Q3 2022 Co-Diagnostics Inc Earnings Call
Good afternoon, and welcome to the code Diagnostics, Inc. Third quarter 2022 earnings results Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to wood.
Draw. Your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Dan Moore, Vice President of Finance and accounting. Please go ahead.
Thank you.
I am Dan bore and joining me. This afternoon are members of the code diagnostics management team, including Dwight Egan, Chief Executive Officer, and Brian Brown, Chief Financial Officer.
We will begin the call with management's prepared remarks, and then open up the call to questions from our analysts.
Before we begin we would like to inform the listeners that certain statements made by co diagnostics. During the course of this call may constitute forward looking statements.
Any statement about company expectations beliefs plans objectives assumptions of future events or performance are forward looking statements.
For example statements concerning 2022 financial and operational guidance the development regulatory clearance commercialization and features of new product plans and objectives of management and market trends are all forward looking statements.
This includes statements concerning the company's forthcoming P. C R home testing platform.
Which is subject to FDA review and is not yet available for sale.
The company believes these statements are based on reasonable assumptions. However.
However, these statements are not guarantees of performance and involve known and unknown risks and uncertainties that may cause the actual results to be materially different from any future results expressed or implied by such statements.
Important factors, which could cause actual results to differ materially from those in these forward looking statements.
Our detailed in code diagnostics filings with the S E C.
Co diagnostics assumes no obligation and expressly disclaims any duty to update any forward looking statements to reflect events or circumstances occurring after this call or to reflect the occurrence of an unanticipated events.
In addition, the company may discuss certain non-GAAP financial measures during today's call.
These non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results.
We refer you to the company's earnings release out shortly before this call, which may contain reconciliation to the non-GAAP financial measures presented to their most comparable GAAP results.
At this time I would like to turn the call over to co diagnostics, Chief Executive Officer Dwight Egan Dwight.
Thank you Dan and thank you all for joining us on this call. We will provide an overview of our results for the third quarter updates on key financial performance metrics and a discussion of progress against our strategy and.
And we will take questions from our analysts.
The company's execution during the quarter remained strong as we continued to make progress on the optimization of the Kodiak PCR home testing platform, along with development of our other business sectors and in demand PCR products with quarter on quarter revenue remaining steady.
Demand for our suite of COVID-19 testing products reflects our previous assertions. Following the analysis of experts and epidemiologists. The COVID-19 will be a part of the global community for the long term.
As recently reported in fortune waves of Covid variance you used to be fairly sequential often with a valley or plateau in between.
But now more than 500 omicron variants are circulating some of these variants have the potential to cause their own subsequent surges.
<unk> Q variance, along with X b b or dry van variants surging in other parts of the world are believed to be the most immune evasive strains of Covid yet.
According to Raj Raj and Iranian research Assistant Dean and Associate Professor at New York Institute of Technology, the coming U S. Covid wave won't be just one wave, but a series of waves each fueled by different variant.
That form a table mesa or a table like plateau.
<unk> from our believes that COVID-19 will be with us for a long time, we continue to rely on the advice of experts such as Dr. Phil cheap who according to fortune has been warning for months that our new more immune evasive varian will emerge over the winter.
She also stresses that the pandemic is far from over the number of deaths from Covid, which still averages around 2600, a week remains far too high Slouchy emphasized adding we're still in the middle of this it is not over 400 deaths per day is not an acceptable level we.
We've continued to exercise financial intelligence and why spending practices evident from our 86 and a half million of cash reserves as we look toward the company's future, which certainly includes COVID-19, but extends far beyond the ramifications of a single pathogen.
This is why our focus has been and continues to be on defining and focusing on the total addressable market for our new codecs PCR home platform and ensuring its robustness quality and versatility will stand the test of time as the world pivots to a new reality of more widespread at home.
And point of care testing for a range of infections.
It is this ample versatility beyond COVID-19 that has attracted so much attention to our new platform. Among the opportunities that we have already identified have been collaborations with international Ngos and nonprofits. The interest of these groups and the new platform extends beyond Covid two other endemic diseases such as <unk>.
Berke, you losses, which killed 1.6 million people in 2021 alone. According to the World Health organization. It is no secret that the COVID-19 pandemic has created a fulcrum that allowed Ko diagnostics to leverage our state of the art patented co primer PCR technology to help more people than ever.
Before and increase our profile, both domestically and internationally.
We remain firm in our position that the pathway to significantly increasing co diagnostic success lies in the power of at home and point of care P. C. R.
And in identifying those opportunities, where we stand to make the greatest impact both in the short and long term.
