Cue Health Inc. Q1 2023 Earnings Call

Speaker 3: Before we get started, let me begin by reminding you that we may be 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 future prospects, as well as the impact of the COVID-19 pandemic.

Speaker 3: These statements are subject to risks, uncertainties, assumptions, and other factors that could cause actual results to differ materially from those described.

Speaker 3: 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 the assumptions and beliefs as of the date they are made.

Speaker 3: and the company disclaimed any obligations to update these statements except by required by law. Addiction on today's call, non- GAAP financial measures will be used. Reconciliation between GAP and non- GAAP financial measures are included in our earnings release. Finally, I would like to mention that the press release and recording of this call will be available on the investment.

Speaker 4: and we ended the quarter with $178 million of cash on hand.

Speaker 4: While these results are predominantly from our COVID-19 product, we are making significant progress in our strategic plan to improve the way healthcare is delivered with diagnostic-enabled care at the heart of everything we do.

Speaker 4: I believe we are well positioned for future growth, but realistic that today, here's an in-between period. We are in-between the success we saw from deploying our initial COVID product and the success that we believe will come from our expanded product offering and the execution of our unique flywheel opportunity.

Speaker 4: which we believe will return us to growth in the second half of the year. We have largely completed the significant investment that will power our future growth and innovation and at-home and point-of-care diagnostics. Namely, our $250 million capital expenditures to build up our automated manufacturing and infrastructure.

Speaker 4: and the $200 million we spent on R&D over the last two years to deliver major progress on a pipeline and venue expansion for a core QHealth monitoring system and to build our digital capability. Additionally, our investments in expanding the Q Integrated Care Platform have resulted in new protocol lines to enable telemedicine.

Speaker 4: lab-based testing and most recently an expanding universe of treatment capabilities to the launch of Q-formacy.

Speaker 4: Now as it worked towards regulatory approval on the test we've already submitted and finished clinical studies on the final few new tests as its first major R&D push, a key focus is on cash preservation given the macro environment.

Speaker 4: To that end, we announced last quarter we made roughly $100 million in annualized cuts to our spend.

Speaker 4: In the last week, we announced an additional $50 million in expected annualized cost savings. This combined $150 million in annualized cost savings will allow Q to weather the macro climate to reap the benefits of our investments. As our plan tests come out of the pipeline and we gain commercial traction on the Q integrated care platform products of QCare, QLab and Q Pharmacy.

Speaker 4: For menu expansion on the Q-Health monitoring system, we continue to make significant progress on comprehensive respiratory care offerings.

Speaker 4: We're happy to share that we submitted our QRSP molecular test for a full de novo submission for at-home endpoint-of-care use.

Speaker 4: We remain in productive conversations with the FDA for our flu plus COVID multiplex test, our flu de novo.

Speaker 4: and COVID-19 Novos emissions.

Speaker 4: We do expect a decision on our COVID-19 Novos soon.

Speaker 4: If I continue to engage with the FDA for our Fulu Plus COVID Multi-Black, and are hopeful that we'll have this test authorized before the beginning of the respiratory season.

Speaker 4: Frowning out the pipeline on the respiratory side, there's made good progress on our strep-dirt molecular test and clinical studies, and do continue to expect and will submit this test to the FDA in the second half of the year.

Speaker 4: In the Sexual Health category, we announced last quarter we received FDA authorization for AMPOS's molecular test, which we expect to be in commercializing in the next quarter.

Speaker 4: Our Climidia and Ghana Rea test is making good progress in its clinical studies and we continue to expect a submission to the FDA in a second half of this year. Nothing back in reviewing our opportunity. From molecular test portfolio like the one we have developed, the point of care represents the largest near term opportunity because of the reimbursement structure.

Speaker 4: that aligns well to the cost structure of molecular tests. We believe that Q has an industry-best workflow for running tests and data flow, both of which allow for the system to flex until wide-batant band of settings, including retail pharmacies, doctors offices, urgent cares, and emergency departments.

