Q3 2021 Lucira Health Inc Earnings Call

November 11, 2021

Good day and thank you for standing by welcome to loose Theater Health third quarter earnings Conference call.

This time, all participants are in a listen only mode I'm sorry, the speaker's presentation, there will be a question and answer session.

So ask a question during the session you will need to press star one on your telephone.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your first speaker today Greg.

That's right do you go ahead Sir.

Thank you Charlotte and good afternoon, everyone earlier today lose share of health released financial results for the third quarter ending September 30th 2021.

A copy of the press release is available on the company's website.

Joining me today on today's call is Eric Angleton, President and Chief Executive Officer, and Dan George Chief Financial Officer.

Before we begin I'd like to remind you that during the conference call. The company will make forward looking statements regarding future events.

We encourage you to review the company's past and future filings with the SEC, including without limitation the risk factors section in the company's annual report on Form 10-K and quarterly reports on.

Form 10-Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward looking statements.

These factors may include without limitation statements regarding product development product potential regulatory environment sales and marketing strategies capital resources or operating performance with that I'll now turn the call over to Eric.

Yeah.

Thank you Greg Good afternoon, everyone and thank you for joining us and welcome to the third quarter 2021 earnings conference call as the World continues to navigate the waves of new COVID-19 variance as well as the continued spread among the unvaccinated and among those.

Who are vaccinated, yet infected we continue to see the need and subsequent demand for decentralized testing options testing remains.

Remains a critical contributor to the return to normalcy and customers welcome accurate easy to use and reliable options that provide quick results hourly Sarah COVID-19, all in one test kit and or at least share of checkout COVID-19 test kit provides.

Good quality molecular testing in a small easy to use form factor for us anytime and anywhere while producing PCR quality results on the spot.

Throughout the past 18 months, we have seen testing volume fluctuate in the range of 800000 to one 5 million per day in the U S.

Irrespective of these fluctuations this is a substantial volume of daily testing the market for testing remains strong.

Does the demand for our tests.

The series is an accurate and convenient testing alternative to lab tests, the benefit of which is that immediate on the spot results informed early treatment or quarantine decisions, thereby aiding in the fight against further infectious outbreaks, we believe that our efforts over the past.

Eight years have resulted in what we believe is a versatile testing platform that we are well on our way to achieving manufacturing scale that the initial commercial channels have been defined and success has been demonstrated in selling into these channels.

We further believe that the success that we're enjoying as a result in large part of the efforts of the expanding team of highly skilled Lee Sarah employees contractors consultants partners and suppliers, who leverage their experience and passion.

To deliver a great product to our customers. We will continue to revolutionize the at home testing market for infectious diseases, starting with Lucerne as COVID-19 test kit.

We welcome the advent of anti viral medications for COVID-19.

Look forward to their commercial availability.

With the anti viral medications for influenza these drugs appear to be most effective when taken early in the course of infection.

This speaks to the utility of the serious accurate on the spot molecular test as a companion diagnostic that can be used to detect infection early.

We anticipate the same benefit from our multiplexed flu a flu b and COVID-19 test kit, which is in development for both influenza and COVID-19 treatment medications.

Looking back on the quarter, we are pleased with what we have accomplished and the steps taken to propel this era to the next level with serious test provides lab accuracy in an instrument and reader free fully disposable form factor that is easy to use and easy to carry.

With serious test is readily carried in luggage for example, when traveling our test does not require a cleaning calibration or an app and is powered by two double a batteries included with a test kit since commercialization, we've seen our tests used in several capacities, including but by no means.

Limited to the following one aiding in the travel and leisure and corporate enterprise testing markets due to its fully self contained form factor and ease of use users may test at home or in their hotel room, and then produce a Lucy paas on our easy to use text based reporting sister.

And as proof of a negative test result.

So Lucy Paas can be shown at an entrance door to an enterprise for example were submitted as a PDF to an airline website when obtaining a boarding pass. This is a convenient and time efficient testing means for travel we have had reports of individuals' traveling extensively using the Lucy paas.

Two supporting Concierge medicine doctors as they travel to patients.

Sitting physician can start the test to part to make their next stock before the test is completed and then the patient can easily communicate results back to their physician.

