Good afternoon, ladies and gentlemen, and welcome to the Quanterix Corporation First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be followed at that time. [Operation Instructions] I'd now like to turn the conference over to your host, Mr. Joe Driscoll, Chief Financial Officer. Sir, you may begin.

Thank you. And welcome to the Quanterix Corporation Q1 2018 earnings conference call. I'm joined today by Kevin Hrusovsky, our CEO, President and Chairman. Before we begin, I would like to remind you that today's call will contain forward-looking statements that 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. With that, I will turn the call over to Kevin.

Thanks a lot, Joe. We had a very strong first quarter. We're excited that the new product that we launched SR-X, its first commercial quarter. We did have revenue I think of 15 instruments, Joe will get into some other details and granularity. We also had a record level of quarterly consumable revenue and instrument placements. The combination is very positive for future business. We also closed the Aushon Biosystems acquisition, which was a tuck under primarily for technology we’ll talk more about some of the gains that we are already beginning to see as result of that acquisition. Most importantly, we have over 100 neural publications now on our technology, Simoa, and there's an overall number of peer-reviewed publications that helped validate our technology of greater than 215. We now have over 500 plus Phase 1 through 3 trials being run primarily by our CRO-customers in 18 of the top 20 pharma biotechs, now are enjoying the use of our Simoa technology. Most importantly as well as is it there were some favorable macro trends for biomarkers in both the FDA and NIH. First, at the FDA level, we’ll talk in common on this, but there’s increased interest in using biomarkers for approving drugs and NIH continues to increase their investment for dementia and had helped investigations. As evidenced by the FNIH biomarker consortium we are now finalists for measuring biomarkers that are looking at neural inflammation. There’s also a fairly significant advance is occurring and the ability to measure multiple sclerosis with biomarkers being used on our platform, and we’re finding that very intriguing and important for future growth. We’re going to describe that in more detail in a moment. We also because of the positive developments with the FDA, our pharma services with the acquisition of Aushon,…

Thanks, Kevin. As Kevin noted, revenue in Q1 of 2018 was $7.5 million compared to $5.3 million in the prior year which represents 41% revenue growth. Product revenue grew from $3.4 million to $4.7 million, an increase of 38% the main driver being was the increase in consumables revenue which continues to increase at a significant rate. Also service and other revenue increased from 1.6 million to 2.5 million and this continues to be a major focus area of our business going forward especially with the CLIA lab, which we acquired with the Aushon transaction. Note that we also achieved 14% sequential growth from Q4 of 2017 to Q1 of 2018. As stated previously, we are not providing revenue guidance. The favorable timing certain deals led to greater Q1 revenue than we anticipated. This timing difference does not change our four revenue trajectory and expectations. Also as Kevin, our mix is changing towards services due to the sales force emphasis on services with customers and the positive we can develop with the FDA. This is a meaningful shift for our short-term and long-term financial performance. In the short-term, it enabled us to drive revenue growth in a high-margin category in the longer term. It also drives revenue growth due to the number of repeat customers in this segment. Plus, it leads to instrument sales in many cases, the net result is that our overall revenue expectations for 2018 have not changed, but we project a ship of 400,000 to 500,000 per quarter from product revenue to service revenue for the remaining three quarters of 2018. Our goal is to deliver meaningful growth. Each quarter while continue to build backlog for future quarters. Quarterly estimates for 2019 should show consistent percentage growth rates for each quarter over the comparable 2018 quarter.…