Speaker 4: Our first major phase of the menu expansion is complete into both the respiratory and sexual health categories. We expect to have an industry-leading menu for molecular point of care testing.

Speaker 4: The point of care market for diagnostic testing is large and underserved and we believe our largest near term opportunity.

Speaker 4: Hold and flu-like symptoms are the number one reason for doctor visits in the US with sexual health, especially comedian gonorrhea, being another top reason for a visit to the doctor.

Moving on to the Q Integrated Care Platform, where we've introduced several important products and services including QCare, our telemed solution, at home diagnostic test kits, and just this week a new suite of treatment capabilities in Q Pharmacy.

Our test of treatment platform closed the virtual care loop enabling individuals to take a test from the comfort of home, consult with a clinician to discuss treatment options, and if appropriate, have medication delivered in matter of hours.

on our core QF monitoring system to complement our test cartridge capabilities and enter the broader diagnostic market, including lab-based testing. We recently launched a collection of at-home test kits for customers to access the wide variety of diagnostic panels and standalone tests that are delivered to their home and return to to allow for processing.

Customers receive test results in the QLF app, where they are presented with treatment options and have access to virtual care. We continue to build on our treatment capabilities, where we've already enabled treatments for COVID, flu, UTIs, and sexual health conditions to a growing number of other common health and wellness needs.

Q now offers convenient access to prescription medication options related to sexual health, including birth control and treatments for erectile dysfunction and herpes, as well as hair loss with more on the way.

On the web or using the QLS app, customers can consult with a clinician to get advice about their condition and, if medically indicated, receive a prescription medication delivered to them as a subscription service. This is an exciting opportunity as we believe the adoption of telehealth and medication subscriptions for common health concerns.

is a secular trend that was accelerated by the pandemic, but is now here today. While these new offerings are in the beginning stages of the launch, we are receiving positive feedback from customers. I'm proud of our efforts to evolve the Q and a greater care platform, enabling customer centric and 10 solutions that empower people to live a healthier life.

We've continued progress on our menu expansion pipeline in the launch of major new product lines within our integrated care platform for executing on our strategy and I believe we're well positioned for future growth. In the meantime, we will continue to manage our cash puttently as we progress our menu expansion through regulatory process.

and gain early traction on our new set of products. With that, I'll turn the call over to Awesome.

Thank you, Aub, and good afternoon. Since the beginning of the year, Q has announced two cost reduction programs to align the company to the current macroeconomic environment and co-protesting volumes. To expect these actions results in a total of $150 million in annualized run rate cost savings. In Q1, we already achieved approximately $100 million of...

results and Q2 guidance. Q's first quarter total revenue of $24.8 million was at the high end of our guidance range.

In the quarter, our private sector contributed 98% or $24.2 million of sales.

Public sector revenues were $0.6 million for the first quarter and total death cost sales were $22.4 million. Q1-adjusted product growth profit margin was a loss of 14%, which excludes $12 million related to a disputed charge from a manufacturing vendor.

2-1 total adjusted operating expenses were $72.9 million excluding previously announced $7.9 million restructuring charge relating to the cost reduction plan.

Sequentially, we are down 23% from Q4 operating expenses of $94.6 million, reflecting our recently announced efforts to reduce costs.

spend of $19.3 million, driven by a decrease in digital and marketing costs.

R&D expense was $44.7 million for Q1, a decrease from Q4 spend of $56.1 million, as we focus on clinical studies related to our respiratory and sexual health product offering.

The NA expends was $16.9 million during Q1 of this year, a decline from Q4 spend of $19.2 million. As a result, adjusted net income was a loss of $74.3 million or $48 cents per day to share.

Tested EBITDAQ for the first quarter was a loss of $47.6 million.

Moving to the balance sheet, we ended the first quarter with cash of $178.2 million, which was a slight improvement over the previously shared estimate reflecting progress on our cash preservation priority.

Additionally, we have $100 million secured revolving credit facility, which remains undrawn. As a reminder, QOperates would know that obligations.

