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spk00: Good afternoon, ladies and gentlemen, and welcome to the Lucera Health Fourth Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to Greg Kotachek from the Gilmartin Group. You may begin.
spk01: Thank you, Catherine. Good afternoon, everyone. Earlier today, Lucera Health released financial results for the fourth quarter ended December 31, 2021. A copy of the press release is available on the company's website. Joining me on today's call are Eric Engelson, President and Chief Executive Officer, and Dan George, Chief Financial Officer. Before we begin, I would like to remind you that during this conference call, the company will make forward-looking statements regarding future events. We encourage you to review the company's past and future filings with the SEC, including without limitation, the risk factor section of the company's annual report on Form 10-K and and quarterly reports on Form 10Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements. These factors may include, without limitation, statements regarding product development and manufacturing, product potential, the regulatory environment, sales and marketing strategies, capital resources, or operating performance. With that, I will now turn the call over to Eric.
spk03: Thank you, Greg. Good afternoon, everyone, and thank you for joining us. Welcome to the fourth quarter 2021 earnings conference call. The COVID-19 pandemic has reshaped society's experience with an expectation of healthcare delivery, and Lucera's instrument-free, accurate, easy-to-use molecular test, we believe, offers the performance and patient convenience to play a critical role in what McKinsey and Company recently described as the care at home ecosystem. Lucera Health's mission is to help fuel the growth of test to treat, an important paradigm in reducing suffering from infectious disease. We believe bringing decentralized testing and as a result subsequent treatment to wherever patients may be, the spread of infection can be reduced by limiting the circulation of infectious individuals among the healthy. The ideal location for such testing is in the home. By providing an accurate result within 30 minutes, the Lucera platform enables rapid treatment, and treatment as close as possible to the onset of symptoms has been shown to produce the highest efficacy. Helping to return people to health as easily and quickly as possible is what we are all about. And while COVID-19 testing catalyzed our initial growth, we have broader plans for the test menu that we will bring to market in the coming months and years. This is the power of Lucero's platform, a technology that was years in the making. Revenue in the fourth quarter of 2021 was close to double that of the prior three quarters combined as a result of increased manufacturing output. Manufacturing capacity is continuing to increase in the first quarter of 2022, and we remain on target to reach 1 million units per month during the first half of 2022. Our plan is to continue ramping manufacturing capacity in 2022. Our three main sales channels remain B2B, healthcare, and international, where we have contracted buyers across these channels. Additionally, we also support important online channels such as Amazon, as well as ordering through our websites. Q4 represented our lowest cash burn and net loss in the company's commercial history. We anticipate that 2022 will produce positive adjusted EBITDA. The instrument-free design of the Lucero product is a key differentiator and opens up unique use cases in which there could otherwise be testing bottlenecks or logistics challenges and time delays around an instrument. Multiple members of a household can test simultaneously, as can clinic and hospital emergency department patients during surge times. The convenience for the healthcare system of sending an untethered Lucera test to a patient's home for pre-procedural testing is high due to the instrument-free design that produces rapid results on the spot. The simplicity of operation of the Lucera test means that it is well-suited for individuals who want a quick, easy, and accurate test result without having to come up a learning curve on the more complex user instructions associated with an instrumented test. This also means that in the point-of-care setting, the Lucera test can be run by any member of the staff and not relegated to those with specialized training. With respect to accuracy, molecular tests are unequaled as compared with antigen tests. As the pandemic likely evolves toward an endemic phase, we anticipate that the FDA will eventually call for 510 submissions for testing products. Lucera is well positioned for this shift because our at-home molecular test provides PCR equivalent accuracy. We believe international markets and particularly those in the southern hemisphere, will offset fluctuations, seasonal and otherwise, in the U.S. market as we expand globally. Enterprise customers and hospital systems, like current client Sutter Health, represent a durable use case for Lucero's products, even as COVID shifts from pandemic to endemic. We have been and will continue focusing commercial, and regulatory investments in these business-to-business, healthcare system, and international channels. Our near-term product portfolio includes the development of a combination or multiplex test for flu A, flu B, and COVID-19. Our plan is that with a single swab sample, a user can have results from these three tests all in one device at the same time. We anticipate that running the combo test will be as simple as running our current COVID test. The combo test program is moving forward rapidly, and we anticipate receiving an EUA from the FDA in time to commercialize for the 2022 to 2023 flu season in the Northern Hemisphere. We believe that the benefit of using the combo test early in the onset of symptoms in the convenience of one's home fits the test-to-treat