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spk01: Greetings. Welcome to the Rocklea Photonics Holdings Limited Fourth Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Gwynne Lauber. You may begin.
spk00: Thank you, operator, and welcome, everyone. This is Gwen Lauber, Vice President of Investor Relations at Rockleaf Photonics. Today, after the U.S. market closed, we released our results for the fourth quarter and full year ended December 31, 2021. A copy of our earnings press release, along with supplemental financial tables, are available on the Investor Relations section of our website at investors.rockleafphotonics.com. With me on today's call, or Dr. Andrew Rickman, OBE, Chairman and Chief Executive Officer, and Mahesh Karanth, Chief Financial Officer. This call is being webcast and will be archived on the investor relations section of Rocklea'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 benefits features 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 product development schedule, our strategies, our research and development plans, our customers, our commercial and market opportunities and trends, our debt obligations, and our costs and expenses, are cash resources and financial performance and outlook and factors affecting the foregoing. These financial 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. 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, Reconciliations of these GAAP and non-GAAP financial measures are included in the tables found in the press release. Now, I'll turn the call over to Andrew.
spk05: Thank you, Gwyn, and thank you all for joining us for our fourth quarter and full year 2021 earnings conference call. Today, I'll start by briefly discussing our results, and then I'll comment on progress that we've made since our last earnings call. We generated revenue of $2.4 million in the fourth quarter and $8.2 million for the full year 2021. Our gap net loss was $14.7 million in the fourth quarter, compared to a loss of $58 million in the third quarter of 2021, which included one-time cost related to our IPO. $81.4 million in cash, cash equivalents and investments. A summary of our financials is available on the investor relations section of our website. Now I'd like to make some comments about our markets. Over the last two years, there's been an increased focus on healthcare from individuals who demand a deeper understanding of the health and from healthcare professionals who want a better, more accurate method of monitoring their patients. This focus was about more than finding ways to cut healthcare costs, but to create a shift from the traditional sick care system to a more personal and proactive healthcare system. I believe that a new system is possible due to technological advances that enable a proactive and remote approach to health and wellness. This change in healthcare is not surprising. Over the last few years, society has realized that we need to improve our baseline health and our ability to monitor it so that we are better able to deal with any future health crisis. One of the best ways to make these necessary improvements is to use technology to allow not only healthcare professionals to improve their ability to care for patients, but also to allow individuals to proactively understand and control their own health. With the right tools, people can not only understand how their lifestyle choices affect their health, but also how the changes that they make can help them to avoid serious diseases. Governments too are acutely aware that we must develop systems that will empower people so that diseases can not only be detected early, but can be prevented. Health and wellness are issues that affect individuals, businesses, governments, And together, we need to look for ways to not only treat diseases, but prevent them. We believe that technology sits at the center of this new healthcare system, and it enables positive changes that only a few years ago we wouldn't have thought were possible. Nearly one year ago to the day, we announced our intention to go public through a merger with SE Health. I am very proud that we successfully completed the merger, but even more proud of all that we have achieved since then. The team has made incredible progress executing on our plan, remaining focused yet flexible, accelerating our achievements by taking advantage of every opportunity that presented itself. It is the team's passion that is driving us and pushing us to do what some believe was impossible. And it's our commitment that has potentially put us firmly in the center of the future of health and wellness monitoring. One of the most significant changes that we see in the market is the convergence of the consumer electronics and medtech industries, with each vying for its place in the health and wellness market. It's not surprising that this large, fast-moving market has captured the attention of both, Rising healthcare costs, consumer demand, and technological advances have created an opportunity for disruption in the industry. Consumers are searching for ways to be active participants in their own health and wellness. Businesses realize that they must not only control healthcare costs, but also develop and maintain a safe and healthy environment for their employees. And governments realize that critical, important changes need to be made to ensure healthy populations. Technology is now seen as the key enabler in the pursuit of healthy lifestyle and in preventative healthcare. According to CB Insights, in 2021, big tech alone invested over $7 billion in healthcare startups. Through the use of technology, we can create solutions that will have a profound impact on the lives of consumers, patients, seniors, first responders, and more, and will help them to make crucial changes that will positively impact their lives. I believe that at the core of this new and growing industry is raw police technology. By taking a holistic view of the human body through insights into multiple biomarkers, both individuals and healthcare professionals could have a more sophisticated tool to monitor and track trends in a person's health. This view has the potential to help physicians identify serious health conditions and possible disease states earlier, allowing for more affordable prevention measures, perhaps long before aggressive treatment is needed. and the desire for remote monitoring solutions had furthered the push for technology that can create these solutions. During the fourth quarter, we announced that we had significantly expanded our footprint in the consumer market for our non-invasive vital spec biomarker sensing platform by signing new agreements with six global consumer electronics manufacturers. With