Ladies and gentlemen, thank you for standing by, and welcome to the Quanterix Corporation Q3 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Quanterix's Chief Financial Officer, Michael Doyle. Please go ahead.

Thanks very much. 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. The 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 Q3 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.

Thank you very much, Mike. On slide three, you see the agenda. I'm going to talk about our accelerated growth opportunity and also what I consider to be some of the transformation around utilizing our Simoa franchise to enable therapeutic drugs. Mike will then do some financial results summaries. And I'll then close the meeting with an update to the objectives that I updated after our last earnings call, so that you could see some of the advances that we're working toward between now and year-end. So to start, we showed this slide last time, blood-based biomarkers are fast becoming a gold standard for traditional Abeta PET imaging. And you may have been reading that ever since the FDA approved Biogen's drug they basically have become a buzzword. The biomarker has become a buzzword as a way to help evidence efficacy and also evidence, in some cases, safety. So I'd like to start off on slide five by showcasing the fact that we received at a record pace, a breakthrough device designation from the FDA for our pTau-181, blood-based assay, which will be utilized primarily with other modes of diagnostics, including imaging to help triage patients is the intent for this application that we've been given the breakthrough designation, which gives us a priority with the FDA. There also was some really important publications, namely in the Lancet, the Simoa diagnostic accuracy data were published. Also pTau-217, which is a next-generation of phosphorylated tau that we're also working on, Lilly showcase that they used it in Trailblazer 2, and they have also been given accelerated pathway for their drug. And they actually showed that it correlates pTau-217, both with the images -- the PET images as well as clinical benefit, which is a pretty significant advance. On the financial results,…

That's great. Thanks, Kevin. I'm going to provide some additional financial details about our third quarter 2021 performance. And for your reference, for those following on the call, it will be slide 27. As Kevin noted, our GAAP revenues in the third quarter of 2021 was $27.7 million and included $1 million of revenue from our RADx awards. Excluding this nonrecurring item, our non-GAAP third quarter 2021 revenue was $26.7 million, a 46% increase versus the prior year third quarter non-GAAP revenue. We had record product revenue in the third quarter of $20.7 million, an increase of 77% versus third quarter 2020. Within product revenue, consumables revenue grew 98% in the third quarter versus the prior year third quarter to a record of $14.2 million, driven by our strong demand for pTau-181 and our neuro multiplex assays. Like Q2, our revenue performance in Q3 may include some recovery of previously deferred demand due to pandemic as customers return to more normal operations. Service revenue decreased 10% in the third quarter to $5.9 million. 2020 was a strong year for services revenue as onetime COVID-related activities lab closures and drove increased activity to our Accelerator lab. Looking at our services business revenue over two years, the CAGR, as Kevin mentioned earlier, just for the third quarter was 18% and is 24% on a year-to-date basis. Year-to-date, total revenues were $80.3 million. Excluding revenue from our nonrecurring RADx awards, non-GAAP year-to-date total revenues were $76 million, a 61% increase from the year-to-date 2020 non-GAAP revenue. Stated previously, we are not providing revenue guidance. Customer activity has returned to pre-COVID levels. However, a potential renewed spread of new variants could force renewed lockdowns potentially impact installations and utilization. On a GAAP basis, our Q3 gross margin was 55.1% compared to 67.2% in the…

