Q1 2022 Accelerate Diagnostics Inc Earnings Call
Okay.
Good day and welcome to Reaccelerate diagnostics.
Just wanted to first quarter results conference call.
Participants will be in listen only mode.
After todays presentation, there will be a question and answer session.
Please note this event is being recorded.
I will now turn the conference over to Laura Pierson.
Please go ahead before we begin it is important to share that information presented during this call may contain forward looking statements within the meaning of section 27, a other Securities Act at 1933 and section 21 E of the Securities Exchange Act of 1934 forward looking statements.
We had projections statements about our future and those that are not historical facts. All forward looking statements that are made during this conference call are subject to risks uncertainties and other factors that could cause our actual results to differ materially. These are discussed in greater detail in our annual report on Form 10-K for the year ended up.
Remember 31st 2021, and other reports we file with the SEC.
It is my pleasure to now introduce the company's president and CEO Jack Phillips.
Thank you Laura good afternoon, everyone and welcome to our first quarter 2022 earnings call. We were pleased to see improved access to current and prospective customers in the latter part of the first quarter.
This positive trend contributed to the achievement of commercial results consistent with our expectations.
We also achieved all product development milestones for the quarter as promised we launched is in our U O. Our new rapid multi sample preparation solution arc prior to the quarter end and today announced its launch as an IBD ahead of schedule.
And it's early days of commercialization has already generated numerous evaluations and inbound interest from potential commercial partners.
In addition to our we completed enhancements defino and locked the design of our Pheno two platform.
Before providing additional details on our progress during the quarter I'd like to hand, it over to Steve to review, our first quarter financial results Steve.
Thank you Jack.
Good afternoon, everyone.
Net sales were $3 million in the first quarter compared to $2 $5 million for the same period in 2021.
This year sales increase was driven by 29% growth in recurring revenues well instrument revenues decreased over the same period.
This increase was the result of growing the revenue generating installed base and a return to a more predictable annuity as hospital patient mix became more typical in the quarter.
Cost of goods sold were $2.2 million in the first quarter.
Resulting in a gross margin of 27%.
This compares to cost of goods sold of $1 6 million or a gross margin of 36%.
During the same period in 2021.
The decline in gross margin resulted from inflation to production cost.
Other factors.
Selling general and administrative expenses, excluding noncash stock based compensation expense.
Pardon me. This is conference operator, what we're seeking private I can have your name. Please.
Your line you did perhaps.
You are now rejoining the main conference.
For the past two years.
Noncash stock based compensation expense and SG&A declined to $2 $4 million from $6 million in the first quarter of 2022 as compared to the same period from 2021.
Research and development costs, excluding noncash stock based compensation expense.
For the quarter were $5 $7 million compared to $4.1 million from the same period in the prior year.
This increase was the result of launch studies for arc and increased investment in Pheno too.
Noncash stock based compensation expense and R&D declined $2.4 million from $2 $7 million in the first quarter of 2022 at.
As compared to the same period in 2021.
Our net loss was $11 $2 million, excluding noncash stock based compensation expense.
Our GAAP net loss was $14 $2 million for the quarter, resulting in a net loss per share of 21 says.
Net cash used was $13 $2 million for the quarter.
The company ended the quarter with cash and investments of $54 million.
During the first quarter, we announced a 4 million dollar insider financing round, we also reduced our convertible debt balance by $14 million with our largest bondholder.
I will now hand, it back to Jack Yeah.
Yeah.
Thanks, Steve with Covid hospitalizations on the decline health care leaders are returning their attention to sepsis and antimicrobial resistance given the primary health care concerns. They pose this is evident through new scientific literature commentary from world governments, and recent partnerships and acquisitions in.
This space not only does transitioning the I D N. A S T market to rapid testing helped mitigate antibiotic resistance. It provides immediate benefits to patients and hospitals.
The market for such solutions is substantial numbering some 300 million tests annually.
Our strategy is to address this large and growing market opportunity through three complementary product offerings first continued to penetrate the market with a rapid fino I D. I S. T. A S T solutions.
