Q4 2022 Accelerate Diagnostics Inc Earnings Call
Good afternoon, and welcome to the accelerate diagnostics fourth quarter 2022 earnings conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
Please note this event is being recorded.
I would now like to 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 of the Securities Act of 1933 and section 21 E of the Securities Exchange Act of 1934.
Forward looking statements include 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 December 31st 2022, and other reports we file with the SEC.
Got.
It is my pleasure to introduce the company's president and CEO Jack Phillips.
Thank you Laura good afternoon, everyone and welcome to our fourth quarter earnings call today's call will focus on our fourth quarter and full year results. I'll also provide an update on three important strategic priorities. One building financial strength. This includes restructuring our current debt obligation and.
Juicing, our cash burn, while improving our operational efficiency number two growing market share through our becton Dickinson partnership and number three delivering on innovation by advancing our next generation susceptibility platform Bip.
Before providing additional detail on each of these areas I would like to hand, it over to our outgoing Chief Financial Officer, Steve Reichling to review, our fourth quarter financial results Steve.
Thank you Jack and good afternoon, everyone.
Net sales were $3 million for the quarter and $12 $8 million year to date. This compares to $3 three and $11 8 million for the same periods in the prior year. This represents a decline.
9% as compared to the fourth quarter of 2021, while full year revenues grew by 8% year over year.
This fourth quarter 2022 decline was due to fluctuations in the timing of capital revenue.
Meanwhile, recurring revenues continued to grow sequentially quarter over quarter and over comparable periods from the prior year.
As communicated during our last earnings call. We came in just below the low end of our annual guidance of $13 million to $14 million.
Cost of goods sold were $2 $1 billion for the quarter.
$9 $4 million year to date, resulting in gross margins of 28% and 26% respectively.
This compares to cost of goods sold for $6 $7 million and $12 $2 million.
Inclusive of a one time $4 5 million inventory write down making this year over year comparison, not meaningful we continue to see headwinds from a gross margin perspective.
Stationary pressures on both direct and manufacturing costs among other contributing factors.
Selling general and administrative expenses, excluding noncash stock based compensation expense were $6 $8 million for the quarter and $37 million for the year.
This compares to $8 three and $31 $6 million for the same periods for the prior year.
SG&A reductions over these periods were driven by streamlining our spend within sales and marketing within the scope of our BD commercial collaboration.
Noncash stock based compensation expense and SG&A was $2 million in the quarter at $8 $5 million year to date compared to 3.2 and $17 $6 million for the same period in the prior year.
Research and development costs, excluding noncash stock based compensation expense were $5 $7 million for the quarter and $25 $5 million year to date. This compares to $4 eight and $17 $8 million for the same periods in the prior year.
These increases were the result of accelerating investment in our next generation E. S T platform wait.
Specifically.
Our recent investment included delivery of approximately 20 development in units of the wave instrument and purchasing of equipment to finalize our consumable manufacturing line.
Noncash stock based compensation expense in R&D.
Were <unk> 4 million for the quarter and $1 4 million year to date.
Our net operating loss, excluding noncash stock based compensation expense was $11 $5 million for the quarter and $52 $2 million year to date.
Our GAAP net operating loss was $14 million for the quarter and $62 $8 million for the year, resulting in a loss of 15 cents and 76 cents respectively.
Net cash used was $9 $8 million for the quarter and $54 million for the year, excluding cash flows from financing.
We ended the year with cash and investments of $45 $6 million.
Before I hand, it back to Jack I wanted to take this moment to thank my hardworking team, our analysts and our investors for the past 10 years.
This will be my last earnings call with accelerate diagnostics and I'd like to introduce you to David patients, who will be joining Jack on the rest of this call and to lead accelerate into the future.
I have worked closely with David and he has my complete confidence and I wish he and the company tremendous success.
I will now hand, it back to Jack to review, our fourth quarter results and 2023 priorities in greater detail.
Where do you Jack.
Thanks, Steve I'll quickly cover our fourth quarter results and turn my commentary to our company priorities in the fourth quarter U S contracted three new Pheno instruments and brought another five instruments live we ended the quarter with a revenue generating installed base of 300 and twenty-five pheno instruments.