We also believe the diverse italic versatility goes hand in hand with the platforms durability.
A device that is the first to market is less significant than the device that is the first to do it right.
Our highly experienced and renown team of developers scientists and engineers tasked with bringing the codex PCR home platform from concept to reality have remained fixed on the objective to build a durable platform technology that has the potential to address the plethora of needs in a variety of industries fueling few.
It's your growth to that end, we have continued to optimize and refine the platform and all its married components, including the user experience. We believe the additional time spent preparing the platform for clinical evaluations has been worth it and we are shortly to unveil a device that is.
Considerably more robust than we initially conceived.
As you learn about the improvements and capabilities of our forthcoming product. We are confident that you will see the advantage of our platform's value proposition compared to the competition.
Our current timeline to product launch is as follows.
<unk>, we are performing hundreds of end to end runs on our Kodiak PCR home platform. We are concurrently performing additional studies on COVID-19, as well as on testing for tuberculosis and P. Ginger ballast for the dental market. These studies will continue uninterrupted to collect the data necessary to prepare.
For prospect respective five 10-K submissions for each of these and other tests.
We just concluded another usability study for our initial COVID-19 test that showed strong results with no major challenges clinical.
Clinical evaluations to support our F. D. A EUA submission are anticipated to begin in January of 'twenty to 'twenty. Three we have established success criteria to triggered the countdown to clinical evaluations and submission for FDA EUA, we'll follow successful trials and analytical studies.
I want to emphasize that our new at home point of care platform has been designed and engineered to be versatile and durable.
With long term disruptive potential as a diagnostic medical device, taking advantage of a worldwide shift to at home point of care testing for a wide range of pathogens.
Ongoing clinical evaluations will be a regular part of our business routine as we bring an ever increasing number of pathogens onto this powerful new platform.
Our extensive ongoing market research guides, our commercialization strategy as we focus our efforts where they will be able to have the most impact once the platform has the requisite authorizations and clearances to begin sales.
Analytics provided by a world renowned field marketing research firm has included gauging interest and concerns from an array of demographics, which has in turn provided invaluable feedback for optimization of the device itself on everything from the price to the packaging as the company better understands the size scope.
And needs of the platforms total addressable market.
Some of the optimization work performed over the last few quarters includes enhanced T. T. R or time to result increased multiplexing capabilities and greater product stabilization, which results in longer shelf life for the test cartridges.
One of the most important new innovations is the ability to test and go where an end user does not need to maintain proximity to the device or return to it following the run time and instead received their result from the cloud on the fly in.
In addition, and users can choose their own testing preference by using either a swab or saliva.
As mentioned in previous calls and public statements. The device has been designed to incorporate specialized optics and other innovative features to accommodate multiplex assays as we expand its future suite of products to include additional respiratory S. T I and other infectious diseases utilizing our co prime.
<unk> technology. This patented molecule has unique properties associated with facilitating multiplex PCR and we intend to bring the full power and capabilities of our proprietary technology to our new Kodiak Pcr platform.
In addition to ultimately representing the future of at home and point of care testing. This powerful new platform includes a secure cloud based data system, whereby patients can send test results to their physician or other authorized parties as directed by the end user or regulatory authorities.
We have continued our strategy of maintaining a noticeable presence at conferences and trade shows this year to reinforce and increase our visibility among the centralized laboratory business segment. We have served across our growing distribution network of more than 50 countries. The high throughput laboratory market is responsible for driving most of our sales.
Providing the cash flow for our R&D efforts and plans for future growth as we continue to grow the product pipeline for the centralized laboratory business channel.
And of course, our co primary technology is more than just an innovative molecule. It is a platform technology with wide ranging applications. In addition to other products. We have discussed in previous public statements such as our ongoing development of a multiplex STI panel to detect and differentiate between four prevalent causes of sexually.
<unk> infections. The company has rolled out one product for monkey pox with another multi gene monkey pox test in active development and continues to work on its upper respiratory panel tests, which includes markers for RSV and illness currently experiencing a whirring and unusually early surge in 2022 within the United.
<unk>.
Recently, we were pleased to be able to introduce Dr. Mark ports as our new Chief Scientific Officer. Mark has had previously served as the CSO of the subsidiary we acquired at the end of last year and has been actively involved in the development of the Kodiak P. C. Our homes since early 2021 doctor ports as a Harvey.
University and UC, San Francisco educated molecular biologist with more than 30 years of experience in the application of PCR and related methods.
It was also served as the reviewer for more than 30 different NIH NIH study sections focused on infectious disease diagnostics and has several patents issued and pending in his name.
