Genmark Diagnostics Inc
Q2 2018 Earnings Call Transcript

Published: 31 Jul 2018

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to today's conference call to discuss GenMark Diagnostics' Second Quarter 2018 Financial Results. My name is Valerie, and I'll be your operator on this call. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. [Operator Instructions] Please note that this call is being recorded today, Monday, July 30, 2018, at 1

[Johnny Ek:]

Thanks, Valerie, and thank you all very much for joining us today. Before we begin, I would like to inform you that certain statements made by GenMark during the course of this call may constitute forward-looking statements. Any statement about our expectations, beliefs, plans, objectives, assumptions or future events or performance are forward-looking statements. For example, statements concerning our 2018 financial guidance, the development, regulatory clearance, commercialization and features of new products, plans and objectives of management and market trends are all forward-looking statements. We believe 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 be materially different from any future results expressed or implied by such statements. Important factors, which could cause actual results to differ materially from those in these forward-looking statements are detailed in GenMark's filings with the SEC. GenMark assumes no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances occurring after this call or to reflect the occurrence of unanticipated events. I will now turn the conference call over to Mr. Hany Massarany, President and CEO of GenMark.

[Hany Massarany:]

Thank you, Johnny. Good afternoon, and thank you all for joining us. As usual, joining me on the call today is our CFO, Scott Mendel. Our second quarter results highlight our commitment to continued business execution. Total revenue for the quarter was $14.9 million, reflecting growth of 21% year-over-year. Our top line performance was largely driven by the ongoing pace of ePlex system placements and demand for our respiratory pathogen test cartridges. The remarkable processing capacity of ePlex was well demonstrated during these past flue season. This combined with the system's ability to optimize laboratory testing efficiency and workflow enabled our commercial teams to expand our installed base in the U.S. and international markets. In the second quarter, we placed 39 additional analyzers and closed out the quarter with 267 placements globally. The majority of our Q2 ePlex placements were in the U.S., which as you know, is the largest market for our testing platform and panels. Turning to business highlights. The main elements of our 2018 growth strategy include driving ePlex market adoption and test menu expansion, as well as improving manufacturing cost and yield efficiencies. I'd like to take the next few minutes to cover some recent milestones and updates in relation to these calls. ePlex placements in the first half of 2018 were in line with our expectations, and driven mainly by new customers to GenMark rather than existing XT-8 conversions. While ePlex workflow continues to resonate very strongly with high test volume customers, our NP configuration has also proven to be very attractive to lower volume sites. As expected, we are also gaining traction with integrated delivery networks, where a combination of ePlex and ePlex NP is enabling multiplex molecular testing to be done at multiple sites across IDNs instead of requiring samples to be transported to centralized testing sites. We expect this trend to continue going forward, particularly with the future launch of our hub and spoke software solution, which will enable seamless connectivity of ePlex platforms across all sites within an IDN. As we noted last quarter, we have accelerated our commercial sales force expansion plan with a goal to end 2018 with a U.S. sales force in the mid-30s. As we stand now, we're only a handful of hires away from achieving this goal, and we are very pleased with the caliber of sales professionals that we've recruited so far. Our continued success with ePlex in the U.S. market and the anticipated near term launch of our ePlex Blood Culture Identification panels are helping us attract talented sales professionals to the GenMark team. Outside of the U.S., we are continuing to optimize our commercial approach and expand our distribution network. The addition of several new distributors in the second quarter enables us to better address key European markets, as well as access new geographic markets with demonstrated interest in our ePlex solution to support future growth. And as we highlighted on our last call, we are continuing to improve our commercial processes in Europe to shorten the ePlex acquisition cycle from placement to routine implementation and revenue generation. We've also made good progress with the repositioning of underutilized ePlex analyzers to maximize annuity of our installed base in Europe. And while we do not plan to provide a breakdown between U.S. and/or U.S. sales, I'm pleased with the advancement of these strategic initiatives and their positive impact on our total results, which is in line with our expectations. Turning to ePlex menu expansion. Completing the rollout of 3 unique blood culture ID panels to the U.S. market remains a top company priority. The recent FDA submission of the first of these, our gram-positive panel was an exciting milestone for GenMark. As our second ePlex panel to be submitted to the FDA, it not only underscores our commitment to menu expansion, but it also further demonstrates our ability to drive ePlex menu expansion with different sample type. From a market perspective, we believe that the opportunity of our blood culture ID panels could become as large as the multiplex respiratory pathogen testing market, which is now approximately $500 million globally. We firmly believe that our approach to blood culture ID testing is superior to other multiplex molecular panels available on the market today. Multiple customer experiences and studies have now demonstrated the compelling benefits that the ePlex BCID panels were designed to deliver, including the broadest inclusivity of any record molecular panels on the market, the impact of actionable resistance markers and the unique ability to provide polymicrobial detection across the gram-positive, gram-negative and fungal panels. And to make these benefits even more actionable, we recently released a new version of ePlex software that allows hospital antimicrobial stewardship teams to integrate the diagnostic results from ePlex BCID panels with site-specific information, such as the antibiogram and local practice standards to help inform therapy selection and streamline patient care. This approach has been demonstrated in the literature to have a positive impact on patient outcomes, and customers have provided very positive feedback about the functionality of this software solution. This unique software capability extends the value proposition of our highly differentiated BCID panels, while also highlighting the broader IT and integration benefits that ePlex offers the laboratory and health systems. We are executing on our commitment for FDA submission of the gram-negative panel and the Fungal Pathogen Panel in the third and fourth quarters, respectively this year. In fact, I'm happy to announce that the clinical testing for gram-negative has recently been completed and we are busy preparing the FDA submission. Additionally, the clinical study for the Fungal Pathogen Panel has recently begun, slightly ahead of our internal expectations. Therefore, as previously communicated, we expect FDA clearance of all 3 BCID panels between the end of this year and early next year subject to FDA review timing. As we draw closer to the addition of these important and differentiated panels to our menu, we are increasingly seeing customers consider ePlex BCID panels in their decision-making processes. And my final update on menu expansion is regarding our gastrointestinal panel. And now that we have completed all the internal studies for the 3 BCID panels, our assay development teams have stepped up their focus on this important panel, which we expect to offer the broadest coverage of comfortable panels demonstrating ePlex's utility with this challenging sample time. And finally, on the manufacturing front. We've worked hard to optimize our manufacturing processes to improve yield, while continuing to reduce variability and drive cost efficiency. I'm very pleased with the progress we've made so far across all of these areas and the positive impact that our efforts are already having on gross margins. Our manufacturing capacity expansion plan is on track to support the 2018, 2019 flu season, and our ongoing menu expansion efforts, based on all of this and our continued focus on manufacturing cost efficiency, we anticipate further gross margin expansion in the second half of the year and beyond. And with that, I will now turn the call over to Scott for his financial review.