Now I'd like to move to our guidance.

We believe that the market for COVID testing is settling into a seasonal respiratory pattern.

We are seeing this reflected from industry peers forecasting lower COVID deaths pull through. For Q, several of our existing contracts have shifted delivery timelines to align with the respiratory season.

As a result, we expect revenues of $8 to $10 million for the second quarter.

As you know, forecasting COVID testing demand beyond the near term is challenging. Therefore, we will continue to limit our forecast to quarterly expectations.

In summary, the company continues to deliver on its strategic plan with our Q Health Monitoring System and the integrated care platform fully launched in the market.

We believe we are on track to deliver a more comprehensive respiratory offering with COVID, flu, flu-pus COVID, multiple X and RSV tests currently with the FDF review.

We also launched QCare, QLab and QFarmacy Services in the last few months.

which should begin to contribute to the top line in the second half of the year.

In addition, we have a strong balance sheet with more than 12 months of cash on hand. While we are not giving guidance beyond Q2 revenue, I would like to provide further commentary for Q's longer-term outlook, given the state of the pandemic, our past investments in manufacturing and R&D and our expanding product offering.

For revenue, QXPEC still continue to sell our COVID-19 molecular test at volumes indicative of this stage of the pandemic.

We also anticipate the revenue from our molecular deaths available for the 2023 restriacy season will begin to contribute in the second half of the year. In addition, we expect at-home test kits, due pharmacy, queue care, and sexual health death scotages to help create a more durable top line over the midterm.

We believe that with significant foundational investments behind us, namely manufacturing bed, R&D, and digital capability, along with the recent announced cost reduction actions, and the team laser focused on execution of near-term revenue generating programs. We are well positioned to return to growth. We are well positioned to return to growth.

and expect to return to a positive adjusted EBITDA by early 2025.

With that, I would like to thank you for your attention, and I'll now turn the call over to the operator for questions.

And thank you, one moment. As a reminder to ask the question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by with Compiled Acune Arroaster and we ask that you limit yourself to one question and one follow-up. Again, that's one question and one follow-up.

So just to start, you recently launched the new pharmacy offering on the Q Health app. So should we be thinking about this pharmacy offering positioned within your overall business as another way to expand utilization of the virtual care platform? And then how do you choose what treatments are offered via the platform? Thanks. Yeah, thanks for the question. So,

We're really excited to announce, you know, earlier this week that we launched Q Pharmacy. It's a really natural growth from what we were already doing with treatment. So with COVID treatment, flu treatment, and UTI treatment as part of QCare, and it's always been our strategic vision to...

be able to provide convenient access to healthcare and to make it very accessible and digitally oriented. So, you know, this is a Q pharmacy combined with QLAB, which we launched earlier this year. And QCARE really complement the core Q health monitoring system offering.

So when you look across our customer categories, we have, you know, point of care, we have enterprise, we have public sector and D to C. The blend of these products is really helpful to provide a more comprehensive offering for really all these categories.

of the additional 50 million of incremental savings to the cost savings reduction plan that was announced in January , just between sales and marketing R&D and G&A. And when should we anticipate the associated charges of $5 million and $7 million to be recognized? Yeah, on the recent the announced...

our cost reduction goal by year end. What I would add is we're comfortable with where our cost structure is to play out our strategic plan. Do your question on when the charge will hit. It's a five to seven million dollar. That's a range. We expect that range to hit in Q2.

Okay, great. Thank you. And thank you.

And one moment for our next question.

And our next question comes from Dave Della Hunt from Goldman Sachs. Your line is now open.

Hey guys, could you please give us a little more color on the mix of point of care versus DEC enterprise and government that you're seeing?

So one way of thinking about it is really for the near term, the QL monitoring system, so that's our Q reader and the suite of molecular tests that we have which are in regulatory review, that suite of tests, that's really oriented.

model for, you know, that kind of aligns with the cost structure of molecular tests. So I think the point of care is really a good opportunity. We have a lot of infrastructure there, great lighthouse customers like, you know, Mayo Clinic and Memorial Herman, as well as having already set up commercial distribution with most...

