Q1 2022 Cue Health Inc Earnings Call
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Good day and welcome to the Q House first quarter smoking 22 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question answer session to ask a question during this session.
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As a reminder, this call maybe recorded I would like to turn the call over.
Caroline corner Investor Relations you may begin.
Thank you operator welcome to the Q Health first quarter 2022 earnings call. Joining me on today's call to discuss our results are aimed Qatar, chairman and Chief Executive Officer, and John Gallagher Chief financial.
Officer I prepared remarks will be followed by a Q&A session. During this call, we'll be making forward looking statements, including statements related to the expected performance of our business future financial results and guidance strategy long term growth and overall future prospects as well as the impact of the COVID-19 pandemic.
Wish to caution you that such statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those projected or implied during this call. In particular those described in our risk factors included in our final prospectus related to our initial public offering at September 'twenty, three 2021 and March 31, 2022 Form 10-Q that will.
Be filed following the call.
You should not rely on our forward looking statements as predictions of future events. All forward looking statements that we make on this call are based on assumptions I believe I thought the date hereof and <unk> disclaims any obligation to update any forward looking statements, except as required by law.
Our discussion today may include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results can be found in our earnings release, which was furnished with our form 8-K today.
But the SEC and May also be found on our Investor Relations website at investors got Q health Dot com.
Finally, a recording of this call will be available on our Investor Relations website. Shortly after this call has ended.
With that I would like to turn the call over to your first comment at first quarter business highlights.
Thank you Caroline and thank you everyone for joining us today. This quarter, we continued to make great strides towards expanding access to health care system by combining our accurate diagnostics with our integrated virtual care platform.
I am pleased with our quarter, one 'twenty two financial results with $179 4 million revenue almost entirely in the private sector. This performance underscores our sales teams' strong commercial execution.
One year, our private sector revenue grew from $2 million in quarter, one 'twenty $1 million to $176 million in quarter, one 'twenty two.
Today, I'm going to dive directly into the updates on our key growth drivers. As a reminder, these are first broadening our customer base second test menu expansion and third building out our digital services and capabilities.
Our first growth driver of expanding our installed base the key focus because the Q reader will run all of the future tests in our pipeline.
I'm, particularly proud of the growth of our installed base to nearly a quarter of million readers with over 72000 meter shipped in the quarter.
These leadership predominantly to the private sector, expanding our installed base in the enterprise provider and direct to consumer spaces.
He was also now used to test customers in over 1000 retail pharmacies and distributed by most major health care product distributors, including Mckesson, Medline, Henry Schein and Cardinal health.
Progress on our second growth driver menu expansion continues to go very well we are on track to meet all the pipeline milestones, we laid out last quarter.
I'm thrilled to tell you that last week, we submitted our first full de novo application to the FDA for the Q COVID-19 molecular tests.
Ft of cleared we would likely be the first fully cleared molecular tests for at home use for infectious disease testing of any kind.
This is a real milestone in the movement of health care information access into the home and into the point of care and it paves the way for future submission as we seek to address a wide range of diseases and conditions.
We are in the final stages of our flu de Novo clinical studies and plan to submit to the FDA in the third quarter for full clearance.
Our flu plus Covid multiplex test is ahead of schedule. We are slated to begin clinical studies during the second quarter through our existing network of clinical site.
RSV is on track to begin clinical studies in the third quarter.
Our committee up plus gonorrhea multiplex test is progressing well and as expected we plan to begin clinical studies in the second half of 'twenty two.
I'm extremely proud of the R&D team's accomplishments in a short timeframe.
The expansion of our digital capabilities is our third growth driver. We continue to invest heavily in building technology has been integrated care platform. These capabilities like telemedicine and prescription delivery services make our diagnostic results more actionable, which we believe translates to better outcomes for patients.
We're excited about our upcoming launch of test to treat initiatives on the Q platform. This is a defining moment for Q and health care delivery in general Q customers will soon be able to leverage virtual care and request delivery of prescription to their home within hours all into Q health App.
We expect this to launch in the second half of 2022 so we look forward to updating you on this next quarter.
Our software development team continues to lay the foundation for more integrated virtual care and enhancing e-commerce experience within the Q help out.
In summary, we're proud of the progress on all of our growth drivers with continued expansion of our customer base test offerings and software and services. Our team is making great strides towards our mission of making health care more timely and accessible.
I look forward to updating you next quarter on our flu de novo submission and in App test to treat capabilities.