[Scott Mendel:]

Thank you, Hany. As Hany noted, our second quarter 2018 revenue was $14.9 million, up 21% versus the second quarter of 2017, with the U.S. continuing to account for the vast majority of our sales. The average annuity per ePlex placement was $101,000 in the second quarter. This strong revenue pull-through per placement even during the quarter that is typically low for respiratory testing bolsters our confidence that average revenue per ePlex placement will be towards the top end of our guidance range of $100,000 to $120,000 per year with the potential to increase in future years as our test menu expands. Second quarter gross profit was $4.4 million or 30% of revenue versus $4.9 million in the second quarter of 2017 or 40% of revenue. As discussed on our last earnings call, lower-than-anticipated gross margin in the first quarter was driven by ePlex respiratory volume and our prioritization of meeting customer needs during that extraordinary flu season versus implementing manufacturing efficiency projects. As expected, gross margin is beginning to improve as we resume our focus on optimizing our manufacturing processes to improve yield and drive cost efficiency. This is a familiar journey, one which we completed successfully with our XT-8 business. Based on the progress we made with ePlex manufacturing in the second quarter, together with our comprehensive plan to pursue additional cost efficiencies, we remain confident in our ability to drive margin accretion over the next several quarters and beyond. Total operating expenses were $20.2 million for the quarter, a decrease of $1.9 million compared to the second quarter of 2017. This decrease was largely due to reduced ePlex development expenses. Our net loss per share for the second quarter was $0.30 compared to $0.37 in the second quarter of 2017. Wrapping up with our balance sheet, we ended the quarter with $55.2 million in cash and investments. We used $10.2 million of cash in the quarter, which was significantly lower than the prior year due to several factors, including the reduction in operating expenses previously mentioned as well as our focus to efficiently manage working capital. When compared sequentially to the first quarter of 2018, our accounts receivable balance decreased by $900 million to $7.1 million. And we finished the quarter with inventory of $8.8 million, a decrease of $1.6 million versus the prior quarter. We expect cash usage to decrease over the next couple of quarters as we continue to grow our revenue and improve margins, partially offset by continued investment in our commercial and R&D efforts as well as manufacturing capacity. Overall, our cash usage will be significantly reduced relative to the prior year and in line with our expectations. Turning to guidance. For the full year 2018, we are reiterating our revenue guidance of $68 million to $72 million and continue to expect the higher end of that range. Our gross margin expectation remains in the 30% range. We are also reiterating our guidance for operating expenses in the mid $60 million range driven mainly by reduction in R&D expenses partially offset by increases in SG&A. And finally, we continue to expect 2018 global ePlex placements in the range of 140 to 170 net new analyzers. We have delivered another strong quarter, which demonstrates the incredible potential of our ePlex platform. We are confident in our long-term strategy for growth and value creation, and we are also cognizant of what we must do in the near term to make it happen. Expanding our sales force to accelerate ePlex adoption will remain a key focus area for the foreseeable future. Just as important, is our commitment to expand our ePlex test menu, which we expect to be a significant driver of our revenue and market share growth. We are optimistic about launching our BCID family of panels in the U.S. market later this year and early next year, and we are very enthusiastic about the positive impact this will have on ePlex placements and revenue growth. And finally, we will remain laser-focused on improving manufacturing cost efficiencies and driving gross margin expansion. We will now open the call to questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Doug Schenkel of Cowen. Your line is open.