paradigm in which Leucera intends to play a significant role. By testing and having highly accurate results early, quick treatment and quarantine can lead to a reduction in suffering for the infected, as well as contributing to the important public health service of infection control. We believe that this broad control of infection can significantly reduce suffering and productivity losses. The increased availability of accurate molecular home tests and the awareness and use of such by the public is one of the benefits that has arisen from the otherwise treacherous pandemic. Additional tests on our platform are undergoing feasibility evaluations. These include additional respiratory tests and STI tests. We will provide details of the next products to be commercialized. as we report in the coming quarters. We intend to bring a full complement of tests to market and to lead the global expansion of convenient home testing. We are also continuing to add to our digital team with additional deeply experienced hires. We intend to enhance the utility of Lucy, our digital reporting platform. Over time, we expect our digital platform to become an important part of our commercial offering. Lucera's COVID-19 test kits, as a result of their performance, ease of use, and because they are untethered and are uniquely positioned for the test-to-treat paradigm. We are working to build a menu of infectious disease test kits with similar capabilities. This is our focus. COVID has accelerated both Lucera's growth as a commercial enterprise, as well as the market's understanding of and demand for convenient home testing. Our time has arrived, and with each passing quarter, we believe that we are beginning to demonstrate our capability as an organization to manufacture at scale and to play a key role in reducing suffering from infectious disease. Lucera's near-term focus is on generating shareholder value. This through select global commercial expansion, continuing to roll out durable sales contracts, continuing to ramp manufacturing capacity with its associated gross margin improvements, bringing the combo test to market, accelerating the usage of convenient and accurate home testing, and playing a key role in the nascent test-to-tree paradigm. As we expand our product offering and geographic distribution, we believe we will become less reliant upon the fluctuations in demand from COVID testing alone, and we anticipate maturing in our capabilities around business forecast accuracy. Lastly, we would like to recognize employees, partners, and contractors that are working so hard to position Lucera for long-term success. We are more excited than ever about our future and look forward to Lucera's growth in the upcoming quarters. I will now turn the call over to Dan George our CFO, for a detailed discussion of our financials.
spk06: Thanks, Eric, and hello, everyone. Please refer to our press release issued earlier today for a summary of our financial results for the fourth quarter in full year 2021. Net revenue for the fourth quarter of 2021 was $61.1 million, which represented an approximate 300 percent increase over the third quarter and almost doubling of the combined prior three quarters in 2021. Our net revenue was primarily driven by contracts with businesses and distributors, healthcare providers, international sales, and direct sales to consumers. Gross profit and gross margin for the fourth quarter of 2021 was 12.6 million and 21% respectively. Non-GAAP gross profit and gross margin for the fourth quarter of 2021 was 19.1 million and 31% respectively. Our increase in gross profit and gross margin was driven primarily by operational efficiencies gained through increased manufacturing output, despite including a charge to cost of goods sold relating to excess and obsolescence of $5.2 million. Selling general and administration expenses were $11.6 million in the fourth quarter of 2021, compared to approximately $2.4 million in the same period in 2020. The increase was primarily related to increasing personnel-related costs and third-party services to facilitate commercial activities and public company compliance. R&D expenses were $9.1 million in the fourth quarter of 2021, compared to $8.5 million in the same period in 2020. New product development and validation of manufacturing activities primarily drove the increase. Gap net loss. was $7.8 million in the fourth quarter of 2021, compared to $17.2 million in the same period in 2020. Non-GAAP net income was approximately $350,000 in Q4, compared to $13.1 million in non-GAAP net loss for the same period in 2020. The decrease in net loss primarily resulted from increased gross profit. For the full year 2021, we recorded 93.1 million in revenue. GAAP gross profit for the year was 10.2 million, representing an 11 percent GAAP gross margin. Non-GAAP gross profit for the year was 20.1 million, representing a 22 percent non-GAAP gross margin. GAAP net loss was 64.8 million, and non-GAAP net loss was 46.2 million for the full year 2021. GAP and non-GAP operating expenses were $75.4 million and $66.9 million, respectively. We ended the year with $106 million in cash compared to $58.2 million at year-end 2020. The increase in cash is primarily related to our initial public offering. For 2022, we are reiterating our pre-announcement guidance in excess of $450 million revenue. For the first quarter of 2022, we estimate revenue between 80 to 85 million. The first tranche of available financing from the recently announced debt deal puts the company in a healthy cash position, and we believe our cash, our current cash, will sustain us through the balance of 2022. We expect adjusted EBITDA that excludes non-cash stock-based compensation of 30 to 35 million in 2022. These estimates reflect our most recent assessment of manufacturing output and commercial demand. Our objective is to achieve financial health in 2022. I'll now turn the call back over to Katherine for Q&A.
