Rockley Photonics Holdings Limited Ordinary Shares

officer. This call is being webcast and will be archived on the investor relations section of Rockley's website. Before I turn the call over to Andrew, I'd like to note that today's discussion will contain forward-looking statements. These forward-looking statements include, but are not limited to, the anticipated features, benefits, scope, focus, status, and goals of our platform, technology, products, studies, and partnerships with third parties, our ability to and the timing of bringing our products to market, and our development schedules, our strategies, our research and development plans, our customers, our commercial and market opportunities and trends, our debt obligations, our financing agreement with Lincoln Park, and our costs and expenses, our cash reserves and financial performance and outlook and factors affecting the foregoing. These forward-looking statements are subject to risks and uncertainties which may cause actual results to vary materially from those expressed or implied by these forward-looking statements. These risks and uncertainties include but are not limited to those discussed in our earnings press release and in our filings with the SEC. Any forward-looking statements that are made on this call are based on assumptions as of today. and we undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, Rockley reports certain non-GAAP financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliation of these GAAP and non-GAAP measures are included in the tables found in the press release. I'll now turn the call over to Andrew.

Thank you, Gwyn. And thank you all for joining us for our third quarter earnings conference call. Today, I'll briefly walk through our results for the quarter, and then I'll discuss significant progress that we've made since our last earnings call. In the third quarter, we generated revenue of $1.8 million. Our gap net loss was $58 million in the third quarter, which includes one-time costs related to our IPO, compared to a loss of $30.6 million in the second quarter of 2021. We ended the quarter with $125 million in cash, cash equivalents and investments. Mahesh will provide more detail on our financial results later in the call. Now I'd like to talk about our business. In August, we completed our business combination with SE Health and began trading on the New York Stock Exchange. Through the process, we raised $168 million, which will help us to develop our consumer wearable solution while we work towards its commercialization. We not only strengthened our balance sheet, we also gained increased stature with some of the largest companies in both consumer wearables and medtech. I believe that becoming a public company has already helped accelerate the commercial opportunity for our five-fold spec biomarker-sensitive platform. For those unfamiliar with it, the Rocklea VitalSpec Centric Platform is an end-to-end solution that combines photonic-based hardware, optimized biomarker algorithms, and cloud-based analytics and AI. It enables clinical and healthcare research practitioners to integrate more comprehensive, non-invasive biomarker measurements in their remote patient monitoring studies. Broccoli's proprietary silicon photonics-based laser technology significantly expands the range of biomarkers that can be detected and measured continually and noninvasively beyond the capabilities of current LED-based sensors. This expanded range includes key biomarkers like core body temperature, blood pressure, body hydration, alcohol, lactate, and glucose trends, amongst others. These new measurement capabilities have the potential to transform digital healthcare by providing real-time insight about a variety of health conditions and enabling early detection of multiple disease states. Turning to our product strategy, I am very pleased with the progress that we have made during the quarter in providing our partners with unique solutions which will power their health and wellness products. today we announced new partnerships with five global consumer electronics companies including four of the top 10 risk-based wearable companies strengthening our position in the market by adding some of the most prominent companies in the smartphone and wearables market six of the world's top 10 manufacturers of smart watches and wristbands now look to our platform as an important part of their health and wellness strategies. In medtech, we recently signed partnerships with two of the world's largest medical device companies. Working with these companies has expanded our development effort for our wearables and end-to-end data analytics solutions. And finally, I'm very excited about our partnership with the California Institute of Technology, or Caltech, because I believe that this program will both add to the development of our VitalSpec platform and will give this partner unique tools that will help them advance the tremendous research that they undertake. Now I'll start with an update on our consumer solutions and some of our key partnerships. As a reminder, in this market, we develop chipsets and modules for large consumer electronics companies who will use our solutions in wearables and handheld devices for the consumer health and wellness markets. Because of our unique non-invasive biomarker sorting technology, demand for these products is increasing as our partners work to create innovative products that can help them improve the health and well-being of their customers. We have longstanding relationships with several leaders in the consumer electronics space, and we've added the five new partners I've discussed a moment ago. We believe that working with these companies will increase our ability to successfully launch our clinic-on-a-risk solution in the health and wellness market and will reduce our reliance on any one partner. Next, I'll discuss the medical device market. In this market, companies are focused on improving patients' lives through innovative solutions, and they pursue partnerships with companies that can help them achieve their goals. During the quarter, we announced that we signed multi-year partnerships with two of the world's top 10 medical equipment and device manufacturers. We will work with these industry leaders to evaluate and incorporate our next generation of non-invasive biomarker sensing technology into their products, providing them with a complete end-to-end biomarker sensing platform that combines photonics-based hardware, optimized biomarker algorithms, and cloud-based analytics and AI. We also believe that these partnerships will accelerate our product development and timelines and will help us identify and advance potential use cases for our technology in mobile devices for remote patient monitoring. I'm also very pleased about our partnership with Caltech. Through this partnership, we hope to add to the development of future healthcare applications that will use our sensing platform As part of the agreement, we will collaborate on the development of next generation solutions that combine advanced sensors with artificial intelligence to enhance insight into health and well-being. Combining sensing and algorithm research Caltech's Sensing to Intelligence initiative is developing more efficient and intelligent sensing systems that align with Rockley's approach to health and wellness monitoring, combining photonics-based sensor technology with state-of-the-art artificial intelligence and data analytics into an end-to-end platform. This partnership intends to focus on a range of projects, including the development of new spectrometer technologies using advanced photonic sensors, which will help us broaden and enhance the health monitoring capabilities of Rocklea's platform. The team also intends to explore new applications for cloud-based services and will look to exploit the advanced capabilities of platforms such as Amazon Web Services to advance healthcare innovation. I also want to update on our ongoing human studies. We have made very good progress with these studies and we plan to announce the results of our first study next month with others to follow in 2022. Following the tape-out and fab-out of our pre-alpha samples of our product, our studies currently utilize these devices in our non-invasive biomarker sensing bands and optimize biomarker algorithms to gather information from our study participants, which then upload to the cloud. As we develop this library of diagnostic knowledge, we will use artificial intelligence and analysis to create the foundation that will provide deeper understanding of human health and wellness. We believe our alpha devices are on track and will be utilized in our human studies and available to our partners for their pre-production studies in 2022. Finally, I'd like to take a moment to thank our team for their hard work across all aspects of our full-stack solution. The biomarker human studies require a great deal of effort, and the entire Rocklin team and our volunteers have really stepped up to the task as well. Thank you. All these initiatives create significant opportunity for Rocklin and enable us to pursue multiple avenues in parallel I'm very pleased with the response that we've had from all the markets that we serve and believe that each has the potential to allow us to achieve our goals. Our consumer electronic partnerships are going well. And with the additional partnerships that we have announced, we are now working with the leaders in the consumer, smartphone, and wearables markets. I am delighted with the response from our current MedTech partners, as well as the many other companies who have recently expressed interest in working with Rockit. I believe that these MedTech partners understand the importance of the work that we are doing, not only to identify individual biomarkers, but also to interpret the data using cloud analytics and AI, so that we can provide them with actionable information Based on the progress that we've made and the response from our markets, I'm very excited about the prospects for our company. We will continue to develop our innovative, full-stack, non-invasive silicon photonics-based solutions, and we're optimistic that the work we are doing today will change the world and will transform digital health, wellness, and healthcare with actionable insights powered by Rockne. With that, I will turn the call over to Mahesh for detailed review of our financial performance in the quarter.

