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Cue Health Reports Third Quarter 2022 Results

Cue Health Inc. ("Cue") (Nasdaq: HLTH), a healthcare technology company, today reported financial results for the third quarter of 2022.

Recent Highlights

  • Revenue of $69.6 million in the third quarter of 2022, exceeding guidance
  • Flu A/B molecular test de novo submission to the U.S. Food and Drug Administration (FDA) for full clearance for at-home and point-of-care use
  • Flu A/B + COVID multiplex molecular test submission to the FDA for emergency use authorization (EUA) for at-home and point-of-care use
  • RSV molecular test clinical studies began in the third quarter of 2022 as planned
  • Strep Throat molecular test development completed and expect to begin clinical studies during the current respiratory season
  • Chlamydia + Gonorrhea multiplex molecular test clinical studies on track to begin in the fourth quarter of 2022
  • Monkeypox molecular test developed with analytical and clinical studies planned to support an EUA submission in the first quarter of 2023
  • Cue CareTM launched, offering nationwide test-to-treat solution for patients who test positive on any COVID-19 test
  • Cash and cash equivalents of $304.7 million while the $100 million secured revolving credit facility remains undrawn at quarter end and company continues to operate with no debt obligations

“We continue to make significant progress advancing our pipeline of future tests, having completed U.S. regulatory submissions for both our Flu A/B + COVID and Flu A/B molecular tests, started our RSV clinical study, and completed development in other respiratory and sexual health programs,” said Ayub Khattak, Chairman and CEO of Cue Health. “I am pleased with the rapid pace of development, which we believe will enable early detection and early treatment for a variety of common health concerns, leading to better outcomes for patients and furthering our mission of empowering people to live their healthiest lives.”

Third Quarter 2022 Financial Results

Revenue in the third quarter of 2022 was $69.6 million, driven by stronger than anticipated COVID-19 testing orders from existing customers.

Private sector revenue was $65.9 million, or 94.7% of total revenue. Public sector revenue was 5.3% of total revenue or $3.7 million. Disposable test cartridge revenue was $61.4 million in the third quarter of 2022.

GAAP product gross profit margin was 24.1% in the third quarter of 2022. Adjusted product gross profit margin was 28.0% after excluding one-time inventory charges of $2.6 million.

Operating expenses in the third quarter of 2022 were $86.4 million, excluding cost of revenues, reflecting product development, software technology, and menu expansion investments.

GAAP net income in the third quarter of 2022 was a loss of $66.3 million and earnings per diluted share was a loss of $0.45. Cue's Adjusted net income was a loss of $63.6 million and Adjusted earnings per diluted share was a loss of $0.43. Adjusted EBITDA was a loss of $37.2 million.

Cash and cash equivalents were $304.7 million as of September 30, 2022.

Guidance

Cue Health expects fourth quarter 2022 revenues in the range of $45 to $50 million, excluding any adjustment to the deferred revenue balance of $92.4 million related to our agreement with the U.S. Department of Defense.

About Cue Health

Cue is a healthcare technology company that makes it easy for individuals to access health information and places diagnostic information at the center of care. Cue enables people to manage their health through real-time, actionable, and connected health information, offering individuals and their healthcare providers easy access to lab-quality diagnostics anywhere, anytime, in a device that fits in the palm of the hand. Cue’s first-of-its-kind COVID-19 test was the first FDA-authorized molecular diagnostic test for at-home and over-the-counter use without a prescription and physician supervision. Outside the United States, Cue has received the CE mark in the European Union, Interim Order authorization from Health Canada, regulatory approval from India's Central Drugs Standard Control Organization, and PSAR authorization from Singapore's Health Sciences Authority. Cue was founded in 2010 and is headquartered in San Diego. For more information, please visit www.cuehealth.com.

