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spk00: Good day and thank you for standing by. Welcome to QHealth's third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Caroline Corner. Thank you. Please go ahead.
spk01: Thank you, Operator. Welcome to QHealth Third Quarter 2021 Earnings Call. Joining me on today's call to discuss our results are Ayub Katak, Chairman and Chief Executive Officer, and John Gallagher, Chief Financial Officer. Our prepared remarks will be followed by a Q&A session. During this call, we will be making forward-looking statements, including statements related to the expected performance of our business, future financial results and guidance, strategy, long-term growth, and overall future prospects, as well as the impact of the COVID-19 pandemic. We wish to caution you that such statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those we projected or implied during this call. In particular, those described in our risk factors included in our final perspectives related to our initial public offering dated September 23, 2021, and in our Form 10-Q for the third quarter of 2021 that will be filed following this call. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of the date hereof, and Q disclaims any obligation to update any forward-looking statement except as required by law. Our discussions today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results, can be found in our earnings release, which was furnished with our Form 8K today with the SEC and may also be found on our investor relations website at investors.qhealth.com. Finally, a recording of this call will be available on our investor relations website shortly after this call has ended. With that, I would like to turn the call over to Ayub for his comments on third quarter business highlights. Ayub?
spk03: Thank you, Caroline, and thank you, everyone, for joining us today on our first earnings call as a public company. Q has had a strong quarter, and we're excited to share some of the recent developments in our business, including the upcoming launch of a virtual care offering and direct-to-consumer sales channel. You may have seen that we held our initial public offering on September 24th and now trade on the NASDAQ exchange under the symbol HLTH. While we've only been public for about six weeks, I'm pleased to be able to provide an update on our business today, and John will review our third quarter financial results. Before I take a deeper dive into our recent accomplishments this quarter and the path ahead, I would like to briefly introduce our company and our mission, which is to enable personalized, proactive, and informed healthcare that empowers people to live their healthiest lives. Imagine a world where you can perform a simple diagnostic test at home, get the results in minutes, consult with a doctor from your smartphone, and get a prescription ordered right away. That's what we built at Q, and starting next week, people across the U.S. will be able to do exactly this using the Q platform. When we founded Q in 2010, we recognized that the first step in most healthcare journeys is diagnosis. Despite being the basis for care decisions, the most commonly used diagnostic solutions are inadequate because they're not timely, convenient, or digitally connected to care delivery. Ten years after Q was founded, COVID clearly underscored this issue. Our flagship hardware product is the Q Health Monitoring System, a tool that changes the way people manage their health by bringing lab-quality diagnostics into the home or point-of-care setting. The system consists of an easy-to-use, portable, battery-operated Q reader, which fits in the palm of your hand, a disposable test cartridge, and a sample collection wand. The Q testing workflow is easy to use, even for a lay user, and provides digitally-connected results directly to the user's smartphone in about 20 minutes. The QCOVID-19 test, FDA authorized both at the point of care and for at-home use, is our first commercially available diagnostic test product and is the driver of our revenues to date. It has been validated by a Mayo Clinic independent clinical study demonstrating 97.8% agreement between the QCOVID-19 test and central lab PCR testing. This unique combination of convenience, accuracy, ease of use, and digital connectivity of our test product offering has led to rapid adoption making us the official home and point of care test of the MBA, and both Google and Netflix have adopted Q for their entire U.S. employee bases. While we certainly don't see ourselves as just a COVID testing company, our COVID product has allowed us to validate our technological approach, dramatically scale our production, and create an installed base of Q readers among a quickly expanding set of customers. The course of COVID has proven very difficult to predict. but our recent experiences indicate that with the rise of variants and breakthrough infections, even among fully vaccinated individuals, many customers and notably large self-insured enterprises and public entities have shifted from thinking about COVID as an acute crisis to thinking about it as an endemic disease that they must manage for the long term. On the consumer front, we expect that individuals will have an ongoing desire for quick and easy to use COVID self-testing when they have a suspicion of infection wish to engage in social activity with peace of mind, or need to satisfy various testing mandates. And as the prevalence of COVID ebbs and flows, we anticipate ongoing outbreaks, both nationally and internationally. Accordingly, we expect demand for our COVID-19 testing products to continue for some time. Our installed base of Q readers, driven by our success with COVID testing, will be compatible with all planned Q tests, including respiratory health, women's health, men's health, sexual health, cardiometabolic health, and chronic disease management testing. Paired with our durable reader-based infrastructure, we believe our COVID test and future test pipeline addresses the $30 billion diagnostic market, including a $10 billion at-home testing market and a $20 billion point-of-care testing market. But diagnostics is just our starting point. From our founding, we intended to build on our core competency in home and point-of-care diagnostics, to offer a comprehensive digital