Rockley Photonics Holdings' (RKLY) CEO Andrew Rickman on Q4 2021 Results - Earnings Call Transcript
Mar. 08, 2022 9:36 PM ETRockley Photonics Holdings Limited (RKLY)
Rockley Photonics Holdings Limited (NYSE:RKLY) Q4 2021 Earnings Conference Call March 8, 2022 5:00 PM ET
Company Participants
Gwyn Lauber – Vice President-Investor Relations
Andrew Rickman – Chairman and Chief Executive Officer
Mahesh Karanth – Chief Financial Officer
Conference Call Participants
Quinn Bolton – Needham and Company
Tristan Gerra – Baird
Tim Savageau – Northland Capital Markets
Operator
Greetings, welcome to Rockley Photonics Holdings Limited Fourth Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.
I will now turn the conference over to your host, Gwyn Lauber. You may begin.
Gwyn Lauber
Thank you, operator, and welcome, everyone. This is Gwyn Lauber, Vice President, Investor Relations of Rockley Photonics. Today, after the U.S. market closed, we released our results for the fourth quarter and full year ended December 31, 2021. A copy of our earnings press release, along with supplemental financial tables are available on the Investor Relations section of our website at investors.rockleyphotonics.com.
With me on today’s call are Dr. Andrew Rickman, OBE’s Chairman and Chief Executive Officer; and Mahesh Karanth, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of Rockley’s website.
Before I turn the call over to Andrew, I’d like to note that today’s discussion will contain forward-looking statements. These forward-looking statements include, but are not limited to, the anticipated benefits, features, scope, focus, status and goals of our platform, technology, products, studies, and partnerships with third parties, our ability to and the timing of bringing our products to market and our product development schedules, our strategies, our research and development plans, our customers, our commercial and market opportunities and trends, our debt obligations, and our costs and expenses, our cash resources and financial performance and outlook and factors affecting the foregoing.
These forward-looking statements are subject to risks and uncertainties, which may cause actual results to vary materially from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those discussed in our earnings press release and in our filings with the SEC. Any forward-looking statements that are made on this call are based on assumptions as of today. We undertake no obligation to update these statements as a result of new information or future events.
In addition to U.S. GAAP reporting, Rockley reports certain non-GAAP financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliation of these GAAP and non-GAAP financial measures are included in the tables found in the press release.
Now, I’ll turn the call over to Andrew.
Andrew Rickman
Thank you, Gwyn, and thank you all for joining us for our fourth quarter and full year 2021 earnings conference call. Today, I’ll start by briefly discussing our results and then our comment on progress that we’ve made since our last earnings call. We generated revenue of $2.4 million in the fourth quarter and $8.2 million for the full year 2021.
Our GAAP net loss was $14.7 million in the fourth quarter, compared to a loss of $58 million in the third quarter of 2021, which included one-time cost related to our IPO. We ended the quarter with $81.4 million in cash, cash equivalence and investments. A summary of our financials is available on the Investor Relations section of our website.
Now, I’d like to make some comments about our markets. Over the last two years, there’s been an increased focus on healthcare from individuals who demand a deeper understanding of the health from healthcare professionals who want a better more accurate method of monitoring their patients.
This focus was about more than finding ways to cut healthcare cost, but to create a shift from the traditional sick care system to a more personal and proactive healthcare system. I believe that a new system is possible due to technological advances that enable a proactive and remote approach to health and wellness. This change in healthcare is not surprising. Over the last few years, society has realized that we need to improve our baseline health and our ability to monitor it so that we are better able to deal with any future health crisis.
One of the best ways to make these necessary improvements is to use technology to allow not only healthcare professionals to improve their ability to care for patients, but also to allow individuals to proactively understand and control their own health. With the right tools, people can not only understand how their lifestyle choices affect their health, but also how the changes that they make and help them to avoid serious own diseases.
Governments too are acutely aware that we must develop systems that will empower people so that diseases can not only be detected early, but can be prevented. Health and wellness are issues that affect individuals, businesses, governments, and together, we need to look for ways to not only treat diseases, but prevent them. We believe that technology sits at the center of this new healthcare system, and it enables positive changes that only a few years ago, we wouldn’t have thought were possible.
Nearly one year ago to the day, we announced our intention to go public to a merger with SE Health. I am very proud that we successfully completed the merger that even more proud all that we have achieved since then. The team has made incredible progress executing on our plan remaining focused get flexible, accelerating our achievements by taking advantage of every opportunity that presented itself.
