Q2 2023 Cue Health Inc Earnings Call
But Greg and thank you for standing by welcome to the Q Health second quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
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Be advised that today's conference is being recorded I would now like to turn the call over to your speaker for today lot of Williams. Please go ahead.
Good afternoon, and welcome to Qs second quarter 2023 earnings Conference call.
Joining me today are you could talk chairman and Chief Executive Officer of Q Health and Awesome Javad Chief Financial Officer.
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.
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 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 obligations to us.
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 statements. Finally, I would like to mention that the press release and a recording of this call are available on the Investor Relations page of our website.
With that I would like to turn the call over to you.
Thank you Laura and thank you everyone for joining us today.
Q delivered total revenue of $10 million in the second quarter at the top end of our guidance.
We expect next quarter to have revenue in the $11 million to $13 million range. Additionally, we've reached greater than $150 million in annualized cost savings ahead of schedule. Despite aggressive cost cutting we've been able to maintain a strong pace of milestone achievements for test menu expansion and new products and services on the <unk> platform.
Which I believe will help Q returned to revenue growth.
To start I'd like to summarize our progress on our number one strategic priority test menu expansion for the Q health monitoring system.
We remain on track to have a robust respiratory care offering for the 2023 2020 for respiratory season.
In June we achieved a landmark industry milestone and we became the first company to receive it de novo authorization for a COVID-19 test.
<unk> system was thoroughly reviewed as part of Fda's process for safety and efficacy in our view. This is a very positive signal for our molecular tests emissions already under FDA review and the others we are forthcoming.
With this regulatory breakthrough we set a new standard as the first de Novo ground Ted for any home use respiratory test historically COVID-19 testing was offered under an emergency use authorization or full approval enables Q2 and continue to offer our simple to use accurate molecular tests even.
If the emergency use authorization pathway ads.
We are currently in productive conversations on our flu plus COVID-19 multiplex and Standalone RSV de Novo submission.
We remain optimistic that our flu post COVID-19 multiplex test will be authorized in time for the respiratory season later this fall.
In May we submitted a de novo application for the Q RSP molecular test for authorization at home and point of care and have already had productive interactions with the FDA around this very important test.
Rounding out our respiratory pipeline our stepped up program continues and we now expect to complete our FDA submission early in 2024.
We're often asked what the regulatory authorization of a test can turn into commercial revenue quickly or if theres a long ramp time.
I already have our automated production lines built and they are ready to produce any tests in our menu at scale as they all share the same cartridge backbone and manufacturing process.
But I want to emphasize is that we are ready to scale manufacturing and that it does not require additional capex investment as you already have roughly $200 million invested into our highly advanced manufacturing facilities.
Furthermore, on the commercial side, we have more than 300 directly contracted enterprise and provider customers public sector customers and we have distribution relationships with major health care distributors.
We have an installed base of more than a quarter million Q readers and the number one request from our customers in additional menu.
To be clear, we are manufacturing capabilities and existing customer relationships firmly in place. We think our launch of new tests will be as timely as possible.
Going further on menu expansion last week <unk> was awarded a BARDA contract to accelerate the development of a new comprehensive respiratory cartridge to detect flu and.
And RSP simultaneously. This is intended to be an over the counter and point of care tests that will run on the same key reader that is already has a large installed base.
Q has been working with BARDA for over five years as they previously supported the development of our Standalone flu and Covid molecular test under this new contract BARDA will provide funding of approximately $28 million to accelerate the development validation and regulatory authorization of an RSV flu and Covid combination test our initial.
Our objective is to have as multiplex available for the 2020 for respiratory season.
Moving to acute menu expansion efforts in our sexual health category Q Amdocs molecular test is already authorized for the point of care. We believe this authorization is noteworthy as it is the first non Covid test approved on the Q platform and utilized a sample collection method that is different from our Covid test.
Our chlamydia gonorrhea tests continue to progress with the goal of FDA submission in the fourth quarter of this year as planned.
Our sexual health menu will be a very important complement to our respiratory menu.
Now I will shift from the expansion of the QF monitoring system CQ integrated care platform, where we've introduced a number of new products and services like to cure, our telematic solution Q lab or at home diagnostic test kits in Q pharmacy.
A suite of prescription and over the counter treatments for common health and wellness concerns.
<unk> is our lineup at home test kit customers can order a variety of diagnostic panels and Standalone test that are delivered to their homes and returned to lab for processing.
Q App includes test for key heart health markers sexual health panels, and horn panels of various types.
Also are available in the Q health, App, where customers can seamlessly access virtual care and received prescription medication in consultation with a clinician.
