Q4 2021 Lucira Health Inc Earnings Call
Yeah.
Good afternoon, ladies and gentlemen, and welcome to the Lucerne Health fourth quarter earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded I would now.
Now like to turn the conference over to Greg <unk> from the Gilmartin Group you may begin.
Thank you Catherine and good afternoon, everyone earlier today lose share of health released financial results for the fourth quarter ended December 31, 2021, a copy of the press release is available on the company's website joining.
Joining me on todays call are Eric Angleton, President and Chief Executive Officer, and Dan George Chief Financial Officer.
Before we begin I would like to remind you that during this 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 of 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 and manufacturing product potential the regulatory environment sales and marketing strategies capital resources or operating performance with that I'll now turn the call over to Eric.
Thank you Greg Good afternoon, everyone and thank you for joining us and welcome to the fourth quarter 2021 earnings conference call.
But 19 pandemic has reshaped society has experience with an expectation of health care delivery and lose share as instrument free accurate easy to use molecular tests. We believe offers the performance and patient convenience to play a critical role in what Mckinsey <unk> company recently.
Brad just a care at home ecosystem.
<unk> mission is to help fuel the growth of tests to treat an important paradigm and reducing suffering from infectious disease, we believe bringing decentralized testing and as a result subsequent treatments to wherever patients may be the spread of infection can be reduced by limiting the circular.
I should've infectious individuals' among the healthy.
Ideal location for such testing is in the home by providing an accurate result within 30 minutes to lose share of platform enables rapid treatment and treatment as close as possible to the onset of symptoms has been shown to produce the highest efficacy.
Helping to return people to health as easily and quickly as possible is what we're all about and while COVID-19 testing catalyze our initial gross we have broader plans for the test menu that we will bring to market in the coming months and years. This is the power service platform technology.
<unk> that was years in the making.
Revenue in the fourth quarter of 2021 was close to double that of the prior three quarters combined as a result of increased manufacturing output manufacturing capacity is continuing to increase in the first quarter of 'twenty to 'twenty, two and we remain on target to reach 1 million units per month during the first.
I'm trying to trying to.
Our plan is to continue ramping manufacturing capacity in 2022.
Our three main sales channels remain beta be health care and international where we have contracted buyers across these channels. Additionally, we also support important online channels, such as Amazon as well as ordering through our website.
Q4 represented our lowest cash burn and net loss in the company's commercial history, we anticipate that 2022 will produce positive adjusted EBITDA.
The instrument free design of the <unk> product is a key differentiator and opens up unique use cases in which there could otherwise be testing bottlenecks or logistics challenges and time delays around an instrument.
Multiple members of the household contests simultaneously.
As Ken Clinic and hospital emergency Department patients during surge times.
It can be inch for the health care system of sending and Untether lose share attest to a patient's home for pre procedural testing is high due to the instrument pre design that produces rapid results on the spot.
Simplicity of operation of the Lucerne test means that it is well suited for individuals who want a quick easy and accurate test result, without having to come up the learning curve on the more complex user instructions associated with an instrument of tests.
This also means that in the point of care setting Duluth, Sarah tests can be run by any member of staff and not relegated to those with specialized training.
With respect to accuracy molecular tests are unequalled as compared with antigen test as the pandemic likely evolves towards an endemic phase we anticipate that the FDA will eventually call for five 10-K submission for testing products.
Sierra is well positioned for this shift.
Costs are agile molecular test provides PCR equivalents accuracy.
We believe international markets and particularly those in the southern Hemisphere will offset fluctuations.
Seasonal and otherwise in the U S market as we expand globally enterprise customers and hospital systems like current client Sutter health represents a durable use case for Lucerne products, even as COVID-19 shifts from pandemic to endemic we have been.
And we'll continue focusing commercial and regulatory investments in these business to business health care system and international channels.
Our near term product portfolio includes the development of a combination or multiplex test for flu a flu b and COVID-19, our plan is that with a single swab sample a user can have results from these three tests all in one device at the same time, we anticipate that running that combo test.
We'll be as simple as running our current Covid tests to combo test program is moving forward rapidly and we anticipate receiving an EUA from the FDA in time to commercialize for the 2022 to 'twenty to 'twenty three flu season in the northern hemisphere.
We believe that the benefit of using the combo test early in the onset of symptoms and the convenience of one's home fits the test to treat paradigm in which <unk> intends to play a significant role.
By testing and having highly accurate results early quick treatment and quarantine can lead to a reduction in suffering for the infected as well as contributing to the important public health service of infection control.