It is the team’s passion that is driving us and pushing us to do what some belief for as impossible. And it’s our commitment that has potentially put us firmly in the center of the future of health and wellness monitoring. One of the most significant changes that we see in the market is the convergence of the consumer electronics and med tech industries with each vying for its place in the health and wellness market.
It’s not surprising that this large, fast moving market has captured the attention of both. Rising healthcare costs, consumer demand and technological advances have created an opportunity for disruption in the industry. Consumers are searching for ways to be active participants in their own health and wellness. Businesses realize that they must not only control healthcare costs, but also develop and maintain a safe and healthy environment for their employees.
And governments realize that critical important changes need to be made to ensure healthy populations. Technology is now seen as the key enabler in the pursuit of healthy lifestyle and in preventative healthcare. According to CB Insights in 2021, big tech alone invested over $7 billion in healthcare startups. Through the use of technology, we can create solutions that will have a profound impact on the lives of consumers, patients, seniors, first responders, and more, and will help them to make crucial changes that will positively impact their lives.
I believe that at the core of this new and growing industry is Rockley’s technology. By taking a holistic view of the human body through insights into multiple biomarkers, both individuals and healthcare professionals could have a more sophisticated tool to monitor and track trends in a person’s health. This view has the potential to help physicians identify serious health conditions and possible disease states earlier, allowing for more affordable prevention measures perhaps long before aggressive treatment is needed and a desire for remote monitoring solutions had further the push for technology that can create these solutions.
During the fourth quarter, we announced that we had significantly expanded our footprint in the consumer market for our non-invasive VitalSpex biomarker sensing capital by signing new agreements with six global consumer electronics manufacturers. With these additional agreements, we now have relationships with 12 consumer electronic customers, including six of the top 10 largest manufacturers of smart watches and wristbands. These multi-year agreements will focus on evaluating and incorporating in the next generation of non-invasive biomarker sensing into a range of consumer devices, including smart watches, wristbands, and other wearables.
We believe that these customer relationships will create new opportunities for our VitalSpex sensing platform. We recently announced our Bioptx product line, a biomarker sensing platform for professional healthcare. Bioptx features a first of its kind non-invasive continuous biosensing wristband, along with a platform that will enable the measurement of an extensive range of biomarkers supported by custom cloud based analytics and AI. I’m very proud that we were able to launch Bioptx two years earlier than we initially planned to meet increased demand from our customers.
The early introduction is intended to accelerate the development of non-invasive remote monitoring solutions for healthcare. In January, we ship engineering samples to multiple customers, and we expect the first commercial products to be available as early as the second half of 2022. We believe there is an opportunity to generate revenue from additional Bioptx solutions such as our AI cloud suite offering in 2023. While our customers have expressed strong interest in non-regulated versions of Bioptx, in the future, we plan to seek certification from the FDA and other regulators for a medical grade version of Bioptx. I believe our Bioptx platform has the potential to profoundly change the healthcare landscape.
Another important part of our product development strategy is our relationship with partners. On our last call, I spoke about our partnership with Caltech and the opportunity to bring to the developed and for future healthcare applications that will use biosensing platform. We intend to collaborate with Caltech on the development of next generation solutions that combine advanced sensors with artificial intelligence to enhance insight into health and well being.
Since our last earnings call, we added Mount Sinai Health Systems as a partner, and we are working with their Icahn School of Medicine to collaborate on research studies. We intend to work together on non-invasive sensing capabilities into accelerate the development of new algorithms for various potential use cases in health and wellness tracking, early disease state identification, and digital health. I believe these collaborations should allow us to bring solutions to market that will provide end users with access to key health insights and provide them with deeper understanding of their health and wellbeing.
Next I’d like to update you on our ongoing human trials. Recently, we made several announcements regarding our initial studies in core body temperature and blood pressure, the team, and I are very pleased with the results, which I believe validate both the potential and the power of the technology we have developed. In early December, we announced the preliminary results of our core body temperature study. In this study, we demonstrated not only the initial efficacy of our photonics-based sensor for measuring core body temperature. Our technology also yielded results more closely aligned with reference sensors than the auxiliary sensors like oral, ear, and infrared thermometers that are today’s standard.
Core body temperature is recognized as a leading indicator of changes in help making an anchored reading crucial for early detection of many diseases. Currently this capability is not possible even with these widely used auxiliary centers that provide only surface temperature. Early in 2022, we announced the result of our pilot blood pressure human study. This pilot study assessed our blood pressure measurement capabilities using a using a cuffless, Rockley-powered,
wrist-worn device. The results demonstrated both signal quality and measurement techniques capable of potentially providing a noninvasive convenient method for measuring cardiovascular health. The study also validated that our risk-based sensing platform produce a strong correlation to heart rate and heart rate variability measurements, which are commonly measured using electrocardiogram equipment. These results advance, the readiness of our overall sensing platforms capabilities in broad biomarker detection and sets the stage for a larger blood pressure study.
