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spk00: Good afternoon and welcome to the Co-Diagnostics, Inc. Third Quarter 2022 Earnings Results 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 Dan Borer, Vice President of Finance and Accounting. Please go ahead.
spk02: Thank you. I am Dan Borer, and joining me this afternoon are members of the Co-Diagnostics Management Team, including Dwight Egan, Chief Executive Officer, and Brian Brown, Chief Financial Officer. We will begin the call with management's prepared remarks and then open up the call to questions from our analysts. Before we begin, we would like to inform the listeners that certain statements made by CoDiagnostics 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 2022 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. This includes statements concerning the company's forthcoming PCR home testing platform, which is subject to FDA review and is not yet available for sale. 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 to 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 may 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 may contain 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?
spk01: Thank you, Dan, and thank you all for joining us. On this call, we will provide an overview of our results for the third quarter, updates on key financial performance metrics, and a discussion of progress against our strategy. Then we will take questions from our analysts. The company's execution during the quarter remains strong as we continue to make progress on the optimization of the Kodiak's PCR home testing platform. along with development of our other business sectors and in-demand PCR products, with quarter-on-quarter revenue remaining steady. Demand for our suite of COVID-19 testing products reflects our previous assertions, following the analysis of experts and epidemiologists that COVID will be a part of the global community for the long term. As recently reported in Fortune, waves of COVID variants used to be fairly sequential, often with a valley or plateau in between. But now, more than 500 Omicron variants are circulating. Some of these variants have the potential to cause their own subsequent surges. BQ variants, along with XBB, or Gryphon variants, surging in other parts of the world, are believed to be the most immune-evasive strains of COVID yet. According to Raj Rajnarenian, research assistant dean and associate professor at New York Institute of Technology. The coming U.S. COVID wave won't be just one wave, but a series of waves, each fueled by different variants that form a table mesa or a table-like plateau. Aside from our belief that COVID-19 will be with us for a long time, we continue to rely on the advice of experts such as Dr. Fauci, who, according to Fortune, has been warning for months that a new, more immune-invasive variant will emerge over the winter. Fauci also stresses that the pandemic is far from over. The number of deaths from COVID, which still averages around 2,600 a week, remains far too high. Fauci emphasized, adding, we're still in the middle of this. It is not over. 400 deaths per day is not an acceptable level. We have continued to exercise financial intelligence and wise spending practices evident from our 86 and a half million of cash reserves as we look toward the company's future, which certainly includes COVID, but extends far beyond the ramifications of a single pathogen. This is why our focus has been and continues to be on defining and focusing on the total addressable market for our new Codex PCR home platform, and ensuring its robustness, quality and versatility will stand the test of time as the world pivots to a new reality of more widespread at home and point of care testing for a range of infections. It is this ample versatility beyond COVID that has attracted so much attention to our new platform. Among the opportunities that we have already identified have been collaborations with international NGOs and nonprofits. The interest of these groups in the new platform extends beyond COVID to other endemic diseases such as tuberculosis, which killed 1.6 million people in 2021 alone according to the World Health Organization. It is no secret that the COVID-19 pandemic has created a fulcrum that allowed co-diagnostics to leverage our state-of-the-art patented co-primer PCR technology to help more people than ever before and increase our profile both domestically and internationally. We remain firm in our position that the pathway to significantly increasing co-diagnostic success lies in the power of at-home and point-of-care PCR, and in identifying those opportunities where we stand to make the greatest impact, both in the short and long term. We also believe that the versatility goes hand-in-hand with the platform's durability. A device that is first to market is less significant than the device that is the first to do it right. Our highly experienced and renowned team of developers, scientists, and engineers tasked with bringing the CodexPCR home platform from concept to reality have remained fixed on the objective to build a durable platform technology that has the potential to address the plethora of needs in a variety of industries, fueling future growth. To that end, we have continued to optimize and refine the platform and all its myriad components, including the user experience. We believe the additional time spent preparing the platform for clinical evaluations has been worth it, and we are shortly to unveil a device that is considerably more robust than we initially conceived. As you learn about the improvements and capabilities of our forthcoming product, we are confident that you will see the advantage of our platform's value proposition compared to the competition. Our current timeline to product launch is as follows. Presently, we are performing hundreds of end-to-end runs on our Kodiak's PCR home platform. We are concurrently performing additional studies on COVID-19 as well as on testing for tuberculosis and P. gingivalis for the dental market. These studies will continue uninterrupted to collect the data necessary to prepare for respective 510 submissions for each of these and other tests. We just concluded another usability study for our initial COVID-19 test that showed strong results with no major