Thank you for standing by, and welcome to Quantum-Si's Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one one on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press star one one again. As a reminder, today's program is being recorded. And now I would like to introduce your host of today's program, Katherine Atkinson, Senior Vice President of Commercial Markets. Please go ahead.

Good afternoon, everyone, and thank you for joining us. Earlier today, Quantum-Si released financial results for the fourth quarter and full year ended December 31, 2024. A copy of the press release is available on the company's website. Joining me today are Jeff Hawkins, our President and Chief Executive Officer, as well as Jeffry 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, March 3, 2025. Except as required by law, the company disclaims any intention or obligation to update or revise any forward-looking statement. During this call, we will also be referring to certain financial measures that are not prepared in accordance with US Generally Accepted Accounting Principles (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. 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, review our operating results for the fourth quarter and full year of 2024, and provide our initial thoughts on 2025. After that, we will open the call for questions. I will begin with a reminder of our three corporate priorities: to accelerate commercial adoption, to deliver on our innovation roadmap, and to preserve our financial strength. Our first corporate priority is to accelerate commercial adoption. 2024 was an important year in the commercialization of our next-generation protein sequencing technology, the Platinum instrument. The year began with our transition into full commercial launch at the end of the first quarter, followed by consistent quarter-over-quarter revenue growth throughout the year, and concluded with our first quarter in excess of $1 million in revenue. Along the way, we significantly diversified our customer base from one that entered the year made up of largely academic researchers in the United States to a customer base spanning multiple market segments and geographies. Today, our customer base has a healthy mix of academic, biotech, pharma, government, and contract research organizations. In addition, we built an international distribution channel that currently has eighteen partners, giving us access to an attractive growing global market opportunity for our products. I am pleased with how we closed out 2024 with total revenues of $1.2 million in the fourth quarter and $3.1 million for the full year 2024. These results represent a 52% increase in revenue over the third quarter of 2024 and a 183% increase in annual revenue on a year-over-year basis. The changes we made to our commercial strategy throughout 2024 paid dividends in the fourth quarter as we observed greatly improved commercial execution across all aspects of our strategy, from lead generation…

Thanks, Jeff. Now I will review the details of our operating results for the fourth quarter and full year 2024. Revenue in Q4 2024 was approximately $1.2 million, which consisted of revenue from our Platinum instrument, consumable kits, and related services. Gross profit was $610,000, and gross margin was 51%. As I have been saying throughout 2024, our gross margin percentage will be somewhat variable for the foreseeable future as we work through our continued commercialization efforts and may be impacted by the timing and mix of instruments versus consumable sales. Our margin has also been impacted and may continue to be impacted by the acquisition costs and any accounting adjustments to underlying inventory that predates the commercial launch of the Platinum line of instruments. Our gross margin for Q4 2024 includes approximately a 2% benefit for inventory utilized during the quarter that was carried at low or no value and GageBack took 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 highlight them if they are material. Revenue for the full year 2024 was $3.1 million, and gross profit was $1.6 million, and gross margin was 52%. Similar to the comment I just made about Q4, our gross margin for the full year 2024 includes approximately a 3% benefit for inventory utilized during the quarter that was carried at low or no value. Turning to operating expenses, GAAP total operating expenses for the fourth quarter of 2024 were $31.3 million compared to $28.1 million in the fourth quarter of 2023, while adjusted operating expenses were $26.7 million for the fourth quarter of 2024 compared to $26.3 million for the fourth quarter of 2023. Overall, we have essentially kept our adjusted operating expenses…

Certainly. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star one one. Our first question comes from the line of Kyle Mikson from Canaccord. Your question, please.

Thanks. Hey, guys. Thanks for the questions. So you launched the Pro system in January. Did you sell any since the announcement? And how has that impacted sales of the legacy Platinum boxes and consumables since?

Yeah, Kyle. So as you said, we announced the launch of Platinum Pro earlier this quarter. We expect to start shipping the machine before the end of the quarter. We are not sort of giving out a specific number of machines at this point. We have not seen any impact right now on the Platinum sales. There are obviously two different price points for those devices. So some people may still acquire the Platinum while it is available, and others may move directly to Pro. And given the consumables are the same across the machines, we also have not seen any impact on consumable ordering patterns of Platinum users, even those who may be considering sort of an upgrade in the future to a Platinum Pro.