spk00: Thank you. To ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Our first question comes from Derek DeBruin with Bank of America. Your line is open.
spk02: Hi, good afternoon. Hey, Derek. Hey, Derek. So I'm a little bit looking at your first quarter guidance and the full year guidance. So I'm just sort of curious. I would have expected the first quarter to be a lot stronger just given the, you know, sort of the way the pandemic is sort of playing out right now and then, you know, sort of the taper off like that. So I'm just curious. It looks like, you know, implied in this you're looking at, you know, you're certainly looking for acceleration here. through the rest of the year. Can you sort of walk through how you sort of see revenues accelerating?
spk03: Yeah, sure. I'll make a comment and then I'll turn it over to Dan. Derek, thanks for the question. And, you know, I think we're clearly seeing some or expecting some seasonality as we go through the year. But we're very comfortable with the starting point and, you know, as we start these?
spk06: Yeah, I think Q1, Derek, that's a number we feel really good about in Q1. And as Eric mentioned, we expect to see some seasonality in Q1, but we're talking about a viral disease, so we're looking at some pretty heavy growth in the back half of 2022. So I would think about it as kind of Q1 being a very solid number and some, I would say, probably some flatness with a little bit of volatility through Q2 and Q3 and picking up again very heavily in the back half of Q3 into Q4.
spk02: Okay. I mean, we're in the middle of March, so as I said, it, yeah, so I just was sort of surprised that that is. So you're, so can you sort of walk us through what you have in terms of committed orders? And, you know, I think you're about 80% of your I think your guidance represents roughly about 80% of your existing capacity, if I'm not mistaken, like that. Could you sort of walk us through on, like, how you're sort of thinking about, you know, what's the committed orders and then capacity expansions to sort of fill those?
spk06: Yeah, I can go through the committed orders first. So I would look at the guidance that we provided, and about 50% of that is contracted at this point, and about two-thirds of that is binding orders. And we look at our business in four segments, right? So we have our HCP segment, our business-to-business segment, our international segment, and our DTC segment. The first three segments are really the contracted business where the majority of those contracts reside. And that's where the majority of the business is, and that's where we have the real visibility So that's where we're looking into the Q2 and the Q3 timeframe. We have some nice sustainability, which is really evidenced by the switch contract that we entered into and the Q4 timeframe, which is a great piece of evidence of our sales group going out and landing long-term contracts, longer-term contracts, especially if they have visibility. into the sustainability of our manufacturing. And that's really what happened in Q4, Derek, is we reached a level of critical mass in manufacturing that allowed us to kind of, you know, go out on the curve and allow the sales force to not just take orders, which they were doing through the Q4 timeframe into Q1, but now go out and start seeking additional business.
spk02: So should we look at like the OPEX in the fourth quarter R&D SG&A as sort of like a starting point for Q1, and would you expect it to ramp as you sort of look at – as you bring the flu-COVID combo test up in the back half of the year?
spk06: Yeah, most definitely. I mean, look, we're going to be growing – we're going to be growing to support – to actually support the business, right? So I look at it as – is a launching point. I think we have, I think what Q4 actually proved is that we have got a very nice leverageable business, but we are growing dramatically, right? We're jumping off from a $61 million Q4 number. We will be investing in R&D, like you mentioned, for that combo product. We will be investing in sales and marketing and we will be expanding our operational footprint. So I would look at I would look at those expenses close to doubling, I would say, kind of year over year to support this type of revenue growth.
spk02: Got it. And what else do you have to do for the flu combo? the flu-COVID combo. It sounded like you were still doing some finalization. You expect that to be EUA. Do you think that it will still be, you'll be able to still launch that as an EUA at the end of the year, or will it be required for a 510K by that point?
spk03: Yeah, so the product exists now, Derek, and is going through its final testing in-house and then testing required for the regulatory submissions. Our current information from FDA is that it will be an EUA. And so we're operating on that basis. If the FDA changes their mind and it's no longer an EUA, but they move to 510K, then it's not going to make this timeframe. But we have every reason at this point to believe that it will be EUA based on our conversations with FDA.
