Cue Overall health Inc. (NASDAQ:HLTH) Q4 2022 Earnings Contact Transcript March 15, 2023

Operator: Great day, and thank you for standing by. Welcome to the Cue Overall health Fourth Quarter 2022 Earnings Conference Contact. At this time all participants are in a listen-only mode. . Please be advised, that today’s conference contact is becoming recorded. I would like to turn the contact more than to your speaker for these days.

Lorna Williams: Great afternoon, and welcome to Cue’s fourth quarter 2022 earnings conference contact. Joining me these days are Ayub Khattak, Chairman and Chief Executive Officer of Cue Overall health and Aasim Javed, Incoming Chief Monetary Officer. Prior to we get began, let me start by reminding you that we possibly forward-seeking statements, such as statements associated to the anticipated overall performance of our company, future monetary benefits and guidance, method, lengthy-term development and all round future prospects as nicely as the effect of the COVID-19 pandemic. These statements are topic to dangers, uncertainties, assumptions and other components that could lead to actual benefits to differ materially from these described. These dangers and uncertainties involve, but are not restricted to, these outlined in today’s contact as nicely as other dangers identified from time to time in our public statements and reports filed with the SEC.

Forward-seeking statements that we have produced on this contact are primarily based on assumptions and beliefs as of the date they are produced, and the organization disclaims any obligation to update these statements, except as necessary by law. In addition, on today’s contact, non-GAAP monetary measures will be applied. Reconciliations amongst GAAP and non-GAAP monetary measures are incorporated in our earnings release. Ultimately, I would like to mention to you that the press release and a recording of this contact will be out there on the Investor Relations web page of our internet site. With that, I would like to turn the contact more than to Ayub.

Ayub Khattak: Thank you, Lorna. And thank you every person for joining us these days. The Board and I are pleased to officially welcome Aasim Javed to our Executive Leadership group, as he has not too long ago been appointed as our Chief Monetary Officer. Aasim is a seasoned Finance Executive, and has been with Cue for the final two years, as VP of Monetary Organizing and Evaluation and Treasurer. Aasim also led monetary arranging going into our IPO. Prior to Cue, Aasim held a assortment of finance roles at Becton Dickinson, Heinz and Basic Motors. Aasim graduated from McGill University with the Finance and Accounting Degree and holds an MBA from Harvard Business enterprise College. With his practical experience and demonstrated leadership skills, Aasim was a all-natural selection, and we appear forward to his continued contributions as CFO.

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I am pleased to report that Cue’s monetary overall performance for the fourth quarter delivered $146 million of total income, and $54 million, excluding $92 million of deferred income, which exceeded our prior monetary guidance. We ended the year with more than $240 million of money on hand and an uncapped $one hundred million revolving credit facility. Whilst all of this has been performed predominantly with our COVID-19 solution, we are executing nicely on our method of expanding our test menu, along with growing the scope of our integrated care platform to have higher actionability on diagnostic test benefits, and menu expansion of the varieties of tests and therapies that can be delivered speedily and conveniently by way of Cue. In 2022, our test menu expansion development drivers centered on diagnostic tests for our Cue Overall health monitoring method, which consists of our Cue reader, test cartridges and sample collection wands.

Our close to term concentrate and improvement milestones had been from applications in each the respiratory and sexual well being categories. I am satisfied to report that we continue to make important progress with the respiratory well being test. We submitted the Flu A/B standalone, de novo application, the Flu plus COVID multiplex UA and the COVID-19 de novo application. We are pleased with the level of engagement and dialogue amongst Cue and the FDA and we continue to anticipate that we will be capable to bring to marketplace a complete respiratory well being supplying by the year finish. To round out our respiratory solution supplying, we have completed our clinical research for RSV and have begun our clinical research for Strep Throat. RSV is a respiratory situation that can be hazardous for infants and young youngsters and the elderly.

