Q2 2019 Earnings Call
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Today Monday August 15, 2019 at 130, P.M. Pacific time, and will be available on the investors section.
Jan likes website at Www Dot Genmark VX dot com.
I would now like to turn the meeting over to Leigh Salvo.
Thanks, Laurie and thank you all very much for joining us today before we begin I would like to inform you that certain statements made by Genmark. During the course of this call may constitute forward looking statements any statement about our expectations beliefs plans objectives assumptions for future events.
Or performance are forward looking statements.
For example statements concerning our 29, <unk> financial and operational guidance the development regulatory clearance commercialization and features of new products plans and objectives of management and market trends are all forward looking statements.
We believe these statements are based on reasonable assumptions.
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 are detailed in genmark filings with the FCC.
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I'd now like to turn the conference call over to handing asrani.
As CEO of Genmark Annie Thank you Lisa and good afternoon, everyone. Joining me today is our Chief operating Officer, Scott Mendota, and our Chief Financial Officer Johnny.
In the second quarter, we delivered strong commercial results and increased operational efficiency, while also continuing to advance innovation and future product development.
The sustained strength, we see in our fundamentals combined with a growing market opportunity for Eplex give us continued confidence in our business outlook and the opportunity to raise our twin T. 19 gross margin guidance to the range of 31% to 33% for the full year.
I'd like to take the next few minutes to review, our second quarter performance and recent business developments.
Scott will then provide an update on our key operational initiatives and the progress we've made during the quarter and finally, Johnny we're wrap up with additional details about our Q2 financial results and 2019 guidance. After these prepared remarks, we will open the call for questions.
So beginning with revenue we drove another quarter of strong top line performance with total revenue of $18.4 million, representing a growth of 23% compared to prior year.
This robust post flu season resolved was largely driven by eplex revenue growth of over 70%, which is hardly indicative of the continued strong adoption of our proven eplex system in the marketplace. In fact, eplex revenue in the quarter accounted for over 65% or $12 million of total sales.
And with the recent launch of our suite of M.D.A. cleared BC I'd panels.
We are more confident than ever that we can continue to build on this momentum to drive future growth.
We believe that the combination of our best in class Eplex platform, it's the differentiated test menu and broad <unk> market adoption together with the continued strong execution of our high performance commercial teams position our business at a very exciting inflection point with a long runway for future growth.
As Scott will cover in more detail. Shortly we've also made very good progress driving manufacturing efficiencies in the quarter.
As a result, we once again saw a strong improvement in Eplex gross margin, which in turn made an important contribution to our overall second quarter gross margin of 36%.
Based on current plans and ongoing activities, we remain confident that we can achieve our target of 60% plus gross margin over the next two to three years.
On the Eplex commercialization front, we placed 45 net new Eplex systems and ended the second quarter of 2019 with a global installed base of 438, Eplex analyzers compared to 267 in Q2 2018, an increase of 64% over the prior year period.
Competitive wins in new customer side made up a significant portion of our placements both in the U.S. and international markets.
The value proposition of our Eplex system continues to resonate with customers across a wide range of health care settings and testing volumes.
With its scalable capacity and workflow efficiency.
Eplex is enabling some of the highest volume labs as well as smaller health care settings to recognize the value of near patient rapid syndromic testing, which is becoming ever more essential for the effective management of high risk patients.
A significant driver of our strong eplex placements in the second quarter was our expanded test menu, which now includes a three M.D.A. approved blood culture I'd panels.
In addition to our widely adopted to respect treat pathogen panel.
Several studies were presented at the recent HSM microbe meeting highlighting the performance patient care impact and anti microbial stewardship benefit unique to the Eplex B C D panels.
Six of our early access customers presented posters, comparing RBC I'd panels to other commercially available molecular tests.
In every case Eplex BC I'd provided broader organism identification than the competitor methods ultimately leading to more timely actionable results for more patients.
The significant impact on antibiotic stewardship was also highlighted by a customer study demonstrating that the eplex BC I'd Gram positive panel can lead to improved antibiotic stewardship intervention in 50% of patients, thus, reducing the doses of antibiotics decreasing cost and avoiding adverse side effects.