challenges. Clinical evaluations to support our FDA EUA submission are anticipated to begin in January of 2023. We have established success criteria to trigger the countdown to clinical evaluations and submission for FDA EUA will follow successful trials and analytical studies. I want to emphasize that our new at-home point of care platform has been designed and engineered to be versatile and durable. with long-term disruptive potential as a diagnostic medical device, taking advantage of a worldwide shift to at-home point-of-care testing for a wide range of pathogens. Ongoing clinical evaluations will be a regular part of our business routine as we bring an ever-increasing number of pathogens onto this powerful new platform. Our extensive ongoing market research guides our commercialization strategy as we focus our efforts where they will be able to have the most impact once the platform has the requisite authorizations and clearances to begin sales. Analytics provided by a world-renowned field marketing research firm has included gauging interest and concerns from an array of demographics, which has in turn provided invaluable feedback for optimization of the device itself on everything from the price to the packaging, as the company better understands the size, scope, and needs of the platform's total addressable market. Some of the optimization work performed over the last few quarters includes enhanced TTR, or time to result, increased multiplexing capabilities, and greater product stabilization, which results in longer shelf life for the test cartridges. One of the most important new innovations is the ability to test and go, where an end user does not need to maintain proximity to the device or return to it following the runtime, and instead, receives their result from the cloud on the fly. In addition, end users can choose their own testing preference by using either a swab or saliva. As mentioned in previous calls and public statements, the device has been designed to incorporate specialized optics and other innovative features to accommodate multiplexed assays as we expand its future suite of products to include additional respiratory, STI, and other infectious diseases utilizing our co-primer technology. This pandan molecule has unique properties associated with facilitating multiplex PCR, and we intend to bring the full power and capabilities of our proprietary technology to our new COTIX PCR platform. In addition to ultimately representing the future of at-home and point-of-care testing, this powerful new platform includes a secure cloud-based data system whereby patients can send test results to their physician or other authorized parties as directed by the end user or regulatory authorities. We have continued our strategy of maintaining a noticeable presence at conferences and trade shows this year to reinforce and increase our visibility among the centralized laboratory business segment we have served across our growing distribution network of more than 50 countries. The high throughput laboratory market is responsible for driving most of our sales providing the cash flow for our R&D efforts and plans for future growth as we continue to grow the product pipeline for the centralized laboratory business channel. And, of course, our co-primer technology is more than just an innovative molecule. It is a platform technology with wide-ranging applications. In addition to other products we have discussed in previous public statements, such as our ongoing development of a multiplex STI panel, to detect and differentiate between four prevalent causes of sexually transmitted infections, the company has rolled out one product for monkeypox with another multi-gene monkeypox test in active development and continues to work on its upper respiratory panel test, which includes markers for RSV, an illness currently experiencing a worrying and unusually early surge in 2022 within the United States. Recently, we were pleased to be able to introduce Dr. Mark Poritz as our new Chief Scientific Officer. Mark had previously served as the CSO of the subsidiary we acquired at the end of last year and has been actively involved in the development of the CODIX PCR home since early 2021. Dr. Poritz is a Harvard University and UC San Francisco educated molecular biologist with more than 30 years of experience in the application of PCR and related methods. who has also served as the reviewer for more than 30 different NIH and NIAID study sections focused on infectious disease diagnostics and has several patents issued and pending in his name. Mark played a key role in the growth of BioFire Diagnostics from 2002 to 2018, including in the development of the Filmarray platform, an in vitro diagnostic system that uses a syndromic approach to accurately detect and identify infectious pathogens and which has captured a significant share of the global infectious disease IVD market. We believe that Dr. Porras will play a pivotal role in not only completing and bringing our new platform to market, but also in helping to oversee the numerous research and development efforts of our other initiatives and products. Other PCR tools are being developed for several pathogens of significance in dentistry, mental health, and liquid biopsy for detection of cancer associated mutations present in human blood. with their performance being evaluated in conjunction with partnerships in each of these areas. Our work with Bayer Crop Services and LGC likewise continues within our agricultural vertical, and the company's mosquito abatement business has seen significant growth this year in terms of laboratory installations and continued purchases from our existing customer base. Overall, we believe our advancements in the field of at-home point-of-care PCR testing team of experts working diligently to achieve our shared company vision, growing product pipeline, and our practice of letting financial intelligence drive our smart spending, our positioning co-diagnostics to execute against our strategic growth initiatives. Our continued investments in talent and R&D remain positive indicators of the progress we are achieving to drive further value for our shareholders. This concludes my initial remarks. Let me now turn things over to Brian Brown, for a review of the key metrics and numbers. Brian?
