Cue Health Inc.

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.

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?

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.