[noise] expanded eplex menu now addressing approximately 70% of the volume of Syndromic infectious disease testing in our target markets significantly enhances the value proposition of our reflects system and is generating strong incremental interest in the marketplace.
Along with driving future system placements, we expect this expanded menu to begin increasing testing volumes and corresponding revenue in the second half of the year.
In the U.S. The recent reorganization of our sales force and continued investment in commercial leadership and execution are positively driving commercial performance.
Our newly established corporate accounts team is now focused on the most strategic customer segments, including integrated delivery networks group purchasing organizations and other major account, where we see tremendous upside for both eplex system placement and menu utilization.
We are successfully building strong partnerships throughout this important customer segment, which provides a significant opportunity for widespread eplex adoption as de centralized molecular testing becomes accessible to patients across an ever broader range of health care settings.
I can measure re alignment is also creating additional bandwidth to drive sales force productivity and increase the capacity of our sales executives to expand and accelerate their says opportunities.
Outside of the U.S., our distributor partners in Europe , the Middle East and North Africa delivered solid results in the quarter. Both in terms of efflux placement and top line growth.
We're also excited about our recent entry into South Southeast Asia, and the coming opportunities in Latin America, which we expect later this year.
While the U.S. will continue to account for the vast majority of our says in the foreseeable future. We view this trend as incrementally positive to our long term growth potential.
Turning to menu expansion, our R&D teams remain focused on expanding the eplex menu and testing capabilities to address the rapidly growing multiplex molecular testing market, which has the potential to exceed two on a hub billion dollars annually over the next five years.
Our POS ahead continues to include the addition of Syndromic panels for G III and CNS infections to unlock an additional 700 million plus market opportunity.
As we have demonstrated in the past we expect to continue a cadence of delivering new panels. Every 12 to 18 months and look forward to updating you on our progress as we approach important milestones.
In summary.
As we enter the second half of 2019 I'm very encouraged by the momentum we are gaining I believe our business has reached a very exciting inflection point with a superior testing platform expanded and highly differentiated panels, a strong commercial team and consistent operational execution I'm confident that the second half of this year will demonstrate continued progress and growth in this very attractive and rapidly growing market at this point I'll turn the call over to Scott for his operational update Scott.
Thank you hany from an operational perspective, our team delivered strong results again this quarter.
First I would like to provide additional details on the key drivers of our significant gross margin improvement.
As already mentioned our gross overall gross margin for the second quarter was 36%, which is a nine percentage point improvement versus the first quarter of this year.
This significant step up on top of the strong improvement in the first quarter was primarily driven by our team's efforts to improve eplex manufacturing efficiencies and it demonstrates meaningful progress towards our gross margin goals.
As we previously communicated manufacturing yield is an important area of focus and a key to driving significant improvement in gross margin.
Our teams continue to identify evaluate and implement process improvements to reduce overall manufacturing variability and increase yield.
Some examples of these improvements include introducing additional inspection steps during the manufacturing process.
Improving quality control methodologies.
Working with our vendors to improve raw material specifications.
And continuing to refine our work instructions and technician training.
Beyond yield improvement other important contributors to gross margin improvement were additional overhead absorption along with our focus on direct labor efficiency and direct material cost reductions.
Additionally, we are also focused on several R&D initiatives to support and further enhance our strong competitive positioning.
These include menu expansion technology advancements and software functionality to sustain and enhance the differentiated value proposition of our Eplex system.
As part of these efforts we invested in various projects in the second quarter that we believe will provide tangible benefits in the future, including products and technology innovations as well as direct material and direct labor cost reductions.
This investment had a significant impact on our second quarter R&D expenses and primarily reflects the cost of Eplex consumables required to support these projects.
Our priorities remain eplex menu expansion as well as the platform and software innovation and of course, we will continue to drive manufacturing of this efficiency and Eplex gross margin improvement.
That will enable us to achieve our target of 60% plus over the next two to three years.