According to the CDC, two million visits to the hospital happen on typical due to RSV annually, with more than 50,000 youngsters hospitalized and an additional one hundred,000 hospitalizations for people today more than 65. Final year, RSV leapt into public awareness as it impacted several households. Our clinical research are full, displaying higher accuracy for our molecular test. The CUE RSV clinical study began in the third quarter of ’22 as anticipated, and we intend to submit this vital diagnostic tests to the FDA through the second quarter of ’23 with complete clearance. We started our clinical study for Strep Throat in Q4. Strep Throat is an additional frequent and respiratory illness that spreads speedily and its usually contracted to close make contact with with people today who currently have the impact of infection.

We think our Cue Strep Throat molecular test provides a opportunity to detect Strep early and enables for targeted antibiotic use to lower the danger of complications. We began this clinical study in the fourth quarter of ’22 and we anticipate submitting Strep Throat for FDA critique in the second half of this year. Moving to the sexual well being category, exactly where we have an ongoing plan for Chlamydia and Gonorrhea, when the CDC recommends routine testing for all sexually active adults, the existing level of testing is not enough, as the quantity of Chlamydia and Gonorrhea infections has improved every single year for the previous six years. Our platform enables healthcare specialists and people to screen extra quickly and if optimistic enables rapid delivery of the appropriate antibiotic.

Cue’s Chlamydia and Gonorrhea clinical study started enrollment through the initial quarter of ’22 as planned. We strategy to submit this test to the FDA through the second half of this year. In addition to help our aim of obtaining a robust test menu, which adds the utility of the Cue Overall health monitoring method, we are pleased to report that we have completed clinical research and submitted an EUA for higher sensitivity molecular and pox test, formerly recognized as Monkeypox to the FDA element care use. General, we are proud to have accomplished or exceeded all of our menu expansion milestones we set out to meet in ’22, such as 4 FDA submissions, completion of RSV research and commencement of clinical research for Strep Throat and Chlamydia, Gonorrhea. For 2023, we are committed to delivering 4 higher high quality FDA submissions, we strategy to submit the RSV molecular tests in the second quarter, followed by submissions for Strep Throat and Chlamydia and Gonorrhea molecular test through the second half of 2023.

We’ve currently submitted our Mpox test in the initial quarter of 2023. Offered that extra menu on Cue Reader is the quantity 1 requested item from our current buyers and the most vital aspect for new consumer adoption. We’re satisfied with the outstanding progress by solution R&ampD, clinical and regulatory teams. Now I am going to shift to our digital capabilities development driver, which has been crucial for the stickiness of our solution to-date. And we think it really is basic to the solution platform for the future. When we began the organization extra than ten years ago, we understood that every single healthcare journey starts with diagnostics. In truth, roughly 70% of all clinical choices are produced using diagnostic information. Our method was to transform healthcare with a basic, quickly, precise answer centered on the user, no matter whether that be a clinician in a doctor’s workplace or an person at residence with the aim of enabling buyers to have trustworthy info at the fingertips to make more quickly and extra informed healthcare choices.

I am pleased to share that with the current launch of Cue Care, a virtual care delivery answer, the Cue Integrated Care platform is now reality, permitting people to test from residence, speak with a clinician instantly and get therapy delivered to their residence inside hours. This is a quite important upgrade on the healthcare delivery practical experience and we think a foundational notion for the future of healthcare. Furthermore, our platform has been integrated two key EMR systems to let for seamless interoperability amongst clinician, their EMR and Cue diagnostic capabilities. We view Cue Care as the developing block capability enables for integrating clinicians into any diagnostic or therapy journey. Quickly immediately after launching, we expanded the Cue Care practical experience to let buyers to upload benefits from any COVID-19 tests such as antigen as nicely as third-celebration influenza and urinary tract infection tests to go by way of the exact same virtual care and e-prescription procedure.

Final December, the Minnesota Division of Overall health was with Cue in a competitive bid to offer a statewide telehealth and therapy plan to all residents. Cue Minnesota, can now access Cue Care for on demand virtual consultation with a healthcare specialist and prescription delivery if medically indicated. Final month, this contract was extended to June 2024. By offering an finish to finish answer, Cue has a exclusive chance to offer precise well being info to buyers when they need to have it most. For instance, this month, we announced the partnership with Pfizer to make these educational sources out there on the Cue Overall health app to raise awareness amongst people underlying situations about the danger of COVID-19 and the alternatives for therapy.