these additional agreements, we now have relationships with 12 consumer electronic customers, including six of the top 10 largest manufacturers of smartwatches and wristbands. These multi-year agreements will focus on evaluating and incorporating the next generation of non-invasive biomarker sensing into a range of consumer devices, including smartwatches, wristbands, and other wearables. We believe that these customer relationships will create new opportunities for our VitaSpec sent-in platform. We recently announced our Bioptics product line, a biomarker-centered platform for professional healthcare. BioOptics features a first of its kind non-invasive continuous biosensing wristband along with a platform that will enable the measurement of an extensive range of biomarkers supported by custom cloud-based analytics and AI. I'm very proud that we were able to launch BioOptics two years earlier than we initially planned to meet increased demand from our customers. The early introduction is intended to accelerate the development of non-invasive remote monitoring solutions for healthcare. In January, we shipped engineering samples to multiple customers, and we expect the first commercial products to be available as early as the second half of 2022. We believe there is an opportunity to generate revenue from additional bioptics solutions, such as our AI Cloud Suite offering in 2023. While our customers have expressed strong interest in non-regulated versions of bioptics, in the future we plan to seek certification from the FDA and other regulators for a medical-grade version of bioptics. I believe our bioptics platform has the potential to profoundly change the healthcare landscape. Another important part of our product development strategy is our relationship with partners. On our last call, I spoke about our partnership with Caltech and the opportunity to bring to the development for future healthcare applications that will use our sensing platform. We intend to collaborate with Caltech on the development of next-generation solutions that combine advanced sensors with artificial intelligence to enhance insight into health and well-being. Since our last earnings call, we added Mount Sinai Health Systems, as a partner, and we are working with the Eichen School of Medicine to collaborate on research studies. We intend to work together on non-invasive sensor capabilities and to accelerate the development of new algorithms for various potential use cases in health and wellness tracking, early disease state identification, and digital health. I believe these collaborations should allow us to bring solutions to market that will provide end users with access to key health insights and provide them with deeper understanding of their health and well-being. Next, I'd like to update you on our ongoing human trials. Recently, we made several announcements regarding our initial studies in core body temperature and blood pressure. The team and I are very pleased with the results, which I believe validate both the potential and the power of the technology we have developed. In early December, we announced the preliminary results of our core body temperature study. In this study, we demonstrated not only the initial efficacy of our photonics-based sensor for measuring core body temperature, but our technology also yielded results more closely aligned with reference sensors than the auxiliary sensors like oral, ear, and infrared thermometers that are today's standard. Core body temperature is recognized as a leading indicator of changes in health, making an accurate reading crucial for early detection of many diseases. Currently, this capability is not possible even with these widely used axillary sensors that provide only surface temperature. Early in 2022, we announced the result of our pilot blood pressure human study. This pilot study assessed our blood pressure measurement capabilities using a cuffless rocky pad wrist-worn device. The results demonstrated both signal quality and measurement techniques capable of potentially providing a non-invasive, convenient method for measuring cardiovascular health. The study also validated that our risk-based sensing platform produced a strong correlation to heart rate and heart rate variability measurements, which are commonly measured using electrocardiogram equipment. These results advance the readiness of our overall sensing platform's capabilities in broad biomarker detection, and sets the stage for a larger blood pressure study. These human studies are important steps in our work to support the full range of biomarker measurements on our platform. The studies help us optimize algorithms and refine our technology performance across a broad range of biomarkers. Throughout 2022, we intend to share the results of further studies of these biomarkers plus additional biomarkers for hydration, alcohol, lactate, and glucose trends. As we learn more about each biomarker through our studies and the work of our customers and partners, I believe that our cloud-based analytics and AI capabilities will help develop a powerful, more holistic assessment of a person's health and well-being. Throughout the quarter, the team has worked hard to make progress not only in our product development, but also expanding our customer base. Looking back over the last year, I can tell you that both have exceeded my expectations. On the consumer electronics front, we increased our customer base from just a handful to 12 customers, including six of the leaders in their space. In MedTech, we now work with five customers, including two of the top 10 MedTech companies. On the product development front, we also are a full two years ahead of schedule due to strong customer demand, and we expect to ship our first commercial products to this market as early as the second half of 2022. The acceleration on both fronts clearly points to the convergence of two very powerful markets with Rockley's biocenting technology well positioned at the center. This has created a significant opportunity for Rockley and for the general population who will benefit from the work of our partners and customers. We remain focused on developing our innovative end-to-end non-invasive silicon photonics-based solutions. We're optimistic that our efforts will have a profound impact on people's lives as we create a platform that will provide valuable insights into their health. Our goal is for the future of health and wellness monitoring to be powered by Rockley. There's a lot of work ahead of us, but I believe that our very talented team has the skills and the passion to reach our goals. With that, I will turn the call over to Mahesh for a review of our financial performance in the quarter. Thank you.
