Q1 2022 Lucira Health Inc Earnings Call

May 12, 2022

Good afternoon, ladies and gentlemen, and welcome to the Lithia.

<unk> first quarter earnings conference call.

This time, all participants are in a listen only mode.

<unk> and answer session will follow the formal presentation.

As a reminder, this conference is being recorded.

Oh, no like to turn the conference over to Luisa Smith from the Kevin Barton Group. Please go ahead.

Okay.

Thank you Alex and good afternoon, everyone earlier today <unk> released financial results for.

For the first quarter ended March 31 2022.

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

Joining me on todays call are Eric Anderson, President and Chief Executive Officer, and Dan George Chief Financial Officer.

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

I encourage you to review the company's past and future filings with the SEC, including without limitation the risk factors section in the company.

Currently filed annual report on Form 10-K, and subsequently filed quarterly report 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 and 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 Luisa and good afternoon, everyone and thank you for joining us and welcome to the first quarter 2022 earnings Conference call.

Sarah achieved record revenues in the first quarter of 2022, driven by demand for our accurate and easy to use molecular COVID-19 tests.

We are pleased with our performance and see COVID-19 testing as a proxy for what they are Sarah will become a leader in the healthcare paradigm shift to a new category of decentralized diagnostic testing.

And bind with rapid treatment, otherwise known as test to treat.

<unk> founding almost a decade ago.

This has been the vision.

Pandemic tragic as it has been catalyzed this transformation and infectious disease diagnosis quarantine and treatment.

Firstly, Sara the pandemic accelerated achieving manufacturing and commercial scale for our current COVID-19 tests for.

For the next diagnostic tests in our pipeline.

And it also deepened the investments in our digital reporting platform.

We see our mission not only as a molecular test manufacturer.

The digital health care company.

Alright, and easy to use testing is fundamental.

But the full service of tests to treat is enabled through digital backbone that we achieved both through telehealth partnerships as well as by the growing accomplishments of our in house digital development team.

We envision a society in which early diagnosis at times, even before symptom onset, resulting in an immediate prescription medication delivery for rapid intervention in recovery.

Current infectious disease treatment paradigm.

Good it's still too slow and that it requires patients to travel to see healthcare providers or times relies on health care providers can make educated guesses rather than to know with certainty and it also requires patients to speculate as to whether they are family members are infectious Utah.

<unk> tests mean that guessing is replaced by knowing that the earliest moment possible all of this in the name of reduce suffering and improved personal and public health.

COVID-19 continues to evolve toward an endemic disease and thankfully severity as measured by hospitalization and death has declined from recent peaks.

But as shared by the many fully vaccinated and boosted people that I know, who currently have or recently had COVID-19. It is no picnic for summit is benign, but for many otherwise healthy individuals as debilitating.

Our plans assume that COVID-19 testing demand will cycle, but will remain likely fluctuating seasonally cycling with population vaccine booster durations and rising as new variants emerge.

The grandparents to families with young children to those who are immunocompromised returned to work returned to school travel all are made safer by testing first with Lucerne accurate molecular tests.

While no test is 100% accurate only lose share as molecular level of accuracy can ascertain if a person is infectious with or without symptoms.

A family member recently needed of flu anti viral that would've been far easier and faster to obtain have there been an accurate home flu tests on the market.

Negative on the <unk>, COVID-19 test, but bedridden with fever, and flu symptoms telehealth providers still wanted the patient to visit the clinic for evaluation.

This was not practical and we obtained the flu anti viral quickly elsewhere. This anti viral works very well, but the telehealth process is in need of <unk> COVID-19 flu combo test. So the telehealth physicians can prescribe treatment medications with diagnostic confidence at the earliest.

Site of infection without requiring patient visit.

The near term launch of the COVID-19 flu combo test is the next step in our growth strategy predicated on new products regulatory approvals and global expansion.

The first quarter of 2020 to recording revenue of $95 million of 19 times increase over Q1 2021 with net income of $13 $1 million demonstrated the leverage that exists in our business with <unk>.

A modest commercial volume.

This was the first quarter that produced net income in the company's commercial history.

