Accelerate Diagnostics, Inc.
Q4 2020 Earnings Call Transcript

Published: 23 Feb 2021

[Operator:]

Good day, and welcome to the Accelerate Diagnostics Fourth Quarter 2020 Earnings Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Laura Pierson. Please go ahead.

[Laura Pierson:]

Before we begin, it is important to share that information presented during this call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include projections, statements about our future and those that are not historical facts. All forward-looking statements that are made during this conference call are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. These are discussed in greater detail in our annual report on Form 10-K for the year ended December 31, 2019, and other reports we file with the SEC.

[Jack Phillips:]

Thank you, Laura. Good afternoon, everyone, and welcome to our fourth quarter and full year 2020 earnings call. On today's call, we will review our fourth quarter and full year financial results, discuss the on-going impacts of the pandemic on the business, and describe our 2021 areas of focus. In the fourth quarter, we recorded global revenues of $3.1 million which contributed to full year revenue growth of 20% and resulted in full year revenue growth of $11.2 million. In the U.S. revenue grew by 54% over the same period driven by 63% increase in the revenue generating instruments installed base during the year. In addition, a high rate of contract extensions in the U.S. provided additional capital revenue. Limited hospital access and competing pandemic related priorities, particularly hospital decision makers high level focus on COVID testing continue to impact our new contracts. Despite these headwinds, we added 21 instruments in the fourth quarter, representing our best new placement contract quarter since the beginning of the pandemic. We continue to see growing interest in the upcoming Pheno product expansion launches, and are adding new prospects to the sales funnel as a result. Our three-year strategy for the company is to aggressively grow market share, thereby establishing rapid AST as a trusted clinical standard, and then significantly expand our available market by adding new geographies, partnerships and launching Pheno 2.0. In 2021, we will advance this strategy through optimizing the selling implementation and robustness of our current product offering accelerating placements through new product launches, and progressing key market expansion initiatives. Before providing additional details on our operational results for the quarter and our plans for 2021, I would like to hand it over to Steve to review our fourth quarter and full year 2020 financial results. Steve?

[Steve Reichling:]

Thank you, Jack. And good afternoon everyone. Net sales were $3.1 million in the fourth quarter and $11.2 million for the year. This compared to $3.5 million and $9.3 million for the same period in 2019. The year-over-year sales decline in the fourth quarter is the result of a large capital deal in EMEA in 2019 that did not repeat in the current year. While 2020 consumable kit revenue continue to grow meaningfully year-over-year during the fourth quarter. Global revenue growth for the year was 20%, driven by strong growth in the U.S., which was partially offset by declines in EMEA revenue, as we restructured operations in that geography.

[Jack Phillips:]

Thanks, Steve. As we highlighted throughout the year, nearly every aspect of our business was impacted by the pandemic in 2020. Our lab and clinical stakeholders in infectious disease had to on board unprecedented volumes of new COVID testing as a matter of national priority. Suppliers of components to our test kits became focused on supplying COVID testing components and the FDA delayed communication on key product development initiatives. Despite these challenges, our team coalesced, working to advance our goals for the year, and we continue to serve our customers without interruption. We maintained three areas of focus for 2020 driving U.S. commercial excellence, focused on geographic expansion and delivering new content for Pheno while also materially advancing our next generation platform Pheno 2.0. Now that the years come to a close, I would like to take a moment to review the progress we made in each of these areas before detailing our key areas of focus for 2021. Turning first to the steps we took to improve U.S. Commercial excellence in 2020. Our most marked area of progress was in our go-live execution. From a near standstill in late spring, our team was able to deliver a record number of go-lives in the fourth quarter, contributing to a 63% year-over-year increase in our revenue generating installed base. In addition, while the number of new contracted customers in the year was underwhelming and further impacted by some of our customers coming out of our backlog, our team delivered 21 new contracted instruments in the fourth quarter. We also converted a substantial portion of customers who were on initial short term contracts into long term committed agreements in the third and fourth quarters validating the value our customers are seeing from the Pheno system. We exited the year with 268 clinically live in revenue generating instruments and another 133 in the backlog pending go-live. In summary, our U.S. Commercial team substantially improved our go-live process significantly increase our install base of clinically live and contractually committed customers and delivered 54% year-over-year revenue growth. All of these successes are a result of our team working together to realize meaningful progress despite the challenging conditions of 2020.

