Q1 2020 Earnings Call
Thursday
Good day and welcome to the care DX Incorporated first quarter earnings conference call all participants will be in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key is $0 presentation. There will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Greg Hutchins, please go ahead.
Thank you. Good afternoon. And thank you for joining us today earlier today care DX release financial results for the quarter ending March 31st, 2020. The release is currently available on the Carfax website at ww.w Peter chief executive officer. And my Chief Financial Officer will host this afternoon's call before we get started. I would like to remove one that management will be making statements during this call that include forward-looking statements within the meaning of the federal Securities laws, which are made pursuant to the safe harbor provisions of the private Securities litigation Reform Act of 1995.
Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statement all forward-looking statements including without limitation our examination of historical operating Trends expectations regarding coverage decisions pricing and enrollment matters and our financial future Financial expectation and results are based upon current estimates and various assumptions.
These statements involve material risk and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements accordingly. You should not Place undue Reliance on these statements for a list and descriptions of the risk and uncertainties associated with our business. Please see our filings with the Securities and Exchange Commission.
the information
To provide in this conference call speaks only to the live broadcast today April 30th, 2020 RDX disclaims any intention or obligation except as required by law to update or revise any information Financial projections or other forward-looking statements, whether because of new information future events, or otherwise, this call will also include a discussion of certain Financial measures that are not calculated in accordance with generally accepted accounting principles reconciliation to the most directly comparable gaap Financial measure may be found in today's earnings release filed with the SEC. I will now turn the call over to Peter.
Thanks, Greg and good afternoon everyone. I'm pleased to welcome you to the cardiac call to review our results for the first quarter of 2020 before we discuss our results. I wanted to take a moment to thank all of the healthcare workers across the globe security acts as part of a community of Essential Health Care businesses. We have the utmost respect for those working on the front line and do the best selves to support them wherever possible back in January. We chose transplant proud as our theme for 2020 and it could not be more and I could not be more proud of how our team has come together in response to the covid-19 has now turning to the results in the first quarter of 2020. We reported revenue of 38.4 million and increase of 48% compared with the first quarter of 2019 growth primarily came from our testing services that we provide a just over 15,000 patients birth.
An increase of 50% year-over-year product revenue for the quarter was 4.7 million + digital Revenue edit 2.2 million to the top line for the 7th straight quarter. We posted a positive adjusted ebitda. We have always focused on building a profitable sustainable Precision medicine business and believe that our robust platform enables us to quickly pivot and adjust in response of this unprecedented crisis the arrival of covid-19 in the US has affected everyone and everything. The health care sector is no exception as hospitals have become the front line of this battle with hospitals increasingly caring for covid-19 Patients Hospital administrators have chosen to limit or even defer non emergency visits and procedures immunosuppressed transplant patients either decided on their own over us to avoid transplant centers and caregiver visits with transplant surveillance visits down. We did experience a sled
Down in testing services volume in the final week of the quarter considering this backdrop our results this Photograph particularly strong up until the impact of covid-19. We were way off track to exceed $40 million in total revenue for the first quarter our pledge to support our patients remains all focused and as part of our efforts on March 17th, we announced the launch of remote track our solution for enabling home-based monitoring for transplant patients importantly. We created remote tracking response to hearing that patients were missing their check-in appointments and blood draws as a result of it crisis this home-based Blood straw solution using mobile phlebotomy reduces the necessary visit two labs and hospitals for immunosuppressed transplant patients notably to date more than a month. And fifty transplant centers are leaning in and offering remote react to their patients approximately mm. Kidney heart and lung transplant patients have already enrolled based on existing and new relationships with partners.
We have expanded our Nationwide.
Network from 1,000 to more than 10,000 mobile phlebotomist.
