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GenMark Diagnostics Inc (NASDAQ:GNMK)
Q4 2019 Earnings Call
Mar 2, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the GenMark Diagnostics Fourth Quarter Earnings Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to Leigh Salvo, Investor Relations to proceed with today's conference call.

Leigh Salvo -- Investor Relations

Thank you, Demetrius. 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 2020 financial and 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.

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'd now like to turn the conference call over to Scott Mendel, Interim President and CEO of GenMark. Scott?

Scott Mendel -- President and Chief Executive Officer

Thank you, Leigh. Good afternoon, everyone and thank you all for joining us. Before I begin, I'd like to say it's an honor to be entrusted with leading GenMark Diagnostics. As a longtime member of this organization, I have a deep understanding of our core capabilities and the attractive opportunity in front of us, both of which make me excited to lead this talented and dedicated team.

With the launch of ePlex in 2017, GenMark has become a leader in multiplex molecular diagnostic testing. I am confident the significant and expanding clinical value the ePlex system offers to healthcare providers will serve as a cornerstone for GenMark's sustained long-term growth. On behalf of our employees and myself, I would like to thank Hany Massarany for his nine years of leading our company and the role he played in the development and launch of ePlex that has positioned us to capitalize on this very exciting syndromic molecular testing market.

Before we dive into our recent company performance, I would like to address the topic that is front and center in the news, on our minds and impacting our lives in many ways, the emergence of COVID-19 is a developing global healthcare emergency. Today, we announced our recent development and initial research use only shipments of ePlex test kits designed for the SARS coronavirus 2 detection. Well, not on our scheduled roadmap, we quickly assembled the team and in less than one month they designed, manufactured, and shipped initial tests to customers for validation of our test design. It's a clear demonstration of our team's ability to execute and the ability to adapt ePlex to meet a specific market need.

We believe launching a test for this rapidly emerging virus was an imperative for our customers and their patients. Beginning last week, an RUO version of this test were shipped to our distributor in Hong Kong as well as the several key sites in the US that have access to clinical samples. We plan to use information from these customers to support our submission of an emergency used authorization or EUA to allow hospitals to adopt this test for clinical use. And of course we will continue to monitor this virus and potentially leverage these development efforts into a future version of our existing RP Panel.

Moving onto our business performance, I'd like to briefly look back at 2019 and recap our progress and achievements that have positioned us favorably for the year ahead. Last year, we had three primary goals. The first was to expand our menu to launch a Blood Culture Identification Panel. The second was to drive strong revenue growth through increasing placements and adoption of ePlex. And the third was to drive gross margin improvement. I'm proud to say that our teams delivered on all three of these goals.

In 2019, we successfully launched our ePlex BCID panels, which helps drive strong revenue growth. Total 2019 revenue was $88 million, representing growth of 24% over 2018. ePlex revenue grew by 59% driven by an installed base of 527 analyzers as of year-end. We were also successful in our other main objective of expanding gross margins toward a long-term goal of 60% plus. Gross margin for full year 2019 was 32.5% up from 27.5% in 2018, driven entirely by improvement in ePlex gross margins.

Turning to fourth quarter performance, total revenue increased to $27.2 million, representing growth of 40% compared to the prior year period. This strong performance was fueled by ePlex growth of 58% compared to the fourth quarter of 2018. Demand for our Respiratory Pathogen Panel was in line with our expectations for a moderate flu season. Our commercial team placed a total of 48 ePlex analyzers in the quarter, primarily driven by interest in our BCID panels. However, our installed base increased by a net 38 due to the reassignment of 10 previously placed analyzers. The majority of these reassigned units were from one US-based customer that did not implement ePlex as originally planned. It is important to note that these analyzers had not begun the implementation process and therefore they have never generated revenue.

We will continue our commitment to quality placements that will generate a recurring revenue stream, which is an important component of our business model. Our US commercial team is contributing to win in both -- is continuing to win in both greenfield and competitive accounts. Similar to prior quarters approximately 70% of placements in the fourth quarter were within labs that previously had a competitive platform. And again BCID was the primary driver of about 80% of our placements.

