Q2 2022 Cue Health Inc Earnings Call
Okay.
Thank you for standing by and welcome to Q, How second quarter 2022 earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone as a reminder, today's program may be recall.
And now I'd like to introduce your host for today's program Lorna Williams Investor Relations. Please go ahead.
Yeah.
Good afternoon, and welcome to Q second quarter 2022 earnings Conference call. Joining me today are you to attack Chairman and Chief Executive Officer, and John Gallagher, Chief Financial Officer of <unk> Health.
Before we get started let me begin by reminding you that we are 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 feature prospects as well as the impact of the COVID-19 pandemic.
These statements are subject to risks uncertainties assumptions and other factors that could cause actual results to differ materially from those described these.
These risks and uncertainties include but are not limited to those outlined in today's call as well as other risks identified from time to time in our public statements and reports filed with the SEC.
Forward looking statements that we make on this call are based on assumptions and beliefs as of the date. They are made and the company disclaims any obligation to update these statements except as required by law.
In addition on today's call non-GAAP financial measures will be used reconciliations between GAAP and non-GAAP financial measures are included in our earnings release.
Finally, I would like to mention that the press release and a recording of this call will be available on the Investor Relations page of our website found at investors thought Q health Dot com.
With that I would like to turn the call over to <unk>.
Thank you Anna and thank you everyone for joining us today.
I would like to start by welcoming Dr. Josh <unk> to our board of Directors, Josh is a founder of ignite venture studio innovation accelerator for company focused on changing how health care is delivered and also served as president of small work brand.
And beauty startup for the mission to support growth education and women owned businesses.
Earlier in his career Joshua Chief Technology Officer of consumer Health at Johnson, <unk> Johnson, <unk> Johnsons experience in consumer health technology, and R&D will be a valuable addition to our board as we continue to pursue our vision of making the health care system more accessible convenient and timely by placing diagnostic information at the center of care.
I am pleased to present, our second quarter financial results, which I believe reflect another strong quarter of execution total revenue of $87 $7 million was better than expected due to stronger than anticipated COVID-19 testing orders from existing customers.
Private sector customers accounted for 92% of our revenue in the second quarter.
Let me walk you through the performance of our three key growth drivers one broadening our customer base to expanding our test menu and three further developing our digital services and capabilities.
Starting with broadening our customer base for distribution of our <unk> as a key metric for tracking awareness of our platform across different customer categories enhances pull through of our future diagnostic test.
In the second quarter, we shipped nearly 15000 kilometers, bringing total shipments to over a quarter of a $1 million, including over 30000 meters in our direct to consumer customer category as.
As a reminder, late last year, we made our fast and accurate carbon molecular tests available to the general public we continued to be pleased with the uptake of the BDC category.
Q products are available for purchase on our website and the <unk> app as well as most major healthcare product distributors retail pharmacies and through enterprise accounts.
Shifting to our menu expansion growth driver, we continue to be on track to deliver all of the pipeline milestones outlined during our fourth quarter earnings call.
To level set on the terminology for FDA submission in the diagnostic category. If accompanies test is a first in category a combination of the intended you're setting for example, the home and our point of care and the specific test target then it is called a de novo application as.
As a testament to <unk> pioneering approach to both the point of care and home settings. Most acute submission will be de novo application for full FDA authorization.
As previously shared we submitted the full de Novo application for the acute COVID-19 molecular test in May. In addition, we continued to execute our plan for fluids, Standalone and fluid plus COVID-19 multiplex molecular tests.
I am pleased to share that we have completed clinical studies, where the fluid stand alone and are preparing the de novo application for submission in the third quarter.
We began our flu plus covered multiplex clinical studies during the second quarter as planned and expect to submit for EUA portfolio plus covered in the third quarter.
For another key test in our respiratory category respiratory syncytial virus or RSV, we remain on track to start RSV clinical studies in the third quarter of this year 2002.
Our first sexual health test the committee and gonorrhea molecular multiplex test is progressing well and we expect to begin clinical studies in the second half of this year.
I am extremely proud of the R&D team's ability to deliver these accomplishments and look forward to providing updates as the pipeline progresses.