This has been an enormous undertaking as the need is greatest in areas where they are the most infections as always with complex workflows. The devil is in the detail and we are learning every day off mobile phlebotomy has increased from 10% of our daily volume eight weeks ago to now comprising over 50% under the tremendous leadership of Red Sea to our president and chief business officer care DX has pivoted extremely quickly transplant proud as remote track starts to take effect. And as some transplant centers begin to return to normal operating capacity. I'm very pleased to share that in the last week. We have almost returned to pre covid-19 use of our store in Dalma. It remains to be seen if this will continue and whether we can return near crowd at any time soon, but for the moment, we are pleased with the progress over the last week's another covid-19 related initiative that we're very proud of is our partnership with a ninja
National Consortium including the National Institute of Health to create and manage a global covid-19 transplant registry initial mortality rates of transplant patients with covid-19 sections are alarming but this non-competitive registry. We are supporting the need for better data on the impact covid-19 is having an immune suppressed transplant patients. See nineteen t e r. Org was built in record time and is powered by Auto Care our transplant specific electronic medical records software. The site is free to use is open access and this web-based with a real-time analytics dashboard already 400 covalent factions are captured in the registry. So this might be the largest covid-19 transplant registry in the world the other care team in a s an incredible job of turning to our operations in response to the crisis. We have established internal operating plans based on three C's Compassion Club.
Common sense and confidence. We have implemented multiple solutions to protect our employees and their families by continuing our commitment to supporting patients besides The Talented marriage in our head of HR. We have an experienced and skilled management team in place supported by a seasoned and resourceful bored. I'm glad to report that our operations continue without interruptions off.
As well as Remo drag C90 XR. Org and our operational update. I would like to comment on our very successful pivot to Virtual meetings. We are now engaging with the transplant Community more than a v a virtual advisory boards bringing together transplant nephrologist and cardiologists Community nephrologist transplant coordinators and administrators transplant patients Farm disease and age-related directors. We are deeply indebted to the incredible feedback advice and insights that we have received from leaders in the transplant community.
Lastly some might have scratched.
Last year when we acquired Autocare Incident Management to form a digital backbone for KDX while we could not have foreseen a crisis like covid-19 the trend towards Precision medicine and the adoption of new interactive platforms based on clinical data was always there now Taylor Health has become a reality overnight with these digital capabilities carry off position to lead this new era in patient engagement clinical decision-making and Transplant care as we announced a few weeks ago. We have withdrawn our 2020 Revenue guidance while volumes have almost come back to normal. We will undoubtedly see an adverse Revenue impact in Q2 as I'm thinking about year-end. I'm asking three questions first at the macro-level the covid-19 and shelter in place orders have a lasting impact for example, will there be another wave II how successful will be be continuing to roll out remote track mitigating wage?
Potentially overcompensating the covid-19 packed and third when will transplant centers reopen to surveillance visits and when will their transplant volumes get back to pre-owned? We are applying our three seasons. We have tremendous compassion, especially for patients and Frontline caregivers. We leaned in and apply common-sense as we respond to the crisis and the path to recovery and I am confident as we have built a great platform in transplant care. So I feel optimistic about the remainder of 2020 and look forward to providing updates on the progress in future communication. Now I am over to Mike to discuss our financial security X could not have a better suited CFO than Mike Bell in this time of Crisis is doing a phenomenal job Mike. Thank you for eatsa turning first to the income statement total revenue for the first quarter was 38.4 million a year over year growth of 48% The growth in Revenue was primarily driven by a leash or kidney analysis log.
All of my part as well as continue to adoption and Center penetration abolish or kidney and I'm up has also experienced accelerated growth over the past few quarters due to an increase in divorce in hot cut by transplant centers as a result of the strong performance of both houses showing a map testing services Revenue in the first quarter increased 46% year-over-year to 31.4 wage a first-quarter product Revenue increased 6% year-over-year to four point seven million and our digital Revenue was 2.2 million.
We've been to our gross margins for the first quarter of 2020. The gross margin was 68% compared to a gross margin of 63% in the same period of 2019 month basis gross margins were up approximately three hundred basis points compared to the fourth quarter of 2019.
The non-gaap gross margin for the quarter was 71% compared to 67% in the prior quarter. We do expect to see some impact on our future gross margins because of the spend on remote track as the cost of a mobile phlebotomy draw is approximately $100 more expensive than a lab drop. Although the full impact. Our margins will ultimately depend on the mix between remote red blood drawers and drawers turn off apps for the first quarter of 2020 net loss was 5.8 million compared to a net loss of seven point five million in the same period of 2019 our net loss per sure was $0.15 for the quarter compared to a net loss of $0.18 in the first quarter of 2019.