Forward-Looking Statements

Statements in this press release about future expectations, plans and prospects, including statements related to the submission of any FDA applications and expectations around receiving clearance, growth in our customer base, expectations regarding production capacity, potential technology enhancements and future performance and our guidance, including fourth quarter 2022 guidance, as well as any other statements regarding matters that are not historical facts, may constitute “forward-looking statements”. The words, without limitation, “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “would,” “develop,” “pave,” “seek,” “offer,” “grow”, “expand” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these or similar identifying words. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those related to the expected capabilities of the flu A/B standalone, flu A/B + Covid multiplex, RSV test, Strep Throat test, Monkeypox test and Chlamydia + Gonorrhea multiplex test, the rollout of Cue Care, our ability to maintain customer growth rates, our ability to increase private sector revenue, our ability maintain or replace the revenue historically generated from our government contracts, our ability to effectively scale our manufacturing capacity to meet contractual obligations with our customers and market demand, and the factors discussed in the "Risk Factors" section of Cue’s Annual Report on Form 10-K for the year ended December 31, 2021, Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 to be filed with the SEC. Any forward-looking statements contained in this press release are based on the current expectations of Cue’s management team and speak only as of the date hereof, and Cue specifically disclaims any obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

*This product has not been FDA cleared or approved; but has been authorized by FDA under an Emergency Use Authorization, or EUA. This product has been authorized only for the detection of nucleic acid from SARS-CoV-2, not for any other viruses or pathogens. The emergency use of this product is only authorized for the duration of the declaration that circumstances exist justifying the authorization of emergency use of in vitro diagnostics for detection and/or diagnosis of COVID-19 under Section 564(b)(1) of the Federal Food, Drug and Cosmetic Act, 21 U.S.C. § 360bbb-3(b)(1), unless the declaration is terminated or authorization is revoked sooner.

Use of Non-GAAP Financial Measures

To supplement our financial information presented in accordance with GAAP, we consider certain financial measures that are not prepared in accordance with GAAP, including Adjusted Product Gross Profit Margin, Adjusted Net (loss) Income, Adjusted Diluted EPS and Adjusted EBITDA (loss). We use these financial measures in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our business and financial performance. We believe that these non-GAAP financial measures provide useful information to investors about our business and financial performance, enhance their overall understanding of our past performance and future prospects, and allow for greater transparency with respect to metrics used by our management in their financial and operational decision making. We are presenting these non-GAAP financial measures to assist investors in seeing our business and financial performance through the eyes of management, and because we believe that these non-GAAP financial measures provide an additional tool for investors to use in comparing results of operations of our business over multiple periods with other companies in our industry.

Adjusted EBITDA is defined as net income before interest expense, income tax expense (benefit), depreciation and amortization, stock-based compensation, restructuring expense, inventory charges – inventory reserves/warranty reserves, banking and finance-related items including fair value adjustments - convertible notes.

Adjusted product gross profit is defined as product gross profit, before inventory charges – inventory reserves / warranty reserves.

Adjusted net (loss) income is defined as Net (loss) income, before Inventory charges – inventory reserves / warranty reserves, restructuring expense and tax effects.

Adjusted diluted EPS is defined as Diluted EPS before Inventory charges – inventory reserves / warranty reserves, restructuring expense and tax effects.

Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Further, these metrics have certain limitations in that they do not include the impact of certain expenses that are reflected in our consolidated statements of operations. Thus, these non-GAAP metrics should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP. For reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures see the financial tables below.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share data)

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2022

 

2021

 

2022

 

2021

Revenue

 

 

 

 

 

 

 

Product revenue

$

66,660

 

 

$

222,594

 

 

$

328,465

 

 

$

424,516

 

Grant and other revenue

 

2,929

 

 

 

1,085

 

 

 

8,234

 

 

 

1,085

 

Total revenue

 

69,589

 

 

 

223,679

 

 

 

336,699

 

 

 

425,601

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

Cost of product revenue

 

50,595

 

 

 

88,569

 

 

 

239,190

 

 

 

173,746

 