health solution that redefines how people access healthcare. That's where our Q integrated care platform comes in. Through the integrated care platform, consumers will be able to consult with a physician via telemedicine, conduct a supervised test compliant with CDC requirements for international travel, and order a prescription all through the Q Health app. Customer health information is stored in our HIPAA compliant Q data and innovation layer, And Q test results can be connected to a doctor, pharmacy, or electronic medical record. With the launch of our virtual care platform, which I'll discuss more in a moment, Q marks its entry into the $120 billion digital health market. Through our integrations with last-mile delivery, we're well positioned to deliver product right when people need it. And as new COVID-19 antivirals enter the market soon, with the requirement of time-sensitive administrations, We expect our platform to give consumers the ability to go from testing using the Q-COVID-19 test to sharing results with a doctor immediately within our app to getting the right antiviral treatment, if appropriate, all within the comfort and convenience of their own homes. We're very excited for this big step in realizing our vision of making the healthcare system more accessible, convenient, and timely. With that overview, I'd now like to turn to our third quarter performance and recent highlights. As John will discuss in greater detail, our revenue in the third quarter of 2021 was $223.7 million, up from $64.5 million in Q1 and $137.4 million in Q2. We break our revenue streams into two sectors, private sector and public sector. Within the private sector, we have three customer categories, enterprise, healthcare providers, and starting next week, direct-to-consumer, or D2Cs. Public sector revenues include our $481 million agreement with the Department of Defense and U.S. Health and Human Services, or HHS, as well as revenues from other public sector entities, such as state public health departments. During Q3, we saw rapid growth in revenue contributions from the private sector. 58% of our product revenue came from the public sector and 42% from the private sector, compared to private sector contribution of 4% in Q1 and 24% in Q2. In the public sector, we continue to deliver against our DoD agreement. We've scaled our manufacturing to an average of over 60,000 test cartridges produced per day, and we'll continue to deliver product through the end of Q4. We're in the midst of ongoing conversations with DoD regarding contract renewals and broader opportunities. The DoD contract has also served as a starting point for direct deals with a number of organizations that originally provided Q products as part of the DoD contract, including Colorado Department of Public Health, Geisinger, and NASA, among others. In Q3, we nearly tripled our direct customer base, adding over 50 customers, ending Q3 with over 80 customers. This does not include new accounts acquired through distributors nor new end-user organization accounts in the public sector acquired through our DoD agreement. While not a metric we will update going forward, we're offering this to frame our growing customer diversification. Moving on, I'm really pleased with the progress made by our R&D team. We're progressing well against our near-term milestones for our menu expansion as laid out in our S-1. To review, our pipeline of tests, all of which integrate into our Q-Reader, include COVID-510K, flu, flu-COVID multiplex, RSV, strep, chlamydia gonorrhea multiplex, herpes, fertility, pregnancy, cholesterol, inflammation, HbA1c, and vitamin D. Well, I know that's a lot of targets. Let me update you on some key developments. Starting with our goal of 510K clearance for our COVID product, we've completed the clinical study site selection and onboarding and have started enrolling patients in the study. We will continue enrollment through the first half of 22. For our flu test, we're in the process of clinical study site selection and onboarding, including IRB submissions and contracting, and we anticipate admitting patients into the 510 study beginning in December. Notably, funding for the COVID and flu clinical trials is provided by BARDA, the Biomedical Advanced Research and Development Authority, a division of HHS and longtime partner of Q. Validation studies for our RSD test are expected to start by Q1-22. For our flu COVID multiplex test, we have completed chemistry proof of concept and we are now in late stage technical development. Tests within our sexual health category are on track as well with our chlamydia gonorrhea multiplex test in late stage development. So more to come later there too. We are investing heavily in ramp up of our R&D operations to get the testing products in our pipeline to market as soon as possible. Moving to a software and services update next week, simultaneously with our D2C launch, we are rolling out our integrated virtual care offering. This integration enables us to provide users the closed healthcare loop, providing a diagnostic result, a virtual physician visit, and a prescription ordering all in the QHealth app. We also launched in-app supervised testing compliant with CDC requirements for international travel. Our software development team has been driving the integration of last-mile delivery applications to enable convenient queue product delivery to homes. Our integration with DoorDash, for example, will allow for same-day delivery of queue readers and tests in many locations. Turning to manufacturing, I'm very proud of the crisp execution of our manufacturing team as we successfully scaled capacity to meet burgeoning demand. Importantly, all of our automated lines built to date are universal, meaning they can produce any test in the Q pipeline. We recently hired a chief operating officer, David Arita, who joined us from Dexcom, where he managed a worldwide operations organization and set up global manufacturing sites as the business scaled from $60 million in revenue to $2.4 billion in 10 years. We are excited to leverage David's experience as we continue manufacturing expansion. Turning to our commercial team, based on our experiences to date, we've chosen to build out our internal sales force to tackle larger opportunities like enterprise clients and hospital systems, and also work with