Good afternoon ladies and gentlemen and welcome to the Quanterix Corporation Quarter One 2020 Earnings Call. At this time, all lines are -- all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions] I will now turn the conference over to your speaker today Mr. Amol Chaubal. Thank you. You may begin.

Thank you, Christie. Good afternoon everyone and thanks for joining us today. With me on today's call is Kevin Hrusovsky, our CEO, President and Chairman. Before we begin, I would like to remind you about a few things. Today's call will be recorded and will be available on the Investor Resources section of our website. Today's call will contain forward-looking statements that are based on management's beliefs and assumptions and 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 the uncertainties that we face are described in our most recent filings with the Securities and Exchange Commission. During today's conference call, we will discuss some financial measures that are not presented in accordance with U.S. generally accepted accounting principles or non-GAAP financial measures. In the Q1 earnings release and in the Appendix of our presentation, which are available on our website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to comparative GAAP measures. We believe that these non-GAAP financial measures provide investors with relevant period-to-period comparison of our operations. These financial measures are not recognized under GAAP and should not be considered in isolation or as a substitute for a measure of financial performance prepared in accordance with GAAP. With that, I would like to turn the call over to Kevin.

Thank you, very much Amol. I'd like to discuss today our Q1 highlights, our vision and strategy, both execution and the aspirational value creation. While navigating the COVID-19 is a big focus of our discussion today, we've defined in previous webcast call that we're going to continue focusing on neuro, plus in the near-term what we call the CAC pivot which stands for COVID, Accelerator in China pivot. And then we're going to further discuss just beyond COVID-19. Amol will provide a financial update and then I'll open it up for Q&A and then close the call. So on slide 4, it's a slide you've seen in the past. It shows our publications are continuing to evolve very rapidly. This is a very important part of our business and we're starting to see some acceleration in areas beyond just neuro and as we've put now with infectious disease. Biomarkers, we've added another eight to it so a total 330. You can see, we've had a very strong Q1 in this category of neuro as well as infectious disease and our Accelerator and we continue to do a lot of we'll call them drug trials and studies 116 total now. We've continued to place instruments. We're up to 429 installed base instruments and you could see our overall growth for Q1 despite COVID and some of the other issues confronting the world right now was plus 27%. And you'll see that that is actually 34% on an organic basis if you exclude the Uman acquisition. And 38% if you exclude the onetime large order we had last year for Novartis in the drug trial for MS. On slide 5, you'll see that our growth has been plus 27% -- 38% excluding that onetime. And we also feel that this is pretty…

Thanks Kevin. I'm going to provide some additional financial details about our Q1 2020 performance and we'll be referring to slide 31. As Kevin noted, revenue in Q1 of 2020 was $15.7 million. This represents 27% revenue growth compared to $12.3 million revenue in Q1 2019. Service revenue grew by 107% driven by Accelerator services where we have expanded capacity to support customers transition from HD-1 to HD-X and overcome interruptions in their operations. Instrument revenue grew by 10% and was limited by inability to access certain customer sites to complete installations due to COVID-19. Consumables revenue of $6.1 million was flat versus prior year. However, prior year consumables revenue included $0.9 million in connection with a large one-time customer study. Consumables utilization was adversely impacted by customers transitioning from HD-1 to HD-X and later from interruptions in their operations due to COVID-19. As stated previously, we are not providing revenue guidance. In Q2, we expect COVID-19 related challenges such as limitations in accessing certain customer sites to complete installations and drop-in consumables utilization due to interruptions in certain customer laboratories to continue until these customers revert to normal operations. On a non-GAAP basis, Q1 gross margin was 48.5% versus prior year Q1 gross margin of 48.7%. Q1 2020 gross margin also includes a 200 basis point negative impact from our HD-1 trade-in program. As discussed previously, while this may create a near-term unfavorable impact on gross margins, it is a very compelling investment to drive future consumables growth and excitement around our technology. Our non-GAAP gross margin excludes the impact of noncash acquisition-related purchase accounting adjustments related principally to acquisition of Uman in 2019 and provides investors with relevant period-to-period comparison of our operations. On a GAAP basis, our Q1 gross margin was 43.3% versus prior year Q1 gross…

Thank you very much, Amol. And what I'd like to do now is open up for questions.