We believe that this broad control of infection can significantly reduce suffering and productivity losses.
The increased availability of accurate molecular home tests and the awareness and use of such by the public is one of the benefits that has arisen from the otherwise treacherous pandemic.
Additional tests on our platform are undergoing feasibility evaluations.
These include additional respiratory tests and STI tests, we will provide details.
Of the next products to be commercialized as we report in the coming quarters.
We intend to bring a full complement of test to market and to lead the global expansion of convenient home testing.
We are also continuing to add to our digital team with additional deeply experienced hires we intend to enhance the utility of Lucy our digital reporting platform over time, we expect our digital platform to become an important part of our commercial offering.
With serious COVID-19 test kits as a result of their performance ease of use and because they're untether and are uniquely positioned for the test to treat paradigm.
We are working to build a menu of infectious disease test kits with similar capabilities. This is our focus COVID-19 has accelerated both the sheer as grows as a commercial enterprise as well as the market's understanding of and demand for convenient home testing.
Our time has arrived and with each passing quarter. We believe that we are beginning to demonstrate our capability as an organization to manufacture at scale and to play a key role in reducing suffering from infectious disease.
Lucia as near term focus is on generating shareholder value. This through select global commercial expansion continuing to rollout durable sales contracts continuing to ramp manufacturing capacity with its associated gross margin improvements, bringing the combo test to market.
Accelerating the usage of convenient and accurate home testing and playing a key role in the nascent tests to treat paradigm.
As we expand our product offering and geographic distributional.
We believe will become less reliant upon the fluctuations in demand from Covid testing alone and we anticipate maturing and our capabilities around business forecast accuracy.
Lastly, we would like to recognize employees partners and contractors that are working so hard to position. The sheriff for long term success, we are more excited than ever about our future and look forward to this year as growth in the upcoming quarters.
I will now turn the call over to Dan George our CFO for a detailed discussion of our financials.
Thanks, Eric and Hello, everyone.
Please refer to our press release issued earlier today for a summary of our financial results for the fourth quarter and full year 2021.
Net revenue for the fourth quarter of 2021 was $61 1 million, which represented an approximate 300% increase over the third quarter and almost doubling of the combined prior three quarters in 2021, our net revenue was primarily driven by contracts with businesses and distributors health care providers into.
Our national sales and direct sales to consumers.
Gross profit and gross margin for the fourth quarter of 2021 was $12 6 million and 21% respectively.
non-GAAP gross profit and gross margin for the fourth quarter of 2021 was $19 1 million and 31% respectively.
Our increase in gross profit and gross margin was driven primarily by operational efficiencies gained through increased manufacturing output.
By including a charge to cost of goods sold related to excess and obsolescence of $5 2 million.
Selling general and administration expenses were $11 6 million in the fourth quarter of 2020 compared to approximately $2 4 million in the same period in 2020 the increase was.
Primarily related to increasing personnel related costs and third party services to facilitate commercial activities and public company compliance.
R&D expenses were $9 1 million in the fourth quarter of 2021 compared to $8 5 million in the same period in 2020 new.
New product development and validation of the manufacturing activities, primarily drove the increase.
GAAP net loss was $7 8 million in the fourth quarter of 2021 compared to $17 2 million in the same period in 2020.
non-GAAP net income was approximately 350000 in Q4 compared to $13 1 million and non-GAAP net loss for the same period in 2020.
The decrease in net loss, primarily resulted from increased gross profit.
For the full year 2021, we recorded $93 1 million in revenue.
GAAP gross profit for the year was $10 2 million, representing an 11% GAAP gross margin.
non-GAAP gross profit for the year was $20 1 million, representing a 22% non-GAAP gross margin.
GAAP net loss was $64 8 million and non-GAAP net loss was $46 2 million for the full year 2021.
GAAP and non-GAAP operating expenses were $75 4 million and $66 9 million respectively.
We ended the year with $106 million in cash compared to $58 2 million at year end 2020.
The increase in cash is primarily related to our initial public offering.
For 2022, we are reiterating our pre announcement guidance in excess of $450 million revenue.
For the first quarter of 2022, we estimate revenue between $80 million to $85 million.
The first tranche of available financing from the recently announced that deal puts the company in a healthy cash position and we believe our cash our current cash will sustain us through the balance of 2022.
We expect adjusted EBIT adjusted EBITDA that excludes noncash stock based compensation of $30 million to $35 million in 2022.