distributors like Henry Schein and Medline to approach doctor's offices and other fragmented markets. This model has worked well so far. As a recent illustration of our direct sales force's progress with hospital systems, both Memorial Hermann and Geisinger have entered into contracts in the last few months and we're currently integrating into their EMR systems. We believe sales to our provider customers are going well so far, yet we are still clearly early in the build-out of our commercial team, so we'll make adjustments as we learn over time. In the enterprise customer category, we are seeing increased interest by large employers looking to provide Q to their employee bases. We've also expanded our existing enterprise relationships. For example, the NBA is now providing Q to all 30 NBA teams and the league's referees in the in this season, as well as to the WNBA and NBA's minor league. This adoption is an expansion of the successful pilot program the NBA ran using Q last season. Similarly, Netflix originally contracted to use Q in just a few offices as a return-to-work effort and has now expanded to all offices and recently contracted to provide Q readers and cartridges to its U.S.-based employees. We believe we are winning over highly sophisticated enterprise customers, not only because we have a class-leading solution to COVID-19 testing, but also because we offer a compelling and cost-efficient employee health solution for the future. Moving on to the direct-to-consumer customer category again, we are very excited that our D2C sales channel launches next week, enabling new retail consumers and current customers to purchase Q products directly from our app and website. With same-day delivery of the Q products, health monitoring system, and test kits in many major markets. The DDC offering also provides the ability to subscribe to Q+, our new membership program, which bundles access to our connected diagnostic product with 24-7 virtual care and supervised testing for travel. Looking ahead now, I'd like to lay out our key growth drivers to help frame how we are planning to build our business and reach our goals. Our first driver is our focus on commercial execution through building and diversifying our customer base. We nearly tripled our private customer base in Q3, and going forward, we expect our sales force to drive continued customer acquisition in both the private and public sectors. Within the private sector, we're adding new enterprises, distributors, and large healthcare networks, as well as investing in the success of our D2C program through our first large-scale marketing and advertising campaign. On the public side, In addition to our continued relationship with HHS DOD, we are engaging directly with several state health systems, school systems, and other government organizations. While our recent focus has been on domestic revenues, our regulatory authorizations in locations like Canada, the EU, and India demonstrate the global acceptance of Q's technology and the trend of global regulators permitting users access to at-home testing. XCO's authorizations open up new customers, and also allow us to better service our enterprise customers, many of which have a worldwide footprint of employees. We've already begun product sales into the Canadian professional market and look forward to expansion into other international markets. Our second growth driver is expansion of our testing menu. Our COVID-510K trial is underway with our flu clinical trial and RSV validation studies starting soon. I very much look forward to updating you further on these efforts as they progress. Our third growth driver is building the technology enhancements for our integrated care platform. As we proudly launch our virtual care integration, supervised testing for travel, and e-prescription capabilities, we are also working towards further enhancements to provide a comprehensive and seamless digital health experience. For example, We're currently working to incorporate same-day prescription delivery, the ability to connect with and send test results directly to one's preferred primary care physician, and the ability to book a virtual care appointment in advance. We'll also be improving supervised testing functionality to allow users to schedule an appointment for a supervised test with 24-7 coverage and minimal wait times. A recently announced partnership, Google Cloud, underscores our focus on enhancing the analytic capabilities of our data and innovation layer. Through this project, Q plans to equip public health officials and researchers with critical real-time information about variant types, including their geographic distribution, as well as adding predictive capabilities to help identify and curb emerging threats. It is our plan this will be a useful tool, not only in the fight against COVID-19, but also to mitigate future outbreaks of other infectious diseases, such as influenza and RSV, which, as you know, are tests in our pipeline. At the same time that we are enhancing our virtual care model, we are continuing to build out integration with EMR systems at our hospital customers so that our platform can span the continuum between physical and virtual care. In support of this third growth driver and knowing that progressive development of our software and services offering is key to our continued success, we recently hired our Chief Technology Officer, Alan Gao. Alan brings over 20 years of experience leading software development and engineering teams at some of the world's leading technology corporations, like Microsoft, Amazon, as well as PillPack, an online pharmacy that offers e-prescriptions, medication sorting, and delivery. We are thrilled to have him on board and believe Alan will be instrumental in driving the technical integrations I mentioned. In summary, we are proud of our recent progress and we are excited by the many opportunities ahead as we work to fulfill our mission of making healthcare more timely and accessible. We see continued expansion of our customer base, product offerings, and software and services on the horizon as we look to become the healthcare delivery platform for the next era. We are truly just getting started, and I look forward to updating you on our progress on future calls. With that, I'll turn it over to John to walk through our financial results.