Thank you very much. I appreciate that very much, Mike. And I want to close before questions with slide 28 that just updates the objectives given the advances that we've had this year on so many different levels, whether it be the COVID EUAs or the pTau-181 breakthrough designation. But you can see under neurology, we actually updated this to achieve the 181 as well as to file the Nf-L MS breakthrough device designation. As it ends up, while this was an objective to submit it going into the year. Because of COVID, we actually said that this would be delayed. We were able to actually submit the Nf-L MS breakthrough device designation. This can take a year or two particularly given that this isn't the primary area of focus, but we have, in fact, been able to make that at least application submission. In the area of COVID, we got the expansion of label claims for our objectives, and the other pieces of this, we were able to achieve. The one area that we are deferring in order to accommodate what we're doing in neurology and COVID is immunology. We are slowing down some of those investments in order to stay prioritized around the increased opportunity around ADUHELM as well as donanemab as well as even other Alzheimer's drugs that are now in trials. And so immunology will pick back up in the later years. But for the moment, we decided that it's better to stay highly focused on neurology and COVID. And then on the financials, the one thing we're saying here is we want to accelerate our diagnostic investments and the 100 times OpEx investments. And so as I stated earlier, I think getting to probably more of an OpEx around $121 million for 2021 is probably more reasonable. And for next year, I think we probably will be looking to try to increase our OpEx by another 25%, somewhere probably to a level of 30% of where we were in 2021. So we have an interest here to further refine this as we think through the opportunity, and we want to make sure we stay highly preserved on cash and utilized partnerships as best we can with pharma who have been known and give us data. So we're going to stay very efficient, but we do want to make sure that if we see the strategic optionality around some of these trials and making sure we advance this opportunity that we now have ahead of us that we have sufficient investment for that, and we have a very strong balance sheet to support it. And then finally, on platform, the 100 times, we think, increasing that opportunity to get to disease even earlier is very important for the future. So with that, we'll turn it over for questions.

[Operator Instructions] Our first question come from the line of Kyle Mikson from Canaccord Genuity. Your line is open.

Thank you. Hi, it's Alex, This is case on the line for Kyle Mikson. Great quarter, guys, really, really impressive results. I have one quick question about the -- your COVID offerings. More specifically, I was just curious if you guys could quantify what kind of revenue you were looking at for your COVID offerings over the quarter? And I have two others after that, if that's okay.

Yes. I would say that I would not put a lot of emphasis on our COVID growth. And I would say that there's kind of two comments there. There's the research side of it, where we have seen good momentum that we think is going to be sustainable into the future because we believe infectious disease will continue to be an area that the NIH and others will be studying. And we have our technology now, and Anthony Fauci's lab, and have technology being analyzed, looking at different drugs for covenant or other infectious disease. So we do think that the research side of it, we have seen some nice growth, but we also believe that's going to be sustainable into the future. On the diagnostics side, we haven't really seen a significant advance for our own diagnostic revenues. It takes time to get established into that landscape. And from our vantage point, we don't believe the diagnostic revenues for COVID are going to be a long-term sustainable area for growth focus. So we are doing everything we can to support the funding from the NIH to provide the capability and the availability for our technology, but it's not a focus of our significant go-to-market investment for the short term. We think it's important to kind of stay focused on research and then Alzheimer's for diagnostics is our primary focus.

That was extremely helpful. I had one other sort of high-level question. So I was just curious if you could provide An update on the competitive landscape of what you're looking at right now and I guess going into 2020 -- 2022, excuse me, as well.

Absolutely. And I do think the competitive landscape is somewhat depends on the magnitude of opportunity that you're searching for and trying to influence. And so at the highest level, we would look at imaging as being the primary competitor to a lot of what we do with biomarkers, meaning that today, there is an opportunity to use imaging to be able to see in the brain and to see plaque and to see the deterioration of the brain through brain atrophy and other ways. But we look at what we're doing as being a much greater systemic opportunity to see much less invasively the neurology advances in pathology the neurology advances. And so even though imaging sometimes to be looked at as competition, we think for the next five years, we look at it as being highly complementary. We think that there'll be a lot of triaging because imaging is the gold standard in many circles for neurology today. And so we would like to think of us as being more of an opportunity to triage increase the scalability of what you get with imaging. But longer term, probably we'll become more competitive versus complementary. Then if you look also then at the diagnostic landscape, there, we're not really in there yet. And so obviously, Roche, Abbott and Siemens are three incredibly productive companies with distributed IVD. Then you have LabCorp and Quest and a lot of even Mayo Clinic, vis-a-vis companies that we actually see as partners as we are evolving. They mostly all have our technology and they're running trials and someday could get an LDT license from us and actually be successful providing diagnostics to patients from those laboratories. Again, some might see that as competition. Right now, we view them as being strong partners and…

Thank You.

[Operator Instructions] Your next question comes from the line of Matt Sykes from Goldman Sachs. Your line is open.

Hey guys, This is Dave on for Matt. It looks like revenue and gross margin came in strong in the quarter, but SG&A was a little heavier than what we were expecting. Could you tell us a little bit more about what went into that?