Moving on to our fourth quarter gross margin progress, which is a critical step to achieving cash flow positivity and improving profitability. Our goal is to achieve 60% gross margins from ePlex just as we have with our legacy XT-8 platform. We are steadily improving ePlex gross margins and have plans in place to achieve our gross margin target in the next two years to three years. Initiatives to drive direct material and direct labor efficiencies saw continued traction and improvement in the fourth quarter. We achieved record manufacturing output for the quarter, which helped drive strong overhead absorption.

Manufacturing yields have also been a key component in gross margin improvement contributing to both direct labor and direct material efficiencies. We finished the quarter with gross margin of 33.5% and total year gross margin of 32.5%, which was at the top end of our increased guidance range. We are very pleased with that progress. And in 2020, we expect to further improve manufacturing yields, leverage our production capacity and deliver additional direct material cost improvements through both supply chain initiatives and reducing scrap during the manufacturing process.

Looking ahead into 2020, our three main priorities are: one, strong revenue growth; two, making significant steps toward cash flow positivity through continued gross margin improvement and operating efficiencies; and three, menu and technology advancement. I'll start with our priority to drive strong revenue growth. Our 2020 revenue guidance can be broken down into three main categories. Recurring revenue from our existing customers. Revenue from ePlex analyzers already placed and in the process of implementation and additional placements expected in 2020.

We expect the majority of our 2020 revenue to be driven by the recurring revenue of our ePlex systems already in routine use. In addition, completing implementations of existing placements, not yet in clinical use will be a key contributor, along with new placements to the extent they are implemented within the year. I would like to spend additional time discussing these last two categories of revenue starting with completing the implementation of already placed ePlex analyzers. Since the launch of BCID in the middle of 2019, we have learned that the implementation process for these panels requires focused efforts from our team and a variety of constituents within the hospital. Because the majority of placements now include BCID, the timeframe for implementation has been trending longer than our initial three months to six months expectation.

With additional experience and focus, we are confident that we can improve the implementation process. To put into perspective, why we are highlighting implementation time frames, our current funnel of customer implementations is expected to generate approximately $15 million in annualized revenue when they are all in routine clinical use. Completing these implementations as quickly as possible would increase how much of that annualized revenue we could realize in 2020. So what are we doing about this? We've implemented detailed steps to streamline the process. We are measuring and incenting our teams to successfully complete these implementations and we are adding additional specialists to help expedite the most challenging steps frequently encountered during the process.

New placements are also expected to drive revenue growth to the extent they can be implemented within the year and begin generating revenue. In 2020, we expect our US commercial team to drive placements in line with 2019 results with our BCID Panels driving many of those opportunities. Outside the US, we will continue to expand but likely not at 2019 levels, which reflected the broad global expansion through establishing distributors in Europe, the Middle East, Latin America and Asia. We have established our 2020 placement guidance range reflecting continued strength in the US market and a measured approach to international expansion.

Regarding our second priority, we expect continued progress on improving ePlex gross margin in 2020. Our teams are already implementing improvements to drive direct material and direct labor reductions, and we should experience continued overhead absorption improvement through increasing production volumes. As part of our focus on improving margins and driving to cash flow positivity, we will also closely monitor analyzer pull-through. This is an important area of focus outside of the US where placements have been generating much less revenue annuity than in the US. In fact, the average of US placements is nearly 6 times that of placements outside the US. As a result, we are carefully reviewing country by country performance, including evaluating existing placements on their ability to drive adequate revenue per placement as well as margins in line with our long-term goals.

This evaluation is an important factor in our 2020 placements and revenue guidance ranges that Johnny will discuss shortly. In 2019, we expanded our international footprint to more than 30 countries. And in 2020, we will be laser focused on maximizing return on that investment and allocating our time and resources to those areas that can drive both revenue growth and margin expansion.

