Q2 2020 Genmark Diagnostics Inc Earnings Call
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But thank you and thank you all very much for joining us today. Before we begin I would like to inform you that certain statements made by gen Mark during the course of this call May constitute forward-looking statements any statement about our expectations beliefs plans objectives assumptions or future events office performance or forward-looking statements, for example, statements concerning our 2020 financial and operational Guidance the development regulatory clearance commercialization and features of new products suck and objectives of management and market trends are all forward-looking statements.
We believe these statements are based on reasonable assumptions. However, these statements are not guarantees of performance and involve known and unknown risks and uncertainties that may cause the actual results to be materially different from any future results expressed or implied in such statements important factors, which could cause actual results to differ materially from those in forward-looking statements or detailed and Jen marks filings with the SEC. Gen Mark assumes no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances occurring after this call or to reflect the occurrence of an office is located events.
So with that good afternoon everyone and thank you all for joining us. I'm joined on the call today by Johnny at our CFO.
We hope you're all staying safe and healthy as we continue to face unprecedented challenges with covid-19 and demek.
I'd like to take the next few minutes to review our recent performance and share our thoughts on the second half of twenty-twenty. I'll then turn the call over to Johnny for a deeper review of our recent financial performance and we will finish off with Q&A.
On earnings call in early March we highlighted are three strategic priorities for 2020 these included number one strong Revenue growth number to making significant steps toward Club positivity through gross margin Improvement and operating efficiencies and number three menu and Technology development.
At that time you were just beginning to see the start of the global pandemic while we could not have anticipated depth and duration of This Global Health crisis. Our team has remained committed to those key committees and delivered remarkable results throughout the first half of this year and they've done so under extraordinary circumstances.
With respect to our first strategic priority of driving strong pipeline growth YouTube revenue is 40.1 million dollars up 118% versus the prior-year off.
Our install dates group I-71 analyzer says $652 at the end of second-quarter. Well ahead of our plan for this year.
Placements in the second quarter included over 40 new customers taking the total for the first half of 2022 approximately eighty new customers.
Well, we did reposition a few instruments in the quarter. These were primarily under underutilized units placed outside the US and identified earlier this year as part of our stated objective to drive higher annuity internationally.
Commercial teens remain focused on driving D plx placements that will deliver long-term recurring revenue streams. This is consistent with our product positioning as he provider of Sanford molecular diagnostic tests as opposed to single Target tests, like so many others that have recently come to Market to address this Global pandemic while covid-19 has accelerated are installed a footprint are syndromic panels were vital and diagnosing critically ill patients prior to the pandemic and will continue to play a role when we return to a more normal environment.
Our teams are transitioning customers who may have begun using Plex for covid-19 only to our respiratory and BT I detest in fact as our end of Q2 More than 70% of our twenty-twenty placements are already contracted for RRP and or our bcid panels demonstrating our success in creating and during REM dreams vs. Covid-19 volumes be on respiratory testing bloodstream infections are an important area of focus for our company and we are confident that our blood culture ID panel be a key driver of Revenue growth over the longer-term even during this Global pandemic. We have completed many successful validation of RBC ID panels, and that adoption rate is continuing to accelerate.
Year-to-date we are tracking to approximately 60% of the twenty-twenty goalie established at the end of last year and we're relatively happy with this little progress considering the impact of covid-19 customer priorities and resources. We incorporated our revised bcid adoption expectations along with increased respiratory and covert testing volumes in the revenue guidance disclosed today. I'm equally as excited about our progress and driving gross margin and profitability improvements, which is our second strategic priority.
In the second quarter gross margin was 40% and encouragingly for the first time in a company's history. We generated positive cash flow demonstrating the meaningful acceleration of our business model, which we expect average for years to come.
This performance reflects the tremendous demand we've seen from existing and new customers for our Equinox platform and our ability to address the demand in an increasingly efficient and cost-effective way.