Nicely fits the mobile workflow of the modern health care practitioner and three families are able to test all family members concurrently and medical clinics and dentists' offices test patients on the spot the elimination of an instrument or reader. It means that there is no testing bottleneck.

Our lab capacity issue as many people as many people that can be tested simultaneously as there are loose here at tests available and there is no investment and testing infrastructure required.

We believe we continue to establish ourselves as a leader in the untethered mobile molecular testing environment, and we'll continue to build and capitalize upon the many opportunities that are provided by the Lucerne technology.

During today's call I will review, our third quarter highlights provide a business update and discuss our plans and outlook for the future I will then turn the call over to Dan who will give a more detailed review of the financial results.

Before turning to a more detailed review of the third quarter I would like to provide a financial summary, we are encouraged by our strong third quarter, our organic revenue growth continued to accelerate as the quarter progressed in the third quarter of 2021, we reported revenue of $15 million, representing a 20.

1% sequential growth from the previous quarter of 2021.

Gross margin when excluding impairment and certain obsolescence charges is continuing to improve sequentially as our volumes increase although we anticipate we could be at a positive gross margin run rate by the end of 2021, we are instead prioritizing increased investment and manufacturing capabilities.

<unk> in response to demand in fact total demand exceeded total shipments in the third quarter of 2021 and accelerating the product ramp and the Dominican Republic remains a primary focus we remain on track to bring the Dominican Republic.

<unk> to capacity production in the first half of 2022.

To this end senior Lee Sarah manufacturing personnel are now stationed in the Dominican Republic, and we will continue to be so on an ongoing basis in partnership with the team from our contract manufacturer Jabil. We believe this joint presence has yielded positive results.

Based on our demand trends and operational achievements, we are forecasting fourth quarter 2021 revenues of at least $30 million and 2022 revenues in excess of $150 million.

Our business strategy is to grow revenues increased margins and expand our product pipeline.

To drive the strategy, we remain focused on several key initiatives that we discussed last quarter. As a reminder, these initiatives focused on opportunities generated by our over the counter indication.

Rowing International revenue and aiding in the worldwide reopening and control of COVID-19, and its variants. Many of these initiatives were vital to driving revenue during the third quarter and we had several significant milestones. We are excited to share the strides that we have made towards these goals.

Yes.

First looking at our over the counter indication the Lucerne check a test kit was granted FDA authorization by EUA in the first half of 2021 as a result.

Test, allowing users to detect a positive result in as few as 11 minutes or to confirm a negative result within 30 minutes is available to individuals without requiring a physician prescription or oversight from a health care professional FTA authorization was instrumental milestone and is the foundation.

We continue to build upon.

A vital mission of ours is to make our products accessible we strive to provide customers with ready access to testing with an accurate easy to use at home alternative to centralized testing by our various distribution channels, while demand in all distribution channels has remained strong.

Wrong, we paused online sales of our product late in the second quarter to better support large contracts. We are pleased to share that we have reopened online sales of our lease Eric check a test kit on our website and on Amazon.

Our decision to allocate inventory to our online retail channels was based solely on our desire to get tests into the hands of retail consumers and had nothing to do with overall demand which remains very strong.

Now turning to international business.

Last quarter, we mentioned the growing globalization of our sales and its contribution to revenue we continue to support international customers and as in the U S. C vigorous demand are.

Quality and regulatory affairs team has been instrumental in facilitating the importation and approval processes of various countries along with our international partners.

As an example in October we received pandemic special access route or piece or approval for our Lucia checked. It COVID-19 test kit by Singapore's Health Sciences Authority. This is an essential step in our continued international commercial expansion as part of.

The approval, we have partnered with lab, just sticks Asia to import and distribute <unk> products in Singapore.

While the continued presence of COVID-19, and the rise of its variance are unfortunate we continue to see demand for testing, particularly as the world continues to reopen and COVID-19 becomes endemic.

To support the sales ramp we have taken several steps to amaze essential personnel investments to sustain this growth.

Our sales strategy has been developed to <unk>.

Service the various sales channels to capitalize on the growing demand and to increase access to our product. This strategy includes business to business, including corporate enterprise sales partnerships with telehealth and testing service providers events and travel and leisure.

International, including Enterprise and government business to consumer which is serviced by our online presence health care, including hospital networks clinics dentists pre procedural testing and more the.