spk04: Thanks, Dwight, and thank you for joining today's call. Our performance during the third quarter was again impacted by a leveling off of demand for COVID-19 testing worldwide. Nevertheless, we remain enthusiastic for the progress we made, strengthening our team and operations to support future growth. Now to review our performance during the third quarter of 2022. For the third quarter, Revenue decreased 83.1% to 5.1 million as compared to 30.1 million during the prior year comparable period due to lower demand for COVID-19 testing worldwide. However, Q3 2022 revenue increased by 1.4% from Q2 of 2022. Gross profit for the year decreased 83.9% to 4.3 million compared to 26.8 million in Q3 of 2021. Our gross margin percentage of 84.9% for the quarter decreased approximately 410 basis points from 89.0% in the prior year period. This decrease in gross margin percentage from the prior year reflects operational inefficiencies stemming from lower sales volumes. Total operating expenses for the three months ended September 30, 2022, were $10.9 million, a decrease of 17.5%, compared to $13.2 million in the third quarter of 2021. The year-over-year decline was primarily driven by variable expenses related to lower sales volumes. Research and development expenses for the third quarter of 2022 decreased from the prior year same period by 14.5% to $5.0 million as compared to $5.9 million. The decline in R&D expenses can primarily be attributed to the acquisition of entities that were previously third-party vendors in the prior year period. We continue to invest time and resources in the completion of our Codex PCR home platform, along with clinical lab tests and other platform advancements. We are pleased with the progress we achieved during the quarter. As we disclosed in our most recently filed 10-K, and as part of the consideration given in our recently completed acquisitions, the acquirees received contingent consideration based on the achievement of certain milestones. This means that at each quarter end, we are required to remeasure the value of the contingent consideration. The remeasurement calculation at September 30th, 2022 created a gain of $2.9 million that has been recognized as other income in our consolidated statements of operations. For the third quarter of 2022, Income before taxes decreased to a loss of $3.5 million as compared to income of $13.6 million achieved in the prior year's same period. We experienced an income tax benefit for the third quarter of $2.1 million. Our effective tax rate will generally differ from the U.S. federal statutory rate of 21.0% due to state taxes, permanent items, and discrete items. The third quarter net loss for 2022 was $1.4 million, or a loss of $0.04 per fully diluted share, compared to net income of $11.5 million, or $0.38 per fully diluted share in the prior year comparable period. Adjusted EBITDA for the third quarter of 2022 was a loss of $4.1 million, resulting in adjusted EBITDA of $5.0 million for the nine months ended September 30, 2022. As a reminder, we define adjusted EBITDA as earnings before interest, taxes, depreciation, and amortization, adjusted for stock-based compensation, and other one-time costs. Please refer to the 8K filed earlier today for a reconciliation of net income to adjusted EBITDA. We continue to be deliberate in our actions as we manage the health and flexibility of our balance sheet to ensure positioning for long-term growth. As we make further progress on nearing the ramp-up of production for our new PCR home platform, we are deliberate in discerning while we evaluate opportunities to enhance our capabilities or the timing to bring the platform to market. Despite the softness in revenues for the quarter, we were able to successfully continue to convert receivables into cash. As a result, cash, cash equivalents, and marketable securities ended the quarter at $86.5 million down slightly from $89.9 million at December 31, 2021. From June 30, 2022, our cash, cash equivalents, and marketable securities decreased by $9.5 million, which is a direct result of the repurchase of common shares during the third quarter. Additionally, we continue to experience positive net cash flows from operating activities as we reported $10.6 million for the nine months ended September 30th, 2022. Of that 10.6 million, I'm pleased to report that 1.1 million of positive net cash flows were generated from our operating activities in Q3 of 2022. Our balance sheet remains solid. We take pride in our ability to maintain a strong cash position and remain focused on maintaining our financial health. Our highly liquid no-debt balance sheet enables us to achieve scale and continue our efforts to expand into new verticals. As we make further progress in executing our strategy, the commitment remains to invest time and resources into our people, processes, and research and development capabilities. Earlier this year, we announced the authorization of a $30 million share repurchase program. At the end of the third quarter, total common shares repurchased reflected a total of $13 million out of the total $30 million authorized or slightly greater than 3.4 million shares. These purchases represent approximately 10% of outstanding shares as reported at our annual shareholders meeting. We believe our share repurchase program provides us with an opportunity to strategically allocate capital in a way that reinforces our positive sentiment for our strategy and the future of co-diagnostics and reflects our continued commitment to returning value to our shareholders. Turning now to our visibility and near-term outlook. Variability in our operating environment has restricted our near-term visibility. We will continue to navigate the near-term environment with caution, but as a result, we'll not be providing quarterly guidance at this time. We remain very confident about the long-term potential of our business and the demand for our products and continue to believe we are at an important point in our growth trajectory. With the impressive team we have in place, we are confident our hard work and dedication will enable us to expand into new verticals, new markets, and innovative molecular diagnostic solutions. I'll now turn the presentation back over to Dwight.
