Quantum-Si Incorporated — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts below are in millions of dollars unless otherwise noted. The June 10, 2021 business combination with HighCape was accounted for as a reverse recapitalization; prior-period results represent Legacy Quantum-Si.
Business context and outlook
Quantum-Si is developing a single-molecule detection platform focused initially on next-generation protein sequencing (NGPS), including the Carbon sample-preparation instrument, Platinum sequencing instrument, software, reagents and chips. The company reported no revenue since inception. It was expanding a limited early-access program and planned a phased research-use-only commercial launch in 2022.
Financial performance and liquidity
| Metric | Three months ended Sept. 30, 2021 | Three months ended Sept. 30, 2020 | Nine months ended Sept. 30, 2021 | Nine months ended Sept. 30, 2020 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $11.104 | $6.655 | $32.190 | $21.174 |
| General and administrative expense | $12.989 | $1.631 | $34.211 | $5.157 |
| Sales and marketing expense | $1.082 | $0.266 | $2.717 | $0.825 |
| Total operating expenses / operating loss | $25.175 | $8.552 | $69.118 | $27.156 |
| Net loss | $18.091 | $8.557 | $65.567 | $27.068 |
| Net loss per share | $0.13 | $1.60 | $1.09 | $5.06 |
There was no revenue, so revenue-based margins are not applicable. Q3 operating expenses rose 194% year over year, and nine-month expenses rose 155%, mainly reflecting headcount growth, stock-based compensation, product development and public-company costs. Q3 net loss included a $6.975 million gain from changes in warrant fair value and $0.739 million in dividend income; these non-operating items partly offset the operating loss.
At September 30, cash and cash equivalents were $62.103 million and marketable securities were $438.102 million, totaling $500.205 million. Current assets were $505.202 million and current liabilities were $7.196 million. Total liabilities were $15.611 million, including $8.176 million of warrant liabilities; the PPP loan had been repaid in June and no notes payable remained. Stockholders’ equity was $493.915 million.
The financial statements report nine-month cash used in operating activities of $49.117 million, cash used in investing activities of $441.090 million and cash provided by financing activities of $515.400 million. Financing was primarily from $512.794 million of net business-combination proceeds. Management stated that cash and marketable securities were expected to fund operations for at least 12 months. Adjusted EBITDA was a non-GAAP loss of $17.515 million for Q3 and $43.183 million for the nine months.
Material changes and notable items
- The June business combination generated approximately $511.2 million of proceeds, and the former preferred shares converted into Class A and Class B common stock. Class B shares carry 20 votes each; the founder and permitted transferees controlled the company.
- Nine-month stock-based compensation was $17.840 million, compared with $1.601 million in 2020. The company also expensed $7.383 million of transaction-related costs for the nine-month period.
- On November 5, 2021, after quarter-end, Quantum-Si acquired Majelac Technologies for $5.0 million cash plus equipment reimbursement, restricted shares and potential earn-out payments, to bring chip assembly and packaging capabilities in-house.
- The filing disclosed a non-material correction to Q2 2021 weighted-average shares and loss per share. Q2 loss per share was revised from $3.05 to $0.97, and six-month loss per share from $5.50 to $2.23.
Guidance, risks and contingencies
Management expected substantial continued R&D investment, rising sales and marketing spending approaching the planned 2022 launch, and negative operating cash flows for the foreseeable future. It cited potential delays in technical milestones, commercialization costs, public-company expenses, acquisitions and COVID-19-related supply, staffing or manufacturing disruptions as factors that could accelerate cash needs. Future additional financing may not be available on acceptable terms.
The company reported two material weaknesses in internal control over financial reporting, related to oversight of outsourced accounting and warrant accounting. Disclosure controls were assessed as ineffective as of September 30, 2021. Management described plans to hire experienced finance personnel and strengthen review procedures. The company also reported evaluating whether the business combination caused an ownership change that could limit use of tax attributes. No material pending litigation was disclosed.
Other commitments included $9.217 million of future minimum payments under a San Diego operating lease and annual minimum intellectual-property license payments of approximately $0.220 million, with potential royalties after commercialization. The filing’s risk discussion included competition, product-development and adoption uncertainty, financing needs, and COVID-19 effects.
Important facts for investors to verify
- Reconcile cash-flow figures: the financial statements report operating cash use of $49.117 million and investing cash use of $441.090 million, while MD&A reports $49.751 million and $440.456 million, respectively. The reported net increase in cash is $25.193 million.
- Track progress toward the planned 2022 launch, early-access program milestones, product performance and customer adoption; no revenue had yet been generated.
- Monitor cash burn, hiring and commercialization spending against management’s at-least-12-month liquidity assessment, and any need for additional financing.
- Assess remediation of the disclosed material weaknesses and the impact of the Q2 earnings-per-share correction.
- Consider dilution and voting control from outstanding options, RSUs and warrants, and the dual-class share structure; also review the Majelac acquisition’s final consideration and integration.