[Doug Schenkel:]

Thank you. Good afternoon, everybody. Starting on your commentary on instrument repositioning, I appreciate the details you provided. I'm just wondering if you could provide a bit more detail on this dynamic, specifically, we were, I think, in line with what you talked about previously estimated that you plan to reposition roughly 20 to 25 ePlex instruments in Europe. Can you give us a sense of how much progress you've made there? Have you repositioned most of the instruments already? And looking ahead, should we expect this to remain a slight drag on placements in the second half or again, to the earlier point is this largely behind us at this point?

[Hany Massarany:]

All right. Well, thank you very much, Doug. Yes, as we indicated earlier, this is really a small number of instruments in Europe that were stuck in the decision-making process at several sites, and we planned to reposition these systems to other sites where they can be used productively to drive revenue, and we have already accomplished a fair bit of that. So there aren't so many systems remaining, but we continue to work on that, including with the new distributors that we've also signed up during the quarter.

[Doug Schenkel:]

Okay. Thanks a lot Hany. And maybe pivoting to a gross margin question. You made some nice progress this quarter, you previously indicated that you expected to exit the year at 35% to 40% gross margins. Was that the right way to think about it still? And relatedly, can you just provide us what are the key steps to achieving this target from here based on what you've already achieved halfway through the year, but recognizing this target still is a bit higher than where you are today?

[Scott Mendel:]

Right. This is Scott. So we continue to expect to deliver about 30% gross margin for the full year basis. Second quarter, we did make some good progress. Our teams drove some nice manufacturing yield improvements, and we expect that to continue in the back half of the year. As far as landing or exiting this year in that 35% to 40% range, it depends. It depends how the flu season evolves and how we build inventory in the third and fourth quarters. Maybe it's not going to be quite at the 35% to 40%, Doug, but I do feel good about that 30% full year basis -- full year guidance that we provided. As far as -- sorry, as far as some of the initiatives et cetera, really focused mainly on improving yield, and as I talked about on the last call as well, there is a whole host of opportunities to do that. A lot of it involves implementing QC methodologies early in the manufacturing process, that help identify any issues along the way as opposed to finding it out during the final quality control check at the end of the manufacturing process, and that is the most common flavor of improvement that the teams of driving. Beyond that, it's things such a direct material and direct labor efficiency as well.

[Doug Schenkel:]

Okay. Thank you for that. And one last quick one. For gram-positive, it took about 2 months from the completion of the clinical tests to the official submission to the FDA. Is this a reasonable precedent, I guess, as one way of putting it, as we think about gram negative and fungal time lines? Or is it possible that you could actually move a little bit quicker with those?

[Hany Massarany:]

Well Doug, it's an ongoing process of sort of learning and improving and doing better, which our team is managing very well both internally and working with FDA. And therefore, we continue to expect to submit the gram negative panel this quarter and the fungal panel next quarter.

[Scott Mendel:]

I would just add Doug, that we are pleased with the efficiency associated with doing the clinical testing with the ePlex system, what tends to be a variable that we can't anticipate specifically is any type of comparative method testing and/or a resolution of any discordant results. So that tend to be a little bit unknown for us, but we are very pleased with how quickly we're able to get through the clinical samples utilizing ePlex.

