Co-Diagnostics, Inc.

Good afternoon, and welcome to the CoDiagnostics fourth quarter and full year 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Andrew Benson, Head of Investor Relations. Please go ahead. Thank you.

I'm Andrew Benson, and joining me this afternoon are members of the Co-Diagnostics Management Team, including Dwight Egan, Chief Executive Officer, Brian Brown, our newly appointed Chief Financial Officer, and Reed Benson, General Counsel. We will begin the call with management's prepared remarks and then open up the call to questions to our analysts. Before we begin, we would like to inform the listeners that certain statements made by co-diagnostics during the course of this call may constitute forward-looking statements. Any statement about company expectations, beliefs, plans, objectives, assumptions of future events or performance are forward-looking statements. For example, statements concerning 2021 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. The company believes 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 result expressed or implied by such statements. Important factors which could cause actual results differ materially from those in these forward-looking statements are detailed in co-diagnostics filings with the SEC. Co-diagnostics assumes no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances occurring after this call or to reflect the occurrence of unanticipated events. In addition, the company will discuss certain non-GAAP financial measures during today's call. These non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results. We refer you to the company's earnings release out shortly before this call which contains reconciliation to the non-GAAP financial measures presented to their most comparable GAAP results. At this time, I would like to turn the call over to Co-Diagnostics Chief Executive Officer Dwight Egan.

Dwight?

Thank you, Andrew, and thank you all for joining us. On this call, we will provide an overview of our results for the quarter and year, updates on key financial performance metrics, and the discussion of progress and future strategies. Then we will take questions from our analysts. Before we turn to the results this quarter, I would like to welcome Brian Brown to the call this afternoon as our recently appointed Chief Financial Officer. Following the significant growth we experienced this past year and the growth we anticipate in the future, it was critical we expanded our resources in our financial department. Brian has previously played integral accounting and financial roles for a variety of other public and private companies. We are pleased to have him join CoDiagnostics at such a crucial juncture in our growth trajectory. We are grateful to Reed Benson for his leadership and dedicated service as our CFO and look forward to continuing to leverage his expertise and experience as our general counsel. Turning to our results this year, 2020 represented a solid year of development and strong execution for CoDiagnostics. We are very pleased with the record results in the fourth quarter and for the full year. Our core strategy to position the co-primer technology platform as an important player in the molecular diagnostic space has yielded exceptional results. Demand for our logic smart COVID-19 test drove sales and profits to record levels this year. And although COVID-19 test cells may not be as robust as in 2020, we anticipate demand for our portfolio of products to continue in 2021. Full-year revenue achieved a record level of $74.6 million, while pre-tax net income finished the year at $42.6 million. These solid results were driven by sales of our logic smart COVID-19 tests to our global network of laboratories, hospitals, and distributors. The three COVID-19 tests we launched during the year enabled the company to address the needs of different countries around the world in the battle against coronavirus. Our achievement of 10 million COVID-19 tests sold globally this year is a testament to the ability of our co-primer technology platform to quickly develop a high-quality, versatile infectious disease PCR test, while also scaling it to meet a global demand. The CoPrimer technology platform was developed by the company to dramatically enhance the output of molecular diagnostic tests conducted via real-time PCR, while also improving cost efficiencies and throughput. We believe these advantages prove substantial in a variety of situations, including manufacturing or agricultural environments, in addition to clinical laboratory settings. Receiving the additional patent earlier this year and enhancing the US patent protection for our co-primer technology was critical to our long-term success. Not only does this emphasize the uniqueness of our technology, but it also facilitates our growth into other verticals such as liquid biopsy and next-gen sequencing applications. As the company further develops a diverse and successful business model, the reputation of our products has grown. The company has already begun to benefit from its expanded distributor network. For example, dengue virus will often manifest in similar ways to COVID-19, And the company's logic smart ZDC Zika dengue chikungunya test is seeing wider distribution to help combat a current outbreak of dengue in Peru and differentiate dengue from COVID-19 following our successful distribution throughout that country. CoDiagnostics continues to participate in successful joint government private collaborations in several states and countries. And the reach of our coronavirus test has also expanded to high throughput laboratories who serve a nationwide customer base. We are very pleased by the sales generated from those collaborations and important laboratory relationships. We remain committed to achieving our long term goals of improving the lives of others around the world by providing safe, high quality and cost effective diagnostics. Let me now turn things over to Brian Brown for a review of the key metrics and numbers after which I will conclude with a discussion of future plans, including our at-home and point-of-care platform. Brian?