Thank you very much, Joe. Just want to close by saying a lot of the vision for our company and what we’re doing is really being driven from the Powering Precision Health Vision and Summit that we conduct annually in the Boston area. This year is going to be December 11th and 12th and this is independent of Quanterix. I actually found that this as a way to make sure that all of the thought leaders in the world, particularly in oncology and neurology coupled with the politicians, as well as investors. They all get an opportunity to intertwine with the opportunity to change the way healthcare is practiced with technologies. And Quanterix is by far the most disruptive technology with its biomarkers capability to see disease so really. So this summit is going to be one of the top summits that we've ever held and we’re really excited. We already have 30 plus speakers that have accepted and we expect to apply over the 70 speakers by the time we get to the summit, and it will be invite only, and we’ve already got many folks that have asked to be invited. So, if you're interested, please let us know. And in closing, I would say that our market continues to be a market that we feel there is a significant opportunity. We’ve talked about in past calls and past presentations four phases of growth. The first two phases of primary research focus where there is very little regulatory or reimbursement risk. And phases three and four are when you move into IBD, and into consumer precision health. Those phases do have more regulatory barriers and reimbursement, but we’re going to systematically move into those phases, by starting with research and we have a very strong opportunity over the next couple years in this research segment. And the execution inside of that starts with us having strong validation of the technology which the publications, the farmers that are buying in our technology and using it as always well as all these third part -- always drug trials that are now being utilized, helps validate the technology. We have a very strong razor-razor blade, a visibility into our growth, which allows us we think with a top-notch experienced management team, so to continue to traverse the value creation in a very predictable way. So those are our comments for first quarter. We’d now like to open it up for questions.

[Operator Instructions] Our first question comes from the line of Doug Schenkel with Cowen. Your line is open.

This is actually Chris on for Doug. Thanks for taking my question. So, I was just curious if you could clarify with the 15 SR-X placements for incremental to the five you placed in Q4, is that the total placement now?

That would be incremental. So, at the end of Q1, we had 19 placements.

And then, could you just give us an update on our order transfer SR-X and your placement expectations for the balance of the year?

Yes, we remain encouraged by the fast start of the technology. We don’t actually provide guidance Chris to what our expectations are for the number of placements, but my sense is that the level of sales that you're seeing in the first quarter. Those are very good shot, if that’s going to sustain itself.

And then maybe just -- we found that through your existing HD-1 customers have also purchased SR-X. So I was just curious, if you could share the split of SR-X placement to existing customers versus new customers?

My sense is when we first design the product, we thought that this was primarily going to go to only customers that don’t have the HD-1 and so we've been positively surprised that by 20% to 25% of what we have been selling are in fact going to HD-1 customers. And so I would think that most HD-1 customers, I think was about a 175 to 180 of them out there right now at some point our benefit from having in one of these SR-X for assay development reasons, if for no other reason.

And then just so my last question, I was curious if you could talk about the efforts to expand operations in Asia. I think you talked about launching the SR-X in China in Q2, just curios how much the market development work or investments you need as you prepare for launch in Asia?

Yes, I think for us we want to make sure that Asia be in the from our concentric reign here in Boston just from an overall service and support, anytime of the new product, we still have to get out there prematurely. So I think we still feel that we will be launching that in Q2 in Asia. Sales my senses, you really shouldn't see any material sales until so Q3, Q4, but it is something that we still feel is on plan.

Our next question comes from the line of Sung Ji Nam with BTIG. Your line is open.

I was wondering for the Aushon assays, it sounds like they are being used in the CLIA lab already. Are they commercially available at kit as well?

We do have the ability to ability to provide them as commercial kits, but they really would only the way they are currently configured, but only work on one of the early stage Aushon imagers. So, you can't for instance today take one of their kits and supply them to one of the Simoa platform and actually vice versa is true as well. So, the first step that we are taking is to look at the antibody pairs that are being used by their assays versus our assays, and try to get some commonality and to rationalize that supply base. So that we can get a very common set of antibody peers that are been applied to both sets. And so our view was that when we bought Aushon, most of in 2018 we would deploy the capabilities of Aushon in our accelerators services. And so, you are right that is where we are currently deploying it, but there are going to be some examples we think where there could be a customer too that we will find that would utilize the current assays from Aushon, but that's not a focus for us right now. We're not trying to sell their assays at this moment. We would prefer to get these rationalizations done and prepare the foundation for stronger growth in 19 and 20, utilizing common antibody pairs.

And then, it sounded like you've talked about some new product launches incorporating Aushon technology over the next few years. Has the acquisition of Aushon kind changed your near-term product development strategy in terms of making investment on HD-1 as well as SR-X? I think you talked about a few enhancements throughout this year. There should be continued to anticipate then this year or has your kind near-term strategy shifted now that you have obviously new technologies as well?