spk07: Thank you, Ayub, and good afternoon, everyone. In Q3, we had a record quarter with revenues of $223.7 million, up 63% from 137.4 million in the prior quarter. Please note that I'll be providing sequential quarterly comparisons. Our rapid growth this year makes the quarter-on-quarter view most meaningful. As Ayoub mentioned, we split our revenue by public sector and private sector. The growth in revenue was driven by both public and private sectors. Public sector revenue accounted for 129.5 million, while private sector revenue accounted for 94.2 million. Public sector revenue grew 23 percent sequentially from Q2 and accounted for 58 percent of total Q3 revenues. For reference, the public sector was 76 percent of total Q2 revenue. Private sector revenue grew 191 percent versus prior quarter and accounted for 42 percent of total Q3 revenue. As a comparison, private sector revenue was 24% of the total in Q2. Also in the quarter, we sold approximately 56,000 readers. As a reminder, these readers are sold to our customers who then distribute them to the end users. As we initiate new customer contracts, we expect reader sales to fluctuate quarter to quarter. Disposable test cartridge sales in the quarter were $179 million, up 74% sequentially over Q2. Moving down the P&L, product gross margin was 60.2% for the third quarter, compared with 59.9% in the prior quarter. The gross margin benefited quarter on quarter due to the increase in production. That benefit was partially offset by higher labor and material costs. Despite global supply chain constraints, we've been successful in obtaining necessary components and meeting our customers' expectations for supply of our product. Operating expenses were $47.6 million in the third quarter, up 171% from $17.6 million in the second quarter. R&D expense was 9.1 million in the third quarter, up 98% from 4.6 million in the second quarter. The increase in R&D expense was driven by growth in the R&D organization, mainly headcount, as we continue to work on menu expansion and prepare for upcoming clinical studies. Sales and marketing expense was 5.6 million in the third quarter, up 264% from 1.5 million in the second quarter. The increase was driven by headcount related to the expansion of our commercial and sales team, along with some initial investment related to our upcoming D2C launch. G&A expense was $32.9 million in the third quarter, up 187% from $11.5 million in the second quarter. The increase in expense was related to added headcount to manage a growing organization and also includes a one-time equity expense of $12.9 million. As we continue to invest in the business, OpEx, most notably sales and marketing and R&D, will accelerate in the amount of spend. Net income for the third quarter was $19.3 million compared to net income of $19.8 million in the second quarter. This translates to an EPS of 13 cents in the third quarter versus 14 cents in the second quarter. Net income reflects a 61% effective tax rate for the quarter. For some color on this rate, IPO-related equity adjustments of $49.2 million are not deductible for tax purposes, driving the tax rate higher in the quarter. Adjusted net income for the quarter was $67.1 million, up from $50.2 million in Q2. This translates to an adjusted EPS of 52 cents in the third quarter versus 37 cents in the second quarter. Q3 was impacted by one-time equity adjustments related to the initial public offering. Moving to the balance sheet, we finished the third quarter with cash and cash equivalents of $446.6 million. This represents an increase from the prior quarter of $200.3 million primarily driven by IPO proceeds of $213.9 million net of commissions to underwriters. This cash positions us with a strong balance sheet and the ability to invest in the business to execute on our strategy and vision. I'd now like to move to our full year 2021 guidance. Based on our expectations and contract pipeline, we expect full year revenues in the range of $580 million to $590 million. With that, I would like to thank you for your attention, and I'll now turn the call over to the operator for questions.