And a backlog of 69 pheno instruments pending implementation.
While our fourth quarter commercial results did not meet our expectations as mentioned on the last call. We restructured our commercial team late last year and turned our focus to setting BD up for success. We remain encouraged given the strong momentum being built with our BD commercial partnership.
Now I would like to provide an update on three important strategic priorities financial strength market share growth through our becton Dickinson partnership and delivering on innovation by advancing wave.
Starting with financial strength I want to provide an update on our debt restructuring as you may know, our 2.5% convertible senior notes matured and became due and payable on March 15th of this year on March nine we entered into a forbearance agreement with the notes trustee.
And an AD hoc group of holders of approximately 85% of the outstanding notes.
Which became effective on March 13th.
Pursuant to the forbearance agreement the holders agreed and directed the trustee to forebear the extra sought from exercising their rights and remedies under the indenture in connection with certain events of default under the indenture until March 29.
We continue to work with the holders of the notes and other key stakeholders and have agreed to an extension of the forbearance period do facilitate those continued discussions.
Moving to our next priority growing market share with Pheno in our through our Becton Dickinson partnership.
As a reminder, last quarter, we announced the formation of an exclusive global commercial partnership with Becton Dickinson.
D is the global leader in microbiology with thousands of customers spanning most countries globally.
Nearly every clinical microbiology lab in the World uses at least one of Bd's products.
Much of the quarter was spent taking the necessary time to train the BD commercial organizations.
Activities included training on the clinical value of rapid positive blood culture, susceptibilities with our proven body of evidence and combining our sales processes into a single joint sales process.
Together, we successfully launched the only end to end complete microbiology workflow for combating bloodstream infections with our combined BD and <unk> Dx product portfolios.
This end to end product offering from specimen collection to growth and detection of positive blood culture samples and finally through identification and susceptibility testing enables faster reporting of targeted anti microbial therapies to pharmacists and physicians.
This exciting value proposition is truly unique within clinical microbiology and the rationale for bringing our portfolios together to combat the substance burden and growing anti microbial resistance.
There are three principal drivers for us joining forces with BD first to significantly improve our commercial reach both in the U S and abroad.
To improve our selling effectiveness by combining our offerings with bd's portfolio, and lastly to collaborate on future innovation.
In the U S. We launched a commercial partnership in January of this year after spending the fourth quarter aligning our sales and marketing teams to ensure we improved both our commercial reach and selling effectiveness.
Since launch our sales activity has dramatically increased which is an encouraging indication of our commercial reach is strengthening.
Specifically, we saw a 400% increase in new opportunities, thus far in Q1 versus our sales funnel from the fourth quarter of 2022.
We have a joint target of bringing significant new pheno opportunities into our sales funnel. This year and we are tracking ahead of plan thus far.
Improving our sales effectiveness is our second focus our joint sales process highlights key roles and responsibilities between the BD territory managers, and our pheno specialists to drive meaningful funnel progression, winning more accounts and faster clinical implementations.
Our joint marketing sales and contracting processes are focused on delivering improved deal economics by offering strong synergies across our highly customized bloodstream infection workflow solutions.
For example, we have an active program, which allows customers to renew existing BD systems and as a part of the renewal customers can evaluate and implement pheno for rapid susceptibility.
We anticipate many of our current and new opportunities will close in the second half of 2023 and early 'twenty four driving meaningful market share growth. In summary, we are quite enthusiastic from the early progress in the U S to date, but there's still work to be done.
In EMEA, we launched a commercial partnership this month EMEA is a more complex health care system delivery system, requiring country by country logistical and market access considerations.
For example, we are adapting our commercial playbook to serve tender driven markets, such as Italy, and the UK.
Which differ from capital acquisition markets, such as Germany, and the Nordic countries.
This led to a slight delay in launching abroad, but we are encouraged by the team's enthusiasm and progress in the early days.
We are commercializing both archon fino in EMEA, thus, bringing in even more cost effective and automated workflow solution to comeback bloodstream infections, and Italian evaluation site will be presenting an arc abstract during the upcoming ASM in June .
