Lucira Health, Inc. (LHDX) Q4 2021 Earnings Call Transcript

Lucira Health, Inc. (LHDX)
Q4 2021 Earnings Call
Mar 10, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Lucira Health fourth-quarter earnings conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

I would now like to turn the conference over to Greg Chodaczek from the Gilmartin Group. You may begin.

Greg Chodaczek -- Investor Relations

Thank you, Catherine. Good afternoon, everyone. Earlier today, Lucira Health released financial results for the fourth quarter ended December 31, 2021. A copy of the press release is available on the company's website.

Joining me on today's call are Erik Engelson, President and Chief Executive Officer; and Dan George, Chief Financial Officer. Before we begin, I would like to remind you that during this conference call, the company will make forward-looking statements regarding future events. We encourage you to review the company's past and future filings with the SEC, including, without limitation, the Risk Factors section of the company's annual report on Form 10-K and quarterly reports on Form 10-Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements. These factors may include, without limitation, statements regarding product development and manufacturing, product potential, the regulatory environment, sales and marketing strategies, capital resources, or operating performance.

With that, I will now turn the call over to Erik.

Erik Engelson -- President and Chief Executive Officer

Thank you, Greg. Good afternoon, everyone, and thank you for joining us. Welcome to the fourth quarter 2021 earnings conference call. The COVID-19 pandemic has reshaped society's experience with an expectation of healthcare delivery and Lucira's instrument-free, accurate, easy-to-use molecular test, we believe, offers the performance and patient convenience to play a critical role in what McKinsey & Company recently described as the care-at-home ecosystem.

Lucira helps missions to help fuel the growth of test-to-treat, an important paradigm in reducing suffering from infectious disease. We believe bringing decentralized testing and, as a result, subsequent treatment to wherever patients may be, the spread of infection can be reduced by limiting the circulation of infectious individuals among the healthy. The ideal location for such testing is in the home. By providing an accurate result within 30 minutes, the Lucira platform enables rapid treatment, and treatment as close as possible to the onset of symptoms has been shown to produce the highest efficacy.

Helping to return people to health as easily and quickly as possible is what we are all about. And while COVID-19 testing catalyzed our initial growth, we have broader plans for the test menu that we will bring to market in the coming months and years. This is the power of Lucira's platform, a technology that was years in the making. Revenue in the fourth quarter of 2021 was close to double that of the prior three quarters combined as a result of increased manufacturing output.

Manufacturing capacity is continuing to increase in the first quarter of 2022, and we remain on target to reach 1 million units per month during the first half of 2022. Our plan is to continue ramping manufacturing capacity in 2022. Our three main sales channels remain B2B, healthcare, and international, where we have contracted buyers across these channels. Additionally, we also support important online channels, such as Amazon, as well as ordering through our website.

Q4 represented our lowest cash burn and net loss in the company's commercial history. We anticipate that 2022 will produce positive adjusted EBITDA. The instrument-free design of the Lucira product is a key differentiator and opens up unique use cases in which there could otherwise be testing bottlenecks or logistics challenges and time delays around an instrument. Multiple members of a household can test simultaneously as can clinic and hospital emergency department patients during surge times.

The convenience for the healthcare system of sending an untethered Lucira test to a patient's home for preprocedural testing is high due to the instrument-free design that produces rapid results on the spot. The simplicity of operation of the Lucira test means that it is well suited for individuals who want a quick, easy and accurate test result without having to come up a learning curve on the more complex user instructions associated with an instrumented tests. This also means that in the point-of-care setting, the Lucira test can be run by any member of the staff and not relegated to those with specialized training. With respect to accuracy, molecular tests are unequaled as compared with antigen tests.

As the pandemic likely evolves toward an endemic phase, we anticipate that the FDA will eventually call for 510(k) submissions for testing products. Lucira is well positioned for this shift because our at-home molecular test provides PCR-equivalent accuracy. International markets and particularly those in the Southern Hemisphere will offset fluctuations, seasonal and otherwise, in the U.S. market as we expand globally.