In February we announced the debt facility available to Lazaro for up to $80 million, we have drawn down only the initial financing tranche of $30 million to bolster capital reserves.

2022 remains a year of strong growth for the company. This quarter also demonstrated several marketing expansion achievements. Our main commercial channels remained business to business health care, including telehealth direct to consumer and international.

Q4 of 2021, we signed an agreement with a major Silicon Valley Tech company.

And an initial product purchase was made in.

In Q1 of this year this customer doubled their purchase volume.

In Q2 their demand has remained strong even as COVID-19, ebbs and flows.

This represents the customers' shares characteristics with other enterprise slash b to B customers.

These are employers who wished to mitigate the risk of illness, because their employees are critical to their operations require their employees to work in proximity with one another and for whom the cost of downtime as high <unk>.

Examples outside of the Tech space include film and media production professional sports on financial services, all of which are categories of our current enterprise customers.

We would also like to provide an update on sales to the government of Canada. In 2021 Lucero was awarded a standing offer that allowed health, Canada to purchase defined quantities of tests from the Sarah over a 12 month period.

Health, Canada subsequently exercised the first of two six month extension options.

Our tests have been used across Canada, and have provided value to remote and hard to reach communities in which providing fast and accurate testing would otherwise be difficult or impossible.

For the remainder of 2022 and beyond we look forward to continuing our important working relationships with the government of Canada, The Canadian provinces, and all Canadians from coast to coast looser.

<unk> is investing in people and other resources to allow us to deepen our relationship with institutional buyers like the government of Canada to expand our offerings and ease of ordering to private enterprises and individual customers.

In Q1, we entered into a distribution agreement with a national health care and laboratory products distributor.

This distributor in turn provided there Sarah tests to a major health system on the West coast that had not previously been at least here or a customer.

Over the coming quarters, we expect this distributor to increase sales with this health system.

And to expand sales to other health systems and hospital networks.

In 2022, we are continuing the hiring of a small team of seasoned healthcare sales professionals, who will sell directly to health care organizations augmenting the distribution business, we will continue to monitor and optimize this hybrid distributor and direct sales strategy.

Additionally, we are delighted that we received CE mark for the COVID-19 flu combo product on May six.

Influenza and COVID-19, or the two major respiratory diseases for which there are anti viral treatments.

On may 11th we submitted our application for emergency use authorization.

For our COVID-19, and flu combo product to the U S food and drug administration.

Clinical trial results for this product were positive and submissions to other regulatory authorities, including health, Canada are anticipated to occur in the second quarter of 2022.

Clearance for this device will allow <unk> to expand its geographic footprint, while also transitioning away from reliance on revenues based solely on COVID-19 testing.

The Lucerne COVID-19 flu combo test on the COVID-19 test, which also received CE Mark on May six our nucleic acid amplification test with sensitivity and specificity comparable to lab based PCR assays miniaturize to run on the <unk>.

As palm size test with no separate instrument or a reader and producing results in 30 minutes or less.

<unk> COVID-19 test is authorized in the U S, Canada, Singapore, Israel in Taiwan with millions of tests distributed to date.

So the <unk> COVID-19 flu tests uses the same platform on palm sized device design and.

And independently test for COVID-19 flu a flu b from a single nasal swab.

As a reminder, COVID-19 flu have similar symptoms, but distinct treatments.

This underscores the importance and utility of providing tests, such as the COVID-19, and flu product that differentiate between such infections, when the viruses that cause them or both circulating.

We have an efficient and leverages <unk> infrastructure that we believe now has sufficient capacity to support anticipated demand in 2022, including production of the COVID-19, and flu combo product.

However, given the unpredictability of potential COVID-19 surge is throughout 2022, we are withdrawing our previously stated revenue guidance of $450 million. Many factors contribute to a lack of visibility into the remainder of the year and internal analysis of cycling COVID-19 peaks.

New variants that challenge vaccine efficacy potential seasonality and timing associated with booster cycles contributed to the decision to withdraw guidance, we anticipate that seasonality of respiratory illnesses will cause Q Q1, and Q4 to be strong revenue quarters note that the buying them.