Sales and marketing

 

18,129

 

 

 

5,572

 

 

 

69,268

 

 

 

7,531

 

Research and development

 

42,516

 

 

 

9,079

 

 

 

115,303

 

 

 

21,150

 

General and administrative

 

25,625

 

 

 

33,084

 

 

 

77,946

 

 

 

56,336

 

Restructuring expense

 

137

 

 

 

 

 

 

2,020

 

 

 

 

Total operating costs and expenses

 

137,002

 

 

 

136,304

 

 

 

503,727

 

 

 

258,763

 

Income (loss) from operations

 

(67,413

)

 

 

87,375

 

 

 

(167,028

)

 

 

166,838

 

 

 

 

 

 

 

 

 

Interest expense

 

(346

)

 

 

(1,786

)

 

 

(413

)

 

 

(9,752

)

Change in fair value of redeemable convertible preferred stock warrants

 

 

 

 

243

 

 

 

 

 

 

53

 

Change in fair value of convertible notes

 

 

 

 

(36,306

)

 

 

 

 

 

(59,560

)

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

(1,998

)

Other income, net

 

409

 

 

 

(80

)

 

 

458

 

 

 

(19

)

Net income (loss) before income taxes

 

(67,350

)

 

 

49,446

 

 

 

(166,983

)

 

 

95,562

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

(1,047

)

 

 

30,098

 

 

 

(4,433

)

 

 

43,374

 

Net income (loss)

$

(66,303

)

 

$

19,348

 

 

$

(162,550

)

 

$

52,188

 

Net income (loss) per share attributable to common stockholders – basic

$

(0.45

)

 

$

0.14

 

 

$

(1.10

)

 

$

0.37

 

Weighted-average number of shares used in computation of net income (loss) per share attributable to common stockholders – basic

 

148,285,721

 

 

 

31,554,720

 

 

 

147,443,196

 

 

 

22,997,311

 

Net income (loss) per share attributable to common stockholders – diluted

$

(0.45

)

 

$

0.13

 

 

$

(1.10

)

 

$

0.35

 

Weighted-average number of shares used in computation of net income (loss) per share attributable to common stockholders – diluted

 

148,285,721

 

 

 

39,304,978

 

 

 

147,443,196

 

 

 

30,747,569

 

CONDENSED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts and share data)

 

 

September 30,

2022

 

December 31,

2021

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

304,654

 

 

$

409,873

 

Restricted cash

 

1,334

 

 

 

13,837

 

Accounts receivable, net

 

24,779

 

 

 

104,589

 

Inventories

 

133,309

 

 

 

88,388

 

Prepaid expenses

 

44,355

 

 

 

45,889

 

Other current assets

 

13,441

 

 

 

7,446

 

Total current assets

 

521,872

 

 

 

670,022

 

Property and equipment, net

 

194,259

 

 

 

177,456

 

Operating lease right-of-use assets

 

85,284

 

 

 

79,474

 

Intangible assets, net

 

16,044

 

 

 

7,673

 

Other non-current assets

 

7,577

 

 

 

5,435

 

Total assets

$

825,036

 

 

$

940,060

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

32,521

 

 

$

37,208

 

Accrued liabilities and other current liabilities

 

47,105

 

 

 

29,498

 

Income taxes payable

 

 

 

 

8,297

 

Deferred revenue, current

 

84,899

 

 

 

82,165

 

Operating lease liabilities, current

 

8,356

 

 

 

7,147

 

Finance lease liabilities, current

 

2,581

 

 

 

2,621

 

Total current liabilities

 

175,462

 

 

 

166,936

 

Deferred revenue, net of current portion

 

10,283

 

 

 

10,283

 

Operating leases liabilities, net of current portion

 

44,235

 

 

 

46,464

 

Finance lease liabilities, net of current portion

 

1,268

 

 

 

3,271

 

Other non-current liabilities

 

3,828

 

 

