Ladies and gentlemen, thank you for standing by, and welcome to the Quanterix Corporation Q2 2020 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Amol Chaubal. Please go ahead.

Thank you, Grace. Good afternoon, everyone, and thanks for joining us today. With me on today's call is Kevin Hrusovsky, our Chairman and CEO. 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 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. 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 Q2 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 comparisons 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 will turn the call over to Kevin.

Great. Thank you very much, Amol, and appreciate everybody joining us for this important conference call of our Q1 and Q2 results – first half results. The Slide 3 shows an agenda. I will discuss the vision and strategy, both the executional side of our business as well as the aspirational value-creation side, talk through first half strategic advances and highlights, as well as some of the second half growth and strategic catalysts that we feel will be highly productive for investors, as well as for our customers. We also then will follow-up, Amol will describe and provide more details on the financial report, then we'll open it up for Q&A. On Slide 4, this is a slide we've used in the past, but it shows how the evolution on the left-hand side of this exquisite sensitivities occurred for digital biomarkers that Quanterix has disruptively advanced over the past 10 years, starting – you can see back in the 1970s, there was nanogram per ml levels of sensitivity. And then through the last, I'd say, 20 years, there's been this picogram per ml capability that several of the customers – companies on the left hand were able to achieve. And on the right, you can see Siemens, Roche and Abbott have utilized these technologies for immunoassays and ELISAs in the diagnostic industry. It's about 200 approved proteins today, but there's probably around 1,300 of proteins that are researched in the RUO markets on the left. But the real breakthrough came when Quanterix started to advance by 1,000x since 2014, another 1,000x into femtograms per ml, and we believe that unlocks the potential to see as many as over 10,000 proteins in research markets that could lead to as many as 1,000 proteins in IVD market. These are all estimates, but…

Thanks, Kevin. I'm going to provide some additional financial details about our Q2 2020 performance. I'll be referring to Slide 32. As Kevin noted, revenue in Q2 of 2020 was $13.1 million and was impacted by ongoing COVID-19 pandemic. Our field services team maximized opportunities to safely gain access and install instruments at customer sites, delivering $2.8 million in instrument revenue, in-line with prior year, despite access challenges. As anticipated, consumables revenue was impacted by customers facing interruptions in their operations due to COVID-19 and finished at $4 million or 34% lower than prior year. We had proactively expanded our Accelerator services capacity to support our customers, sustain their research and clinical trials. This drove 33% increase in our services revenue, which finished at $6.3 million and also limited the total revenue decrease to minus 3%. Year-to-date, total revenues are $28.9 million, a 12% increase. As stated previously, we're not providing revenue guidance. On a non-GAAP basis, Q2 gross margin was 44.1% versus prior year Q2 gross margin of 51.2%. Q2 2020 gross margin also includes a 354 basis points negative impact from our successful HD-1 trade-in program and 300 basis points adverse impact from lower cost absorption due to lower consumables revenue. Our non-GAAP gross margin excludes the impact of noncash acquisition-related purchase accounting adjustments related to acquisition of Uman in 2019 and provides investors with relevant period-to-period comparison of our operations. On a GAAP basis, our Q2 gross margin was 39.7% versus prior year Q2 gross margin of 51.2%. We believe we have a significant opportunity for gross margin expansion in the future as we evolve the mix towards high-margin consumables and Accelerator services, scale our overall business and reduce product cost. Operating expenses totaled $17.4 million in Q2 2020. Use of cash in Q2 was restricted to $7.6 million through proactive working capital measures. The balance sheet is in good shape as of June 30 with approximately $89 million in unrestricted cash. Weighted average shares outstanding for EPS totaled 28.3 million for Q2 2020 period. Overall, we are pleased with our Q2 2020 performance and progress made on our strategic priorities. We remain focused on recovering to our strong growth trajectory in the second half of the year despite the continued challenges brought on by the coronavirus pandemic. With that, I will turn the call back to Kevin.