Thanks, Dwight. For the quarter, revenue increased to $27.1 million, primarily due to worldwide sales of the Logic Smart COVID-19 test, which was developed in response to the current COVID-19 pandemic. Gross profit increased to $22.8 million, representing 84.1% of consolidated revenue due to improved product mix as compared to the prior year period. For the year, revenue increased to $74.6 million, again, due to sales of the Logic Smart COVID-19 tests. Gross profit increased to a record $58.0 million, representing 77.7% of consolidated revenue, The increase in gross margin was due to the mix of products we sold as the majority of our 2020 revenue came from sales of our test reagents, which have a higher margin than sales of equipment. During 2019, a larger percentage of revenue generated came from sales of equipment than from sales of test kits. Total operating expenses for the quarter, inclusive of corporate, general, and administrative, sales and marketing, research and development, and depreciation and amortization increased $5.1 million to $6.8 million compared to the fourth quarter of 2019, primarily driven by increased activity to support the growth of our business. This includes higher personnel and incentive compensation to our employees, our sales team, and our distributors. Additionally, we added employees to our research and development team to increase our research and product development activities. For the full year, total operating expenses of $16.3 million increased by $10.3 million from 2019, primarily due to the increase in business activities required to support our revenue growth. We anticipate higher operating expenses as a percentage of sales throughout 2021 as compared to 2020 as we invest in our people and expand our technology through additional research and development. We had a great 2020, which has afforded us the opportunity to invest back in the company and provide a longer runway of future growth. Through these operational investments, we will be able to take on projects we believe are valuable to society and to the continued success of the company. Due to record revenue and gross profit, income from operations for the fourth quarter improved to $16.0 million. For the full year, income from operations improved to $41.7 million. For the fourth quarter of 2020, we achieved income before taxes of $15.8 million compared to a loss of $1.7 million in the prior year comparative quarter. For the full year 2020, income before taxes was $42.6 million compared to a loss of $6.2 million in 2019. Now moving to taxes. As you may recall, we reported a credit to our income tax provision in Q3 of 2020 due to the reversal evaluation allowances related to income taxes. During the fourth quarter, we utilized all of our historical net operating losses and recorded income tax expense of $3.0 million due to our strong results. As a result of our income tax expense for the fourth quarter, offset by the credit reported in the third quarter, we recorded income tax expense of $0.1 million during the year ended December 31, 2020. As we have now utilized all historical net operating losses, in 2021, we anticipate continued profitability and, as such, estimate an effective tax rate of approximately 26%. We achieved net income for the fourth quarter of $12.8 million or 43 cents per fully diluted share compared to a net loss of $1.7 million in the prior year quarter. For the full year, net income increased to $42.5 million or $1.52 per fully diluted share from a net loss of $6.2 million from the prior year. Turning now to our balance sheet and liquidity, Our balance sheet remains strong, allowing us to invest in additional growth opportunities. At year end, cash, cash equivalents, and marketable securities totaled $47.3 million, an increase of $46.4 million from December 31st, 2019. We remain well capitalized with no debt and a strong cash position. In prior years, we financed our operations through the issuance of equity and debt. In 2020, we financed our business primarily through profitable operations. Our strong cash generating capabilities provides co-diagnostics with ample financial flexibility as we execute our strategic growth plan. We ended the year generating $28.2 million in cash from operations, which represents an improvement of $33.7 million over the prior year period's use of operating cash of $5.5 million. Now turning to some directional guidance we would like to provide for the first quarter of 2021. We anticipate revenue for the quarter totaling between $19.0 million and $20.5 million, while gross margins are expected to remain consistent with the prior year periods as we continue to grow our cash position. First quarter 2021 effective tax rate is forecast to be approximately 26%, and fully diluted shares outstanding are expected to be approximately $29 million at quarter end. We do expect to remain profitable and will continue to invest those dollars back into our growth. Because of the structure of our business and the foundation we have built, we are in a great position to continue progressing on scaling the company. We believe a capital allocation strategy focused on organic and acquisitive growth aligns well with our long-term growth strategy, as well as the underlying trends our business is uniquely positioned to leverage. Let me now turn things back over to Dwight.

