Q4 2019 Earnings Call

good afternoon, and welcome to the accelery Diagnostics Incorporated fourth quarter 2019 results conference call all participants will be in listen-only mode off after today's presentation. There will be a question-and-answer session, please note. This is Aunt is being recorded. I would now like to turn the conference over to Laura Pearson of accelerate Diagnostics. Go ahead.

Before we begin it is important to share that information presented during this call may contain forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21e of the Securities Exchange Act of 1934 forward-looking statements include projections statements about our future and those that are not historical facts all forward-looking statements that are made during this conference call are subject to risk uncertainties and other factors that could cause our actual results to differ materially. These are discussed in Greater detail in our annual report on form 10-K for the year ended December Thirty One 2018 and other reports we file with the SEC. It is my pleasure to now introduce them as president and CEO Jack Phillips.

Thank you, Laura.

Good afternoon, everyone and Welcome to our fourth quarter and full-year 2019 earnings call. We accomplish several of our operational goals in 2019 while a few specific challenges yielded valuable insights that we have used to guide our 2020 priorities are strong placement trajectory continued over the course of 2019 as we doubled our Global contracted instrument based by signing 304 instruments, including 137 units during the fourth quarter. Our full-year Revenue was short of expectations as off-site customers in the US have taken longer than anticipated to go live and begin generating consumable Revenue.

We accomplish several key milestones in 2019 as we significantly expanded our body of clinical outcomes data established a solid footprint a monkey and influential customers and progress Geographic and product expansion programs.

For 2020 with a compelling body of evidence putting Fino well on the path to becoming the new standard of care in a 3.7 billion dollar Global Market for Rapid flash AST capturing this Market begins with maximizing our footprint of Fino instruments for acute testing today and then addressing the balance of microbiology testing with a low-cost high-throughput Next Generation platform the Fino 2.0.

Advancing this strategy in 2020 starts with driving us commercial Excellence measured by a higher rates of contracted instruments and a faster more predictable path to go live Page Avenue generation. We will also continue to execute on our International expansion plans and Achieve key Innovation Milestones on our current and next-generation instrument.

I would like to begin this afternoon by having Steve review our fourth-quarter and full-year 2019 Financial results. I will then provide additional analysis of these results key learnings and how may translate into our 2020 priorities we will also provide our first quarter 2020 revenue forecast to further clarify our near-term expectations, but first I received for the financial results.

Thank you.

Jack and good afternoon. Everyone that sales were three point five million dollars in the fourth quarter and 9.3 million dollars for the year compared to one point eight million dollars and five point seven million dollars off actively for the same periods in 2018. This represents your rear growth of 94% for the quarter and 63% for the year.

It is important to note that the majority of our fourth-quarter and full-year 2019 Revenue growth was the result of higher consumable sales driven by an increase in the number of live customers would predictably instrument Revenue was not a material component of our growth as 85% of new customer contracts in the year took advantage of our reagent rental contract took over a number of our significant fourth-quarter distributor deals in a Mia and strong US Capitol sales added over 1 million in capital Revenue that is not anticipated to repeat in the first quarter of 2020.

Cost of goods sold over two million dollars in the fourth quarter and four point nine million dollars for the year resulting in Gross margins of 44% and 47% respectively this compares to call a good sold of 1.3 million dollars and three point two million dollars or gross margins of 29% and 44% respectively from the same periods in 2018.

Gross margins improved over these periods as a result of higher year-over-year consumable production volumes, which decreased fixed cost per unit.

Due to slower than forecasted consumable production certain long lead-time and perishable raw materials, exceeded their expiration dates and require disposal excluding the impact of this fourth-quarter charge gross margins for the fourth quarter and for the year were 51% and 53% respectively.

Selling General and administrative expenses were thirteen point six million dollars for the fourth quarter and fifty one point nine million dollars for the Year. This compares to thirteen point four million dollars and fifty five point two million dollars from the same periods in 2018 decreases were principally driven by lower non-cash equity-based compensation expense.

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It costs were six point two million dollars for the fourth quarter and twenty five point three million dollars for the Year. This compares to six point nine million dollars and twenty seven point six million dollars for the same period in 2018.

We expected to spend to remain relatively flat on a year-over-year basis as our R&D programs remain consistent.

Our net loss was 21.3 Million for the quarter and 84.3 million dollars for the year resulting in a net loss per share of $0.39 and a dollar fifty five am actively this net loss contained 3.2 million dollars for the quarter and 12.6 million dollars for the year in non-cash stock-based compensation expense.

That cash used with 13.5 billion for the quarter and $58 million for the year. The company ended the quarter in the year with cash and Investments of 108.5 million dollars.

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Cecil and decreasing our cash burn in 2019 and reaffirm our view that our current cash position is sufficient to execute against our strategic priorities.

I'll now hand it back to Jack to further review our 2019 results in Greater detail and discuss our 2020 priorities Jack. Thank you Steve. We maintain 3 a.m. Is of focus for 2019 Market penetration go lives in advancing key initiatives for Geographic expansion and new product innovation.

Now that the year has come to a close. I'd like to take a minute to review the progress. We made in each of these Focus areas before providing our priorities for 20 20 31st and Market penetration. We ended a hundred and thirty-seven instruments during the fourth quarter and 304 instruments over the course of 2019 achieving the low end of our full-year Target of 300 to 400 a month in placements in the a robust sales funnel was met with complex and multi-layered Hospital decision-making processes, which created unanticipated delays in the sales rep.