[Operator Instructions] Our first question comes from the line of Sung Ji Nam from BTIG.

Hi. Thanks for taking the question. Hope everyone's staying healthy and safe.

Thanks, Sung Ji.

Kevin was wondering about your service revenue, obviously very strong growth there. Could you tell us a bit more about what's driving that in terms of your -- is it coming mostly from your existing customers, or are you able to add new customers there? And also if you could talk about what was the contribution from COVID-related activity in terms of driving that growth for the quarter? Hello?

Kevin, are you there?

He has disconnected his line. One moment please, just a minute.

Sung Ji give us a couple of minutes. Kevin should be dialing in.

Hello.

Okay, Kevin you….

Hi, Kevin, we can hear you now.

Okay, great. Yeah. Sorry about that. Somehow I got kicked out. Basically, I would say that the demand profile for our services, we did know going into the quarter that we were going to see a fairly significant uptick because of the HD-1 to HD-X revalidation of the HD-Xs was a critical component and customers couldn't use the HD-Xs during that time. So I would say...

Okay. He was kicked out again. One moment.

Folks may I request for a couple of minutes. We're trying to connect, Kevin.

Okay. Kevin is now live.

Okay. Sorry about that. A little bit of technical problems working from home here. My apologies. But most of that demand came via the HD-1 to HD-X. And we wouldn't expect seeing demand for the COVID-related activities. The earliest would be late Q2. So most of what we have seen around COVID would not be related to COVID actual trials running infectious disease biomarkers. It would be more that some of the labs of customers were shut down and that they would rely on us as a result. So I would say that probably one-third to maybe 10% of that demand was from customer shutdown, because most of the shutdown from customers didn't occur until later in the quarter, so most of this was just due to that HD-1, HD-X, which we did predict. Is there any other questions?

Christie, can you hear us?

Yes I'm here. Our next question comes from the line of Puneet Souda.

Yes. Hi, Kevin. Thanks for the questions and hopefully you can hear me well.

Yes.

So I just want to understand a little bit. I mean, obviously services were strong accelerator opportunities here those customers are coming to you. But just wanted to sort of get of a sense of that and how much of that could continue going forward. How much is sort of -- how much are you seeing that on a sort of ongoing basis? And I apologize, if I missed the comments earlier, but could you give us a view of sort of how that plays out in the next couple of months here before we all emerge from this crisis?

Yes, absolutely Puneet. And I would say that again we're very fortunate to build that capacity up of Accelerator planning for a lot of this to have occurred in the first half of the year. So we did further expand that and again getting our employees safe and effective in that facility was paramount. We've got great employees that have really adopted all of the right principles of social distancing protective gear deep cleaning et cetera. So our operations have been pretty much flawless because of this incredible performance. And then, I think that has allowed us -- as you know, there are companies, even like Biogen that pretty wrapped up into a lot of the COVID activities early on. They would be one of our top 20 customers. So I would say that, in general, when you have companies shut down their facilities, our facility gives them a chance to continue running, particularly retrospective trials where the samples have already been collected. So I would expect that we're going to see a good surge of demand and fulfillment of that demand, assuming that we continue with our flawless operations to fill in that demand in our Accelerator for the next, I would say, not only next couple of months, but probably into Q3 as well. So on a full year basis, clearly, I see the Accelerator this year, given the circumstance of what's occurred, combination of HD-1, HD-X, plus the ability to help customers through disrupted labs, plus our evolution of being able to actually run biomarkers towards COVID population studies. Those three things, I think, bode very well for our ability to respond in the current year to provide a nice growth of that Accelerator Lab. So I think you're going to see it through, at least, the first three quarters and I wouldn't be surprised if we see it in Q4 as well.