I'd now like to turn the call over to Jonny for a review of our financial results for the second quarter.
Thank you Scott.
I will now provide details on our second quarter 2019 financials. As previously mentioned second quarter 2019 revenue was $18.4 million up 23% versus the second quarter of 2018 with Eplex revenue growth of 70% compared to the prior year.
Sales to us customers continue to account for the vast majority of our revenue.
The average annuity per Eplex placement in the second quarter was $108000, which was which as anticipated was lower than the first quarter due to lesser volumes outside of flu season. However, the average annuity increased when compared to the same quarter last year. As a result of continued customer adoption of Eplex test in routine use.
We remain confident that average annual revenue per Eplex placement will be in the 135000 to $145000 range with the potential to increase in the future as customers adopt adopt additional eplex menu and our test menu continues to expand.
Second quarter gross profit was $6.6 million or 36% of revenue versus $4.4 million or 30% of revenue in the second quarter of 2018.
Importantly, overall gross margin increased in the second quarter of 2019 compared with the first quarter of 2019, despite the mix shift to higher eplex product sales relative to XT eight.
As Scott highlighted in his remarks, our focus on manufacturing improvement initiatives is driving higher you flex gross margins.
Total operating expenses were $18.5 million for the quarter, representing a decrease of $1.7 million compared to the second quarter of 2018.
This decrease is primarily the result of reduced Eplex development expenses, given the completion of RBC I'd clinical studies in the prior year.
[noise], partially offset by increased investment in the commercial function to support the BC I'd launch.
While R&D expense decreased over the prior year as Scott mentioned, we increased our investment in R&D compared to the prior quarter to support key technology and product improvement initiatives.
Our net loss per share for the second quarter of 2019 was 23 cents compared to 30 cents in the second quarter of 2018.
Moving onto the balance sheet, we ended the quarter with $41.4 million in cash and investments we used approximately 7.4 million of cash in operations during the second quarter.
Cash used in operations decreased by $3.3 million over the prior year, primarily due to a decrease in our net loss and reduced spend on capital expenditures.
In conjunction with our continued efforts to reduce cash usage through revenue growth and strengthening gross margins. We have also added additional optionality and managing our balance sheet by entering into an aftermarket equity distribution agreement or ATM.
The ATM provides us with strategic flexibility to access up to $35 million over time.
We are under no obligation to sell any shares under the ATM and any funds we choose to raise will be disclosed periodically as required in our SEC filings.
And as a reminder, our current credit facility allows for us to draw an additional $15 million later this year subject to achievement of certain milestones.
Turning to 2019 expectations, we are reiterating our previous revenue and placement guidance, including total revenue in the range of $85 million to $90 million additional eplex placements of 170 to 190 analyzers.
And an average annuity per analyzer of 135 to $145000.
We continue to expect more than half of our placements and revenue will be in the second half of the year, which is common in the diagnostics industry and takes into account. Both the addition of new Eplex RP customers throughout the year and the BC I'd launch timing.
Furthermore, as Hany mentioned, we now expect gross margin to be in the 31% to 33% range for the full year versus original guidance of 28% to 30% as a result of the progress we're making on the cost and efficient efficiency initiatives mentioned.
In spite of the additional investment Scott referred to in R&D. During the quarter. We continue to expect total operating expenses of approximately $65 million to $70 million and cash usage between 25 and $30 million.
This concludes our prepared remarks, so at this time Hani, Scott and I would like to open the call up for your questions.
Ladies and gentlemen, if you have a question at this time. Please press the star and then the number one on your Touchtone telephone.
Again, if you have a question at this time you May Press Star then the number one on your Touchtone telephone telephone.
We have a question from the line of Brian Lynch time from William Blair.
Your line is now open.
For taking the questions.
We could just start with blood culture can you talk a little bit about how their product is doing in the marketplace I know it's.
Relatively new but can you give us some idea about.
Either contribution that you've seen contribution that you expect or some metrics on accounts that are using this.
Just just some way for us to kind of understand how you're thinking about the launch and what you're thinking about for that for the second half.
Thanks, Brian .