Second with the recent launch of arc capitalize on the sizable untapped market for enabling rapid multi testing through fully automated sample preparation and third launch the pheno two system, which will address the entire market for acute bacterial infections beyond positive blood cultures on a.
Single diagnostic platform.
In the first quarter, we saw steady improvement in the hospital environment for selling our products and made progress in each of the three areas of our product strategy.
In the second half of the first quarter commercial access and customer engagement increased globally. This was evident in both live customer meetings and the number of new funnel opportunities created during the quarter, while its a leading indicator we are confident our meaningful customer engagements are positioning us for higher rates.
A contracting on the horizon.
Another sign of the improving environment was very well attended Akhmed conference. Our first live customer conference in two years rapid IV ASC testing was a principal theme highlighted by clinicians and company participants alike. Further underscoring a shift away from an emphasis on COVID-19 related.
Testing.
We use the conference to highlight our product strategy with an emphasis on the new arc product for me personally it was great to meet with customers and experienced firsthand the enthusiasm our prospective customers looking to adopt our pheno system and arc into their workflows.
A few new customers were contracted and went live during the quarter. Several new opportunities were created for Pheno and arc. These results were consistent with internal forecast due to our anticipation that hospitals would require time to reset their staff priorities and budgets as they emerge from two highly just.
Eruptive years of the pandemic.
New Pheno opportunities were equally divided between I S. T integrated test kits and our new E. S. T test kit.
This growing interest in both offerings continues to prove the benefits of giving customers flexible options to meet their workflow needs.
In the U S. We ended the quarter with a revenue generating installed base of 313, Pheno instruments and a backlog of 76 instruments pending implementation.
In addition.
As U S hospital patient mix normalized we saw recurring revenues from existing customers return to pre pandemic levels. We also signed several existing customers to long term contracts, which brings us to 70% of our revenue generating customer base secured.
In EMEA, we continue to steadily grow our customer base and revenues.
Our second area of focus is capitalizing on a new market segment in microbiology rapid Monty for positive blood culture for.
For a large portion of the microbiology market multi as the preferred solution for microbial identification due to its comprehensive library of organisms accuracy and low cost to operate in fact, nearly 60% of prospective customers have multi devices and this number is growing is smaller and <unk>.
Sure cost multi systems come to market.
However, multi has one major drawback that 18 to 24 hours. It takes to deliver an IV result, which can mean the difference between life and death in the context of sepsis.
The art system automates, the front end process to deliver rapid multi I D. The run time is just over an hour, which is a significant reduction in time to result, compared to the standard of care.
From a business perspective, our creates an entirely new razor razorblade revenue stream for accelerate at very attractive margins. The acquisition model will be a traditional capital and price per test.
This market opportunity will also greatly benefit our ability to bundle defino with a S. T test kits.
Considering there are over 10 million positive blood culture, I'd tests performed globally at a targeted average selling price of $30, we're actually creating a new $300 million market opportunity.
At the recent <unk> Conference Spark was featured in the first external study conducted by the medical College of Wisconsin. The study was found that arc enabled direct identification of micro organisms in 90% of blood cultures with a 100% agreement between the arc and the standard slow.
<unk> for multi identification.
To put this in context existing manual methods for sample prep of positive blood culture, Tamale produce Ids from 60% to 85% of the time. In addition, the study highlighted workflow benefits, including the rapid turnaround time and less than five minutes of <unk>.
On time.
In the U S art was launched as an <unk> at the end of the first quarter and supported by strong performance data is now available as an IBD.
Early commercialization efforts are going very well and consistent with our expectations. We had numerous arc evaluation signed prior to quarter end and the rate of contracting is accelerating in the second quarter. What is notable that nearly all of these evaluations were signed with customers into.
Direly new to accelerate which is a good early sign that arc will provide a gateway to morphine <unk> business.