Turning to our third priority of menu and technology advancements, our GI panel development is the primary area of focus. Our team is in the optimization phase of development, which includes adjusting both assay and key manufacturing process parameters to obtain the best performance across all targets on the panel. Our goal is to begin clinical trials in late 2020, which should result in regulatory submission in the first half of 2021.

In addition, we have additional development teams working on future technology advancements to support the longer-term pipeline of new products as well as a software team developing enhancements and new features for our ePlex platform, which have been a key feature of ePlex's competitive advantage. To conclude, as hospitals continue to transition to near-patient multiplex molecular testing, ePlex has established a strong value proposition. Through our experienced commercial team armed with the best in class system, improving margins and continued menu and technology advancement, we are well positioned to drive revenue growth and profitability improvement.

I'd now like to turn the call over to Johnny for a review of our financial results for the fourth quarter and guidance for the full year 2020.

Johnny Ek -- Chief Financial Officer

Thank you, Scott. I'll now provide additional details on our fourth quarter and highlights on the 2019 full year financials. As previously mentioned, fourth quarter 2019 revenue was $27.2 million, up 40% versus the fourth quarter of 2018 with year-over-year ePlex revenue growth of 58%. Revenue for the full year 2019 grew 24% to $88 million, with ePlex revenue growing 59% to over $60 million. Sales to US customers continue to account for the vast majority of our revenue.

The average annuity per ePlex placement in the fourth quarter was $140,000, which represented an increase of 6% over the fourth quarter of 2018. The average annuity for the full year 2019 was $132,000 per ePlex placements. Fourth quarter gross profit was $9.1 million or 33.5% of revenue versus $5.3 million or 27.2% of revenue in the fourth quarter of 2018, which highlights the meaningful ePlex margin expansion in the last several quarters at the same time that the composition of our revenue continues to shift to higher ePlex product sales relative to XT-8.

Gross margin for the full year 2019 increased by 500 basis points to 32.5% of revenue. This improvement in ePlex gross margin is the result of execution on our plans to drive down the cost of direct materials and labor while leveraging the pipeline of manufacturing improvement initiatives we have identified. Total operating expenses were $17.8 million for the quarter, representing an increase of $1.9 million compared to the fourth quarter of 2018. Total operating expenses for 2019 were $70.4 million. The increase over prior year is the result of our focus on the validation and go-live of the systems placed for BCID use, in addition to menu expansion and ongoing technology development.

Our net loss per share for the fourth quarter of 2019 was $0.17 compared to $0.21 in the fourth quarter of 2018. From a balance sheet perspective, we ended the quarter with $53.5 million in cash and investments. We used approximately $9.3 million of cash in operations during the fourth quarter of 2019 versus $3.6 million in 2018, driven primarily by changes in working capital, specifically, a $4.9 million increase in accounts receivable as a result of significant revenue growth over the prior year and an increase in cash used to build inventory of $2.5 million.

With DSO of 36 days, DSI of 69 days, and DPO of 42 days, we will quickly convert those components of working capital into cash. Additionally, we achieved certain pre-determined milestones under our existing credit facility in the fourth quarter, which added $20 million to our balance sheet, along with $10.1 million provided through the sale of shares under our ATM. These two financing events meaningfully strengthened our balance sheet and along with our expected reduction in operating cash usage give us confidence in our path toward cash flow positivity.

Turning to guidance for the full year 2020, we expect another year of strong ePlex revenue growth and continued margin expansion, which coupled with our deliberate approach to operating expense management should result in a reduction in operating cash usage of almost 50% versus prior year. We expect total revenues to be in the range of $100 million to $110 million, representing year-over-year growth of 19% at the midpoint, with expected ePlex revenue growth in the mid 30% range.

As Scott noted earlier, we are focusing our efforts on ePlex analyzer placements that will ensure improved utilization and strong recurring revenue streams. As a result, we anticipate placements in 2020 to range from 130 to 160 analyzers reflecting continued strong US placements and a more measured approach internationally with average annuity per ePlex analyzer between $130,000 and $135,000. We anticipate 2020 gross margin to be in the range of 36% to 39% and operating expenses between $65 million and $70 million. We expect cash usage to be in the range of $16 million to $20 million.