We are continuing to make progress in reducing the cost of manufacture are consumable and remain committed to our stated goal of 60% eplex gross margins
Our manufacturing and Engineering teams are implementing several more improvements in the back up as twenty-twenty in line with our plans and those teams are beginning work on projects that are expected to yield additional cost reductions in 2021.
From a supply chain perspective our supply of instruments has increased significantly in line with our expectations. And we do not anticipate instrument capacity to be a constraint for the remainder of this year with our primary focus is executing our Equinox consumable manufacturing expansion plans. We are in the process of adding two additional reflex lines that will enable us to suck actually increase our capacity in support of the upcoming flu season. We are constructing these lines in a newly secured 73,000 square-foot manufacturing facility located a short distance from our existing locations. This newest building is large enough to house an additional four lines beyond the two that are currently being constructed combined with our current facilities. We expect to exit 2020 with capacity to produce approximately 150,000 test per month and then take another step up in the first quarter of 2021 when the next line is expected to be operational.
Turning to our third priority of expanded menu and Technology development. Our initiatives towards supporting This Global Healthcare crisis have been an obvious and immediate priority.
In addition to a quick pivot to develop and commercialize a stand-alone eplex covid-19 test in Marge we develop and launched our eclectic panel one of the first rapid results syndrome channels that provides detection 21 viruses and bacteria that cause common and often serious respiratory infections not limited to but including covid-19 influenza A and B, I S V and rhinovirus for the common cold at the end of June. We submitted RRP to be way and began commercialization. We expect you a approval and the very near future.
Replace the priority in advancing development and quickly bringing to Market power RP to panel as it can provide rapid results to diagnose. What pathogen is causing a patient's symptoms many of these pathogens produce similar symptoms such as fever cough and body aches and we believe that syndrome make panels will be a critical diagnostic tool this fall and winter has the flu season coincide with the ongoing risk of covid-19.
RP to have the number of key competitive advantages in addition to being one of the fastest sample to answer molecular Multiplex panels on the market today our recent analytical studies indicated an improved them up detection on our RPG panel and from a customer's point of view are P two delivers improved workflow reducing hands on time by 50% Now requiring one minute timer is to Simply pipe that the patient samples directly into the eclipse cartridge and insert the cartridge into the instrument.
The transition to RP to is gaining momentum and includes large Hospital networks such as Vidant health and northwell health to Community Hospitals like Graham Regional Medical Center located just west of Dallas. We've all heard reports of patients have waited 4 days to receive their test results versus our xrp to panel that delivers results in under two hours a potentially life-saving technology and treating critically ill patients Graham Regional Medical Center began using RP to as the covid-19 surge hit their area in mid-july.
They have reported that's in implementing rp2. They reduced their turnaround time from seven to ten days to getting results in under 2 hours and they're using eflex to help with Resource Management in particular their medical staff.
An example the grand Regional shared with us was that when one of their nurses recently spiked a fever they tested her using RP to and sent her home within 2 hours to test results indicated. She was down for covid-19 but positive for rhinovirus, which is the common cold. Should we so she was able to come back to work as soon as she recovered a negative result for a covid-19 alone would not have given them confidence to bring her back to work without knowing the cause of her fever. This is critical to helping ensure staff availability to treat patients during the pandemic off additionally the FDA commissioner Stephen Hahn commented in a recent article about the importance of combination panels that includes sorry for the upcoming flu season, he hath that syndrome like panels can provide comprehensive diagnostic information with just one swab or sample and the efficiency of these tasks can go a long way to providing timely information with those sick with an unknown.
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the uncoded and RP to you have now returned to focusing on rgi panel and future technology development.
Well, we continue to make progress on this commitment. Our top priority remains to supply reflex tests to customers that have adopted our platform.