So, it’s a good question and I would say that there's a couple different dimensions to product development roadmap. One of them would be assays where we talk about the commonality of antibody periods, but there is also this thing called multiplexing where they been very advantageous and being able to multiplex, and they got technologies and abilities to evolve our multiplexing capability faster than what we would've been able to do on our own. So some of that technology will go into product development activities for assay, and so you will us redeploying and accelerating some of the multiplexing approaches in our company with their technology. The other side of it would be that they do have some interesting planar technology approaches, which was the plan inside of our service organization for this quarter and probably for sure for the rest of the year, but we could fund that discover the ability to complement our current product line with some of their products that have basically been shown for the last year and half. So, as were deploying them inside of our services, we been very encouraged by the engineering robustness, the lower maintenance dimensions towards a lot of the things we’re seeing their. We’re going to carefully measure and that could lead us to having some instrument applications to our continued product development as well. But for the moment we are not announcing any changes to our plans for both products of assays as well as instruments as a result of the Aushon acquisition at the end of Q2. I think that's where you'll learn our final assessment of the implications that we think that that's going to have on both the products of assays and the products of our instrument roadmap.

And then if I could maybe squeeze one more in. Maybe could you talk about kind you talked about the top 18 of the 20 pharmaceutical companies as customers? And obviously you’re continuously stand that through to accelerate or as well, and so I was wondering are there -- do you think there is significant headroom in terms of -- are there lot of opportunities for growth in the pharma, within the biopharma segment are going forward, not just within the existing customers base, but also new customers in that segment?

One of the things we’re trying to do is do some calculations of what percent of drugs in neurology and oncology today that are in Phase 1, 2, 3 trials are utilizing biomarkers. And if they are utilizing Quanterix biomarkers, and I think that assessment continues to give us incredible encouragement that were just beginning to tap into the opportunity that we may only today be touching less than 5% of the drugs that could benefit from our technologies. And so that's causing us to want to deploy more sales force activities on using our services on those drugs that are already in the pipeline, it could benefit from some level of stratification. Some of the new FDA approaches even with adaptive trials were, let’s say that a drug only gives you benefit 10% of the time. And based on that, they decided that they’re not going to approve the drug, but then there’re some biomarker that could differentiate the 90% that it didn't work on from the 10% that it did work on, adaptively applying that biomarker starts to then yield the opportunity to get a drug approved it couldn’t get approved before. So it’s those types of opportunity that we really want to quickly seize with our capabilities in the accelerator lab of both our technology and the newly acquired Aushon technology. And we know what happens is that normally will then lead then to them buying an instrument downstream from the original contracts that we do with them. So to that end, we think it’s a smarter investment for us to be shifting more and more of our selling resource into selling services because of the long-term impact that that’s going to have strategically to our business. So to that end, I think that even though we have 18 of the 20, I recently had one of our top pharma services salespersons. They did an analysis of just the companies that are currently using us, if you look at the drug trials that they’re having that are using us. The opportunity just there is enormous, and so getting broader penetration that has already proved that our technology works is an easier place to start. And that's how we’re trying to set up overall algorithms for driving our lead generation. We have got sophistication occurring around lead generation opposite going first where we’re already proven and then look at those opportunities to enhance those drug trials so hopefully that helps to give you a perspective and that's why I wanted to show that that pipeline today because those are real examples of where these drug trials can really move the needle quickly and we think it's going to be to everyone, our investors as well as our customers, advantage to get there with service first.

And our next question comes from the line of Puneet Souda with Leerink Partners. Your line is open.

Kevin, could you give us a sense of the backlog, that’s swarming on SR-X and HD-1 here, through the first quarter? And just in terms of how the marketing teams have gotten out and trying to push the product, obviously, there was stronger growth here in pharm. So could you just elaborate on that a little bit?

