Q2 2021 Co-Diagnostics Inc Earnings Call
Good day and welcome to the cool Diagnostics Q2, 2021 earnings conference call.
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I'd now like to turn the conference over to Andrew Benson head of Investor Relations. Please go ahead.
Thank you I'm Andrew mentioned are joining this app. Joining me. This afternoon are members of the co diagnostics management team, including Dwight Egan, Chief Executive Officer, and Brian Brown, Chief Financial Officer.
We will begin the call with management's prepared remarks, and then open up the call to questions from our analysts before we begin we would like to inform the listeners that certain statements made by Kodak Gnostics. During the course of this call may constitute forward looking statements any statement about company expectations beliefs plans objectives assumptions of future events or performance are forward.
Looking statements for example statements concerning 2021 financial and operational guidance the development regulatory clearance commercialization and features of new products plans and objectives of management and market trends are all forward looking statements. The company believes these statements are based on reasonable assumptions. However, these statements are not guarantees of performance and involve.
I've known and unknown risks and uncertainties that may cause the actual results to be materially different from any future results expressed or implied by such statements important.
Important factors, which could cause actual results to differ materially from those in these forward looking statements are detailed in Kodak gnostics filings with the SEC.
Co diagnostics 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 unanticipated events.
In addition, the company may discuss certain non-GAAP financial measures during today's call. These non-GAAP financial measures should not be considered should not be considered a replacement for and should be read together with GAAP results. We refer you to the company's earnings release out shortly before this call which contains reconciliations of the non-GAAP financial measures presented should there.
Most comparable GAAP results.
At this time I would like to turn the call over to coat Agnostics, Chief Executive Officer, Dwight Egan flight.
Thank you Andrew and thank you all for joining us.
On this call we will provide an overview of our results for the quarter updates on key financial performance metrics and a discussion of progress against our strategy.
Then we will take your questions.
This quarter saw co diagnostics achieved record sales and gross margins with foreign sales exceeding domestic as predicted in our previous earnings announcements and.
And we are proud that we've been able to deliver on those predictions and exceed expectations, while providing a valuable product in the ongoing battle with Sars Covid two.
We believe our international growth along with our clean balance sheet and strong cash accumulation and are positioning us to become a leading global molecular diagnostics company.
And that the sales momentum we have been experiencing over the last year and a half continues to demonstrate demand for our products throughout 2021.
So diagnostics was able to achieve record sales in Q2 in large part due to the strength of our international partnerships, especially in those regions, where vaccination rates are much lower than the U S and expect it to remain so for some time.
This demand as well as continued sales in the U S. S fueled by the rise of the Delta and other variants have allowed us to recently achieved the milestone of selling well over $20 million of our logic Smart COVID-19 related products, including ABC test for flu, a flu b and Covid and our COVID-19.
Two gene multiplex test.
Importantly, those overseas relationships are now driving sales not just for our suite of COVID-19 related offerings, but for our other diagnostic products as well opening up opportunities for our existing and planned products to an even larger market.
We're already seeing this take place is our Zika dengue chikungunya or Z D. C. Test for example is registered in several countries and experiencing more demand than ever before this.
This uptake of co diagnostics products is a driving factor in our emphasis on expanding our trough our product offerings to better serve our important and profitable centralized laboratory segment.
Co Sara our joint venture in India posted another profitable quarter. In Q2 also driven by demand for its COVID-19 tests built on the co primary platform, but also seeing increased demand for its other diagnostics that received IBD clearance prior to the onset of the pandemic.
Recently, the Indian government has also lifted its ban on exporting COVID-19 diagnostics from the country. This opens the door for <unk> to begin exporting its COVID-19 diagnostic to customers in other countries in the surrounding areas, which we anticipate will serve to augment its domestic test sales operations.
Going forward in the infectious disease vertical.
The company will pursue two business segments. The first business segment comprises our centralized lab customers of which there have been many hundreds in domestic and foreign markets.
This is what currently drives saw strong sales in the company and a large focus of our R&D efforts as we grow that product pipeline and we continue to expand our worldwide network.