This concludes our prepared remarks. So at this time, Scott. And I would like to open the call for your questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Brian Weinstein with William Blair. You may proceed.

Brian Weinstein -- William Blair -- Analyst

Hey, guys. Thanks for taking the questions. I'll do the obligatory COVID-19 thing. I'm not so convinced that it is largely testing opportunity is most are, but can you talk about specifically this test. This is a single Plex test, and this is not being added into your broader panel. And can you talk about, so that's a question, but also, can you talk about pricing here, how you're selling this your manufacturing capabilities around ramping up should you need to do that and can you just confirm what your installed bases in areas where there is higher degree of testing like China and Korea and anywhere else? Thanks.

Scott Mendel -- President and Chief Executive Officer

Sure, Brian. So this test as you said is a single target test. Speed was our primary objective. And so that's why we chose that path. As I mentioned in the prepared remarks, we would obviously consider rolling this into our broader RP Panel, if this virus is -- continues and is seasonal. From a manufacturing perspective, we have been ramping up our manufacturing capacity, all throughout 2019, and even prior to that, and we feel that we have the appropriate capacity to handle the potential increase in volumes. It's important to note, Brian, that when you think about a single panel test, it would be most likely and based upon feedback from our customers that they would run the RP Panel first because it contains 20 plus pathogens and then reflex to the single target test if the patient comes up negative.

Now if there is an outbreak in a specific region, potentially they could run both test simultaneous -- simultaneously. But our expectation is it would be a reflex test. And therefore we agree with you, while it's an important health concern and we're really pleased to have developed it, we don't think it's, at this time going to drive a tremendous amount of volumes and certainly not in the fourth quarter -- or first quarter, which there is only one month left in. As far as how our customers are distributed, as you know ePlex has gained a lot of traction in some of the largest labs in the US, and so obviously that's where a lot of our concentration is, and that's who we've been speaking to quite a bit to understand their needs. And then we also to a much more limited -- on a much more limited basis have some distributor relationships in Asia, but nothing material. I think I answered all the questions that you had, there was a whole bunch of them in there. If there is not...

Brian Weinstein -- William Blair -- Analyst

Yeah. I appreciate all that. The only one you didn't hit was pricing, and maybe you can answer that as part of the second question here. So when we look at the guidance range for 2020, it's a little bit lower than what was originally commented on. Is that due to the BCID kind of extended timeframes for go-live, which we've obviously heard from others that are involved in that area of diagnostics. So that's the question there. And then can you just go back through and go through some more specific examples of how specifically you're improving that timeframe to go-live and what your expectations are?

Scott Mendel -- President and Chief Executive Officer

Sure. So with respect to pricing on the COCID-19, we are just in the initial phases of launch, would anticipate something in the range of what RP Panel pricing is at this time. Again we felt like it was the right thing to do for our customers and for patients, as you mentioned in your original question, more of that than it is for driving additional revenue upside. As it relates to the guidance range. So the guidance range that we provided today takes into consideration our experience thus far this year, all the way through February, which is proving to be a moderate flu season from our volumes. And then also takes into consideration a more measured approach outside the US.

You mentioned BCID timeframes or timelines and what we're doing to improve it. It is an important area of opportunity for us because it will drive a lot of revenue growth in the US, but we think we've got that dialed in appropriately at this time. Our teams and our resources that we're putting on that is to ensure that we over time get back to that six month timeframe of implementations, but their guidance range is really reflective of the moderate flu season to date and a more measured approach outside the US.

Brian Weinstein -- William Blair -- Analyst

Okay, great. Thank you guys so much.

Operator

And our next question comes from Tycho Peterson with JP Morgan. You may proceed.

Tycho Peterson -- J.P. Morgan -- Analyst

Hey, thanks. Can you actually elaborate on the international changes you're making? I mean, you did mention making -- taking a more measured approach that balances additional placements with stronger leverage of geographic expansion last year. So what exactly are you doing different in the international markets. And it sounds like that's the bulk of the guidance change for your comments a minute ago.