The BC I'd launch is going very well.
We have.
Many customers either.
Evaluating and validating.
Those panels or already using them routinely and the feedback.
It has been very very strong so were pleased with how the launch is going so far.
BC I'd as I mentioned in the prepared remarks.
Drove.
Many of our placements I would say the vast majority of our placements in the second quarter and we expect the volumes and revenues to come in later in the year as we indicated already.
So we're very pleased with the progress so far.
Do you expect those accounts to also be bringing on the respiratory is well or were those wins, primarily just on blood culture.
Yes, many of our BC I'd customers either are already using our.
RP panel or.
In case of the new placements.
We anticipate that ultimately we will have.
Oil.
For panels used routinely by those customers.
We expect by year end to have somewhere between 20, and 30% of our installed base utilizing both the RP NBC I'd panels.
Okay. Thank you for that color with respect to gross margin.
I think for the first half of the year you guys were kind of in the 31 for 31 five area.
Mid point of the guidance just 32, you just came off a quarter, where you put up 36 so.
Can you talk about why the.
Well to answer that we would get that that would be a little bit conservative can you talk about some of the dynamics in Q3 and Q4 other than overhead absorption that might cause that to come down in Q3, and then spike up in Q4 are we not thinking about that correct.
Yeah, I think the only thing that you're missing Brian as the impact of mix. So as we move through the back half of the year, you're going to see Eplex revenue represent in the 70% to 80% range of total revenue because you had the idea adoption on top of the already live customers on the respiratory panel perspective.
So second quarter as Johnny mentioned was 66% of revenue as the Bucks and Thats going to step up quite a bit. So we are still making quite a bit of progress or expecting to make quite a bit of progress on eplex gross margins in the back half of the year in fact, we remain committed to exiting.
2019 on Eplex Standalone gross margins in the 30% range.
Okay. Thank you guys.
Welcome. Thank you Brian .
Your next question comes from the line of Dog Schenkel from Cowen. Your line is now open.
All right. Thank you good afternoon guys.
Just a quick follow up on that last question, if we're doing the math right and making the right logical leap.
It seems like a flex gross margin was well into the Twentys this quarter.
If we're doing this right that would seem to be a pretty notable improvement.
Really in any quarter, but especially in one where pull for actually declined sequentially due to normal seasonality.
I just wanted to see if we're in the right neighborhood and if so if there are any timing dynamics that might have temporarily boosted.
Flex gross margin or if this is.
Truly reflective of what seems to be a pretty notable improvement relative to what we've seen in the last few quarters.
Sure Doug I can handle that.
You are correct the mid 20% range would be a good way to be thinking about eplex gross margins in the second quarter significant step up from the first quarter.
On the direct the drivers of that were primarily yield and getting overall manufacturing yield into that 90% to 95% range, which we've spoken about on prior calls the team's done a great job on getting the yields stabilized up towards that level.
We still are expecting from second quarter through the end of the year that improvement on there is still opportunity to drive more gross margin from a yield perspective as well as starting to realize some of the investments we've been making on direct material cost reduction efforts. So we feel good about.
The the funnel of opportunities to continue that progression on Eplex gross margins and it is there through the remainder of the year again, just taking into consideration the mix shift.
Because we do expect eplex to be the substantial portion of our overall revenue as we exit this year.
Okay.
That's great. Thank you Scott and congrats lots of nice progress made there.
I guess I've got another follow up to one of Brian's questions.
Is it fair to say that.
At this point the impact of having BPCI basi I'd out there the full menu FDA approved in the US is clearly it's going to be on the instrument side at least at this point.
It would it be fair to say the funnel is a little bigger than it would have been without BC I'd heading into Q3.
Yes, I think Thats fair assumption to make.
Doug.
As I mentioned I think almost every one of our placements in Q2.
Included BC I'd.
Many of them in conjunction with a happy of course, but BC I'd featured with.
Every almost every placement and we have very strong funnel. It's just based on the value proposition of.
The BC I'd, how uniquely differentiated the panels are in terms of inclusivity that breadth of antibiotic resistance genes that are covered but also just the way that weve approached this area of testing.