For sales strategies, our resource with experienced sales executives and team members. Our commercial team led by Chief revenue Officer, Kevin Collins has demonstrated effective selling into these channels.

This team on boarded beginning in the second quarter and expanded further during the third quarter.

As we Sara continues to grow so does our executive team and we have made several top tier additions during the third quarter and August Ghazi Kashmoula joined the company as Chief quality Officer, and Executive Vice President regulatory affairs with over 30 years of experience Ghazi <unk>.

Spanning team are playing an important role as we expand globally bring new products to market and manufacturer increasing volumes of our current product. Additionally in September Tony Allen joined the company as Chief operations Officer with over 25 years of experience in operations and management.

Tony and his expanding team have been instrumental as we increase production streamline operations and increased product availability and a growing number of countries. During their brief tenure with loose era.

Tony in Gaza have made profoundly positive impacts on the business.

Moving to manufacturing in the second quarter, we opened a new production facility in the Dominican Republic run by our manufacturing partner Jabil. We are delighted to report that we have worked through many of the initial startup challenges associated with the new production center and that we currently have two lines running we anticipate.

All four production lines operating at full capacity in the first half of 2022.

These lines ramped during the third quarter, we began to see improved efficiencies in the Dominican Republic, while at the same time, we experienced continued labor shortages and our Michigan plant. Ultimately this led us to the decision to consolidate all current manufacturing into the Dominican Republic.

And to implement a fifth line that will be operational and then our capacity in the first and second half of 2022, respectively.

We expect the Dominican Republic production facility to be able to support our near term business needs.

I would like to acknowledge the team and the Dominican Republic for their strong performance as well as to complement those who worked hard and made key manufacturing innovations in Michigan.

One of the benefits of <unk> platform technology is its ability to be adapted to diagnose other infectious diseases. It was designed with this flexibility in mind. In addition to the COVID-19 tests a pipeline of new tests is either in full scale development ore and feasibility.

And seeing the positive commercial success of the COVID-19 tests has led us to redouble efforts to bring additional tests to market with this in mind I would like to provide an update on a few products in our pipeline.

The first is what we refer to as our ABC test a multiplexed flu a flu b and Covid tests with a single swab sample a user can have results from these three tests all in one device at the same time. This development program was fully resource and is on track for 2020.

Two FDA submission.

Pending the submission process and regulatory approval, we anticipate that this product could be available to support the 2022 flu season.

Second we have commenced feasibility testing on a menu of additional respiratory and STI indications.

As we have more updates on our pipeline and our progress we will provide them as we prioritize follow on tests for full scale development.

Lastly, I want to briefly mention that as a result of its utility we're more fully resourcing the internal team behind the Lucy digital reporting platform. The Lucy platform provides users an easy way to receive a digitally verify test result, and to access this resolved for up to seven days on a smartphone.

This text based platform as a value added service that we view as an important complement to our testing platform.

Rodney the capabilities of Lucy is the mission of this growing internal team and we look forward to sharing more with you in subsequent quarters before I end I want to acknowledge recognize and thank all of our employees and contractors for leadership and continually improving execution that this growing team is providing us the <unk>.

Reason for the success that we enjoyed in the third quarter the entire management team and I are honored to work with such a skilled and experienced team. We are excited about our future and look forward to the upcoming quarters I will now turn the call over to Dan George Our CFO for a detailed discussion of our financials.

Yeah.

Thanks, Eric and Hello, everyone. Please refer to our press release issued earlier today for a summary of our financial results for the third quarter 2021.

Overall from a commercial perspective, we had no activity in the third quarter 2020, and the third quarter 2021 represented our third full quarter of such activity.

Net revenue for the third quarter of 2021 was $15 million.

Our net revenue was primarily driven by contracts with businesses and distributors healthcare providers international sales and direct sales to consumers.

Gross loss was approximately $1 5 million for the third quarter 2021, and negative gross margin with 10%.

Increases in both gross loss and negative margin from the second quarter of 2021 were primarily due to a $1 3 million inventory obsolescence charge and a $1 6 million long lived asset impairment charge, partially offset by increased manufacturing production.

Selling general and administration expenses were $11 8 million in the third quarter of 2021 compared to approximately $1 7 million in the same period in 2020.