[Operator:]

The first question comes from Brian Weinstein from William Blair. Please go ahead.

[Brian Weinstein:]

Hey guys, good afternoon, thanks for taking the questions. So I guess we'll just start with conversations that you might be having with your customers or potential customers. Can you give us just some additional color on what those conversations look like about when you think you might be able to get back in? I know, you talked about kind of mid-year being more of a normal environment. But is there anything else that you can add as far as kind of your ability to try and work with them ahead of that timeframe, or conversations that you have that give you confidence that that even that timeframe is the right one here?

[Jack Phillips:]

Yes, sure. Brian thanks for the question. I guess first of all, I'd say that every day we're having dialogue with customers is just in a different way than we did it in 2019. So many of these conversations are still remote using Zoom. But we've invested in this area, and we've adapted to really kind of the new way of selling over the past year. So with that we continue to advance opportunities with new customers with customers that have contracted with us that are pending go-live. I would say what we're seeing, so far as we start the year, two months in, is, is some pockets of the U.S. and some institutions are opening up while they're still or not. We're seeing again, in some areas, good progress. And we expect like I said, we fully expect since, again, recent news about herd immunity and increased vacccinations. We are still cautiously optimistic that by mid-year we’re going to get back to more of a normalized call point. And then the last factor I would say is, what's important as well is that the key stakeholders across our customer base, have time and bandwidth to take on new projects. They really have the time to seriously look at other areas of health care, in this case, specifically tackling sepsis. We are again as we see a good declines, thankfully, in hospital admissions and bed utilization across the U.S. This is where we're really hoping to see and optimistic to see increased access across the board.

[Brian Weinstein:]

Okay. As we think about -- I think it was -- forgive me for probably getting the number wrong here. But something like 130 or 140 systems that were kind of -- that were contracted that were waiting go-live. How should we think about implementation of those? You had talked about kind of a six to nine-month timeframe is kind of where you would expected things to be? Of those 133, what percentage of those would you expect to be converted or go-live in 2021 consider all of the broader headwinds that are out there with COVID?

[Jack Phillips:]

Yes. So it's 133. So you had it right there, Brian. We have 133 pending go-lives. To answer your specific question is our expectation for those 133 is the majority of them, most of them, if not all of them will be live in 2021. I will say that as we have really honed the go-live process, the implementation process, it's clear to us that the first half of the year is going to be soft as it relates to go-live. We had a record quarter for and go-live. And we have good line of sight for all of these customers relative to where they're at in the funnel, and where they're going to be prepared to go-live. We expect again, most of these, if not all of them to get live in 2021, but it will be a graduated schedule that will that will be more in Q3 and Q4.

[Brian Weinstein:]

Got it. And then last one for me is on Pheno AST and Prep. Can you just talk about some of the kind of pre commercial launch plans that you have there? And some of the efforts that you're having to just make sure people are aware of what's going on there? And then anything that you have on kind of price discovery and how we should be thinking about modeling those products contribution here this year and even any thoughts that will be updated on kind of a longer term outlook for what those can contribute to the top line and to growth of the business?

[Jack Phillips:]

So a couple things on Pheno AST. We continue to progress that program. And your question about actually getting out in the market And speaking about this. Our sales people are already talking about the product. We are again very excited about the interest that we have for the product in that segment that were a win rate is not been where we want it to be and that segment are specifically those customers that have very well routed, automated, invested in ID platform that's working for them. And so, the excitement level I would say is I'm very positive about the interest that we have in Pheno AST up to this point. And again, we continue to expect -- we expect to be launching the product this year. In PhenoPrep. Again, a lot of interest for those MALDI customers. About half of the U.S. microbiology laboratories have a MALDI platform. The reality is many of those platforms though, they utilize slow ID, very few of those MALDI platforms in the U.S. have a rapid way to produce ID off of MALDI. PhenoPrep answers that problem and really automates the front end. So in that segment, we continue to have interests as well there. So in short, both product extensions that we're talking about here we're excited about, and we believe, will definitely lead to a broader market share capture. The last part of your question, Brian, I'm going to go ahead and turn over to Steve. And it was really around the financials and how these products are going to impact our overall financial picture. Steve?