[Doug Schenkel:]

Okay. Thanks a lot guys. Appreciate it.

[Operator:]

Thank you. Our next question comes from Derik De Bruin of Bank of America. Your line is open.

[Unidentified Analyst:]

Hi, this is Ivy in for Derik De Bruin. Good afternoon and thank you for taking my question. Hi, so just curious, what are you seeing in terms of competition, like are you running into QIAGEN'S diagnostics products when you're marketing? Thank you.

[Hany Massarany:]

Not specifically. We are, of course, competing all the time, with every placement that we make with various competitors, who are out there with products on market for multiplex molecular sample to answer testing. We have been very satisfied, we're very happy with the success that we're having, not just by competing with incumbents, but also in some cases where labs who were not previously performing this tests are adopting ePlex as well. So like I said, not necessarily with QIAGEN yet, but certainly we're competing with other suppliers in the marketplace.

[Unidentified Analyst:]

Okay. I appreciate the comment. Switching gears to gross margin and operating expenses a little. First of all, appreciate for your comments, but just wanted to see if you can elaborate on the trend for gross margin R&D and SG&A expenses for rest of the year? Thank you.

[Scott Mendel:]

Sure. Ivy, I can handle that. This is Scott. From a trending perspective on gross margin, as we just reported, we finished about 30% in the second quarter. I would expect sequentially quarter-over-quarter some slight improvements. For the prior question, I don't know that we'll be in the 35% to 40% of exit rate, but I do feel confident about 30% of total year gross margin. From an operating expense standpoint, it's a good question, we did have quite a bit R&D expense that happened in the second quarter. And that was directly related to the rapid progress we made in getting prepared for the clinical trials for fungal as well as gram-negative. So what we saw in the R&D expense lines in the second quarter was the acceleration of building all the necessary consumables to complete those clinical trials. And as Hany mentioned, for gram-negative we've already finished the clinical testing and for fungal, we have just begun. So that's what's really drove that operating expense line up in the second quarter. From a trending perspective on operating expense, we still remain committed to that mid- $60 million range for full year basis, and I don't see any big difference between Q3 and Q4 from a magnitude perspective to get us to that mid-$60 million range on a full year basis.

[Unidentified Analyst:]

Okay. Thank you.

[Scott Mendel:]

You’re welcome.

[Operator:]

Thank you. Our next question comes from Tycho Peterson of JPMorgan. Your line is open.

[Unidentified Analyst:]

Hi. This is actually Julia on for Tycho today. Thanks for taking the quarter. So first one, in your prepared remarks you mentioned the new distributor initiatives in Europe, and then also some activities on shortening the sales cycle. Just wondering if you could give more specifics regarding these initiatives, the new distributors, what new markets does that allow you to enter, and then how exactly are you shortening the sales cycle in Europe?

[Hany Massarany:]

Thanks for the question. We are not sort of disclosing the specific markets where we have secured additional distributors at this time. But we have done so both in some of the major Central and Western European markets, where we have direct GenMark teams in those markets to help augment our efforts. And that's also part of our strategy working and partnering with these distributors to help shorten and sort of accelerate the decision-making cycle in those markets. But in addition, we've also entered several new markets with new distributors that we didn't have prior to the second quarter.

[Unidentified Analyst:]

Okay. And then maybe zooming in on margins a little bit. Could you give us an update on what's the mix of ePlex versus XT-8 revenue this quarter versus last quarter? And how does that change in mix factor into the sequential improvement in gross margin this quarter?

[Scott Mendel:]

Yes. Certainly, the mix normalized in the second quarter. It's about 50-50, a little bit - maybe a little bit more than that on XT-8 about 52%, 53%, I believe versus in the first quarter we were predominantly ePlex. I think it was 60% ePlex in the first quarter. So definitely that mix shift back towards XT-8 at the time while we were bringing ePlex, our improving ePlex margins helped out in the second quarter. But that was in line with our expectations.

[Unidentified Analyst:]

Got it. And then lastly, as we look forward to the BCID launch later this year or early next year, how you guys are thinking around pricing?

[Hany Massarany:]

We haven't yet disclosed pricing, if you mean, in the U.S. market. We always price at a premium. We believe that we have a very strong value proposition with those panels, as I mentioned earlier. And in conjunction with the benefits that ePlex brings to the customer -- to customers. So we will be pricing accordingly, but certainly, we are also very competitive in terms of securing additional market share and growing

[Unidentified Analyst:]

Okay, thank you.