<unk> complements our test cartridge capability and enables us to provide more value to our customers and access more of the available market for diagnostic data.
During the second quarter, we introduced Q pharmacy to provide customers with convenient access to lifestyle treatments and comment prescription medications.
Perform now treat respiratory infections, like COVID-19 and flu to UTI to sexually transmitted infections herpes and provides for birth control and treatments for common health conditions, such as erectile dysfunction.
Customers consult with the clinician to the Ql's app for advice about their condition and if medical indicated receive a prescription medication delivered to them or picked up from their local pharmacy.
Now that we have fully launched the building blocks of the integrated care platform, adding new tests and treatments or combined testing and treatment programs is a very small incremental effort.
While Austin will review our financial performance in detail I am proud of how we've been executing with financial discipline. We ended the quarter with what we view as a strong balance sheet, including $129 million of cash on hand, and can you continue to operate with no debt.
We also delivered on our annualized run rate cost savings goal of $150 million ahead of original expectations.
We plan to continue to manage our cash prudently as we progress through the regulatory process and gain commercial traction on our new set of diagnostic tests I believe that the continued progress on our menu expansion and the launch of new products within our integrated care platform well positions us for growth in the coming quarters I am proud of the team's hard work.
Which has enabled customer centric end to end solutions that empower people to live their healthiest lives.
With that I'll turn the call over to awesome.
Thank you and good afternoon.
Earlier this year, we announced our intention to reduce our costs by $150 million on an.
<unk> basis.
And as of Q2, just two quarters into the year, we have now achieved that savings target.
We are comfortable that this lower rate of spend is sufficient for us to execute our highest priorities, including regulatory approval and commercialization of our new molecular guests key development programs and market traction with key pharmacy in <unk> lab.
As a result of these cost reduction efforts strong execution of our development milestones and the expected contribution from new products and services I believe that we have more than 12 months of cash on hand to run our operations.
Now, let's walk through our financial results and Q3 guidance.
So in the second quarter total revenue of $9 $9 million.
It was at the high end of our guidance range of 8 million to $10 million.
In the quarter, our private sector contributed 76% or seven $6 million of sales.
Public sector revenues were $2 3 million for the second quarter and total gas carpet sales were $7 3 million.
Q2 product gross profit was a loss of $21 8 million.
Impacted by lower manufacturing volumes, and an $11 $7 million write down of excess inventory.
Q2 total adjusted operating expenses were $59 3 million.
Excluding the previously announced $6 6 million restructuring charge relating to our cost reduction plan.
Sequentially operating expenses decreased by 19% from the first quarter operating expenses of $72 9 million.
And Q2, adjusted Opex was down almost 40% from Q4 2022, driven by our cost reduction efforts.
Sales and marketing expenses were $8 1 million in the second quarter, a decrease of 53% from Q2 2022, driven by a decrease in digital and marketing costs.
R&D expenses were $36 5 million for Q2, a decrease of 17% from $44 million of spend in Q2 2022, as we focus on clinical studies related to our expert jewelry and sexual health product offering.
G&A expenses were $14 7 million during Q2 of this year a decline of 42% from Q2 2022 spend of $25 4 million.
As a result, adjusted net income was a loss of $77 2 million or <unk> 51 per diluted share and adjusted EBITDA for the second quarter was a loss of $53 1 million.
Moving to the balance sheet, we ended the second quarter with cash of $128 6 million.
And no outstanding debt, reflecting a slower cash utilization rate in the second quarter versus Q1.
Looking ahead, we expect our cash burn to decline in each of the next two quarters.
Now I'd like to move onto our guidance.
While many of our industrial peers expect COVID-19 testing volumes to be down quarter over quarter, we expect revenues of $11 million to $13 million for the third quarter growing double digits from Q2.
As you May know the vast majority of our revenue is driven by Covid testing demand.
Forecasting this demand beyond the near term is challenging definitely will continue to limit our forecast quarterly expectations.
As a reminder, today you operate with no debt and we have a healthy balance sheet with $129 million of cash on hand.
Even with lower topline revenue in the second quarter, a quarterly cash utilization decreased by over 20% and we achieved our savings goal of $115 million.
Annualized cost reductions substantially reducing our breakeven point.
Additionally, we expect a near term catalyst.
Regulatory submissions and new product offerings through Q lapping Q pharmacy to contribute to the growth of our topline in the near term.
Finally, we are always evaluating financing opportunities and options to bolster our cash position and further fuel our growth.
In summary, I am pleased with the progress being made against our 2023 priorities of gas menu expansion, new product launches on our integrated care platform and strong financial discipline.
