Ladies and gentlemen, thank you for standing by. Welcome to the Quantum-Si's Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to turn the conference over to Doug Farrell from Quantum-Si. Doug, please go ahead.

Good afternoon, everyone, and thank you for joining us. Earlier today, Quantum-Si released financial results for the second quarter ended June 30, 2024. A copy of the press release is available on the company's website. Joining me today are Jeff Hawkins, President and Chief Executive Officer; as well as Jeff Keyes, our Chief Financial Officer. Before we begin, I would like to remind you that management will be making certain forward-looking statements within the meaning of the federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward Looking Statements of our press release. For a more complete list and description of risk factors, please see the company's filings made with the Securities and Exchange Commission. This conference call contains time-sensitive information that is accurate only as of the live broadcast date, today, August 7, 2024. Except as required by law, the company disclaims any intention or obligation to update or revise any forward-looking statements. During this call, we will also be referring to certain financial measures that are not prepared in accordance with US Generally Accepted Accounting Principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in the press release filed earlier today. Additionally, I'd like to remind everyone that we will be participating in the Canaccord Healthcare Conference in Boston next week, and we look forward to seeing many of you there. With that, let me turn the call over to Jeff Hawkins.

Good afternoon, and thank you for joining us. On today's call, we will provide a business update, present our second quarter 2024 financial results, and provide an outlook for the remainder of 2024. Then we will open the line for questions. Before reviewing our quarterly results, I would like to welcome Chuck Kummeth to our Board of Directors. Chuck recently joined QSI as our Independent Chairman of the Board. Many of you probably know Chuck already. He's an industry veteran with more than 35 years of leadership experience in Life Sciences. Most recently, Chuck was President and CEO of Bio-Techne, where he led strategic initiatives that drove a 300% increase in their annual revenue to more than $1 billion. Prior to that, Chuck was President of both the Mass Spectrometry and Lab Consumables division of Thermo Fisher Scientific. We are excited to have Chuck on the Board, and we look forward to benefiting from his counsel over the coming years. At Quantum-Si, we are committed to bringing the power of next-generation protein sequencing to labs around the world. We believe that we have the industry-leading technology in Platinum, and that our first mover advantage positions us well to capture a leading share of a $20 billion research market in proteomics. Next-generation protein sequencing has the potential to create large, new market opportunities in much the same way that next generation DNA sequencing transformed life science research. We believe Platinum will help to accelerate proteomic research and enable the discovery of new biomarkers that will ultimately pave the way for the development of new therapies and diagnostic tests. Now, I would like to provide an update on our corporate priorities for 2024. As a reminder, we have three corporate priorities for 2024, First, accelerate commercial adoption. Second, deliver on our innovation…

Thanks, Jeff. Now let's discuss the details of our financial results for the second quarter. Revenue in the second quarter of 2024 was $622,000, which consisted of revenue from our Platinum instrument, consumable kits, and related services. Gross profit was $354,000, and gross margin was 57%. As a reminder, our gross margin percentage will be somewhat variable for the near future as we work through our initial stages of commercialization, and will also be impacted by the timing and mix of instruments versus consumable sales. Our margin will also be impacted in the near term by acquisition costs and any accounting adjustments to underlying inventory that predates the commercial launch of Platinum. While we have not provided gross margin guidance for 2024, I can tell you that our gross margin for the second quarter of 2024 includes approximately a 9% benefit for inventory utilized in the second quarter that was carried at low or no value and dates back prior to the initial commercialization. We do expect to see more variances that will flow through our gross margin as we move forward, and I will point them out if they are material. GAAP total operating expenses for the second quarter were $26.8 million compared to $27.0 million in Q2 of 2023, while adjusted operating expenses were $24.4 million for the second quarter of 2024 compared to $24.0 million for Q2 of 2023. The year-over-year reduction in operating expense is a result of several initiatives we began in 2023 to maximize our capital efficiency. Overall, R&D spend was $1.5 million lower than the prior year, offset by investment in commercial operations. Year-to-date, our total operating expenses were $50.4 million compared to $56.3 million in the prior year, a decrease of more than 10%. The progress on capital efficiency is even more…

[Operator Instructions] Our first question comes from the line of Swayampakula Ramakanth of HCW. Your line is now open.

Thank you. Good afternoon, Jeff and Jeff, this is RK from H.C. Wainwright. So, looking at the -- as you said, the first quarter of sales of commercialization with Platinum, it certainly seems like a good start. And by keeping the guidance where it was from prior quarter, so you're kind of telegraphing for a decent run rate in the second half of this year. So, can you just talk to us some of the pushes and pulls on the second half, and also what gives you the confidence of the sort of sales that you need to recognize in the second half?