Given the extraordinary and unexpected customer demand for our on Market tests. We are experiencing some delays relative to our original plans that we believe prioritizing the needs of our customers and their page is the correct decision and I'll provide more details on upcoming calls.
undoubtedly
Twenty-twenty has presented extraordinary Healthcare challenges with extensive consequences.
and Denmark has been forever transformed not only because of covid-19 but importantly because our team came together to deliver a rapid response to this Global pandemic while demonstrating a resilient and commitment to support our long-term goals
I'm very appreciative of the hard work and sacrifices. Our employees are making to develop manufacture and distribute panels to enable better patient outcomes and proud of the role. We've been able to play and Reporting those on the front lines and helping patients.
Our team has been unwavering in their drive to support the fight against the spread of this pandemic while simultaneously not losing sight or key corporate priorities that ultimately support our long-term growth.
This is no small achievement in the light of the challenges. We also face in our daily lives such as limited access to childcare school closing and caring for our loved ones and I want to express my sincere thanks to the ongoing dedication. We are committed to keeping our employees safe and healthy by rigorously tearing out workplace safety measures and guidelines. And with that. I'll turn the call over to John Nash a deeper review over second-quarter Financial results. Thank you Scott in the second quarter of 2020 total revenue was 40.1 million dollars an increase of approximately 118% versus the second quarter of 2019 with eplex Revenue growing by 195% compared to the prior-year sales team customers continue to represent the vast majority of our Revenue.
Average annuity for eplex placement for the quarter was $188,000 an increase of 74% over the second quarter of 2019.
Second quarter gross profit was fifteen point nine million dollars for a gross margin of 40% of Revenue versus six point six million dollars or 36% of Revenue in the second quarter of 2019 representing an increase in gross profit contribution of 9.3 million dollars or four percentage points reflecting the steady progress toward our goal of 60% gross. Margin over the next two to three years.
The gross margin improvement over the prior year is the result of continued execution on our initiatives to minimize yield loss maximize direct labor efficiency through continuous manufacturing line training and audits while continuing to build record numbers of consumable units our recent investments in additional manufacturing capacity will enable us to increase Global output to the level of Scott outlined previously with the additional square footage available to us the scale with increasing demand and Achieve our longer-term gross. Margin Target.
Total operating expenses were eighteen point five million dollars for the quarter representing an increase of $61,000 compared to the second quarter of 2019 our New Jersey lost per share for the second quarter of 2020 was $0.07 representing an improvement of $0.16 from the second quarter of 2019. Moving to the balance sheet off. We ended the quarter with 130 2.8 million dollars in cash and Investments which includes approximately 75.4 million dollars of net proceeds from the sale of,. In a public offering during the second quarter.
excluding the
Financing activities. We generated positive cash flows for the first time in the company's history of 7.2 million dollars which includes an investment of approximately $750,000 in manufacturing equipment this improvement in our cash usage was driven by the strong Revenue growth and gross margin expansion with relatively flat operating expenses in the second quarter accounts receivable collections in the second quarter also provided a favorable impact to working capital.
Turning two twenty20 expectations. We previously announced an increase to our full-year Revenue guidance to 120 million two hundred thirty dollars. We are now first month increase in the revenue guidance to a range between $155 and $160 and $165.
This updated Revenue guidance incorporates the first half results and the recurring revenue from the transition of recent covid-19 placements to the xrp to panel in addition to continued growth from a panel adoption.
We are also increasing our annual eplex placement guidance to 230 to 250 net new analyzers and are an increasing our expected average annuity per analyzer to between $175 and $200,000.
We continue to anticipate for your gross full year twenty-twenty gross margin in the range of 38% to 40% We are increasing our expected operating expenses long range of 70 to 75 million dollars for the year.
We now expect cash usage excluding any impact from financing activities to be approximately ten ten million to $15 while this is an increase from our previous range of 5 million to 10 million dollars. It is important to note that this revised range incorporates approximately ten million dollars of additional investment in the new manufacturing facility and build out of the two new manufacturing lines. The strong operational results have improved our cash flow from operating activities for for the year to approximately break even and will assist in funding this manufacturing capacity expansion to support our continued growth. This concludes our prepared remarks. So at this time Scott, and I would like to open the call for your questions.