Looking ahead, we expect to have several molecular tests on the market in 2024, strengthening our expectations of 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.
Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone if you would like to remove yourself from the queue placed are one one again.
One moment for questions and please wait for your name to be announced before you proceed with your question.
The first question today is coming from Jay Haas Savant of Morgan Stanley . Your line is open.
Hi. Thank you this is Matt Zinn Patrick on for Tahira.
Congrats on the quarter.
Just a quick question regarding the BARDA contract.
I was wondering.
If you could share some of the economics associated with the contract and how long the contract spans four if it's multiple years and how you anticipate that flowing through the P&L.
Yeah. Thanks for the question, we're very excited about being awarded this new $28 million contract with BARDA.
We do think that the market is heading towards a multiplex.
Test type of market and we think that our flu covet RSV combination test will be.
Very strong entrant into the market. Our goal is to have this test available in the 'twenty four respiratory season.
And this builds on the submissions that we've already put in place with the FDA. So we've already submitted for fluid post COVID-19 and for RSV.
And then this brings everything together.
Another really important fact of this is that it will run on the same cartridge backbone and the same reader system. So it get to.
The advantage of plugging into our existing installed base.
And to jump in there on the P&L impact.
The spend will it show up on the R&D line item, but remember our R&D line item, where we have it at Q2 after the reductions we've taken we expect that line item to stay relatively steady or constant over the next subsequent quarters.
And then the reimbursement for the spend would show up in revenue.
Got it Okay. That's super helpful.
And Dan.
Among the non COVID-19 costs that you've been approved or are.
I expect it to be approved over the next 12 months.
What do you think is the greatest opportunity to begin to drive non COVID-19 testing volumes in your mind.
Considering the size of the opportunity, but from your perspective.
Where you may get a rapid adoption given your current install base.
We think we cover it as a very big opportunity for US and then we think RSP amplifies that makes it a completely comprehensive.
Offering.
We also think that with media gonorrhea on the horizon.
That's a very important complement.
Two the respiratory menu sexual health and respiratory really complement each other one driven more seasonal than the other.
So there.
Expanded.
<unk>.
The <unk> platform can be adopted in both in the home and in the point of care setting so.
Think that compliments of those two things so chlamydia gonorrhea Fukuoka in RSV UBB.
It could be really important tests.
And then to add to that.
You just mentioned they have.
Active reimbursement rates, especially when you compare it to Covid and remember. These are these tests are made made by Q on the same manufacturing line. So.
We expect these to be from a unit margin perspective.
Attractive and Thats.
Helped improve our gross margin profile as well.
Okay, perfect and then if I could just.
Squeeze in one more.
Following the receivables purchase agreement with East West Bank of up to 20 million can you.
Maybe talk about any other financing options you're working <unk>.
To continue to strengthen up the balance sheet.
And if you could help us think a bit about how we should be.
Our current cash runway.
So we ended the quarter with about $130 million of cash.
With no debt.
Achieved $115 million of annualized savings.
Head of plan.
And as we think about cash utilization, we noted that our cash utilization came down in Q2 versus Q1, and we expect that trend to continue and.
Coming quarters as well not only that we have revenue catalyst the test menu expansion that we've been talking about as well as the expectation of Q lab in Q pharmacy really contributing to that top line. So the combination of those factors.
Expect to have.
More than 12 months of gas and secondly, we do okay.
Confidence continues to build and strengthen on our EBITDA profitability.
For Q1, 2025, and as we think about <unk>.
Non saying look as you would expect.
It's something we always do evaluate.
And we will continue to do so.
Perfect. Thanks, so much for the time.
Thank you for your question one moment, while we get ready for the next question is.
And our next question will be coming from Dave Delahunt.
I've known these guys. Your line is open.
Hey, guys.
So it sounds like you expect the flu and Covid combination test to be ready for <unk>.
Coming virus season.
Could you tell us about what you expect the mix of single versus combination test to be.
Yes, I mean, we all.
Obviously have contracts in place already for Covid.
Cineplex task and we do have a healthy installed base.
That's receptive to that test, but we do think that in general the market is going to move towards multiplex tests and so we are excited that we have.
Path there with Covid in the near term and then.
Luke over to RSV in the long term as a single test, we think thats going to be.
A very important test for us as well so.
Both in the near term and the longer term, we are trending towards where we think the market really wants to go which is towards more information.
And to <unk>, when you have symptoms and accomplished.
Completely then you're really just wanted to know what it is and then get the right treatment for that.
No.
