Accelerate Diagnostics, Inc. (NASDAQ:AXDX) Q1 2023 Earnings Call Transcript May 11, 2023

Accelerate Diagnostics, Inc. misses on earnings expectations. Reported EPS is $-0.17 EPS, expectations were $-0.14.

Operator: Good day, and welcome to the Accelerate Diagnostics Incorporated 2023 Q1 Results Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be a question-and-answer session. Please note, this event is being recorded. I would now like to turn the conference over to Laura Pierson of Accelerate Diagnostics. Please go ahead.

Laura Pierson: Before we begin, it is important to share that information presented during this call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include projections, statements about our future and those that are not historical facts. All forward-looking statements that are made during this conference call are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. These are discussed in greater detail in our annual report on Form 10-K for the year ended December 31, 2022, and other reports we file with the SEC. It is my pleasure to now introduce the company’s President and CEO, Jack Phillips.

Jack Phillips: Thank you, Laura. Good afternoon, and welcome to our first quarter earnings call. Today’s call will focus on our first quarter results, and include several updates on progress during the quarter. My commentary will focus on our three important strategic priorities. First, building financial strength. This includes restructuring our current debt obligation and reducing our cash burn, while improving our operational efficiency. Our second priority is to grow market share through our Becton Dickinson partnership. And thirdly, we are focused on delivering on innovation by advancing our next generation susceptibility platform, Wave. Before providing additional detail on each of these areas, I would like to hand it over to our Chief Financial Officer, David Patience, to review our first quarter financial results. David?

David Patience: Thank you, Jack, and good afternoon, everyone. In the first quarter, the US contracted three new Pheno instruments and brought another 10 Pheno instruments live. We ended the quarter with a revenue-generating install base of 338 Pheno instruments and a backlog of 62 instruments pending implementation. As we expected, the first quarter was soft for new contracted accounts as our commercial activity with Becton Dickinson continues to ramp up. Net sales were approximately $2.8 million in the first quarter, compared to approximately $3 million for the same period in 2022. This slight year-over-year decrease was driven by a lack of new Pheno contracting in the current quarter. Cost of goods sold were $1.8 million in the first quarter, resulting in a gross margin of 36%.

This compares the cost of goods sold of $2.2 million or a gross margin of 27% in the same period in 2022. Our increase in gross margin resulted from product mix, with several capital instrument acquisitions during the quarter with associated zero-cost inventory. Selling, general and administrative expenses, excluding non-cash stock-based compensation for the quarter was $10.2 million, compared to $8.2 million for the same period in 2022. SG&A expenses increased over the prior period, due to debt restructuring related expenses. Non-cash stock-based compensation expense in SG&A was a benefit of $100,000 compared to $2.4 million expense for the first quarter in 2022. This was due to executive turnover and subsequent forfeiture of non-cash compensation.

Research and development costs, excluding non-cash stock-based compensation expense for the quarter was $6.4 million compared to $5.7 million for the same period in the prior year. Non-cash stock-based compensation expense in R&D, increased to $0.6 million from $0.4 million in the first quarter of 2023, as compared to the same period for 2022. This increase was the result of further investment in our next generation susceptibility instrument, Wave. Our net loss was $16.2 million excluding non-cash stock-based compensation expense. Our GAAP net loss was $16.8 million for the first quarter, resulting in a net loss per share of $0.17. Net cash use was $13.7 million for the quarter, which included debt restructuring expenses during the quarter.

The company ended the quarter with cash and investments of $31.9 million. Now, back to you, Jack.

Jack Phillips: Thanks, David. I would like to turn now to our three important strategic priorities, financial strength, market share growth through our Becton Dickinson partnership, and delivering on innovation by advancing Wave. Starting with financial strength, we continue to make progress on our debt restructuring, recently announcing a Restructuring Support Agreement, or RSA, on April 21, which is an agreement with 91% of our 2.5% convertible senior secured notes, which matured and became due and payable on March 15 of this year, as well as with our largest shareholder. As part of the proposed transaction, we have been able to lower our overall debt outstanding and simplify our capital structure. Secondly, extend our outstanding convertible debt another 3.5 years.

And finally, we secured $24 million in new capital to fund our development efforts. We are expecting the transaction to close soon as we sign on the remaining debt holders and seek shareholder approval to facilitate this transaction. In addition to finalizing our debt restructuring, our focus on reducing cash burn and improving our operational efficiency will continue. Moving now to our next priority, growing market share through our Becton Dickinson partnership. Last quarter on the call, we discussed the launch of the US commercial partnership in January and an EMEA starting in March. After about four months of US selling activities, we are very encouraged. With the integration of Pheno and Arc into the existing BD portfolio, the only end-to-end complete microbiology workflow for combating bloodstream infections was launched into the market.

This focus led to some delays with near-term Pheno opportunities, but it was the right decision to ensure the successful launch of our partnership. Moving on to our commercial progress with BD. As a quick reminder, there are three principal drivers for us joining forces with BD: First, to significantly improve our commercial reach, both in the US and abroad; second, to improve our selling effectiveness by combining our offerings with the BD portfolio to close more accounts; and lastly, to collaborate on future innovation. We are pleased with our improved commercial reach within the first several months of the partnership being launched in the US as well as with the early days in EMEA. We are tracking commercial reach closely and are seeing big improvements with the volume of sales calls as well as those calls turning into new Pheno opportunities.