Scott Mendel -- President and Chief Executive Officer

Sure, Tycho. That's exactly right. That is the bulk of the guidance change from earlier this year and what we are doing is we are looking at country by country where we've established these relationships. And understanding what the potential is for those placements to drive revenue growth and importantly, that are in line with where we want to go from a gross margin perspective. So as I talked about in my prepared remarks, we obviously have placements in Europe that are not earning anywhere near what they -- what the counterparts in the US do, that's to be somewhat expected, but not at that level.

So the main focus is where these units that are not earning strong annuity, making sure that the economics make sense for us and then making sure that we allocate our resources in time for the ones that are the most likely to generate that nice strong revenue, as well as strong margins. Again last year we had significant expansion, we planted a lot of flags, we expanded to more than 30 countries, which I think is remarkable. And now, it's up to us to generate return on that investment. And that's the change in the guidance ranges, both on placements, as well as on revenue.

Tycho Peterson -- J.P. Morgan -- Analyst

And on pull through, the $130,000 to $135,000 is still quite a bit below, we've been modeling at about $143,000, is that a function of the lighter flu season and then phasing out some of these lower hold through systems internationally. I'm just curious what the annuity guidance is?

Johnny Ek -- Chief Financial Officer

Yeah, this is Johnny. Really that pull through for the year as Scott mentioned, if you look at the expected placements for the year and then driving utilization of placements externally that is really what's contributing to that sort of mid $130,000 range for the annuity for the full year.

Tycho Peterson -- J.P. Morgan -- Analyst

And then can you quantify what flu did contribute in this quarter.

Johnny Ek -- Chief Financial Officer

So not specifically, we are not going to talk about the current quarter revenue quite yet. I would just say it felt very moderate to us and in line with those expectations for a moderate flu season. Now Tycho, back to the earlier questions, what impact COVID-19 might have on general testing volumes, we don't know yet. That's going to be something we have to monitor closely, but for right now, it has felt like and the volumes that we've experienced have been consistent with a moderate flu season for us.

Tycho Peterson -- J.P. Morgan -- Analyst

Okay, thank you.

Operator

And our next question comes from Mike Matson with Needham. You may proceed.

Mike Matson -- Needham and Company -- Analyst

[Technical Issues] yeah coronavirus test has been kind of a reflex test. So I can understand why that impact of that directly would be sort of small, but what about, do you expect to see more demand for your regular respiratory panel, as a result of this you testing potential coronavirus patients before they even get the reflex test I guess.

Scott Mendel -- President and Chief Executive Officer

Yeah, Mike. So that is definitely a possibility. We will know more as the situation unfolds. It's really early in the lifecycle there of this virus, and we're just starting to understand what it's like here in the US, which is where the majority of our customers are. Like I said, I think it would, like you said, potentially drive additional testing volumes. I think the caveat to that is, if they, if the patients or if citizens go to hospital, yes, because remember, we are testing mainly in the hospital environment versus if they are getting additional testing at doctors' offices that may not have an impact for GenMark and our product, but certainly something we'll monitor will know about as the situation unfolds, it's pretty early on.

Mike Matson -- Needham and Company -- Analyst

Okay, thanks. And then just with regard to the international markets, why do you think that the adoption or utilization has been so much lower in those markets versus the US? Is it just a cost issue, is the price too high for those markets? Or is there something else that's really limiting your adoption of the panel testing?

Scott Mendel -- President and Chief Executive Officer

Yeah, good question. I do think it's an exciting market for us over the long term. What my comments are meant to convey is that we're taking a much more measured approach to it. We know the US is the main market and it will be, but we also know that it's important to have a global presence. And so I don't mean to communicate that it's not an opportunity for us longer term. We just got to -- we've got to address it in a much more measured fashion.