And the author will be publishing a full study readout in a local European journal.
We will be leveraging this peer reviewed publication for our selling efforts in EMEA in the future.
We continue to see strong market demand for arc in the U S and are eager to bring our commercial learnings to the U S with arc after FDA approval. The U S market is eager to gain access to an automated cost effective sample preparation solution for positive blood cultures.
As discussed on our prior calls we continue to pursue arc as a class II five 10-K device with the FDA and remain in active dialogue with them. We will not have a forecasted launch date in the U S. Until we begin clinical trials, which is expected in Q2.
Lastly, with our BD partnership we will begin to collaborate on future product developments. The first area of focus is streamlining our upfront workflow for wave for positive blood cultures and isolated colony samples in summary, our work with BD is off to a good start.
We have launched in both the U S and EMEA with strong customer engagement.
And focus from our joint commercial organizations.
Now turning my comments to our third strategic priority delivering innovation with our next generation platform wave.
We continue to make very good progress with our wave development program as discussed.
Previously we have taken delivery of over 20 Alpha instruments, which are up and running in our core laboratory. This is very exciting and has significantly sped up our development efforts.
As a reminder, the wave platform, we'll be able to provide rapid susceptibility test results for both positive blood culture and isolated colony samples on a single system with significantly improved platform economics over fino.
Our customers have confirmed a consolidated susceptibility approach will have a superior advantage over traditional isolate based platforms on the market today.
For accelerate wave significantly expands our revenue and wallet share per customer while restating our platform economics.
Our target is to have our preclinical data readout complete by the end of the year and start clinical trials shortly thereafter.
In summary, we will be looking to update the market with further details on our three strategic priorities building financial strength growing market share with becton Dickinson and delivering on innovation by advancing wave.
On a personal note I wanted to take the opportunity to thank and recognize Steve Reichling for his years of service as our CFO I look forward to continuing to work with Steve in an advisory capacity move.
Moving forward I have great confidence in David patients as our new CFO and look forward to everyone getting to know David as he takes over for Steve.
I would now be happy to answer questions from our analyst should others on the call have questions not addressed we would welcome you to send these questions or request for a follow up meeting to investors at <unk> Dot com.
Thank you.
Our first question is from Alex Nowak with Craig Hallum. Please go ahead.
Okay. Good afternoon, everyone and good luck to Steve with his future projects and welcome David.
The first I guess a couple of questions here is really around the BD partnership.
How should we be trying to think about frac and the success of the launch of the Pheno. So far you know, we're not giving sales guidance right now I mean is it fair to say it's limited visibility.
How should we be thinking about it because we take the 400% comment you did 19 placements in 2020% to 400% that gets you to 80 systems. I mean do you think you can place 80 systems in the second half of this year.
Hi, Alex it's good to hear you hear from you in this as Jack and David is in the room with me as well so great first question.
So as we as we said in the commentary.
The BD partnerships going very well in the U S.
We're off to a later start in EMEA based on just the complications of doing business in EMEA with the multiple countries.
We are looking at providing more actionable guidance as we go throughout the year, we're not providing it right now Alex just because again, we just went live in January .
Alive, meaning that we literally have BD sales reps about 50 plus of them selling in the U S that we just literally trained at the end of Q4, we were at their sales meeting. It was a really great meeting. We also had a lot of extensive follow up training with them and we're often running in the first.
Two three almost three months three months now the new year I mean, we're very excited about the activity around reach and access we're making a lot more sales calls about funnel improvement and progression, we're adding more accounts to the funnel, but we're also progressing a number of deals. Thanks.
This BD partnership, but it is going to take as I said, it's going to take some time to really start getting these deals through the funnel, we restructured our sales force back in August .
Significantly downsized our salesforce. So really we were left in that transition period of training BD getting them up to speed and so forth.
We again as we go through the year in the next couple of months, we look to provide more specific guidance.
We believe again the greater growth in new account closes, we'll see will be in the in the second half of the year.
Optimistic about that for fino.