Mark played a key role in the growth of bio fired diagnostics from 2002 to 2018.
Including in the development of the film array platform and in vitro diagnostic system that uses of Syndromic approach to accurately detect and identify infectious pathogens and which has captured a significant share of the global infectious disease IBD market. We believe the doctor poorest will play a pivotal role in not only completing in.
Bringing our new platform to market, but also in helping to oversee the numerous research and development efforts of our other initiatives and products. Other PCR tools are being developed for several pathogens of significance in dentistry mental health and liquid biopsy for detection of cancer associated mutations present in human blood with.
Their performance being evaluated in conjunction with partnerships in each of these areas are worked with Bayer crop services and L. G C. Likewise.
10 use within our agricultural vertical in the Companys Mosquito abatement business has seen significant growth. This year in terms of laboratory installations and continued purchases from our existing customer base.
Overall, we believe our advancements in the field of at home point of care PCR testing.
<unk> of experts working diligently to achieve our shared company vision growing product pipeline and our practice of letting financial intelligence drive our smart spending our positioning co diagnostics to execute against our strategic growth initiatives. Our continued investments in talent and R&D remained positive indicators of the.
Yes, we are achieving to drive further value for our shareholders.
This concludes my initial remarks, let me now turn things over to Brian Brown for a review of the key metrics and numbers Brian .
Thanks, Dwight and thank you for joining today's call.
Our performance during the third quarter was again impacted by a leveling off of demand for COVID-19 testing worldwide. Nevertheless, we remain enthusiastic for the progress we've made strengthening our team and operations to support future growth.
Now to review our performance during the third quarter of 2022.
For the third quarter revenue decreased 83.1% to $5 1 million as compared to $30 1 million during the prior year comparable period due to lower demand for COVID-19 testing worldwide. However, Q3 2022 revenue increased by one 4% from Q2 of 'twenty two.
'twenty two.
Gross profit for the year decreased 83, 9% to $4 3 million compared to $26 8 million in Q3 of 2021.
Our gross margin percentage of 84, 9% for the quarter decreased approximately 410 basis points from 89.0% in the prior year period.
This decrease in gross margin percentage from the prior year reflects operational inefficiencies stemming from lower sales volume.
Total operating expenses for the three months ended September 32022 were $10 9 million a decrease of 17, 5% compared to $13 2 million in the third quarter of 2021.
The year over year decline was primarily driven by variable expenses related to lower sales volumes.
Research and development expenses for the third quarter of 2020 to decrease from the prior year same period by 14, 5% to 5.0 million as compared to $5 9 million.
The decline in R&D expenses can primarily be attributed to the acquisition of entities that were previously third party vendors in the prior year period.
We continue to invest time and resources in the completion of our Kodiak PCR home platform, along with clinical lab tests and other platform advancements.
We are pleased with the progress we achieved during the quarter.
As we disclosed in our most recently filed 10-K and as part of the consideration given in our recently completed acquisitions. The acquire he's received contingent consideration based on the achievement of certain milestones.
This means that at each quarter and we are required to re measure the value of the contingent consideration the.
The Remeasurement calculation at September 30th 2022 created a gain of $2 $9 million that has been recognized as other income in our consolidated statements of operations.
For the third quarter of 2020 to income before taxes decreased to a loss of $3 5 million as compared to income of $13 6 million achieved in the prior year same period.
We experienced an income tax benefit for the third quarter of $2 1 million.
Our effective tax rate will generally differ from the U S federal statutory rate of 21.0% do.
Due to state taxes permanent items and discrete items.
The third quarter net loss for 2022 was $1 4 million or a loss of four cents per fully diluted share compared to net income of $11 5 million or <unk> 38 cents per fully diluted share in the prior year comparable period.
Adjusted EBITDA for the third quarter of 2022 was a loss of $4 1 million, resulting in adjusted EBITDA of 5.0 million for the nine months ended September 32022.
As a reminder, we define adjusted EBITDA as earnings before interest taxes, depreciation and amortization adjusted for stock based compensation and other one time costs.
Please refer to the 8-K filed earlier today for a reconciliation of net income to adjusted EBITDA.
We continue to be deliberate in our actions as we manage the health and flexibility of our balance sheet to ensure positioning for long term growth.
As we make further progress on nearing the ramp up of production for our new P. C. R. Home platform, we are deliberate in discerning, while we evaluate opportunities to enhance our capabilities or the timing to bring the platform to market.
Despite the softness in revenues for the quarter, we were able to successfully continue to convert receivables into cash as a result cash cash equivalents and marketable securities ended the quarter at $86 5 million down slightly from $89 9 million at December 31, 2021.