In general, we would expect European -- or outside the US volumes to be lower than in the US, just based on testing volumes and adoption of new technologies like multiplex molecular. So we don't think it would ever be the same volume per unit than it is in the United States. But having said that, we have some work to do to make sure that the systems that were placed in the prior years are being fully utilized. So I would tell you that they are not. I think there is more than half of them are being utilized in a fashion that we would expect, but there is a large percent that we need to go and evaluate and see what we can do to generate stronger revenue pull-through on those units.

Mike Matson -- Needham and Company -- Analyst

Okay, thanks. And then just finally on Hany's departure, just wondering if you could provide any additional color on that, it's not I understand. Thanks. That's all I have.

Scott Mendel -- President and Chief Executive Officer

Yeah. I'll kind of reiterate what we talked about in earlier in February that it's -- it was an agreement with the Board and Hany that it was time for a transition and as the company enters the next phase of its lifecycle and we're balancing strong revenue growth and an eye toward positivity it seem like a natural time to make a transition.

Mike Matson -- Needham and Company -- Analyst

Thank you.

Scott Mendel -- President and Chief Executive Officer

You're welcome.

Operator

And our next question comes from Sung Ji Nam with BTIG. You may proceed.

Sung Ji Nam -- BTIG -- Analyst

Thanks for taking the questions. First of all, congratulations on your progress with the GI Panel and also for providing the timeline for that. Scott, would you be I mean to the extent possible, could you talk about what the differentiating factor might be for your product versus what's already out there? And if you may be able to comment on kind of the panel size and what you're looking at and things like that.

Scott Mendel -- President and Chief Executive Officer

Sure. So we have not yet disclosed panel size, but I would tell you that its design is to include virus -- viruses, bacteria and parasites and we designed the test to address what we understand to be the most pressing market needs. So from a coverage perspective, we think it's appropriately sized, we will share more details as we progress down the timeline, but we're not disclosing exact makeup of the panel for competitive purposes.

The advantage will be the same as it is for the rest of the ePlex panels, it will be a panel that gives rapid and actionable results but also takes advantage of the streamlined workflow that has proven to be a big competitive advantage for ePlex. So it will be a panel that we believe hits the needs of the market and then leverages the workflow that is still popular and valued by our customers that ePlex brings to market.

Sung Ji Nam -- BTIG -- Analyst

Great, thank you. And then just one more question on the coronavirus. Sorry if I missed it, but what's kind of the timeline or how long would it take for the customers, existing ePlex customers to validate the RUO panel test for COVID-19? And then did you also talk about the timing for the EUA approval? And also would that -- do you think that could happen within -- during this I guess flu season?

Scott Mendel -- President and Chief Executive Officer

Yeah. Good questions.

Sung Ji Nam -- BTIG -- Analyst

The current flu season. Thank you.

Scott Mendel -- President and Chief Executive Officer

Yeah, yeah. So from a COVID-19 perspective, as you probably are aware, the FDA has provided additional flexibility for high complexity labs to adopt an LDT test. And so, that is where I think that certain customers will have the opportunity to adopt our RUO test in a much more quick fashion than others. So as far as how long that takes, it's really dependent, I would assume customer by customer and how quickly they can validate our RUO test. I would say that that's the main area of focus for most customers right now that can validate an RUO test.

From an EUA application perspective, our target is to have that application completed based upon the information that we're obtaining from customers that are currently using or testing our design with clinical samples. I would expect that to be submitted in the next week or so. And as far as timing of the review and clearance or granting of an EUA, I'm not positive. I would say, our estimates are somewhere in the one month timeframe, two weeks to four weeks hopefully. And therefore it would be able to address the tail end of this current flu season, assuming that it's a normal type flu season and that this COVID-19 doesn't extend it, but I would assume it would be available toward the end of this flu season.

Sung Ji Nam -- BTIG -- Analyst

Great, thank you so much.

Scott Mendel -- President and Chief Executive Officer

Welcome.

Operator

And our next question comes from Max Masucci with Canaccord Genuity. You may proceed.