Enterprise customers and hospital systems, like current client Sutter Health, represent a durable use case for Lucira's products even as COVID shifts from pandemic to endemic. We have been and will continue focusing commercial and regulatory investments in these business-to-business healthcare system and international channels. Our near-term product portfolio includes the development of a combination or multiplex test for flu A, flu B, and COVID-19. Our plan is that with a single swab sample, a user can have results from these three tests all in one device at the same time.

We anticipate that running the combo test will be as simple as running our current COVID test. The combo test program is moving forward rapidly, and we anticipate receiving an EUA from the FDA in time to commercialize for the 2022 to 2023 flu season in the Northern Hemisphere. We believe that the benefit of using the combo test early in the onset of symptoms in the convenience of one's home fits the test-to-treat paradigm in which Lucira intends to play a significant role. By testing and having highly accurate results early, quick treatment and quarantine can lead to a reduction in suffering for the infected as well as contributing to the important public health service of infection control.

We believe that this broad control of infection can significantly reduce suffering and productivity losses. The increased availability of accurate molecular home tests and the awareness and use of such by the public is one of the benefits that has arisen from the otherwise treacherous pandemic. Additional tests on our platform are undergoing feasibility evaluations. These include additional respiratory tests and SCI tests.

We will provide details of the next products to be commercialized as we report in the coming quarters. We intend to bring a full complement of test to market and to lead the global expansion of convenient home testing. We are also continuing to add to our digital team with additional deeply experienced hires. We intend to enhance the utility of LUCI, our digital reporting platform.

Over time, we expect our digital platform to become an important part of our commercial offering, Lucira's COVID-19 test kits, as a result of their performance, ease of use, and because they are untethered and are uniquely positioned for the test-to-treat paradigm. We are working to build a menu of infectious disease test kits with similar capabilities. This is our focus. COVID has accelerated both Lucira's growth as a commercial enterprise as well as the market's understanding of and demand for convenient home testing.

Our time has arrived. And with each passing quarter, we believe that we are beginning to demonstrate our capability as an organization to manufacture at scale and to play a key role in reducing suffering from infectious disease. Lucira's near-term focus is on generating shareholder value through select global commercial expansion, continuing to roll out durable sales contracts, continuing to ramp manufacturing capacity with its associated gross margin improvements, bringing the combo test to market, accelerating the usage of convenient and accurate home testing and playing a key role in the nascent test-to-treat paradigm. As we expand our products offering and geographic distribution, we believe we will become less reliant upon the fluctuations in demand from COVID testing alone, and we anticipate maturing in our capabilities around business forecast accuracy.

Lastly, we would like to recognize employees, partners, and contractors that are working so hard to position Lucira for long-term success. We are more excited than ever about our future and look forward to Lucira's growth in the upcoming quarters. I will now turn the call over to Dan George, our CFO, for a detailed discussion of our financials.

Dan George -- Chief Financial Officer

Thanks, Erik, and hello, everyone. Please refer to our press release issued earlier today for a summary of our financial results for the fourth quarter and full-year 2021. Net revenue for the fourth quarter of 2021 was $61.1 million, which represented an approximate 300% increase over the third quarter and almost doubling of the combined prior three quarters in 2021. Our net revenue was primarily driven by contracts with businesses and distributors, healthcare providers, international sales, and direct sales to consumers.

Gross profit and gross margin for the fourth quarter of 2021 was $12.6 million and 21%, respectively. Non-GAAP gross profit and gross margin for the fourth quarter of 2021 was $19.1 million and 31%, respectively. Our increase in gross profit and gross margin was driven primarily by operational efficiencies gained through increased manufacturing output despite including a charge to cost of goods sold relating to excess and obsolescence of $5.2 million. Selling, general and administration expenses were $11.6 million in the fourth quarter of 2021 compared to approximately $2.4 million in the same period in 2020.

The increase was primarily related to increasing personnel-related costs and third-party services to facilitate commercial activities and public company compliance. R&D expenses were $9.1 million in the fourth quarter of 2021, compared to $8.5 million in the same period in 2020. New product development and validation of manufacturing activities primarily drove the increase. GAAP net loss was $7.8 million in the fourth quarter of 2021 compared to $17.2 million in the same period in 2020.