And then obviously with arc, we've got to get on market from an FDA approval standpoint, before we can significantly start marketing arc in the U S.
Yeah.
Okay that all makes sense and can you remind us again on BD I mean are they really a funnel driver at the end of the day and it's still up to accelerates and your sales team to close the deal once you get those inbound inquiries or you know how is the handoff between BT and the accelerating go and ultimately how the compensation works with.
Between the sales teams Yeah, let me I'll turn it over to Dave I'll turn it over to David to answer that you know obviously.
<unk> taken over the reins from Steve as the CFO , but prior to David stepping into this role he's literally his life has been focused on a successful integration with BD. So he has been very much down into the weeds on all of these topics and again. Good. Good question from you is is basically how does the sales process work David.
And I'll, let you go ahead and perfect. Yeah. Thank you Alex as Jack mentioned in his prepared remarks, it's about reach and effectiveness. So reach would be just bringing folks into the funnel for us, but we spent the better half of the fourth quarter very much focused on integrating our sales process with their sales process. So that's the roles and responsibilities by sales stage.
You should imagine that we're very good at certain aspects of the sale and that would be you know driving clinical value through rapid susceptibility, but also BD has a very thorough our relationship with the hospital labs and all the key stakeholders and so it is an amalgamation of bringing our our specialties together. So by no means is it.
<unk> feeding us opportunities they are a true partner in this process and so the BD wrap and the accelerate wrap are working in tandem to identify key stakeholders by stage to drive more effective closes as we move these new opportunities through the funnel and to close does that answer your question.
Yes, it does.
Yeah. It does and then I guess, maybe the last question I'll ask Karen to kind of a multi parter again here, but you know the big elephant in the room here is the is the debt overhang. We've reached the end of the forbearance or the original forebears extension can you can you give us what the new extension date on the notes is what the kind of the terms around that expense.
And then just bigger picture I mean, ultimately how to resolve this what additional details can you give for whether it be shareholders our debt holders.
Around getting this resolved in a good way for the company and ultimately the stakeholders.
Yes, absolutely expected. The question so first of all I totally recognize it for our shareholders.
For also our employees and also the Debtholders I mean this is this is the big question.
And I would say this first and foremost we're working day and night to come up with a good solution here. We're active in active dialog with an AD hoc group of debtholders about 85% of the overall debtholders are represented represented in this AD hoc group.
The reason why we're extending the forbearance again are from what we did is the reason why we're extending it is because we are in active dialogue in productive dialogue you I can share that the forbearance extension is through April 5th.
That is I would also say that's extended beyond that to April 14th right now, but we've extended it to April 5th.
We will come to resolution on this.
In some way and again, we are optimistic at this point that you know hopefully it will be a consensual agreement that we come to and again, we're working literally day and night on resolving this and I can say in the next couple of weeks I'm confident that we'll have an update on where we're at in the form of an 8-K.
Lee.
Okay I appreciate the update thank you.
Thank you.
The next question is from Andrew Brachman with William Blair. Please go ahead.
Hey, guys. This is Justin on for Andrew.
Maybe just a question about current access levels. Obviously this has been mentioned many times in the past that that Merck has affected your ability to sell there but.
Water access levels like now.
As the pandemic.
Aided away enough, where you're not seeing any more impediments to selling in labs, and reaching out to a lab directors.
Yeah, Hi, Dustin.
So one of the one of the metrics that we're tracking frankly every week. We look at this every Monday morning, as access number of sales calls we've made both in person sales calls that we've made on zoom that are remote.
And we're looking at this across the entire for now U S organization will be doing it in EMEA as well and I would say without a doubt the amount of access that we're getting both from our in person and on zoom type call meetings is.
Exponentially greater than wherever youre at over the past year.
So it is absolutely playing out the way we expected it to which is with Bd's access and reach.
They have over 50 people selling in the U S. And then a lot of marketing and support folks as well.
One factor, but I would say that hospitals are continuing to.
The access in hospitals are continuing to improve as well and then the open positions and open head count within hospitals is also starting to I would say, maybe settle down a little bit, but it's still that's still a bit problematic as well the turnover that health care is dealing with is real.