Okay. That's very helpful. On the HD-X platform, could you give us a sense of the customer orders, sort of, if you could provide any color on ones that you expect to ship out or -- and as you emerge from this crisis, sort of, what is an expectation -- what are some of the expectations for capital equipment purchases in your mind, because, obviously, we're expecting capital equipment purchases to be down as a result of the crisis? But HD-X is an instrument that you are providing at a discount. So help us understand that dynamic. And what's your expectation for that pickup and potential into the second half?

Yes. I'm actually fairly bullish, Puneet, and I'm fairly conservative, but I'm actually bullish around the prospects for the second half for HD-X, mainly because I think whatever we do in the Accelerator Lab is going to further demonstrate the ability to provide a lot of high throughput, high precision exquisite sensitivity results. And, historically, the more we did in the Accelerator, the more it helped us with our pipelines. And given that the HD-X is somewhat a disruptive advance in its reliability, coupled in with all these other features of sensitivity; it's enclosed as well, which I think for infectious disease is another nice caveat. If you look forward, I think, the second half should have a pretty strong HD-X componentry. I also hope that we have real success around the world in our PPH ecosystem with serology testing, where around the world everyone is trying to get back on their feet and there's a lot of false positives and a lot of frustration today in serology testing, where folks are -- different countries are trying to create immune licenses, immunity licenses or pass points. But if you have positives based on previous viruses that you can't get out of the result, it could mislead a lot of the policymaking and could make it harder to know who it is, who isn't immune. And there's a lot of questions too, like if you have immunity how long would that immunity last? And what level of immunity represents protection. There's so many questions that, we think, a quantitative research use only IgG tests are going to be able to help answer. But we would like to think that around the world HD-X will be utilized to run a lot of those studies through our various cohort samples, everywhere around the world that we think populations -- and we even look at like Sweden having herd immunity where they think they might hit 30% immunity at this point. We've had some researchers say, we should be testing the entire country of Sweden. Then right next door you have Denmark that's gone in a very different direction, instead of going for herd immunity and really driving -- continuing to work, there they had more isolation techniques, similar to United States. And so, what are the differences in those strategies? I think having a quantitative serology RUO test will, I think, lead to a pretty important opportunity for the HD-X.

On the serology assay -- and thanks for those comments. On the serology approach, if you could elaborate what -- in terms of the cytokines research market, what is the opportunity that you're expecting there? And secondly, within serology do you expect to have tighter antibody, tighter information and then potentially pursue, both vaccine and convalescent plasma trials, meaning with partners pursuing any of those trials? So if you could cover those three topics in cytokine and titer and vaccine convalescent plasma. Thanks Kevin.

Absolutely, Puneet. And I do think that historically once the analysts start to report on the disruptive capability that we have, it's amazing how many investors learn about it. And then, they go to their companies and teach the companies that they own, are you using the Quanterix technology? We're hopeful that that exact same cascade is going to occur here, Puneet. I know you've got a PhD and really seen deep in the whole protein landscape and that it helps when you report on this, as I've said. And so, in our case, first of all, in the innate immune system that's where you have the cytokine storms. Already around the world, we've got that being deployed. New publications are coming out, particularly around interferon alpha. That's the first spike you see in the innate system. And it's interesting that it can actually spike up as quickly as anything in serology. So that's the adaptive immune system. So first and foremost, I think, we've shown around the world great publications, great data on our interferon alpha. And we now are working on products that we think we can launch within the next two quarters to take interferon alpha and break it into maybe as many as six to eight subtypes. Our exquisite sensitivity might be able to allow people to further stratify. And so this is a real important area. There's some pretty profound publications that just came out on this. But then all of the pro-inflammation markers, our SP-X can measure, even the CorPlex, the 10-plex. We think that that's going to be a very strong growth opportunity, moving our cancer research products right into this landscape of predicting cytokine storm before it hits, like a radar. The area of serology, I think, it's exquisitely important to be…

Right, great, thanks, Kevin.