spk00: To ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. We do ask that you limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Your first question comes from the line of David DeLaHunt with Goldman Sachs.
spk04: Hey, guys. Congrats on the strong quarter. Great to see the DSC business getting ready to launch soon. Certainly a great opportunity for you guys. Could you tell us more about how many customers you're expecting to sign up for membership over the next few quarters in the next year?
spk07: Hi, Dave. This is John. Yeah, thanks on the quarter. Appreciate that. And we're very excited about the D2C launch. As you noted, it's coming next Monday along simultaneously with the virtual care offering. As we look at customers, hey, look, you know, this is early days for us. We're a pilot for D2C. We're very excited about the prospect here, and it's a great opportunity to make brand awareness for Q and our product out there. But it's a little early to call, you know, how sizable of an impact this will be.
spk04: Got it. And on the customer ads, could you tell us what was the mix of enterprise provider and public customers?
spk07: So we had across the board, actually. So even in the short time since we did the IPO, we've added additional customers there. So we referenced during the prepared remarks, we talked about the add of customers, and that was nearly three times of where we were previously, and that was up about 50. Even since the time of the IPO, we've added some more key, marquee customers there. across each of those categories, Dave. So for enterprise, we've got enterprise-wide Netflix now. As we look at, we also added Major League Baseball. We've got Guy Singer. And so that's taking us across the private category.
spk04: Got it. Thank you.
spk07: Thanks for the questions, Dave.
spk00: Your next question comes from the line of Tejas Savant with Morgan Stanley.
spk05: Hey, this is Neil on for Tejas. So in light of the strong momentum in 3Q, could you quantify what's driving the quarter-over-quarter decline implied by the guide? And what could drive upside to 4Q?
spk07: Yeah, yeah, sure, Neil. So as we look at Q4, this is playing out exactly as we had expected. So, you know, we had peak orders and shipments for DoD in Q3. And we knew that would be the case. And so as we move into Q4, DOD-related shipments, as we finalize the initial contract with DOD, are going to be lower. So that's really the primary driver of the down sequentially that you would see in Q4. What I'd want to note, you know, that being said, we have an installed base now of 30,000 readers across 19 different states. And we're already seeing demand signals coming in directly from some of these states and municipalities. So, you know, we feel good about the positioning there, but that's what it's really in the public, on the public sector side that you'd see that.
spk05: Got it. Thank you. And how are you thinking about the roadmap for international expansion? Can you maybe touch on some of the strategies for DDC in Canada and India, and can you kind of quantify what you expect the contribution for Canada to be going forward?
spk03: Hey, this is Ayub. So as I noted, we have already started sales in the Canadian professional market. In the third quarter, we also received the authorization for over-the-counter in Canada, and we expect to roll out into the Canadian OTC market very soon. And internationally, in Europe and India, we are working on expanding. We do have a very global product, a very global value proposition. There's a lot of work to do already here in North America, so it is a priority. And I think the notable thing is that worldwide, you're seeing this macro trend of regulators and public health officials and physicians all getting behind this idea of testing at home. And that's really a big tailwind for us, macro, for the future.
spk05: Got it. Thanks for taking my questions. Oh, actually, you mind if I ask one quick one?
spk07: Go ahead.
spk05: So could you tell us about some of the enterprise users like Google and Netflix and receptivity to using the platform in a broader context beyond COVID?
spk03: Yeah, we believe that we have a compelling overall solution for healthcare delivery, and I think they see that. I think they understand the value proposition of having a single health monitoring system to be able to run multiple different types of diagnostic tests that their employees want to see, and that in the net, reduce their costs over time and are able to provide a health care benefit that will make their employees happier, healthier, and more productive.
spk05: Got it. Thank you. That's it for me.
spk00: Your next question comes from the line of Charles Rahey with Cowen.
spk02: Yeah, thanks for taking the questions. Hey, I just wanted to follow up, John. You said 30,000 readers. Was that 30,000 readers added in the quarter on top of where you were at in 2Q?