Moving to our third growth driver digital capabilities.
Thrilled to share that we began our phase launch of acute care, our diagnostic that treatment capability Q care successfully closes the Carolyn as customers can conduct a diagnostic test consulting medical professional and get the treatment. They need delivered on the same day or within the Q health platform.
Acute care is win win for all stakeholders, because it delivers effective treatment to patients in a timely and convenient fashion. It seamlessly connect health care providers patients and it limits community exposure and does he have transitioned by identifying and treating ill individuals in their own home.
We have launched our pilot and expect general availability nationwide in next few weeks.
<unk> care meet an urgent and unmet need for positively diagnosed COVID-19 customers and is a foundational capability for future diagnostic tests in our pipeline, particularly for those tests and was there a specific treatments available.
For example for flu there are two approved FDA antiviral medications that are most effective if taken within 48 hours of the onset of symptoms.
Chlamydia and gonorrhea antibiotics are the effects of treatment and RFP has multiple antivirals coming.
All of these have similar diagnosis achievement workflow as the one we're launching for COVID-19 in the third quarter.
In summary, I am proud of our progress on all of our growth drivers with continued expansion of the customer base with over 250000 Q meter shipped a recent test menu expansion efforts, including the completion of the flu Standalone clinical study and.
Planned de Novo submission for flu Standalone and EUA submission for flu plus COVID-19 multiplex in the third quarter 2002.
And the phased rollout of acute care are foundational diagnostic to treatment capability to third quarter 'twenty to take.
Taken together with our progress on our RSV test. We believe we can have a comprehensive offering for respiratory category next year.
Our team is making great strides towards our mission of enabling personalized proactive and inform healthcare to empower people to live their healthiest life.
With that I'll turn the call over to John .
Thank you <unk> and good afternoon, everyone I will walk through our financial results before sharing our Q3 guidance.
<unk> second quarter total revenue of $87 $7 million was better than expected as COVID-19 testing demand was higher than anticipated and we saw strong customer ordering from enterprise customers direct to consumer and the public sector.
Both the private and public sectors exceeded our expectations for the quarter with our private sector, contributing 92% or $85 million of sales.
An increase of $48 1 million from Q2 last year.
Public sector revenues were $7 2 million for the second quarter and disposable test cartridge sales were $82 9 million.
Moving down the P&L adjusted product gross profit margin was 30%.
Driven by stronger demand for Covid test cartridges, which was offset by higher supply chain costs and a reduction in overall production volume in the quarter.
Adjusted product gross profit margin excludes the one time inventory charge of $42 $8 million relating to obsolescent inventory and warranty reserves.
This charge is primarily related to an overbuild of inventory after Q successfully scaled production late in 2021 to meet certain contract obligations as well as surging COVID-19 testing demand at that time.
In addition, during the quarter, we made the decision to reduce our manufacturing workforce to align capacity and better position Q with the current macroeconomic environment.
As a result, we took a restructuring charge of $1 $9 million.
Manufacturing remains a core competency for Q are freestanding modular production parts for automated cartridge production allow us to scale quickly as new tests become available and the demand for our products changes.
Moving to operating expenses over the last few quarters, we've been building our business, which included appropriate investments in SG&A and R&D.
For the second quarter of 2022 total adjusted operating expenses were $86 $4 million, excluding the one time restructuring charge I just mentioned sequentially.
Sequentially, comparing the second quarter to the first quarter of 2022, adjusted operating expenses decreased by three 9% from $89 $9 million.
Sales and marketing expense was $17 million in the second quarter down from $34 2 million in the first quarter, demonstrating our ability to flex variable expenses to meet quarterly deliverables and changing market dynamics R&D expense was $44 million for Q2 versus 28.
$8 million in the prior quarter spend is aligned with our menu expansion and software development priorities G&A.
G&A expense was $25 $4 million during Q2.
As a result, the adjusted net loss for Q2, 2022 was $55 $2 million or <unk> 37 per share.
Our adjusted EBITDA for the quarter was a loss of $29 $9 million.
Is the first quarter, we are introducing earnings before interest taxes, depreciation and amortization or EBIT star.