Yes, absolutely, Dave, and thanks for the question. And I think that we're in a scenario, where you might recall, we started to build a diagnostics organization that really kicked off about four or five months ago when we brought in from Perkin Elmer, who's heading up our diagnostics. He's also President of Quanterix. This is an area that we think has got a significant opportunity for the future for investors and for the growth of our company. And so what we've done is we've taken a lot of the advances of the COVID franchise that we created with the FDA and with payers to advance our overall capability of diagnostics. And we have a group now of about 10 individuals. And that actually, if you look at our Accelerator business that we ultimately see as being a laboratory developed test center, an LDT center, there's probably another 15 individuals that we've been able to pull in into this diagnostic landscape. So we do think that we're now starting to make investments on to the diagnostics side, given that we've got the breakthrough device designation advances that probably have been a somewhat breakneck speed. I don't think anyone of us expected ADUHELM to get approved this year at the speed that it did and then you see the revitalization of the entire Alzheimer, we'll call it, pipeline of drug opportunities that ultimately are going to need to get a way to get payment. And the payers are really interested in getting technologies to better diagnose and scale diagnostics for Alzheimer's as well as to monitor, we call it kind of like evidence that the drug is performing. And so this whole concept of coverage with evidence, we think the payers are interested to have biomarkers monitor whether or not a drug is giving the desired performance. And so because of those opportunities that became very real for us. We are investing more aggressively on that diagnostic side of our business as we're learning and building this out and surprisingly getting quicker returns with things like breakthrough designation than probably we even expected. So that's the reason why OpEx is up. And I think it's one of these things that we feel makes a lot of sense to be investing in this opportunity for longer-term returns. And as you know, strategic optionality, we did have three raises, all of them very productive over the last four years. These raises have put a very strong balance sheet, and we did describe the fact that there could be optionality in the area of Alzheimer's and/or diagnostics that are now coming to fruition.

Got it. That's helpful. And then on the pTau breakthrough designation, any additional color you can give on how you think about the time line with the FDA there?

Yes. I, first of all, would caution investors, I think we probably always are taking a very cautious kind of a posture when it comes to the diagnostic landscape, particularly because it can be with delays and regulatory challenges, etc. It's not common that you get breakthrough designation 55 days after you submit an application. So this was somewhat unprecedented. And so I would say that don't count on that being the pace moving forward because we know it's a delicate of really proving the area under the curve and to further advance the utility of the actual diagnostic. And to that end, I would say that we would think that it's not uncommon for it to take a couple of years for a breakthrough designation to turn into 510 approval. So we would stay cautious, but I can tell you we're aggressively investing, and we have a lot of belief right now with the FDA given the NIH's funding of us for COVID and being able to get the asymptomatic readings of it. That's the key for us is making sure that we don't overstate the speed in which the FDA may act because they're extremely busy right now, still working out COVID and a lot of other priorities. And we did go ahead and make the submission for the Nf-L MS application as well. Again, I wouldn't expect that that's going to be fast. But I do think that we are going to work toward our own LDT approach over the next 12 to 18 months for pTau-181, which would not require FDA approval, and that's something that we will be working toward from our accelerator and through partnerships.

Got it. That's helpful. Thank you.

Our pleasure.

[Operator Instructions] And that concludes our question-and-answer session. I will turn the call over back to Quanterix Chairman and CEO, Mr. Kevin Hrusovsky, for closing remarks.

Thank you very much, Getting a lot of kind of inbounds here that suggests that these were pretty incredible results and we've made some massive advances strategically. But what I would say here is that we've got an employee base that some of the most special people that I've ever worked with in my career that have been working around the clock at breakneck speed throughout the pandemic and have been advancing our company on so many levels. We have a Board of Directors as well, that's one of the best that I've seen in all of my work over the 25 years that I've been a CEO. And I'm very impressed with the team of [indiscernible] and just the overall breadth of the leadership that we've now been able to attract into Quanterix. And so we will continue working at this primarily because of the greater purpose opportunity to have a material impact on Alzheimer's over the next several years and help it see these lethal diseases earlier, less invasively. So thank you for all your support. We look forward to talking to you at year-end results. Thank you very much.

And that concludes today’s conference call, thank you for participating. You may now disconnect.