The increase was primarily related to increasing personnel related costs and third party services.

<unk> commercial activities and pumps and public company compliance.

R&D expenses were $14 3 million in the third quarter of 2021 compared to $8 8 million in the same period in 2020.

The increase was primarily related to activities to support new products and validation and manufacturing activities.

Loss from operations was $27 6 million in the third quarter 2021, compared to $10 5 million in the same period in 2020 the.

The increase in operating loss resulted from increases in operating expenses combined with our gross losses previously described.

Net loss was 27 five in the third quarter of 2021 compared to $11 8 million in the same period in 2020.

The increase is related to the operating loss previously described partially offset with a charge in other expense primarily relating primarily resulting from noncash derivative liabilities recognized in the third quarter 2020 associated with the issuance of convertible notes.

We ended the third quarter 2021, with $117 3 million cash compared to cash of $58 2 million at year end 2020.

The increase in cash is primarily related to net proceeds received from our initial public offering.

We believe our cash will sustain us through the balance of 2022.

As Eric mentioned, we're seeing strong demand trends and we believe this demand for our COVID-19 tests will remain for the foreseeable feature.

As such we are forecasting fourth quarter 2021 revenues are at.

$30 million in 2022 revenues in excess of $150 million.

I'll now turn the call back over to Charlotte for Q&A.

Thank you.

To ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Your first question comes from the line of <unk> de Bruin from Bank of America. Your line is now open.

Hi, Derek can you hear me.

Okay great.

Great Hi, so.

Thanks for the update.

We've got a number of questions and I'll just go through them I guess first of all what's your capacity.

Expectations may packing capacity expectations in terms of number of units produced by mid 'twenty to 'twenty two.

Yes.

Yeah. So yeah, great question, Derik, we should be at 1 million units a month.

By the end of the first half of 2022.

Great.

And.

And when you look at your when you look at your.

Expectations into 2022 guide what are you assuming for Asps I guess.

How did prices return and the <unk> and <unk> as well just what are you sort of baking into.

Pricing grid.

We're going to provide a more fulsome update of.

A 2022, when we provide guidance in Q1, but for now I would just look at I would probably keep your model consistent with Asps.

Currently.

Got it.

When you look this year.

The guide does youre assuming for revenue.

Is that inclusive.

The ABC test the combo test are you assuming anything to that and I guess what.

Wow.

When do you expect to have.

Switching trials for that.

Yes. It is.

The revenue that we provided was really a floor because we havent provided any guidance for 2022 and we understand it.

Difficult for wanted to get their arms around that.

It doesn't it doesn't include anything incremental related to the multiplex ABC test at all.

<unk> 19 organic revenue.

And in answer to part to Derek.

The timing of going through all of the testing.

Will be such that we plan to submit to FDA and assuming an EUA pathway.

Have results.

On an approval in time, assuming all of that happens as I've described to hit the end of your flu season in 2022.

One final question, so how much of that $1 50 for next year is committed.

How much of that do you have direct line of sight visibility too.

I would just say that I would just say based on the current pipeline.

Our current revenue is probably north of 75% contracted so we have we feel very confident we have great visibility into.

And into our into the 2022 revenue based off the pipeline.

I would think of it in terms of.

A lot of our contracts probably.

All of our contracts have binding elements to them that range up to six months.

All of our contracts have a 12 month forecast.

We provided that number because we feel very confident about our ability to hit it from a demand perspective, but also importantly, very confident from a production perspective as well.

Okay great.

Also national.

<unk>.

Thank you Derek.

Your next question comes from the line of Brian Weinstein from William Blair. Your line is now open.

Hey, guys. Good afternoon, Hey, Bryan Bryan Thanks for the questions.

Right.

Uh huh.

Let me just start Super short term.

Any commentary on the most recent trends youre seeing kind of sitting here in mid November obviously cases have come down a bit but.

The commentary on demand seems pretty strong so any color on what you've seen so far in Q4 it would be helpful.

Yeah, we've actually seen thanks for the question, we've seen no let up in demand.

And in fact when we.

When we look back at demand total testing over time in the U S.

Since the pandemic started that fluctuates between 800000.

And $1 5 million tests per day.

So the Tam is just enormous compared with with our volume of sales.

And as a result of that plus People's interest in our product.