As we continue to build out the business. We're excited by what we have in store.
Lastly, I'd like to share a touching story about how our products have benefited our customers.
As you know many of our customers are private companies, who provide Q2 their employees.
Recently learned about individual whose mom was diagnosed with stage four cancer.
Thankfully the mom is cancer free today, but she was going through all of her treatment. During the pandemic. This employee also of two members who are essential workers by testing with Q. They discovered three family members had COVID-19 during the holidays and took action to vote any contact with her immuno compromised mother.
Since then she reached out to thank Q4, the ability to test isolate and prevent exposing her mom.
Stories like this that makes me so proud of our team and what we do putting actionable health information in People's hands to make a difference in their lives.
With that I'll turn it over to Jon to walk through our financial results.
Thank you <unk> and good afternoon, everyone. In Q1, we had total revenues of $179 $4 million a significant increase from revenues of $64.5 million in Q1 of the prior year.
Oh mccrone surge led to strong demand for testing throughout the first half of the first quarter of this year.
Notably private sector revenues comprised the majority of our total revenue achievement in the quarter at $175 $8 million or 98% of sales. This is up from $2.4 million in Q1 and up from $104 million in the prior quarter.
Public sector revenues were $3.6 million during the quarter.
Hey, you mentioned earlier that we shipped over 72000 readers in the quarter, bringing our total number of readership to over 235000 units as of March 31 2022.
Please note that as we onboard new customers and because of the linkage to Covid prevalence, we expect reader sales to fluctuate quarter to quarter.
Disposable test cartridge sales in the quarter were $163 $2 million.
Moving down the P&L product gross margin was 51.1% for the first quarter, reflecting operating efficiencies versus the prior quarter as a compare product gross margin was 53, 4% in Q1 of 'twenty one.
We've mentioned our ability to navigate global supply chain constraints, and we continue to be successful in obtaining necessary components and meeting our customers' expectation for supply of our product.
Operating expenses for the first quarter of 2022 were $89 $9 million compared to $19 $7 million in the first quarter of 2021.
Sales and marketing expense was $34 $2 million in the first quarter, we ramped our spend as planned with a focus on digital marketing and advertising.
R&D expense was $28 $8 million in the first quarter again as planned we have ramped investment in R&D with a focus on menu expansion and software development.
G&A expense was $26 $9 million during Q1 of this year.
We continue to be profitable on the bottom line net income for the first quarter of 2022 was $2.8 million compared to $13 million in the first quarter of 2021. This translates to diluted EPS of two cents in the first quarter versus eight cents in Q1 of the prior year.
Moving to the balance sheet, we ended the first quarter with cash of $426 $5 million, an increase of $16.6 million from year end 2021.
This cash positions us with a strong balance sheet and the ability to invest in the business to execute on our strategy and vision.
I'd now like to move to our guidance.
For the second quarter, we expect revenues of $50 million to $55 million.
As we've said Covid prevalence is difficult to predict and we're not providing full year guidance, but similar to this quarter. We will provide an update on the next call.
Like how are you I am pleased with our progress on the three growth drivers, most notably our COVID-19 de Novo submission and the acceleration of the flu plus COVID-19 multiplex clinical studies starting in Q2.
These are important milestones for Q as we continue to make progress on the menu I look forward to updating you on our continuing commercial success and consistent execution on these growth drivers.
With that I would like to thank you for your attention and I'll turn the call over to the operator for questions.
Okay.
As a reminder, if you'd like to ask a question. Please press Star then one.
If your question hasn't answered and you'd like to remove yourself from the queue press the pound key.
Our first question comes from Tejas Savant with Morgan Stanley . Your line is open.
Hey, guys. This is Neil on for Vegas.
So I just wanted to get started on the guide so the QQ midpoint implies around a 70% drop in private sector revenue can you speak to some of the month over month demand trends youre seeing for Covid testing on the private sector side.
Hi, Neal it's John Yeah.
As we look at the the quarter. So in Q2, we are providing guidance of $50 million to $55 million.
And what we're seeing there is that the majority of that.
Revenue is contracted and then we're also looking at run rates and then we look at the rest of the quarter for how we think it'll play out and that's how we landed at that number I'd take you back to what we said on the last call. As we were exiting Q1, we saw testing volumes lower at that point in time.
Which shouldn't be a surprise to anybody at this stage and so as we step through April and into May we took that into account coupled with the contracted volumes and got to the number that we provided as guidance.