Christie, is there any other question on the line?

Okay. Our next question comes from the line of Max Masucci.

Hi. How's doing? Thanks for taking my question. So, services revenue -- so just understanding…

Hi, Can you hear me?

Can you hear you, Kevin.

Can you hear me? Yeah, I can hear you.

I can hear you Kevin. Hi. Well I proceed. So just my understanding is that COVID-19 impacted some, but not all of Q1. And now we're just over a month into Q2. And -- any directional commentary about what you're seeing maybe for each of the different instrument families, so far in Q2? And then I guess, to what degree do you think the services' strength could offset some of the declines that we may naturally see, disrupted in Q2? If you sort of look at that, net impact.

Can you hear me?

Yes.

Hello. Okay, great.

Yes I can.

So yeah, in Q2, I wouldn't expect there to be large implications to us supplying technologies for valid COVID. I would say that, that is something that I would be looking more at the second half of the year. And I think that, I have the most belief system for COVID-related instrument growth in HD-X because of what we're considering to be this high fidelity, quantitative, IgG test that we want to rollout. And then secondarily, in the innate immune system, for both HD-X as well as SP-X, we think both of those technologies play a role in the innate immune system which is the cytokines where we run a lot of different cytokines. We can actually run a 6-plex on the HD-X. And this interferon alpha, when we ultimately evolve that into subtypes, I think, you'll see that, being probably done initially on the HD-X, but then, ultimately on the SP-X. So I do think that the SR-X is a smaller system. There will be some involvement for COVID, in that landscape. But I don't think, it's going to be as used, because the throughput of an SR-X is more of a bench top. So I think that, gives you the, perspectives you're looking for relative to COVID activity in the second half. I mean we definitely continue to believe very much in the neuro landscape where Nf-L -- and we've got some new markers coming in neuro that are getting a lot of excitement mainly pTau, phosphorylated tau and there are several different types of subtypes of tau that are getting a lot of interest from some of the pharma companies, in the Alzheimer landscape.

Great. That's helpful. And then just one more if I can. So the role that your company is serving, during COVID-19 it's differentiated, so is your technological capabilities. And so with the recent surge in funding that's now available for cutting-edge projects that look to help fight against the pandemic, are you actively going after any of these grants? And what's your approach there? And do you have a better chance of maybe locking one of these down, because of the company's sort of unique capabilities?

Yeah. I would say that, there's no question some of the assays. And the technology we're developing should have some potential BARDA grant. It's probably not the place though that we're putting most of our focus initially. Because we're trying to awaken the commercial opportunities in pharma, biotech, particularly for vaccines and drugs, drug therapies as well as the convalescent plasma. Dimensions we see, real opportunities for getting installed base, around those technologies that will have some continued evolution of pull-through from the consumables. So I think that, while we do think that government grants could play a role, it's not where we're putting most of our emphasis right now. I do think once we get ourselves established, with the innate immune system. And what we can do with it with the SP-X and the HD-X. And then the serology high quantitative fidelity serology tests with the HD-X. I do think that we will then, make sure we turn to make -- to get any funding that could further support this. But this isn't our primary focus. That funding can become lumpy too. And we don't want to in any way build our future just based on that. So, that's why it's probably secondary, but still very important to us.

Got it. Thanks for taking the questions.

Sure.

Our last question comes from the line of Doug Schenkel.

This is Ryan on for Doug. Thanks for taking my questions. Maybe one more COVID-19 one. In a press release over the past month, you talked about exploring the use of your Simoa technology for early antigen detection. Can you give an update on your work in that area? And could we see a product at some point over the course of this year?