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It's more the difference between achieving the low end of our placement guidance rather than the high end of our range a key priority for 2020 is to use newly-published clinical data out comes along with very satisfied customer references to improve the timing and predictability of this decision making process in a Mia. We achieved our contracted Fino goal for the years on the back of a number of large distributor sales.

Or driving rapid customer go lies was aimed at helping customers complete the processes required to begin routine patient testing which in turn enables these units to begin generating consumable Revenue in 2019. We grew the number of live Fino's by 200% but fell short of our overall goal to delays in several multi-site deals or 2019 Target for the time from contract signature to go live was four to nine months for the the accounts. We took live during the year. Our average time to go live was just under nine months. We are taking steps to reduce the time to go live and increased predictability of this process and I will discuss these actions shortly during my remarks regarding twenty-twenty priorities.

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Our cumulative contracted instrument base of 419 instruments consists of 164 live and revenue-generating instruments and 255 instruments that are at various stages of the go-live process and therefore not yet generating Revenue. Once these units begin generating Revenue. We are realizing in annuity per instrument a $55,000 that is proving to be quite reliable and has the potential to increase over time in a Mia. We have contracted 165,000 to date a majority of which were placed through distributor channels. So we have limited visibility into their revenue-generating status. I will speak more to our current Ami initiative Shorkey.

Lastly in 2019. We made continued progress on a respiratory product and companion sample preparation device while advancing our Global strategy by initiating the registration process for our current blood kit in China.

Overall 2019 was a positive year beyond our unanticipated go live delays, which we are diligently working to address our commercial goals for the year. We're achieved and import growth initiatives or materially Advanced one of our proudest highlights for the fourth quarter in the year was the compelling outcomes data provided to us by our customers this data include reductions in sepsis mortality ranging from 11 to 17% and reductions in the length of stay between two and six days more deliberately leveraging this data package and are highly enthusiastic customer base will be a key part of our near-term growth strategy and twenty20 priorities now on the 2020.

Are three Focus areas for the year are driving us commercial Excellence continued Focus Geographic expansion and delivering new content for our current Fino instrument while also materially advancing our next Generation platform.

Learning first US commercial Excellence while we will work to continuously improve our sales process and Commercial team are most important near-term initiative is to empower our dedicated team with new resources to improve the pace and predictability of closes and go lives.

This begins with mobilizing are accumulating body of Economic and clinical outcomes evidence this month. We rolled out a powerful set of new sales tools to our entire us commercial team starting with our new new return-on-investment calculator which incorporates real outcomes data giving potential new customers increased confidence in the impact phenome have on their patients and institutions. We also trained our us team on how they should communicate about our new CPT code to set customers up for reimbursement success with the outpatient setting moving forward.

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You will increasingly benefit from our growing network of enthusiastic customers are Us customer base now spans all key segments and we have a presence in nearly all major metropolitan areas off today closing new business has been difficult partly because we have lacked a broad and sufficiently diverse customer base to generate comparable outcomes data and service offerings accounts.

In my experience the low-hanging fruit arrives when you reach a critical mass of enthusiastic customers who armed with data begin to actually sell for you extending our reference customer base starts with bringing more customers live and realizing the benefits of the system as mentioned. We ended the year with a backlog of 255 instruments bringing these instruments live as quickly as possible is essential for improving the company's Revenue generation and for Contracting new customers this month. We launched our new live go live off of us called Tofino implementation experience in Q4. We piloted parts of the new program and receive great customer feedback with reduced time to go live result of our current go live average is 9 months with our longer-term goal being six months. We will continue to update you on our progress.

Now to our second area of focus International expansion under new leadership. We drove a significant expansion of the Amia customer base in 2019-2020 will be a building year for Mia and our priority is to increase the annuity for existing systems, which to date materially lacks that of the systems through a nude focus in an accumulation of a media-based outcomes data. We plan to increase our Amiya annuity by broadening utilization with existing hospitals while also relocating survey instruments to higher volume institutions.

Moving on to China China is a market with a substance challenge far exceeding that of the due to race of antibiotic resistance that are twice as high this combined with a large population in the government's focus on healthcare investment makes it a highly promising Market opportunity or registration and trial process has continued. However, we were recently notified that a registration has been delayed due to government resources being diverted to address the Corona virus outbreak.

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Process resumes we will continue partnering with key opinion leaders throughout twenty-twenty to conduct studies and plant the seeds for commercialization in this most important Market.

Our third Focus area is advancements in product Innovations are R&D objectives for 2020 can be divided into two parts first delivering new content for them know and second the material advancement of our next-generation platform in 2020. We will be adding several new antibiotics and features to our current blood test kit off drugs are important the escalation agents that further differentiate us from Old Line providers who are often slow to add new drugs to their panels.

Additionally our respiratory test kit continues to advance as we prepare for clinical trial testing following this testing. We will provide more detailed guidance on next step.

You know to progress materially in 2019 with feasibility being established on several sample types including direct positive blood and urine.

While we are on the topic of research and development, we would like to extend a warm welcome to our new head of R&D parent Paul joins us from beer. Are you where she was the senior director of microbiology R&D and was responsible for all new product development related to the identification and antibiotic susceptibility testing for microbial pathogens. She is one of the foremost experts in i, v a s t and we are absolutely thrilled to have someone of her caliber leading or research and development efforts. Paul replaces our former head of oranges Andrew. Kisan.