Non-GAAP net income was approximately $350,000 in Q4 compared to $13.1 million in non-GAAP net loss for the same period in 2020. The decrease in net loss primarily resulted from increased gross profit. For the full year 2021, we recorded $93.1 million in revenue. GAAP gross profit for the year was $10.2 million, representing an 11% GAAP gross margin.

Non-GAAP gross profit for the year was $20.1 million, representing a 22% non-GAAP gross margin. GAAP net loss was $64.8 million and non-GAAP net loss was $46.2 million for the full year 2021. GAAP and non-GAAP operating expenses were $75.4 million and $66.9 million, respectively. We ended the year with $106 million in cash compared to $58.2 million at year-end 2020.

The increase in cash is primarily related to our initial public offering. For 2022, we are reiterating our preannouncement guidance in excess of $450 million in revenue. For the first quarter of 2022, we estimate revenue between $80 million to $85 million. The first tranche of available financing from the recently announced debt deal puts the company in a healthy cash position.

And we believe our current cash will sustain us through the balance of 2022. We expect adjusted EBITDA that excludes noncash stock-based compensation of $30 million to $35 million in 2022. These estimates reflect our most recent assessment of manufacturing output in commercial demand. Our objective is to achieve financial health in 2020.

I'll now turn the call back over to Catherine for Q&A.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Derik De Bruin with Bank of America. Your line is open. 

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

Hi, good afternoon. 

Erik Engelson -- President and Chief Executive Officer

Hey, Derik.

Dan George -- Chief Financial Officer

Hey, Derik.

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

Hey. So I'm a little bit -- looking at your first-quarter guidance and the full-year guidance. So I'm just sort of curious, I would have expected the first quarter to be a lot stronger, just given the sort of the way the pandemic is sort of playing out right now and then sort of to taper off like that. So I'm just curious, it looks like implied in this, you're looking at -- you're certainly looking for acceleration through the rest of the year.

Can you sort of walk through how you sort of see revenues accelerating? 

Erik Engelson -- President and Chief Executive Officer

Yes, sure. I'll make a comment, and then I'll turn it over to Dan. Derik, thanks for the questions. And I think we're clearly seeing some or expecting some seasonality as we go through the year.

But we're very comfortable with the starting point and as we started.

Dan George -- Chief Financial Officer

Yes. I think -- look, I think Q1, Derik, is that -- that's a number we feel really good about in Q1. And as Erik mentioned, we expect to see some seasonality in Q1 but we're talking about a viral disease. So we're looking at some pretty heavy growth in the back half of 2022.

So I would think about it as kind of Q1 being a very solid number and some -- I would say probably some flatness with a little bit of volatility through Q2 and Q3 and picking up again very heavily in the back half of Q3 into Q4.

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

Okay. I mean we're in the middle of March. So as I said, it's -- yes, so I just was sort of surprised that that is -- so your -- so can you sort of walk us through what you have in terms of committed orders? And I think you're about 80% of your -- I think your guidance represents roughly about 80% of your existing capacity, if I'm not mistaken, and I like that. Could you just sort of walk us through and like how you're sort of thinking about what's the committed orders and then capacity expansion to sort of fill those?

Dan George -- Chief Financial Officer

Yes, I can go through the committed orders first. So I would look at the guidance that we provided and about 50% of that is contracted at this point and about two-thirds of that is binding orders. And we look at our business in four segments, right? So we have our HCP segment, our business-to-business segment, our international segment, and our DTC segment. The first three segments are really the contracted business where the majority of those contracts reside.

And that's where the majority of the business is and that's where we have the real visibility. So that's where we're looking into the Q2 and the Q3 time frame. We have some nice sustainability, which is really evidenced by the Switch contract that we entered into in the Q4 time frame, which is a great piece of evidence of our sales group going out and landing longer-term contracts, especially if they have visibility into the sustainability of our manufacturing. And that's really what happened in Q4, Derik, is we reached a level of critical mass and manufacturing that allowed us to kind of go out on the curve and allow the sales force to not just take orders, which they were doing through the Q4 time frame into Q1 but now go out and start seeking additional business.