Got it. Thanks, Jeff. And I just want to confirm, I guess, taking a step back. I know that you guys kind of provided expectations for, you know, essentially quarterly revenue going forward. But was any of this $1.2 million in the fourth quarter pushed from Q3 or maybe pulled forward from the first quarter of 2025?

Yeah. Nothing was pushed from Q3. I think, you know, we certainly saw some end-of-year buying decisions occur in the fourth quarter. I would not say it was sort of a significant level of those. I would not go as far as calling it a budget flush, but there were certainly some folks who, knowing that Platinum would likely see a price increase and that we had announced that Platinum Pro was coming in the first half of the year back at our Investor Day in November of 2024, we did see, you know, a few areas where we believe customers may have pulled those purchase positions forward. But again, not a significant trend in either direction.

Alright. That makes sense. And, again, I think this was sort of talked a little bit in the guidance expectations, but would you mind, you know, kind of clarifying the expectations for the Avantor partnership this year? Like, is that pivotal for some of the essential targets that you have?

Yeah. So on Avantor, again, we signed the distribution agreement in November of 2024. As is standard in these types of distribution agreements, we have a phase where we are implementing our products into their operating system so that they can be ordered and fulfilled through the system. And then we have the training of the tool sales professionals. So we have sort of meetings that were set up throughout the first quarter of the year, as is typical with commercial organizations. So we have been slotting into those meetings and providing training for the teams, and now the teams, as they get trained, are out beginning to interface with our direct reps and, you know, really strategize and coordinate at a territory level. So, you know, as we said when we announced the distribution agreement, we expected Q1 to really be that training and implementation phase. We expect to see some contribution from the relationship in the second quarter of the year and really see more of an acceleration from that relationship in the back half of the year after their reps have been trained and been out in the territories for a period of time to build their funnels and ultimately be able to deliver more of a ramp in the second half of the year.

Got it. Okay. And then in light of the recent, you know, the US and the AGBT conferences, can you just talk about the recent feedback from both the Proteomics and the Genomics communities and how they are sort of, you know, interacting so far with the technology and the kind of value proposition?

Sure. You know, I think at AGBT, which is obviously a more focused show in genomics, next-generation DNA sequencing, some of the spatial technologies, you know, there were obviously a lot of new product announcements or new entrants into the space. So lots of competitive noise in the space, certainly within the genomics field. NIH funding was certainly a, you know, a hot topic amongst the academic researchers. You know, so not normally a core event for us, so we never expected it to be a huge source of sort of what we would call more lead generation or marketing activities, but we did have people there, I mean, attendance presenting scientific data and posters on the technology. And we had, you know, very good traffic at those poster sessions, you know, lots of great questions from people really in that community thinking about that multiomic workflow. How do they go from RNA sequencing and incorporate proteomics technologies to sort of close that loop? Very similar to what the University of Virginia talked about in their paper that was preprint on bioRxiv. So that is maybe a good analog of sort of how the genomics community at that meeting was interfacing with us with a protein sequencing technology. HUPO, obviously a very targeted event, not nowhere near the size of AGBT, but very focused on the proteomics market, the proteomics customers. You know, we had, you know, tremendous booth traffic there. We had, you know, interest at posters that were a mix of some data we presented, also data that customers presented, you know, other workshops and activities. So, you know, very positive feedback we are getting, you know, each time we bring out new capabilities, that gets people talking about new applications. And, you know, ultimately, in these events, as we have talked about on these calls before, a mix of customers presenting data and some of that peer-to-peer exchange of information is a very valuable sort of tool in driving the awareness and ultimately the adoption.

Alright. Maybe on that note, would you mind, like, maybe at a relatively high level, could you talk about why the amino acid binder, like, well-based approach, you know, while your content has gone to, you know, be successful here relative to, like, a nanopore-based approach that we have seen just, you know, coming off of the Roche kind of comments, I guess, you know, always make move David's ADM team, things like that. Just, you know, why is, like, your approach better is but potentially worse something that we have kind of seen in, like, more of an R&D kind of a phase?