Thanks, Brian. 2020 was truly an inflection point for co-diagnostics for any number of reasons. And I would like to thank our valued employees, management, vendors, and distributors for their hard work and dedication in helping to deliver outstanding results in a year that was as full of challenges as it was successes. While it is understandable that our recent accomplishments following the amazing year that we've had might overshadow where we've come from to arrive at this point, it's important to remember that when CoDiagnostics was founded in 2013, Our mission was to bring affordable, high-quality molecular diagnostics products to people and places who need them the most. Every step we've taken since our beginning helped prepare us for 2020, but our mission has remained unchanged even during the COVID-19 pandemic when the need for our products extended from our own neighborhood to the other side of the planet. We leveraged our unique proprietary Cochimer technology platform to develop our first COVID-19 diagnostic early on in the pandemic, followed by several more products in the months to follow. Those who have been following CoDiagnostics over the years know that this design platform has been utilized long before 2020 to successfully develop a number of diagnostic and molecular testing products. With our healthy margins and low overheads, the company now has the resources to fully realize our vision and continue to expand our menu of state-of-the-art molecular diagnostics This menu includes several infectious diseases for both domestic and overseas markets, as well as continuing development of products in our exciting liquid biopsy vertical, which we believe has the potential to fundamentally change how patients are tested for cancer and their ongoing treatment monitoring. But perhaps the most exciting advance to result from this past year is our new point of care and at-home PCR platform currently in development. We agree with epidemiologists that the rapid spread of the coronavirus and appearance of mutant strains mean that COVID-19 will remain with us for years or even decades, leaving the world population to coexist with COVID-19 similar to other endemic diseases like flu, the common cold, and HIV. Experts have predicted a range of scenarios, including those where the disease returns in waves each year. where COVID-19 shifts from a pandemic disease to an endemic one in many parts of the world, or where the disease is with us in one form or another forever, and lasting modifications to societal and personal behavior will likely be required. While we believe we are a long way off from achieving normalization, the good news is we believe we have been through the worst of it. The zero tolerance approach to last year mitigated the effects of the pandemic and helped the world to realize the importance of accurate, reliable testing as a long-term strategy to reopen schools, public venues, and travel. As regular COVID-19 testing becomes a part of the long-term protocol for many organizations, we plan to revolutionize the availability of accurate, fast, and economical PCR tests with our new initiative, which is designed to provide cheap, fast, and accurate COVID-19 PCR test results using saliva or swab samples in under 30 minutes, essentially as easy and convenient as over-the-counter pregnancy tests. Ultimately, we expect that other tests will also become available on the device, such as strep A, RSV, influenza A, and influenza B, and potentially any other pathogen that can be sampled from a patient using saliva or a swab. The development for these tests is either already underway or expected to begin soon. The company has already had great success in selling its COVID-19 products around the world. And while we believe testing demand will continue in the future, we also believe the way testing will be done will migrate strongly to point of care and at home locations. In this context, at home does not refer solely to tests done at home, but rather any location such as a business or school where a caregiver is not involved in the process. In a post-vaccinated world, seeking normalization, the question is not, will there be testing? There will be an enormous amount