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Operator
Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Quantum SI fourth quarter and full year 2023 earnings call. At this time, all participants on the list are in only mode. After this biggest presentation, there will be a question and answer session. To ask a question, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Catherine Atkinson from Quantum SI. Catherine, please go ahead.
Catherine
Good afternoon, everyone. Thank you for joining us. Earlier today, Quantum SI released financial results for the fourth quarter and full year and to December 31st, 2023. A copy of the press release is available on the company's website. Joining me today are Jeff Hawkins, President and Chief Executive Officer, and Jeff Kyes, 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 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 more complete lists 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 today, February 29th, 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. With that, I will turn the call over to Jeff Hawkins.
Jeff Hawkins
Good afternoon, everyone, and thank you for joining us today. In today's call, we will provide a business update, present our fourth quarter and full year 2023 financial results, and provide an outlook for 2024. We will then open the line for questions. As a reminder, the goal of Quantum SI is to bring next-generation protein sequencing to every lab everywhere. Our proprietary technology delivers deeper, unbiased proteomics insights that we believe will accelerate scientific research, enable the discovery of new biomarkers, and ultimately power the development of new therapies and diagnostic tests that will positively impact human health. Now, I would like to provide an update on our progress during the quarter and full year ended December 31st, 2023, as well as provide an outlook on 2024. Our first corporate priority is to commercialize platinum and the 2M chip. During 2023, we executed a controlled launch of our platinum system. The controlled launch allowed us the opportunity to build our core commercial capabilities and processes, and ultimately define the blueprint for how to scale these efforts in a financially sound way as we enter the full commercial launch phase. Also, during the controlled launch, we were able to engage deeply with key opinion leaders and early adopters of our technology to better understand their applications of interest, define the focus of our technology development efforts going forward, and deliver on the recent launch of our version two kit that I will talk about in a few moments. Based on the learnings from the controlled launch, during the fourth quarter of 2023 and into the start of 2024, we have been expanding our commercial infrastructure and resources in preparation for our full commercial launch. At present, we are finalizing our commercial readiness and expect our direct sales force and our current distributor network to be fully trained and ready to execute on our full commercial launch by the end of March. As we initiate our full commercial launch, I want to be clear about what this means for our customers and investors going forward. First, this means that we will no longer hold back the rate of instrument installations. All customers that are within our launch territories or are in areas where we can properly service and support them with our existing commercial infrastructure will be moved forward. Second, we will continue to closely monitor our commercial performance and customer success rates and leverage that data to execute on a steady scale up of our commercial infrastructure, both direct and distribution throughout 2024. Finally, now that we are moving into our full commercial launch phase and have much better visibility to our R&D pipeline, we are pleased to be able to provide full year financial guidance, which we will talk about in a few minutes. Our commercial strategy involves a mix of direct sales and service and distribution partners. In the US market, we currently operate with a direct sales and service model. In EMEA, our initial focus will be the European market where we will utilize a mix of direct and distribution approaches. Beyond the US and EMEA markets, we recently announced the addition of a distribution partner in Japan, which we expect will serve as our strategic entry point into the broader APAC market in the quarters ahead. Our strategy is clear. We will expand our commercial efforts in a fiscally responsible way while ensuring all our customers receive the highest level of service and support. Our goal is not simply to place instruments. It is to secure customers who will utilize our technology to advance their research for years to come. In preparation for full commercial launch, we have been diligently working to expand our direct commercial team across sales, marketing, service, and support. Our direct commercial team now encompasses approximately 20 individuals based in the United States and Western Europe. On the distribution front, we have previously announced that we have secured three distribution partnerships covering Eastern Europe, Southern Europe, and Japan. All three of these distribution partners have extensive experience bringing innovative new technologies to the market, and we look forward to partnering with them to ensure their success. In the last quarter, our sales funnel has continued to grow and we expect that rate to accelerate in the near term based on our planned outbound marketing and direct selling efforts associated with our full commercial launch. Our funnel is well established to support the full commercial launch in both United States and Europe. In addition, we continue to receive inquiries from other locations throughout the world, but we will not execute on those opportunities until we are confident that we have a sustainable infrastructure in place to service those customers to the highest standards we expect of ourselves. Lastly, one key takeaway from our controlled launch phase was how much value our platinum instrument can deliver to customers, and they're surprised at how affordable the instrument is. To this end, effective January 1st, 2024, we increased our list price for platinum to $85,000. We believe this modest increase helps partially capture the exceptional value that platinum provides relative to other tools in the market while continuing to be attractively priced. Our second priority is to lead with innovation. QuantumSI is dedicated to meeting customer needs and enhancing their user experience. As we announced a few weeks ago, we launched our version two sequencing kit. This sequencing kit has substantial improvements over our prior version, including the introduction of a new amino acid recognizer, high reproducibility across runs, and an approximately three-fold reduction in cost for amino acids. The ability to deliver a high-performing new sequencing kit was a result of the R&D realignment that we completed in the third quarter of last year. As reported previously, the