Administration is forecasting a cold weather wave of COVID-19 infections mentioning a potential quantity of $100 million infections, which represents nearly one third of the U S population.

The average quantity of influenza like illness cases in the U S is almost two times this number underscoring the potential demand for the combo product in Q4.

We expect that our commercial expansion into the southern hemisphere will both bolster midyear demand.

Additional tests on our platform, primarily respiratory and STI are undergoing feasibility evaluations.

These products are developed and approach commercialization phase, we will report relevant information to shareholders.

Lew Sarah is building on the momentum that we have gained through COVID-19 testing to bring accurate and actionable tests to treat into the home and to professional settings, such as medical clinics and hospital emergency departments, empowering patients and health care professionals with accurate re.

Time information about infections that enables tests to treat our product because it is reader and instrument free eliminating bottlenecks and points of care enabled simultaneous testing in multiple people in any setting and provides an easy to carry form factor for travel.

We appreciate the hard work and dedication of our employees partners and contractors for delivering long term successfully Sarah <unk> leadership has experienced and commercialize new technologies at the forefront of changes in health care. We are excited with the progress that we're making in new products and new <unk>.

<unk> I will now turn the call over to Dan George our CFO for a detailed discussion of financials.

Thanks, Eric.

Please refer to our press release issued earlier today for a summary of our financial results for the first quarter 2022.

Net revenue for the first quarter of 2022 with $90 5 million, an approximate 19 times increase over the first quarter of 2021.

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

Gross profit and gross margin for the first quarter of 2022 were $39 9 million and 44% respectively.

Compared to a gross loss of negative gross margin for the first quarter of 2021 of close to $900000 and 19% respectively.

Our increase in gross profit and gross margin was driven primarily by increased sales and operational efficiencies gained through increased manufacturing output and scale.

Selling general and administration expenses were 13.

Gene $90 million in the first quarter of 2022.

Compared to approximately $6 1 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 public company compliance.

R&D expenses were $12 2 million in the first quarter of 2022 compared to $6 3 million in the same period in 2021.

New product development clinical activities and validation and manufacturing activities, primarily drove the increase.

GAAP net income was $13 1 million for the first quarter of 2022 compared to a GAAP net loss of $13 3 million in the same period in 2021.

non-GAAP net income was approximately $16 7 million in Q1, 2020 compared to $13 6 million of non-GAAP net loss and the team period in 2021.

The decrease in net loss, primarily resulted from increased gross profit.

We ended the quarter with $126 million in cash compared to cash of $106 million at the end of Q4 2021.

The increase in cash was primarily related to the closing of the first tranche of our debt financing agreement a $30 million.

Most of our investment in our in our contract manufacturing facility in the Dominican Republic have been completed.

<unk> now to manufacture at scale <unk>.

These investments include automation of certain critical manufacturing steps.

We are also investing in our lease facility in San Diego County, which will house commercial operations and other functions.

We have the cash necessary to fund our long term business strategy.

For 2020 to guidance as Eric previously stated we are withdrawing our initial 2022 guidance of $450 million in revenue we are expecting our revenue in the second and third quarters may be down sequentially from Q1.

And although we anticipate demand uptick septic.

Entering Q4 visibility limitations resulted in our decision to remove the annual guidance.

These estimates reflect our most recent assessment of manufacturing output and commercial demand.

Now I'll turn the call back over to Alex for acuity.

As a reminder to ask a question you will need to press star one on your telephone keypad again that aspire one on your telephone keypad to be ducking the question.

Keith.

You have your first question coming from the line of Brian Weinstein from William Blair. Your line is now open.

Hey, guys. Thanks for taking the question I appreciate it.

I guess, we'll start with.

I guess the guidance and the removal there.

Obviously, we all knew it the kind of last quarter.

The time that we spoke.

Matt.

Demand was going to drop off significantly, but you guys talked at that time about.

I want to make sure I get these numbers right the $250 million of committed.

Contracts and will take a $150 million or so of that was binding and I think as everybody kind of thought that that was in there and maybe that still is included and kind of how youre thinking about the business, but I guess I'm just trying to understand really what's changed about the outlook today versus what you had stock before again to repeat myself I think.