These human studies are important steps in our work to support the full range of biomarker measurements on our platform. The studies help us optimize algorithms and refine our technology performance across a broad range of biomarkers. Throughout 2022, we intend to share the results of further studies of these biomarkers, plus additional biomarkers for hydration, alcohol, lactate, and glucose trends. As we learn more about each biomarker through our studies and the work of our customers and partners, I believe that our cloud-based analytics and AI capabilities will help develop a powerful, more holistic assessment of a person’s health and wellbeing.
Throughout the quarter, the team has worked hard to make progress, not only in our product development, but also expanding our customer base. Looking back over the last year, I can tell you that both have exceeded my expectations. On the consumer electronics front, we increased our customer base from just a handful to 12 customers, including six of the leaders in their space. In medtech, we now work with five customers, including two of the top 10 medtech companies. On the product development front, we also are – for two years ahead of schedule due to strong customer demand and we expect to ship our first commercial products to this market as early as the second half of 2022.
The acceleration on both funds clearly points to the convergence of two very powerful markets with Rockley’s bio sensing technology, well positioned at the center. This has created a significant opportunity for Rockley and for the general population who will benefit from the work of our partners and customers. We remain focused on developing our innovative end-to-end noninvasive Silicon photonics-based solution. We’re optimistic that our efforts will have a profound impact on people’s lives. As we create a platform that will provide valuable insights into their health. Our goal is for the future of health and wellness monitoring to be powered by Rockley. There’s a lot of work ahead of us, but I believe that our very talented team has the skills and the passion to reach our goal.
With that, I will turn the call over to Mahesh for a review of our financial performance in the quarter. Thank you.
Mahesh Karanth
Thank you, Andrew. And good afternoon everyone. This quarter, I will review a few key highlights of the fourth quarter and then provide an update on our outlook for 2022. We recorded revenue of $2.4 million in the fourth quarter and $8.2 million for the full year 2021, which exceeded our guidance.
Gross profit and operating expenses in the fourth quarter, benefited from a one-time R&D tax credit. As a reminder, in the fourth quarter, we announced that we were unable to move forward with the technical sale of our data communication assets due to our JV partners, recent inclusion on the U.S. entity list.
Cash used in operating activity during the quarter, totaled $34.1 million. Throughout the quarter, we implemented a number of programs to preserve capital and reduce our cash flow. For example, we initiated a hiring policy to limit headcount increases to only strategic hires. We are also working to deploy many of our employees who were focused on datacom to biosensing projects that could utilize their skills. We are grateful for the teams flexibility.
We ended the quarter with $81.4 million in cash, cash equivalents, and investments, and did not utilize any funds available from the ELOC that we put in place in the fourth quarter. Looking ahead for 2022, our revenue guidance is $20 million to $30 million, which we expect to be primarily driven by monetizing our data communication assets NRE and product sales.
In wrapping up my prepared remarks, we are pleased with our performance in the fourth quarter and full year 2021, and we believe we remain well positioned to execute on our roadmap ahead.
I will now turn the call back to the operator to open up the call for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from Quinn Bolton with Needham and Company. Please proceed with your question. Quinn, your line is open.
Quinn Bolton
Sorry about that guys. I was on mute. Just wanted to start with the comment coming from the press release where you’ve stated first commercial products expected to be available as early as the second half of 2022 and ship in 2023 for production. Can you talk about whether that’s for the new Bioptx medtech platform, does that also include some of the original consumer electronics applications that you talked about almost a year ago at the time of the original the SPAC transaction? Thank you.
Andrew Rickman
Thanks, Quinn. This is Andrew. And so we’ve always indicated that at the consumer market, in terms of designing to our consumer customers would – they would launch their products in 2023. And the more recent news was that we were able to accelerate our Bioptx platform for the healthcare market and introduce the Bioptx wearable specific for the healthcare market in 2022. And so volume production will start in that area in the second half of the year and ramp in early 2023.
Quinn Bolton
But again, that’s now across both consumer electronics and the Bioptx platform?
Andrew Rickman
Well with consumer electronics, we’re obviously providing the chips that go into the devices. But those customers, their products as we’ve always stated, will ramped in 2023. So the visibility of those products to the market as a whole will only come about when they introduce their products in 2023. In the case of Bioptx, those products will be visible if you like in this year, because the end product will be shipping and our customers will be deploying those products.