As we believe it is a good proxy for cash from our operations.
Moving to the balance sheet, we ended the second quarter with cash of $363 million.
We view, our multiyear cash position is sufficient to allow us to continue to operate the business and invest and execute our strategy and vision, regardless of the economic climate.
In addition on June 30, we entered into a $100 million secured revolving credit facility to increase financial flexibility as we ended the quarter it remains undrawn.
As a reminder, Q operates with no debt obligations.
I'd like to now move to our guidance for the third quarter, we expect revenues of $55 million to $60 million, excluding any adjustment to deferred revenue held on the balance sheet.
As you know forecasting COVID-19 testing demand beyond the near term is challenging we will limit our forecast of Q3 and plan to update you on next quarter's call.
In summary, the company performed well in the second quarter, beating topline and Bottomline expectations. Our strong balance sheet allows continued execution of our plans and strategies, including progress on our flu Standalone and flu plus COVID-19 multiplex clinical studies, both of which will be submitted to the FDA.
In Q3 in addition to our phased rollout of acute care.
With that I would like to thank you for your attention and I'll now turn the call over to the operator for questions.
Certainly once again, if you have a question at this time. Please press star 111 moment for our first question.
And our first question comes from the line of Charles <unk> from Cowen Your question. Please.
Charlie you might have your phone on mute.
Oh, sorry, I apologize for that.
Yes, thanks for taking the question.
And then John maybe to start.
Talking about the Q care rollout.
You said, it's a phased rollout can you describe a little more is that by geography or is that with certain customers.
How should we think about that in terms of.
The progression through the rest of the year.
Yes.
Thanks for the question Charles So we've started a pilot.
We've definitely gotten patients through small scale and we expect general availability nationwide in the next few weeks so.
We'll be dialing it up in the App stores over the next.
Really just for the next few weeks, we'll get to a 100% distribution.
A few weeks time nationwide.
Great and then.
But you talked about the progress on all of the non Covid test menu. It looks like everything is sort of it's still on track with your prior comments.
When we think about.
Revenue contribution from non Covid tests is it is it rates still think that we should start to see some contribution beginning next year.
Hi, Charles This is John yes.
That is the right way to think about it we're very excited about the progress we've been making on the menu.
Including now thing that we will submit not only the flu stand alone, but also the flu plus COVID-19 multiplex within this quarter. So thats.
Good progress in our minds and some acceleration from the initial plan.
But of course, what we don't know exactly when the approvals will come in so I think the best way to model. It is to think about next year as is certainly being a very reasonable period to be having non COVID-19 revenue.
Think about that even beyond flu thing about respiratory as we think about the full year of 2023 do you think about respiratory.
Being a category as well as sexual health.
We will be able to introduce our first test there where we're doing clinical studies in the back half of the year I think maybe of gonorrhea.
So as you think about 23, then absolutely we should think about revenue there and we're very excited about the progress we're making this quarter on the menu expansion.
Is that something where we should see it in starting in the first quarter or do you think that might end up being something more like a second quarter event.
Well again, it's hard to predict the approval timelines, but I would like to being optimistic and looking at it optimistically knowing that we're going to submit in Q3. Then then we're certainly hopeful that that would be a Q1 event, where we'd be able to get revenue, but again, it's predicated on the approval timeline.
Great I appreciate the I appreciate that thank you.
Thank you.
One moment for our next question and our next question comes from the line of Dave Delahunt from Goldman Sachs. Your question. Please.
Hey, guys. Congrats on the strong quarter could you tell us more about your revenue expectations for acute care.
And what is the gross margin profile.
Look like.
Hi, Dave It's John Yes, yes. Thanks.
We're pleased with the quarter end.
Yes look we're very excited about acute care as you heard <unk> talk about.
As far as revenue expectations.
Not going to be material.
Tied to this year, where it's a phased rollout.
We think it's a very important proof point and closing the loop and home health care and.
And that's a critical milestone and it's going to help not only when you think about COVID-19 testing, but as I was just mentioning the menu expanded.
Tests that we have coming out all have treatments for them available and so the ability to be able to go from diagnostic to treatment with our acute care platform is something that will be.
