Good afternoon, ladies and gentlemen, and welcome to the Quanterix Corporation Q2 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] As a reminder, this conference is being recorded. I would now like to turn the conference call over to your host, Mr. Joe Driscoll, CFO.

Thank you. I’m Joe Driscoll, CFO of Quanterix, and joining me on the call today is 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 really strong quarter on just about every key metric that we're following, so we're feeling really bullish about our progress to date. We did have $8.6 million of revenue, which grew 66% versus the prior year Q2, and our year-to-date, we're up 53% at $16.2 million. We also had a very nice mix of accelerated high margin. Our Q2 gross margins were 46%, which is about 420 bps and 380 bps above prior year and the first quarter of 2018. Our first half performance is about 120 bps ahead of the last year's first half. Our installed base continues to grow productively, and this is a key leading indicator. We're also recording utilization rates of pull-through consumables at over 50,000 per year, which is what we had had hoped to achieve this year, so we are feeling very good about the usage of our machines. Our product revenue growth also was fairly strong in the academic market at 41%, and pharma continues. Because of the acceleration of drug approvals utilizing our technology, we grew nearly 70%. We launched the SR-X benchtop product in the first quarter; had a little bit of a soft launch in Q4 of 2017. That was ahead of schedule. And that product continues to sell very productively. We are ahead of what we had hoped to be at this point, so we're feeling good that it's been 48 systems booked to date. We also have 22 assays now available on that system. And as I pointed out, we had record consumables sales on a per-instrument basis. But probably the biggest and most important leading indicator is that we've had nearly 100 publications issue so far this year, 40 of which came in Q2. And we now have nearly –…

Thanks Kevin. As Kevin noted revenue in Q2 of 2018 was $8.6 million, compared to $5.2 million in Q2 2017, or 66% revenue growth. Product revenue grew from $3.3 million to $5.2 million, an increase of 55%. The main driver was the increase in consumables revenue, which continues to increase at a significant rate, especially in neurology applications. We had steady consumable orders for many different accounts, plus a few larger orders as customers kick off major projects. We booked a record number of instrument orders in Q2, some of which were recognized in Q2 revenue and the balance are in backlog for Q3. Also, service and other revenue increased 99% and this continues to be a major focus area of our business going forward, including the utilization of the CLIA lab which we acquired with the Aushon transaction. As stated previously, we are not providing revenue guidance. The favorable timing of certain deals led to greater Q2 revenue than we anticipated. This timing difference does not change our full year revenue expectations. As stated in previous quarters, our goal is to deliver meaningful growth each quarter, while continuing to build backlog for future quarters. We are currently assessing the impact of the new revenue recognition standards which go into effect on January 1, 2019. We have not concluded our analysis, but our preliminary work has identified a potential change in the recognition of certain deferred revenue. The approximate impact is estimated to be $2 million. We recommend that you take this amount out of your 2019 models as we finalize our analysis. Gross margin percentage in Q2 was approximately 46%. Prior year Q2 was 42%. This increase was due to a positive mix of consumables and accelerator during the quarter. For Q3 we estimate that gross margin will be…

Thank you. [Operator Instructions] Your first question comes from the line of Puneet Souda from Leerink Partners. Your line is open.

Hi Kevin, thanks for the questions. First one just wanted to understand and clarify. The number of SR-X in quarter, you provided 48 installed base so far. Could you remind us how many of those are in the backlog versus installed in the quarter? And if I look at your 40 year-to-date instruments, that would suggest that the HD-1s have seen somewhat of a limited pick up, if I'm correct, and just help us understand is there anything that's holding that back.