initial signs coming out of the restructuring were promising, but now, based on the team's performance over the last few months, I am pleased to conclude that the process was a success, and we are hitting on all cylinders. This version two sequencing kit is not the end, it is just the beginning. We expect to deliver a steady cadence of meaningful improvements to our technology going forward. In fact, we are already working on a version three sequencing kit, which we expect to deliver by the end of the third quarter. Though I can't share any specifics about the version three sequencing kit yet, I will say that our approach to releasing any new version of our sequencing kit is to ensure it will provide a meaningful improvement over the prior version, further enabling our customers to expand their research efforts using next-generation protein sequencing. While the announcement of the launch of the version two sequencing kit and the anticipated launch of a version three kit in the third quarter of this year is exciting news, it is not the end of our innovation roadmap. We are also making solid progress across library prep and instrument development programs that we believe will solidify our position as the technology leader in next-generation protein sequencing and will fuel the growth of the company for years to come. Finally, we are pleased to share that at the upcoming U.S. Human Proteome Organization Conference running from March 9th through the 13th, there will be a QuantumSI customer giving an oral presentation regarding their use of platinum for PTM detection and a second customer presenting a poster describing their use of platinum to develop alternative library prep applications for next-generation protein sequencing. We are excited to see customers beginning to present their work at industry conferences like HUPO and expect to see more of this throughout 2024. Our third priority is to preserve financial strength. As we state on each of our calls, we remain committed to continuously improving our fiscal discipline. With Jeff Kyes, our Chief Financial Officer, and others joining the organization in the last year, we have significantly ramped up the discipline around our financial resources and planning efforts. This increased rigor along with the clarity we have around our full commercial launch and the visibility we have to our R&D pipeline allow us to be confident that we can provide more color to the investing community with our 2024 financial guidance. 2024 will be a transformational year for us as we embark on our full commercialization efforts. From our vantage point, we expect to generate revenue in the range of 3.7 to $4.2 million. We expect growth on a quarter over quarter basis during 2024. Our 2024 revenue will include a mix of both platinum units and consumables with the majority of revenue being derived from the United States along with contributions from the EMEA region. Jeff will provide further color on our 2024 guidance in a few moments. With our full commercial launch just a few weeks away, it has never been more important for us to utilize our financial resources in the most effective way, and we remain committed to that. With the actions that we took in the past and the discipline that we put in place over the last year, we are confident we will be able to achieve superior R&D results and speed to market and fully fund our commercialization efforts for 2024, both with minimal changes in our operating expenses. I'll now turn the call over to Jeff Kyes to review our financial results. Jeff.
Jeff
Thank you, Jeff. Now let's discuss the details of our fourth quarter and full year 2023 financial results. Revenue in the fourth quarter of 2023 was $400,000, which consisted of revenue from our platinum instrument and associated consumable kits. Gross profit was 178,000 and gross margin was 45%. For the full year, revenue was 1.1 million, gross profit was 488,000 and gross margin was 45%. As I have stated before, our gross margin percentage will be somewhat variable for the near future as we work through our initial stages of commercialization and also will 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 dates back to the pre-commercial stage of Quantum SI. Gap total operating expenses in the fourth quarter of 2023 was 28.1 million compared to 38.8 million in the fourth quarter of 2022. Included within operating expenses are stock-based compensation, restructuring charges and goodwill impairment in the fourth quarter of 2022. Removing these items, we arrive at an adjusted operating expenses, which were 26.3 million for the fourth quarter of 2023 compared to 25.3 million of the fourth quarter of 2022. For the full year of 2023, operating expenses were 111.7 million compared to 123.8 million for the full year of 2022. And adjusted operating expenses for the full year of 2023 were 98.9 million compared to 103.2 million for the full year of 2022. The takeaway from our year over year reduction of adjusted operating expenses is that as a company, we have spent significant effort over the last year right-sizing our spend while also accelerating innovative product releases as demonstrated by our version two kit and funding a large part of our scaling our commercial operations. Net loss for the fourth quarter of 2023 was 22 million compared to 33.1 million in the fourth quarter of 2022. And adjusted EBITDA for the fourth quarter of 2023 was negative 25.1 million compared to negative 24.5 million in the fourth quarter of 2022. For the full year of 2023, net loss was 96 million compared to 132.4 million in 2022. And adjusted EBITDA for 2023 was negative 94.3 million compared to negative 100.6 million for 2022. As of December 31st, 2023, we had 257.7 million in cash and cash equivalents and investments in marketable securities. Our full commercial launch plan includes the main focus of a direct sales channel approach in the United States market and a combination of direct and distributor approach in EMEA. Based on these approaches, we are guiding 2024 revenue to a range between 3.7 and 4.2 million, adjusted operating expenses to be less than 103 million and net cash usage less than 100 million. In comparison in 2023, we recorded 98.9 million in adjusted operating expenses and utilize 93.6 million in cash and investments. Our guidance for 2024 includes accelerated R&D innovation and fully funding our commercialization ramp up with a minor increase to adjusted operating expenses in cash. As I stated earlier and on prior calls, we expect our gross margin percentage to be variable in the near term as we work through our initial stages of commercialization and the impact of acquisition costs and prior accounting adjustments to underlying inventory that dates back to the pre-commercial stage of QuantumSI. Based on this, we're now providing specific gross margin guidance. Finally, we still expect that our existing cash equivalents and investments in marketable securities will provide runway into 2026. Now I will turn the call over to the operator to open the line for questions.