Based on the Gram stain, so gram stain driven approach really.
Asia is making a lot of traction with our customers and were generating a lot of interest. So we expect to see BC I'd panels drive.
Placements for the foreseeable future over the next few quarters, but also the revenues and the volumes and revenues that will come with that.
It's sort of as we expected in our guidance and we can expect that to accelerate going into 2020.
Okay. That's great. Thanks, and one last one the competitive landscape seems to be evolving.
What are you seeing anything in the field that surprising you in terms of impact on pricing dynamics conversion time, the funnel or anything along those lines and presumably you feel pretty good about what you've baked into guidance for any competitive dynamics or we would have heard something about that in your prepared remarks.
Yes.
Absolutely Doug so we.
We haven't yet seen the impact of some of the new entrance the competitors that are coming into the market.
As I've said before and we discussed this before Doug.
We see this as a positive thing right. So.
Companies coming into this space and validating the the opportunity for Syndromic testing over many years to come I think is very positive. It's positive to have multiple strong companies with good solutions to help develop this market, we feel very confident in the value proposition that we have with eplex and panels in terms of workflow efficiency connectivity.
And productivity in a lab, but also the differentiated panels that were bringing to market. So we've been competing and winning and we feel good about that.
And of course, we welcome new entrance to help.
Develop this market.
Okay. Thank you again.
Thank you.
Our next question comes from the line of Tyco Peterson from JP Morgan. Your line is now open.
Hey, Thanks, I'll stick with you I'd for for one you talked about increased investments in commercial function can you just talk to where you are in building up that channel and any incremental investment you need to make in the back half of the year around BCD.
All right. So thanks tacos, yes, we have been investing in expanding our direct sales force in the us as well as a distributor partners network of distributors elsewhere in the world.
Certainly the U.S.
Continues to be the main focus and.
We intend to keep sort of adding.
10% more.
Commercial people sales executives in the us.
Over the next few years. So at this time I think we are up to the high Twentys, maybe 27 or so.
Sales executives in the U.S., we expect to leave this year with maybe 30.
In the field, and then sort of continuing to expand.
From there.
And then looking a little bit further out.
Scott for the horse, but thinking about GE.
And then TNS anything you can kind of tell us when we can do more and more particularly around G.I. into next year.
Not at this stage Tyco I mean other than look weve.
We have designed what we believe will be very good panel very differentiated panel it will cover the sort of relevant targets across.
The main viruses bacterial targets and parasites as well.
Our team is working hard to advance.
The development and making good progress with the panel and we will communicate in due course, when we're closer to relevant milestones, but we feel good about the progress of of G.
Right and then lastly on the flex pull through the utilization year over year didn't step up that much obviously sequentially you had the flu impact, but you were 108000 versus 101000, a year ago is there anything in kind of the year over year dynamics to call out I know it was a longer flu season. This year than last so maybe that's the answer but I'm just wondering if there's anything over there on a year over year comparisons on Paul.
Nothing that I can speak to its good to see that with a much bigger installed base.
We're seeing that this sort of the annuity is holding and it's pretty robust I mean, obviously it sort of depends on.
Like you said, the extent to which the flu season lasts and so on but the good news is that were seeing very robust and you will see this is an average so as you can imagine some are much higher and some are lower.
But we feel again good about the range that we provided and.
Yeah, and look forward to sort of.
Getting into this year, we don't know what the flu season is going to look like but we'll expect to see an uptick obviously in the fourth quarter.
And were any of the flex placements ex XT conversion, sorry, I just had one more.
I don't believe we had any this quarter I know last quarter was very was some something like less than 10%.
So we we have largely converted those customers who.
Wanted to move from XT eight onto Eplex.
There may be a few.
At sometime in the future fuse is sort of additional conversions, but nothing significant at all so that that's largely behind us now.
Okay. Thank you.
Thank you.
Your next question comes from the line of Derik de Bruin from Bank of America. Your line is now open.
Hi, This is Matt on for Garik today, and thank you for taking my questions.