This is just 1 instance of how we are pursuing our mission to empower people today to reside their healthiest lives. I’d also like to highlight an vital current solution category launch, leveraging our integrated Care platform and a Cue Care developing block, we have additional expanded our testing menu by not too long ago launching 13 at-residence test kits. For instance, we have a nine target sexually transmitted infection panel that can be performed from anyplace, a test kit for quite a few heart well being markers, a test kit for meals sensitivities, and fertility panels for girls. All of these let for discreet customized care and therapy. Via our platform, people can order the test kits by way of the Cue Overall health app or on our internet site, receives sample collection kits at residence and mail their sample back to a CLIA-certified diagnostic lab.

Just after processing by the lab, test benefits are securely and privately delivered back to the consumer in the Cue Overall health App. Consumers can also seek the advice of with a clinician for customized care and arrange for delivery of any prescribed therapy by way of Cue Care. Cue is the initial organization to offer you a full answer, diagnostic test at-residence and at the point of care, seamless integration with clinicians and their EMRs and therapy delivery. We think that by adding these new at-residence test kits to our platform, Cue will have the marketplace most compelling worth proposition for residence and point of care diagnostic desires. In the future, we anticipate to address even extra clinicians as we anticipate continue to execute on our method. As an instance of how the integrated Care platform comes with each other, I’d like to highlight our not too long ago launched partnership with Scripps Investigation Translational Institute.

Scripps is conducting a remote trial using Cue’s test integrated platform such as Cue’s diagnostic tests, Cue Care and residence medication delivery, aimed at decreasing COVID hospitalization prices for immunocompromised people. We think that early detection of COVID in this vulnerable population combined with straightforward access to antiviral therapy will lead to superior well being outcomes. This study is an vital initiative for efforts with payers. As you know, reimbursement currently exists for the test and our menu expansion pipeline in the point of care setting, and we really feel there is a important chance to extend reimbursement models into the residence. Fundamentally, we think there is alignment amongst payers, patient desires and what Cue can offer you, particularly for particular populations that are extra vulnerable to respiratory illness and had a higher danger for unfavorable outcomes.

For instance, immunocompromised people can advantage from on-demand testing at residence in order to get earlier detection or earlier therapy to prevent high-priced hospitalization. We think information from research like the 1 underway at Scripps can play a crucial function in discussions with payers as they evaluate the worth of coverage went out of residence testing, particularly with a public well being emergency ending, resulting in a loss of coverage of residence antigen test. Turning to the expansion of our consumer base. Nowadays, we have a broad and diverse set up base key players in every single market, such as tech, sports leagues, healthcare and finance. We’ve shipped more than a .25 million Cue Readers and sent more than 15 million diagnostic tests straight to shoppers, providers, public and enterprise buyers.

I am pleased to share that we have accomplished more than $1 billion in sales in the final two years from the launch of our initial solution. I am proud that we offer the quantity 1 most precise COVID test out there for residence use. We anticipate the expansion of the Cue Overall health monitoring method test menu on the horizon and the expanded capabilities of our integrated Care platform. We are excited about delivering our buyers the broader offerings they are seeking for and think this will let us to return to development in the second half of this year. I’d like to finish by commenting on our price production strategy. I produced the hard selection to lower fees as we adapt to the realities of the existing macro atmosphere. We anticipate these actions to outcome in money savings of around $one hundred million on an annualized basis.

We think we have enough liquidity to recognize the added benefits of our important investments in R&ampD to-date with out getting into the capital markets through 2023. Hunting forward, we will continue to concentrate on applications that will create close to term income such as completion of our ongoing clinical research for point of care and at residence test cartridges and new solution launches. We think our conservation of money objective will moderate the pace and additional test menu expansion applications. In summary, I am very proud of the trials the group has produced through 2022 with 4 regulatory submissions to expand our test menu, the nationwide launch and subsequent expansion of therapy worth Cue Care and new strategic partnerships in help of our mission to allow customized, proactive and informed well being care that empowers people today to reside their healthiest lives.

With that, I will turn the contact more than to Aasim.