of testing. The question is, how and where will the testing be done? The testing has to be conducted around points of normal interaction at work, at home, at school, and as we travel. We refer to these locations cumulatively as the workflow of life. Normalization requires routine organizational testing to create COVID-safe work, play, and travel environments. In particular, travel beginning this summer in the US and globally is likely best enabled by gold standard PCR testing as vaccine programs continue their rollout throughout the world. Governments and regulators are developing necessary protocols to enable travel And as those considerations are evaluated, it is our belief that the clearest path to ensuring travelers are COVID safe is via PCR testing. Similar to how building on previous company achievements prepared us for the challenges of the pandemic, this new initiative is made possible as a result of several innovations accomplished by the company over the last year, beginning with our direct saliva testing technology, PCR tests usually require a costly, time-consuming process intended to extract any genetic material present from the cells contained in the sample. These extracted samples are then analyzed for the presence of the target pathogen using PCR technology. Co-diagnostics co-primer technology has been shown to be able to consistently detect SARS-CoV-2, the virus that causes COVID-19, directly from minimally processed saliva samples. Elimination of the extraction process has the potential to simplify the testing process, increase throughput and lower cost of COVID-19 testing, all without compromising quality or accuracy. This testing technology utilizing CoPrimer's unique capabilities was developed specifically to address the efficiency demands of high throughput lab applications, as well as the accessibility and parities of the point of care and at home markets. all while delivering lower processing costs and increased accessibility of gold standard PCR diagnostics worldwide. Early on in the pandemic, we also began to process the process of engineering testing reagents for lyophilization or freeze drying, which will extend their shelf life and allow for products to be stored at ambient temperatures in commercial packaging, a vital step for facilitating the widespread adoption of tests that can be administered outside of clinical laboratory settings. After considering the needs of the market and that normalization will require regular testing with inexpensive, fast, and accurate PCR tests, the company entered into an agreement with world-renowned experts in rapid PCR technology to engineer the at-home point-of-care testing device designed to be combined with the company's proprietary chemistry The scientists engineering the hardware have previously designed several PCR-based platforms that are in use worldwide by leading healthcare companies. We expect to be able to submit the platform to the US, European, Indian, and other regulatory authorities in the back half of 2021 following its validation. As populations around the world go back to the office, as students go back to school, as people again travel and participate in entertainment venues, We believe this direct saliva technology and our new platform will help ensure COVID safe environments through fast, accurate, affordable, and accessible testing solutions, including point of care and at home applications for businesses, schools, and home settings. CoDiagnostics has always envisioned ultimately developing a point of care at home diagnostic device, making PCR accessible at affordable prices worldwide. And we are pleased that the culmination of years of development has resulted in a realization of this vision. With this product, our mission to make affordable gold standard PCR accessible around the world comes full circle. We are proud of our accomplishments over the past year, and we believe the company has the technology, resources, experience, and roadmap for an exciting future. That concludes our prepared remarks. Operator, we are ready to begin the question and answer portion of the call.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Yi Chen with HC Wainwright. Please go ahead.