 

6,356

 

Total liabilities

 

235,076

 

 

 

233,310

 

Stockholders’ Equity (Deficit)

 

 

 

Common stock, $0.00001 par value; 500,000,000 and 500,000,000 shares authorized, 149,177,691 and 146,402,991 issued and outstanding at September 30, 2022 and December 31, 2021, respectively

 

1

 

 

 

1

 

Additional paid-in-capital

 

776,527

 

 

 

730,767

 

Accumulated deficit

 

(186,568

)

 

 

(24,018

)

Total stockholders’ equity

 

589,960

 

 

 

706,750

 

Total liabilities and stockholders’ equity

$

825,036

 

 

$

940,060

 

Non-GAAP Reconciliation

(In thousands)

   

The following table presents the reconciliation of Net (loss) income to Adjusted EBITDA, for the periods presented:

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2022

 

2021

 

2022

 

2021

Net (loss) income

$

(66,303

)

 

$

19,348

 

$

(162,550

)

 

$

52,188

Interest expense

 

346

 

 

 

1,786

 

 

413

 

 

 

9,752

Income tax expense (benefit)

 

(1,047

)

 

 

30,098

 

 

(4,433

)

 

 

43,374

Depreciation and amortization

 

11,404

 

 

 

11,579

 

 

32,989

 

 

 

26,079

Stock-based compensation

 

15,690

 

 

 

19,967

 

 

48,515

 

 

 

25,558

Restructuring expense

 

137

 

 

 

 

 

2,020

 

 

 

Inventory charges - inventory reserves / warranty reserves

 

2,610

 

 

 

 

 

45,454

 

 

 

Fair value adjustment - convertible notes

 

 

 

 

36,306

 

 

 

 

 

59,560

Forgiveness of promissory notes

 

 

 

 

12,880

 

 

 

 

 

12,880

Banking and finance-related items

 

 

 

 

 

 

 

 

 

7,998

Adjusted EBITDA

$

(37,163

)

 

$

131,964

 

$

(37,592

)

 

$

237,389

The following table presents the reconciliation of Product gross profit margin to Adjusted product gross profit margin, for the periods presented:

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2022

 

2021

 

2022

 

2021

Product revenue

$

66,660

 

 

$

222,594

 

 

$

328,465

 

 

$

424,516

 

Cost of product revenue

 

50,595

 

 

 

88,569

 

 

 

239,190

 

 

 

173,746

 

Product gross profit

 

16,065

 

 

 

134,025

 

 

 

89,275

 

 

 

250,770

 

Product gross profit margin

 

24

%

 

 

60

%

 

 

27

%

 

 

59

%

 

 

 

 

 

 

 

 

Inventory charges - inventory reserves / warranty reserves

 

2,610

 

 

 

 

 

 

45,454

 

 

 

 

Adjusted product gross profit

$

18,675

 

 

$

134,025

 

 

$

134,729

 

 

$

250,770

 

Adjusted product gross profit margin

 

28

%

 

 

60

%

 

 

41

%

 

 

59

%

The following table presents the reconciliation of Net (loss) income / diluted EPS to Adjusted net (loss) income / diluted EPS, for the periods presented:

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2022

 

2022

 

Dollar

Amount

 

Per Diluted

Share

 

Dollar

Amount

 

Per Diluted

Share

Net (loss) income / diluted EPS

$

(66,303

)

 

(0.45

)

 

$

(162,550

)

 

(1.10

)

Inventory charges - inventory reserves / warranty reserves

 

2,610

 

 

0.02

 

 

 

45,454

 

 

0.31

 

Restructuring expense

 

137

 

 

 

 

 

2,020

 

 

0.01

 

Tax effects

 

(55

)

 

 

 

 

(954

)

 

(0.01

)

Adjusted net (loss) income / diluted EPS

$

(63,611

)

 

(0.43

)

 

$

(116,030

)

 

(0.79

)

 

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