I think one number that I think is illustrative is last year we did around 40 million in revenue for D to C. So that's the new number that we're providing.

You know, that's just to benchmark what it has been. Obviously, we're moving into a different phase where that was COVID-19 dominated. And now we have, at the turn of the year, we probably had two or three cues. Now we have 50 plus. So, the mix that's oriented for the different products.

different customer categories is going to evolve, but really in the early stages of all these new products and product lines that we've rolled out. Okay, thanks. And in point of care, any additional color on the...

types of settings where you're seeing the most demand for your product maybe.

It's a smaller clinics where it wouldn't make sense to have a higher throughput instrument.

Yeah, I mean we're in retail pharmacy, we're in urgent care, we're in emergency departments, we're in just regular outpatient clinic settings. So we have already a footprint in various types of settings and we think that long-term the advantage is that we have...

You know, we think industry best workflow from actually operating a test and we have a really good data flow so integrate with all the major EMR systems. So I think that you know once the menu is there, which is on the horizon, they...

We'll have a really competitive offering for the point of care to expand further and really grow.

really competitive offering for the point of care to expand further and really grow. Thanks.

And thank you. And if you have a question that is star 11, again, if you would like to ask a question, that is star 11 and one moment for our last question.

And our next question comes from Charles Rye from TD Cowan. Your line is now open.

Hi, thanks for, this is Lucas on for Charles, thanks for taking the question. One can ask about the...

how you see the acute care integrated platform evolving over time. If you are announced you're at home diagnostic test offering last quarter and now the pharmacy offering are there any other areas that you guys may look to expand into? Go forward or you feel like you have all the pieces in place.

And then I guess the second question would be more on the pharmacy offering. If you want to see the economics of that offering, just how you guys are revenue. Thanks.

Yes, so I think the way you framed the question is right. Structurally, we have built the major pieces for the Q-Integrated Care platform. So that's the Q-Care piece, which is TeleMed. That's the Q-Lab piece, which is the at-home test kits and those panels.

and now that's Q-Farmacy, which is the expansion of our offering. So in terms of structurally we think all the pieces are there, but what we would expect to see in terms of development is for there to be more products, more selection in each of these categories. It's also true, of course, of the Q-F monitoring system.

where we are working very actively on menu expansion. So I think the way to think about it is most the major pieces for the CUNY Grady Care Platform are there now, but the selection and the commercialization motions those are going to really evolve over time. And I'll just jump in there.

on the revenue piece. Look, we just launched QLAP, QFarmacy. We're really excited about it. We've already got it in really good customer feedback. We do think this will be very important piece for us over time. And we believe it'll contribute more meaningfully.

the year in terms of the ob-ex run rate. I think the last quarter, you mentioned somewhere around 60 million, accessing the year. If you kind of give us an update now that we've had this new restructuring. And then also, could you walk through some of the assumptions you guys are thinking about in terms of reaching?

$150 million of savings. No, we expect that to come across all PNL line items as well as CAPEX. And really, the spend we expected to keep decreasing and we achieved the full 150 by year end.

And, you know, as I mentioned before, out of the 150, about 100 we've already achieved in Q1. So that's kind of how I would think about the cadence of the cost savings over the year. In terms of our EBITDA.

As we mentioned, a lot of the costs are behind us. We have initiated this cost reduction plan. We have a lot of revenue, catalysts, upcoming. We have a lot of things in front of the FDA.

We expect to have a strap and Climedia gonorrhea in front of the FDA. So you add that all up including QLAP, your pharmacy that we just launched. So the collection of all of that along with our us being really, really focused on our cost and cash spend.

That combination is what we expect to get us to EBITDA profitability in early 2025. The last thing I would say is the way to think about our PECs and the baseline. We are really baseline aim.

our spend reduction versus Q4 2022. So that should kind of help from a modeling perspective.

All right, great. Thank you. Thank you.