This includes countries like Brazil, where just this week, we received notification that our logic Smart COVID-19 test kit has been registered for sale in that country by and visa the Brazilian health industry.
In addition to centralized labs, the company's infectious disease verticals also composed of the at home and point of care market.
Which will be addressed by our forthcoming eikon platform.
The icon development continues at a rapid pace with various studies and optimizations in progress to prepare for FDA EUA submission.
We believe that the addressable market for at home and point of care diagnostic applications is considerable and we are optimistic about the potential contribution of our new platform will have throughout the world not just for COVID-19, but for many other diseases as well.
We will be unveiling the particulars of the icon platform over the coming weeks and months as we prepare for various regulatory authorizations and our international product launch.
Your test PCR system on the Eikon platform is a real time PCR test for COVID-19 that we anticipate ultimately being available for at home use. This system is designed to be easy to use inexpensive and fast while maintaining the superior performance of P. C. R.
The result is a low cost small footprint platform that can be deployed widely in nearly every setting comprised of our reusable instrument a single use test kit and a mobile app.
Operation is simple and accessible.
After introducing an oral rinse sample into the test up it is capped and inserted into the instrument results are delivered by mobile app sample preparation RNA DNA amplification results interpretation and reporting are automatically performed by the system.
The system is capable of addressing other testing needs in the future, including the expansion to a variety of multiplex assays no other hardware or consumables are required.
Since our founding in 2013, our mission of co diagnostics has always been to bring effective high quality and affordable diagnostics to those people and places who need them most.
Since the pandemic our territory has expanded to include product sales throughout the United States and over 50 countries worldwide as qualified laboratory personnel and the sophisticated labs utilizing our test have validated its performance again and again and found that it meets with their high standards of quality.
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Vast majority of our sales are from repeat customers, who believe in our technology's ability to reliably produce accurate results for their end users with lives potentially hanging in the balance.
These results are possible due to the strength of our patented co primary technology platform originally conceived and developed over eight years ago, and which underpins the performance of our diagnostic and research devices, including the chemistry being used in the Ikon product development.
More than just a company with high grade infectious disease diagnostic products co diagnostics as truly a platform technology company, which platform has applications extending far beyond Covid. These include liquid biopsy for cancer detection.
Development of which is ramping up as we position the company to take part in this historic development in human Health care co primaries have been shown to have excellent capabilities in the detection of cancer mutations present in human blood and we are developing tests to detect a number of relevant mutations relating to the most pervasive and <unk>.
Lee cancers or.
A paper was recently authored by scientists to co diagnostics showing the effectiveness of co primaries in cancer detection, which is currently pending peer review prior to publication.
Progress in our agricultural vertical also continues especially in our work with Bayer crop services and L. G C.
The company is under contract with Bayer pursuant to an ongoing proof of concept projects using our patent pending N G. S Library prep technology.
Overall, we believe that our strong profits are positioning code diagnostics well for these and other future growth initiatives as significant investments in talent and R&D continue to yield positive results.
The continuing continually rising rates of infection not just in countries without reliable access to a vaccine it in our own communities in the U S illustrate the continuing struggle with this disease on a global basis.
The company has long held that mass scale vaccination would not obviate the need for testing.
We have positioned ourselves around this reality since last year before a vaccine was available or even authorized and our viewpoint. In this regard has proven to be correct.
This week on Cbs's meet the press Dr. Anthony found she said quote.
Previously we.
We have to admit that early on it was said to just give testing to people who have had contact with people who were infected who are symptomatic.
Now, it's very clear you've got to go beyond that because we know now from experience here and in other countries that you will have people, who are asymptomatic, who get into contact with an asymptomatic person who's infected and you'll know that there will be more infection that otherwise would've gone undetected.
So you're quite right, we need to do more testing and quote.
The company is also asserted that in order to normalize society that is to go back to school to go back to work to travel et cetera that regular testing with reliable protocols will need to be done.
Earlier this week on Nbc's face the nation, Dr. Scott Gottlieb said quote the other thing schools should be doing is operationalized testing on a regular basis and quote we believe that operationalize ice operationalized testing on regular basis will be required wherever we intend to normalize and create.