We are similarly pursuing a fast track path to the EMEA market and expect to have IV. Dr. Approval. Later this year as highlighted at Akhmad, our meetings with distributors and direct market customers confirmed our sizeable opportunity for arc in EMEA, where multi is the dominant mess.
For bacterial identification.
Our new platform Pheno two positions us to enter the entire rapid assay market.
<unk> two is designed to give customers the ability to run both positive blood cultures and all other isolated colonies from other samples on a single platform to.
Today's microbiology lab relies principally on culture plates and decades old automation.
The old platforms have labor intensive and complex workflows that produce slow results. We're confident pheno too will take microbiology susceptibility testing to an entirely new level.
[noise] Pheno two is designed for random access and a variety of organisms across various sample types can be run simultaneously.
We continue to make very good progress on Pheno too in the first quarter, we locked our consumable design established a consumable pilot manufacturing line and finalize the design for our development instruments, which are currently being manufactured.
We anticipate conducting clinical trials in 2023 and are targeting a U S launch in 2024 with Pheno too we will have a solution for the entire ASP market in a single integrated platform for accelerate Pheno too will bring larger instrument annuities at higher.
Gross margins.
In summary, our financial results for the quarter put us on track to achieve our revenue guidance of $13 million to $14 million and our cash burn guidance of $45 million to $55 million for the year, improving access growing funnels and new products to sell should drive increasing <unk>.
Rates of contracting in subsequent quarters. In addition, our consistent execution in R&D puts us on track to deliver or beat all key product development milestones for the year.
I would now be happy to answer questions from our analysts should others on the call have questions not addressed we would welcome you to send these questions or request a follow up meeting to investors at <unk> Dx Dot com.
Thank you.
Okay.
Thank you we will now begin the question and answer session.
First question today comes from Brian Weinstein with William Blair. Please go ahead.
Yeah, just in stuff down one for Brian .
Thanks for the call I'm, taking the question I know you talked about improving access throughout your prepared remarks, just wondering on the placements in the quarter came in at two which was a little below our expectations I'm. Just wondering if you could talk a little bit more about that and maybe how that's improving.
Stand today. Thank you.
Yes, Thanks, Dustin and I appreciate the question, Yeah, I mean from a placement contract standpoint in Q1 and they go lives. It was discipline was a disappointing quarter, but.
As I indicated we had we have a lot of good activity going on as we get more and more access to.
More and more health systems.
With a very very meaningful meetings.
Bundles are increasing as a result, and and our forecast moving forward in the quarters are improving as well for new contracts.
Specific to Q1, how much of this is just really the hangover effect from Covid as we come out of Covid.
You know really it's it's about labs getting staffed.
Staffed appropriately there is significant there's been significant turnover.
There's also been a significant burn out of existing staff members not wanting to take on projects.
And all of that contributed to R. R.
Poor new contract signings in Q1.
But what has again, giving us great courage is the fact that more and more meetings are being set more and more opportunities are being pursued and genuinely prospects are much more excited about.
The future and really kind of moving things forward in the area of rapid I D. A S. T. So as we move forward in the quarters, we really expect improvement.
Improvement here as we go through the year.
Yeah.
Got it thank you.
I know you guys reiterated your guidance for this year in terms of revenues could you give us maybe unexpected split between what is going to be a S. T only.
Well, it's going to be Oregon, before I D O S T solutions applied in that guidance.
Yes, I can take a first crack at that as we mentioned on the script. If you take a look at our sales funnel, which is always the early indicator to contracting and therefore our revenues.
The new opportunities around fino are about equally split between those customers that are being targeted for Ida asps.
And largely in those cases, it's because they don't have an existing <unk> technology.
And then on the other side, we're seeing a whole new.
Segment of the market open up where these are folks that have an existing idea and we'd like to leverage that for their ASP. So right now it looks like.
Certainly the existing base of book is going to be the majority of revenues given the go lifecycle, but as we move forward, we're expecting the rate of contract would be split about evenly and therefore the revenues from these two in the future to be split about evenly.
Yeah.
Okay understood.