spk02: So I guess the other question sort of begs down into, like, what happens after 22, right? I mean, you're, you know, this is an unprecedented year with, you know, we had the certainly, you know, had the Omicron spike, had things still picking up, still going through with it, I guess. How should we think about, you know, what sort of embedded in your assumptions for beyond 2022? And, I mean, are you... anticipating additional variant waves? Are you doing this? Just from thinking about where this goes and sort of like how the business evolves from here.
spk03: Yeah, we're continuing to see consistent demand. And remember, we're a tiny player against a much larger market demand, even in COVID. So one point is with COVID products. we're seeing consistent demand. But then we're seeing that COVID has leveraged open this whole test to treat paradigm and consumerization of healthcare into the home. And that's what we see going forward as particularly, becomes particularly relevant and leveraged with the combo product. And then we'll bring subsequent products after that. But the combo product you know, become significant in Q4 introduction.
spk06: Yeah, and I think also, too, what, I mean, if you think about the introduction of at-home testing, I mean, we're on the cusp of creating a market. And the pandemic really allowed for this acceleration of this market creation. And then with the introduction of these new modalities, it just becomes so much more important to test to identify what somebody has early on so you can at least treat them up front. Because if you don't catch them, at least in the asymptomatic or early onset symptom phase of the disease, you can only treat symptoms. So there's definitely with the antivirals from Merck and Pfizer, along with the flu antivirals, the idea of just testing someone anecdotally by going to the point of care by your doc we think is is a thing of the past. And in fact, with the pandemic, you know, docs who used to do that are really started treating tens of millions of people through tests. So the whole pandemic reintroduced the importance of testing and with these drugs really is creating that paradigm shift of early test to treat proper identification. And without knowing if you have COVID or flu, the symptoms are identical. So it's just very important.
spk03: Derek, you can tell we're excited about this. This was the initial objective of the company when it was founded, and then COVID accelerated our ability to get to an initial scale. But we're really focused on the initial mission here, but with such increased awareness in the population now of the benefit of home testing. Great. Thank you very much. Thank you.
spk00: Thank you. Our next question comes from Brian Weinstein with William Blair. Your line is open.
spk05: Hey, guys. Good afternoon. This is Griffin. Thanks for the questions. First, on ASPs, can you just talk through where they came in on the quarter so we get a better sense of how many test kits were sold and what the go-forward expectations are for ASPs and the guidance?
spk06: You know, Griffin, we're not providing that information for competitive reasons, but we're not but we're not expecting anything really dissimilar than what we experienced in 2021. Okay, fair.
spk05: On the $450 million, any sense of what percentage of expected total production that's going to take up just, you know, based on those ramp expectations that you guys have? I mean, $50, if you just kind of assume $50, obviously 9 million tests. Any sense of what, you know, percent of total production you guys think this will account for?
spk06: Yeah, it's probably in that 75% to 80% range.
spk03: Yeah, and remember, without talking about specific production numbers other than hitting the 1 million units per month in the first half of the year, we'll continue to ramp through the year with expectations of the need for additional capacity as we get beyond the first half of the year.
spk05: Okay, so just to be clear, there's potential rent beyond the $3 million per quarter as we get into the back half of the year?
spk03: That's correct.
spk05: Okay, and then on competitive dynamics, obviously you brought that up. For the at-home molecular space, basis of competition, we kind of assume is menu and cost, but any sense of, you know, love to hear your guys' thoughts on competitive dynamics, a couple entrants in the space in the COVID space, but beyond that, your thoughts on the current competitive dynamics would be great.
spk03: Yeah, there's certainly other competitors looking at the space and participating in it. We think it's going to emerge as an extremely interesting space, just as central lab testing and point-of-care testing have each become substantial. The kind of products that we make and some of the competitors make are serve the at-home space, but also overlap into the first two spaces. We think that our company founders, when they went the extra mile to make an untethered, uninstrumented test, served us well at this point because when you think about a healthcare system sending a test to a patient's home, for example, for, let's say, pre-procedural testing, not having to have the expense or the complexity of an instrument, being able to run a one-time test, have a result, and have that served in its entirety. That puts Lucera in a very unique and positive situation.
spk05: Yep. Okay. And then just last one, can you talk about any impact, you know, if there's been any impact on Lucera? with private payer coverage of somebody's at-home COVID-19 test and what the process is for obtaining reimbursement is like for your test. Just what that looks like. And if you've seen any, getting any sense of what volumes are relating to, are submitted for reimbursement.