That's going live now and that's foundational to Qs platform moving forward the ability to take the diagnostic speak with a doctor have a prescription written and have that delivered to your door and a couple of hours.
Or in that range. As is is something that is very very exciting. So I wouldn't want to dimension that revenue quite yet in the gross margin as well.
But you can think about it in the context of that kind of service would be less than a 100 bucks to to the consumer.
Got it.
Any additional thoughts on what some of the drivers were.
The higher reorders from existing customers in the quarter.
Well I mean I think.
What we saw and I think what many others saw in this space is that Covid testing volumes were higher than anticipated on the quarter. So prevalent as well as testing volume was higher in the quarter and I think it is.
It's a nice proof to the platform and the stickiness of our business that are our customers are reordering and that's in the enterprise category. It's in direct to consumer we're even seeing it in the public sector to some of the states coming directly to us.
To work off the installed base that they that they got as a benefit of the Dod contract from last year. So.
That's.
That's how we're seeing it and I think those rates are.
While we had a beat in the quarter.
Great. Thanks, guys.
Okay.
Thank you.
And once again, if you have a question. Please press star one one.
Our next question comes from the line of Mark Massaro from <unk>. Your question. Please.
We will now take me announce remarks.
Thank you taking my question.
Carla can go wrong.
And we will know students that gross margin improvement.
Can you talk about the manufacturing workforce reduction.
Sure Youre at global outlet for Opex.
Thanks.
Yeah sure. So maybe I'll start with the last one there on the Opex outlook for 2022.
Well, we've been able to say hey last year, we were ramping expenses appropriately so, especially as we are growing the organization and investing in the key areas.
New expansion software and technology and you've seen that continue but the ramp in the Opex is complete really at this point and where we're expecting it to be sort of in the range that we've seen in in Q1 and now in Q2 as well. So so that was opex on as far as path to profitability.
<unk> then.
The one of the important things.
About the status of Q right now is our balance sheet, we've got $363 million of cash on the balance sheet.
We also just put a $100 million revolving credit facility in place, which is undrawn not needed best to get capital when you don't need it.
So we view that as a multiyear cash going forward and that's going to allow our investment in R&D.
R&D in the menu.
In software and technology.
Put in place that foundational platform that AUR was describing earlier so as it relates to profitability. Then we did introduce EBITDA as a key metric here and we think thats an important way for.
For for you to look at Us and look at what our cash from operations looks like on a quarterly basis.
<unk>.
The path to profitability, it's going to be somewhat contingent on the volumes that we have there and obviously as our menu rolls out and we expand our product portfolio. We expect that the volumes will increase from a single COVID-19 offering that we have on the market today and then the last piece I think you asked about was.
With gross margins so.
We did with volumes lower in Q2 than we had seen in previous quarters, we still posted an adjusted 30% gross margin. So thats a healthy growth gross margin.
And we are still putting in place manufacturing efficiencies you saw us take actions related to the market, where we've reduced our manufacturing workforce and that was a tough decision, but the right decision to do in this business climate.
So those are the types of actions that youll see us take to be able to get that path to profitability and the.
And EBITDA is a good measure going forward to look at what our cash from operations looks like.
Okay. Thanks, so much.
Just a quick follow up on that.
Partnership, Brian a couple months ago.
Distribution agreement with <unk>.
Bio reference lab.
You've also discussed administering.
Awesome partnership with Albertsons.
Just curious.
How those partnerships are progressing.
Our expectation.
Yes. Thanks.
We've continued to ramp up our retail pharmacy footprint.
That's gone well, we I believe that.
Interesting model for the system as a point of care point to access.
Then looking at various distribution mechanisms and.
Obviously, the pull through on the installed base has been has been very solid.
We will look to continue to expand.
Our footprint in retail pharmacy, and health care providers and in the home. So all the customer categories are very important to us. They all have strategic value. So we'll continue to expand on this.
Okay. Thanks, so much for taking the question.
Thanks Vivian.
And our next question comes from the line of Tejas Savant from Morgan Stanley . Your question. Please.