Steve I'm wondering if you could talk a little bit more about the balance sheet. How do you guys expect to bolster that feature.
Just given what youre, assuming for cash burn this year and where your cash balance at the end of the call. It.
Yes. Thanks for the question. This is obviously a top priority of mine and for the company.
And let me just take a minute and slow down and walk you through the components of that strategy.
First we need to continue to reduce our net burn.
We're doing a good job here, our internal efficiencies and continue to reduce.
The plans that we have in place and our current trajectory.
Leave us confident that we will end at the low end of our range for.
For burn guidance of $45 to 55 and also based on these plans leaves us a lot of opportunity to further reduce spend in further years and let me just give you. An example of this.
Pheno one is a largely mature offering at this stage and with the heavy lift of arc largely behind us.
So too will.
Principally be funded through winding down existing investment in other areas. So that is going to be a big help.
In addition, our interest costs are reducing as we manage our debt down and then Jack and I are carefully evaluating all other areas of spend.
So reducing earn its kind of fundamental the second we need to continue to finance the company and we have a lot of options here.
There is five in particular that we're keeping a close eye on the first two are potentially material sources of non dilutive financing, which we hope to share with investors very soon.
These would also serve as strong validation of our product strategy and catalyst for shareholder value creation.
In addition, we continue to benefit from strong insider support for example, we will close on $4 million from our largest shareholder and various other insiders have voiced their interest to continue to support the company.
The last one in this bucket of financing. The company is we have $40 million left on our ATM.
To provide an opportunistic vehicle for getting cash in the market.
Third we need to manage our convertible note you saw in the quarter that we continue to work with our largest bondholder on a plan to manage this down the latest transaction represents the first two steps of a three step plan and the bondholders continue to be constructive.
Very last thing I'll mention is that we just added 100 million authorized shares.
<unk> provides us the flexibility and the means to do the things that we need to do even though those shares don't represent.
<unk> plans this represents more cushion and flexibility to do the things that we need to do in due course I hope that's helpful.
Yeah. Thank you very much.
And then just lastly, a question on competition.
We we kind of always knew that one day. This would arrive and it seems like some companies are getting closer to being on the market in the U S.
Yes.
And some are even on the market O U S.
So could you guys talk more about the differentiation you guys see what their products are.
Versus the competition and how much of a threat.
Here growth plans these companies can be.
Especially given some recent M&A in the space.
Yeah, I can take that one duston.
A couple of things here first of all no surprise on the competition I mean this is a.
This is a very very important space in health care and microbiology in sepsis management antimicrobial resistance.
Transfer warming this space with rapid DNA S. T solutions is a is absolutely going to happen. It's a it's a major market and it's really just a matter it's a matter of time.
You know so so it's not catching us by surprise or anything like that and I don't believe anybody else on the line is probably caught by surprise here and as you mentioned.
Some active M&A in the space as well in the past quarter.
What I would say specific to us.
The accelerate solution and how we see ourselves.
As competition begins to come to market.
First of all many of these competitors that are coming to market not to specifically mention any one but many of them are I would say very much niche players in the area of specifically like a wrap.
<unk> Gram negative only offering positive blood gram negative only offering and I think the key first differentiator for accelerate is our comprehensive solution. So we have fino with rapid identification and a S. T susceptibility testing.
All of this.
Seven hours.
Very simple to run it affords labs the opportunity to run.
2024 hour seven day, a week shift because they're not relying on a difficult methods for I D or bringing in <unk> into an a S T only platform.
Secondly for those customers that do want to automate.
With rapid Moldy, we now have an end to end solution with that as well, which no competitor will have that which is a which utilizing arc.
Interfaced with the customer's own moldy, and then rapid a S T on the backend.
Customers will be able to even more affordably producer rapid IV a S. T and then from an organism standpoint.
As you look at the competition, that's emerging I mean, we continue to have a very robust menu of.
Organisms book, both in Gram negative and Gram positive clause positive blood cultures, and and its a superior menu. Its a menu that will remain superior is as these competitors come to market.