Thank you for taking my question and congratulations for a solid quarter. Our first question is, as COVID-19 vaccines gets wider distribution, the testing demand will eventually trend down from peak levels, even though it could exist for a very long time. So apart from the new point of care and at-home testing platform, are there any other questions elements that Codex Gnostic is planning to ensure continuous top-line growth in 2021 and 2022?

Thank you for the question, Yi. The first thing I would like to emphasize is that we believe that there will be a migration to PCR testing in a post-vaccination environment, as opposed to antigen or antibody tests. I think this is becoming widely known that because the PCR test is able to detect the genetic material of the virus in a post-vaccination world, it becomes the test of choice in terms of giving true accuracy. So our real view, Yi, is that we're going to be transitioning heavily from the kind of stadium parking lot, grocery store parking lot, hospital parking lot, testing lines that take three or four hours to get through and then a couple of days to a week to get test results. We're going to be transitioning from that into a world where people have to be able to get tested at the points of interaction, actually at their business, in their homes, at the schools, at venues, on cruise ships, on planes, et cetera. And it's with that in mind that we have developed the ICON product to meet that need. And so, first and foremost, we think there will be a major transition in terms of how and where testing is going to be done. We think there will still be a great deal of testing as the disease traverses from a pandemic to an endemic phase and then probably continues year after year with infection and reinfection and then vaccination and re-vaccination and such. In addition to that, of course, we have several other verticals that we're pursuing And the most probably exciting one of those is in our liquid biopsy product for cancer detection. In this environment, we are developing panels of tests to address the biggest killing cancers in terms of the mutations associated with those cancers, which would include breast cancer, colorectal cancer, non-smell cell lung cancer, prostate cancer, and stomach cancer. And we believe that our technology Our co-primer technology is uniquely positioned to be able to provide those types of detections through the PCR process, especially as it relates to the monitoring after somebody has been diagnosed and the screening before they have had a cancer diagnostic, which would make it so they could get a jump on the fact that they could detect cancer, perhaps when they have only maybe 12 million cells in their body that have these mutations as opposed to the hundred billions of cells that it requires to have even the smallest amount of a tumor that could be picked up on a scan. So we're very excited about that particular vertical. As you know, we're also doing important work in the agricultural area with companies like Bayer and LGC. Bayer purchased Monsanto some time ago, and we're doing important work with them as it relates to agriculture, which is a vertical in which we have to double the food supply in less than 30 years from now. And so we think this is also a good place to apply our technology, and we're excited about that vertical. And keep in mind, COVID is just one of the tests that we provide. We also have a solid menu of tests for tuberculosis, a solid menu of tests including things like hepatitis B and C, human papillomavirus, malaria, and chikungunya, dengue, and Zika. So we're going to be selling now to a worldwide audience through more than 50 distributors in countries all over the world, where we have established a branding recognition and people who know our product and trust us. And now we're going to be able to sell our broader array of products into those markets, like I've mentioned. So we have a number of tests that have already been through regulatory approval, either at the European Union or through the CDSEO in India. And we're going to continue to pursue that aggressively as time goes on here.

Got it. So with respect to the new PCR point of care and at-home testing platform, do you expect it to enter the market in early 2022? And for at-home use, are consumers expected to pay for the device and test out-of-pocket? What is the potential market size for this device?

Yeah, so we... We certainly are hopeful that by early 2022 that we can introduce this product into the market. We're going to introduce it as soon as we can possibly do so. We expect to be able to present this for submission to regulatory authorities both here and abroad in the second half of 2021. We believe the addressable market is really gigantic. We're talking about... In the neighborhood of 132,000 schools just in the U.S., 7.7 million businesses, again, just in the U.S. Well over a million people are in skilled nursing facilities that are elderly that need to be addressed. We have more than 56 million people that play basketball in the United States. We have 5.6 million buildings that have their wastewater tested for the presence of COVID or new strains. And, of course, add to that 6,100 hospitals. and about 230,000 physician offices and 186,000 dental offices and a whopping, you know, 128 million residential locations in the United States alone. So the market for this is truly enormous. The device that we're talking about, Yi, is something that will be very affordable. We anticipate, and this is, of course, subject to change, but we anticipate a pricing of the of the box that's associated with this PCR unit to be in the neighborhood of about $300 with tests costing between $15 and $20. And these tests, again, are lyophilized. They would be able to be purchased at a drugstore and have shelf life in a person's medicine cabinet or in a business location for a long time. And imagine what happens in India where you have, you know, perhaps what will become one of the largest healthcare markets in the world where you have thousands and thousands of labs that have no PCR capability to test things like tuberculosis, where they lose 1,000 people a day to tuberculosis death because 400 million people carry latent TB in that country. This type of product allows the availability of our testing to really go to town in terms of, of making labs out of places before that didn't have access to this type of technology. And I encourage you to remember that this is real-time PCR testing. The thing that makes this product unique is not so much that it's cheap and fast. You can buy cheap and fast tests now. You just can't buy cheap and fast tests that are also accurate. But now that we have the whole trifecta of the value proposition intact in this device, we're going to be able to offer this in a way that has not been offered before in the marketplace. And, you know, we didn't do this. This isn't something we just dreamed up recently. This is something we've been working on with the chemistry and such for much of the last year. And when we got to the point where our chemistry was ready to go, we engaged some of the greatest scientific minds in the world. And I really mean that. These are the top scientists in the world that know what to do with PCR, real-time PCR, and even extreme PCR experiments. That's why we're able to develop a product that gives cheap, fast, and accurate results all in a single package. The ability to do saliva and swab samples without extraction combined with these other technologies that we've harvested are what give life to this new product. We think it is actually going to revolutionize what's going on around the world in terms of testing.