Yes, we'd all show backlog Puneet. And we would say that most of the SR-Xs that we're selling, I would say a good portion of them have been revenue-recognized, but certainly we do maintain a backlog. As you know, that's a key to our visibility moving forward is to make sure we have strong backlog positions. But I would say the HD-1 continues to be robust on a couple of different levels. One level is just the sheer number of units. We continue to get more than – we get at least double-digit, it seems, to every quarter of units, new units. But more importantly, the amount of pull-through that's occurring in the HD-1 has continued to go up much more rapidly than we expected. We do expect at some point not in the near-term future, to be continuing to provide new capabilities on the HD series, which is our standalone fully automated. So I do think that it will continue to be a very important product for the future. We have several customers now that own both the SR-X and the HD. The real difference here is what level of consumption the customer is interested in. I would say on average the HD-1 price point is about twice the level of the price point of the SR-X, and the amount of pull-through that we project you’ll achieve in the HD-1 is about twice what you would get in an SR-X. So there really should not be, for your models any difference whether it's an SR-X or an HD-1 they both are going to generate the same level of pull-through from a dollar – per dollar basis. And they both are kind of evolving in a very productive complimentary way. This was part of what I was worried you would get caught up in HID-1 one versus SR-X and I feel like that could be very misleading. If the overall dollars of instrument continues to progress, we are going to drive and pull-through that revenue level.

Okay, and thanks for that. So if I look at the current – the number of immunoassays that you have out there, the 22 assays that you mentioned, give us a view on how many assays that you need to have in SR-X. And I’m asking that because hoping to understand with the brand new instrument that's launching into the market, how is SR-X trending versus your expectations? Does it need more menu in order to expand faster? And it seems like there are some installs that are going into the backlog. I would think that it’s being a brand new instrument, it would get installed faster and then you would have a significant pull-through later on.

The two things I would say around backlog is, is that we are, I would say, not trying to govern the usage of the instrumentation. Certainly, we want to get as much installed as we can for future growth of consumables, and so we're very focused on that, but this is a new instrument, and they have exceeded expectations for sure. So we are growing this quicker than we thought. And I think the primary area where we probably didn't think there would be as much interest would be as a complement to the HD-1. So seeing both instruments purchased simultaneously is an area of intrigue for us that we didn't really expect. So I do feel like our goal would be to continue to drive this. It is a new instrument, though, so I think we are probably running about 30% to 40% of what we originally thought, faster than we would have originally projected. But at the same time there are other pieces of our business that we're redeploying focus towards and from because we're seeing this expansion. 22 assays is probably also a little ahead of schedule. And we try to maintain our assay buildout based on where we see the interest. And so as we see interest getting populated in different sectors of customers, they have different interests in what they're going to use the technology for. So one of the things we are doing with the SR-X is we do have a 3-plex and a 4-plex that we are utilizing on that technology, and that has also now been made available on the HD-1, so we can do the 3-plese and the 4-plex on both instruments. So we are finding more and more interest and having the versatility of going from one instrument to the…

Okay. Thank you.

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

Thanks for taking the question. Congrats on the quarter. And may be I'm not sure if you're ready to comment on this. But is your plan in the future to maintain multiple technology platforms because that’s kind of – it sounds like that's what you're presenting today. And in that case are you targeting – are you – do you think there are opportunities to address different markets with the different platform technologies available? I'm just trying to get a sense in the future it seems like the capabilities are kind of converging, right? For your bead-based versus planar technologies. And so was curious as to if you're looking at different market segments. I know in the past you talked about point of care potentially with the planar technology, et cetera, if you might be able to comment on that.

Yes absolutely. First of all, for the moment without any additional acquisitions, we really are probably honed in on one platform, Simoa. So we do believe Simoa has the ability to be utilized and presented with different types of matrix technologies or substrate technologies. And so how we present these Simoa technology whether it be beads or planar, we still look at the Simoa as being a really single franchise for the moment now. I don't want to ever say that we won't be expanding beyond a single focus of Simoa. We could end up moving into some other areas. But for the moment we look at Simoa as being our single focus with just different ways of presenting the substrates. So that's kind of number one. I do believe still that planar technology brings some things that we weren't able to get to with Simoa the way we were originally configured. And so the planar approaches as we Simoatize them are giving us opportunities, we think, for better chances of a point-of-care device, as an example, where you can miniaturize in a much more significant way, particularly if you're looking at multiple panels, or at least multiple analytes in the panels, we think it's going to be important to get to a handheld level of capability. And planar does bring some of those longer-term benefits, as you pointed out. But we do think Simoa, having the ability to see baseline, the ability to be able to measure the baseline level in a healthy patient, that's really the thing that we brought to the table with Simoa, is seeing that baseline when you're healthy. And so taking that concept of being able to find and see the baseline, which is the healthy level, as well as the diseased level if you end increasing the concentration of that analyte, having the ability to get there with panels, we think, is just as important as single-plex. And so particularly in cancers, we do believe that having some larger panels will be important for a lot of that research exploration. So hopefully that helps.

