0.28. 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 Q4 2023 Earnings Conference 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 that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Vandana Sriram, CFO. Please go ahead.
Vandana Sriram: Thank you, and good afternoon. With me on today’s call is Masoud Toloue, President and CEO of Quanterix. 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 Resources section of our website. Today’s call will contain forward-looking statements within the meaning of the US 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 the company’s financial statements presented on a GAAP basis, the company has provided certain non-GAAP financial measures. Management uses these non-GAAP measures to evaluate operating performance in a manner that allows for meaningful period-to-period comparison and analysis of trends in its business. The company believes that, such measures are important to comparing current results with the other period results, and are useful in assessing the company’s operating performance. The non-GAAP financial information presented here should be considered in conjunction with, and 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 Web site and in the earnings release issued today. I will now turn the call over to Masoud.
Masoud Toloue: Thank you, Vandana. Starting with Q4 of 2023, we hit record consumables production, delivering $17.5 million in revenue, contributing to $31.5 million of total revenue. Non-GAAP gross margins improved 515 basis points versus fourth quarter prior year and cash used was $6.4 million, leaving us with over $320 million of liquidity on our balance sheet and in the strong position to deploy capital for growth investment. As a reminder, we began a corporate transformation process six quarters ago with a focus on three core principles; quality, innovation and positioning Quanterix to unlock the value of the translational markets. In ’23, we built newly formulated assays, improving margins and manufacturability. Testing capacity in our Accelerator and manufacturing output improved by 50% and 300% respectively, each with new capacity to grow 3 fold from where they are today.
New assays rolling off production lines are now getting into the hands of our first customers. These accomplishments over six quarters are the result of our team’s focus, determination and strong operating discipline. The efforts have positioned us for better quality, higher throughput, faster innovation and are reflected in our financial performance for ’23 with revenue growing 16%, non-GAAP gross margin improving over 1,300 basis points, all while we reduced cash burn by $40 million in 2023 as compared to ’22. In 2024, our three strategic objectives are growth in menu, new innovation in tech and Alzheimer’s disease diagnostics. Starting with the first objective. We intend to leverage our newly built product development engine by introducing approximately 20 new assays by the end of this year.
This is not a small feat. Second, we’re allocating resources to expand our technology platform. While fortified plex satisfies the vast majority of neuro programs today, our goal is to have Simoa not just in specialty neuro labs but Simoa in all labs. We’re working on multi channel lossless resolution, which means no loss measurement of the lowest quantity of protein that can be distinguished from the absence of that protein across multiple channels. Developing this would be a significant breakthrough. Expanding plex, maintaining sensitivity, improving footprint and reducing cost will enable research and clinical work in immunology and oncology laboratories. I expect we’ll discuss more toward the end of the year. Finally on diagnostics, our stated goal is to build the global testing infrastructure for Alzheimer’s disease.
Identifying patients by invasive methods, including PET and lumbar puncture is not scalable and limits access to newly available Alzheimer’s disease modifying therapies. There’s now abundant evidence showing non-invasive testing methods using blood based biomarkers are equal to or better than invasive methods, and we believe they’ll be the best solution for broadening access of therapies to patients. It has also become clear that, identifying patients early in a disease cascade results in better patient outcomes. And this is where we believe Simoa technology will play a critical role. I want to make an important point here. Simoa digitally interrogates proteins and femto leader wells, providing exquisite signal to noise separation and amplitudes a couple orders of magnitude beyond noise floor where other technologies reside.
The combination of ultra sensitivity and precision enabled much lower limits of detection and quantitation than other technology. So as part of a diagnostic follow-up, if a Simoa p-Tau 217 test is used throughout the diagnostic workup, a physician can track at patient’s levels if symptoms progress or if they undergo treatment. Other tech may not have the sensitivity or precision to do this across the full range of p-Tau 217 concentrations that are diagnostically relevant. Precision at the very low concentration levels that p-Tau 217 is present in blood allows Simoa assays to provide high diagnostic accuracy, given the need to resolve small changes around cut-offs corresponding to low and high likelihood of amyloid pathology. Our test uses a two cut-off design as recommended by the NIA-AA and other expert groups, providing a high confidence result, extending to both ruling in and ruling out amyloid pathology.
This has the potential to reduce approximately 70% to 80% of PET scans and lumbar punctures during the Alzheimer’s diagnostic process. Over the next two years, we will allocate $20 million of capital to advance the access of our diagnostic tests. We will also focus our clinical studies for diagnostics in two main areas. One, development and validation of a multimarker blood test and prospective studies with health systems to establish blood based biomarkers as part of a routine Alzheimer’s diagnosis and treatment. For the multimarketer test development and validation, we are wrapping up the first two phases of two important studies, BioHermes and CANTATE. BioHermes is a prospective study that enrolled individuals from 17 sites across the US, including significant numbers of underrepresented populations and collected blood samples as well as PET images.
Phase 1 of the study is now complete and with publications expected later this year. CANTATE is our ongoing collaboration with research researchers at the Amsterdam Medical Center where blood is being collected as well as CSF with corresponding biomarker measurements to assess amyloid. We expect to announce results from Phase 1 of these studies later this year. Quanterix is also sponsoring and taking part in several new studies to establish blood biomarkers as part of routine Alzheimer’s diagnosis and treatment. In addition to helping expand the adoption of laboratory developed tests based on Simoa technology, such as plasma 217 and our planned future multimarker test offering, these studies are expected to provide clinical validation data to support an FDA submission for an Alzheimer’s blood biomarker diagnostic.