We do think that thats, the trend and Thats where were heading.
And as you think about it.
The second half of the year, we've been saying for a while now that we expect to return to growth in the second half of the year end.
And that's exactly what our guide would suggest.
And we think about the mix of non COVID-19 versus skull that we havent really split that out in the past but.
We have been saying and we continue to believe that non COVID-19 revenue.
Small in Q3, and then grow into Q4 and that will really be a combination.
Look all of it and then increased traction and momentum on <unk> pharmacy.
Got it thanks.
And could you help us think about the incremental value of adding RSV.
Flu COVID-19.
<unk> Plex.
Is there much of a price difference there.
We think that the utility of fully covered RSV or an RFP standalone is very high a lot of people became very acutely aware of RSP last year.
It.
It was quite a significant public health burden. It is the number one cause of hospitalizations in young children and it is a significant cause of hospitalizations.
Adults over 65, so it's a really big public health problem. In addition to flu and Covid.
And right now there is a rising tide of awareness around RSV as there have been some activity around treatments and vaccines that have recently been approved by the FDA.
In recognition of the public health importance, it's top of mind right now for both consumers and pediatricians and folks that and treat elderly adult. So we think it is a very important addition to the to the menu.
Okay.
Got it thanks keep up the good work.
Thank you.
One moment for our next question.
As a reminder, if you would like to ask a question. Please press star one on your telephone.
Our next question will be coming from Charles Rocky.
Of TD.
Colin Your line is open.
Yes, thanks for taking the questions.
Maybe just to follow up in the quarter do you have a breakdown between.
How many tests were.
We're done.
At a point of care.
In a clinic or a physician's office versus.
Done at home.
By consumers.
Hi, Charles.
Let me think about the quarter.
We don't we don't typically break out.
Yes between the different customer segments I think broadly.
Customer segments of public sector private sector, and then within private we have enterprise direct to consumer and provider.
On the direct to consumer we've historically spoken about them, having about 12% of our installed base, which is a good proxy for how you think about direct to consumer revenue in totality, but the other sectors.
We haven't broken out.
At this point.
Okay.
I ask that because.
Because.
You have.
You haven't any tests approved for over the counter and if you think about the opportunity there.
I was just thinking about like what are kind of some of the strategies that you're thinking about because I know.
At the start it was really sort of an employer driven model to.
To give the readers to their employees and then obviously.
So you take an order.
The test themselves.
And when the expansion become it would open up a new test menu.
But if we think about.
Uh huh.
Particularly respiratory tests.
Like I'm sick I'd go to the pharmacy I want to get a test.
Is there a strategy to think about how to make leaders available more direct to consumers.
Versus going online to the site to order and subscription package, but.
I could go to like a Walgreens and just buy a reader.
Can you talk us through like how are you thinking about that because at 12%.
Great.
Clearly thats grown in this last year.
But particularly as we come into the respiratory season, and if you can get these other tests out is there any thought to trying to accelerate.
The user base because that would be.
I think at this point it seems like.
A bigger opportunity or to really accelerate sort of adoption of these tests.
So.
I think one of the things that's really important about our system is that it.
Molec, a molecular test and test and yet it utilizes.
Yes, it's very easy to use it's actually easier to use than an antigen test, but it gives you the accuracy of molecular tests and the reader itself.
Impaired to other offerings in the point of care other readers.
Yes.
Much less.
Expensive option so.
We agree that.
Lowering the barrier to adoption.
For the reader is a really important piece because we've seen a lot of good reordering.
From every affirmed from customers, who adopt the reader and start to use the platform. So it's a very important point that you are making which is you can expand distribution by lowering barrier to entry on the reader.
And we certainly look at retail opportunities and have been.
The enterprise option.
The ability to enter into the home through the enterprise would be the BTC has been a very important part of our business and will continue to be well.
So.
If you look at the proportion of tests that are running the home versus point of care I mean, it's going to get skewed as a result of the fact that not only the DTC, but you have <unk>, that's fueling Houston hub.
And on the provider side, there is just a good opportunity there as well because like I said compared to the other offerings.
Reader.
The barrier to entry is very low and yet you get a much easier test to us. So the fact that we originally designed to test.
This platform for consumers give us a lot of advantages.
Both the home setting of course, but also on the point of care.
Ultimately in the point of care, they want clinicians and nurses they want to be able to run tests very simply very easily and be able to deliver that result to the patient and also to be reimbursed for it and so we think that from the perspective of <unk>.
And consumer are benefiting from the core design of the product, which is to make it sort of consumer grade, which is really the highest standard in.