spk01: Dwight? Thank you, Brian. We will now take calls from our analysts. Operator?
spk00: We will now begin the question and answer session. To ask a question, you may press star then one 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 two. At this time, we will pause momentarily to assemble our roster. The first question will come from Yi Qin with HC Wainwright. Please go ahead.
spk05: Hey, everyone. This is Chait on behalf of Yi Qin. I just have a couple of quick questions. Thanks for providing color on the home platform. How should we expect some of these clinical evaluations beginning from early 2023? How would these studies look like to the extent that you can reveal? And also, If I heard you correctly, you spoke to a market research conducted internally. Could you provide some color on the research and the findings that you discovered, and also any color on any other competitors that are out there trying to do what you're doing? And lastly, considering the fact that the current COVID testing environment has more or less plateaued, or is on the decline? What are your expectations for the home platform? Thank you so much.
spk01: I think your first question centered around the nature of our clinical trials that are forthcoming. We refer to the clinical trials as clinical evaluations, and they're comprised of two parts. One is a clinical trial in which our device which includes both the thermal cycling element and all the other pieces of the collection cup and how it interfaces with the smartphone and into the cloud. That is referred to as a clinical trial. And that is done on a certain number of patients in the actual trial. That is then followed by an analytical process and the two of those features together, both the clinical trial and the analytical data become the two-part piece that is submitted to the FDA for our EUA or emergency use authorization. A clinical trial for an emergency use authorization is not particularly large in terms of the number of patients. So we anticipate that that will be concluded in relatively short term once we begin them in January of 2023. Once we compile the data and submit it to the FDA, it's up to the FDA as to how soon they respond to us. So that's kind of where we lose control of the timing mechanism. You also ask about how we view COVID in relation to our at-home and point of care. We believe going forward that the new device, which is very revolutionary in that it is sort of the epitome of being able to do fast, accurate, and inexpensive multiplexed interrogations of pathogens. So we're enthused about the fact that going forward, this is much more than a COVID story. This is definitely not a lottery ticket on COVID. COVID, as we have asserted for a long time, will be with us basically till the end of time as the experts and epidemiologists around the world have averred. So we really look at this as putting us on a much broader plane of operation where we're dealing with all kinds of other things that are endemic in nature, particularly things like tuberculosis. You know, tuberculosis kills 1,000 people a day roughly in India and has done for many, many years, does the same in China. We are now going to be entering into a world where our proprietary co-primer technology is going to be applied against a whole bunch of other infections. There are roughly a million STI infections a day in the world. And these are the kinds of things that we're going to be interrogating as we go into the future. We're also working closely with certain NGOs around the world who are participating in trying to provide solutions to things like tuberculosis, which frankly have been rather ignored during the COVID pandemic, which is ongoing. And we are anticipating some material ramifications of those NGOs in dealing with our new platform, which enables them to put a very inexpensive solution in the hands of laboratories and governments and other end users around the world with a device that costs in the neighborhood of $300 at retail, and tests that are very inexpensive compared to what's offered by the competition. You also ask about our competition. We really believe that our device stands by itself and speaks for itself in terms of how it competes with what else is out there. This is not an antigen test. It's not an isothermal or lamp technology test. It's a PCR test. And in our minds, you know, if it's not PCR, it's not really a test in many aspects because PCR is, according to the CDC, the gold standard for testing, and it is a molecular test. It is the full power of PCR, and it's enhanced by our co-primer technology, which I really want to emphasize is a critical component of what we're doing here. Co-primers enable PCR, which can already multiplex. It enhances the ability of the multiplexing, and our device enhances it further through the use of both, you know, PCR color and MELT technology. So we've got a very, very potent combination that we're going to be unleashing at price points and in relationships that we think will really make a serious play on the diagnostic space of the world.