In the US alone, during the first quarter, we added nearly as many new Pheno opportunities to the funnel as we did throughout all of 2022. Turning to selling effectiveness, we are measuring effectiveness through sales funnel progression, funnel velocity and ultimately account capture. We are seeing meaningful funnel stage progression, which has led to a significant increase in quotes and contracts being developed and presented compared to the prior year. In quarter two and beyond, we are expecting to deliver a significant increase in placements not seen since prior to the pandemic. This is exactly why we entered into a long-term partnership with Becton Dickinson. In EMEA, we launched the global bloodstream infection campaign along with BD at the largest microbiology congress, ECCMID, in Copenhagen last month.

By showcasing Accelerate’s Arc and Pheno with the breadth of BD’s microbiology portfolio, customer enthusiasm was clear for end-to-end workflow complete solutions. Many current and prospective customers were eager to discuss implementing the BSI solution. This has led to a simplified contract offering for the combined BSI portfolio, which will include contracting and ordering to improve customer ease and speed of adoption. Turning more specifically to Arc, a customer from Italy will be presenting a poster on Arc workflow at the ASM Microbe coming up in June. The author also intends to publish a full study readout in a peer-reviewed European journal. We will leverage this customer’s good work as part of our selling efforts in EMEA in the future.

Bringing Arc to the US market remains a priority as there are clear demand for an automated, cost-effective sample preparation solution for positive blood cultures. As discussed on our prior calls, we continue to pursue Arc as a Class II 510(k) device with the FDA and remain in active dialogue. We will not have a forecasted launch date in the US until we begin clinical trials. Lastly, with our BD partnership, collaboration on future product development efforts remains a focus and early progress is being made on a number of fronts. Now turning my comments to our third strategic priority, delivering innovation with our next generation platform, Wave. We continue to make very good progress with our Wave development program. As discussed previously, we have taken delivery of over 20 alpha instruments, which are up and running in our core lab.

Early instrument reliability is very good and the data being produced is quite promising. This is very exciting and has significantly sped up our development efforts. As a reminder, the Wave platform will be able to provide rapid susceptibility test results for both positive blood culture and isolated colony samples and other sample types on a single system with significantly improved platform economics over Pheno. The Wave system has complete random access and is capable of running 20 samples in a single shift from a single module. The system is fully scalable, which allows easy adoption by small and medium labs while larger labs can integrate multiple modules into one system to manage all necessary volume and workflow needs. Our customers have confirmed a consolidated susceptibility approach will have a superior advantage over traditional isolated-based platforms on the market today.

For Accelerate, Wave significantly expands our revenue and wallet share per customer, while restating our platform economics. Our target is to deliver a pre-clinical data readout by the end of the year and start our clinical trials shortly thereafter. In summary, Q1 results were in line with our expectations and we are very optimistic about the remainder of 2023 and beyond. By restructuring our debt and securing additional new capital, we can solely focus on driving our core business priorities. Our partnership with BD is off to a good start and will continue to gain momentum. Our R&D, regulatory, and manufacturing organizations are laser-focused on Wave development and achieving key milestones. And of course, we will continue to focus on organizational talent, infrastructure, and processes to scale up our business and support future growth.

I would now be happy to answer questions from our analysts. Should others on the call have questions not addressed today, we would welcome you to send these questions or request for a follow-up meeting to investors@axdx.com. Thank you.

Q&A Session

Operator: We’ll now begin the question-and-answer session. The first question comes from Andrew Brackmann with William Blair. Please go ahead.

Operator: The next question comes from Alex Nowak with Craig-Hallum. Please go ahead.

Operator: This will conclude our question-and-answer session. I’ll turn the conference back over to Mr. Jack Phillips for any closing remarks.

Jack Phillips: Thank you, and thanks to everyone for dialing in to the call today. Just in summary, a few things from my side, as I mentioned a few times today, our BD partnership, the reason why we came to this partnership was to grow market share globally, to really create great reach, to improve our selling effectiveness by combining the rapid ID/AST along with other solutions to create an end-to-end bloodstream inflection solution for customers, and then ultimately to collaborate on much broader innovation for the future. And I would say, while this partnership was a big stepwise change for Accelerate, it took a lot of effort and continues to take a lot of effort as it relates to training, bringing all the key stakeholders up to speed, from regional sales managers, marketing managers, sales people, et cetera, up to speed.

We’ve done so much of that legwork along with BD, and I would say right now it’s going extremely well, and what we’re looking for into the future here, we’re starting to, look to the future for more closes, more effective opportunities, and ultimately reagent growth and more account penetration. And then, on the Wave front, we could not be happier about how our next generation innovation is advancing that will dramatically improve our footprint in microbiology. It will allow customers to consolidate and add not only rapid positive blood culture susceptibility but also consolidate that high-volume isolate testing as well. We are on track with our program. We continue to innovate every day, and we expect to continue to update on this very important innovation program as we go throughout the year.

And then, as David talked about today, our debt restructuring continues to go along. We expect this to be closed out over the coming weeks, and we plan to update on that as well, and that will clearly open us up to truly focus on all the other key aspects of the business around market share growth and innovation, et cetera. So with that, I’ll bring this earnings call to a close. Thank you for your support of Accelerate Diagnostics, and we’ll talk to you all soon. Thank you.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.