Congrats on the quarter in that gross margin progress. So just another question there.
I just have any additional line of side where to eat snacks gross margin for the rest of the year. Thank you.
Sure Ivy.
A couple of things will continue to drive gross margin this year.
Number one is we still expect to draw up to show improvement from the manufacturing yield perspective, so that will continue to provide benefit to us in the second half on top of that we start to realize some of the.
Investments that we've made to drive down direct material and direct labor costs and then the final thing that happens quite naturally is we're starting to build for the upcoming flu season as well as VCA lead volumes are coming online and so that drives overall production volumes up and that naturally drive down overhead cost per cartridge. So those are the factors several that we control and then just volume increase as broader adoption and BJ. The adoption continued helps drive overhead cost per cartridge down.
That's helpful. Thank you and just on top of that.
One needs to happen to two reached overall g. animals over 60% in the next two three years.
You know just any additional color on what needs to happen and our pacing now that thank you.
Sure. So we expect to exit 2019, and around 30% gross margin on Eplex, the significant improvement year over year.
Already and so to get from the 30% range up to 60%.
We've mentioned before that we have a multiyear funnel of opportunities.
Specifically on direct material cost per cartridge and reducing that amount of cost per cartridge. So that will be a key driver as you move from that 30% up to 60% and that will be paced over the next couple of years as well as introducing automation and other direct labor efficiency in our manufacturing process that also.
Assist in attaining that 60% and then as I always say naturally volume and absorbing the overall infrastructure costs that we have invested in over the last two to three years that get us absorb over a much larger volume that will be a player. All are not something that we specifically are driving it will be an overall benefactor of that gets us from 30% to 60% gross margin.
Thank you and last one for me.
Any pricing comments, you know with soda.
Had line still going on.
Any update there thanks.
So this is Johnny just mentioning the you refer to the reimbursement we as a reminder, from Genmark perspective, we see very little impact of reimbursement as we are primarily inpatient focused on those critically ill patients.
But we havent seen any meaningful impact of of the reimbursement.
Thank you John It does it for me.
Your next question comes from the line of Mark Massaro from Canaccord Genuity. Your line is now open.
Hey, guys. Thanks for the questions and congrats on a good quarter.
Thank you my first question is since.
Moving might gleason over to lead corporate accounts can you just speak to how.
I recognize it's been approximately two or three months.
But can you just speak to.
The funnel that you have as it relates to corporate accounts an IDN.
And remind us how penetrated you were into some of those big systems. Prior prior to then move.
Yes, I can thank you mark.
Look as you know, we've always had a very productive.
Relationships and good agreements with some of the most sort of important strategic and corporate accounts.
In the us and we see expansion of Eplex menu now to include.
BC I'd panels for sepsis in addition to restore Rytary.
We have a better opportunity now to engage with some of the the buying groups and some of the I'd ends that we didnt necessarily have relationships with in the past of course some of the agreements that we already have in place. We're now working to add menu to expand their menu utilization by including VC I'd on those agreements.
That that basically were covering respect rytary.
Up until recently, so Mike and his team are doing a very good job with that and working now with a big funnel of opportunities across some of the key GP autos, but also IDN networks in the us and working very much in conjunction with the direct sales force the more traditional sort of account managers in the field in order to manage and drive those opportunities. So we expect that we will have some good success in this area.
Oh there.
Many more quarters to come.
Thanks Ann.
In a similar way you hired Michael Harkins to the role of SVP of sales.
Has there been any tweaks to the commercial territories and can you remind us why you thought it was appropriate to bring him in and then.
Follow up question or separate question, you seem to be growing or making a bigger push us notably.
With that your recent entry into southeast Asia.
Why is now the right time to make a bigger push.
Abroad.
Alright, so I will start with the sales force direct sales force in the U.S.
Yes, there have been some tweaks.
But that's to be expected that that's not necessarily something driven.
By changing leadership, but rather.
By us continuing to always look for ways to do better to make sure that were.
Driving the maximum results in the field.
But for sure with the addition of Mike Hopkins.