Ladies and gentlemen, we will now begin the question-and-answer session. If you wish your ask a question, please press star one on your telephone. If you wish to cancel your request, please press the pound or haschke. Please stand by while we compiled that you were in a roster.
Your first question comes from the line of Maxima Sushi from canaccord genuity. Your line is now open. Hi. Thanks for taking the questions just to start. Can you help us understand some of the the key assumptions in the updated Guidance just one level deeper, you know based on any Trends you've observed and early Q3 and with some recent State and 53 closings and do you expect to sustain a higher percentage of instrument sales as capital and the back half of the year or should we expect that to Trend back towards traditional himax, this is Johnny. Yeah. So the back half of the year anticipates the capacity we've talked about for the first half of the Year continuing to push to maximize that capacity so you can um that's incorporated into that guidance range in addition to an expectation that as we approached flu season, obviously that we would expect to
It could be a stronger than than Q3 but there's as you know, several unknowns as it relates to.
To flu season in addition to the fact that Scott mentioned something about our ability to continue to manufacture and there's an assumption there that you know, we as as humans have to make sure no one gets sick. And so there's those assumptions baked into the into the full year guidance in the back half and then from a capital perspective. We we're expecting kind of a relatively continued pace of capitalist system strong demand for that capital and would expect that sort of in the back half.
Great, and then one more I know it's early days. But how would you characterize the early uptake of the of the RP to panel and just clinicians willingness to convert from the back panel is is there any change here thinking that you know segments of your customers will continue to run the single Target covid-19 panel as well and just any general thoughts as well. Actually the summer here.
Sure, I'll take that Max at Scott definitely in the early days since we just commercially launched not not too long ago, but we are encouraged by the number of folks already transitioned to RP to as I mentioned in my prepared remarks that that's everything from very large health networks to Community Hospitals in the feedback has been really positive especially around the improved workflow which means a lot to our customers in addition as I mentioned. We also improve the limit of detection and and the sensitivity for SARS Covey to on a panel. So the transitions have been going quite well, maybe just a little ahead of our expectations and as we talked about before we want to get everyone converted over as quickly as possible because we think a syndrome panel that has SARS Covey to on it as well as going to be important as we prepare for the upcoming flu season, which is likely to be in in in concert with covid-19. So yep.
And feeling really good about it a good customer feedback, and we're marching steadily forward on that great. Thanks for taking the questions and congrats on a great scorer Thanks Max off.
Your next question comes from the line of dog Shankle from Colin your line is now open.
Hi, this is Rhino for Doug. Thanks for taking my questions maybe starting with placement gotten so you had 71 net placements in Q2 plus gross placements or even higher, you know, accounting for the reposition instruments off. You just talk to you just talked about Capital demand remaining remaining strong. Can you talk a little bit about why your placement got into the back half isn't even higher now that you're no longer capped by capacity. Are you seeing any slow down the instrument demand at all in July and early August or or are you capped at all by your consumables manufacturing capacity there? Thank you.
Yeah, this is Johnny. I think right I think you've got it exactly right which is there is continued demand for the instruments. We are not constrained from an instrument perspective. We have the issue is play instruments. We really want to make sure that as we place the instruments we have sufficient consumable, um capacity apply to to satisfy those customers that we replacing those new instruments and make sure we've got an continue to supply our already existing live customers. We really want to make sure that they we move in the flu season that they're fully supported.
Got it.
Okay, and then on on consumables manufacturing capacity, I think you said $150,000 per month by year-end if I heard that correctly. Can you just talk about what that assumes for the First new message during line, you know, I'm guessing that includes the process improvements you previously talked about does that mean that you're essentially improving only a partial scale-up of that first line by the end of the year and and what's the likelihood your age get that line up and running maybe a bit faster than what your guidance and plus sure this is Scott. I can handle that. So, um, you're remembering, uh, pretty well the goal for walk you through to 3 on our existing lines as to achieve around 120,000 units a month. So that's on our three existing lines and that's being driven by process improvements wage and and yield and everything that are manufacturing teams are driving and they're doing a great job of that and they're on track to to get to that type of production per month when we bring on the next life.