Operator
Thank you. Ladies and gentlemen, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, simply press star one one again. Please stand by while we compile the Q&A roster. Now first question coming from the line of Kyle Nixon with Canaccord, the line is open.
Kyle Nixon
Hi, this is Alex Cucasino online for Kyle Nixon. Congrats on my quarter guys. I think where we should start is a discussion of the guidance. Could you discuss particularly what the cadence of placements might be sequentially across the year and more specifically, could there be a step down in one queue from four queues? Thanks.
Jeff Hawkins
Yeah, thanks for the question. So we gave the guidance out on an annual basis. I think when you think about the quarterly cadence, I would expect since we're just moving now into the full commercial launch as we get here towards the end of March, we'd expect there to be sort of a consistent rate of revenue here in the first quarter with some step up into Q2 and then more acceleration as you look into the back half of the year. So I don't anticipate a step down from Q4. I expect it to move maybe more laterally. And then as I said, sort of accelerate in the back half of the year.
Kyle Nixon
Thanks. And so you also announced a bunch of product improvements in early February. You announced version three kits here. You also discussed the updates in solid progress in regards to library prep. Just curious, could carbon or an instrument possibly potentially like carbon be offered in the near to medium term on the sample prep end? Thanks.
Jeff Hawkins
Yeah, I think when we think about library prep, I think you got, and you think about carbon too, right? So carbon, if you remember, was really for doing some of the front end workflow automation and our feedback from customers that we had accumulated last year that led to the decision to put carbon on hold was really there wasn't sort of the need for carbon based on the volumes of tests our customers are processing and sort of the capabilities of the scientists and laboratory staff that are in those accounts. We continue to look at options though for automation as our customers scale up in volume. Really the question will be, do we do that -a-via device like carbon? Or I think as we've communicated before, we're leaning more towards, you know, we would provide some form of liquid handling solution that could be, you know, from one that's available sort of in the existing market in terms of automating library prep and even other aspects of sample prep.
Kyle Nixon
Thanks. And one more question. In regards to potential adoption of protein sequencing, obviously it's still very much early days in the technology. We just got some new posters coming out and they'll be presented at a conference. Just curious kind of how you're seeing adoption levels right now and interest in protein sequencing, you know, how that's kind of evolved, you know, since you've been out working at a corner side, thanks.
Jeff Hawkins
Sure, I think we talked about in prior calls and, you know, I'd sort of reiterate a similar sentiment today. The interest in using next generation protein sequencing has always been ahead of our expectations. You know, we talked about the funnel during 2023 was running ahead of our expectations. I think as we entered 2024, we continue with the same sentiment. There's always been that interest there to utilize a technology like ours to be able to do types of analysis that are either very difficult to do today or aren't really accessible today for customers. So we see that interest, I think really now it's about with the version two kit, with the increase in sort of commercial resources, getting all that trained really now going out and executing on that full commercial launch and really converting that interest into customers who are adopting and using. I think the data that's coming out at Hoopoe is an example of, you know, customers who have access to this technology, they're going to start showing the applications and the types of things they can do and as we accelerate the placement of our device with the full commercial launch, I'd expect that more and more people will talk about applications with the technology.
Kyle Nixon
Thank you very much.
Operator
Thank you. Thank you. One moment for next questions. And our next question coming from the line of Swayam Pakula Ramakant from HC Wenright. Your line is open.
