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Cue Health Reports Second Quarter 2022 Results

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

Recent Highlights

  • Revenue of $87.7 million in the second quarter of 2022 exceeds guidance with stronger than anticipated ordering from existing customers
  • 250,000+ Cue Readers shipped through the end of the second quarter of 2022
  • Flu standalone clinical studies completed and preparations are underway for a de novo submission to the U.S. Food and Drug Administration (FDA) for at-home and point-of-care use
  • Flu + COVID multiplex clinical studies started in the second quarter of 2022 and on track for submission for U.S. FDA emergency use authorization (EUA) in the third quarter of 2022
  • RSV scheduled to begin clinical studies in the third quarter of 2022
  • Chlamydia + Gonorrhea multiplex clinical studies expected to begin in the second half of 2022
  • Began phased rollout of Cue CareTM, closing the home-based virtual care loop from diagnostics, to telehealth, to medication delivery service
  • Ended the quarter with cash and cash equivalents of $363.1 million and further increased financial flexibility by entering a $100 million secured revolving credit facility

“We achieved stronger-than expected revenue performance in the quarter and continued to deliver on our pipeline programs,” said Ayub Khattak, Chairman and CEO of Cue Health. “We are very excited about our upcoming full launch of Cue Care, closing the virtual health care loop by allowing customers to conduct a molecular diagnostic test, consult a medical professional, and get treatment delivered, all within the Cue Health platform. With the addition of e-prescription fulfillment and delivery to our product offerings, Cue has taken another important step forward on our mission to enable personalized, proactive and informed healthcare that empower people to live their healthiest lives."

Second Quarter 2022 Financial Results

Revenue in the second quarter of 2022 was $87.7 million which exceeded our guidance due to stronger than anticipated COVID-19 testing orders from existing customers.

Private sector revenue was $80.5 million, or 91.8% of total revenue, an increase of $48.1 million over last year. Public sector revenue was 8.2% of total revenue or $7.2 million. Disposable test cartridge revenue was $82.9 million in the second quarter of 2022.

GAAP product gross profit margin was a loss of 20.8% in the second quarter of 2022. Adjusted product gross profit margin was 30.0% after excluding one-time inventory charges of $42.8 million.

Operating expenses in the second quarter of 2022 were $88.3 million, excluding cost of revenues, driven by product development, software technology, and menu expansion investments. In the quarter, there was a one-time restructuring charge of $1.9 million related to manufacturing workforce reduction.

GAAP net income in the second quarter of 2022 was a loss of $99.1 million and earnings per diluted share was a loss of $0.67. Cue's Adjusted net income was a loss of $55.2 million and earnings per diluted share was a loss of $0.37. Adjusted EBITDA was a loss of $29.9 million.

Cash and cash equivalents were $363.1 million as of June 30, 2022.

Guidance

Cue Health expects third quarter 2022 revenues in the range of $55 to $60 million, excluding any adjustment to deferred revenue held on the balance sheet.

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 third 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 standalone, flu + Covid multiplex, RSV 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 and Quarterly Report on Form 10-Q for the quarter ended June 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 (loss), 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

June 30,

 

Six Months Ended

June 30,

 

2022

 

2021

 

2022

 

2021

Revenue

 

 

 

 

 

 

 

Product revenue

$

84,351

 

 

$

137,423

 

 

$

261,805

 

 

$

201,922

 

Grant and other revenue

 

3,349

 

 

 

 

 

 

5,305

 

 

 

 

Total revenue

 

87,700

 

 

 

137,423

 

 

 

267,110

 

 

 

201,922

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

Cost of product revenue

 

101,898

 

 

 

55,142

 

 

 

188,595

 

 

 

85,177

 

Sales and marketing

 

16,971

 

 

 

1,529

 

 

 

51,139

 

 

 

1,959

 

Research and development

 

44,000

 

 

 

4,662

 

 

 

72,787

 

 

 

12,071

 

General and administrative

 

25,411

 

 

 

11,382

 

 

 

52,321

 

 

 

23,252

 

Restructuring expense

 

1,883

 

 

 

 

 

 

1,883

 

 

 

 

Total operating costs and expenses

 

190,163

 

 

 

72,715

 

 

 

366,725

 

 

 

122,459

 

Income (loss) from operations

 

(102,463

)

 

 

64,708

 

 

 

(99,615

)

 

 

79,463

 

 

 

 

 

 

 

 

 

Interest expense

 

(16

)

 

 

(9,429

)

 

 

(67

)

 

 

(9,964

)

Change in fair value of redeemable convertible preferred stock warrants

 

 

 

 

(190

)

 

 

 

 

 

(190

)

Change in fair value of convertible notes

 

 

 

 

(23,254

)

 

 

 

 

 

(23,254

)

Other income, net

 

43

 

 

 

24

 

 

 

49

 

 

 

61

 

Net income (loss) before income taxes

 

(102,436

)

 

 

31,859

 

 

 

(99,633

)

 

 

46,116

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

(3,386

)

 

 

12,050

 

 

 

(3,386

)

 

 

13,276

 

Net income (loss)

$

(99,050

)

 

$

19,809

 

 

$

(96,247

)

 

$

32,840

 

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

$

(0.67

)

 

$

0.14

 

 

$

(0.65

)

 

$

0.23

 

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

 

147,498,162

 

 

 

18,822,474

 

 

 

147,014,951

 

 

 

18,617,247

 