Got it that's very helpful. And then I think last quarter, you announced the official commercial launch of.
The key reader and test in Canada, and Singapore, how is commercial traction progress internationally and are you factoring or U S sales into your existing guy.
Yeah, I mean, so we've been very successful with with getting approvals internationally. We have as you noted in Canada and Singapore. We also have in India, and we have a CE mark in Europe . So those are important for us as we seek to globalize Q on an ongoing basis the sales to date.
So far have been predominantly in Canada, and and we've seen that associated both with our enterprise clients as well as selling directly into the country and Thats part of the model actually when you think about international the value proposition that we offer is one where.
We have enterprise clients that have global employee bases and as they seek to rollout the <unk> platform across their employee basis that will take us into different geographies.
And some of those geographies that are that are important and notable to us what it would in fact be Canada, and Singapore, and we'll provide more of an update on that as we move forward, but the international piece for the moment is a is not is not a significant amount in relation to the guidance that I just mentioned.
Yes.
Thank you and so switching to the public sector health conversations progressing with D. O D on contract renewal and how should we be thinking about the deferred revenue adjustment in terms of how it may impact the P&L in the second half of the year.
Yeah. So we continue to be in discussions with the government. We are in an RFP process is as you recall correctly are we don't have an update today on the status of that so it's not a it's not bad news. It is not good news. It just continues to be the same so we'll be eager to give you an update as soon as we have more information there.
As it relates to the deferred revenue associated with the initial contract with.
With the D. O D. Then that deferred revenue is a is not a portion of what I just gave as guidance in.
In fact that deferred revenue won't be recognized.
Until some kind of decision has been made and so you should think about that theres not any in Q1 and there is none contemplated in what I just described for Q2.
Got it and one last for me.
Obviously highlighted expansion to distributors, such as Cardinal Mckesson, Medline and H S. IC.
Which of those do you typically see the most traction with.
Well some of them some of them we've had for longer than others. We've you know we've been with Henry Schein now for the better part of a year and a half, whereas Cardinal Mckesson have been added just recently so it naturally theres a bit of an uptake there, but I think probably the important takeaway here is that as you look at the stable.
[noise] of distributors right now we have all the important players in that space and we're very pleased to have those contracts because you know when you look at the.
The provider customer category for us at the accessing the point of care and we attack that in three ways. One is through large healthcare networks. So that's like think of the recent adds that we had during Q1 Johns Hopkins University of Pittsburgh Medical Center as as examples.
The first way that we attack is is.
Through our agreements directly with large healthcare networks. The other way is through the distributors that we just talked about so that allows us to access more fragmented end users think doctors' office urgent care clinics and that's why we've added these distributors, but then the third piece too which is more recent for us but it is an important part.
How we get to point of care is related to retail pharmacies and so our agreement with Albertsons, Although it's still early stages. Because it's just began we started with 900 pharmacies. We're now over a thousand and that is also an important way for us to access the point of care market.
That's very helpful color. Thank you alright.
Alright, thank you.
Our next question comes from Mac Sykes with Goldman Sachs. Your line is open.
Hey, guys. This is Dave on for Matt Congrats on the strong quarter.
So totally understand no full year guide.
But any qualitative color you could give us on your outlook for the rest of the year cadence.
How you're forecasting the.
Upcoming fire season.
Hi, Dave Yeah. Thanks.
Yeah. So as we look ahead I mean like you said, we're going to we're not going to provide full year guidance I think thats.
Not a surprise as you said Dave.
Given you know given the unpredictable nature of the virus and the prevalence of it. So you know we guide Q2, a $50 to $55 million a we've been operating the business profitably in fact in Q1 did two cents of EPS. So we're proud to be able to be.
Watching expenses continuing to post a strong gross margin and then the other thing I'd want to add is that cash we have $426 million of cash on the balance sheet, that's actually an increase.
From year end, and that's because of the profitable nature that we're running the business right now that we're actually able to generate cash rather than burn it during Q1, and so that 426 million as you look forward. So to your question about as we look forward is Ah is sufficient more than sufficient cash to allow us to.
Continue to operate the business invest in menu expansion and our technology capabilities and that's you know that that's what I'd say about looking forward for us.
Got it yes definitely one of your strengths that strong cash cash position.
Thinking about.
The software services side of the business could you give us all.
Bit more color there.
Progress there what youre working on the demand you're seeing.
And how you see that.
All being in progressing going forward.