These estimates reflect our most recent assessment of manufacturing output and commercial demand.
Our objective is to achieve financial health in 2020.
I'll now turn the call back over to Catherine for Q&A.
Thank you.
Ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Our first question comes from Derik de Bruin with Bank of America. Your line is open.
Hi, good afternoon.
Hey, Derek Hey, Derik.
So I'm a little bit.
Looking at your first quarter guidance and our full year guidance. So.
I'm, just sort of curious I would've expected the first quarter to be a lot.
Stronger just given the sort of the way the pandemic is sort of playing out right now and then.
The taper off.
Like that so I'm just curious it looks like implied in as Youre looking at Youre, certainly looking for acceleration through the rest of the year can you sort of walk through how you sort of see revenues accelerating.
Sure.
Sure I'll make a comment and then I'll turn it over to Dan Derek Thanks for the question and.
Yeah.
I think we're clearly seeing some or expecting some seasonality.
As we go through the year.
But we're very comfortable with the starting point.
And.
As we as we start to yeah.
Yeah, I think look I think Q1, Derek is that that's a number we felt really good about in Q1.
And is is that Eric mentioned.
We expect to see some seasonality Q1, but we're talking about a viral disease. So we're looking at some some pretty heavy growth in the back half of 2022. So so I would think about it as kind of Q1 being a very solid number and in some I would say probably some flatness, if a little bit of volatility through <unk>.
Q2, and Q3 and picking up against very heavily in the back half of Q3 into Q4.
Okay. I mean, we're in the middle of March, though as I said it.
Yes, so is that just sort of.
Price that that is so Europe .
So can you sort of walk us through what you have in terms of committed orders and.
Yes.
Thank you we're about 80% of your.
I think your guidance represents roughly about 80% of your existing capacity if I'm not mistaken.
Like that could you just sort of walk us through unlike how youre sort of thinking about.
Whats the committed orders and then capacity expansion to sort of fill those.
Yes, I can go through the committed orders first so so I would look at the guidance that we provided and about.
50% of that is contracted at this point and about two thirds of that is.
Is is binding orders.
And when we look at our business in four segments right. So we have our HCP segment or business to business segment, our international segment, and our and our DTC segment.
The first three segments are really are really the contracted business, where a majority of those contracts reside.
And that's where and Thats, where the majority of the business is and that's where we have the real visibility.
So so that's where that's what we're looking into Q2 into Q3 time frame, we have some nice sustainability, which is really evidenced by the switch contract that we entered into in the Q4 time frame, which is a great piece of evidence of.
Of our sales group going out.
And landing long term contracts longer term contracts, especially they have visibility into the sustainability of our of our manufacturing and that's really what happened in Q4 Garik as we we reached a level of critical mass in manufacturing then allowed us to kind of go out on the curve and allow the sales force to not just.
Take orders, which they were doing through the Q4 timeframe into Q4 into Q1, but now go out and start seeking additional business.
So should we look at like the Opex in the fourth quarter R&D SG&A is sort of like a starting point for Q1 and would you expect that to ramp as you sort of look at as you bring the.
Flu Covid combo test up in the back half of the year.
Yeah, most definitely I mean look we're going to be growing we're going to be growing to support to actually support the business right. So.
I look at it is.
Is is a launching point I think we have I think what Q4 actually proved that we have got it is there.
Nice leverage level business, but we are growing dramatically right, we're jumping off from a $61 million Q.
Q4 number we will be investing in in R&D like for like you mentioned for that for that combo product, we will be investing in sales and marketing. It will we will we will be expanding our our operational footprint. So I wouldn't look at I would look at those expenses.
Close to <unk>.
<unk> I would take kind of year over year to support this type of revenue growth.
Got it and.
What else do you have to do for the flu.
Combo, the flu covey combo. It sound like you were still doing some finalization you expect that to be EUA do you think that it will still be you'll be able to still watch that as an EUA at the end of the year or will it be required for a five 10-K by.
By that point.
Yeah, so the product exists now Derrick.
And it is going through its its final testing in house.
And then testing required for the regulatory submissions.
Our our current information from FDA is that there will be an EUA and so we're operating on that basis.
If it's if it.
If the FDA changes their minds and it's no longer an EUA, but they moved to five 10-K then.
Then it's not going to make this timeframe, but we have every reason at this point to believe that it will be based on our conversation with FDA.
So I guess the.
One other question sort of begs down it's like what happens after 'twenty two right I mean, you're.
This is a.
Unprecedented year with.