From June 30th 2022, our cash cash equivalents and marketable securities decreased by $9 5 million, which is a direct result of the repurchase of common shares during the third quarter.
Additionally.
We continue to experience positive net cash flows from operating activities as we reported $10 6 million for the nine months ended September 32022.
Of that $10 6 million I am pleased to report that $1 1 billion of positive net cash flows were generated from our operating activities in Q3 of 2022.
Our balance sheet remains solid.
We take pride in our ability to maintain a strong cash position and remain focused on maintaining our financial health.
Our highly liquid no debt balance sheet enables us to achieve scale and continue our efforts to expand into new verticals.
As we make further progress and execute against our strategy. The commitment remains to invest time and resources into our people processes and research and development capabilities.
Earlier this year, we announced the authorization of a $30 million share repurchase program at.
At the end of the third quarter total common shares repurchased reflected a total of $13 billion out of the total $30 million authorized or slightly greater than three 4 million shares.
These purchases represent approximately 10% of outstanding shares as reported at our annual shareholders meeting.
We believe our share repurchase program provides us with an opportunity to opportunity to strategically allocate capital in a way that reinforces our positive sentiment for our strategy and the future of co diagnostics and reflects our continued commitment to returning value to our shareholders.
Turning now to our visibility and near term outlook.
Variability in our operating environment has restricted our near term visibility.
We will continue to navigate the near term environment with caution, but as a result will not be providing quarterly guidance at this time we remain.
Very confident about the long term potential of our business and the demand for our products and continue to believe we are at an important point in our growth trajectory.
With the impressive team we have in place we are confident our hard work and dedication will enable us to expand into new verticals, new markets and innovative molecular diagnostic solutions.
I'll now turn the presentation back over to Dwight Dwight.
Thank you, Brian we will now take calls from our analysts operator.
We will now begin the question and answer session.
You ask a question you May press Star then one on your telephone keypad.
If you were using a speaker phone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question will come from <unk> Chen with H C. Wainwright. Please go ahead.
Hey, everyone change that'd be helpful Mitch and.
I used to have a couple of quick questions.
Thanks for providing color.
Excuse me, thanks for providing color on the home platform.
How should we expect.
Some of these clinical evaluations beginning from early 2023.
How do how would these studies look like today.
Do they extend that you can reveal.
So.
If I if I heard you correctly, you spoke to a market research conducted by internally.
Could you provide some color on any thoughts of the findings that you.
Colored and also any any color on any other competitors that are out there trying to do what you know what you're doing.
And lastly.
The fact that the cut in Covid testing environment.
More on that plateau.
Oh, he's on the decline and what are your expectations for the home platform. Thank you so much.
So I think your first question centered around the.
Nature of our clinical trials that are forthcoming.
We referred to the clinical trials as clinical evaluations and they are comprised of two parts. One is a clinical trial in which our.
Device, which includes both the thermal cycling element and all the other pieces of the collection Cup.
And how it interfaces with the smartphone and into the cloud.
That is referred to as a clinical trial.
<unk>.
And that is done on a certain number of patients.
In the actual trial.
That is then followed by an analytical <unk>.
<unk> and the two of those.
Features together, both the clinical trial and the analytical data become the two part.
Piece that is submitted to the FDA.
For our EUA emergency use authorization.
Our.
Clinical trial for a emergency use authorization authorization is not particularly large in terms of the number of patients.
So we anticipate that that will be concluded in relatively short term. Once we begin them in January of 2023, once we compile the data and submitted to the F. D. A.
It's up to the FDA as to how soon they respond to us.
So that's kind of a where we lose control of the timing mechanism.
You also asked about our.
You know, how we view it.
But in relation to our at home.
In point of care, we believe going forward that.
The new device, which is very revolutionary.
And that it is.
The epitome of being able to do fast accurate and inexpensive.
Multi plex.
Interrogations of pathogens. So were enthused about the fact that going forward. This is much more than a COVID-19 story. This is definitely not a lottery ticket on COVID-19.
As we have asserted for a long time will be with us basically till the end of time as the experts and epidemiologists around the world have a bird.
So we we really look at this as being put us putting us on a much broader plane of operation, where we're dealing with all kinds of other.
Things that are endemic in nature, particularly things like tuberculosis.
Tuberculosis kills a thousand people a day roughly in India and has done for many many years.
Does the same in China.
We are now going to be entering into a world where our proprietary co primer technology is going to be applied against a whole bunch of other.
Infections, there are roughly a million STI infections, a day in the world and these are the kinds of things that we're going to be interrogating as we go into the future.
We're also working you know.