Safe schools safe workplaces, restaurants hotels shifts et cetera.
The icon platform has been designed from the beginning with the ability to operationalize testing on a regular basis and an at home in point of care settings. It is the optimal solution not only for COVID-19, but for other infectious diseases that will be added to our testing menu over time.
It is inexpensive fast and very importantly, accurate with gold standard PCR results, we believe that our history of remaining ahead of the curve since the onset of the pandemic. We will continue to drive this trajectory of growth.
I would like to conclude my prepared remarks by thanking our employees and distributors for their dedication in action and helping to deliver outstanding results this quarter.
Let me now turn things over to Brian Brown for a review of the key metrics and numbers Brian.
Thanks Duane.
Our second quarter revenue of $27.4 million increased $3.3 million or 13, 8% from 24.0 million in the second quarter of 2020, primarily due to continued sales of the logic Smart COVID-19 test.
Gross profit for the quarter increased by $6.8 million or 37, 6% to 24 points 9 million up from $18.1 million in the second quarter of 2020, a reflection of the ongoing COVID-19 pandemic as well as continued improvement in our product mix as compared to the prior.
Year period.
During Q2.2021.
Our recognized revenue includes a smaller amount of equipment sales as compared to the prior year period, resulting in a higher gross margin. Additionally.
We were able to recognize a healthy gross margin for the quarter as a result of the structure of certain international sales, which provided a higher sales price with higher third party commissions.
Year to date revenue grew $47.4 million two an increase of $21.8 million or <unk> 85, 2% and a gross profit of $41.6 million was up $22.5 million an increase of more than 100%.
Total operating expenses for the quarter were $13.1 million up from $3.4 million for the second quarter of 2020 and up from $6.4 million for the first quarter of 2021.
The higher operating expenses were driven by expected increases in both sales and marketing and research and development expenses.
Sales and marketing expenses for the second quarter increased by $5.5 million compared to the second quarter of 2020 due to higher third party commissions on increased international sales.
Our research and development expenses were up by $3.9 million compared to the second quarter of 2020, primarily related to planned expenditures of $3.5 million for the development of our of our point of care device.
Total operating.
<unk> expenses for the six months ended June 30th 2021.
Were $19.5 million up from $5.5 million for the first six months of 2020, reflecting the same sales and marketing and research and development expenses expense increases identified for the second quarter.
Second quarter income from operations was $11.8 million down from $14.7 million for the second quarter of 2020, primarily resulting from the increased operating expenses for the quarter that were just described.
Year to date income from operations was $22.1 million, an increase of $8.5 million from the same period in 2020.
Income before income taxes in the second quarter of 2021 was $11.9 million compared to 15.0 million in the prior year comparative quarter.
For the six months ended June 30th 2021 income before income taxes was $21.8 million an increase of $7.9 million from the $13.9 million recognized for the comparable six month period of 2020.
Now turning to income taxes.
Income tax expense for the second quarter was $2.1 million, representing an effective tax rate of 18.0% and for the six month period ended June 32021 income tax expense was $4.1 million, representing an effective tax rate of 18, 9%.
Our effective tax rate will generally differ from the U S. Federal statutory rate of 21.0% due to state taxes permanent items and discrete items.
For both the three and six months ended June 30th 2020, we were in a full valuation allowance position and as a result, we recorded no expense or benefit from income taxes, resulting in an effective tax rate of 0.0%.
Second quarter net income was $9.8 million or <unk> 33 per fully diluted share compared to a net income of 15.0 million or 51 cents per fully diluted share in the prior year quarter.
The decrease in net income of $5.2 million was primarily the result of the increased operating expenses described previously and income tax expense of $2.1 million, partially offset by an increase of product revenues and resulting margins from higher sales levels.
Our balance sheet further strengthened in the second quarter of 2021 with cash cash equivalents and marketable securities that totaled $72.4 million at June 30th 2021, an increase of 25.0 million from December 31, 2020 at up 12.
<unk> 3 million from March 31, 2021.
With a highly liquid no debt balance sheet, we remain solidly positioned to continue executing on our strategic growth plan by investing in our people processes and research and development to drive future growth.