We have certainly had a coat.
Omicron Spike things still picking up still going through that I guess, how should we think about.
What's sort of embedded in your assumptions for beyond 2022, and I mean are you anticipating additional variant waves are you doing this just from thinking about like where this goes in sort of like how the.
The the business evolves from here.
Yeah, we're continuing to see.
Consistent demands.
And remember we are a tiny player against.
Some larger market demand.
Even in Covid.
So so.
So one point is with Covid product, where we're seeing consistent demand.
But then we're seeing that Covid has leveraged open this whole tests to treat paradigm and consumers Asian of health care into the home.
And that's what we see going forward and it's particularly.
It becomes a particular leverage relevant and leveraged with the combo product and then we'll bring subsequent products.
After that but the combo product.
You know it becomes significant in Q4.
Introduction, yet and I think also too what I mean, if you think about the introduction of at home testing.
We're on the cusp of creating a market and in the pandemic really allowed for this acceleration of this of this market creation and then with the introduction of these new modality. It just becomes so much more important to test to identify what somebody has early on so you can least treat them treat.
Them upfront because if you don't catch them at least in the asymptomatic early onset symptom phase of the disease, you can only treat symptoms. So.
Theres definitely with with the with the anti Virals from Merck and Pfizer along with the fluid anti virals.
I've just testing somewhat anecdotally by going to the point of care by your Docs. We think is a thing of the past and in fact with the pandemic.
Docs, who used to do that arent really started treating tens of millions of people through tests. So the whole pandemic reintroduce the importance of testing and with these drugs really creating that paradigm shift the early test to treat proper identification and without knowing if you have COVID-19 or flu the symptoms are ideal.
<unk>. So it's just very important Derek you can tell we're excited about this that this was the initial objective of the company when it was founded.
And then Covid accelerated.
Our ability to get to initial scale.
But we're.
We're really focused on the initial admission here, but but with such increased awareness.
And the population out of the benefit of home testing.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes from Brian Weinstein with William Blair. Your line is open.
Hey, guys. Good afternoon. This is Chris and thank you for the questions.
First on Isps can you just talk to where they came in on the quarter. So we get a better sense of how many test kits were sold in and what the go forward expectations are for Isps in guidance.
Griffin, we're not providing that information for competitive reasons, but.
We're not but we're not expecting anything really dissimilar than what we experienced in 2021.
Okay Sir.
On the $450 million any sense of.
What percentage of expected total production, that's going to take up just based on those ramp expectations that you guys have I mean $50. If you just kind of assume $50 9 million pets.
Any sense of what.
Percent of total production you guys think this will account for.
Yeah, it's probably it's probably in that 75% to 80% range yeah.
Remember we're not.
Without talking about specific production numbers other than hitting the 1 million units per month in the first half of the year will continue to ramp.
Through the year with expectations of the need for additional capacity as we as we get beyond the first half of the year.
Okay. So just to be clear there is potential ramp beyond the $3 million per quarter as we get into the back half of the year.
That's correct okay.
Okay.
And then on the competitive dynamics, obviously, you brought that up.
For the at home molecular space.
Basis of competition kind of assumes menu costs, but any sense of love to hear your guys' thoughts on competitive dynamics.
Couple of entrants in the space in the Covid space with beyond that.
Your thoughts on the current competitive dynamics would be great.
Yes, there certainly are other competitors looking at this space and participating in it.
That's a.
We think it's going to emerge as an extremely interesting space.
Just a central lab testing and point of care testing.
Both have each become substantial.
The kind of.
Products that we make in some of the competitors make.
Serve.
Served the at home space.
But also overlap into the first two spaces.
We think that.
You know our company founders when they went the extra mile to make and Untether on instrumented test.
Served us well at this point because when you think about.
Health care system, sending a test.
A patient's home for example for let's say pre procedural testing not having to have the expense or the complexity of an instrument being able to run a onetime tests have a result.
Have that served.
And in its entirety that that.
That puts <unk> in a very unique.
Positive situation.
Yes, Okay, and then just last one.
Can you talk about any impact if theres been any impact on with private payer coverage somebody's at home COVID-19 testing what the processes for obtaining reimbursement.
Like for your test.
What that looks like and if you've seen any.
Any sense of what the volumes are relating to <unk> are submitted for reimbursement.
Well, yes, we have seen home testing of Covid covered.
In many instances per the Bible and administration.
So for example people who purchase looser of tests on Covid tests online are able to submit their receipt.