Thank you very much. Appreciate that, Amol. And we'd like to now open it up for questions.

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

Hi. This is Chris on for Doug. Kevin, just to start on Accelerator that was a really impressive performance. Could you just give us a bit more detail on where the incremental demand is coming from? I ask because I'm curious if these customers are new to Simoa, and therefore, there could be opportunity to sell a system to these customers down the road.

Yes. Great question. And Chris, I would say that there's a couple of dimensions that are encouraging about the Accelerator revenue. One of the dimensions is that we saw a lot of pickup in the planar, what we would call, the 10-plex, CorPlex technology, looking at a lot of cytokines. And as you know, the immune system is central, the inflammatory pathways and pathology are central to most diseases. And so, we had some pretty important breakthrough customers come in and run some of those trials with this newer technology that we always know that what we do in Accelerator today helps us in our product sales tomorrow. So, we were very encouraged to see that newer technology being deployed in those immune opportunities. And so that would be one area. Another area that we certainly are seeing some evidence of opportunity is in the COVID area in infectious disease. We are certainly seeing an impact to many of our customer labs that either had our technology or didn't have it, but because we expanded and were prepared for running on behalf of customers, it's given us an opportunity to showcase our technology to a new group of customers, as well as those that already own our technology. And so those as well were very productive for our advancement. I think the two major contracts that didn't really have a lot of revenue recognition as yet, but are looking very good for our future would be this large payer group, a multinational, diversified health care payer group. For them to see and be able to team up with this vision of home care sampling has been doing the testing in our laboratories, we felt this is a breakthrough, and this is a minimum of $1 million contract. So, we think it's just going to allow us to keep showcasing how biomarkers can play a role in significantly changing the cost structure and the outcomes by seeing disease long before symptoms less invasively. And then secondarily, having NIH notify us that we've won this work plan one feasibility study for developing an antigen test, we think this also has given us great momentum in our Accelerator lab to showcase a lot of our capability. And then there's been some large pharmas as well that I mentioned to further continue their some retrospective testing, some of it prospective testing of neuro primarily and then in this new area of immune with the planar assets and the CorPlex, 10-plex of cytokines. So, hopefully, that helps you, Chris.

No, that's great. And maybe turning to just – now, obviously, lots of exciting developments on both diagnostics and research side in both your press release and prepared remarks. I'm curious how this impacts your thinking on – how does that impact your longer-term revenue growth target of 30% to 40%.

Yes. Interestingly, that growth target has been primarily a research growth target, and we still feel very good about that. And the more we've advanced the promise of what we're doing in diagnostics as opposed to advancing purely diagnostics, I would say that many of the advances we're making can really showcase the promise of what we're going to be able to do in diagnostics and probably with more validation than we've ever seen. It actually helps our research business because most of our pharma customers, part of why they came to us was they felt there was a very strong path to the clinic. And we are very committed to continually looking for an actual specific IVD partner, as we mentioned, was a goal going into this year, as well as just continuing our own advancing. And so our ability to evolve into our own CLIA LDT lab by year-end and provide actual patient samples is a capability that we think really could be showcased with Nf-L, if we can further advance Nf-L for MS, for multiple sclerosis disease progression with the FDA, it gives us a single-site opportunity to advance that. So, I would say that the 30% to 40% has never been stronger in our minds relative to the long-term growth prospects of the research, where we have very low levels of penetration into those markets, and we're disrupting them very productively. But I do think we're starting to see the advancement of the diagnostic side that really would be over and above that. But I would also call that longer term, as a lot of big contracts being signed today to validate it, but the longer-term aspirational side of revenue growth probably takes a year or two before you start to see anything material there.

Understood. And for my last question, is 75 HD-X and 75 SR-X and SP-X systems still the right way to think about placements for the full-year? I ask because the instrument performances were certainly much more resilient than we had expected in Q2. And then I know you're not providing revenue guidance, but how should we think about the recovery trajectory from here? I guess when do you anticipate returning to your historical revenue growth rate? Thank you.