We all knew that demand was going to drop off pretty precipitously, but you guys seem pretty confident about that number so.

Any thoughts on that.

So.

No lack of confidence here, just the lack of visibility.

Throughout the year, we thought it would be prudent to remove the guidance.

And.

Nothing no additional comments other than that.

As we know more as we go through the year, we'll we'll share more.

Is that.

My number is right about the committed in the binding thoughts are those numbers still accurate in terms of what you have.

Different contracts that are available.

So we have close relationships with all of our customers. They are excited about the product. They are excited about the new product.

But we're just not going to comment at this point now that we've removed guidance.

On those levels of detail.

Okay.

And then.

Are you hearing anything from the U S government and are you working with the government in any way as they try and ensure that people who are involved in COVID-19 testing manufacturing.

Are able to.

You too.

Fund.

The capacity expansion and anything else that needed are you working with the government in any way on any kind of funding or any purchases there.

We do interact with the government, but we have nothing to report along those lines those discussions that you referred to.

Do go on and we're party to those.

Okay, and then on the combo test obviously your expectation is that you'll have.

Have you way ahead of the season.

How are you thinking about.

I guess the capacity that you have it sounds like youre fully scaled down.

<unk>.

The Dominican Republic, what is that capacity capability right now and how will you think about manufacturing products will you just basically be shifting almost entirely to the combo product ahead of the season or will there still be some talks about comfortably.

So we had talked about getting to 1 million units per month by the end of the second half of this year.

Well in advance of that we achieved that in Q1.

And we're in the process of transitioning production will continue.

The ability to produce the COVID-19 product.

And but we're transitioning.

To the combo product, which we're very excited about and by the way our customers are extremely excited about is as well it's exactly what they've been asking for there's really if youre going to test. There is no reason to test for only one virus when they present with similar symptoms. So we're extremely excited about the combo product.

Got it and then last one for me is O U S. I think you had talked about that potentially being about 30% of revenue I recognize youre not commenting on revenue, but in aggregate, but should we be thinking about a split that's call. It 70, 30 or whatever it is that we're going to put in our models U S. O U S and along those lines I think you mentioned something about.

<unk>.

Hemisphere, and I guess I didn't appreciate that you had opportunities in the southern hemisphere. So if you can tell me anything that you guys are doing down there that would be great as well.

So as we have a strategy of growth strategy for the business of expanding globally that includes the southern hemisphere, and we will provide more color on that.

As we expand.

Oh.

Turn it over to Dan to answer the first part of your question.

Yes, Brian I think your assumptions around the split R. R.

Are accurate about 70 30.

Okay. Thanks, guys.

Thank you.

Your next question comes from the line of Rahul Rocky from Lifesize capital. Please go ahead.

Hey, guys I guess just fine.

With the previous questions was just.

Trying to get some understanding of the CE Mark for the combo test I guess, how does that kind of affect your expectations for orders in the EU specifically.

And if we are thinking about some kind of a 70 30 split or some others, but do you expect there to be a little bit of a tailwind with with the combo test now being available.

In the second half of the year.

So we're very excited about the combo test customers are as well.

CE Mark this early.

That achievement that we're very proud of.

And we do expect that as we get into the flu season in the northern hemisphere.

And as we see Covid continue to cycle that.

That that there will be uptake in Europe as well.

Got it.

I was wondering if you just kind of give us any kind of color on some of the pipeline programs that you're working on.

What are you guys kind of focusing the majority of your attention.

And are there any milestones that we should be aware of.

I would suggest focusing for now and our discussion on the Covid and flu combo test.

That's really we're very excited about this because our customers are so excited.

But other products in the pipeline in additional to the digital platform in which we're investing include other respiratory.

And STI products when the company was in its early days nearly 10 years ago at a developed chlamydia and gonorrhea assays.

Those assays continued development background, and we'll bring them forward and product ties those as well as other respiratory.

And as time.

It comes on here and as we as we do so we'll share the teeth.

Got it okay. That's helpful.

I appreciate it.

That ends our question and answer session I'll turn the call back over to Eric Engel for closing remarks.