And then the last thing I would say is just our history as a company.
This space is not easy we now have over 80 publications out in the market today.
We have very solid customers and those many of those customers now are secured and long term contracts and then we continue to invest in our next generation platform, which will open up a much much broader segment of microbiology for us.
The segment, that's not positive blood culture, but the segment around isolate testing and other <unk>.
Specimens and so forth.
So.
Overall, we have a again end to end solution today, that's exceeding customer expectations, and we're investing for tomorrow as well.
Okay, great. Thank you for taking the questions.
Thanks, Doug.
Our next question today comes from Alex Milwaukee with Craig Hallum. Please go ahead.
Good afternoon, guys. This is Jason on for Alex just starting for me.
Concerning these staffing shortages affecting placements and go lives.
When do you guys expect this to abate and how do you see this dynamic improving through this year.
Yes is it chase I'm sorry.
It is yeah, yeah. Thanks, yeah.
Yes, so a couple of things.
It is improving already our activity and customer sites is improving dramatically from our appointment standpoint customers that are interested new customers going into the final and progressing throughout the sales funnel.
So it's improving right now and as we go through the quarters.
Your question is how is this going to translate into new contracts into new sales and we expect that to continue to improve as we go throughout the year.
And again, there is still some areas that are slower than others, but overall in the U S and abroad I had the opportunity to spend a few weeks in Europe for Akhmed couple of weeks ago and things continue to go well there just like they are going well in the U S too so overall.
We're happy with the activity clearly, we want to see greater results from the standpoint of new contracts and new customers going live and we expect to see that as we progress throughout the quarters in the year.
Got it thanks for the color there you know in the.
Quarter, any Oh U S instrument placements and then can you talk about your expectations are in guidance for that for that business.
Yeah, So we had one.
One new customer contracted in Europe last quarter.
Europe had a very solid year last year, we essentially doubled the business there last year and the momentum continues this year, we expect good growth out of Europe , as well as the middle east to and like.
Like I said, it's opened up it's really opened up there and access to customers is much greater now.
We have good funnels going on and we expect the business to continue to grow in 2022 and and and.
And see some good growth out of out of the markets that we're focused in.
Got it and then just lastly for me on the balance sheet side can you update us on the timeline for your required debt repayments you know any changes there.
Yeah.
At this point no change in that it's a March 2023 maturity on the balance of the note well one of the things that we've been doing over the past 12 months is working that debt down by working with certain of our debt holders.
We started with close to 175 million now we have right around 100 million after some of the recent transactions.
And are working with the bondholders to manage the rest of that balance.
Are there further levers to pull there you know it we saw what you did during the quarter. There you know further announcements that we should be expecting them concerning those efforts.
Like I mentioned in.
The response to <unk> question around the overall balance sheet strategy.
There is a lot in the works a lot of it we haven't been able to get into great detail on and all of that will be kind of potentially helpful and synergistic to our overall strategy to continue to finance the company and part and parcel to that is to manage this debt downward <unk> extend the maturity.
Got it helpful. Thanks for the questions guys.
Thank you. Thank you.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Mr. Jackson for any closing remarks.
Hi, Thank you everybody I just wanted to take a moment.
And recognize our employees for the great progress and work.
We're putting in already this year as I've mentioned, we've made really good progress in the commercial markets and as they open up.
We couldnt be more excited about how the launch of arc is going.
Really thrilled that we now have IBD registration for this product in the U S. We are.
Already have numerous evaluations in place and.
Really excited about the opportunity to transform transform aldi in this space with arc.
And then we continue to make good progress really good progress with our Pheno to next generation platform as well.
Wanted to also thank our loyal customers.
For their commitment to accelerate and the great work that they're doing day in and day out.
And.
We're real excited about the future. We're real excited about the next couple of quarters here moving forward and we appreciate your interest and accelerate diagnostics and as we said should anybody.
Have any questions. Please send those to our website and we're happy to answer any questions that you might have moving forward. Thank you so much and have a wonderful day.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.