In 2024, we will focus our efforts on building out our commercial capabilities to support diagnosis of Alzheimer’s disease, and what we would expect to be a corresponding uptick in the adoption of new therapies. We’ve already onboarded a dedicated commercial team and they’ve hit the ground running. We are pleased to announce that we’re now working with five leading health networks in the US, an important step as we build out the infrastructure that supports testing for this disease. Each will have access to the LucentAD test at our CLIA certified lab or our instruments and assays to develop and validate their own laboratory developed tests. These networks will provide reach to over 140 hospitals caring for approximately 21 million patients.
I will now turn the call over to Vandana to cover our financial results.
Vandana Sriram: Thank you, Masoud. I will now cover additional details of our fourth quarter and full year performance and will provide guidance for 2024. As Masoud mentioned, the 2023 year end capped our corporate transformation and we’ve made significant execution progress over the six quarter program. Our total revenue for the fourth quarter 2023 was $31.5 million, an increase of 22% from the fourth quarter of 2022. Our consumables revenue increased to $17.5 million or 56% compared to the fourth quarter of last year. This was a record quarter and we noted continued strong demand for our consumables offering coming from high interest in supporting neurology. Instrument revenue was $3.3 million, a decline of 39% over the fourth quarter of 2022, similar to other tools companies and continuing the trends we saw in the second half of 2023.
We added net 20 instruments to our installed base in the fourth quarter of 2023. Fourth quarter revenue from our Accelerator Lab was $5.6 million, an increase of 71% over the fourth quarter of 2022. We continue to observe strong demand for our Accelerator services and this has been especially valuable to us in the current environment where tools have been capital constrained. We’re unique in our industry in that CapEx pressure has not limited customer access to our Simoa technology. When the budget environment changes to be more favorable to capital purchases, we expect some rebalancing of instruments and service mix. Moving on to gross margin for the quarter. Our GAAP gross profit and margin was $16.8 million and 53.2% respectively for the fourth quarter of 2023 compared to $12.6 million and 48.8% respectively in the fourth quarter of 2022.
Non-GAAP gross profit and margin was $14.7 million and 46.5% respectively in the fourth quarter as compared to $10.7 million and 41.3% respectively in the fourth quarter of last year. The year-over-year margin expansion reflects the impact of our transformation efforts and favorable mix from increased sales of higher margin consumables and Accelerator services. Our fourth quarter 2023 GAAP operating expenses were $33.7 million compared to $34.5 million in the fourth quarter of 2022. The fourth quarter of 2023 included 1 time impairment and restructuring charges of $1.6 million primarily from a lease impairment as compared with similar charges of $9 million in the corresponding prior period. Excluding the impact of impairments, GAAP operating expenses increased $6.6 million and non-GAAP operating expenses increased $6.4 million due to higher R&D and personnel related costs.
Our operating loss declined from $22 million in the fourth quarter of 2022 to $17 million in the fourth quarter of 2023 due to higher consumables and Accelerator sales and improved gross margins. For the full year, these results bring us to $122.4 million of revenue, delivering 16% growth. Now I will provide some additional context on full year revenue. 62% of our revenue came from North America, 26% from Europe and 12% from Asia Pacific with mid-teens growth across all geographies. Over 80% of our revenue came from neurology where we continue to have a highly differentiated position. Moving on to liquidity. We ended the fourth quarter with $323.9 million in total cash, cash equivalents, marketable securities and restricted cash, a net usage of $6.4 million during the quarter as compared to cash usage of $5 million in the fourth quarter of 2022.
For the full year, our cash usage was $17.4 million, a reduction in cash usage of $40.3 million. We continue to have a strong balance sheet with ample cash to fund growth. Let’s turn to guidance for 2024. We expect full year revenue in 2024 to be in a range of $139 million to $144 million. This guide is for our research only business and does not include revenues from diagnostics testing, which to-date have not been material. Diagnostics is a nascent area closely correlated to therapy adoption. And at this time, it is premature to provide guidance. However, with the commercial team that is now in regular contact with neurology centers and hospital systems, we are in a unique position to measure blood testing uptake and we will provide quarterly updates on our progress.
For the full year, we expect GAAP gross margin to be in the 57% to 61% range and non-GAAP gross margin to be approximately 51% to 55%. As with revenue, this guide excludes margins from diagnostics testing. Lastly, on to capital allocation and cash usage. We expect our cash usage for the full year to be in the range of $25 million to $30 million and increase in cash usage of approximately $10 million at the midpoint. As Masoud mentioned, our priorities in 2024 will be growth in menu, innovation in tech and ramping up diagnostics. We will spend approximately $5 million to $10 million on the first two initiatives and approximately $10 million to $15 million on diagnostics with additional spend on diagnostics expected in 2025. This approximately $20 million investment in our strategic initiatives will be offset by approximately $10 million of reduced cash burn from revenue and margin growth.
We will continue to drive our [indiscernible] business to reduce cash burn and still expect to achieve cash flow breakeven on this business at approximately $170 million to $190 million of revenue. This guide includes the incremental investment in menu and innovation. At the same time, we will invest capital to grow diagnostics. And consistent with our comments on revenue, it is premature to provide a cash flow breakeven point for diagnostics. In summary, we are aligning our capital allocation priorities to our areas of opportunity and we will put our capital to work to drive growth in these exciting areas. I will now turn it back over to Masoud before we take your questions.
Masoud Toloue: Thank you, Vandana. I want to say we are very proud of the talent density at Quanterix. It’s the super team who has made difficult and painful changes in the company. This would not have been started or completed if we did not believe in the output of work. Our mission is to provide the tools to enable discovery and improve patient outcomes. This is not just a statement that goes on a web page or wall, it is very real and tangible and our team is in active delivery mode. Now we can take some questions.
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