spk07: Hey, Charles. No, no. What I was referencing is the fact that we've shipped and have in place 30,000 readers associated with the DOD HHS contract.
spk02: Oh, I see. What is the total number of readers? Between public and private?
spk07: Yeah, what I mentioned was 56,000 readers on the quarter, and so what that does for us right now is we are north of 120,000 readers in total, cumulatively.
spk02: Great. Okay, that's helpful. And then if I could ask, you know, congrats on the progress you're making in terms of signing what sounds like a very diverse and good slate of clients here you know as we think you know not to jump ahead too early here but as we think about next year i know you mentioned dod you're talking about already for renewals uh maybe an update on on the google contract i think that comes due shortly um and then it's just we think about coverage for next year revenues can you give us any kind of comments around that yeah sure charles
spk07: So as we look at next year, there's three key points that I want to lay out there. The first is, you know, what we're seeing is the pandemic will shift to endemic over time. And what we're also seeing correlated to that is a shift in buying patterns to longer term in nature. And that's with a focus on managing risk, both for organizations and their employees. So that's point number one, again, all in relation to how do we think about next year, 2022. Point number two is, you know, during this year, we've seen peaks and valleys in COVID testing. We've experienced that throughout the year. And despite that, Q has grown both into the peaks and into the valleys. And there's a reason for that. And that's because the market recognizes that we've got a highly differentiated solution. And the third point that I would want to make is just look at the momentum in the business right now. Our three Q results really speak for themselves. And as we mentioned in the prepared remarks, we said, hey, we've nearly tripled our private customers in the quarter. Even in the short time since the IPO, we've added Netflix, we've added Major League Baseball, we've added Geisinger, in addition to Google, Mayo, and the NBA as a very strong stable of customers so that the customer diversification aspect is growing. And so as you take all these points together, that gives us a lot of confidence as we head into next year.
spk02: No, that's really helpful. If I could just have one last follow-up here. you talked about obviously the guide increase implies 4Q is going up as well. Maybe as it relates to the DoD, I think you mentioned earlier a big part of the revenues this quarter was shipments to the DoD. In terms of tests, you know, how many tests have you delivered to DoD through the end of third quarter and maybe kind of any estimate for what you expect for fourth quarter in the public sector?
spk07: Yeah, yeah. So total tests, in cumulatively have been 4.6 million through the quarter. And, you know, when you do the math on that, you'll see that, you know, what we're looking at is 1.4 then in Q4. And so that's the reason, you know, the implied guidance for the quarter is down a bit because we knew that we'd be peaking in our shipments to DOD. And so as we move into Q4, we're finalizing those shipments on our initial contract.
spk02: Great. That's helpful. Thanks a lot, guys.
spk03: Thanks.
spk00: As a reminder, if you would like to ask a question at this time, simply press star, then the number one on your telephone keypad. Your next question comes from the line of Mark Massaro with BTIG. Hey, guys.
spk06: Thanks for the questions. Congrats on the IPO and the really terrific start as a public company.
spk07: Thanks, Mark. Appreciate that.
spk06: Yeah, my first question is really just seeking a little more intel on the DTC. Obviously, it's a very exciting, huge potential market. You know, obviously, you know, offering the Q reader on your website and on your mobile app would be most helpful, I think, if people knew that they should go to your website. So can you just speak to what types of strategies you have in place? Is it TV? Is it radio? You know, and I would love to hear any comments about your willingness to potentially put the Q reader either into an Apple store or perhaps pursue Amazon.
spk03: Thanks, Mark. So to answer your question, yeah, we're very excited about it, not only because it's a new sales channel for us, but it's also the coincidence with the release of the rest of our virtual health platform with integrated virtual care, supervised testing for travel, and a bunch of other things. So as we think about the prospects in this area, you're correct that marketing and sales is a line item that we haven't invested really heavily in in the past, and so this will be the mark of our first major advertising and marketing campaign. And so you're looking at a mix of digital, out of home, and TV in order to execute this campaign.
spk06: Okay, that's super helpful. So I understand, so it's going to be a combination of digital and TV. Would you be willing to comment on your willingness to pursue Amazon as a strategic partner or perhaps Apple or some other large retailer that's either digital or bricks and mortar?