spk04: Thank you, Andrew, and good afternoon, everyone. This quarter, I will review a few key highlights of the fourth quarter and then provide an update on our outlook for 2022. We recorded revenue of $2.4 million in the fourth quarter and $8.2 million for the full year 2021, which exceeded our guidance. Last profit and operating expenses in the fourth quarter benefited from a one-time R&D tax credit. As a reminder, in the fourth quarter, we announced that we were unable to move forward with the technical sale of our data communication assets due to our JD partners' recent inclusion on the US entity list. TASH used in operating activity during the quarter totaled $34.1 million. Throughout the quarter, we implemented a number of programs to preserve capital and reduce our cash flow. For example, we initiated a hiring policy to limit headcount increases to only strategic hires. We are also working to deploy many of our employees who were focused on Datacom to biosensing projects that could utilize their skills. We are grateful for the team's flexibility. We ended the quarter with $81.4 million in cash, cash equivalents, and investments, and did not utilize any funds available from the ELOC that we put in place in the fourth quarter. Looking ahead for 2022, our revenue guidance is $20 to $30 million, which we expect to be primarily driven by monetizing our data communication assets, NRE, and product sales. In wrapping up my prepared remarks, we are pleased with our performance in the fourth quarter and full year 2021, 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.
spk01: At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question is from Quinn Bolton with Needham and Company. Please proceed with your question. Quinn, your line is open.
spk07: Sorry about that, guys. I was on mute. Just wanted to start with the comment coming from the Press release where you've stated first commercial products expected to be available as early as the second half of 22 and ship in 2023 for production. Can you talk about whether that's for the new bioptics MedTech platform? Does that also include some of the original consumer electronics applications that you talked about almost a year ago at the time of the original D-SPAC transaction? Thank you.
spk05: Thanks, Quinn. This is Andrew. So we've always indicated that the consumer market, in terms of design into our consumer customers, they would launch their products in 2023. And the more recent news was that we were able to accelerate our bioptics platform for the healthcare market and introduce the bioptics wearable specific for the healthcare market in 2022. And so volume production will start in that area in the second half of the year and ramp in early 2023.
spk07: But again, that's now across both consumer electronics and the bioptics platform?
spk05: Well, with consumer electronics, we're obviously providing the chips that go into the devices. But those customers, their products, as we've already stated, will ramp in 2023. So the visibility of those products to the market as a whole will only come about when they introduce their products in 2023. In the case of bioptics, those products will be visible, if you like, in this year because the end product will be shipping and our customers will be deploying those products.
spk07: Okay, maybe, Andrew, just another way of asking a question. Has the timeline for commercial production of your consumer electronics customer programs, has that slipped or do you still think that that's off track?
spk05: It's on track. It's on track. Yep, same position as before.
spk07: Okay, perfect. And then a couple from Mahesh, you know, that the R&D in the fourth quarter came down pretty meaningfully. You mentioned an R&D tax credit. And so as we look into 2022, can you give us some sense, where do you see quarterly OPEX running throughout 2022 going? and um you know with the sale of the divestiture of the datacom assets does that meaningfully bring down the opex relative to what you were seeing for most of 2021 yeah on the on the cash spend uh we should be in the 10 to 12 million dollar range per month as our topics
spk04: This includes taking into account the R&D tax credit and also the potential sale, the technical sale of the transceiver business.
