Co-Diagnostics, Inc.
Q3 2020 Earnings Call Transcript

Published: 16 Nov 2020

[Operator:]

Good afternoon, and welcome to the Co-Diagnostics Third Quarter 2020 Earnings Conference Call. . Please note, this event is being recorded. I would now like to turn the conference over to Investor Relations. Please go ahead.

[Unidentified Company Representative:]

Thank you, everyone, for joining us today. Before we begin, we would like to inform listeners that certain statements made by Co-Diagnostics during the course of this call may constitute forward-looking statements. Any statement about company expectations, beliefs, plans, objectives, assumptions of future events or performance are forward-looking statements. For example, statements concerning 2020 financial operational guidance, the development, regulatory clearance, commercialization and features of new products, plans and objectives of management and market trends are all forward-looking statements. The company believes these statements are based on reasonable assumptions. However, these statements are not guarantees of performance and involve known and unknown risks and uncertainties that may cause the actual results to materially -- to be materially different from any future results expressed or implied by such statements.

[Dwight Egan:]

Hello, everyone, and thank you for joining us on the call. The third quarter represents an important period of continued growth and development for the company. In my remarks today, I will address management's view of the current status of COVID-19, including our COVID-19 strategy, our views regarding antigen and antibody tests and the ramifications of vaccination. I will also address our overall strategy as it relates to the company's ambitions to establish our core CoPrimer technology as an important player in molecular diagnostics across several verticals in which we have continued to make important progress during the year. Finally, I will speak to the status of our new extraction free technical advance and testing for COVID-19 and other common diseases, such as the flu with raw saliva samples. With respect to the current status of COVID-19, Dr. Michael Osterholm, Director of the Center for Infectious Disease Research and Policy at the University of Minnesota, responded to a market watch reporter in August by saying the following

[Reed Benson:]

Thank you, Dwight. In the third quarter of 2020, total revenue was $21.8 million. In addition, we recorded $3 million of revenue in our India joint venture, CoSara Diagnostics. Year-to-date revenue was $47.4 million with an additional $4.4 million from CoSara. Third quarter net income was $15.7 million and year-to-date net income was $29.6 million, this represented fully diluted net income per common share of $0.53 for the third quarter and $1.07 for the year-to-date. Our operating leverage continues to contribute to our success as our gross profit margin on sales is 73%, and our net income margins year-to-date are 63% of sales. This includes a onetime benefit of $2.9 million from recording a deferred tax asset since we have determined that. Our net operating losses will be realizable. The net income also includes our share of the net income from CoSara which was $750,000 for the third quarter. We continue to strengthen our balance sheet as we ended the quarter with over $50 million of current assets compared to $1.6 million on January 1, 2020. We generated over $8 million in cash from operations for the 9 months ended September 30, and had $27 million in cash and marketable securities on hand at the end of the quarter. Our stockholders' equity increased to $52.7 million compared to $1.7 million at the beginning of the year. The improvement in our balance sheet was driven by strong revenue growth and healthy gross margins even after the increased operational expenses in the second quarter, resulting from explosive growth we've experienced and our desire to invest in new products and initiatives in the coming months. That concludes our prepared remarks for today, and we'll turn the time back over to the moderator.

[Operator:]

. Our first question comes from Theodore O'Neill with Litchfield Hills Research.

[Theodore O'Neill:]

A really, really impressive income statement here. And the question I have is pretty much general, Dwight. Is it -- I mean, given what's going on out of the world, I would have expected sales to have gone up dramatically, not just for you, but for other providers of diagnostic tests. Can you talk a little bit about what's going on there in the marketplace?

[Dwight Egan:]

Thanks for the question. From the beginning of our foray into COVID-19 tests, the company has had opportunities worldwide. We were the first U.S. company to have a test approved by the European Union with a CE mark, and that's where we began marketing the test. And then, of course, April 3, we got our EUA from the FDA. And then, of course, as you know, there have been a plethora of other companies that have come into the marketplace and the recent introduction of both antibody and antigen tests. So we actually feel like we've done a very good job holding our own. We have been careful to make sure that the business that we sell is good business. When you're dealing with an international marketplace, one of the ways you are able to check the credit of the companies that you're dealing with is to get them to pay money upfront as much as possible. And I think anybody looks at our balance sheet and sees how well we work for our balance sheet in context of receivables and such, you can see that we're not dragging people on payables and we're getting our money collected. And we're selling good accounts to good clients that can do durable business in the future. When this business first started in the COVID space, everybody in the world was acting like that they were going to buy billions and millions of dollars' worth of tests, but only certain of them had actual credibility. Many people were trying to shore up the ability to get tests. And then once they were able to try and shore that up, then we go out and look for a client. We, on the other hand, have sold a very high-quality CLIA Labs or CLIA Lab equivalents and such around the country and around the world. We have a very broad base of CLIA Labs and other kinds of laboratories around the world. And are very pleased with the kind of sales momentum that we have been able to maintain. We believe that the introduction of our ABC test and our multiple gene test for COVID will also greatly expand potentially this market around the world. So yes, we would all like to have more. We've concentrated on making sure we have a very good quality type of sale, one that we can collect the money on, one that's going to be durable in the future in terms of increased and consistent business. And we think we've done an excellent job doing that, as is evidenced by the gross margin that we're delivering and is also evidenced by the earnings per share that we're delivering.

[Theodore O'Neill:]

My follow-up question is about the ABC test. Will that be a saliva-based test that you can do at home as well at some point?