spk03: Yeah, so our strategy on the actual fulfillment and distribution aspect to DTC is really to oriented around when people want it, they really need it right then. And so that's why we're doing the integration with DoorDash to get the product to people on the same day that they want it, right, in many major markets. You know, if you think about how COVID works and when people have a concern or they want to buy on the consumer side, they really want to know right then. And so the distribution strategy, fulfillment strategy reflects that. And so We wanted all the intelligence that we could get in terms of how to approach the market and learn from it, and we felt like we would have greater visibility to that if we controlled the distribution a little bit more tightly.
spk06: Okay, that's helpful. I also wanted to ask about your influenza clinical trial. So, you know, I believe you indicated you plan to enroll patients in December. Will that be for standalone flu, or will that be flu-COVID combo? And then related to that, last year was a really bizarre flu season. There was no flu. Is it fair to say that we will need to see flu prevalence for you to enroll and complete enrollment of that trial?
spk03: So the flu 510K process is kicking off in December with the start of enrollment then. We've already done site selection, contracting, and so, you know, things are expected to begin in December, and that's for flu standalone. And for COVID-510K, the clinical studies have already started as well, so we've already started enrolling patients, and that's expected to continue through first half of 2022. The COVID flu combo is on a different track, so we entered in late-stage technical development here in Q4, just as planned, and that has an EUA potential, and so we're looking at that as part of the pathway for that.
spk06: Yep, that's super helpful. I guess, you know, I think there was a question earlier about large contract renewals. I guess wanted to just see what your degree of confidence is, or if you've heard anything from your two largest customers about appetite to continue ordering through 2022, for example. And then the other part of the question is consensus, at least heading into this call, looked like people were modeling, on average, some type of decline in 22 relative to 21. You know, given your comments that you believe that COVID will be endemic, what are your thoughts about the likelihood that you will grow revenue year over year in 2022?
spk03: So one of the interesting things from today, and it's kind of late breaking news, is that the Biden administration issued a RFP request for proposal for molecular testing at the point of care. And, you know, today a lot of the buying activity has been on the antigen side. So it's welcome to see that the Biden administration is taking a multimodal approach to testing to help manage this next phase of the pandemic. With regards, and as we noted in the prepared remarks, we have been having ongoing discussions with respect to future contract renewals. And while we can't comment specifically on the details of our existing private customers, we could say that, as we mentioned, we grew significantly the customer base on the private side, and we've been signing deals that take us into 2022.
spk07: Yeah, and Mark, as far as just building on the question around 22 and the consensus there, as I mentioned earlier, we've got a ton of momentum going in the business right now that's going to carry over into Q4, particularly on the customer diversification side. And then what you've just mentioned regarding the public sector is certainly interesting news. for all of us to take a look at. So we'll give you more on 22. Obviously, on the next call, we'll guide 22, but that's probably what we've got for now.
spk06: Awesome. Just one last one for me. It's a two-parter. Obviously, you've increased some investment into your growing business. Can you give us a sense for the size of your direct sales force? I mean, obviously, you're working with distribution and you're going DTC. but maybe like where you are now and where you think you'll be a year from now. And then maybe a clarification question. You know, your install base is now what appears to be about 123,000 queue readers. You indicated that you sold 56,000 readers. How many of the 56,000 are in the field being used, if you're aware of that? Because I understand some of those might have been stocking orders to distributors.
spk07: It takes time for the readers to get in service. So I think one of the things to recognize is that we're recognizing that revenue when we ship, and we're talking about those numbers when we ship. And then we ship to our customers who are not ultimately the end users, and then they're having to distribute out to the ultimate end users. So I guess that's the way of saying it. It can take a little while to get all the way through, Mark.
spk03: That being said, the majority of the readers we're seeing are activated, or we believe they are. And so we have tens of thousands of users who are actively using the product and running tests.
spk07: And then on your question related to the sales force, obviously that's an investment item for us. And as I mentioned in the prepared remarks, we expect OPEX inclusive of sales and marketing to increase because we're investing in the commercial and sales team, as well as in the marketing aspects related to D2C. So we've definitely seen traction in ramping up our sales team, and that's something that you're going to see continue into Q4. So the spend that you see in sales and marketing in this quarter will go north of $20 million as we look at Q4.
spk06: Terrific. That's it for me. Congrats on the strong progress.
spk07: Thank you, Mark.
spk00: At this time, that does conclude our question and answer session. And this does conclude today's conference call. Thank you for participating. You may now disconnect.
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