And if they're in a coverage situations, Jeff 100% coverage.
And if they're not with the with <unk>.
Such situations get up to $12 per test so.
We have received very.
Number of very satisfactory comments about that.
It will be.
Looking at coverage very carefully as we bring additional tests to market and.
At that time, we'll be able to comment more about it.
Okay. Thanks, guys.
Thanks Robert.
Thank you. Our next question comes from Ralph Who'll rocket with Wifi Capital. Your line is open.
Hey, guys can you hear me.
We can rule.
Awesome, Hey, congrats on a great year, guys, some really exciting.
Just kind of hoping I know.
Some of our previous conversation you've kind of talked about how you've seen a lot of demand, but somewhat been limited by your manufacturing capacity, obviously with the guidance, we're really seeing a lot of that open up I was wondering if you could kind of comment on that even from here help me understand what kind of demand youre seeing from three different customer channels I guess on how much of that is.
Still being constrained by manufacturing capacity this year.
Yeah. We are we continue to see strong demand and the principal three channels.
We do.
And so we're.
That's why we continue to bring up manufacturing capacity.
To meet that demand.
If we did see.
Our estimate is that.
Kind of consistent demand in those three principal channels.
What was either an impacted by omicron or it was impacted to an extent that because of our limb.
Limited manufacturing capacity does.
It did not influence.
What we what we took is as demand.
With the exception of online and online we did see.
A surge in demand.
Meaning a surge meaning.
Couple of ex baselines of Mt.
<unk> settled down.
Micron settled out in the population, but that that online channel is very small compared to two our other channels.
Got it okay Super helpful. Thanks.
And I guess I'm, sorry, if you covered this I missed it but I guess from my perspective, how should I be thinking about further gross margin expansion over the near and long term I guess 12 to 24 months.
Yes, so we we exited the year our non-GAAP gross margin was was a 31%.
With this type of volume, where we're looking at an average gross margin in 2020 to about 40%. So you can think of it.
Growing throughout the course of the year with with a more of a bump in the back half of Q3 into Q4.
Kind of think of it exceeding the 40% range during that period.
Yes.
Thanks.
And then I guess just two more from me one just want to hear a little bit more about.
The international channel here, and what kind of demand you're seeing there I guess how are you.
Can you give us any kind of color on what the composition of those contracts might look like are there any regulatory hurdles to get over I mean help us understand I guess, how many different ex U S areas youre trying to kind of get into this year and further beyond it's really just kind of any kind of color you can provide on what that expansion will look like would be pretty helpful.
Yeah.
Will be.
You know somewhat vague and our answer just for competitive reasons, but you're aware that Canada is an important international partner of ours from Reed.
We have.
<unk>.
So some sustained demand in Canada.
Through partners there.
Which is contracted and binding.
And.
From this point and we were in some other countries as well.
We've named previously but from this point forward as we bring additional products to market. So for example, the combo product.
We look at regulatory in a holistic global fashion and not just in the U S fashion.
And.
<unk> that in respiratory diseases.
There can be seasonality.
We intend to balance to the extent possible that seasonality.
Through through.
Regulatory approvals in distribution in the two hemispheres. So we'll we'll be more forthcoming about that as we get into the second half of the year.
But but hopefully that serves a some guidance at this point.
Yeah.
Very helpful.
And then just last one for me you know assuming the combo test is an EUA and it kind of comes in I guess in the back end of this year is any of that revenue kind of baked into the full year revenue guidance.
Are you seeing that as just kind of some of the potential for upside.
Yes, we feel we feel good about the $4 50 plan, even without the combos. So when we talk about in excess of $4 50, we look at the combo has been has been in excess.
Got it okay. Good to know Alright, I think thats. It for me it really appreciate it guys and congrats again on a great year.
Thank you. Thank you.
Thank you and Thats all the questions in the queue I'd like to turn the call back to Eric <unk> for closing remarks.
Thank you Catherine.
Want to thank everyone again for your time. This afternoon for your interest in <unk> Health. We are excited about the future at least Sarah where we are expanding our decentralized test portfolio and global commercial reach our cobot product was catalysts with which we achieved initial scale in 2020 . One we believe that the appropriateness of our testing.
Platform for both the test to treat paradigm and the care at home ecosystem, along with the planned launch of the combo product in the second half of 2022 will drive increased shareholder value I'm proud of our team and look forward to her coming achievements this year and beyond thank you and have a great evening.
This concludes today's conference call. Thank you for participating you may now disconnect.
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