Yes. Thanks for that question, RK. Let me start out and then if Jeff wants to add a little bit, he can. The first thing I'd say is, the first half of the year was in line with our expectation. So, as we thought about the guidance we put together, the sort of what we expected to see in that Q1 where it was the controlled launch followed by the first quarter here, Q2, a full commercial launch, we had talked about that being a modest increase from Q1 to Q2. So the trends and the results sort of match what we expected in terms of when we went about setting the guidance. As we think about the setup for the second half, you asked about the pushes and the pulls. One component of that is what we talked about in the prepared remarks, which is, we have been scaling the team over the course of the first half of the year. So, if you remember back in Q1, we had about 24 people in our sort of customer-facing organization, our commercial team. That number is about 30 here in Q2. And as we look out over the remainder of the year, We have about another 10 sort of roles we're planning across the US and Western Europe that will add to our field-facing, sort of customer-facing organization. So, they will bring some level of additional performance above our existing team as they get onboarded and get trained and get live. I mean, the poll on that is obviously what we mentioned a little bit in our remarks and certainly others are talking about, which is just sort of the capital cycles and how fast they will go. I can tell you that, as we said in the remarks, the capital sales cycle has been a bit slower than maybe historically you would expect to see. But we haven't seen capital just disappearing. We've seen it more shift out by a quarter or shift out by a couple of months, not just sort of disappear in terms of its availability. So, I think that's the potential for sort of the poll. Given sort of all those remarks, I think the way I think about Q3 is, again, another modest step up from Q2, and then Q4 with those additional territories full and some of these other things in place that we talked about, some of the new kit launches coming. I think you'll see that additional acceleration then from Q3 into Q4.

Fantastic. So, talking about the personnel itself, how much time do these folks need to settle in and actually convert a lead into a sale? I understand part of it is the capital cycle, but the other part is also trying to make the sale and complete the sale.

Sure. There can be quite -- there's quite a bit of a range that can happen there. RK, I would say, the general rule of thumb is that if you hire a brand-new person into a new territory right now, it's going to be about three to four months until they're fully trained out in the territory, sort of getting their arms around what existing leads might be there and how deep those are in the funnel to where they can sort of convert that into a sale. I think if you wanted to bracket that on the upper end, there can be cases where, instead of three to four, it could be as much as five or six months. And that has a lot to do with just how developed the territory is. So if we drop somebody, as an example, into a new region where portions of that region have previously been worked on by other sales professionals, that new person might see that three to four month ramp up. But if we place somebody into a net new country or net new region of the country, they may take closer to that six months before they're converting leads into sales because the leads in their territory just aren't as evolved, aren't as developed, and they've got to work through those qualifications with the customers, the capital dollars, et cetera.

Then you talked a little bit about the various scientific presentations and the data. And I'm just trying to triangulate the presentations with the new kit coming in on sales, is there a way to triangulate that in terms of leads or anything that you're seeing?

Yeah. I'm not sure if there's a good way to triangulate it. The way I think about it is the following. So the data that's getting presented by customers, as we discussed a little bit on the call, is still a pretty broad range of applications, right, proteoforms, whether that be the isoform, peptides we talked about or PTMs continues to be an attractive area for customers -- an area of interest for customers, certainly in the academic research setting or translational setting. The barcoding, again, picking up momentum in the pharma and biotech space. So, the first thing that has to happen, as you know, RK, is that data has to get generated and presented at meetings. Additional studies get run that gets converted into full manuscripts that can be submitted for publication. So I think that's sort of the trajectory that we expect in that regard. What we're doing on kits is really just listening to the market and observing our performance and learning about other sample types or other applications people want to run and just continually improving upon sort of the range of applications we can perform. So library prep is really about just lifting, generally speaking, lifting the number of applications and types of samples and types of proteins a customer can work with. I think the barcoding kit is a great example of really now developing an application-specific kit. And what I mean by that is, the early data on barcoding, customers are using our existing library prep kit and developing barcodes in the context of that. And it works, and it works fine, but we believe there are ways to improve that that can really shorten that upfront library prep time specific to barcoding, and then improve the downstream performance. And this is really about optimizing now a kit to an application based on a deep understanding of specifically what that customer is trying to accomplish and what performance metrics will drive their utilization across more and more of their projects.

Perfect. Thank you. Thanks for taking all my questions.

You’re welcome. Thank you.

Thank you. I am showing no further questions at this time. I would now like to turn it back to Jeff Hawkins for closing remarks.

Thank you for attending today. We look forward to providing more updates next week at Canaccord as well as in our next earnings call coming up later in the year. Thank you for attending.

Thank you all for your participation today. You may now disconnect.