Yes that’s very helpful. And then maybe could you comment on what’s the highest plex capability currently on the planar? I know you were talking about10-plex launching in the future. Was curious as to what the highest plex is currently.

It’s interesting when you use the word currently we haven't launched the planar technology, so everything at this point is just R&D. So we've acquired the ability to take Simoa into planar. And so we're in development phase around that technology. And we see the versatility today from an R&D perspective very comparably at 10 to 20 plex. I think the real question for us is more going to be around the specificity and selectivity of the antibodies to ensure we don't get into cross-talk. There's a lot of challenge today by a lot of our customers who feel that when you get above a certain level plex, you create a lot of cross talk noise. And so being able to differentiate out that signal from the noise when you get into multiplexes is a very important area of our focus from an R&B perspective. And so there's different strategies I've seen deployed over the years. Like some capability is set up in a way where you might do a maximum of 10-plex, and then you can split the sample maybe into four samples to go to 40-plex. And so you are really only deploying crosstalk levels at 10-plexs, but you're splitting a sample and doing four different tests simultaneously to kind of get to that answer. So we don't know yet how we're going to get there, but we feel pretty comfortable that we can see 10-plex to 20-plex without cross-talk implications, and a lot of our R&D work is kind of focused on that.

Great. And then lastly from me, was curious you were seeing really good growth in APAC, still a small part of your business. But given kind of what's going on in China or the tariff wars and the situation there, was curious as to if you're seeing any kind of – anything – I know you're still pretty small over there, but was curious as to if you're hearing anything from your distributors or seeing any kind of slowdown in orders, or if there's any stocking, even, ahead of potential further tariffs? Thanks.

Yes, sure. Yes the China situation is dynamic and we probably are somewhat benefited by being so small there and trying to sort this out from the standpoint that we wouldn't have the level of impact that those that might be more populated or a higher concentration there. But with that said, we still see incredible opportunities throughout China. And our tariff rate is much lower we're at the 5% level, mostly because it's research focused products that we're selling. So for the moment, we don't see any real barriers to continuing to build out in China. But we’ll keep an eye on that. We do know a lot of our diagnostic friends have had a lot of challenges in that landscape, so a lot of, as you know, our focus is on research and research use only. We feel like this is still a very fertile and fruitful area for our investments and so we're going to continue aggressively trying to build our position in China as we see that opportunity unfolding.

Great. Thank you so much.

sure

Your next question comes from the line of Doug Schenkel from Cowen. Your line is open.

Hey, good afternoon. This is Chris on for Doug today. Thanks for taking my question. Just a quick clarification question to start, how much did the timing of orders benefit revenue in Q2 and should expect this amount of revenue to come out of our Q3 forecast?

Yes we – from a timing perspective, we basically feel our full year is not going to change. So I think we're probably more on a one-year horizon. We don't actually provide guidance and don't give that level of specificity, but I would say that we're clearly ahead of where we thought we would be for the first half of the year from the standpoint of what we were shooting for. So when we look at how we've gotten there, there has been some advantageous timing on a few deals. I would say that if there's been any impact that you could actually link to a quarter, it would probably be more Q4 than it would be Q3, but I think Q4, we have a pretty – it's normally a pretty robust quarter for us. But I wouldn't get too wrapped up in the timing except that I think our full year projections, we still feel very confident, which we did going into the year. And we have stated very confidently the level and the kind of CAGR growth that we would see over the long term, and we remain very committed to those levels.