From an FDA or from a regulatory perspective, because it means anybody can use it.
And so we.
Fairly good about the opportunity before us and the consumer side and the point of care and we will continue to look at options to expand our retail distribution I will note that we are in retail pharmacies now.
And we are also in hospitals, I mean, I'll throw in homes and I think the real unique.
Sort of aspect of Q versus other platforms.
Okay I appreciate that maybe they're just talking about sort of the enterprise.
Employer market can you talk about sort of the.
Where we are in sort of the selling season.
For next year, and I don't know that you've touched on it in recent quarters, but.
Uh huh.
Any kind of notable new signings of employers signing up for this.
The 10 million, obviously, that's just I think the person.
People are perceiving covered right now, but obviously with the flu and RSV coming back and expect to come back in the fall just curious on sort of what the interest level from new employers to sign up.
Because when we look at the over quarter million readers.
That number has been growing very quickly for a while.
No it's kind of slowed a little bit just curious on what the number of new accounts that you've been adding recently in any kind of color around that would be great. Thanks.
As we look at the Covid market in general and it's been it's a very dynamic time in the public health emergency and.
Ended earlier this year and people are just really digging out from the whole pandemic them altogether and so it is.
It is a.
Sort of a transition moment for the market that being said, we do think that.
There is a large market still for respiratory testing generally not just for Covid and we think that we are on trend with that by.
Introducing a multiplex option for flu Covid and then also with RSV added onto that.
So we do think that this is where the market's heading we think we have the most compelling offering but of course sign.
Signing new contracts and et cetera.
That's going to be a function of regulatory approvals for these compelling new products. So that's why we really.
Do you expect more revenue and growth from.
These new products because that's what the customers are asking for and we think thats going to be a really significant factor in being able to expand.
Our installed base and in a number of accounts.
Is that the message that you're hearing.
Customers that are interested in signing up for their employees, but.
Hey.
They are waiting till the test menu does expanding and I guess the question is is just having the flu COVID-19 plus standalone RSV.
Is that a critical mass at least to get the ball rolling again.
Do you think we will need to wait until early next year, we'll get more of the sexual health tests as well to really accelerate sort of the new logos.
We do think that covenant and RSP are the really important set for more.
Penetration in the near term.
Sexual health is a little bit of a different.
Customer type, it's more point of care more sexual health clinic.
In urgent care to just open it up but if youre talking about enterprise.
Specifically, that's more of a interest in flu RSV set.
And also do you see is really aligned with DTC and public sector.
Are very aligned with our respiratory and sexual health so.
Second of all it plays a very important role but in terms of when we are talking about <unk> I think we're really talking more about respiratory.
This is something that important end up paying for any ways in some way or another because people. They are employees at the end of <unk>.
Time up for arc and appointed urgent care at the end up getting a test anyway and that usually for self insured employers.
They're paying for that task that lab test at a higher rate, it's more expensive because effective because it's slower.
And you can't treat off it is easily so we think that.
The opportunity on.
The opportunity long term is really there with enterprise as well.
Now what we have introduces with Q app.
We can complement the available test today.
With 14 additional panels that give you all sorts of other information that's really important.
Yes, no that makes sense, sorry, if I could just ask one last question here.
You talked about productive conversations with FDA.
Are you.
Are you in the commentary.
They have they were giving you like questions have you responded to them, maybe just give an update where we are in the commentary.
With FDA.
Like where we are in terms of the clock on their response time.
Yes so.
Copa de Novo was the really significant moment for us and that's because it gave us.
The validation from the regulatory agency on the safety and efficacy of the platform from a reader and cartridge backbone perspective, meaning that what we're going for in each new indication. We don't have to re validate the reader in the cartridge backed by its really about the incremental chemistry changes and the clinical data that we were able to generate.
For those new applications, so that that makes a really big difference.
First of all and with regards to the dialog state we're definitely in dialogue on flu <unk>, RSV and Thats, where we get that's where we get the confidence that we have in terms of filling Mike will have blue covered for this respiratory season with RSV following on to that.
And.
I think it's also a strong indication with our BARDA contract and where Thats going after we got our Covid de Novo.
To really bring all these things together into one single test flu.
Blue coat in RSV.
No.
We're really making good progress across the board on this and specifically we know how important the regulatory pieces and we feel really strong that the COVID-19 was a strong signal and we're going to.
Be able to bring new tests to market.
In part because of that.
Great I appreciate all the comments thanks.
Thank you.
This does conclude.
This does conclude the conference call for today. Thank you all for joining.
You may now disconnect and everyone have a great evening.
Okay.
[music].
Okay.