Absolutely, Chris. Yes. I think that we provided what we thought the HD-X was going to be possible that roughly half of our HD-Xs by year-end will be – or HDs will be HD-Xs. And some of that, about half of it is coming from replacements of the HD-1s, and then it's the pure growth of HD-Xs. And the goals that we set at the beginning of the year are really a one-time set. And interestingly, I would say that – we would say that we've felt the first half has been a productive advance versus both our HD-X and our SR-X goals as well as SP-X. We didn't expect a large number of SP-Xs in 2020. So, instruments have continued to flow. And I think the strong accelerator growth is a very good indicator for future instrument and consumable growth. So, we feel pretty good about that. And as long as there's not a major closing of labs, I think we feel like we're going to be back into action relative to our growth trajectory. We are still projecting a strong second half. We feel like we are starting to see a lot of good progress of lab openings. If they continue to open at the current pace, we feel comfortable that we will be, by year-end, for sure, back at this level of growth that we projected longer-term. So, the key will be basically continuing to get labs opened and keep evolving our menu, particularly in neuro. And I think that we're going to start seeing some productive, positive tailwinds from COVID in the second half as well.

Awesome. Thanks for taking my questions.

Sure, Chris.

And your next question comes from the line of Puneet Souda from SVB Leerink. Your line is open.

Yes. Thanks Kevin. First question is, I mean the service and accelerator business continued to do well. So, I just wanted to understand the sustainability of that trend. I mean, obviously, we are not seeing complete recovery across the country. And maybe Europe – actually, Europe has recovered a little bit better. So, maybe just give us a sense of how do you expect that business to continue to recover, while consumables and the installations recover on their trajectory. So, just help us understand how should we look at services business.

Sure. Yes. The services business has really been a way for us to continue driving consumables. But as you know, the consumables that get consumed in the services business go on to that service revenue line. So, a portion – a large portion of what goes through services, those are actually consumables. But I would say that there's still a lot of uncertainty in many of our customer labs, and many of them have continued to stay focused on COVID as opposed to returning to the categories that they were originally. Most of the labs that have turned into COVID labs were cancer labs. So interestingly, we're seeing good, productive visibility by our oncology customers in COVID as they explore using the HD-X for serology and/or antigen testing and also the innate immune system, as well as Nf-L. So we're actually been pretty encouraged by that development. And we see opportunities, as we mentioned, in the second half for services to support those large-population studies with one of the largest payer groups in the world. And then getting data can only further fulfill the opportunity for more testing. And what's been interesting about some of that work is, it's being done with capillary finger pricks, where we're able to take a really small sample, maybe even a 1-microliter to 10-microliter sample, and get an answer from it. We dilute it up and have sufficient sensitivity to still get good answers. And that infrastructure enables a whole new paradigm of testing that I think will support and build upon our Accelerator services for the next several years. So, I'm actually very encouraged that the services have a lot of growth catalysts kind of being built into them for the second half and potentially longer. And again, that translates into product sales on a longer-term basis, which I think also bodes well. And on consumables, we had negative growth in Q2. I think most people expected that it would be negative potentially in Q3 as well. But we'll see because a lot of these large pharma trials now are starting to gear back up for Alzheimer's, and there's a lot of interest in our technology, as we mentioned, because we're the only ones that can really help them noninvasively in blood, have biomarkers that are objective for a category where there's been no drugs approved. And aducanumab that Biogen is now looking for approval this year, and we see Lilly and other companies really making advances fast and furious in utilizing our technology. So I do think that the consumable pull-through, independent of the services, can also start to see a recovery in the second half.