spk07: Okay. That's $10 million to $12 million a month, not quarter. That's just to confirm. Yeah. Okay. Yeah. And then lastly, Mahesh, it looks like other receivables is up to about $47 million on the balance sheet. Can you give us some sense, to the extent you can collect on that, that could be a significant source of cash generation that might otherwise avoid you having to go out to the markets or raise debt? But can you talk about that as a potential funding source over the next couple of quarters? Thank you.
spk04: Yeah, that one we expect to collect about 40% of that this quarter. and the balance in later part of Q2 that pertains to the tax credit.
spk03: Got it. Okay. Thank you.
spk01: Our next question is from Tristan Guerra with Baird. Please proceed with your question.
spk03: Hi. Good afternoon. I'm trying to look at the timing of the biomarkers that have been released. It looks like a couple of them have been released and you expect more to be released throughout this year. How many biomarkers are needed for your customers and consumers to launch products? I'm just trying to look at the correlation between the biomarkers and the timing of launch because you're going to sell as you just said, you know, the chip to them. And I'm just wondering, you know, how many biomarkers or what is the lag in time between when a biomarker is released until when it actually can be commercialized into a product being sold to consumer?
spk05: Hi, Tristan. Andrew here. So the biomarkers, there are two forms of the product called the baseline and the pro. And in the baseline, it's the addition of core body temperature and body hydration that we're adding to the consumer wearables. In the pro, we're additionally adding the ability to measure alcohol, lactate, and glucose trends. And so the roadmap of biomarker qualification, if you like, perfection through human trials of the algorithms, is working in the order of baseline biomarkers first. And I missed out, by the way, blood pressure and all of that, which is in both product lines. that the pro biomarkers are later qualified than the baseline. Now, we have consumer customers who are interested in the baseline and working on the design of the baseline, and we have consumer customers who are interested in the pro. In the course of this year, we will complete all the trials, all the human trials associated with all of the biomarkers, and we will start shipping in volume the baseline in a bioptics form by the end of the year. And then as we look at the introduction into the consumer products where they're expected to As we've said all along, their products are expected in 2023. Then by that time, both the baseline and the pro biomarkers will all be qualified.
spk03: Okay, great. Thanks for the color. And then the transceiver technology, it sounds like you're going to monetize some of this via NREs, but you also said you're converting it. engineers you know to your uh core business so it sounds like there is you're not contemplating trying to sell or transfer that technology elsewhere or or is there still an opportunity for a transaction and and and if it's just nres you know how long can you monetize this as you're redirecting uh your engineering base you know to your uh core business
spk05: So the plan remains the same. It's basically to spin that part of the business out into a partner. Previously, we had intended to do that with our JV partner. But as you know, their parents got put on the U.S. entity list. But we are making very good progress with the replacement and exactly the same plan. that our objective here is to, one, see some level of monetization of the platform in the communications market, while at the same time allowing the company to focus on the very, very much larger health and wellness opportunity.
spk03: Great. Thank you very much.
spk01: Our next question is from Vivek Arya with Bank of America. Please proceed with your question.
spk06: Hi, this is Blake Friedman. I'm from Rebecca Aria. Just for my first question, I was curious, you guys have discussed briefly about products ramping in volume in 2023. I was just curious when do you guys plan or when will you guys have a better view of visibility into fiscal 23 and what specific factors need to happen for visibility to improve into 2023? Thanks.
spk05: Thanks for the question. Mahesh, would you like to take that?
spk04: Yes, thanks. So on the visibility, we expect a better visibility by end of this quarter when we are doing the initial production ramp. We will give you more color for 2023 at that time.
spk06: Good to know. And then just as a quick follow-up, I believe from your last issued guidance just for this year, the low end of the guidance range was reduced by $5 million. I was just curious if there was any specific reason that the low end of the guidance range was reduced.
spk04: We just, keeping in mind the political uncertainty, we just have been a little cautious. There is no specific reason. thing which, which led to that. Got it. Thank you.
spk01: Our next question is from Tim Savageau with Northland Capital. Northland Capital Markets. Please proceed with your question.