Got it. And that’s actually a good segue to my next question. So it sounds like assay utilization is tracking ahead of plan. Could you just provide some detail on what is driving the strong pull-through? I am particularly curious on how much of this is attributable to the launch of new assays, as well as increased interest due to the scientific publications you highlighted?

Yes, I would say that when you describe that we're ahead of schedule, we basically set a goal that we would be at $50,000 per instrument. And we're just really excited that we've been able to come through and nail that. And there was, I think, a lot of questions from people earlier in the year on whether or not we would really have the level of usage and adoption. And it's clear that all of our projections that we made are being fulfilled. And that's – I wouldn't necessarily say we're way ahead of schedule or anything. We're just basically staying right on what we said and we commit to not missing and never missing. So that's a key to the way we're focused on our buildout. Now, when you look at the relative role of the menu versus publications, I would say they're interlocked. There's no doubt that the publication utility for NfL, Tau, amyloid betas and GFAP has been very significant. I would almost say that 90% – there's, I think, 47 neurology brain health markers other than concussion publications that have occurred year-to-date. And of those 47, I think 46 of them are actually honed in on Tau, amyloid beta, GFAP and NfL. And so how we then package those markers in various kinds of menu – for instance, sometimes you can multiplex. Sometimes you can just sell single-plex. There is an interrelationship, but without the publication, I don't think you have this level of interest. And so that's why we are the leading sponsor of Powering Precision Health. Our whole view has been if we really excite the research markets around the possibilities of being able to see, noninvasively, health and disease much earlier than you would ever be able to see disease, and then…

Got it. Super helpful. And then just for my last question, I want to follow up on the multiplexing chart on Slide 16. To be clear, are you still focused on expanding multiplexing capabilities on SR-X and HD-1, or has that moved over to your planar technology?

I would say that we still see real versatility for multiplex on the HD-1 and on the SR-X. And so we have a 4-plex and a 3-plex already launched and I believe we'll have 6-plex as well on the SR-X. We've always kind of felt that the bead technology will be very effective, more for single-plexes and lower-plexes than higher-plexes. This slide today kind of gives you a map of what we see is the current versatility. You might recall when we acquired the planar technology, it actually came with a couple hundred assays. Many of those assays were multiplexed, and so we already today have visibility into a lot of multiplex technology for planar that we haven't actually expanded bead into yet. So if someday we do a 10-plex or 12-plex on the bead, then we would expand this a little bit further right, but this is more a picture of where we are today. And we see incredible opportunities for putting Simoa onto planar and presenting it via planar. And I'd rather look at the substrate presentation being bead versus planar as opposed to that it's a different technology because what we're doing with the planar technology is we're bringing it into the Simoa world, where you can actually see baseline levels of those markers of interest in a multiplex. That's what we think differentiates the opportunity because there's so many researchers out there that wanted to be able to see a full multiplex at Simoa sensitivity levels. And that's where right now we think there's a faster entry for planar multiplexing. Then maybe what we would with beads for the moment. But again I think there's versatility both directions. We also think that we have the opportunity to further create sensitivity with beads. We don't know yet if we can take planar beyond today’s current baseline level of sensitivity. It could be that planar doesn't have as much versatility, that substrate, as maybe beads do for going even further in future advances. So again, we just want to make sure we have the various tools in our tool box to get to the assay that the publications are saying are saying are game-changing and differentiating the way healthcare is practiced.

Okay, great. Thanks for taking my questions. And congrats on a quarter.

Thank you.

Your next question comes from the line of Tycho Peterson from JP Morgan. Your line is open.

Hey thanks. Just a couple of follow-ups, I guess Kevin can you talk about the mix of capital sales versus reagent rental in the quarter? And then how do you see that trending going forward?