As we discussed during our first quarter call. We planned for increased sales and marketing and research and development expenses in the second quarter of 2021. However, we were still able to significantly grow our cash balance, reflecting our strong debt free position.
Net cash provided by operating activities. During the six months ended June 30th 2021 was $24.7 million compared to cash used in operating activities of zero point $3 million for the prior year period, an increase in cash flows from operations of 20.
<unk> 5.0 million.
This significant increase in cash flows from operations was primarily due to continued process improvement and strong revenue growth, reflecting the hard work of our people.
Our team's effort generated strong results for the first half of 2021, and we remain confident that those that these continued efforts will result in solid financial results for the back half of 2021, we.
We are anticipating third quarter revenue between 23.0 million and 25.0 million, reflecting continued strong domestic and international demand for our products.
We also anticipate diluted earnings per share in a range of 19.
To <unk> 22 cents, which includes the effect of increased research and development spending on our new diagnostics platform.
We are very pleased with our strong financial position, which enables us to invest in significant growth opportunities such as the eikon platform.
We will continue to build upon our solid business Foundation and are in a strong position to experience continued progress on our strategic growth plan.
I'll now turn the presentation back over to Dwight.
Thanks, Brian Operator, we're now ready to begin the question and answer portion of the call.
We will now begin the question and answer this question.
And then one on your popcorn Paul.
Please pick up with her on the cocoa, Florida.
We'll take one more question.
I would like to have John Chrystal.
Scott conclude.
<unk> <unk> from Macquarie correct in Morocco.
Our first question comes from Rick <unk>.
<unk> profile.
Hi, Thank you for taking my question congratulations on the solid quarter could.
Could you comment on the long term view.
COVID-19 diagnostic market demand as new variants of concern emerge and the mortality rate up to new variants could increasingly become lower.
As I said earlier in my remarks E.
We believe that.
The Covid problem is not something that would be.
That would obviate testing.
For COVID-19, notwithstanding wide scale vaccination, we have always assumed as part of our strategic plan that there would be widespread vaccination the.
The problem of course is that.
Vaccinations are not foolproof, they are only effective to a certain point.
Variance of course cause additional problems as it relates to the effectiveness of the vaccines.
That's a story that we can't predict.
I have to see how that plays out.
But what the evidence is showing so far.
As articulated by Dr. <unk> in my remarks is that notwithstanding vaccination, we're going to have to continue to test a wide level, especially if we want to put people back into school and colleges back into sporting arenas back onto cruise ships and airplanes and back at work.
So our goal has been to create a product with our icon platform that will allow us to test people in any of those settings at home and point of care with a product that's fast accurate and inexpensive and by accurate, we mean PCR accuracy gold stand.
Third accuracy according to the CDC.
And so we see a.
<unk> and prolonged.
Need for testing.
There are also a lot of other issues going on.
Sure.
Last year, we didn't have much of a flu season, but as time goes on flu will re emerge we have an excellent test for flu a flu b and Covid all in one test with one sample and these types of solutions will be increasingly called for as we need to differentiate between different pathogens and I really.
I want to stress that our Covid strategy is really a gateway strategy to many many other diseases the icon.
Your test platform is something that will go way beyond COVID-19.
We have a strong vast menu of tests being prepared for this platform that includes all kinds of different.
Upper respiratory pathogens sexually transmitted infection pathogens and others.
And mind you there are a million sexually transmitted infections every day.
In the world.
So that makes the Covid look.
Rather small in comparison, there are 1 billion cases of the of the common cold just in the United States.
And in 2019, notwithstanding withstanding widespread vaccination throughout the United States, We still had up to 50 million plus cases of the flu. So there's lots of things that need to be diagnosed our icon platform is meant to really.
Reset, how and where and for what costs. Those types of things are going to be done. We think the day of driving into a dodger stadium or into a grocery store parking lot or a hospital parking lot and waiting for hours to get up to the <unk> and then for days to wait for results. We think those days are gone and we think our.
New Eikon platform will supplant.
And very important ways, the how why and we're testing and good PCR testing is done.
Got it.