spk05: Thank you so much.
spk00: Again, if you have a question, please press star then 1. The next question comes from Theodore O'Neill with Litchfield Hills Research. Please go ahead.
spk03: Thanks very much. The question I have is on the strategy for the PCR home test. Wouldn't it make more sense to market this to doctors' offices and veterinarians first and then have it sort of become the gold standard and then bring it to the masses? And I was wondering if you could talk about why you've chosen it to market to the masses first.
spk01: Yeah. So, Theo, and it's nice to hear from you, Theo. This was also part of the question that was asked by the analyst, Rachel Wainwright, of We are marketing to both the at-home market and the physician office and the dental market, and, you know, secondarily to that, to the veterinary market and chiropractic market and such. We have spent a considerable amount of money on field market researching with Radius, which is a very good company in field marketing research, one of the best in the world. And so they've done a significant study for us as to how our product would be received and at what price points and such. And you are quite right. The physician and dentistry markets are a prime area for the introduction of this test on a point of care basis. We refer to the product as it relates to physicians and dentists as the Kodiak's PCR Pro device. But it is basically the same device. And I think the takeaway I would want you to get from this, Theo, is that we've taken more time than we had originally expected to bring this device to get ready for the clinical trials. And at the end of the day, we ended up with a much more robust device than we had previously set out to do. And so we're very comfortable taking it into the physicians and dentists and into those markets that Indeed, really a great market to take this. That's what we will be doing. We'll be doing that concurrently with what we're taking into the home market. It's going to involve more than just the home market right from the get-go.
spk03: Okay, that makes sense. Got it. Thanks.
spk00: At this time, there are no further questions. So this concludes our question and answer session. I would like to turn the conference back over to Dwight Egan, CEO, for any closing remarks.
spk01: To conclude today's call, I want to highlight the progress the company has made since the beginning of the pandemic in developing a long-term strategy around our exceptional new Kodiak's PCR home platform. Beginning in the spring of 2020, the company recognized that COVID-19 could be the catalyst for creating a new platform whereby the company's proprietary co-primer technology could be combined with an inexpensive instrument that could drive testing down to the at-home and point-of-care markets. And not just for COVID-19, but for a whole range of diseases such as flu, RSV, STIs, tuberculosis, and others, the companies we have partnered with on the new platform harnessed skill sets of an incredible team of scientists and engineers. Then we bought those companies. This resulted in CoDiagnostics owning all of the intellectual property associated with the new platform and obviated the need to pay royalties on prospective sales. It also provided the company with a tremendous brain trust of talent to continue the development of the platform into the future. The results of these strategic moves has placed CoDX at the epicenter of a diagnostic phenomenon where disease detection is moving rapidly away from centralized healthcare settings to more proximate and accessible point-of-care and at-home locations. Our new platform isn't just a competitor to other less robust technologies such as antigen and isothermal-based tests. Rather, we believe our invention stands on its own at the top in a class of its own with specifications and price points that have the potential to make us the leader in fast, inexpensive, and accurate molecular diagnostics. We are enthused to be soon in concluding the necessary requirements to enable the company to sell this revolutionary new product, which will ultimately provide the world with access to one of the most important inventions ever produced for the diagnostic space. Thank you to our shareholders as well as to the whole Codex family of employees, distributors, and consultants for joining us in this broad and significant undertaking. We look forward to talking with you again after the next quarter. Good day.
spk00: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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