We don’t show that granularity because I do think that if we ever do migrate some of our lower cost instruments into reagent rentals, it's going to confuse just a little bit. But I would say that instruments from the standpoint if you were to have pure sales of instruments, it's lower than our consumables on any given quarter. We think our consumables have now outstripped the amount of instruments that we sell from a percent of revenue, from a – like, if you look at the total product revenue, consumables would be a greater proportion of that. And because they continue to grow on the installed base, that proportion will continue. So I think that the percent of our product revenue over the time will continue to get lower for instruments and higher for consumables just because we've got this amazing multiplication effect going on right now. Every installed base that we put out there is driving more consumables than what we originally put it out there to achieve. And so by expanding menu on really relevant published biomarkers, increasing throughput per instrument, coupled then with more instruments being deployed, you still are going to end up with a greater percent for consumables. So today, I would say, it's probably 40% instruments, 60% consumables would be my rough estimate.

Okay. And then following-up on some of the discussion on plexing earlier, I think in the past you talked about trying to out 20-plex maybe next year. You mentioned earlier, I think, internally you're doing anywhere from 10-plex to 20-plex. And you're also dealing with some cross-talk issues. So can you maybe just – maybe provide a little bit more clarity on the roadmap there? I mean will you be launching 20-plex at some point next year? And what new markets really open up here as you increase your multiplexing capabilities?

We believe that we ill have the ability to get to 20-plex in 2019, Tycho. That's clearly a road map commitment on our part. I think part of what has been created as an opportunity as we are deploying planar technology is, some of the new learnings are giving us new insights to maybe the most efficient ways to get there in the fastest, given that we've actually acquired a lot of multiplexing menu that was already on a planar base. And so the speed to get to 20-plex with the most efficiency and the best cost position, all those factors are being measured, but there's no doubt – nothing has changed from our standpoint. Only it's gotten better, meaning that we actually feel we have more shots on goal now of how to achieve 20-plex. And you're right, we actually have customers that have been doing 10-plus-plex with our homebrew on the beads. And so it's clearly an achievable thing to do. But we just want to make sure that we're bringing it in the most usable way for our customers. And when you move into oncology, particularly, we do see large panels being very important, and we see the cost basis of those panels being very important. And we also believe the shelf-life of our assays are going to be important. Because you have a lot of crossover studies now. When n equals a very large number of patients for a trial, many times those trials can go over a longer period of time. And so not only are we working on getting to 10-plex to 20-plex in 2019, we also are working on ways to get the shelf-life of our kits to be a lot longer than six months, which is where they were when – a year ago. So we're trying to get the shelf life to a year, maybe even two years, as well as get the plex up to 10-plex to 20-plex. Both of those are important. Another thing that we find is really important is the automation. Being able to do it in what we call an automated way is another differentiator that we've been able to do, and we find a lot of interest in that. And the final thing is, is that we also don't want to lose homebrew. Homebrew is something that many of our customers are excited about. They can deploy their antibody pairs any way they want for the protein of their interest. And so that's a very game-changing differentiator that our technology has, is the ability that customers can do homebrew. So we want to preserve homebrew, we want to preserve automation as we bring sensitivity to multiplexing.

Okay. And then one or two other quick ones: I didn't hear you talk at all about the accelerator service business. Can you maybe just talk to how important that is in feeding some downstream placements?

Yes, it's the fastest-growing part of our business. It continues to be. Tycho, we see the accelerator being very strategic for two different reasons: One reason is, is that – well, maybe three. One is it just demonstrates the technology in a very controlled environment so that people can see, and a lot of publications come out of the accelerator because of the data that we create. And we're up to, I think, 10 instruments now in our accelerator. I think this time last year we might have had four or five instruments. So we were really expanding that very rapidly. Number two is that about third of the projects we do in the accelerator lead the customer to actually buy an instrument, and interestingly, now, I would say that about third of our sales are with customers that have multiple instruments in the accelerator. So they're still utilizing us to do a lot of assay development for them even when they own the instrument. So the second reason it's strategic is it allows us to actually create a lot of installed base of instruments by doing services. And then the third reason is that it allows us to start to see these opportunities for companion diagnostics as we start to look towards crossing into the LDT CLIA world. It's not a focus for us today; we're not making any commitments around LDT and CLIA. But a lot of our pharma services now, we're running Phase I-II-III trials, even for MS, being able to see MS disease progression very early stage and being able to see it even in the spine, let alone the brain. Because many times, MS presents in the spine and obviously a brain scan isn't going to show that. So there's a lot of versatility for looking at NfL, as an example, in blood, and doing this in our services leads to the opportunity for companion diagnostics longer-term. So that makes it strategic. Now, when you add up those three strategic reasons, what's really remarkable is it's the highest-gross-margin part of our business. And so why would we not keep driving this incredibly hard? And so I think our gross margin's now, Joe…