We've just not seen any any change in demand.

Okay.

And just a follow up question on the guide.

Especially on the 22 floor can you give us a sense of where that.

Demand is expected to come from.

What segment of those kind of four that you've outlined.

Do you expect to be the largest contributor.

Yes.

We anticipate that the for the largest contributors our b to B and international.

However.

Hospital systems can be a wildcard and.

Could could come and surprise us from behind.

With high demands we have seen some of that behavior.

In 2021.

Okay.

And then just one more follow up to the guidance.

45 million tests, a month somewhere again.

Sorry, $45 million, a month and $1 billion run rate $45, ASP, obviously, thats way beyond $150 million floor. So just curious how that why that 150 million members. The right floor, how much youre discounting what it could be in some of the puts and takes there.

Yeah, no great great question.

We will say that we are.

We're providing appropriately conservative guidance driven by a bottoms up pipeline analysis.

Just our current best efforts.

Estimating this but as we gain further resolution that Stan mentioned, we'll come back.

With more more refinement.

Okay extra time guys.

Thank you.

There are no further questions at this time.

Please continue.

Thank you Charlotte I want to thank everyone again for your time this afternoon and for your interest in Lucerne Health. We believe that we have the right product at the right time with the right team to manage what now appears to be evolving into an endemic disease across the developed world. We are very excited about the future at least Sara.

And we look forward to speaking to you soon.

This concludes today's conference call. Thank you everyone for participating you may now disconnect.

[music].

Yes.

[music].

Okay.

[music].

Okay.

[music].

Good day and thank you for standing by welcome to loose Theater Health third quarter earnings Conference call. At this time, all participants are in a listen only mode.

The speaker's presentation, there will be a question and answer session.

So I'll ask a question during the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your first speaker today, Greg Chubb. That's right do you go ahead Sir.

Thank you Charlotte and good afternoon, everyone earlier today lose share of health released financial results for the third quarter ending September 30th 2021.

A copy of the press release is available on the company's website.

Joining me today on today's call is Eric Angleton, President and Chief Executive Officer, and Dan George Chief Financial Officer.

Before we begin I'd like to remind you that during the conference call. The company will make forward looking statements regarding future events.

We encourage you to review the company's past and future filings with the SEC, including without limitation the risk factors section in the company's annual report on form.

<unk> 10-K, and quarterly reports on 10.

Form 10-Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward looking statements.

Yeah.

Thank you Greg Good afternoon, everyone and thank you for joining us and welcome to the third quarter 2021 earnings conference call as the World continues to navigate the waves of new COVID-19 variants as well as the continued spread among the unvaccinated and among those.

Who are vaccinated, yet infected we continue to see the need and subsequent demand for decentralized testing options testing remains a critical contributor to the return to normalcy and customers welcome accurate easy to use and reliable options that provide quick results.

<unk> hourly Sarah COVID-19, all in one test kit and or at least share of checkout COVID-19 test kit provide lab quality molecular testing in a small easy to use form factor for us anytime and anywhere while producing PCR quality results on this.

Bart.

Throughout the past 18 months, we have seen testing volume fluctuate in the range of 800000 to one 5 million per day in the U S Air.

Irrespective of these fluctuations this is a substantial volume of daily testing the market for testing remains strong.

As does the demand for our tests.

<unk> is an accurate and convenient testing alternative to lab tests, the benefit of which is that immediate on the spot results informed early treatment or quarantine decisions, thereby aiding in the fight against further infectious outbreaks, we believe that our efforts over the past.

We further believe that the success that we're enjoying as a result in large part of the efforts of the expanding team of highly skilled blue Sarah employees contractors consultants partners and suppliers, who leveraged their experience and passion.

To deliver a great product to our customers. We will continue to revolutionize the at home testing market for infectious diseases, starting with Lou <unk> COVID-19 test kit.

We welcome the advent of anti viral medications for COVID-19, and look forward to their commercial availability.

The anti viral medications for influenza these drugs appear to be most effective when taken early in the course of infection.

This speaks to the utility we serve is accurate on the spot molecular test as a companion diagnostic that can be used to detect infection early.

We anticipate the same benefit from our multiplexed flu a flu b and COVID-19 test kit, which is in development for both influenza and COVID-19 treatment medications.