[Steve Reichling:]

Yes, Brian. So we're still doing work on that front. Like Jack mentioned, we're going through a systematic process to build the funnel and using that early funnel to evaluate the pricing that will be buried by the market. One thing we know and this is not a surprise, but the AST only or the Pheno AST version will be less than the integrated kit. But one of the things that we're seeing is a lot of interest from accounts that are higher volume than our current average account. So that would say that despite the lower price, there's going to be some degree of offset with higher volume. And exactly how that will shake out, we'll have to see and as we get closer to launch we'll provide more information.

[Brian Weinstein:]

All right, guys. Thank you so much.

[Jack Phillips:]

Thanks, Brian.

[Operator:]

The next question is from Steven Mah from Piper Sandler. Please go ahead.

[Steven Mah:]

Thanks. Thanks, guys for taking the questions. So maybe just to dig in a little bit more on Brian's question on AST and PhenoPrep. Could you give us a little bit more detail on the launch? Should we think about it more as a mid year or back half of 2021? And then secondly, I think you said before on a prior earnings call that you wanted to add some specialist sales reps for PhenoPrep and Pheno AST? And if so, where are you at in that process?

[Jack Phillips:]

Yes. So, timing for Pheno AST is more. We're optimistic about middle of the year this year for launch of Pheno AST. For PhenoPrep, we still anticipate to launch in 2021, but it'll be towards the back end of 2021. And as I indicated to Brian, really both products, we're out marketing them now. But we expect to launch them mid and back half of the year for PhenoPrep. And then, as far as your other question about how we're planning on marketing these two products? And so, I may have misspoken in a prior interview or an earnings call. We are not actually adding or do we need to add specialists for these products. These are clear product extensions to what we do. Today, our Salesforce is very well equipped to really cover and speak to the solutions that we're providing with AST, Pheno AST and PhenoPrep. So -- and our coverage across the U.S. and EMEA is strong already. We've retained -- through the pandemic, we've retained our sales organization. We're in good shape as far as coverage. And it'll be a very successful launch with the great team that we have in place already.

[Steven Mah:]

Okay, great. Thanks for that color. And then the final one for me. On the regulatory process in China, I think you said you're in the first phase of that. Could you give us a better sense of timing on when that'll be completed? And when we could expect a launch?

[Jack Phillips:]

Yes. So right, we're in the middle of the first phase, which is type testing in China, it's going very well. Today, we have a live instrument actually in Hong Kong, we're able to gain access in Hong Kong, different than Mainland China. And we have a live customer there. We're looking at additional targeted accounts in Hong Kong as well. And then for Mainland China as well, we're building in specific provinces. We're building a thought leader group and working with them already, too. As far as timing goes for when actually will have China FDA approval? It's really hard to say. It is a long process. I don't really want to speculate at this stage. But again, we continue to move things forward. And it's going very well. And as we get through this kind of first phase of the regulatory phase within China, then I'll definitely update on where we're at that time.

[Steven Mah:]

Okay, great. Thanks. Appreciate it.

[Operator:]

The next question is from Mark Massaro from BTIG. Please go ahead.

[Mark Massaro:]

Hey, guys. Thanks for taking the questions. I guess, you certainly made nice traction in Q4 in terms of placing new systems and converting new instruments from the backlog. I guess, could you help me understand for the 133 that you have in the backlog? To what extent is just managing the COVID pandemic to blame for one of the reasons why people are not converting or going live? And then would you be able to expand on some of the other reasons? Are they workflow-related, staffing-related, training related? I think that would be helpful.

[Jack Phillips:]

Thanks, Mark. A large portion of those are directly related to the delay and a large portion of those is directly related to management of COVID. And so, these customers have continued to voice that, hey, they definitely plan on going live with Pheno and getting optimized with Pheno. And it's simply a workload. I mean, it's simply the ability to focus on training on validation and verification, on getting a system -- an LIS integrated. And so that's why as we talk to these customers, and we're in constant communication with them. That's why we're very confident that as we go through the year, and we move from a pandemic to an endemic and we start to manage COVID in a different way, from what our customers are telling us as well. We believe that we'll be able to get a significant number of those customers live throughout 2021. The other challenges that we see and have with go-lives are really quite predictable. we dealt with them, and we successfully really advanced solving those challenges through our new implementation process. The examples of those are, LIS connectivity working with IT. It's validation verification processes. So, we have a new program there, working with customers to help expedite that. All those are, I think well underway and the success of that has been demonstrated in Q4.