spk02: Hi, good afternoon. I want to follow up on that. You kind of build on this notion of commercial product shipping in the second half of this year into MedTech. I think you touched on this a little bit, saying, you know, probably the baseline features that go in there. But, you know, I want to try and relate what you'll be shipping in the second half kind of in relation to the, you know, kind of the full-throated consumer offering from two different perspectives. One, just sort of a core technology perspective, you know, lasers, silicon photonics, sensors, that kind of sensing module, you know, if you could maybe relate what subset of functionality for consumer is shipping in MedTech in the second half. Would that be, you know, from a hardware perspective, pretty much the whole thing, and you're waiting on biomarkers? Or, you know, so maybe from a core technology perspective, and then from a kind of algorithm biomarker perspective, you know, what percentage of your full functionality anticipated will you be shipping with MedTech is my plotting question.
spk05: Yeah. Hi, Tim. It's all of it. So if you think about the consumer market, you know, the consumer market for us is the provision of reference module design, which we work with those customers. We're working with those customers on the design and into their 2023 launch of their wearable products. products and with those customers depending on the customers depends on the level of stack of the stack all the way up to the ai cloud that we'll be able to provide to those individual customers now we call the in in both under vital spec which is for consumer and bioptics which is for medtech under both we're basically using the same engines so we've got the same engine in the baseline for uh the reference module um in consumer and that in the uh bioptics in the medtech area is actually built up into our own wearable and the same in the probe and the same there's a there's a band our own band in the in the bioptics for the for the medtech market now the the thing that's that's happened here that's evolved since we took the company public was that our MedTech customers wanted to get the technology and get the products and get them out there without waiting for FDA approval. And they also didn't want to design the bands themselves. We have all that competence. We were building those bands anyway for our human trials. So that created this opportunity for us to create, if you like, a different class of wearable. It's not a phone. It's not, you know, telling you what your emails are. The battery isn't running flat, you know, in 24 hours, et cetera. And, you know, it's very easily cleaned and all these kinds of things because it's going into a healthcare application where it's got to sit there and monitor patients and do the dedicated task of monitoring the individual biomarkers and collecting that data and passing that through what we call Connect, into our cloud platform. And then in the cloud platform, we're able to run essentially applications, which we like to refer to as kind of disease applications. And we're developing those applications. So the data is looked at by those applications. And you get information warning the healthcare provider about maybe certain conditions that individual has. So it's a complete suite of solutions in the healthcare area, in the bioptics area, and these are all coming to market in the second half of the year in the healthcare area. And the reason we can do that is because of that acceptance by the healthcare market that they want to get started in a non-regulated sense. um and uh and and with the uh consumer market which is still very very important to us it just take it's just taking us it just takes till next year for the introduction of the consumer products into the market through their cycle time and through our design into the products then none of that has changed On the consumer side, what's changed is the healthcare side has come forward, and the level of complete offering that we're able to provide there is the complete stack, and that's what's demanded by the healthcare customers. Now, we're working with those healthcare customers and we're looking forward to telling the market more in this area. We're working with those customers also on moving forward to getting all the biomarkers FDA approved. From the point of view of your question, when we talk about a product being introduced and ramping into volume, et cetera, the biomarkers are all there. We're not waiting to do other work with the biomarkers. The biomarker algorithms and the human trials are built into those projections.
spk02: Got it. And thanks for that. So to summarize, these two platforms share a common optical engine. sort of that just powers that technology, which you expect to be basically fully baked and, you know, shipping at least in the MedTech format in the second half and then pending design cycles or other type of optimizations then moving into consumer. But from a core technology standpoint, I mean, it sounds like you have pretty decent visibility into, you know, getting into real full production mode and the technology being kind of stable and
spk05: Absolutely. You know, our customers are at the commitment stage, and we are working extremely hard on the volume ramp-up. Great.
spk02: Thanks, and congrats on that. Thank you.
spk01: We have reached the end of the question-and-answer session, and I will now turn the call over to Andrew Rickman for closing remarks.
spk05: Thank you for participating in our call today. We are very excited about the opportunities ahead of us, and we're looking forward to providing you with updates in the near future. Before I close, I want to take a moment to acknowledge the situation in the Ukraine. Our thoughts are with everyone who has been impacted by this terrible event, and we pray for peace in the Ukraine. Thank you.
spk01: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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