Yeah, absolutely. So the you know near term what we're really excited about is the ability to really close the loop from diagnosis to treatment.
You know, we think that we have an opportunity to really.
This paradigm shift and start starting with Covid and in really the antivirals linked to COVID-19 being able to make that pathway of going from diagnosis to treatment really streamlined and so that's the most exciting thing for us because it's foundational because it is you think you know we said.
We're making really good progress on flu and flu COVID-19 and RSV and chlamydia gonorrhea. So this patterns paradigm shift of diagnosis to treatment at all in your own home.
We're at the point of care, but very streamlined at this.
This new paradigm shift.
It is foundational and really think has an opportunity to become more default way of of dealing with those respiratory sometimes or anything related to sexual health, just being able to turn to Q and get a result, and accurate molecular result, communicating that to a physician and then getting things delivered to you.
At home.
Or you won't be necessarily infecting others I think that's a really good model for the future and and so we expect to be able to see some significant.
Progress there.
Early in the second half of this year. So that's the next major milestone that we're really looking towards as they are.
A very significant moment for us.
Awesome, Yeah definitely big Big opportunity for you guys last one for me any additional color you can give on the.
Uh huh.
I'll look for the customer mix.
Between D C private enterprise government and providers.
Yeah.
As we look at the customers I mean, we recognize that as you look at Q1 then.
It's predominantly are almost entirely at 98%, it's our private sector revenues, which is comprised as youre, saying, Dave that provider category.
The enterprise category in direct to consumer we've been pleased with our progress in each of these categories I already talked about point of care. Some we know that deep D to C. Continue we will continue to be pleased with our progress there. It does track to Covid prevalent as you would expect and then on the enterprise side.
Added important customers and we're continuing to talk with those customers about renewals going forward. So we're not at a point quite yet where we would split them out individually but.
But you can tell from our press releases and the naming of new of new pet.
Customers that we're adding here in each of the categories.
With the progress that we're making.
Okay.
Got it thanks, guys. Congrats on the good work Thank you Dave.
Again to ask a question. Our next please press Star then one our next question comes from Mark Massaro with PCI E.
Line is open.
Thanks for taking my question.
Thanks.
Partnership funnel look.
The private and public side last quarter, you had discussed.
Individual states for Covid testing.
Curious as to how those conversations are.
Thanks.
Hi, Vivian Yeah, Yeah that is correct. So.
It was it was about 2% of our revenue on the quarter.
There were $3 $6 million was the public sector revenue a portion of that is comprised of us working directly with states. So as you can imagine.
The good news here is that the states have an installed base. Thanks to the contract that we had with the D. O D. When we delivered 6 million test units and 30000 readers.
Which got us into many many states.
But it does take some time, so we're seeing demand signals from some of those states, but it does take some time to directly contract with those states and so I would say that it will take a bit more time for that to continue to play out and in the Meanwhile, we are awaiting word on the RFP that we have.
Correct, Lee with with HHS and D. O D. So that's how to think about the public private sector breakout. So in the meantime, the way that the way to see it as you know our private sector revenues comprised 98% of our revenues on Q1 and that what that was.
That translates to us those tremendous growth when you look at that category alone, meaning the private sector revenues in Q4 were $104 million up to $176 million in in Q1. So that's 70% growth that we saw just in the private sector alone. So are we.
We feel really good about the private sector for that reason across each of the categories within it and then stay tuned for more on the public.
Okay.
Thanks, so much.
Okay.
<unk>.
DTC pricing.
And competitively.
Any other comments you have on the Apple.
Thanks.
Yeah. Yeah. So this is a category that we've been very excited about we did we launched it as you said Vivien and in mid November . So we're really really just a couple of quarters into it. So I'd say you know it's still we're still in the early stages of direct to consumer we did take a price action back in.
January where we lowered price.
For direct to consumer both on an Ala carte and a membership basis and the reason why we took that action is one of the key points of feedback that we received related to direct to consumer was just accessibility. How can we broaden the accessibility of Q across what is a very very large consumer segment.
And so for that reason, we took the price action and we've been we've been pleased with the uptick that we've that we've seen but as I mentioned before our direct to consumer is going to track with Covid prevalence and that's part of the reason why as we exited Q1 and even in April and through May we're seeing lower testing volumes.
Hence the guidance of $50 million to $55 million in Q2.
Thanks, so much for taking the questions.
Thanks Vivian.
Thank you.
Today's conference call. Thank you for your participation you may now disconnect everyone have a great day.
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