The current estimated timeframe for icon to enter the market.
So we're in the middle of it.
As I mentioned.
Optimization.
And in test that we are getting ready for <unk>.
Our essential.
FDA EUA submission.
We anticipate continuing those tests.
And in our clinical trials early in Q4, and having a submission hopefully into the FDA by before the end of Q4.
This is a I think a product that demands rapid response from government and other regulatory agencies. We will also be submitting as fast as possible to the European Union for CE, marking because as you know we have vast distribution throughout the world. So it's not just a domestic market.
That we're targeting for.
The substantial market of the eikon platform.
But.
That's our current timetable.
Got it.
Should we expect any catalyst for the company within the next 12 months that is not COVID-19 related.
Well, our first test that is going to be coming out on the eikon platform will definitely be COVID-19.
And then it will be followed by other upper respiratory diseases. So I think we basically view it like this our strong international and domestic sales of of our Covid products.
Or really the bridge to the introduction on an international basis of our eikon product.
We think that the ikon product is the surest.
And most exciting thing that we could be doing as a company to go way beyond Covid in terms of taking our.
The co primary technology to the world of diagnostics.
This is a.
I really don't think you could.
State, how revolutionary and groundbreaking.
Our chemistry, and our devices for being able to test.
At home in point of care settings with this platform.
No.
We're not looking for any particular.
Whiz-bang catalysts as much as we're looking for solid performance through our regular centralized laboratory products, which were definitely showing.
As we prepare to put icon on the market. So COVID-19 was our bridge to an international business and.
It is also the centralized laboratory involvement.
World is our bridge to icon.
That's our trajectory.
Got it thank you.
Well, we're in line group with no further questions Greg Goldman wanted to boot.
Our next question comes from quarter.
That's cool.
Please go ahead.
Thank you and congratulations on a great quarter.
I have to I realize it's a board level decision, what you do with the cash, but you've got more cash than you could possibly need for your business. So what what.
What how should we think about what's going to happen with all of that.
No.
We do have a very good strong cash balance so not only do we have a great cash balance, but we have no debt.
And so.
We're preparing a very ambitious.
<unk> launch.
For our eikon product this is going to be an international product launch. This is going to be it just in the United States. We're talking about seven 7 million businesses, we're talking about.
230 physician offices in a 186000 dental offices and senior care centers.
And just an enormous amount of schools.
Colleges and so we have a lot of work to do and we're going to need our cash reserves to make it. So we can do all that we're doing in this product launch with aplomb and not have to be worrying about where we're going to get money.
So were.
We like having the cash balance we don't want to be distracted.
Other things, we could hunt around for acquisitions or things like that but we think our primary.
Goal right now is to get icon launched and out the door and into the marketplace. My only regret with respect to eikon is that we don't have it ready to go already I don't think we could have done it any faster and we've done it but it would be nice if we could put it on the market instantaneously. So the faster we get to the market.
Both here in the United States and around the world the better off we're going to be.
And Thats, having a war chest makes it so we can do that in the right way.
Fair enough.
In your Q under the recent developments he talk about developing a low cost PCR quality tests for COVID-19 that can provide resulted in our that is the icon product youre talking about is it not.
Well the the ikon product.
Delivers results.
Basically in less than 30 minutes from sample to result.
So the.
Our normal PCR tests takes an extraction.
Process, the icon does not require that hits, a direct saliva sample.
In the in the protocol for taking an icon test.
We will provide two milliliters.
<unk>.
Of water just purified water that the person who will use the swish around in their mouth for 10 seconds or so before they spit it into the cup. It makes it easier for people to generate saliva.
But when we say fast we mean basically less than 30 minutes from sample to result, and keep in mind that the resolved is transmitted from the device to the person smartphone.
And then can go from the smartphone.
Into the cloud.
So.
If you are checking into a a ship for example, a cruise ship there could be an icon in every state room and the people who are running that chip could know within a couple of hours when people aboard the ship exactly what the status is of that entire ship.
For each state room in terms of their COVID-19 status. They can do it again halfway through the crews that can do it again before they leave and board a plane.
They will have record on their phone that they've had a PCR test within.