And it is something Thats the challenge, but overall very optimistic about the reach from where we were at always looking to do better and we're tracking that against literally every week I have an eight a M call to look at these metrics.
Understood.
And related to that how are you guys thinking about hospital capex expectations over the next few months and year, and then kind of related to that.
Do you see any potential benefit from BARDA.
Happening in the next year or two and if so what would be the magnitude of that potentially.
Yes, great you've got two questions there I'm going to let David take the Capex.
<unk> care question, and then ill address BARDA.
Yes. Thank you for the question. So when it comes to the hospital Capex that I have is obviously has been a bit of a rocky road since since COVID-19, but I think the one thing that we're very excited to see is the BD reach into the hospital has created an opportunity for us to access more capital just in terms of the size and the scope of the deals they're dealing with.
The institution.
Prior to the partnership we were one off Standalone acquisition and with that we're now being part of larger hospital considerations and so at the end of the day, we did see.
The less capital last year than we're used to but we're looking forward to it seemed that the capabilities that BD has in terms of contracting.
Going forward so.
When it comes to the hospital there is capital that's just very finite how they're spending it and they tend to be on larger products and there is no better partner than BD with their total lab automation and we fit right in the center of that with Pheno in arc.
And then.
And then duston as a follow up to your second part of your question, which is BARDA.
As a reminder, we still have an application in with BARDA. That's still active we recently submitted this over.
Over the last months or so have not heard back from BARDA and then I would also remind everyone that the problem of anti microbial resistance continues to be.
The much larger pandemic globally, it's regularly now seen and written written about by CDC BARDA.
BARDA, it's still a major initiative for BARDA and globally. This is still a major problem in health care and the lives of people globally.
Needless to say its still priority in the U S. Its still priority for BARDA and while we're not counting on BARDA from a.
<unk> standpoint in our financial planning models it is something that.
It is still possibility for us we're still pursuing.
Okay understood and then lastly, just some more specifics on the BD deal.
I'm wondering how your products fit in with the existing BD Phoenix system and then.
More broadly how are you guys thinking about competition now that you're partnered with BD.
Again, some of the other existing players on the market.
Okay. So so great great questions. So first question is around Phoenix and just for everybody's.
Knowledge Phoenix as a BD platform that a very successful platform for becton Dickinson, it's a platform that it actually produces susceptibility results.
Through basically isolates it does not do positive blood like Pheno does and it's not considered a rapid susceptibility system, okay. So with that.
Pheno is a true complement.
To Phoenix in a big way and the way. This is is that for rapid susceptibility testing in positive blood culture.
It's.
It's really the choices Pheno you can run I'd.
Asps on one platform you could run another I'd and run a S. T. Only on Pheno and then for the workflow of customers that have Phoenix as well for those isolated colonies, where they need to run susceptibility. They would just run those on the pheno on the Phoenix platform sorry on the fee.
<unk> platform and so it's really a it's not duplicative, it's actually additive and it's a it's really as David mentioned in his earlier comments, it's one of the selling effectiveness opportunities where it allows IBD rep to really kind of work with their Phoenix customers, our new <unk>.
Opportunities on Phoenix and bring in Fino together as a solution that would really be a total solution for all susceptibility testing and then moving forward.
You know down the road wave will be that competitor to our Phoenix, because wave will have the ability to offer both.
Susceptibility testing in an isolated format colony, but also in positive blood, both together and in that situation, that's where there's going to be a competitive situation with Phoenix, but again, that's our next generation platform.
BD is very involved in that platform by the way and we are doing regular innovation updates.
I think you had a second question and I'm totally emerging competition Oh, yes. Thank you David the second question was around emerging competition.
As expected, it's not a surprise this market has.
Becoming more crowded with competitors and I think it's.
It's a resounding indication of why this is a much underserved need in health care to provide rapid susceptibility testing.
For sepsis patients.
For the reasons of anti microbial resistance that I stated and so with that theres more and more competitors emerging.
We believe we are well suited very well suited with BD as a partnership to compete with not only a competition of today, but the emerging competitors.