Thank you Alex.

You all for your time this afternoon and for your interest in <unk> health the future looser as exciting as we expand our decentralized test portfolio and global commercial reach while COVID-19 testing and accelerated our transformation into a commercial company the upcoming launch of the COVID-19, and flu combo product.

Which provides a differential diagnosis with a single swab is what customers are asking for and it demonstrates the versatility of our platform.

Our entire team looks forward to our future achievements. We are confident we are executing well we have the right team and we're looking forward to the future. Thank you and have a great evening.

Ladies and gentlemen that concludes today's conference call. Thank you all for participating you may now disconnect.

Okay.

Yes.

Okay.

Yes.

Okay.

Thank you.

In Q2.

[music].

Okay.

[music].

Good afternoon, ladies and <unk>.

Gentlemen, and welcome to the other theater Health first 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.

Oh, no like to turn the conference over to Jill the visa Smith from the Hiland Barton Group. Please go ahead.

Okay.

Thank you Alex and good afternoon, everyone earlier today, we are a health released financial results for.

The first quarter ended March 31, 2022 a.

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

Joining me on todays call are Eric Angleton, President and Chief Executive Officer, and Dan George Chief Financial Officer.

Before we begin I'd 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.

Excluding without limitation the risk factors section in the company.

Suddenly filed annual report on Form 10-K, and subsequently filed quarterly report 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 and 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 Luisa and good afternoon, everyone and thank you for joining us and welcome to the first quarter 2022 earnings Conference call.

With Sarah achieved record revenues in the first quarter 2022, driven by demand for our accurate and easy to use molecular COVID-19 tests.

We are pleased with our performance and COVID-19 testing as a proxy for what they are Sarah will become a leader in the health care paradigm shift to a new category of decentralized diagnostic testing.

Bind with rapid treatment, otherwise known as test to treat.

<unk> founding almost a decade ago.

This has been the vision.

Pandemic tragic as it has been catalyzed this transformation and infectious disease diagnosis quarantine and treatment.

Firstly, Sara the pandemic accelerated achieving manufacturing and commercial scale for our current COVID-19 tests for the next diagnostic tests in our pipeline.

And it also deepened the investment in our digital reporting platform.

We see our mission not only as a molecular test manufacturer, but is the digital health care company.

And easy to use testing is fundamental.

But the full service of tests to trade is enabled through digital backbone that we achieved both through telehealth partnerships as well as by the growing accomplishments of our in house digital development team.

We envision a society in which early diagnosis at times, even before symptom onset resulted in an immediate prescription medication delivery for rapid intervention in recovery.

Current infectious disease treatment paradigm.

Good it's still too slow and that it requires patients to travel to see healthcare providers or times relies on health care providers to make educated guesses rather than to know with certainty and it also requires patients to speculate as to whether they are family members are infectious Utah.

<unk> tests mean that guessing is replaced by knowing at the earliest moment possible all of this in the name of reduce suffering and improved personal and public health.

COVID-19 continues to evolve toward an endemic disease and thankfully severity as measured by hospitalization and death has declined from recent peaks.

But as shared by the many fully vaccinated and boosted people that I know you currently have or recently had COVID-19. It is no picnic for summit is benign, but for many otherwise healthy individuals as debilitating.

Our plans assume that COVID-19 testing demand will cycle, but will remain likely fluctuating seasonally cycling with population vaccine booster durations and rising as new variants emerge.

Grandparents to families with young children to those who are immunocompromised return to work returned to school travel all are made safer by testing first with Lucerne is accurate molecular tests.

While no test is 100% accurate only lose share as molecular level of accuracy can ascertain if a person is in texas with or without symptoms.

A family member recently needed a flu anti viral that would've been far easier and faster to obtain have there been an accurate home flu tests on the market.

Negative on <unk>, Covid, 19 test, but bedridden with fever, and flu symptoms telehealth providers still wanted the patient to visit the clinic for evaluation.

This was not practical and we obtained a flu anti viral quickly elsewhere. This amp.