A certain amount of time.
This is self administered and it's just an unbelievably elegant product, but keep in mind, the bioinformatics and the cloud operations of this through.
Secure servers in terms of notifying.
<unk>.
Government entities health departments, and so on it's just so elegant and it's hard to describe but the fact that it can be done in almost any at home and point of care setting.
What makes it ultimately so revolutionary.
I understand that that was just asking because the Q has this section called recent developments and it talks about developing a low cost TCR quality test for COVID-19, Bruce provides resulted in less than an hour, but it doesn't say that the ikon product. So I just want to make sure. They are two different products out there that are going to be quick.
Yeah, Yeah, I'm, sorry got it you've got it right. This is this is Brian since I'm responsible for the Q I can tell you that that's exactly what we're talking about it. Thank you. Okay. Okay. My last question is.
Looking at the falloff in sales in the United States more than offset by what happen what's going on in your sales for the rest of the world, but can you talk about what are the dynamics that would have pushed.
Falloff from June quarter last year to June quarter. This year in sales just in the U S.
Well I think the.
Thing that you have to point to is the <unk>.
<unk> spread vaccination in the United States, which was far ahead of much of the rest of the world.
And so as as the United States became sort of.
Preoccupied with their vaccinated and sort of hopeful secure status testing naturally fell off in that environment and what youre seeing now are two things you are seeing the emergence of variants like the Delta variant, which are getting in the way potentially.
Vaccinations, it's much more transmissible.
We'll have to see just how it comes out in terms of its mortality rate but.
That variant problem combined with the fact that we're trying to normalize is what's making testing kick in again with a vengeance.
<unk>.
We had an environment, where america was sort of celebrating but the only places that we're really normalized over the last few months, our bars and sporting events.
So we started seeing people at our basketball games and things amping up without masks.
That sort of behavior, but going forward, especially with the variant problem.
The need to have ongoing testing as I mentioned operationalized. This whole thing what we used to call normalizing and what I used to refer to as the workflow of life. The things that you have to do in order to to to live you know you have to go to the grocery store or you have to go to the office.
To go to the bank and so on those things are going to require that we have a certain level of testing going on and it's widespread and pervasive so.
Even though there's a lot of vaccination going on that is a story that is yet to be played out and in the meantime people that are vaccinated are still getting infected and people that are vaccinated or still passing on infection to other people, both vaccinated and unvaccinated. So.
At the end of the day you need to know what your Covid status is in order to have a COVID-19 safe workforce of Covid Safe school, the COVID-19 safe ballgame or what or wherever it is you're going in order to operationalize. This that's where we're heading and that's that's resulting in a constant and strong demand for test in the domestic market.
So it fell off I think for a bit I would say, we have a better and more durable business model than most COVID-19 companies, we're not tied to a few.
Parking lot tempt operations with this serpentine line of cars.
We have had in the neighborhood of 189 different laboratories centralized labs in the United States.
130 of those clear equivalent labs in the in around the world.
200 labs in India.
About $8.75, or 80 of which we provide equipment for so we have a much broader and durable business model than what many of the other COVID-19 companies have had and you know it has been.
Disconcerting for us to be painted with the same brush as many other COVID-19 companies, who are more tied to those types of activities and have less durable and diverse business models as we have because we certainly have not experienced a diminution in overall test sales as of <unk>.
Salt of vaccination.
Okay. Thanks very much.
This concludes our question and answer I would like to turn the conference back over to divide and conquer any closing remarks.
Thank you for your interest in our company and for joining US today for our second quarter call.
We're very enthusiastic about the direction co diagnostics headed.
We continue to invest in expanding our sales and marketing efforts throughout the world, which is an investment in our future.
Our centralized laboratory business segment, along with our growing international presence have provided the company with better durability and helped to bridge to our icon platform introduction in the near future.
With our expanding menu of tests in a device that we believe has the potential to redefine how and where <unk> performed and our dedicated team of scientists sales staff regulatory quality financial and back office support we believe Ko diagnostics is positioned for success better than ever.
Thank you and have a good day everyone.
The conference has now concluded.
Presentation will numerical score.