Non-gaap, nothing.
0.2 million in the first quarter of 2020 compared to a non-gaap net income of 2.2 million in the same period of 2019 our non-gaap net income per share in the first quarter of 2018 was approximately 0 cents compared to a non-gaap net income of $0.05 in the same period of 2019 as a reminder. We Define adjusted ebitda as non-gaap net off before interest income tax depreciation amortization and other income and expense for the first quarter of 2020. We recorded a positive adjusted ebitda of 0.2 million compared to an adjusted ebitda 1.8 million in the first quarter of 2019. Despite the impact of covid-19 on our first quarter revenues. This is our seventh consecutive quarter of positive thoughts in the first quarter of 2020. Our operating expenses were more or less in line with our plan. Although there was a reduction in travel expenses in March.
We expect to see our operating expenditure in Q2 stay flat to q1 due to the impact of less travel and the switch of Industry conferences from in person to Virtual regarding our cash position and liquidity cash and cash equivalents on March 31st, 2020 with 32.2 million.
That's operating cash flow is -3.1 million in the first quarter of 2020 the operating cash outflow in the quarter was due to the annual incentive compensation payments for 2019 performance that were paid off excluding these payments are first quarter operating cash flow was positive.
Over the past few weeks. We have added $49 to our cash balance and currently are cash and cash equivalents are approximately eighty million. The increase in cash is come from three areas home. Mostly. We used our at-the-market program to issue and sell exactly 1 million shares which generated net proceeds of 23.5 million. Secondly, we receive 20.5 million M M S three six banded accelerated an advance payment program. The twenty point five million will be recouped by CMS between August and November this year. We also received an initial distribution of 4.8 million from the Cars provide a relief fund to support healthcare related expenses and lost Revenue attributable to covid-19 note that we did not participate in the actual paycheck Protection Program also known as p p p
Based on our current improved cash position and our cash flow forecast. We feel cardiacs continues to be well positioned for the foreseeable future turning to guidance. As we stated on our press release earlier this month due to the uncertainty surrounding the impact of covid-19.
We'll have an our business. We will not currently be providing Revenue guidance for the full year twenty-twenty now. I'll hand back over to Pizza. Thank you Mike in closing. I want to thank all of our employees took the hard work and dedication during this unprecedented time. One of our most significant themes is that it takes a village and throughout this challenging time. Our cardiac Village has come together to support each other while I'm painting steadfast in our dedication and passion to transplant patient care. Thank you all for joining the call and I will open the call for questions.
No not begin to question.
And answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two months. The first question comes from Brandon. Cool art from Jefferies, please go ahead.
Hey, good afternoon. Maybe just starting with Reema track surprised to hear it's already 50% of volumes If this just a new operating money for the business now, why go back to the old way and as we think about the unit economics are there some other positive offsets spending avoidance that you might be able to realize such as I you know, lower requirements on your back end compliance and and call centers that might help you offset some of the the $100 added for the mobile phlebotomy.
Thank you for an excellent question. I think there's really two types of feedbacks one is patience. Absolutely love it patients don't need to drive in for an hour or two or maybe sometimes three since they live in a totally into the transplant center. Then be in a waiting room wait for the blood work, um have then maybe sometimes only 5 to 10 minutes interactions with the nurse and everything is good and then they travel back home. So patience love the mobile the mobile phlebotomy, especially for those that are doing well clinicians. I would say they're probably half half. They love to see patients face to face and they they think money is a significant value and having the patient in this visiting the center, but they also have the the other half is just completely convinced in Taylor out this year to State. What does that mean for remote track that I think we continue to be flexible. It's very clear that in a Cove it crisis center right now like New York. Most of these patients are going mobile while in other transplant centers them.
Be a stronger mix but what it tells me that curity X is actually excellent prepared in order to answer to this individual Solutions as we have always applied a censored by Central strategy. Sometimes this is now a patient patient strategy even to your point about offsetting. I think one thing that will be very true is that remote track allows us to have direct to Patient communication that we are Volvo has been seeking and allows us to Monitor and apply the surveillance schedule you might recall that we have updated that we're losing. Sometimes a few surveillance visits on a hill and the closer we get to the patient and the more interactions we have and the better we can actually schedule help scheduling this visit the more the Fulfillment on the regular surveillance schedule will be true. So often we see actually that there is a bit of an upside for us in terms of volume making sure that these patients sticks to their surveillance visit and get all the blood drops.