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

So should we look at like the OpEx in the fourth quarter, R&D, SG&A as sort of like a starting point for Q1? And would you expect it to ramp as you sort of look -- as you bring the flu/COVID combo test up in the back half of the year?

Dan George -- Chief Financial Officer

Yes, most definitely. I mean, look, we're going to be growing to actually support the business, right? So I look at it as a launching point. I think we have -- I think what Q4 actually proved is that we have got a very nice leverageable business, but we are growing dramatically, right? We're jumping off from a $61 million Q4 number. We will be investing in R&D, like you mentioned, for that combo product.

We will be investing in sales and marketing, and we will be expanding our operational footprint. So I would look at those expenses close to doubling, I would say, kind of year over year to support this type of revenue growth?

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

Got it. And what else do you have to do for the flu/COVID combo? It sounded like you were still doing some finalization. You expect that to be EUA. Do you think that it will still be -- you'll be able to still launch that as an EUA at the end of the year? Or will it be required for a 510(k) by that point?

Erik Engelson -- President and Chief Executive Officer

Yes. So the product exists now, Derik, and is going through its final testing in-house and then testing required for the regulatory submissions. Our current information from FDA is that it will be an EUA, and so we're operating on that basis. If the FDA changes their mind and it's no longer an EUA but they move to 510(k), then it's not going to make this time frame.

But we have every reason at this point to believe that it will be EUA based on our conversations with FDA.

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

So I guess the one -- the other question sort of begs down into like what happens after '22, right? I mean you're -- this is an unprecedented year with -- certainly, we had the Omicron spike, have things still picking up, still going through with it, I guess. How should we think about -- what's sort of embedded in your assumptions for beyond 2022? And I mean are you anticipating additional variant waves? Are you doing this? Just sort of thinking about like where this goes and sort of like how the business evolves from here.

Erik Engelson -- President and Chief Executive Officer

Yes. We're continuing to see consistent demand. And remember, we're a tiny player against a larger market demand even in COVID. So one point is with COVID product, we're seeing consistent demand.

But then we're seeing that COVID has leveraged -- opened this whole test-to-treat paradigm and consumerization of healthcare into the home. And that's what we see going forward. And it's particularly -- it becomes particularly relevant and leveraged with the combo product, and then we'll bring subsequent products after that. But the combo product becomes significant in Q4 introduction.

Dan George -- Chief Financial Officer

Yes. And I think also to what -- I mean, if you think about the introduction of at-home testing, I mean, we're on the cusp of creating a market, and the pandemic really allowed for this acceleration of this market creation. And then with the introduction of these new modalities, it just becomes so much more important to test, to identify what somebody has early on, so you can at least treat them upfront. Because if you don't catch them at least in the asymptomatic or early onset symptom phase of the disease, you can only treat symptoms.

So there's definitely, with the antivirals for Merck and Pfizer, along with the flu antivirals, the idea of just testing somewhat anecdotally by going to the point of care by your doc, we think, is a thing of the past. And in fact, with the pandemic, docs who used to do that are really started treating tens of millions of people through tests. So the whole pandemic reintroduced the importance of testing. And with these drugs really is creating that paradigm shift of early test-to-treat, proper identification.

And without knowing if you have COVID or flu, the symptoms are identical. So it's just very important.

Erik Engelson -- President and Chief Executive Officer

Derik, you can tell we're excited about this. This was the initial objective of the company when it was founded, and then COVID accelerated our ability to get to initial scale. But we're really focused on the initial mission here but with such increased awareness in the population now of the benefit of home testing.

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

Great. Thank you very much.

Erik Engelson -- President and Chief Executive Officer

Thank you.

Operator

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

Griffin Soriano -- William Blair and Company -- Analyst

Hey, guys. Good afternoon. This is Griffin. Thanks for the questions.

First, on ASPs, can you just talk through where they came in on the quarter? So we get a better sense of how many test kits were sold and what the go-forward expectations are for ASPs in the guidance.