[Dwight Egan:]

Yes, it will be. The ABC test is an incredibly great test. I want everybody on the call to understand that this is a multiplex test that is very powerful. It interrogates about 41,000 different strains of Flu A, about 12,000 strains of Flu B and the 2 genes that we mentioned with respect to COVID-19. I got a recent communication from one of our customers that said, we are just in love with this assay. It's a very good assay, very clean. Anybody knows anything about CoPrimers and our elimination of primary dimers and such understand that the products that we deliver are easy to use, easy to interpret, and that's why we have a business that is such a high level of repeat business from our customers and why we're able to replace other tests in the market from time to time.

[Operator:]

The next question is from Yi Chen with H.C. Wainwright.

[Yi Chen:]

My first question is, during the call of the second quarter, just that was in the middle of August, you mentioned that the company, at that point, has received year-to-date, $50 million worth of orders related to COVID-19 diagnostic products. So looking at the top line revenue so far for the first 3 quarters, it has yet to receive -- yet to reach $50 million. So does that mean there is a bottleneck at the manufacturing side or the packaging and shipping side? Or how do we -- how should we understand that?

[Dwight Egan:]

Okay. The first thing to recognize is that the number we were using that you mentioned also includes the revenue and sales orders, rather, from CoSara joint venture in India. So when we show the top line on our third quarter results, the India top line revenue is not shown on the income statement. And secondly, I would just tell you that the momentum that we have in the fourth quarter so far, for example, is about the same as we've had at the same time of the quarter that we had in Q2 and Q3. So it's a similar momentum. And I think in terms of getting a sense of how the company is doing, what to expect from a revenue standpoint, if you look at what we did in Q2, what you did Q3, what we're looking for in Q4 is on a consistent pathway. And of course, we hope that with our new introduction of our multiple gene COVID test and also our ABC tests that we can have even greater sales as we're meeting some additional needs there, particularly in the international markets. Does that give you some additional color there, Yi?

[Yi Chen:]

Yes, yes, yes. So is the company ready to announce a number of the number of year-to-date orders so far at this time or no?

[Dwight Egan:]

We're not really in a position to do that except to tell you that our momentum is similar to what we would have reported at the same time last quarter. So it's a similar looking situation right now, Yi.

[Yi Chen:]

Got it. Got it. So my next question is regarding these 2 new products, when you see ABC test and the other one is the SARS-CoV-2, 2 gene test. So first of all, can you tell us how the second one is differentiated from the current Logix Smart test? And also, do you expect your current customers to, starting from now going forward, start ordering these two tests to replace the current orders for Logix Smart tests?

[Dwight Egan:]

Okay. Yi, most of the tests that we're selling to date continue to be the original COVID-19 tests. We just this morning, got regulatory clearance with a CE Mark and also have been notified by the CDSCO in India clearance. So we'll just now be able to begin selling the two gene tests. I think in international markets, it will only have the chance to potentially materially increase the level of sales that we experience overseas. U.S. customers have been very happy with the existing COVID test. And I don't think that our CoV-2 test will be high driver for U.S. sales as we think it will be in international sales. The World Health Organization promulgates certain guidelines, and they have tended to emphasize a multiple gene sort of criteria. And the reason that we did this new reengineering of the test was to make it so we could drive more sales in those international markets. So I think the U.S. market will continue to order the existing COVID test. The international markets will probably swing to the CoV-2 with -- I think we'll just sell more of them internationally because we're now complying with the kinds of guidance that the World Health Organization has promulgated. With respect to -- and the way it's different is that it has not just the RdRp gene, also the E gene in the sequence. So as a company, we didn't view it as a necessary "upgrade" but we think it helps the sales go down a lot easier in the international markets. With respect to the ABC tests, this is a test that we think more our customers will migrate to the ABC test from the original COVID test over time. We don't have any problem if it cannibalizes the original test because it's sold at about a 30% higher price. So it has a chance to cannibalize the original test to bring in more revenue. So we're okay with that. We still have very brisk sales in the COVID -- our original COVID-19 tests, and we expect that to continue for at least the next little while, while these other tests have a chance to get traction.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Dwight Egan for any closing remarks.

[Dwight Egan:]

Thank you. And we thank our analysts for their coverage and for their questions today, and for our shareholders and others who have listened to the call. We're very excited about our progress as a company. We think we're on a very solid footing. We think we've approached our business with a very, sort of an eye to durability, let me put it that way. Because we have been able to foresee the need for things like a multiple gene test. We've been able to foresee the need for an ABC test well in advance of when it was going to be required, so that we are able to now supply the market with those critical tools. We also believe that we've attached ourselves to the right technology with reverse transcriptase PCR. That is the gold standard, as indicated by the CDC as recently as September this year. So we're very proud to be providing the test with some very good partners, such as clinical reference laboratory that are doing serious innovation and important client servicing throughout the United States and throughout the world. We appreciate our shareholders. We appreciate our employees, our PhD talent base that have made these products available and available to our customers. It's in all-hands-on-deck environment around here. And as you know, and as I articulated in my prepared remarks, we have not let the ball drop on our other initiatives that are involved in agriculture and involved in liquid biopsy and mosquito vectors, products and others. We're building a company for the future, intending to make CoPrimers a technology of choice in many different parts of the world because. It deserves to be there in terms of how this technology works. As you know, during the quarter, we also received an additional patent protection on the CoPrimer technology, where we actually got the actual molecule patented. And so we're very happy about the preservation of our intellectual property. We look forward to some very interesting times over the next year as we take these various markets and various verticals to market and appreciate your support. Thank you.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.