They may be from a from a high level is best. You are aware. Could you mean just talk a little bit about what your sense is in terms of what transplant life activity is today? How far off is normal that might be its kind of what the timeline might look like and whether you would expect some lag effect from you know delay in those new transplant pussy. Just maybe show up in your business has a Hickman maybe in a few months or something to that.
Excellent question, but I think first of all, you know, if this is we're still very early in the penetration of all patients. Maybe we were five percent penetrated against the overall opportunity. So, you know, there's not going to be a shortage of patients anywhere but here I am in terms of our our ability to convert into a lush rotations. Um, secondly, yes, that might be short-term especially living donations is down right now. If you had an organ from a friend or family member these these these transplantations probably are not occurring in many transplant centers right now in the country, but Iraq, you know, maybe overall volume is down by 30 to 40 in some centers by 50% but I think that will spring back we here actually that the transplant center since they are a key drop off for many of these many of these medical centers also for profitability that probably they will be one of the first units to open back up and you know, there are some that are actual
Dissipating a bit of a search in the moment that we're coming back to back to normal in these centres. My guess is that this will not happen all at once at all centers at the same time, but we will see a regional differences. So I would see that you know, we were some months out to complete normal, but we'll actually see a number of centers coming back on online relatively quickly.
Hey, the lastly he did mention your prepared remarks but security if he could just maybe touch on the Alice sell product, which you disclosed a few weeks ago. Did you maybe just share with us a little bit more about how you're offering serves in that surveillance of patients who are receiving those therapies. And if you could maybe talk about to the biopharma partner is that you you noted in the in the press release, you know, I think there's a number of companies and partners that we talked to and you know one came we wanted to announce the first one because I think that's a meaningful step as as our Pharma services off. The original model is truly to develop this code developers and make it available through clinical trials with Pharma Partners establishing the concept we see this as moving the company from a heart transplant phone to a kidney focused now into a Cell Therapy these engineer cell transplants are nothing else than a transplant and we with our technology our president to to detect the
Nissan own sales. So in a way, you'll hear us talk about transplantation the future a lot more. I think this is an exciting new opportunity. This is not going to be short-term tremendous amount of Revenue relevant from a testing service perspective but more so from a from a from a relationship and and farmer research and development perspective. So bear with me will be communicating more on that SV as we progress through the year.
Very good. Thank you.
The next question comes from Steve from poker Sandler, please. Go ahead.
Hi Peter. Hi Mike. How are you guys doing?
Stephen thank you very much. Welcome to the analysts team. So this must be the first time that we hear you in this capacity. Yeah, that's right. Yeah, you're the first one. Yeah. So if you appreciate the appreciate the warm, welcome home regulations. Yeah. Yeah and congratulations for yeah, you're post-transplant volumes, you know returning to to normal. So that's that's really great news. And yeah when it may be a little bit more color on on that and and kind of square away your comments that you said earlier in your prepared remarks where you said that Physicians and patients are you know, either by choice or or you know, just cuz things are closed that they're avoiding transplant centers, but I would expect that. You know, the post-transplantation test should be seen more as a as an essential test rather than elective procedure. So they have you can give us some sense on how doctors and patients are are are viewing post-transplant.
Yeah, you know I think we had initially in the last couple of weeks of March a bit of a shell shocked response from transplant center and saying, you know every patient I'm doing well do not come in and don't have your surveillance visit. And so that led to a drop in volume of surveillance visits in March, but you're absolutely right that both patients and caregivers want to maintain surveillance visit of these patient. That's why remote track is so important. Um, I did comment on that. We're almost back to bring those which problem is because of that that is it's not elective after transplantation. You need to be constantly monitored for a rejection episode. And that's why our our our value is is is Faith No More seeing than ever. It's also true that you know right now having this liquid biopsy concept it as simple blood test is giving you a lot of information and taking in the bath.