With serious test is readily carried in luggage for example, when traveling our test does not require a cleaning calibration or an app and is powered by two double a batteries included with a test kit since commercialization, we have seen our test used in several capacities, including but by no means.

<unk> limited to the following one aiding in the travel and leisure and corporate enterprise testing markets due to its fully self contained form factor and ease of use users may test at home or in their hotel room, and then produce a Lucy paas on our easy to use text based reporting system.

As proof of a negative test result.

So Lucy Paas can be shown at an entrance door to an enterprise for example, or submitted as a PDF to an airline website when obtaining a boarding pass. This is a convenient and time efficient testing means for travel we have had reports of individuals' traveling extensively using the Lucy paas.

Two supporting Concierge medicine doctors as they travel to patients.

Getting physician can start the test to part to make their next stock before the test is completed and then the patient can easily communicate results back to their physician.

Nicely fits the mobile workflow of the modern health care practitioner and three families are able to test all family members concurrently and medical clinics and dentist offices test patients on the spot the elimination of an instrument or reader means that there is no testing bottleneck.

Lab capacity issue as many people as many people that can be tested simultaneously as there are loose share of tests available and there is no investment and testing infrastructure required.

Before turning to a more detailed review of the third quarter I would like to provide a financial summary.

We're encouraged by our strong third quarter, our organic revenue growth continued to accelerate as the quarter progressed in the third quarter of 2021, we reported revenue of $15 million, representing a 21% sequential growth from the previous quarter of 2021.

<unk> to capacity production in the first half of 2022.

To this end senior Lee Sarah manufacturing personnel are now stations in the Dominican Republic, and we will continue to be so on an ongoing basis in partnership with the team from our contract manufacturer Jabil. We believe this joint presence has yielded positive results.

Based on our demand trends and operational achievements, we are forecasting fourth quarter 2021 revenues of at least $30 million and 2022 revenues in excess of $150 million.

Our business strategy is to grow revenues increased margins and expand our product pipeline.

Growing international revenue and aiding in the worldwide reopening and control of COVID-19, and its variants. Many of these initiatives were vital to driving revenue during the third quarter and we had several significant milestones. We are excited to share the strides that we have made towards these goals.

Yes.

First looking at our over the counter indication the Lucerne check a test kit was granted FDA authorization by EUA in the first half of 2021 as a result of test, allowing users to detect a positive result, and this view is 11 minutes or to confirm a negative result.

Within 30 minutes is available to individuals without requiring a physician prescription or oversight from a health care professional FTA authorization wasn't instrumental milestone and is the foundation that we continue to build upon.

Now turning to international business.

Last quarter, we mentioned the growing globalization of our sales and its contribution to revenue we continue to support international customers and as in the U S C vigorous demand.

Our quality and regulatory affairs team has been instrumental in facilitating the importation and approval processes of various countries along with our international partners.

As an example in October we received pandemic special access route or piece or approval for our <unk> checked. It COVID-19 test kit by Singapore's Health Sciences Authority.

This is an essential step in our continued international commercial expansion.

As part of the approval we have partnered with lab just.

Ex Asia to import and distribute <unk> products in Singapore, while.

To support the sales ramp we have taken several steps and made essential personnel investments to sustain this growth.

Our sales strategy has been developed to.

To service the various sales channels to capitalize on the growing demand and to increase access to our products. This strategy includes business to business, including corporate enterprise sales partnerships with telehealth and testing service providers events and travel and leisure.

<unk> sales strategies, our resource with experienced sales executives and team members. Our commercial team led by Chief revenue Officer, Kevin Collins has demonstrated effective selling into these channels. This team on boarded beginning in the second quarter and expanded further during the third quarter.

It's expanding team are playing an important role as we expand globally bring new products to market and manufacturer increasing volumes of our current product.

Additionally in September Tony Allen joined the company as Chief Operations Officer with over 25 years of experience in operations and management, Tony and his expanding team have been instrumental as we increase production streamline operations and increased product availability and a growing number.

<unk> countries during their brief tenure with Lee Sarah both Tony and Ghazi have made profoundly positive impacts on the business.

All four production lines operating at full capacity in the first half of 2022 as these lines ramped during the third quarter, we began to see improved efficiencies in the Dominican Republic, while at the same time, we experienced continued labor shortages and our Michigan plant ultimately.