Dan George -- Chief Financial Officer

Griffin, we're not providing that information for competitive reasons, but we're not expecting anything really dissimilar than what we experienced in 2021.

Griffin Soriano -- William Blair and Company -- Analyst

OK, fair. On the $450 million, any sense of what percentage of expected total production that's going to take up just based on those ramped expectations that you guys have? I mean, $50, if you just kind of sum $50, obviously, 9 million tests. Any sense of what percent of total production you guys think this will account for?

Dan George -- Chief Financial Officer

Yes. It's probably in that 75% to 80% range.

Erik Engelson -- President and Chief Executive Officer

Yes. And remember, we're not -- without talking about specific production numbers other than hitting the 1 million units per month in the first half of the year, we'll continue to ramp through the year with expectations of the need for additional capacity as we get beyond the first half of the year.

Griffin Soriano -- William Blair and Company -- Analyst

OK. So just to be clear, there's potential ramp beyond the $3 million per quarter as we get into the back half of the year?

Erik Engelson -- President and Chief Executive Officer

That's correct.

Griffin Soriano -- William Blair and Company -- Analyst

OK. And then on competitive dynamics, obviously, you brought that up for the at-home molecular space. Basis of competition, we kind of assume there's many in costs. But any sense of -- love to hear your guys' thoughts on competitive dynamics with a couple of entrants in the COVID space.

But beyond that, your thoughts on the current competitive dynamics would be great.

Erik Engelson -- President and Chief Executive Officer

Yes. There's certainly other competitors looking at the space and participating in it. It's a -- we think it's going to emerge as an extremely interesting space. Just a central lab testing and point-of-care testing have each become substantial.

The kind of products that we make and some of the competitors make serve the at-home space but also overlap into the first two spaces. We think that -- our company founders, when they went the extra mile to make an untethered, uninstrumented test served us well at this point. Because when you think about a healthcare system sending a test to a patient's home, for example, for, let's say, preprocedural testing, not having to have the expense or the complexity of an instrument, being able to run a one-time test, have a result and have that served in its entirety, that puts Lucira in a very unique and positive situation.

Griffin Soriano -- William Blair and Company -- Analyst

Yes, OK. And then just last one. Can you talk about any impact, if there's been any impact on -- with private payer coverage, somebody's at-home COVID-19 test and what the process is for obtaining reimbursement is like for your test? Just what that looks like and if you've any -- again, any sense of what volumes are relating to -- are submitted for reimbursement?

Erik Engelson -- President and Chief Executive Officer

Well, we have seen home testing of COVID covered in many instances per the Bidden administration. So for example, people who purchased Lucira test on -- COVID tests online are able to submit their receipts. And if they're in a coverage situation, you get 100% coverage. And if they're not, with such a situation, get up to $12 per test.

So we've received a number of very satisfactory comments about that. We'll be looking at coverage very carefully as we bring additional tests to market. And at that time, we'll be able to comment more about it.

Griffin Soriano -- William Blair and Company -- Analyst

OK. Thanks, guys.

Erik Engelson -- President and Chief Executive Officer

Thanks, Griffin.

Operator

Thank you. Our next question comes from Rahul Rakhit with LifeSci Capital. Your line is open. 

Rahul Rakhit -- LifeSci Capital -- Analyst

Hey, guys. Can you hear me?

Erik Engelson -- President and Chief Executive Officer

We can, Rahul.

Rahul Rakhit -- LifeSci Capital -- Analyst

Awesome. Hey, congrats on a great year, guys. It's really exciting. I was just kind of hoping -- I know in some of our previous conversations, you've kind of talked about how you're seeing a lot of demand but somewhat have been limited by your manufacturing capacity.

Obviously, with the guidance, we're really seeing a lot of that open up. But I was wondering if you could kind of comment on that. And even from here, help me understand what kind of demand you're seeing from your different customer channels, I guess, and how much of that is kind of still being constrained by manufacturing capacity this year.