Which is the 4th Line we expect that to come in on really towards the middle of to 4. And then November time frame. We're doing everything we possibly can believe me to to accelerate that but needs a lot of work a big pool line that incorporates a lot of equipment and validations, um from the GMP perspective. So, uh, you know, we we have to do things the right way, but we're doing everything we can to Resource and plan appropriately to to get that operation on just as quickly as possible. And and I said in my prepared remarks, we think that that'll make us exit key for in that hundred and fifty thousand range, maybe a little bit above average, um, you know, in in that that's where we are planning to exit 2020. And then the 5th line is expected to come on in the first quarter of 2021 shortly after I get the the fourth line down we roll right into the 5th line and get the validation is going in that so that can hit in the first quarter twenty Twenty-One and that'll take us off in a hundred eighty five to two hundred thousand units per month range so dead.
And that's our plans in in Ryan so far. We're on track for that the build out of the new facility is going well and the team is motivated to get that done as quickly as possible. But again, we got along with the right way and we'll we'll try to to bring it in as quickly as we can.
Thank you.
Your next question comes from the line of Brian Winston from William Blair your line is now open. Hey guys, good afternoon. Thanks for taking the question. I thought we got off an order but I'm gross margin here, you know looking at where you guys were for the quarter and the guidance for the year certainly nice Improvement, but it would seem that there's an opportunity for that to potentially be even higher wage. Um, so just can you go through kind of the the assumptions that are sort of built into that gross margin guidance in the back half of the year in particular, especially as we think about some new pricing not coming through on our P two and as part of that. Can you kind of expand on what you think that price increase could be?
I'll start and then I'll let Johnny finish.
So I'll go the the the back half of the question first go from a pricing perspective. You're right. Brian Q2. Let's start their reflected the fact that we definitely missed shifted towards covid-19 Standalone test Revenue. I believe it was between 45 and fifty percent of our U Flex Revenue versus it was about 5% of our U plx Revenue in the first quarter. So as we foreshadowed and I was aware we we did mix shift towards the covid-19 alone test and and that's probably in call at 5 to $10 price differential from what our normal RPM channel is. So that definitely acted cute too. So as we roll forward to the back half of the year, that should be a Tailwind. Number one. We are moving towards the syndromic panel and number two. We are going after driving a little bit higher on the syndromic panel to now include SARS Kobe to it's in the early days Brian, but it's encouraging. So we we we do hope to see
Uptick there, which would help gross margin in the back half of the year, you know, so is there upside in that we we hope so but we think we're being relatively prudent and and thoughts about keeping guidance where it's at until we kind of see how the RP to transition rolls out how pricing holds and then also just looking at our yields and the back half of the Year Johnny mentioned one of the things that we do become a bit concerned about is just making sure we can keep our lines fully staffed. So what do I mean by that Brian we're starting to hire quite a few more people on the manufacturing lines than we would normally require. That'll put a little bit of pressure on what our normal cost of goods sold might be but we think that's the right decision to make we have to make sure we can keep our lines going we have to make sure that we can continue to supply product to our customers. Even if that means in the very short-term. It's a little bit of a headwind for some cost of goods sold. I think that in investment is prudent. So that's that's kind of the story dead.
Pricings going well, we we we Surly but encouraging and we're taking some measures to kind of protect our our capacity and our supply in the back half. It's giving us a little bit of headwind on, good soul. But again, we think it's the right investment to be making and the only thing I would add is yeah. Sorry around the only thing I would add is on the direct material we're executing as we'd expected to through the year and month as we've stated previously. We expect sort of that that exit rate at the end of the year from a black perspective to be in that 40% range.
So Scott you and Johnny are on the manufacturing lines on the weekends. Is that is that is that what I understand here? Probably be surprised you have found here to kit and put them in boxes and