This led us to the decision to consolidate all current manufacturing into the Dominican Republic and to implement a fifth line that will be operational and then our capacity in the first and second halves of 2022, respectively.

We expect the Dominican Republic production facility to be able to support our near term business needs.

I would like to acknowledge the team and the Dominican Republic for their strong performance as well as to complement those who worked hard and made key manufacturing innovations in Michigan.

One of the benefits of the <unk> platform technology is its ability to be adapted to diagnose other infectious diseases. It was designed with this flexibility in mind. In addition to the COVID-19 tests, our pipeline of new tests is either in full scale development or in feasibility and see.

The positive commercial success of the COVID-19 tests has led us to redouble efforts to bring additional test to market with this in mind I would like to provide an update on a few products in our pipeline.

The first is what we refer to as our ABC test a multiplexed flu a flu b and Covid tests.

The single Swab sample a user can have results from these three tests all in one device at the same time. This development program is fully resource and is on track for 2022, FDA submission pending the submission process and regulatory approval, we anticipate that this product could be available.

<unk> to support the 2022 flu season.

Second we have commenced feasibility testing on a menu of additional respiratory and STI indications as we have more updates on our pipeline and our progress we will provide them as we prioritize follow on tests for full scale development.

Lastly, I want to briefly mention that as a result of this utility we're more fully resourcing the internal team behind the Lucy digital reporting platform. The Lucy platform provides users an easy way to receive a digitally verify test results and to access. This result for up to seven days on a smartphone.

This text based platform as a value added service that we view as an important complement to our testing platform broadening the capabilities of Lucy is the mission of this growing internal team and we look forward to sharing more with you in subsequent quarters before I end I want to acknowledge recognize and thank all.

All of our employees and contractors for leadership and continually improving execution that this growing team is providing us. The reason for the success that we enjoyed in the third quarter. The entire management team and I are honored to work with such a skilled and experienced team. We are excited about our future and look forward to the upcoming.

Quarters, I will now turn the call over to Dan George our CFO for a detailed discussion of our financials.

Yeah.

Thanks, Eric and Hello, everyone. Please refer to our press release issued earlier today for a summary of our financial results for the third quarter 2021.

Overall from a commercial perspective, we had no activity in the third quarter 2020, and the third quarter 2021 represented our third full quarter of such activity.

Net revenue for the third quarter of 2021 was $15 million.

Our net revenue was primarily driven by contracts with businesses and distributors healthcare providers international sales and direct sales to consumers.

Gross loss was approximately $1 5 million for this third quarter of 2021 and negative gross margin with 10% increase.

Selling general and administration expenses were $11 8 million in the third quarter of 2021 compared to approximately $1 7 million in the same period in 2021.

The increase was primarily related to increasing personnel related costs and third party services to facilitate commercial activities and pumps and public company compliance.

R&D expenses were $14 3 million in the third quarter of 2021 compared to $8 8 million in the same period in 2020.

The increase was primarily related to activities to support new products and validation and manufacturing activities.

Loss from operations was $27 6 million in the third quarter 2021, compared to $10 5 million in the same period in 2020.

The increase in operating loss resulted from increases in operating expenses combined with our gross losses previously described.

Net loss was 27 five in the third quarter of 2021 compared to $11 8 million in the same period in 2020.

We ended the third quarter 2021, with $117 3 million in cash compared to cash of $58 2 million at year end 2020.

The increase in cash is primarily related to net proceeds received from our initial public offering.

We believe our cash will sustain us through the balance of 2022.

As Eric mentioned, we are seeing strong demand trends and we believe this demand for our COVID-19 tests will remain for the foreseeable feature.

As such we are forecasting fourth quarter 2021 revenues.

$30 million in 2022 revenues in excess of $150 million.

I'll now turn the call back over to Charlotte for Q&A.

Thank you.

To ask a question you will need to press star one on your telephone to withdraw your question press the pound key.

By while we compile the Q&A roster.

Your first question comes from the line of the Bruin from Bank of America. Your line is now open.

Hi, Derek can you hear me.

Okay. Thank you Derrick great Hi, so.

Thanks for the update.

We've got a number of questions.

Got you.

I guess first of all what's your capacity.