[Operator:]

Thank you. Our next question comes from Brian Weinstein of William Blair. Your line is open.

[Brian Weinstein:]

Gentlemen. Thanks for taking the questions. So I though we would start with the comments on adoption in line expectations. Obviously, you said mainly from new customers, are these customers that are new to multiplexing in general, or were these competitive takeaways for the most part?

[Hany Massarany:]

Mostly competitive takeaway - takeaways, Brian. We continue to upgrade certain XT-8 customers to ePlex I mean, obviously, we're working closely with the XT-8 customers and we know who is ready to upgrade by when, and that's being managed on a case-by-case basis. We're also securing some, I'll just call it, like white space sort of customers who have not previously performed multiplex testing, but mostly it's competitive displacements with customers who had alternative solutions before ePlex.

[Brian Weinstein:]

Great. And then on sales force expansion, you've talked about the goal, and you reiterated that mid- '30s by year-end. I think in previous conversations we had talked about something around kind of 1.5 to 2 analyzers per rep per quarter is kind of what you guys had initially targeted. Is that still kind of longer term? How are you thinking about the productivity of those reps, or should that productivity increase as you're getting more menu? And how do you guys think about that productivity increase over time? Is it - have you communicated any longer term targets on that?

[Hany Massarany:]

We haven't really. I think the numbers you stated, they are good numbers to sort of model based on this type of productivity. It takes a few quarters for-- maybe a couple of quarters for our sales representatives to come up to speed and become effective. And certainly, there is a positive impact of menu expansion for sure. So we do expect that as we launch additional menu on ePlex, it helps us place more systems.

[Brian Weinstein:]

Okay. And then just a couple of rapid fire ones. First, I don't think you guys disclosed the capital versus reagent rentals for the quarter. So can you give an idea on that? And then also as we look at the placements, I think you've done something like 71 or something in first half, you've kind of guided 140 to 170, so something similar to a little bit better in the second half. But how should we think about that SKU there? Should we think about the third quarter may be being a little bit heavier than the fourth quarter as people trying get the system in the ahead of respiratory season? Or do you think that would not be as big of a factor, so given how early you are in the launch? Thanks.

[Hany Massarany:]

Okay. I'll sort of start. I'll make a couple of comments, and then Scott will add to my answer. So in terms of capital, it continues to be under pressure and hard to get. Our initial expectation sort of at the beginning of the year were that we would sort of get 40% or so capital versus our reagent rental, but we're sort of seeing more in sort of lower 30% range. We're still getting capital, but more reagent rental based on competitive dynamics. In terms of number of placements for the year, yes, we did 71 net new placements in the first half, and we're reiterating our guidance for the year without changing that. So you can do the math on that. But basically, yes, it's sort of a little bit more than we did in the first half.

[Scott Mendel:]

And Brian, I'll add to that. So at the midpoint of our guidance that would suggest we've got about 84 or so left to go between here and the end of the year. And while typically, I would say we would expect a larger share of that in the third quarter, that's probably going to be a little bit muted by the fact that we're launching BCID, and we think that will help smooth it out a little bit probably have a little bit more than we normally expected in the fourth quarter. Net-net, I would say it's probably going to be somewhat evenly disbursed across the remainder of this year to get that midpoint of guidance.

[Brian Weinstein:]

Thanks. Hope to see you in the next couple of day. Thanks, guys.

[Scott Mendel:]

It sounds good. Thank you.

[Operator:]

Thank you. Our next question comes from Mark Massaro of Canaccord Genuity. Your line open.

[Mark Massaro:]

Hey, guys. Thanks for taking the question and congrats on a good quarter.

[Scott Mendel:]

Thanks, Mark.

[Mark Massaro:]

My first question is, some of the large reference labs indicated sort of a change in hepatitis C genotyping testing during the quarter. So I guess, if you could maybe comment on roughly what size your hepatitis C genotyping revenue is to your overall business? Whether or not you saw any impact in Q2? And if you're seeing any changes in dynamics whatsoever, how should we think about that potentially impacting 2018 or beyond?

[Hany Massarany:]

All right. Thanks, Mark. And yes, I did see your notes in relation to hepatitis C genotyping testing and national reference labs. We don't report by panel or by product, so I will not comment on how big our hepatitis C genotyping business is. However, I will say, that look, while we fully understand the dynamics of the market, especially in the context of all the new targeted therapies, we haven't seen any decline in testing that we - that's beyond our expectation. So we - and that's why we are reiterating our revenue guidance for the year. We don't expect anything different, what we had already planned for. And that's all I can say at this stage. Scott, you can add a few.