XI viral works very well, but the telehealth process is in need of <unk> COVID-19 flu combo test. So the telehealth physicians can prescribe treatment medications with diagnostic confidence at the earliest sign of infection without requiring a patient visit.

The near term launch of the COVID-19 flu combo test is the next step in our growth strategy.

<unk>, new products regulatory approvals and global expansion.

The first quarter of 2020 to recording revenue of $95 million and 19 times increase over Q1 2021 with net income of $13 $1 million demonstrated the leverage that exists in our business with <unk>.

And a modest commercial volume.

This was the first quarter that produced net income in the company's commercial history.

In February we announced the debt facility available to the sheriff for up to $80 million, we have drawn down only the initial financing tranche of $30 million to bolster capital reserves.

2022 remains a year of strong growth for the company. This quarter also demonstrated several marketing expansion achievements. Our main commercial channels remain business to business health care, including telehealth direct to consumer and international.

In Q4 of 2021, we signed an agreement with a major Silicon Valley Tech company and an initial product purchase was made in Q1 of this year this customer doubled their purchase volume and.

In Q2 their demand has remained strong even as COVID-19, ebbs and flow.

This represents the customers' shares characteristics with other enterprise slash b to B customers.

Examples outside of the Tech space include film and media production professional sports on financial services, all of which are categories of our current enterprise customers.

Health, Canada has subsequently exercised the first of two six month extension options.

Our tests have been used across Canada, and have provided value to remote and hard to reach communities in which providing fast and accurate testing would otherwise be difficult or impossible.

<unk> been investing in people and other resources to allow us to deepen our relationship with institutional buyers like the government of Canada to expand our offerings and ease of ordering to private enterprises and individual customers.

In Q1, we entered into a distribution agreement with a national health care and laboratory products distributor.

This distributor in turn provided there Sarah tests to a major health system on the West coast that had not previously been or at least they're a customer.

Over the coming quarters, we expect this distributor to increase sales with this health system.

And to expand sales to other health systems and hospital networks.

In 2022, we're continuing hiring of a small team of seasoned healthcare sales professionals, who will sell directly to health care organizations augmenting the distribution business, we will continue to monitor and optimize this hybrid distributor and direct sales strategy.

Additionally, we are delighted that we received CE mark for the COVID-19 flu combo product on May six.

Influenza and COVID-19, or the two major respiratory diseases for which there are anti viral treatments.

On may 11th we submitted our application for emergency use authorization EUA.

For our COVID-19, and flu combo product to the U S food and drug administration.

Clinical trial results for this product were positive and submissions to other regulatory authorities, including health, Canada are anticipated to occur in the second quarter 2022.

Clearance for this device will allow the <unk> to expand its geographic footprint, while also transitioning away from reliance on revenues based solely on COVID-19 testing.

The Cerro COVID-19, and flu combo test on the COVID-19 tests, which also received CE Mark on May six our nucleic acid amplification tests with sensitivity and specificity comparable to lab based PCR assays miniaturize to run on the <unk>.

As palm size test with no separate instruments, our reader and producing results in 30 minutes or less.

<unk> COVID-19 test is authorized in the U S, Canada, Singapore, Israel in Taiwan with millions of tests distributed to date.

Sarah COVID-19 flu test uses the same platform and palm sized device design and.

And independently test for COVID-19 flu a flu b from a single nasal swab.

As a reminder, COVID-19 flu have similar symptoms, but distinct treatments.

This underscores the importance and utility of providing tests such as the COVID-19, a flu product that differentiate between such infections, when the viruses that cause them or both circulating.

We have an efficient and leverage the infrastructure that we believe now has sufficient capacity to support anticipated demand in 2022, including production of the COVID-19, and flu combo product.

Administration is forecasting a cold weather wave of COVID-19 infections mentioning a potential quantity of $100 million infections, which represents nearly one third of the U S population.

The average quantity of influenza like illness cases in the U S is almost two times this number underscoring the potential demand for the combo product in Q4.

We expect that our commercial expansion into the southern hemisphere will both bolster midyear demand.

Additional tests on our platform, primarily respiratory and STI are undergoing feasibility evaluations.

These products are developed and approach commercialization phase, we will report relevant information to shareholders.