Closely with certain Ngos around the world, who are participating in trying to provide solutions to things like tuberculosis, which frankly have been rather ignored during the COVID-19 pandemic, which is ongoing.
And we are anticipating.
John .
Some material.
Ramifications of those N G OS in dealing with our new platform, which enables them to put a very inexpensive solution in the hands of laboratories and governments and other end users around the world with the device the cost in the neighborhood of 300 dollar.
At retail and tests that are very inexpensive compared to whats offered by the competition. You also asked about our competition, we really believe that our device stands by itself and speaks for itself in terms of how it competes with what else is out there. This is not an antigen test, it's not an isothermal or.
Lamp technology test, it's a PCR test and in our minds you know if theres not PCR, it's not really a test in many aspects because.
<unk> According to the CDC the gold standard for testing in and it is a molecular test. It is the full power of PCR.
P C R and it's enhanced by our co primary technology, which I really want to emphasize is a critical component of what we're doing here.
Co primers.
And enable PCR, which can already multiplex it enhances the ability of the multiplexing and our device enhances it further through.
Through the use of both.
PCR color and melt technology. So we've got a very very potent combination that we're gonna be unleashing at price points and.
In relationships that we think will really make a serious play.
The diagnostic space of the world.
Thank you so much.
If you have a question. Please press Star then one.
Next question comes from Theodore O'neill with Litchfield Hills Research. Please go ahead.
Thanks very much.
It's a question I have is on the strategy for the PCR test.
Wouldn't it make more sense to market this to doctors doctors offices and veterinarians first and then have it sort of become the gold standard and then bring it to to the masses and I was wondering if you could thanks.
Talk about.
Why you've chosen to market to the masses first.
Yeah, So oh and nice to hear from you feel this.
This was also part of the question that was asked why.
The analysts are H C Wainwright.
We are marketing to both the the at home market and the.
Physician office and the.
The dental market.
And.
Secondarily to that to the veterinary market and chiropractic market and such we have spent a considerable amount of money on market field market researching with radius, which is a very good.
Good company in field marketing research one of the best in the World.
And so they've done a significant study for us as to how.
Our product would be received and at what price points and such.
And you are quite right.
The physician and dentistry markets are our prime area for the introduction of this test on a point of care basis, we referred to the product as it relates to physicians and dentists as P. C. As the codex PCR pro device.
Okay, but it is it is basically the same device and I think the takeaway I would want you to get from this deal is that we've taken more time than we had originally expected to bring this device to get ready for the clinical trials.
And at the end of the day, we ended up with a much more robust device than we had previously set out to do.
And so we're very comfortable taking it into the physicians and dentists and into those markets that indeed are you know.
Really a great market to take this soon and we will that's what we will be doing we'll be doing that concurrently with what we're taking into the home market.
It's going to involve.
More than just the whole market right from the get go.
Okay that makes sense got it thanks.
At this time there are no further questions. So this concludes our question and answer session I would like to turn the conference back over to Dwight Egan CEO for any closing remarks.
To conclude today's call I want to highlight the progress. The company has made since the beginning of the pandemic and developing a long term strategy around our exceptional new codecs PCR home platform.
Beginning in the spring of 2020, the company recognize that COVID-19 could be the catalyst for creating a new platform whereby the company's proprietary co primary technology could be combined with an inexpensive instrument that could drive testing down to the at home and point of care markets.
And not just for COVID-19, but for a whole range of diseases, such as flu RSV stis tuberculosis and others.
The companies, we have partnered with on the new platform harnessed.
Skill sets of an incredible team of scientists and engineers than we bought those companies. This.
This resulted in core diagnostics owning all of the intellectual property associated with the new platform and obviated the need to pay royalties on prospective sales.
It also provided the company with a tremendous brain trust of talent to continue the development of the platform into the future.
The results of these strategic moves as place co Dx at the epicenter of a diagnostic phenomenon where disease detection is moving rapidly away from centralized health care settings.
A more proximate and accessible point of care and at home locations.
Our new platform isn't just a competitor to other less robust technologies, such as antigen and isothermal based test.
Rather we believe our invention stands on its own at the top in a class of its own with specifications and price points that have the potential to make us the leader in fast inexpensive and accurate molecular diagnostics.
We are enthused to be soon and concluding the necessary requirements to enable the company to sell this revolutionary new product.
Which will ultimately provide the world with access to one of the most important inventions ever produced for the diagnostic space.
To our shareholders as well as through the whole co Dx family of employees distributors and consultants for joining us in this broad and significant undertaking we look forward to talking with you again after the next quarter.
Good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.