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

$

(0.67

)

 

$

0.14

 

 

$

(0.65

)

 

$

0.22

 

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

 

147,498,162

 

 

 

26,241,564

 

 

 

147,014,951

 

 

 

26,036,337

 

CONDENSED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts and share data)

 

 

June 30,

2022

 

December 31,

2021

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

363,124

 

 

$

409,873

 

Restricted cash

 

1,334

 

 

 

13,837

 

Accounts receivable

 

54,008

 

 

 

104,589

 

Inventory

 

139,047

 

 

 

88,388

 

Prepaid expenses

 

50,436

 

 

 

45,889

 

Other current assets

 

12,186

 

 

 

7,446

 

Total current assets

 

620,135

 

 

 

670,022

 

Property and Equipment, Net

 

190,131

 

 

 

177,456

 

Operating lease right-of-use assets

 

85,971

 

 

 

79,474

 

Intangible assets, net

 

10,936

 

 

 

7,673

 

Other non-current assets

 

6,902

 

 

 

5,435

 

Total assets

$

914,075

 

 

$

940,060

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

38,351

 

 

$

37,208

 

Accrued liabilities and other current liabilities

 

75,820

 

 

 

29,498

 

Income taxes payable

 

 

 

 

8,297

 

Deferred revenue, current

 

85,576

 

 

 

82,165

 

Operating lease liabilities, current

 

7,679

 

 

 

7,147

 

Finance lease liabilities, current

 

2,605

 

 

 

2,621

 

Total current liabilities

 

210,031

 

 

 

166,936

 

Deferred revenue, net of current portion

 

10,283

 

 

 

10,283

 

Operating leases liabilities, net of current portion

 

46,455

 

 

 

46,464

 

Finance lease liabilities, net of current portion

 

1,990

 

 

 

3,271

 

Other non-current liabilities

 

4,943

 

 

 

6,356

 

Total liabilities

 

273,702

 

 

 

233,310

 

Stockholders’ Equity (Deficit)

 

 

 

Common stock, $0.00001 par value; 500,000,000 and 500,000,000 shares authorized, 147,834,377 and 146,402,991 issued and outstanding at June 30, 2022 and December 31, 2021, respectively

 

1

 

 

 

1

 

Additional paid-in-capital

 

760,637

 

 

 

730,767

 

Accumulated deficit

 

(120,265

)

 

 

(24,018

)

Total stockholders’ equity

 

640,373

 

 

 

706,750

 

Total liabilities and Stockholders’ Equity

$

914,075

 

 

$

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 June 30,

 

Six Months Ended June 30,

 

2022

 

2021

 

2022

 

2021

Net (loss) income

$

(99,050

)

 

$

19,809

 

$

(96,247

)

 

$

32,840

Interest expense

 

16

 

 

 

9,429

 

 

67

 

 

 

9,964

Income tax expense (benefit)

 

(3,386

)

 

 

12,050

 

 

(3,386

)

 

 

13,276

Depreciation and amortization

 

10,979

 

 

 

9,616

 

 

21,585

 

 

 

14,500

Stock-based compensation

 

16,792

 

 

 

2,569

 

 

32,826

 

 

 

5,591

Restructuring expense

 

1,883

 

 

 

 

 

1,883

 

 

 

Inventory charges - inventory reserves / warranty reserves

 

42,844

 

 

 

 

 

42,844

 

 

 

Fair value adjustment - convertible notes

 

 

 

 

23,254

 

 

 

 

 

23,254

Banking and finance-related items

 

 

 

 

7,998

 

 

 

 

 

7,998

Adjusted EBITDA

$

(29,922

)

 

$

84,725

 

$

(428

)

 

$

107,423

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

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2022

 

2021

 

2022

 

2021

Product revenue

$

84,351

 

 

$

137,423

 

 

$

261,805

 

 

$

201,922

 

Cost of product revenue

 

101,898

 

 

 

55,142

 

 

 

188,595

 

 

 

85,177

 

Product gross profit (loss)

 

(17,547

)

 

 

82,281

 

 

 

73,210

 

 

 

116,745

 

Product gross profit (loss) margin

 

(21

)%

 

 

60

%

 

 

28

%

 

 

58

%

 

 

 

 

 

 

 

 

Inventory charges - inventory reserves / warranty reserves

 

42,844

 

 

 

 

 

 

42,844

 

 

 

 

Adjusted product gross profit

$

25,297

 

 

$

82,281

 

 

$

116,054

 

 

$

116,745

 

Adjusted product gross profit margin

 

30

%

 

 

60

%

 

 

44

%

 

 

58

%

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 June 30,

 

Six Months Ended June 30,

 

2022

 

2022

 

Dollar

Amount

 

Per Diluted

Share

 

Dollar

Amount

 

Per Diluted

Share

Net (loss) income / diluted EPS

$

(99,050

)

 

(0.67

)

 

$

(96,247

)

 

(0.65

)

Inventory charges - inventory reserves / warranty reserves

 

42,844

 

 

0.29

 

 

 

42,844

 

 

0.29

 

Restructuring expense

 

1,883

 

 

0.01

 

 

 

1,883

 

 

0.01

 

Tax effects

 

(868

)

 

(0.01

)

 

 

(868

)

 

(0.01

)

Adjusted net (loss) income / diluted EPS

$

(55,191

)

 

(0.37

)

 

$

(52,388

)

 

(0.36

)

 

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