Yes, we don’t provide granularity on backlog, but I think Puneet you know that that’s something that my interest is to make sure we never miss our growth objectives and our trajectory. And so, we continue to build backlog in areas that we think are really important. I would say that the SR-X is the newest product and because it’s new I would say that the backlog is probably at a stronger level on it then it is HD-1, but that's just the qualitative commentary. I should also point out Puneet that we have -- we don’t want this to become a priority focus, but we’re now beginning to see opportunities where customers will buy a significant quantity of consumables over the first year and even sometimes as long as a three years contract. And then those cases we will be looking at deploying a more of a kind of a reagent rental approach where we know we are going to secure significant returns over a one to three year period for the consumables. And so that's spots the blur a little bit the product line of instrument versus consumables, and that's part of why we are trying to kind of still this at a product level to make sure that we are capturing that. And you can see if that growth was very robust, and even if our instrument growth, even if we didn’t have any reagent rentals and we just use instrument growth as a kind of a surrogate for future growth. Even if it's flat, we see 40% kind of levels of instrument unit growth occurring with our accumulated installed base. And so even flat instrument growth creates a tremendous driver for future revenue growth because of this consumable pull through that we're experiencing at greater and greater levels every, and that only gets better as we further build out our menu. So hopefully that helps give you a sense that I would say instruments are important to us, but there is a least important focus right now for us compared to services which we know will lead instruments sales. And we also feel with the consumable menu growth is the way to demonstrate the real value for what we've got.

And then a number of peers have put a strong growth and just immune assay overall in just the last quarter, and one of your cut and large your customers had a great quarter too. Just trying to understand is it -- are you seeing something change in the core market? Obviously, you guys are focused more on the sensitivity and you likely to see more growth there. But is the core market growth also helping you through the quarter or was it largely -- the in bounces are largely coming in because of the sensitivity capabilities that you have?

Unfortunately, we're not a broad based player yet, Puneet. We still are I would say 90% to 95% benefitted by where are those low abundance, and it's going to require multiplexing to really gain and garner the benefit of a broader base market move into immune assays. I would say in general though I would agree with you, immune assay should have a whole lot of factors that should drive it positively. I think that this whole concept of what we do at PPH was creating the vision around same disease earlier less invasively this is fueling the liquid biopsy segment as well as many other segments where they are now trying to find the earlier stages of disease and blood with these new analytical tools and the immune assay I think has a lot of opportunity to really benefit that whole vision. So, again, we feel like we are not benefitting from the broader move yet of immune assay we do think we will with multiplexing and we do feel like we have a lot of reasons why people don’t want to buy from us once we move into that arena particularly better data quality through dilution of samples to eliminate metric effects. So, we feel like we have a lot that will ultimately bring value to our company and the investors in the broader markets that we're not really benefited yet from those.

And then just a last one for me in terms of the overall sales reps, if you could just remind us where you stand currently, and I don’t know if you corrected that already in the call? And maybe in terms of the push and marketing over the next two quarters or so, what are some of the focus areas for you?

So, the biggest things that I would say in this whole area is marketing in the world that we’re investing heavily right now and what I will call lead generation algorithms that are really honing in on where we think that market fits versus what we've been able to at this point penetrated. We see great opportunity to be penetrating these drug trials and the best way to do that as with services were you can go in there, and provide value immediately to those pharma customers. And so a lot of marketing effort right now around honing in and using algorithmic to make AI intelligence to get at where those leads are. Now that marketing investment is going to start to pay dividends at the end of Q2 and so while that’s going on we’re continuing to consider and train and develop our sales organization's to be able to sell into pharma pipeline. And that’s a little different sale than just selling instruments, and the old instrument sales person has to change their capabilities and elevate and become more scientific in the way they approach the pipeline. And so we’re putting a lot of investment in that reconfiguration of that selling effort. And so the actual numbers of sales people are probably going to go up 33% this year which is maybe four people. But there's a couple of PhDs for every salesperson that goes with that. And so most of our headcount build is in that selling application, commercial organization. And it's primarily been focused at these areas that I mentioned in an that's going to the biggest boost at the end of Q2 when those systems for lead generation will be complete.

[Operator Instructions] Our next question is from the line of Michael Peterson with JP Morgan. Your line is now open.

Kevin, I guess just circling back on some of your commentary about pharma. Can you give us a sense of how much of the SR-X placement mix was biopharma versus academic this quarter? And I doesn’t seem like that launches had any impact on HD-1 sales right to be customer base?