spk03: Well, we, you know, we have seen home testing of COVID covered in many instances per the Biden administration. So for example, people who, purchase Lucera tests on COVID tests online are able to submit their receipt. And if they're in a coverage situation, get 100% coverage. And if they're not with such a situation, get up to $12 per test. So we've received a number of very satisfactory comments about that. We'll be looking at coverage very carefully as we bring additional tests to market. And at that time, we'll be able to comment more about it. Okay. Thanks, guys. Thanks, Ruth.
spk00: Thank you. Our next question comes from Rahul Rakhid with LifeFi Capital. Your line is open.
spk04: Hey, guys. Can you hear me? We can, Rahul. Awesome. Hey, congrats on a great year, guys. Really exciting. We're just kind of hoping, I know, you know, in some of our previous conversations, you've kind of talked about how, you know, you've seen a lot of demand, but somewhat been limited by your manufacturing capacity. Obviously, with the guidance, you know, we're really seeing a lot of that open up. But I was wondering if you could kind of comment on that, even from here, you know, help me understand what kind of demand you're seeing from your different customer channels, I guess, and how much of that is kind of still being constrained by manufacturing capacity this year.
spk03: Yeah, we continue to see strong demand in the principal three channels. That's why we continue to bring up manufacturing capacity to meet that demand. Our estimate is that the kind of consistent demand in those three principal channels was either unimpacted by Omicron or was impacted to an extent that because of our limited manufacturing capacity did not influence what we took as demand. With the exception of online, in online we did see a surge in demand, a surge meaning a couple of X baseline demand. that then settled down as Omicron settled down in the population. But that online channel is very small compared to our other channels.
spk04: Got it. Okay. Super helpful. Thanks. And I guess I'm sorry if you covered this and I missed it, but I guess from my perspective, how should I be thinking about further gross margin expansion over the near and long term, I guess 12 to 24 months?
spk06: Yeah, so we exited the year, you know, our non-GAAP gross margin was a 31%. With this type of volume, we're looking at an average gross margin in 2022, about 40%. So you can think of it, you know, growing throughout the course of the year with more of a bump in the back half of Q3 and Q4, kind of, you know, think of it exceeding the 40% range during that period.
spk04: Awesome. Good to know. Thanks. And then I guess just two more from me. One, just want to hear a little bit more about, you know, the international channel here and what kind of demand you're seeing there. I guess how, can you give us any kind of color on what the composition of those contracts might look like? Are there any regulatory hurdles you need to get over? I mean, help us understand, I guess, how many different, you know, ex-U.S. areas you're trying to kind of get into this year and further beyond. I guess really just kind of any kind of call you can provide on what that expansion will look like would be pretty helpful.
spk03: Yeah, and we'll be, you know, somewhat vague in our answer just for competitive reasons, but you're aware that Canada is an important international partner of ours, and we have – some sustained demand in Canada through partners there, some of which is contracted and binding. And from this point, and we're in some other countries as well that we've named previously, but from this point forward, as we bring additional products to market, so for example, the Combo product, we look at regulatory in a holistic, global fashion and not just in a U.S. fashion. And recognizing that in respiratory diseases there can be seasonality, we intend to balance to the extent possible that seasonality through regulatory approvals and distribution in the two hemispheres. We'll be more forthcoming about that as we get into the second half of the year, but hopefully that serves as some guidance at this point.
spk04: Understood. Yeah, that's pretty helpful. And then, yeah, just last one for me. Assuming the combo test is an EUA and it kind of comes in, I guess, in the back end of this year, is any of that revenue kind of baked into the full-year revenue guidance? Are you seeing that as just kind of the potential for upside?
spk06: Yeah, we feel good about the 450 plan even without the combo. So when we talk about an excess of 450, we look at the combo as being an excess.
spk04: Got it. Okay, good to know. All right, I think that's it for me. I really appreciate it, guys, and congrats again on a great year. Thank you. Thank you.
spk00: Thank you, and that's all the questions in the queue. I'd like to turn the call back to Eric Engelson for closing remarks.
spk03: Thank you, Catherine. I want to thank everyone again for your time this afternoon for your interest in Lucera Health. We are excited about the future at Lucera, where we are expanding our decentralized test portfolio and global commercial reach. Our COVID product was the catalyst with which we achieved initial scale in 2021. We believe that the appropriateness of our testing platform for both the test-to-treat paradigm and the care-at-home ecosystem along with the planned launch of the Combo product in the second half of 2022, will drive increased shareholder value. I'm proud of our team and look forward to our coming achievements this year and beyond. Thank you, and have a great evening.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect.
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