Please Sarah is building on the momentum that we have gained through COVID-19 testing to bring accurate and actionable tests to treat into the home and to professional settings, such as medical clinics and hospital emergency departments, empowering patients and health care professionals with accurate re.

Real time information about infections enables tests to treat our product because it is reader and instrument free eliminates bottlenecks in point of care enable simultaneous testing of multiple people in any setting and provides an easy to carry form factor for travel.

<unk> I will now turn the call over to Dan <unk>, our CFO for a detailed discussion of financials.

Thanks, Eric.

Please refer to our press release issued earlier today for a summary of our financial results for the first quarter 2022.

Net revenue for the first quarter of 2022 with 95.

An approximate 19 times increase over the first quarter of 2021.

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

Gross profit and gross margin for the first quarter of 2022, with $39 9 million and 44% respectively.

Compared to a gross loss of negative gross margin for the first quarter of 2021 of close to $900000 and 19% respectively.

Our increase in gross profit and gross margin was driven primarily by increased sales and operational efficiencies gained through increased manufacturing output and scale.

Selling general and administration expenses were $13 9 million in the first quarter of 2020, Q compared to approximately $6 1 million in the same period in 2021.

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

R&D expenses were $12 2 million in the first quarter of 2022 compared to $6 3 million in the same period in 2021.

New product development clinical activity and validation and manufacturing activities, primarily drove the increase.

GAAP net income was $13 1 million for the first quarter of 2022 compared to a GAAP net loss of $13 3 million in the same period in 2021.

non-GAAP net income was approximately $16 7 million in Q1, 2020 compared to $13 6 million of non-GAAP net loss in the same period in 2021.

The decrease in net loss, primarily resulted from increased gross profit.

We ended the quarter with $126 million in cash compared to cash of $106 million at the end of Q4 2021.

The increase in cash was primarily related to the closing of the first tranche of our debt financing agreement a $30 million.

Most of our investments in our in our contract manufacturing facility in the Dominican Republic have been completed allowing us now to manufacture at scale.

These investments include automation of certain critical manufacturing steps.

We are also investing in our leased facility in San Diego County, which will house commercial operations and other functions.

We have the cash necessary to fund our long term business strategy.

For 2022 guidance Derek PVC stated we are withdrawing our initial 2022 guidance of $450 million in revenue, we are expecting our revenue in the second and third quarters may be down sequentially from Q1.

And although we anticipate demand uptick uptake significantly in Q4 visibility limitations resulted in our decision to remove your annual guidance.

These estimates.

This reflects our most recent assessment manufacturing output and commercial demand.

Now I'll turn the call back over to Alex for Qs.

Okay.

As a reminder to ask a question you will need to press star one on your telephone keypad again that is star one on your telephone keypad to withdraw your question.

Keith.

You have your first question coming from the line of Brian Weinstein from William Blair. Your line is now open.

Hey, guys. Thanks for taking the question I appreciate it.

I guess, we'll start with.

I guess the guidance and the removal there.

Obviously, we all knew it the kind of last quarter.

Time that we spoke.

Matt.

Demand was going to drop off significantly, but you guys talked at that time about.

I want to make sure I get these numbers right the $250 million of committed contracts and will take a $150 million or so of that was binding I think everybody kind of thought that that was in there and maybe that still is included and kind of how youre thinking about the business, but I guess I'm just trying to understand really what's changed about the outlook today versus what.

You had talked before I mean again to repeat myself I think we all knew that demand was going to drop off pretty precipitous soybean you guys seem pretty confident about that number so.

Any thoughts on that.

So.

No lack of confidence here, just the lack of visibility.

Throughout the year, we thought it would be prudent to remove the guidance.

And.

Nothing no additional comments other than that.

As we know more as we go through the year, we'll we'll share more.

Is that.

My number is right about the committed in the binding thoughts are those numbers still accurate in terms of what you have from different contracts that are available.

So we have close relationships with all of our customers. They are excited about the product. They are excited about the new product.

But we're just not going to comment at this point now that we've removed guidance.

On those levels of detail.

Okay.

And then.