Yeah. We're probably less focused on that one. That's the third priority in our COVID landscape focus. First is innate. Second is serology as we've been describing. And then third would be the antigen. We do think that there's natural benefit to what our technology can do. And so we are exploring the assay development in that landscape. Whether we roll that out in Q2, is probably still a question mark. But we do think that anything you can do in blood would be a real benefit because of all the protective -- personal protective equipment concerns of how hospital workers wear them and could actually transmit the disease or there's a lack of PPE and they don't have sufficient protection from the disease. So anything that can be done to get a test in blood would be a pretty big breakthrough, but does it present in blood how long does it present in blood? These are questions that we want some of our researchers to further explore before we can give you too much insight to just how big of an opportunity this -- that area represents. So we're definitely looking at samples. Securing samples by the way has been a real challenge. Securing positive samples, we've had researchers from our PPH network in Europe even Germany and bond that's been just incredible supporting us and getting us samples that we could test to validate some of our serology work. But in the area of antigen, my view is that you ultimately have a shot even in saliva. So obviously blood would be awesome. But if we can get it there saliva would -- could be even more awesome. But again sensitivity could be paramount. And that's what we've seen over the years is that the less invasive the…

Got it. Yeah. No, very helpful. And then one more. Thank you for the color on your full year expectations for instrument placements. Is there any more color you could provide on Q2 for placements or overall revenue? Anything you could quantify to help us, obviously, it's going to be a little bit tougher environment with customer sites closed. But I think you could help us with just to make sure we're not over -- we're not setting an unrealistic bar for you given all the uncertainty in Q2? Thank you.

Sure. No problem. I think it's still an unknown for us and we don't guide and so we don't want to -- we haven't guided and it's funny, we now notice that many companies that do guide they've taken the same stance now to not guide. So I do see estimates in areas of the same landscape we're in from other companies in our landscape that range from 30% to 60% of their installed base is down. And in our case while we've had some headwind, obviously, due to that same predicament, I do think we're seeing some tailwind that comes from two different directions. One tailwind is having the accelerator, which we've talked about and allows customers to use us even when their labs are shutdown. And secondly then is the ability for us to launch products and assays that are relevant to actually combat COVID. And so those are some tailwinds that could offset the 30% to 60% headwinds that you do see from many of the other companies in our landscape. So I'm not sure if that gives you any perspective, but it could mean that Q2 is going to be rough. We know it's going to be rough compared to what our original Q2 projection was going into the year. But it isn't going to be as bad as most companies that have no way to pivot and to have some tailwinds. And we got two tailwinds that could offset some level of that headwind, but the headwind is real. And Q3, we're hopeful that we're going to come out of this much more productive. And the real question too is how bad will the COVID pandemic affect Q3 revenues. We would like to think of Q3 as hopefully being a rebound quarter coming off of what the world is facing in Q2. So, we still believe that that's going to be the case without providing any granularity on our guidance.

Very helpful. Thank you.

My pleasure.

There are no more questions on the phone line.

Perfect. I will close. We have a final slide in our deck that just talks about the combination of the market opportunity being somewhat unprecedented. And when you can do something as disruptive as what we can do with ultra sensitivity, what you start to realize is that the sensitivity that we have can be deployed not just in seeing biomarkers that are very low abundant, but it can also be deployed to create the ability to see it in less invasive samples. And home care is going to become a very significant area of opportunity as we come out of this COVID pandemic, because of the ability to get testing done at home, just prevents the risk of being infected by going to a center where in fact the hospital workers themselves are trying to battle to prevent themselves from being in any way contaminated with the infection. So, home care requires less invasive testing. And that's another way that sensitivity can be deployed is to look for an answer in a finger prick. And then to dilute that finger prick up, so there's enough volume or even look at saliva. So we're actually very encouraged that our sensitivity can be deployed in ways other than just looking for low abundant markers. And immunoglobulins are actually pretty high levels, but being able to see these earlier in their production and see it even at the time maybe closer to when the infection occurs, we see a lot of potential to speeding up the knowledge of knowing if you've got the antibodies and also doing it less invasively. And then they do it quantitatively to have such a low LoD, limit of detection, it allows that your limit of quantitation to be in the -- of entire relevant range. So…

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.