Our our total solution of rapid I'd.
S T on fino.
With our ASP only solution for those customers that want an ASP only platform.
Working with BD on bundling opportunities in bringing total solutions together with backpack and Phoenix and fee no. It's a great total solution opportunity and then in Europe , not yet in the U S in EMEA.
<unk> got arc as well.
That's a great opportunity to.
To optimize workflow and throughput four idea on on a multi platforms and then follow that up with <unk>.
Pheno in ASD susceptibility.
Again, we believe we have multiple options for customers, we give customers flexibility and then with BD. It's a just a tremendous complement to their total solutions that they're selling.
One last thing I would mention that is I think an important mentioned here I mentioned it in the prepared remarks, but.
BD and accelerate we've jointly collaborated on a lot of things over the past quarter training sales alignment pricing models et cetera, et cetera, but one of the really exciting work streams that I was a part of was the bloodstream infection.
Workflow solution that was spearheaded by Bd's global marketing folks in our team and really it lays out very very clearly the benefits of looking at blood stream infections in a holistic manner from sample collection, all the way through to rapid.
<unk> ability testing on Pheno.
This is something that if it is not yet will be available on <unk> website.
It will be showcased at Akhmed next month in Copenhagen, Denmark, It will be part of their overall pitch and strategy at the <unk> Conference, which is the largest global microbiology conference in the world.
That will be that will be showcased there and clearly pheno will be there in arc will be there as well, which is a big big part of this bloodstream infection strategy for BD.
Duston did we answer all your questions do you have any follow up questions.
No, yes, it off and that was great and that's it for us thanks for taking our questions.
Great.
Thank you Dustin and Gary are those all the questions for today, yes, Sir there are no further questions. Okay. Thank you.
So.
In summary.
First of all.
I want to welcome David patients to the leadership team of accelerate as our new CFO here as you heard today David's wasted no time in jumping in he's been deep into all aspects of our business from.
Many aspects of finance, but all the way through in the commercial business and then obviously the BD integration. So we're thrilled to have him onboard and thanks, Steve again for his tremendous contributions over the past decade at accelerate.
I want to remind you of.
Three important strategic priorities as we close out.
Very near term is the financial strength and stability of accelerate.
And I just rest assured want everyone to know that were working day and night to solve our debt overhang.
Issue.
With the current debt holders, we expect in short term to have a resolution that will be able to clearly communicate to all shareholders and investors.
And more to come on that but rest assured we are in good faith negotiations currently and we expect them to continue and lead to a productive and positive outcome.
The second thing I would say that I know investors shareholders are wanting more information on is how are things going with BD. How is this producing market growth opportunities how is it producing new placements new deals.
Rest assured that is another item that we are working on hard everyday.
We're up and running we're active in the U S. We're coming along in EMEA.
And we again, we expect closings to be more towards the back half of the year, but we will and do expect to provide more detailed.
Metrics and update on our progress, but overall going very well and what a great partner that we have in BD and it's a true complement our solutions or just the total complement for microbiology and.
And susceptibility testing globally.
And then the last thing that we will continue to update on that is extremely exciting is our next generation platform wave as we drive innovation.
And also what I didn't talk much about today is arc and really continuing to move arc forward as we work with the FDA to get arc on market in the U S.
<unk> is an exciting platform that will really change the financial dynamics for accelerate.
Because of the cost of goods sold.
From a market standpoint, it's going to open up an entirely new segment of the market for us that high volume low acuity market in susceptibility testing thats focused on isolate <unk>.
Samples.
But we will also be backing that up with you.
Our legacy system, our legacy solutions and positive blood cultures as well so it will be an integrated platform. We're looking at pre clinical readouts at the end of the year in Q4, we're looking at starting clinical trials sometime thereafter, and again it will be.
An exciting leap forward for accelerate as we continue to move the needle in this space so with that.
I will bring this call to a close as I mentioned in my remarks, if you would like further dialogue or have questions.
Please go to the website and request a meeting or asked those questions and David and I will we will certainly respond.
In a.
In a short short order. So thank you very much and I hope everyone has a great day bye bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Okay.
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