Okay. That's very helpful. On the academic, and I know you covered some of this already, but I just wanted to get a better picture. Given the replacements that you did here for HD-Xs and installed, can you give us a sense of how is academic expected to recover for you? And what – any trends that academic access to the labs, how is that doing in July? And then on European side, I mean, do you any impact from the European Horizon budget? And essentially it was flat from the last budget. Do you expect any impact there? Or were your expectations for that budget, too – I think generally, the expectations were that budget is going to improve, so it was a bit of a surprise. So, do you see any impact from that?

Puneet, that last question was on the NIH budget?

It's the European Horizon budget. That came in...

European horizon. Yes. Got it. Yes, got it. So, I think in general, academia has been a smaller portion of our business. And I think one of the things we've done this quarter is we've included the Accelerator and the total revenue of the company when we split out academics versus pharma. And we've seen a really strong pharma usage of the Accelerator, very strong concentration. And that's why you see more like almost 60% pharma, 40% academics, but we do have products geared towards academics with the SP-X and the SR-X. These are more recent launches that we feel very productive, lower price points, smaller size, smaller footprint. And so we do believe that the combination of the smaller footprint, and also going into Asia, we believe that we're going to see more academic growth, and that's where a lot of the publications come from. And you're right, I would say a disproportionate of academic labs shut down versus pharma during the COVID crisis. And so some of those academics did switch over, but many of them were shut down. But we're starting to see a lot of them opening back up. Very interested in the HD-X for COVID trials and for COVID linkages to medical institutions. So many of these academic groups do have affiliations with the medical institutions that are really still trying to do research on COVID, and we have this panel of capability now for COVID that I think will be – will bode well for academics in the second half. But they don't utilize the Accelerator as much as they do buy products. And so I think you've got a much better product distribution on academics. And as they start to return, it's going to create, I think, good instrument and consumable pull-through. I don't expect there'll be any impact at all to the Horizon's budget being flat in Europe. We have a lot of European funding that's coming from many of the disease consortiums. And so I think that in the areas of MS and many of the neuro with ECTRIMS coming up, you're going to see just a nice surge of funding and a lot of activity still in that landscape just due to the fact that there's a real need for drugs in neurology. And we see neurology being impacted, not just in the United States, but around the world, and COVID is partly due to that fatigue. And the impact of COVID on patients longer term around the world, whether it be the innate immune system fatigue and the cytokines or the neuronal death and the longer-term implications for mental health and for brain health, all of these are areas that I think we'll start to see funding coming from multiple sources in these countries as they try to get back on their feet and then figure out how to sustain a healthy setting in each of their countries.

Thanks. And last clarification. I just wanted to understand. It seems that you have worked through half of your HD-1 replacements with HD-X. So, wondering, how do you think the rest of the trajectory works out here and the duration of that? How long would it take to replace the rest of the sort of installed base there? And Amol, maybe can you clarify if that was to sort of occur over the next couple of quarters? How are you thinking about the gross margin impact?

Yes. Maybe Amol, I'll just – a high-level comment that we gave some goals out at the beginning of the year, and in this call, Amol, felt that we still pretty much feel good about most of those goals. And so it might be good if you could just provide your clarity and thinking around the overall HD-X position, Amol.

Sure. So Puneet, I mean for the remainder of the year, we do expect a lot of HD-1 trade-in opportunities. There is healthy demand for it. And keep in mind, we launched this towards end of Q3, early Q4, right. In September, October time frame, especially, in university-funded situations, new budgets become available. So, we will continue trade-in program across Q3 and Q4. And we will continue to see gross margin impact commensurate with Q1 and Q2 in the remainder of the year. But as we discussed before, it's a good problem to have because it creates a larger consumables annuity going forward and a much better customer enrollment and satisfaction with our products.

Okay. That’s great. Thank you.

Thank you. And your next question comes from the line of Max Masucci from Canaccord Genuity. Your line is open.

