Quantum-Si Incorporated — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial amounts below are in U.S. dollars; unless noted, amounts are in millions.
Business context and reporting period
Quantum-Si is a pre-commercial life sciences company developing a single-molecule platform for next-generation protein sequencing. Its planned system includes the Carbon sample-preparation instrument, Platinum sequencing instrument, cloud software, reagent kits and chips. The company reported no revenue since inception and continued investing in product development ahead of commercialization.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | No revenue | No revenue | No revenue | No revenue |
| Research and development expense | $16.7 | $11.1 | $53.9 | $32.2 |
| Selling, general and administrative expense | $11.0 | $14.1 | $31.1 | $36.9 |
| Net loss | $(31.7) | $(18.1) | $(99.3) | $(65.6) |
| Basic and diluted loss per share | $(0.23) | $(0.13) | $(0.71) | $(1.09) |
- Cash flow: Operating cash use was $71.0 million for the first nine months of 2022, compared with $48.3 million in 2021. Investing activities provided $111.7 million, mainly from marketable-security sales; financing activities provided $1.8 million.
- Liquidity: At September 30, cash and cash equivalents were $78.3 million and marketable securities were $293.8 million, totaling $372.1 million, versus $471.3 million at December 31, 2021. Current assets were $378.9 million and current liabilities $12.6 million.
- Debt and obligations: The filing reports no outstanding borrowings; the PPP loan had been repaid in 2021. Operating lease liabilities totaled $17.1 million, including $1.3 million current. Future undiscounted lease payments were $35.3 million.
- Margins: Gross margin and operating margin are not meaningful because the company had no revenue and reported operating expenses rather than cost of revenue.
Material changes versus the prior comparable period
- Q3 operating expenses rose 9.9% to $27.7 million; nine-month expenses rose 23.0% to $85.0 million. R&D increased with product-development spending and headcount. SG&A declined, principally due to lower stock-based compensation and reduced professional fees, partly offset by increased staffing and public-company costs.
- Net loss widened 75.3% in Q3 and 51.5% for the nine-month period. Nine-month other expense was $22.7 million, primarily reflecting realized and unrealized losses on fixed-income mutual funds; the comparable 2021 amount was $0.6 million.
- Nine-month dividend income rose to $3.3 million from $0.7 million as rates earned on investments increased. The $5.1 million nine-month warrant-liability fair-value gain was non-operating and non-cash.
- Cash and marketable securities declined from year-end, while operating cash use increased. The company sold $119.8 million of marketable securities during the nine months.
Outlook, commentary, risks and unusual items
- Management expected to launch Platinum and begin taking orders before the end of 2022, with initial shipments in Q1 2023. It anticipated increased spending on sales and marketing, product development and inventory during the launch ramp.
- Management stated that cash and marketable securities were expected to fund operations for at least the next 12 months. It also expected negative operating cash flow for the foreseeable future and noted that future financing may not be available on acceptable terms.
- Key execution risks include successful product development and commercialization, customer adoption, manufacturing and supply-chain availability, rising costs, and the timing of technical milestones. The filing noted limited supply constraints and cost increases associated partly with broader economic conditions, but no material business impact from the Russia-Ukraine conflict or COVID-19 to date.
- Marketable-security valuation losses were a significant unusual contributor to the period’s net loss. The company also recorded a $4.7 million reversal of stock-based compensation associated with forfeited awards after the former CEO’s departure.
- After quarter-end, Jeffrey Hawkins was appointed CEO effective October 10, 2022, replacing interim CEO Jonathan Rothberg. Effective November 1, Rothberg’s Executive Chairman Agreement ended and he entered an advisory agreement that includes an option grant for 250,000 shares.
- Disclosure controls and procedures were deemed ineffective as of September 30, 2022 because of two material weaknesses, relating to warrant accounting and financial reporting oversight. Management described remediation efforts but stated the weaknesses would not be considered remediated until controls operated effectively for a sufficient period and were tested.
- The company reported no material pending legal proceedings. It disclosed annual minimum intellectual-property license payments of approximately $0.2 million, with royalties expected after commercialization and revenue generation.
Important facts for investors to verify
- Whether Platinum launch, order-taking and Q1 2023 shipment plans were achieved, and what customer demand and commercial revenue followed.
- Cash burn, investment portfolio valuation and the remaining cash runway as commercialization spending increases.
- Progress in remediating the disclosed material weaknesses in internal controls.
- Product performance, manufacturing readiness, supply availability and any resulting changes to launch timing or costs.
- Potential dilution from outstanding options, warrants and the announced advisory option grant.