Expectations manufacturing capacity expectations.

The number you'd be introduced by mid 'twenty, two and exiting 2002.

Yes.

Yeah. So yeah, great question, Derik, we should be at a million units a month.

By the end of the first half of 2022.

Great.

And.

And when you look at your when you look at sure.

Expectations into 2020 guide what are you assuming for Asps I guess.

How did prices return and the <unk> as well just what are you sort of baking in Q2.

The grid.

We're going to provide a more fulsome update.

A 2022, when we provide guidance in Q1, but for now I would just look at I would probably keep your model consistent with Asps.

You currently have.

Got it.

When you look this year.

The guide is you're assuming for revenue is that.

Is that inclusive.

Sure.

The ABC Paas. The combo test are you assuming anything to that and I guess what.

<unk>.

Wow.

When do you expect to have.

Incremental to that.

Yes. It is.

The revenue that we provided was really a floor because we havent provided any guidance for 2022 and we understand it.

<unk> for wanting to get their arms around that.

Doesn't it doesn't include anything incremental related to the multiplex ABC test, it's all COVID-19 organic revenue.

And in answer to part to Derek.

The timing of going through all of the testing.

What will be such that we plan to submit to FDA and assuming an EUA pathway.

Good results.

And an approval in time, assuming all of that happens as I've described to hit the end of year flu season in 2022.

One final question, so how much of that $1 50 for next year is committed.

How much of that do you have direct line of sight and ability to.

I would just say that I would just say based on the current pipeline.

Our current revenue is probably north of 75% contracted so we have we feel very confident we have great visibility into.

And into our into the 2022 revenue based off the pipeline.

I would think of it in terms of.

A lot of our contracts probably half of our contracts have binding elements to them that range up to six months and all of our contracts have have a 12 month forecast.

We provided that number because we feel very confident about our ability to hit it from a demand perspective, but also importantly, very confident from a production perspective as well.

Yeah.

Okay, Great also on us.

Good morning.

Thank you Derek.

Okay.

Your next question comes from the line of Brian Weinstein from William Blair. Your line is now open.

Hey, guys good afternoon.

All right, Brian Thanks for the questions.

Okay.

Yes.

Let me just start Super short term any commentary on the most recent trends youre seeing kind of sitting here in mid November obviously cases have come down a bit.

The commentary on demand seems pretty strong so any color on what you've seen so far in Q4 would be helpful.

Yeah, we've actually seen thanks for the question, we've seen no let up in demand.

And in fact.

When we look back at demand total testing over time in the U S.

Since the pandemic started it fluctuates between 800000.

And $1 5 million tests per day.

So the Tam is just enormous compared with with our volume of sales.

And as a result of that plus People's interest in our product.

Just not seeing any any change in demand.

Okay.

And just a follow up question on the guide.

Especially on the 22 floor can you give us a sense of where that.

Demand is expected to come from.

What segment of those kind of four that you've outlined.

Do you expect to be the largest contributor.

Yes.

We anticipate that before the largest contributors our b to B and international.

However.

Hospital systems can be a wildcard.

Could could come and surprise us from behind.

With higher demands we have seen some of that behavior in <unk>.

'twenty one.

Okay.

And then just one more follow up to the guidance.

45 million tests, a month somewhere again.

I'm, sorry, $45 million, a month and $1 billion run rate $45, ASP, obviously, thats way beyond $150 million floor. So just curious how that why that 150 million members the right floor, how much discounting what it could be in some of the puts and takes there.

Yeah, no great great question.

I will say that we're <unk>.

Providing appropriately conservative guidance, driven by a bottoms up pipeline analysis.

Just our current best efforts at estimating this but as we gain further resolution that Stan mentioned, we'll come back with.

With more more refinement.

Okay. Thanks for the time guys.

Thank you.

There are no further questions at this time presenters. Please continue.

Thank you Charlotte I want to thank everyone again for your time this afternoon and for your interest in Lucero Health. We believe that we have the right product at the right time with the right team to manage what now appears to be evolving into an endemic disease across the developed world. We are very excited about the future at least Sara.

And we look forward to speaking to you soon.

This concludes today's conference call. Thank you everyone for participating you may now disconnect.

Q3 2021 Lucira Health Inc Earnings Call

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