Over 60%.

Over 60%. And we think that that's going to continue to ramp higher as we get some of these major projects that they've shown interest in. So I think a 37% of our revenue in Q2, roughly, was out of services. That's, again, a higher percent because it's growing faster than the rest of our business.

Okay. And then last one, thinking a little bit further out, as we think about 2019, and I understand you probably don't want to give 2019 guidance at this point, but I think the Street's modeling about 52% growth, which is consistent with what you've been doing in the first half of this year. I guess, are you able to talk at all about your comfort level on hitting that type of growth based on some of the discussion that you've highlighted here today?

Well Tycho, you've covered me and our team for many, many years, and I guess the last thing I want to do is do anything that we don't achieve. And so it's premature for us to comment on 2019, but I will go back and say that from the time we did the IPO, we commented that we would be able to drive 40% CAGRs. We said that that was a long-term opportunity. With the kind of publication flow, the kind of track record experiences of our commercial organization, and kind of what we were seeing in the disruptiveness of this technology, we felt very comfortable that we would be able to deliver 40% CAGRs. And this year, you're right; so far we're delivering 53%. Maybe a little bit of that got some timing benefit, but I would say that I still feel very confident that we're going to continue to drive what we've always said, which is the 40% CAGR. Now, if you want to go beyond that, I would say that, again, we're not guiding and we're not providing any of that. But we've never – we don't miss. That's – we work hard to not miss. Not to say we won't, but we want to make sure we stay conservative and do it in a way that makes sense for all the investors.

Okay, thank you.

You’re welcome.

I’m showing no further questions at this time. I would now like to turn conference back to Kevin.

Thank you very much. And we'll just close with a slide that you've seen before. It talks about our market and our execution. On the market side, we do believe, still, to this day – it's a slide that we used in the IPO road show – that we have a category-defining, unrivaled sensitivity that's creating a market, and we're best-in-class, and we are investing aggressively and being the leader in sensitivity, that we've found a way to translate into seeing disease earlier, seeing it less invasively in blood, urine, saliva, breath condensate, even sweat. We've been measuring PSA, as an example, in sweat recently. So we – it's amazing the sensitivity and the way we're lowering the invasiveness. And then finally, using dilution to eliminate matrix effects is a key area that, even for an abundant marker, you can deploy sensitivity to it to create advantage and reduce false positives and negatives in your testing. We also have a very methodical approach to our market penetration where we're focused where there's no reimbursement or regulatory risk, trying to reward investors that invest in us as we go. We have a track record for trying to do this and we don't want to lose that record. We also feel like this technology evolves a whole understanding of genotype to phenotype. We actually can do DNA and RNA on our technology. We're still focusing primarily on protein, but we can evolve it into highly sensitive DNA and RNA as well. Core to all of this is the validation; publications; the number of trials, Phase I, II and III; the number of pharmas that are using the technology with pull-through, key to us. We see this razor blade in our execution, really rooted on this area of validation of the technology. And then we have these future opportunities that we're trying to disrupt inside of, and we're continuing to nurture the ability to cross into LDTs and IVDs. We have a lot of agreements in place to try to further evolve that. So in summary, we remain very bullish on this opportunity and we really appreciate everyone's willingness to work with us as we continue to build out this value for society. Thank you very much. We’ll talk to you at the end of Q3. Take care.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. And have a wonderful day. You may all disconnect.