Now that my Gleason and his team are focused on the corporate account. This gives us an opportunity with.
Dedicated leadership and of course, the experience that Mike Hopkins brings to genmark to be able to drive sales force efficiency and productivity and to make sure that we're filling the funnels and executing in the field for maximum.
Performance and Thats going.
Very well so Mike has come up to speed very quickly and really he is engaged very well with his team and driving as you've just seen a strong quarter and that will be we expect that to continue in terms of.
International.
Gross were executing.
In accordance with our plan so we've.
All along intended to.
Enter.
Some additional international markets, and especially with now the availability of the BC I'd panels and really the value proposition of Eplex is further enhanced with a more expanded menu that enables us to now make.
The make the effort and the investment to enter into those additional.
Markets and that's what we've always planned to do.
Great and one last one for me.
When you launched the NP configuration, I think you've talked about how you can better target smaller hospitals have you seen any early NP users migrate up and add a module.
Yes, we have so NP is doing very well.
In the smaller sites, but also with integrated delivery networks that have some smaller de centralized low volume sites. In addition to the central lab.
Also in certain international markets.
NP is a better fit based on there.
Volume of testing.
But we've certainly seen customers that start with NP and then based on expanded menu and their sort of.
Realization of the value that.
A more capacity can provide to deal with their peak sort of volumes during the day have.
Expanded or upgraded to more capacity with a one with a one tower.
System.
Great Thats it for me thanks.
Thank you.
Your next question comes from the line of sung Ji Nam from BP Ita. Your line is now open.
Hi, Thanks for taking the questions handy if I heard this correctly, you said that 20% to 30% of the addressable market exiting this year will be utilizing both.
The respiratory NBC I'd panels.
How do you see this kind of evolve over time, but what do you think is the upside potential like you know.
Over the longer term in terms of the overlap there.
Oh, so so just to clarify.
What I said was.
20% to 30% of our installed base.
The addressable market is is much larger, especially in relation to BC idcs molecular syndromic testing is relatively new to sepsis.
Testing and we believe that the market may only be 20% or so penetrated.
Over.
The next couple of years, we expect to see more customers migrating away from the conventional.
Techniques and methods, mostly culture based over to molecular but in terms of.
In terms of our installed base, we expect to see more and more customers utilizing both BC I'd and RP menu and then going into next year and beyond we expect that number to increase.
Customers want to consolidate their their workload in a meaningful way and we expect that more of the customers will be using both.
BC I'd and RP panels overtime.
Okay great.
And then what was the mix of reagent rental versus acquisitions in the quarter end do you have the launch of DC I'd would that potentially impact that.
Our next you know either going I guess going forward.
The mix has not changed so it's somewhere between 20 and 30% capital and the rest is reagent rentals and that's not impacted by the launch of BC I'd that's more.
Sort of a global market trend based on availability of capital and also our efforts to drive early placements, sometimes it's better to get the system in the lab and up and running much earlier, rather than sort of waiting for longer fall when the capital is available.
Okay and then just lastly, I know this is not your primary focus any mark anymore, but for the XT eight menu the non respiratory menu could you kind of talk about what you are the trends that you are seeing there. Thank you.
Well it may not be the area of focus as far as sort of menu expansion is concerned but.
Certainly we love XT eight.
And the business there is very stable so.
We continue to support our installed base of XT eight customers, they're very happy with the system and with our support and.
It's very stable, we don't expect any sort of.
Major changes in the foreseeable future.
Great. Thank you so much.
Thank you.
Your next question comes from the line of Mike Matson from Needham and company. Your line is now open.
Oh, good afternoon, Hany, Scotland, Tony This is David on for Mike Thanks for taking the questions.
Just one on Europe , I think it was last year or so youre you were saying the sales cycle with a little longer than you initially expected.
How does it have the expanded menu or just more tolerant timing the market changed any of the selling dynamics.
Yes, we've gotten much better over time.
And the team really is doing a good job in Europe again.
We expect that the U.S. will continue to drive most of our placements and the vast majority of the revenues.
Going forward, but Europe and beyond Middle East North Africa, now Asia Pacific were looking at.