V3
Thank you. This is RK from HC Wenright. Good afternoon, Jeff and Jeff. Good afternoon. Congratulations on all the progress. So between the webinar that happened a couple of days ago and the posters that are upcoming, the poster and publication that's coming up in the conferences during the quarter, I guess, what's the takeaway from all this in the sense if I am somebody who is looking for a platinum, for buying platinum, by looking at all this data presentations, would I get a good feel for what's the capabilities of the machine or is that just a small sample of set of things that the, the utility of the machine?
Jeff Hawkins
Yeah, it's a good question, RK. I would describe it as still a small sampling of what the technology and the platinum instrument are capable of. As you can imagine, with the broad capabilities of sequencing at the amino acid level and still at the early phases of our commercialization efforts, these customers represent interesting applications. They represent applications that were of importance and priority for those customers, but they could be different for other users. So I expect that as more data comes out at future conferences and even at future webinars, you'll continue to see different things talked about. I don't think you're gonna see a lot of repetition. I think you'll continue to see a breadth of applications that people are interested in.
V3
Okay, and just staying on the same topic, being hardly in the market for a year, and able to get three different presentations out, kind of speaks to the excitement to a certain extent of the utility of these machines. Is the same amount of enthusiasm palpitating among the funnel that you have, or is this an indication of how large the funnel can grow to once you start launching the product? I'm just trying to get a feel for what would be the pull on the product once it becomes commercial.
Jeff Hawkins
Yeah, I think about it in a couple ways, RK. I think the first thing I would tell you is the interest in the technology and the excitement around a new technology like our technology, I think is definitely palpable. It was in the controlled launch phase, but as we've talked about on prior calls, that was really our decision to roll out in a very controlled manner, ensure we were able to be very responsive if any issues arose. We were really throttling the pace at which customers were able to access the technology. So that excitement has already sort of always been there. I think that excitement, I see it actually starting to accelerate with the V2 launch. We put out some data and examples of performance increases you see at a protein level, at a peptide level, to put out data around the reproducibility enhancements in the product. And I think when you start providing information like that, again serves to just show the innovation sort of trajectory we're on. So people are both excited about what we were talking about, but I think equally excited about the trajectory of innovation. I think as customers hear about a version three kit, it's only gonna help with that. So I think while we're at the early stages because we're just moving to full commercial launch now, I would expect that excitement to be there and be sustained and grow. And that will show up ultimately in the funnel. And then it's our job to convert that sort of funnel and interest and excitement into placements and revenue as we move forward throughout the year.
V3
Thank you. And then my last question is in terms of, as you said, version three should be significantly different from version two, based on what you're suggesting. I know you don't wanna kind of unveil what you're going to see in version three, but in terms of, again, I'm just going back to the utility question again. So does, when you start moving from version one to two to three, what's the aim there? Is it to increase the spectrum of utility or is it more in terms of how well and how clean of a sequence can you get? What's the drive when you go from one version to the other?
Jeff Hawkins
Yeah, when we move from one version to another, I think it's generally about an overall lift in performance, right? Providing, in this case with the version two kit, we added an additional recognizer so you get more coverage. That coverage manifests itself in terms of the number of visible amino acids. It manifests itself as being able to see more peptides from a given protein, but we also increased the overall output of the device. And that increased output gives customers then the flexibility to apply that in different ways. On one hand, with greater sequencing output per run, some customers might choose RK to apply that to look at a more complex sample, perhaps a more complex mixture of proteins. Other customers might want to apply that to really deeply interrogate samples and look at protein variants or PTMs in the future. So I think in general, the thinking is just continuing to raise the coverage, raise the output and the performance to really just give people a robust set of capabilities that they can then apply to their research in the way that they see fit. So it's really just about opening up applications, capabilities, compatibility with different samples they might want to work with. And then we really see where they go with their research and how they apply it. And we'll take those learnings like we did in the creation of V2 and they're fueling what we're doing in V3 and I'm sure they'll fuel what we do in a future version after that. I think V3 is very exciting. We're well underway, but I don't think that's the end either. And we'll learn in the market and we'll apply those learnings as we go forward.
V3
Perfect. Thank you. Thanks for taking all my questions.
Jeff Hawkins
Yep, thank you, RK.
Operator
Thank you. I'm showing no further questions in the queue at this time. I will now turn the call back over to Mr. Jeff Hawkins for any closing remarks.
Jeff Hawkins
Thank you. We continue to make significant progress at Quantum SI on all fronts. And I want to thank the entire QSI team for their contributions during 2023. We're excited about our full year of commercial execution and R&D innovation and we look forward to providing additional updates on our next call.
Operator
Ladies and gentlemen, that's all for our conference for today. Thank you all for your participation. You may now disconnect.
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