Thank you.

The next question is from Jason McCarthy with Maxim Group. Please go ahead.

Hey guys, this is Michael on the line for Jason McCarthy. Thanks for taking the question. So I wanted to just ask about, you know, what your thoughts are on COVID testing for this current year. You did 75 million this past year. That was kind of tracking with the overall testing. Could you provide a bit more granularity on 2021? And I also wanted to clarify, did you say that you're expecting 20 to 20.5 million for the first quarter?

We said that we were expecting 19 to 20.5 million in sales for the first quarter. And so let me say that with respect to our viewpoint on COVID testing, you know, it's a commonly held viewpoint and promulgated by mainstream media and others that, you know, with widespread vaccinations that the expectation is that the need for COVID testing will attenuate. We think that, yes, we're not going to be in a pandemic phase forever, but we believe that widespread and aggressive COVID testing will be with us for a long time. It's just going to change in how it's done. As we've mentioned before on this call, it's going to traverse from the parking lot into an individual's bathroom counter or into a business or a school and such. So We believe that there's going to be a lot of testing, but our technology is well-suited to making it available in these other at-home and point-of-care venues. Now, with respect to our current experience and what's going on in our world, because we're not the same as a lot of these other companies out there, our distribution base is worldwide. We service more than 50 countries with this product. and have customers in virtually all of the states of the US. So we're not like a CLIA lab that has one or two different locations in the country where we provide tests, where we're relying on some government contract to provide us with these grocery store parking lot type testing environments. We are distributing through multiple distributors around the world, and they don't just need COVID, they need other things. But even with respect to COVID, That is a market that still is widely moving ahead very aggressively. As you may well know, there is no vaccination yet available for any children. And there are many places in the world where people will not have access to a vaccination until late next year, as it's predicted. So, you know, because we sell a large percentage of our products to an overseas market, I think we have some insulation from the attenuation of COVID testing that other companies may experience. And indeed our current pipeline would demonstrate that we have a strong pipeline of forthcoming deliveries for COVID through, you know, the second quarter. And I don't have a lot of optics, you know, beyond mid year because people just don't order out that far in advance. But certainly as far as we have optics, the, the, the optics are good in terms of the demand for our product. I would also add that because we are doing PCR testing, we're also not likely to experience the same kind of attenuation that a company might experience if their primary products revolve around either antibody or antigen tests, which have severe limitations to begin with. And when you put them on top of a vaccinated person, it's kind of adding confusion to already existing confusion. Our tests are real-time gold standard PCR tests, and we believe that's where this is going to migrate, and I think you'll find other experts agree.

Thank you. Could you break down a little bit how much of your sales are U.S.-focused versus international, at least for, you know, the data we have so far?

Yeah, absolutely. So we just filed a case, so the data is also going to be in there. For 2020, approximately 60% of our sales were in the U.S., and 40% was outside the U.S.

Thank you. And then I have one more on your – oh, go ahead.

I was just going to say, if you're looking at a model, you might, as this year goes by, you could even see a potential of that inverting a bit so that you go to a 60-40 mix. any other direction, foreign versus domestic. Go ahead.

Yeah, so I wanted to ask a bit more about the properties of your rapid point of care device. How does that look in terms of, you know, time to get a result and throughput? Because obviously, you know, if you have a box in your home, Well, again, only being able to do one test every, let's say, 15 minutes works fine for you. But if you're doing something like at an airport where people are waiting to get in, you might need higher throughput. So would they need multiple devices to run in parallel? Could you kind of help me understand that a little bit more?