Latin America late for later this year all of those markets.
Continue to be important to us and obviously as as a global.
Player and a company that wants to be a leader in the space. It's important that we're able to.
Support those international markets.
Okay. Thanks.
And then in your prepared remarks, you talked about some R&D investments on product improvements and like how should we think about the back half.
Are there any investments planned.
No.
So this is Scott.
What I mentioned was that you're correct. We did take some opportunity to start some studies and work on some projects that have longer term payback for us and so we do not expect that that level of R&D expense. We continue in the back half of the year.
Okay, great. Thanks for the questions and congrats.
Thank you. Thank you.
Secondly on the revenue it looks like at the high end of the range would you held the same despite a strong quarter.
Could you just help us reconcile the strong Q2 results and.
The business momentum with the revenue outlook, which I believe actually implies a deceleration.
If you compare revenue.
Second half the second half.
Second half is starting second half of last years second half this year.
Correct, the $90 million would imply.
Around $50 million in revenue, which would be.
Decline year over year.
And we expect to have a strong second half within the guidance range that we've shared with you will recall.
The flu season may have come in at a time last year, but our projections.
Remained have a strong second half.
Okay.
And then I guess just on on ARPU versus BCD, how would you think about your market share currently and where do you think.
What do you think your market share can go in both of those.
Testing modalities over the next few years.
Well, we expect our market share to continue to increase and obviously we are.
In a much sort of stronger position with respect to treat given that the product has been available.
Longer and the market is actually much more penetrated so it sort of much more developed in a risk rytary.
Testing area with Syndromic panels relative to BC, I'd, where molecular we sort of relatively new.
To BC I'd testing so over time, we expect that more of the market will convert to syndromic testing and our market share will continue to increase over time, as we place more systems and and drive more volumes to eplex.
Okay, Great and then if we just think about.
Fast forward with additional menu coming on in the $2.5 billion and you've obviously talked about some.
Increased investments international opportunity et cetera, and while you are still going to be driving the majority of the opportunity 50 years from now how do you think about.
Maybe what percentage of revenue could be derived internationally overall, and then maybe within the $2.5 billion Tam to if you had a sense of.
How you think about the U.S. versus or U.S. opportunity within that thank you.
The U.S. represents.
The vast majority of the market globally in terms of market potential.
Over time. This is currently of course, we expect that to continue in the future although.
Elsewhere in the World other international markets over time will.
Will sort of catch up a bit but will not rise to the level of the U.S. market. So us will continue to be.
To drive the biggest market opportunity and therefore for us as well in terms of our revenues us will account.
We expect for the vast majority of our revenues in the future as well.
Great.
I guess to maybe put a finer point on that any yep, Hey, John I want to interrupt once again I just want to go back to the revenue question.
I just quickly looked at it I think second half of 2019 contemplates a 35% growth rate over the second half of 2018, and first half 2019, with a 12% growth rate over first half of 2018. So I just wanted to clarify we are seeing quite a bit of growth in the back half of this year driven by two things number one RP customers, there's more RP customers this year versus last year, and so that RFP volume is increasing and then secondly, the BC I'd volumes that we expect in the back half of this year, we've been saying that's when we'll see the revenue benefit of that and Thats tied directly to my gross margin improvement remember I said volumes are going to increase dramatically for both rpms JV and that helps overhead absorption. So I just wanted to go back and clarify to make sure. We're on the same page that we are expecting strong revenue growth in the back half of this year versus the back half of last year.
Great. Thanks for clarify that.
You're welcome.
Okay. That's all from me.
Thank you.
We have no further questions at this time I will now turn the call over back if any.
All right well, thank you very much to everyone and thanks for.
Great questions.
Really appreciate your continued support and look forward to updating you on our progress in the future.
If anyone is planning to attend a HCC in Anaheim This week.
Several of US will be there we have a booth there and we look forward to seeing you.
Tomorrow or later this week.
Thanks, very much everyone have a good day bye bye.
Yes.
This concludes today's conference call. Thank you everyone for joining you may now disconnect.