Are you hearing anything from the U S government and are you working with the government in any way they try and ensure that people who are involved in COVID-19 testing manufacturing.

Are able to continue to.

Fund.

The capacity expansion and anything else that needed are you working with the government in any way on any kind of funding or any purchases there.

We do interact with the government, but we have nothing to report along those lines those discussions that you referred to.

You go on and we're party to those.

Okay and then on the.

Combo test obviously your expectation is.

Have you <unk> ahead of the season.

How are you thinking about.

I guess the capacity that you have it sounds like youre fully scaled down.

<unk>.

The Dominican Republic, what is that capacity capability right now and how you think about manufacturing products will you just basically the shifting almost entirely to the combo product ahead of the season or will there still be some talks about comfortably.

So we had talked about getting to 1 million units per month by the end of the second half of this year.

We're well in advance of that we achieved that in Q1 and we're in the process of transitioning production will continue.

The ability to produce the COVID-19 product.

And but we're transitioning to.

To the the combo product, which we're very excited about and by the way our customers are extremely excited about is as well it's exactly what they've been asking for there's really if youre going to test. There is no reason to test for only one virus when they present with similar symptoms. So we're extremely excited about the combo product.

Got it and then last one from me is O U S. I think you had talked about that potentially being about 30% of revenue I recognize youre not commenting on revenue, but in aggregate, but should we be thinking about a split that call it 70%, 30% or whatever it is that we're going to put in our models U S. O U S and along those lines I think you mentioned something about.

The southern Hemisphere, and I guess I didn't appreciate that you had opportunities in the southern hemisphere. So if you can tell me anything that you guys are doing down there that would be great as well.

So as we have a strategy of growth strategy for the business of expanding globally that includes the southern hemisphere.

I'll provide more color on that.

As we expand.

Ill.

Turn it over to Dan to answer the first part of your question.

Yes, Brian I think your assumptions around the split R. R.

Are accurate about 70 30.

Okay. Thanks, guys.

Thank you.

Your next question comes from the line of Rahul Rocky from Lifesize capital. Please go ahead.

Hey, guys I was just fine.

With the previous questions was just.

Trying to get some understanding of the CE Mark for the combo test I guess, how does that kind of affect your expectations for orders in the EU specifically.

And if we are thinking about some kind of a 70 30 split or some others, but do you expect there to be a little bit of a tailwind, which with the combo test out being available.

In the second half of the year.

Okay.

So we're very excited about the combo test customers are as well.

CE marks this early.

That achievement that we're very proud of.

And we do expect that as.

As we get into the flu season.

The northern Hemisphere.

And as we see Covid continue to cycle that.

That there will be uptake in Europe as well.

Got it.

I was wondering if you can just kind of give us any kind of color on some of the pipeline programs that you're working on.

You guys kind of focusing the majority of your attention.

And are there any milestones that we should be aware of.

I would suggest focusing for now and our discussion on the Covid and flu combo test.

That's really we're very excited about this because our customers are so excited.

But other products in the pipeline in additional to the digital platform in which we're investing include other respiratory and STI products. When the company was in its early days nearly 10 years ago. It had developed chlamydia and gonorrhea assays.

Those assays continued development background and.

We'll bring that forward and product ties those as well as other respiratory.

And as time.

It comes on here and as we as we do so we'll share the teeth.

Got it Okay. That's helpful. I think that's it.

Andrew I appreciate it.

That ends our question and answer session I'll turn the call back over to Eric Engel for closing remarks.

Thank you Alex.

You all for your time this afternoon and for your interest in the New Sarah Health.

Future share as exciting as we expand our decentralized test portfolio and global commercial reach.

COVID-19 testing and accelerated our transformation into a commercial company the upcoming launch of the COVID-19, and flu combo product, which provides a differential diagnosis with a single swab is what customers are asking for and it demonstrates the versatility of our platform.

Our entire team looks forward to our future achievements. We are confident we are executing well we have the right team and we're looking forward to the future. Thank you and have a great evening.

Ladies and gentlemen that concludes today's conference call. Thank you all for participating you may now disconnect.

Q1 2022 Lucira Health Inc Earnings Call

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