Hi, Thanks for taking the questions. So, can you just dive a bit deeper into the recent trends you've observed for your core neurology customers over the past month or so just in terms of trials and utilization picking back up, just particularly with your larger pharma customers? And has COVID-19 led to any major expansions from one therapeutic area to another or an extension of business with some of your top pharma customers?

Yes. So Max, I would say, first of all, that there is more excitement than I've seen in quite a while in the field of Alzheimer's. And the AAIC was held last week, and I think there were 50 posters that showcased Simoa, and there were a lot of talks. And I think in general, there's this belief that we're on a very important moment for Alzheimer research with the Biogen aducanumab making the advances that it's made and then Lilly and others seemingly investing aggressively in many of these different areas. We're very encouraged by the work that they're doing and the way in which they are approaching Alzheimer's and feel that biomarkers are becoming a more important objective marker to help them with the FDA showcase efficacy. And I think that historically, being able to try to reverse dementia once dementia has hit, when it could take 20 years of pathology now being shown in many of these biomarker trials before dementia hits. By the time it hits, the ability for a drug to reverse that, it's very difficult. It's like a raging forest fire, and you're trying to put it out with a water gun. But if you can get to these pathologies of Alzheimer's when it still looks like a match being lit, you've got a chance with a drug even at a lower dose to put it out. And I think that, that reality is really beginning to take hold. And I really applaud the MS community as being the first shot on goal, where there's 16 approved drugs in MS. And what the FDA requires, Max, is that you approve the validation of a biomarker by showcasing it on a currently approved drug. And so in MS, where you had approved drugs, it was…

Great. And then have your COVID-19 applications led to conversations with diagnostics companies or types of diagnostics companies that you hadn't been interacting with much before the pandemic. And how have the last few months changed how you think about the ideal way to enter the clinical diagnostics market and maybe your ideal partner?

Yes. So, I would say that one area that we've been getting a lot of inbounds is around home care sampling and this whole area of finger prick or saliva testing and exploiting Simoa's technologies for being able to have that exquisite sensitivity to see inside of those sample matrices, disease early. I think there are diagnostics of point-of-care systems that have been very much awakened by this promise. And so, we've got some inbounds occurring in that area. I think the broader-based IVD companies, as I showed on the one slide, have also watched carefully as they've seen us make great advances with the payer health care syndicates because those payer syndicates are really trying to create new outcomes. And how they interrelate with their patients and surveillance of their health could lead to the next big breakthrough, I think, in the diagnostic category. So, I do think that our advances with the payer groups, coupled then with our advances with NIH, have further, I'll say, created interest by the large IVD houses that would potentially want to deploy this sensitivity, not only in their core labs, but in point-of-care as well. And so my view is that this is a great moment where we've created so much validation of the Simoa technology within – over – nearly 900 third-party peer-reviewed pubs, all the pharma is using it, all that momentum in the MS, Nf-L and now with COVID. I think we've lowered the risk for an IVD house to deploy Quanterix' technology. Back when we did the bioMérieux relationship, which was an exclusive relationship, 100% exclusivity across all disease categories, I do think it was premature for them to really have our technology validated. And as it ends up, we were more of a focused in oncology and…

Great. That’s all from me.

Perfect, Max.

Thank you. [Operator Instructions] I'm showing no further questions at this time. I would now like to turn the conference back to our Chairman and CEO, Mr. Kevin Hrusovsky, for any closing remarks.

Thank you very much. We really appreciate it. We've gone a little over the hour, and we're very excited about the progress that we're making. The world is definitely in a very tough place right now, both health-wise and economically, and we're trying to do everything we can. We have an incredible group of employees that have dedicated themselves. I mean, I've never seen anything like it over the last four or five months. They've worked – most of them, seven days a week across the board and really doing everything they can to try to help. And we just want to thank the investor base for all your support as we continue to do everything we can to help the world get back on its feet. And we hope you stay safe and healthy. Thanks very much for listening, and we'll talk to you soon. Bye-bye.

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