The patient now for an invasive procedure like a biopsy and have them spend significant time at a transplant center. The balance is really tipping in our favor very very clearly on a liquid pipe. So so so in terms of our value proposition, it has never been stronger and and clearly articulated. So I would agree with you that I will see transplantations come back to transplant center very very quickly again.
Okay, great. And I just follow-up question on remote track. Do you think transplant centers are going to integrate it into their protocols given that you know covid-19. It's relatively in service again. Yep. There's going to be a a second wave or every flu season. This is you know, we're going to go through the same thing and I like also red seat or use on the call comment on that wage. You know, I I would see that we will see probably flare-ups of covid-19 in the country in different locations over the year. So I don't think that this will be entirely going away, but then we will have very local and Regional responses to covid-19. So I would say, you know, we'll we'll stay flexible and this will be a scent of eye center approach, but maybe Rich over to you. I'm talking about Remo drag and our ability to Pivot.
Yeah, thanks.
I mean we've seen more than you know hundred fifty cent has expressed interest in Premo track and with that, you know, we have a lot of you know, protocols and surveillance patients being used. So I think with Remo track being sick is part of that with the current offering I think in the future, will it be dimensional start seeing more of this adoption potentially even on a protocol basis?
Okay, great. That's that's helpful. And and real quick. If I have time one for Mike. Can you give us a sense on the clinical trials, you know to expect enrollments and timing to slow down and and how should we think about R&D expense this year? Yes Steve. I think um, yeah, obviously, um patient enrollment on uh-huh, and ensure a going to slow down in the in the near-term and probably on on Orca as well as we as we're ramping up the the the sensors that that Center in Rome is probably going to slow down. So, you know, I think I think we will see us as a slight slowdown in that R&D expense until those volumes bring back up in the remarks before, you know, I'm not in that in Q2, we expect our operating expense to a relatively in line with q1 because there will be savings on on travel costs on the conference costs and yet and the clinical study Club.
We'll also be one of those savings if you like in in Q2.
But it also gives me a Stephen it gives me like just hours. Our medical team has done a great job. We would probably report it have a reported a number of twenty-five sites up and running in the queue one. We chose not to stress this in the Ugg prepared remarks because I think right now many of these centers are not actively enrolling because of that but as soon as they're opening up, we will anticipate that Aqua is going to vote for him and we're actually pretty proud to have 25 up and running a 25 size up and running on okra.
All right. Thanks for all the time.
The next question comes from Alex from craig-hallum, please. Go ahead.
Great. Good afternoon. Everyone. I can grab some the on the q1 and spite of covid-19 and congrats on seeing the testing levels return to the previous previous highs. Um, I wanted to go back on a comment you made Peter about 5 out the I mean biopsies, obviously the gold standard here you you recently hosted a conference a virtual conference and the dog to talk about centers adjusting their protocols for social distancing guidelines and largely getting rid of biopsy. So I've got to imagine this is a big boost for Claire d x but is there any way to quantify just how beneficial the shift away from biopsies almost completely could be to carry DX both in the near in the long term.
Well, I think you know this would I would say this is organ-specific a little bit on hard. The the opportunity is a very significant, you know, the heart transplant patients receive twelve to eighteen biopsies in a first-year first two years after transplantation. So think about this as we're right now rolling out hard care, there's ample opportunity for us to grow on the Hard franchise on the page transplant site, you know, there are many transplant centers that actually do not use kidney biopsies because of the invasiveness and the risk-reward ratio might not be high. So we only see 25% of transplant centers doing routine protocol biopsies and I would say those protocol biopsies right now. We would probably see in many packs replaced because this routine, you know, biopsy where you're where you're basically just checking if everything is okay has very very low yield we name
about ten to fifteen percent of these
Biopsies are showing something to follow up on so so they're the risk-reward ratio doesn't seem to be strong. But I think on the hard side significant opportunity kidney, maybe a little bit less but still am also on the biopsy for calls where we have a lot of, you know, serum creatinine goes up and then you do a biopsy and then still you have no yield, you know, many transplant centers might know how first thousand dollar store before they have the patient come in and do a biopsy so I I think you know clearly the value proposition is significant. Um, we just see that as total confirmation of our approach to blood based off of understood and Peter. How are you positioning the sales force now to sell?