Max Masucci -- Canaccord Genuity -- Analyst

So first on the 2020 guys, just going one layer deeper, what's included, what's excluded and what are the expectations for the implementation of the ePlex as they're already placed and driving utilization there? As it relates to that potential $15 million opportunity you called out in the prepared remarks, how much is that assumed in the guide if any?

Johnny Ek -- Chief Financial Officer

So Max, this is Johnny. If you think about how to build up that revenue, an easier way to do it is think about what our installed base is, right, 5.27% ending the year. And then you think of our annuity that we've stated last year and this year, you kind of come up to a number pretty easily. And then you layer in what we've done historically from an FDA perspective sort of in the mid $20 million for the year, you can easily get to a portion that we need to achieve in this current year from a go-live perspective on BCID to kind of get into our guidance range. And we certainly have factored, as Scott mentioned that opportunity is up to $15 million if we turn to all these analyzers on and we're able to annualize revenue. And we've assumed a portion of that and then assume the appropriate amount of risk and upside in there to get to our guidance.

Max Masucci -- Canaccord Genuity -- Analyst

Okay, great. And then, just sticking on those specific boxes. So in the difference between, I guess the gross and the net placements. So what was the reason why that customer didn't go live with those units? And what are you doing to sort of address that going forward?

Scott Mendel -- President and Chief Executive Officer

Sure, Max, this is Scott. So from time to time, it does happen where an implementation does conclude to clinical use. And I would say this is a bit of an anomaly. Like I said, the majority of them were from one customer, and it really represented a change in management at that client and just the change in priorities and what that lab, what that manager wanted to do as far as adopting technology. It was definitely an anomaly. It was definitely a large number of units. And like I said, really had to do with the change in management.

Max Masucci -- Canaccord Genuity -- Analyst

All right, great. And then one more if I can. Can you just give me a bit more granularity on specific manufacturing improvements, as we look forward to this upcoming year?

Scott Mendel -- President and Chief Executive Officer

Yeah, I can do that. So the team is really focused, like I mentioned on direct material and direct labor savings and the overhead absorption just naturally increases with increasing production volumes. I would say from a direct material perspective, there is a couple of handfuls of projects that are expected to drive some significant savings in direct material and they're mainly related to reducing the amount of material used during the manufacturing process, as well as to a little bit lesser extent doing some looking at different vendors that will help reduce the purchase price of those parts. So some very discrete projects. The team is managing them very well. I'm really excited to get those rolled in and again we feel really good about those.

On the direct labor side, it's really reliant upon our teams to identify streamline processes as it relates to, as an example in process quality control points. So there are some automation opportunities and some improvements in some of these quality control techniques that make it much more efficient for our manufacturing team and therefore reduces the amount of direct labor cost per consumable that is produced. So the team has got it, just like on the direct material side, the manufacturing teams have a nice funnel of opportunities, drive direct labor cost improvements throughout 2020. And then they also have funnels, both teams have funnels beyond 2020 and even into 2021, sorry 2021 and even in 2022. So feel good about that Max, I think they've got their hands, their arms around it, got a handle on it. And they are making good progress.

Max Masucci -- Canaccord Genuity -- Analyst

Great, thanks for taking the questions.

Scott Mendel -- President and Chief Executive Officer

You're welcome. Thanks, Max.

Operator

Ladies and gentlemen, this concludes our Q&A portion of today's call. I would now like to turn the call to Scott Mendel for closing remarks.

Scott Mendel -- President and Chief Executive Officer

Thank you all for joining us this afternoon, and thanks for your continued support. We look forward to updating you on our progress in the future. And we'll talk to you soon. Thanks.

Operator

[Operator Closing Remarks]

Duration: 40 minutes

Call participants:

Leigh Salvo -- Investor Relations

Scott Mendel -- President and Chief Executive Officer

Johnny Ek -- Chief Financial Officer

Brian Weinstein -- William Blair -- Analyst

Tycho Peterson -- J.P. Morgan -- Analyst

Mike Matson -- Needham and Company -- Analyst

Sung Ji Nam -- BTIG -- Analyst

Max Masucci -- Canaccord Genuity -- Analyst

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