Erik Engelson -- President and Chief Executive Officer

Yes. We continue to see strong demand in the principal three channels. We do -- and so we're -- that's why we continue to bring up manufacturing capacity to meet that demand. If we did see -- our estimate is that the kind of consistent demand in those three principal channels was either unimpacted by Omicron or it was impacted to an extent that because of our limited manufacturing capacity did not influence what we took as demand with the exception of online.

In online, we did see a surge in demand meaning -- a surge, meaning a couple of ex baseline demand that then settled down as Omicron settled down in the population. But that online channel is very small compared to our other channels.

Rahul Rakhit -- LifeSci Capital -- Analyst

Got it, OK. Super helpful, thanks. And I guess -- I'm sorry if you covered this and I missed it. But I guess from my perspective, how should I be thinking about further gross margin expansion over the near and long term, I guess, 12 to 24 months?

Dan George -- Chief Financial Officer

Yes. So we exited the year, our non-GAAP gross margin was at 31%. With this type of volume, we're looking at an average gross margin in 2022 of about 40%. So you can think of it growing throughout the course of the year with more of a bump in the back half of Q3 into Q4 kind of think of it exceeding the 40% range during that period.

Rahul Rakhit -- LifeSci Capital -- Analyst

Awesome. Good to know, thanks. And then I guess just two more for me. One, I just want to hear a little bit more about the international channel here and what kind of demand you're seeing there.

I guess, how -- can you give us any kind of color on what the composition of those contracts might look like? Are there any regulatory hurdles you need to get over? Maybe help us understand, I guess, how many different ex U.S. areas you're trying to kind of get into this year and further beyond. I guess just kind of any kind of color you can provide on what that expansion will look like would be pretty helpful.

Erik Engelson -- President and Chief Executive Officer

Yes. And we'll be somewhat vague in our answer just for competitive reasons. But you're aware that Canada is an important international partner of ours, and we have some sustained demand in Canada through partners there, of which is contracted and binding. And from this point -- and we're in some other countries as well that we've named previously.

But from this point forward, as we bring additional products to markets, so for example, the combo product, we look at regulatory in a holistic global fashion and not just in a U.S. fashion. And recognizing that in respiratory diseases, there can be seasonality. We intend to balance to the extent possible that seasonality through regulatory approvals and distribution in the two hemispheres.

So we'll be more forthcoming about that as we get into the second half of the year. But hopefully, that serves as some guidance at this point.

Rahul Rakhit -- LifeSci Capital -- Analyst

Understood, yes. No, that's very helpful. And then, yes, just last one for me. Assuming the combo test is an EUA and it kind of comes, I guess, in the back end of this year.

Is any of that revenue kind of baked into the full-year revenue guidance? Are you seeing that as just kind of the potential for upside?

Dan George -- Chief Financial Officer

Yes. We feel good about the $450 million plan even without the combo. So when we talk about in excess of $450 million, we look at the combo as being in excess.

Rahul Rakhit -- LifeSci Capital -- Analyst

Got it. OK, good to know. All right. I think that's it for me.

I really appreciate it, guys. And congrats again on a great year.

Erik Engelson -- President and Chief Executive Officer

Thank you.

Dan George -- Chief Financial Officer

Thank you.

Operator

Thank you. And that's all the questions in the queue. I'd like to turn the call back to Erik Engelson for closing remarks.

Erik Engelson -- President and Chief Executive Officer

Thank you, Catherine. I want to thank everyone again for your time this afternoon, for your interest in Lucira Health. We are excited about the future at Lucira where we are expanding our decentralized test portfolio and global commercial reach. Our COVID product was a catalyst within 2021.

We believe that the appropriateness of our testing platform for both the test-to-treat paradigm and the care-at-home ecosystem, along with the planned launch of the combo product in the second half of 2022, will drive increased shareholder value. I'm proud of our team and look forward to our coming achievements this year and beyond. Thank you, and have a great evening.

Operator

[Operator signonff]

Duration: 44 minutes

Call participants:

Greg Chodaczek -- Investor Relations

Erik Engelson -- President and Chief Executive Officer

Dan George -- Chief Financial Officer

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

Griffin Soriano -- William Blair and Company -- Analyst

Rahul Rakhit -- LifeSci Capital -- Analyst

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