[Scott Mendel:]

Yes, I think Hany has got it right there. I would just add that, we stay in contact with a lot of our key customers in this market space to make sure that we are in sync with their expectations. So that we can accurately project going forward, not just for the remainder of this year, Mark, but in the future years as well. And I would just add that the business is really - success is really contingent upon ePlex right, so this is HCV genotyping is an XT-8 legacy revenue business, and so we're really focused on making sure that we're driving ePlex growth and adoption of our ePlex platform and menu.

[Mark Massaro:]

Terrific. And I also wanted to ask about the GI panel, you guys indicated that you've turned your development teams to focus on this panel. Can you maybe provide some commentary as to when we think you may enter into a clinical trial?

[Hany Massarany:]

Okay. So you're right Mark, now that we have completed all of the internal analytical studies for all of the BCID panels, our teams, of course, will continue to sort of work with FDA to complete the review process, but already directing a lot of our effort toward the gastrointestinal pathogen panel. We will comment on timeline with respect to initiation of clinical studies, et cetera in the future. But it's certainly a panel that we're working on right now together with other menu items that we haven't disclosed yet.

[Mark Massaro:]

Understand. Thanks very much, guys.

[Operator:]

Thank you. Our next question comes from Mike Matson of Needham & Company. Your line is open.

[Mike Matson:]

Hi. Thanks for taking my question. I guess, I just wanted to start, I think you called out ePlex NP, can you just give us some kind of qualitative comments around how much of the mix was NP versus the 6 slot configuration?

[Scott Mendel:]

Hi, Mark, it's Scott, I'll start. So we aren't disclosing the specific numbers of NP versus the standard ePlex configuration. It has been an important configuration for us and performing in line with our expectations. Most importantly, we still do not believe it will have any impact on the annuity per placement, and that's why we reconfirmed the $100,000 to $120,000 annuity per placement guidance and in fact the timing of that?

[Mike Matson:]

Okay. But is it fair to assume its been significant part of the sales mix even in the U.S. or?

[Scott Mendel:]

Again, we're not putting it out specifically, not significant enough that it would impact any of the annuity per placement Mark - Mike. So I think that the NP configuration and the number of placements we're generating per quarter is in line with our expectations, but I wouldn't say it's a majority, and wouldn't say it's more than we had expected.

[Mike Matson:]

Okay. No, that's fine. And then the hub and spoke software, is that something that you were charged for? And can you just provide a little more detail on how that works?

[Hany Massarany:]

Well, the way it will work, Mike, is that it will allow connectivity between ePlex and NP systems in the central lab as well as the decentralized sites within an IDN system. This is something that our customers are asking for and we're working on. And we haven't yet disclosed any additional information in relation to how it will be priced and positioned, but we will be doing that in due course.

[Mike Matson:]

Okay. But you said - you did mentioned pricing, so that implies sort of revenue?

[Hany Massarany:]

I didn't mention pricing in relation to the connectivity software. It is a solution that will allow integrated delivery networks to manage their workflow and basically data management, QC and patient results across the entire network as opposed to separately at each site.

[Mike Matson:]

Okay. All right. And then finally, just Scott, I think you mentioned that the cash burn or cash use was going to be consistent with your expectations in the second half, for the remainder of the year. But I guess, I don't know if you've given any kind of guidance to the Street, but can you comment on that as - we don't - it's good that it's in line with your expectations, but we're not sure that it's going to get you around $20 million in the first half. So can you quantify what you expect in the second half? Or you not willing to do that?

[Scott Mendel:]

So we were in $20 million in the first half year. We were more like $16 million, $16.5 million. I believe. So I expected to continue to decline as revenue grows and gross margin improves in the back half of the year. I didn't give specific guidance, Mike, but I did between revenue and gross margin, and then the mid- $60 million range of operating expense, it would leave you to calculate something around that $30 million total year cash burn.

[Mike Matson:]

Okay. Thank you.

[Operator:]

Thank you. I'm showing no further questions at this time. I would like to turn the conference back over to Hany Massarany for any closing remarks.

[Hany Massarany:]

All right. Well, thank you, for your time this afternoon everyone and for your ongoing support. And we look forward to reporting our progress in the coming quarters. Have a good day. Bye-bye.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.