Thank you. Thank you, Andrew, and good afternoon, everyone. I will begin by reviewing our third quarter performance, and then I will provide an update on our outlook for the fourth quarter. Turning to our third quarter results, we reported revenue of $1.8 million compared to revenue of 2.2 million in the second quarter as a reminder we are in the pre-alpha stage of developing what we believe to be a game-changing technology for the broad health and wellness sector as well as medical device companies that could benefit from our leading technologies as such Our current revenue is derived from non-recurring engineering activities, which results in quarter-to-quarter variability. Our third quarter cost of revenue was $3.5 million compared to $4.5 million in the second quarter of 2021. our non-GAAP cost of revenue was $3.1 million, compared to $4.2 million in Q2 of 2021. As we previously mentioned, our cost of revenue can fluctuate from period to period, depending on several factors, including the timing of the completion of project milestones. Moving to operating expenses, We recorded total GAAP operating expenses of $40 million in the third quarter compared to $24.3 million in the prior quarter. GAAP SG&A expenses was $13.6 million compared to $6.7 million in Q2 2021. And GAAP R&D expenses where $26.4 million was $17.6 million in Q2 2021. The increase in expenses was driven primarily by $14.3 million in one-time transaction-related costs, personal expenses, and public company costs. Total non-GAAP operating expenses for the third quarter was 33.7 million dollars compared to 21.5 million during the second quarter of 2021. Non-GAAP SG&A expenses was 9.4 million compared to 5.8 million in Q2 2021. Non-GAAP R&D expenses Total 24.3 million in Q3 versus 15.7 million in Q2. We plan to continue to expand our R&D organization as we drive our technology forward to support the many growth opportunities ahead of us. our r d efforts are essential to our ability to remain on track for our customers projected product rollouts as we scale the business we expect our expenses to fluctuate as a percentage of revenue period to period but to generally decrease over the long term moving to net income we recorded a gap net loss of $58 million or a loss of 54 cents per share in the third quarter compared to a net loss of $30.6 million or a loss of 36 cents per basic share in Q2 2021. Our non-gap net loss was $51.4 million or a loss of 48 cents per share in the third quarter. Adjusted EBITDA and non-GAAP measures was a loss of 35.6 million in the third quarter, which compared to the loss of 23.4 million in the second quarter of 2021. Our net cash used in operating activity totaled 37.4 million in Q3 compared to 29.6 million in Q2. The sequential increase was primarily driven by an increase in headcount and R&D activities. Turning to our balance sheet, we ended the quarter with cash, cash equivalents, and investments of $125 million an increase from $35.4 million on June 30, 2021, prior to the close of our transaction. During the quarter, we retired all our convertible notes, and we expect to retire our remaining debt obligations of $28.6 million in 2022. Recently, we announced that we signed a financing agreement with Lincoln Park Capital to provide us with an equity line of credit of up to $50 million. This agreement will strengthen our balance sheet and provide us with additional flexibility as we work to commercialize our non-invasive biomarker sensing solutions. Looking ahead, as we previously discussed, we continue to believe that we will generate approximately $27.5 million in revenue in 2021. This guidance includes a significant technical sale in the fourth quarter, and as with similar deals, there is always the chance that the transaction will slip into 2022. In wrapping up my prepared remarks, we are pleased with our performance in the third quarter. We significantly strengthened our balance sheet through the completion of our business transaction with SE Health in August, and we believe we remain well positioned to execute on our roadmap ahead. I will now turn the call back to the operator to open up the call for questions.