[Mark Massaro:]

Terrific. I didn't hear you guys provide full year 2021 revenue guidance. I guess, just want to confirm that you did not guide? And do you have any thoughts on consensus as looking for a doubling of revenue this year? Just curious if you have any commentary there?

[Steve Reichling:]

Yes, Mark. Given the three principal drivers of our revenue cycle are all being impacted to one degree or another by COVID? We don't feel it's prudent to put out guidance at this time. We really need to see how things emerge in a more normalized environment. As for the estimates that are out there today, I mean, I would expect based on the clarity, we provided, at least qualitatively, that the first half of the years is going to be very modest from a growth perspective, year over year. And depending on how and when we emerge from the pandemic, it should build progressively from there. But again, we need to see more here and really need to understand what it looks like before we provide guidance.

[Mark Massaro:]

Okay. And then I wanted to ask about Pheno AST targeting in mid 2021 launch. Can you share any feedback you're getting? I know you've been marketing it. But what type of receptivity is this getting? What are you hearing? What are some of the benefits you think some of your early customers might get from this product?

[Jack Phillips:]

So we've received this feedback from our customers on the interest for a Pheno AST type test kit, really since we launched Pheno. So this is not -- and one of the reasons why we came to this new product strategy is customers from a while ago, from way back when we launched the product Initially, the ones that did not adopt Pheno really said hey, we want we -- have a major need here to bring in the turnaround time for AST. But we have an ID results that we get in say, an hour and a half or two hours. And so, what we're able to do with the Pheno AST test kit, is give those customers the solution that they need, which is in their case, they absolutely still need a rapid antibiotic susceptibility test. The majority of ID clinicians will not adjust patient therapy until they have actionable results from an AST result. And so the feedback that we're getting is, is like I said, quite positive. We have a very clear funnel, a very clear target market that we're going after. And I also --I guess I also want to say that our rapid ID AST test kit, which is our flagship product remains a key product and the biggest product of our portfolio for the majority of customers out there. This will be -- the Pheno AST and PhenoPrep is going to be a nice product extension for a piece of the segment. And again, we're excited to get the products launched this year.

[Mark Massaro:]

Okay. Thank you.

[Operator:]

The next question is from Tycho Peterson from JPMorgan. Please go ahead.

[Unidentified Analyst:]

Hi, guys. This is for Tyco. Just to follow up on this, PhenoPrep and Pheno AST. How should we think about the margin impact of both of these products as they're launched in 2021 and into 2022, especially on the gross margin side?

[Steve Reichling:]

Yes. Like I referenced a bit in the response to one of Brian's questions, a lot of that is going to be determinant on the picture of mix, which is the size of the account. Based on what we see so far, the average size of a Pheno AST plus PhenoPrep account should be larger than the current account on average. And then, we'll have to see how pricing shakes out. So those are the two principal levers. If you think about the cost side of that equation, we would expect that the cost of the kit to be marginally lower on the Pheno AST side. And then also, we're pretty happy with the cost of goods sold on the PhenoPrep consumable as well. So, again, depending on where the price lands and the mix of accounts lands, it should be reasonable gross margins.

[Unidentified Analyst:]

In 2021, are you expecting any material revenue from the COVID serology test? Does that provide any upside to you guys an sort of internal model there? Or how should we be thinking about that?

[Jack Phillips:]

So I just -- I mean, yes, I still believe that serology antibody testing is something that's going to take off in the overall management of COVID. I was on a call yesterday with Carole Johnson, who's the New National Testing Coordinator in the Biden ministration. And you know, she -- and I was on with other industry leaders as well. And she acknowledged the fact that this is an area that the administration, that her new role that she's very excited to look deeper into and assess and get feedback on the opportunities for antibody testing. So that was just yesterday. Again, a lot of change there in Washington. But it's I think it's optimistic to know that the new administration is also thinking about thinking about this as well. As we advance and more and more people get vaccinated what is the role of antibody testing? I think it's going to be an important one. And with that, we would expect to see some opportunistic revenue from MS-Fast in our serology test.

[Unidentified Analyst:]

Got it. Maybe just last one for me. On cash burn, you reduced it from $60 million annually to around $40 million in 2020. You mentioned that there's going to be a step up here in 2021. Can you give any more color as to sort of what you should be modeling? And where that step up will be?

[Steve Reichling:]

Yes. We haven't put that out there in concrete terms. One of one of the key considerations is that the government assistance that we received in 2020, which was about $4 million to $5 million will not be repeating in 2021. So if you annualize that impact into run rate, and then you assume most of the rest of the reductions are durable. That should give you some color on it. But not a not a dramatic increase outside of that factor.