Yes, we view as is that the SR-X is probably got more like a 60% academic, 40% pharma versus what we have been see in the HD-1 is almost the opposite of that. It's more like 40% academic and 60% pharma biotech. So we are seeing like a switch occurring there, but as more pharma buying the SR-X than what we probably would've initially anticipated, and that's primarily where those HD-1 have sat. I don't think we have seen any material shift from the outlook that we had for HD-1 for 2018 based on having the SR-X. The opposite could be true, is that as we start to penetrate with the lower cost smaller footprint instrument it could lead to HD-1 interest and opportunities, and we have seen examples where we’ve gone in and we’ve explained -- we've gone in based on their knowledge of the new SR-X. We’ve gone in explained it. And when they found out that the HD-1 was fully automated, they elected to not buy the SR-X and for buy fully automated HD-1. So there is no doubt that we can’t quite get the -- I would -- I don’t want to be caught with someone saying, oh, well your mix was a little bit off. And as a result, we don’t you’re growing the way you should because I know product category the fuel is there, and it’s just exactly how that mix is going to shape up, we don’t know. But what we’re seeing and believe still is that on average a third of our instrument sales are going to translate into a recurring consumable high-margin revenue stream six months after that instrument sales, so we still believe in that kind of algorithm.

And then I guess thinking about companion diagnostics. What does the funnel look like for deal similar to what your deal with DestiNA Genomics? And can you just talk a little bit about what you see as your competitive advantage around companion diagnostics? And has the view there changed at all based on some of the data out of ACR around biomarkers?

So, this area of companion diagnostics, I don’t want to get our investors buying us based on it yet because to me it’s still flat with the lot of I’ll call it regulatory and reimbursement potentially challenges and even like pharma motivations. And so, we watch a lot of companies that have bet so much on their companion diagnostic pipeline and that we don’t want to be one of those companies yet because we don’t feel we’re far enough along. All we really want to show is that all of the research Phase 1, 2, 3 trials that we’re running, we’re trying to split and categorize which ones are those. The customers have said to us that they really believe that there’s going to be an opportunity to move patients into their drug with some kind of companion diagnostic or they’re going to be able to measure whether the drug is having the desired effect. So all we’re doing right now is registering, and I do think that that’s still feels very robust to me. It feels like it’s going to be a great Phase 2 growth area for us. So I am excited about those prospects, but it’s too early to put too much meat on those bones. DestiNA is really an attempt to move over into nucleic acids, with single base pair resolution. And I would say that’s very much in the infancy, and it’s not a focus for us, but it is something where we do have certain customers wanting to look at the NAT nucleic acids as opposed to just proteins. And so, we do view that it’s got to have a role, but it’s still very early stage. And I would say that, we don’t have anything right now from the drug trials standpoint or pharma services standpoint, using DestiNA and/or nucleic acids. We got some academics that have shown interest and are starting to explore, but we haven’t had any strong adoption yet from pharma biotech, which by the way it's not a lot of pharma biotech adoption of many of the nucleic acids, companion diagnostics in general. It’s an area that we’re probing and trying to learn, but I think that we have watched how rapidly the protein adoption has occurred throughout pharma and we’re very encouraged by that. So we don’t want to deviate too far from that, if there’s going to be companion diagnostic opportunities. In proteins, we want to make sure we capture those.

And then last just on none, the menu extension priorities. Can you update us some timelines for the 6-plex panel, maybe if you mentioned that I might have missed it?

Yes, I actually remove that from the slide. Ernie actually we have that all my cover slide. I didn’t think those are much interested, but we are launching that in Q2. So, we have a strong believe but that is in fact going to get launched in oncology in Q2, and we have good data. Now that will not be something it could be run on the HD-1 initially. The first round when we launched this is only going to be for the SR-X, but we do believe by year-end for sure, we will be able to run that 6-plex for oncology on HD-1.

Thank you. And I'm not showing any further questions. So, I'll now turn the call back over to Kevin Hrusovsky for closing remarks.

Thank you very much and we appreciate all the support out there. And anyone that's interested in getting involved with our Powering Precision Health Summit, please let us know because as I mentioned, it's going to be a limited space, invite only. And I think you are going to find, it's going to be a game changing summit. So, other than that, thank you very much for everything that you've done for Quanterix and we'll speak to you at the end of Q2.

Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone, have a great day.