Yes, and certainly there will be places like hotels and at airports and things where they may want to have a number of these devices. But, indeed, this device is a one-off test device so that you know it's a single person it does not involve a test cartridge per se it involves a collection mechanism to get the saliva from the patient the patient basically expectorates or spits into the device and that device is then inserted into the little box which is about a four and a half by four and a half you know inch cube you close the lid And then the test begins at that point. All of the results of the test are manifest on a cell phone, on a smartphone. So the person can start the test, go about their work at their office or in their home. And about 30 minutes later is when they'll see the result of the test. It will show that the virus is either detected or not detected. And then of course, into the cloud, they'll be able to notify any kind of regulatory requirements in terms of state health departments or others. And it would also give them a passport if it's recognized as such to board a plane or to get on a cruise ship or to go to a concert venue and so on. Because it will be a real-time PCR test and it will be date stamped and such as to when it was achieved. And they can do it frequently because it doesn't cost a lot. These are not tests that cost $100 or more to do. There'll be tests that they can purchase for, say, $15 to $20. All right.

Thank you very much.

The next question is from Theodore O'Neill with Litchfield Hills Research. Please go ahead.

Thank you. You've talked in the past about how when the business started ramping up, you didn't have the resources to evaluate whether customers would actually end up paying their bills or not. So you went with customers that more or less paid up front. And I'm wondering, in light of the large increase in selling and marketing expense in the quarter, do you have those resources now? And then more broadly, could you talk about the increase in that category?

Thank you for the question, Theo. Let me just say that, again, because we had such a heavy mix to begin with in foreign customers. And remember co-diagnostics was the very first us based company to have a test approved by the European union with a CE mark. So while the United States was still trying to figure out what they were doing with their borders and everything else, we began selling tests overseas because we received a clearance there in late February of 2020. And it was April 3rd of last year that we received our clearance for the EUA in the United States. So because we were dealing with a bunch of foreign entities and, you know, we didn't know them, and it was very difficult to check credit or to know whether somebody was actually viable. And because there was such a fury of people wanting tests and ordering tests, I mean, literally our sales guys would go to lunch and they'd come back and there could be hundreds of inquiries over email of, places all over the world. So sort of the only way we had to really verify who we were dealing with and whether they could actually pay us was to have them pay in advance or substantial amounts of money down so that we knew that they were not impecunious and that we could rely on them paying their bills. And I think if you look at our 10 Qs and Ks all through the period, you'll notice that we've done a very good job of managing our receivables and the people, in fact, pay us. And we are oftentimes dealing with very large purchase orders from overseas customers. You may notice that some of our biggest other countries besides the U.S. are places like Mexico or the Middle East. And so billing people up front, making sure that we have their wire in our account before we ship millions of dollars worth of tests was one of the ways that we assured ourselves of of not having a big problem with receivables as time went on. And I'm just really pleased to say that that has been very well managed by our accounting department and accounts receivable. We're very proud of that record. So, yeah, maybe we could have sold more tests if we were willing to take the risk on people that we didn't know or couldn't verify. But we were very careful that way, and it's just one of the ways we build our business. Now, in the meantime, we continue to accumulate cash on a monthly basis and continue to do so now. And so, you know, we're at a much different position than we were earlier on in terms of our cash position. But I really think that our investing probably got a look to that, not as a way to make it so we could be more reckless with what kind of client we accepted, but rather that we will be able to execute on our plans for our ICON initiative in terms of this device and getting it through regulatory and getting it out and into the market. And I might add in that connection that we expect to expend some significant money in putting this product on the market. As I mentioned, we have engaged the top minds in the world as it relates to real-time PCR to make such a device that will do what we're trying to do here. And so we're also looking at other projects other ways to partner this in terms of branding and manufacturing and commercialization. So it will be letting the public know as these types of developments mature. But it is an incredibly heavy duty undertaking by the company. It is consuming a great deal of our resource internally and what we're doing for our scientific staff and everything else. it is a very important and main, you know, sort of long suit for the company at this point.

Can you talk more broadly about why sales and marketing went up so much quarter from third quarter to fourth quarter?

You want to take that Brian?