Yeah. Well, you know, I think, Kyle, it is a little hard to know exactly compare to nanopore-based approaches for protein sequencing given there are not any commercially available products that utilize that technology. There are certainly some very early-stage research papers that have been published on trying to apply nanopore technologies, but most of those papers, as is the case with early technology development, are focused on, you know, very simple samples, perhaps, you know, amino acids with spacers in them to improve the reading accuracy or the ability to detect the changes in amino acids. So, you know, a common technology feasibility approach, but not necessarily something that we know what the specs would look like in a commercial environment and how to think about positioning our technology against that. I think what we are focused on with our approach is, you know, unlike DNA, where nanopores have been applied, you know, you have, you know, four DNA bases to deal with. Everything is negatively charged. In amino acids, we are talking twenty. We are talking about a wide range of properties of those amino acids. And the sequence context of those amino acids is a very challenging endeavor. So while perhaps nanopore will get there, we think it is a significantly harder challenge than perhaps DNA in nanopore. In terms of how we focus on our approach, you know, what we like about our approach is a couple of things. One is, you know, our amino acid recognizers are capable. They typically detect, you know, two or three amino acids and the relevant sort of post-translational modifications or changes. That approach, you know, will prevent us from needing to have twenty different recognizers, which we think trying to scale up to these really large numbers of, you know, potential recognizers would be a very difficult biochemistry problem. So sort of our kinetic detection and that ability to have these multi sort of recognizers for different amino acids we think is definitely an advantage from a development perspective. And, you know, when we talk about sort of the engineering architecture, what we like about the direction we are going with Proteus is we really put ourselves on a consumable architecture that can be scaled to billions of reads, sort of the type of capacity you are bound to need to get the de novo sequencing, and then you are really leveraging a lot of the optical detection capability that has been evolved over the last decade or so. So we really like that sort of trying to leverage a lot of that capability that is out there getting onto that architecture that will scale, and, you know, underpinned by sort of our unique kinetic detection with those amino acid recognizers.

Perfect. And then maybe just on that last note and just to be the final question for me. Could you maybe confirm if the Proteus architect and the initial assay is locked down? Like, how is that progressing? I know you have the, I guess, second half of next year launch, but in terms of, like, some of the technical milestones, how are those going?

Yeah. So a good question, Kyle. So maybe I will start with what we said on the call, which is our key milestone we want to achieve this year is that we demonstrate our next-generation protein sequencing chemistry on that Proteus platform and the consumable on sort of a prototype of that, what we expect to do by the end of the year. You know, I would say a couple of things about sort of how we are progressing. Right? So at our investor day, we showed some of the early technology feasibility data around consumable fabrication method, the change from lifetime detection to color ratio. So, you know, that was some of that early data. We talked about the partnerships we did to help derisk and accelerate. So SkyWater around the consumable, Planet Innovation around the instrument, Nvidia around AI and computing, then more recently you probably saw that we partnered with IDEXX Health and Sciences, really the leader in, you know, high-performing optical systems in the life science space. So we feel really good about the partners we have around us, sort of how the technology has progressed from what we showed in November, and are, you know, very confident we can get to that goal of having sequencing on a prototype platform. We are, you know, right where we would want to be in terms of getting to that second half of 2026 launch. So as we go this year, we will certainly provide other updates, but, you know, really right now, progressing the way we like. Set up well for that end-of-year milestone and assuming we hit that, you know, really gets us then to that second half of 2026 launch.

Got it. Okay. Thanks for the help.

Thank you. And our next question comes from the line of Doug Farrell from H.C. Wainwright. Your question, please.

Hi there. Nice to speak with you, and congrats on a good quarter.

Thanks, Doug.

So similar to what was touched on by the last caller, I recall last quarter there was, you know, some variability in the sales cycle, sometimes taking a bit longer than expected. As you are gaining more experience with more customers, are you starting to see and experience sort of a more predictable cadence to those sales cycles?

Yeah. Good question, Doug. So, you know, I think the sales cycle we are seeing is certainly longer than it has been historically in our market for an instrument of a similar price. I think we are comfortable with now what that sales cycle looks like and that we are seeing it consistently, but it is still elongated from what it has historically been in our space for a device of this sort of price point.