Hey, this is Neal on for David Congrats on the strong quarter and meaningful rollout here for acute care just had a couple of quick questions.
Starting with Opex this quarter with some of the major shifts in line items could you provide some detail there I guess can you break out some of the individual drivers on the sales and marketing side to get that flex quarter to quarter.
Yes, yes, so on the Opex yeah on the specific lines. There. So the sales and marketing you saw that down sequentially quarter over quarter as I mentioned in the prepared remarks.
Some of that is just natural quarter to quarter. Some of that is intentional as in this climate, we pulled back a bit on some media spending.
And we are constraining the cost inside the organization as it relates to <unk>.
Some of the spend there.
As we look forward.
Ben will normalize and when you look at R&D R&D, that's a spa, obviously, we've been investing quite a bit menu expansion as well as a software and technology related to acute care. So that's why that is and is an increase on a quarter over quarter basis, but when you take opex all in on.
On a net debt basis.
The range of $85 million to $90 million is a fair way to look at it because again, we're not anticipating continuing the kind of ramp that we had in opex during 2021 thats not the plan for 'twenty two.
Got it thank you and a couple on acute care. So current state could you provide your view.
Sure.
Rogers are back filling the telehealth and prescription purchasing any of the loop and do you see any opportunity post launch to expand on this offering with major partnerships Amazon.
Yeah, Great question, so what we've done on the acute care is we've.
Obviously on the mobile side.
<unk> front end that the patient or physician.
Operator to run the test and then if they get a positive test.
Yes.
Into the acute care flow and on the other side of that is a web based application we call Q clinic, which the Doctor network any Doctor network can operate and so the idea is that we are web based application that's agnostic to Doctor network and what it does is it allows for the doctor to receive test results.
Conduct video base, telemedicine visits and asynchronous messaging and to be able to prescribe.
So again with our full EMR backing and so because the full spectrum of capabilities to allow for a doctor to be on the other side of this element visit and prescribed and track the prescription to delivery.
Really excited about it because underneath the hood of acute care you have acute clinic for doctors and this really makes it agnostics adopter network, which.
It will be.
A potent tool for the future as we want to expand.
The Doctor network behind it.
Thank you for the color.
Are there any.
Metrics, you can provide us on utilization of virtual care in its current state.
Any trends youre, seeing and how that might evolve with due care and thoughts on how you see this offering driving further adoption on the DTC side.
Yes, so the way to think about the metrics and the usage there is.
Acute care is completing the home health care loop by offering the ability to have a prescription written and then delivered to your door and so while we anticipate although we don't have specific metrics to put out at this point in time, we would anticipate that we'd see a significant up.
Take and the usage of the telehealth.
A portion of our platform because there is there is a treatment there theres a full loop to be able.
To be able to take a test.
Talk to a doctor, which both of which you can do on our platform today.
But then have the prescription written and delivered to your door is going to create an uptick that we anticipate related to the telehealth visits.
And maybe the other piece I would add to that too is that as we look at our platform. The testing because we do have access to be able to look at what testing looks like on our platform and the testing volumes on our Q readers that are out in the field have been relatively high and you saw that in our revenue.
<unk> in Q2, when we posted 88 almost $88 million of revenue.
Got it and just one last from me from the partnership with Albertsons.
With menu expansion progressing really well and any early discussions with your partner to expand the partnership alongside human into areas like Fluor STD testing or eventually cardio metabolic.
Yes, not just with albertsons, but across our across the spectrum with enterprise with the <unk>.
<unk>, we've been seeing a lot of demand for what's coming next on the platform. So I think our customers understand that when they bought the queue reader.
They were buying something that was going to be flexible across our future menu expansion and that was why they made the investment to get the durable equipment to then.
You really have the capability into the future. So we believe our customers as we talk to them.
Not just in retail pharmacy, but across the spectrum are really excited about.
What they see coming down the pipe and so the fact that we are delivering on that pipe.
Pace is.
Good news.
Great that's it for me.
Thank you Neil.
Thank you. This does conclude the question and answer session as well as today's program. Thank you for your participation you may now disconnect good day.
The conference will begin shortly.
Raise your hand during Q&A you can dial one one.
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