I can. Yeah. I mean, really it's supporting the business, you know, we, to, to sell product, it costs money to sell product. And, and there is a, a bit of marketing and things that we have to do to be able to sell product. We've also taken the opportunity now to start to build our teams here and, and grow and develop those operational teams to be able to support the growth that we have. I think over the past year, because it moves so quickly, we didn't have that opportunity. So now we have that opportunity. So we will see, you know, as you've seen in Q4, a little bit of growth in some of those operational areas, you'll continue to see some of that going forward in the next year.

Okay, thanks. And my other question is, Mike, as you think about, as we think about COVID variants being either more infectious or more deadly or both, does that change the way people think about testing, do you think?

Well, I think it's just going to mean that testing is going to continue to be part of what has to happen in order to normalize. You know, everybody It's sort of assuming that normalization is well underway when, let me tell you something, it's not at all underway. People are working out of their homes. They're not at school. They're not at college. There's just a great deal of non-normalization going on right here all around the world. There's a whole bunch of media from the White House to the governors to the mayors trying to act like party on dudes. Everything's fine. And yet, everybody's still at home and not out into the workforce or at the schools or at the concert venues or watching their local sports teams. So we think it's going to continue to be that way. And keep in mind, we live in a world that has just in the United States, a billion cases of the common cold every year. And we have in the neighborhood of eight to 9% of the entire world population that's infected with the flu every year. And the flu and the common cold have very common presentations to COVID, at least in the initial phases. So as we get back into school, as we get back into going to all these places, we're way beyond the place where people are going to be able to show up at work or school and have sneezing and coughing and runny noses and red eyes. And in order to not have that, they're going to be having to test at home. They're going to have to be testing at the schools. They're going to have to be testing at the businesses. and create a way to normalize. And we think this is going to require a great deal of additional testing. Like I said earlier, it's not that there's going to be no testing. It's just how and where is it going to be done, hence the development of the ICON initiative to make it so there is a device and a test that is cheap, fast, and accurate for the first time on something that's affordable, accessible, and not just in the United States but all over the world. So we have a long ways to go before we get into a normalization environment. And this is in an environment where we're going to have infection and then reinfection and so on. And same with vaccinations, we believe. We'll let the scientists do the talking on that. But I think it's pretty commonly accepted at this point that, you know, this is not going to be a one-shot deal, not in the U.S. and not anybody else. And a lot of people around the world are not even going to have access for quite some time So I think the public should realize that our asset of having a worldwide distribution network where the significant amount of our business is coming from overseas is a great asset in our company going forward in terms of our durability. Because, you know, as a company, we don't view this as a COVID play. We view this that COVID put us in a position to leverage our technology and specifically our co-primer technology to so that we can play a meaningful role going forward for all of these other important infectious diseases. If you look at how many cases of COVID we have around the world right now, from the beginning, it pales in comparison to what we have in diseases like malaria and dengue and sexually transmitted infections and the flu. We have a million cases of sexually transmitted infections a day in the world. 40 or 50 million in the U.S. and the European Union a year. We just have tremendous burden there. And these are the kinds of tests that will be able to be done on our new point-of-care and at-home initiative. It's going to really radicalize how and where people get tested, not only where they are getting tested, but how much they're going to pay to be tested and how often they can afford to be tested to keep themselves in a COVID-safe work, play, and home environment. This is the future of where this is going in terms of testing, and we are in the vanguard of it. We are having this device developed by the best experts in the world. It is the best chemistry in the world. We're looking really forward to being able to exploit this on a worldwide basis and to really stake the claim of, you know, our technology and where we are with that respect.

Thank you very much.

Okay. Thanks, Theo. This concludes our question and answer session. I would like to turn the conference back over to Dwight Egan for any closing remarks.

Thank you all for joining us on the call today. We are very excited about our future. Again, express our gratitude to all of those who have helped make this happen for the company. Great employees, great vendors, great customers, and we look forward to making a very meaningful change as we go forward in this in this, not just the COVID world, but the infectious disease and cancer and agricultural needs heading forward. Thank you all for joining us. We'll look forward to talking to you again next quarter and give you some updates as to where we are.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.