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Aasim Javed: Thank you, Ayub. And superior afternoon. I am satisfied to be speaking to you for the initial time as a newly appointed CFO. Now I will stroll by way of our monetary benefits prior to sharing our income guidance. Cue’s fourth quarter total income was $146.eight million, such as the recognition of $92.four million of deferred income, which was the remaining balance connected with our agreement with the U.S. Division of Defense. Income excluding this deferred income was $54.four million, which was superior than anticipated, as COVID testing demand was greater than anticipated, and we saw sturdy reordering from current buyers. In the quarter, our private sector contributed 96% or $52.four million of sales on an adjusted basis. Public sector revenues, excluding the deferred income was $1.9 million, and total test cartridge sales had been $50.five million.

Moving down to P&ampL. Q4 adjusted solution gross profit margin was 18%, when excluding 1-time impacts of deferred income and inventory adjustments. Reflecting greater unit fees driven by reduced all round production volume in the quarter. Q4 total operating expenditures had been $94.six million. Sequentially, Q4 operating expenditures had been slightly greater than Q3 spent of $86.four million. Sales and promoting expense was $19.three million in the fourth quarter, and that is comparable to the third quarter devote. R&ampD expense was $56.1 million for Q4 and enhance from the prior quarter spent of $42.five million as we ramped devote for the ongoing clinical trials and regulatory submissions. G&ampA expense was $19.two million through Q4 of this year, a lower from our Q3 devote of $25.six million.

As a outcome, adjusted net revenue was a loss of $74.four million or $.50 per diluted share. Adjusted EBITDA for the fourth quarter was a loss of $54 million. Moving on to complete year 2022. Cue’s total income was $483.five million, or $391.1 million, excluding the recognition of DoD deferred income. Private sector income accounted for 96% or $374.7 million, and public sector income accounted for four% or $16.three million on an adjusted basis. Test cartridge sales had been $358.1 million in 2022. Adjusted solution gross profit margin for 2022 was 38%. Adjusted operating expenditures had been $357.1 million for the complete year 2022, such as sales and promoting expense of $88.six million, R&ampD expense of $171.five million, and G&ampA expense of $97.1 million. Adjusted net loss for the complete year 2022 was $191.eight million, or $1.29 per share, and adjusted EBITDA for the year was a loss of $91.five million.

Moving to the balance sheet, we ended 2022 with money of $241.five million. Furthermore, we have $one hundred million secured revolving credit facility which remains undrawn. As a reminder, Cue operate with no debt obligations. Now, I’d like to move to our guidance. For the initial quarter, we anticipate revenues of $20 million to $25 million. As you know, forecasting COVID testing demand beyond the close to term is difficult. Consequently, we will limit our forecast to quarterly expectations. In summary, the organization continues to report superior than anticipated income overall performance and provide on our development drivers as we continue to execute on our method to build connected and intuitive well being options. Whilst our balance sheet is sturdy, we recognize the challenges of the existing macroeconomic atmosphere and took action to lower expenditures in an work to preserve money.

Whilst we are not providing formal guidance beyond Q1 income these days, I would like to offer additional commentary for modeling purposes. We continue to anticipate our COVID-19 molecular test to create the vast majority of our income in the initial half of this year. And we anticipate that new merchandise will start to contribute income in the second half of 2023 in line with our portfolio diversification efforts. As a outcome, broader gross profit margin is anticipated to be slightly unfavorable through the initial half of this year. Nevertheless, on a money margin basis, which excludes particular non-money products such as depreciation, margins are anticipated to stay optimistic. We anticipate margin improvement in the second half in line with greater anticipated volumes. For money, initial quarter money burn is anticipated to be comparable to Q4 on an adjusted basis.

Money utilization is planned to lower as we move by way of the year, benefiting from each reduced fees and more income streams. We anticipate money savings connected with a price reduction strategy will be around $one hundred million on an annualized basis. We think that the sturdy money position of our balance sheet and our capacity to handle devote will let us to prevent the need to have to enter the capital markets in 2023. With that, I would like to thank you for your focus. And I will now turn the contact more than to the operator for queries.

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