[Unidentified Analyst:]

Got you. Okay. Thank you.

[Operator:]

The next question is from Alex Nowak from Craig-Hallum Capital Group. Please go ahead.

[Alex Nowak:]

Great. Good afternoon, everyone. Jack, as you speak with lab directors, today, the biology piece of the lab got some massive upgrades with COVID. Are they taking any of the learnings from COVID, and the automation that they put into the labs now and looking at the microbiology lab and thinking about making upgrades there to bring that piece of the lab in the 21st Century. It's a bigger picture question. But I'm just curious if we could see a wave of upgrades in other parts of the lab once COVID starts to normalize?

[Jack Phillips:]

Yes. Thanks, Alex. It's a really good question. I -- the feedback I've received and the administrators that I talked to is testing laboratory medicine has never been more on their mind than it is today. For obvious reasons, administrators are now taking note of Laboratory Medicine, the value of information and that information really starts with effective diagnostics and diagnosis of through testing. And so, to be more specific, I do believe that as we move through the pandemic, that one of the outcomes is going to be a much larger appreciation and therefore investment in Laboratory Medicine. Even more appreciation for infectious disease management, clearly oncology and cardiology and those kind of areas of testing have always received a level of attention because of the oncologist, because of the cardiologist. But this next phase that we're moving into, that infectious disease doc is now going to be and is already much more highly respected and has a much greater voice in health care. And with that we fully expect to see and we're seeing it. I'm seeing it in my discussion, more of a focus moving forward in these areas.

[Alex Nowak:]

Now, that's great. And then maybe speak to the annuity. You mentioned the annuity came down in December, as cases started to go up. I'm sure it was down still in January, somewhat. But should we expect very much the same in February and March and into April like we saw last summer. When cases starts to decline, do you see that annuity pretty much reflect that on an inverse basis, One to one?

[Jack Phillips:]

Yeah, I mean, we saw a very similar pattern. And I think we discussed that on the Q2 call that certainly in April and May, if I recall, we saw the annuity come down. And it's by a similar margin to what we saw in November and December and frankly, into January. So yes, I mean, we would expect right now the best information we have is that we should see some level of rebound similar to what we saw into the summer of 2020, relative to decline we saw initially in March, April or April and May.

[Alex Nowak:]

Okay. Got it. And are there any big studies that are actually ongoing today? You've read out a couple of prior to the pandemic. I'm sure some more were in the works. But have these studied been pretty much halted? Or are there any big studies we should really be watching for in 2021?

[Jack Phillips:]

Yes. There's actually three separate abstracts that will be coming out and are being submitted to ECCMID, they're very important. And the reason why they're important is they're actually the outcome of a very lengthy registry that we have put together, which is four hospitals. It's actually five hospitals. But one hospital due to COVID is still inputting their data. So because of timelines and submissions, they will not be in the data set. But four other hospitals are in this data set. The reason why? I think, very meaningful, it's very, very comprehensive data points for the patients across those four hospitals. And the outcomes that we're seeing in this registry study are very significant. So patient impact is very positive. And like I said, Alex, those are going to be submitted, I think they may already be submitted to ECCMID. And then ECCMID will be, I think it's in July of this year is when that'll be published.

[Alex Nowak:]

Okay, great. We're looking for that. And then how are you modeling EMEA placements and sales in 2021? Obviously, you got the same hospital restrictions, as you do in the U.S. But you've also restructured that business pretty dramatically in 2021. Any thoughts there?

[Steve Reichling:]

Yes. Like we said in the prepared remarks, I still think that in 2021, we're not going to see a whole lot of revenue from the EMEA geography and nor China, given the early stage of development of that geography. The good news is that we have brought the cost down considerably in the EMEA region. And their focus is not so much on growing -- on adding new accounts this year, but to implement a very specific strategy to increase the rate of usage and utilization at existing accounts. And those are those accounts are focused in the Middle East in the Mediterranean, European countries where antimicrobial resistance is a real issue. And we've got a nice playbook for going after that there.

[Alex Nowak:]

Okay. Understood. Thank you.

[Operator:]

There are no more questions in the queue. This concludes our question and answer session, as well as the conference. Thank you for attending today's presentation. You may now disconnect.