Sure. Thank you for that. And then as far as target markets, you said mostly it has been academic researchers, but you are sort of, you know, branching out and getting some traction with CMOs, biotech, large pharma, government. What do you see as the largest market? And are there any markets that you find a little difficult to crack, and feel like it is an untapped market and maybe would like to, you know, undertake some initiatives in order to penetrate into those markets?

Yes. So two questions there, Doug. Let me take the first one. So as we exited 2023, our customer base, as I said in the prepared remarks, was largely academic. Right? As we exited 2024, it is about a fifty-fifty split now between academic customers, those academics are both in the US and in Western Europe, and then those other segments, pharma, biotech, government. So, you know, really good diversification of that base of customers. We would expect that diversification to continue. As we go forward in terms of, you know, more and more of those biotech, pharma, etcetera, sort of coming online. The second part of your question, Doug, was more about the untapped opportunities. So, you know, I think the key one right now that we have line of sight to, given the diversification we are already seeing with our techs in terms of end users, really is that international opportunity. We had, you know, a couple of partners earlier in the year and then added to that international distribution channel over the course of 2024. And I think, as I said in the prepared remarks, really seeing an interesting opportunity in these other regions of the world where perhaps they do not have the capital to buy a half a million or million-dollar piece of equipment. They do not have the infrastructure scientifically or bioinformatically to analyze the data and do the laboratory workflow. So really feel like there could be a, you know, a nice opportunity across multiple end segments within that sort of outside the United States sort of opportunity through those channel partners. That is why we built into that network over the course of 2024 and will continue to do that in 2025. Really feel like that is more of the untapped opportunity right now because I think the diversification of the base in general is going well in all regions, and we continue to sort of push on that and invest in that sort of distribution or decentralization of the customer base.

Cool. Alright. Thanks for the color on that. And then last one from me, beyond the Avantor agreement. I recall you had intended to do some internal expansion of your own commercial team. Have you brought on a lot of new people, and then sort of what phase are they in? Are they still under that, you know, whatever was, you know, three to six months of training, or are you starting to see them out in the field and even sort of delivering a return on that investment from your internal commercial teams?

Sure. Yeah. Good question. So we did do some additions to close out the year and right into the start of this year. You know, as we sit here right now on this call, we have our sort of our commercial team, our direct team, sort of staffed the way we expected it to be staffed for this point in 2025. Now, obviously, we expect there to be some modest hiring throughout the year, as we continue to scale up. Some of that could be in the sales techs of old, but also in the application support and sort of the more scientific and based support and service as that install base keeps growing. In terms of where are they at in the process, you know, the majority of those sales professionals are, you know, in territory and have been out there now for, you know, at least that three-month period. But there are some that came on later in the year or came on first thing this year that are still in that training and ramp-up phase. So, you know, over the course of the next quarter or so, all those folks are sort of be at an operating scale. And then, you know, anybody who would come on new obviously would go through the same type of training and, you know, funnel build and progression.

Okay. So we might sort of see that impact in the back half of 2025, similar to the Avantor agreement.

Yeah. I would agree with that. I think that, you know, I would say two things about it. One is our reps, you know, are getting, you know, are in that phase of being in the territory, working their funnels and working their space. They are now interfacing with those Avantor reps who just got trained. So, you know, we should start to see some of the synergies of those groups working together to sort of share leads and build the pipelines as we get into the back half of the year. Similar with our international channel partners, you know, many of those came on in the second half of the year. We just held a big channel partner training meeting last week. So those folks now are getting, you know, more and more engaged with the tech, you know, getting trained, getting their application support people up to speed, and we should see those folks out now able to start to build their funnels and then execute on, you know, winning new customers as we move into the second quarter and second half of the year.

Thank you, ladies and gentlemen. That does conclude the question and answer session of today's program. I would like to hand the program back to Jeff Hawkins for any further remarks.

Alright. Thank you. We are excited about the progress during 2024 and are looking forward to delivering on our commercial scale-up and technology roadmaps during 2025. Look forward to providing you more updates on our next call. Thank you for attending.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.