Quinn Bolton
Okay. Maybe Andrew, just another way of asking a question. Has the timeline for commercial production of your consumer electronics customer programs, has that slipped or do you still think that that’s on track for…
Andrew Rickman
It’s on track. Yep. Same position as before.
Quinn Bolton
Okay, perfect. And then a couple for Mahesh, that the R&D in the fourth quarter came down pretty meaningfully. You mentioned in R&D tax credit and so as we look into 2022, can you give us some sense, where do you see quarterly OpEx running throughout 2022 and with the sale of the divestiture of the datacom assets, does that meaningfully bring down the OpEx relative to what you were seeing for most of 2021?
Mahesh Karanth
Yeah. On the cash spend, we should be in the $10 million to $12 million range per month as OpEx. This includes taking into account the R&D tax credit and also the potential sale, the technical sale of the transceiver business.
Quinn Bolton
Okay. And that’s $10 million to $12 million a month not quarter just to confirm.
Mahesh Karanth
Yes.
Quinn Bolton
Okay. And then lastly Mahesh, it looks like other receivables, is up to about $47 million on the balance sheet. Can you give us some sense to the extent you can collect on that could be a significant source of cash generation that might otherwise avoid having to go out to the markets or raise debt, but can you talk about that as a potential funding source over the next couple of quarters? Thank you.
Mahesh Karanth
Yes. That one we expect to collect about 40% of that this quarter and the balance in later part of Q2 that pertains to the tax credit.
Quinn Bolton
Got it. Okay. Thank you.
Operator
Our next question is from Tristan Gerra with Baird. Please proceed with your question.
Tristan Gerra
Hi, good afternoon. Trying to look at the timing of the biomarkers that have been released looks like a couple of them have been released and you expect all to be released throughout this year. How many biomarkers are needed for your customers in consumer to launch products? I’m just trying to look at a correlation between the biomarkers and the timing of launch. Because you’re going to sell, as you just said, the chip to them. And I’m just wondering, how many biomarkers or what is the lag in time between when a biomarker is released until when it actually can be commercialized into a product being sold to consumer?
Andrew Rickman
Hi, Tristan, Andrew here. So the biomarkers there are two forms of the product, called the Baseline and the Pro, and in the Baseline, it’s the addition of core body temperature and body hydration that we’re adding to the consumer wearables. In the pro, we’re adding the ability to measure alcohol lactate and glucose trends. And so the roadmap of biomarker qualification, if you like perfection of the, through human trials of the algorithms is working in the order of Baseline biomarkers first. And I missed out by the way blood pressure and all of that which is in both, both product lines and that the pro biomarkers are, later qualified than the, the Baseline.
Now, consumer customers. We have consumer customers, who are interested in the Baseline and working on the, the design of the Baseline. And we have consumer customers who are interested in the Pro. In the course of this year, we will complete all the trials, all the human trials associated with all of the biomarkers. And we will start shipping in volume the Baseline in a Bioptx World by the end of the year. And then as we look at the introduction into the consumer products where they’re expected, as we’ve said or long their products are expected in 2023, then by that time, both the Baseline and the Pro biomarkers will all be qualified.
Tristan Gerra
Okay, great. Thanks for the color. And then the Transeva Technology it sounds like you’re going to monetize some of this NREs, but you also said you’re converting engineers, to your core business. So it sounds like there is, you’re not contemplating trying to sell or transfer that technology elsewhere or is there still an opportunity for a transaction and if it’s just NREs, how long can you monetize this as your video directing your engineering base, to your core business?
Andrew Rickman
So the plan remains the same. I mean it’s basically to spin that part of the business out into a partner previously. We had intended to do that with our JV partner. But as you know their parents were put on the U.S. entity list. But we are making very good progress with the replacement and the, exactly the same plan that our objective here is to once see some level of monetization of the platform in the communications market, while at the same time, allowing the company to focus on the, the very, very much larger health and wellness opportunity.
Tristan Gerra
Great. Thank you very much.
Operator
Our next question is from Vivek Arya with Bank of America. Please proceed with your question.
Unidentified Analyst
Hi, this is Blake Freeman [ph] on for Vivek Arya. Just for my first question, I was curious, you guys have discussed briefly about products ramping and volume in 2023. I was just curious, when do you guys plan, or when you guys have a better view of visibility into fiscal 2023 and what specific factors, need to happen for visibility to improve into 2023? Thanks.
Andrew Rickman
Thanks for the question. Mahesh, would you like to take that?
Mahesh Karanth
Yes. Thanks. So on the visibility, we expect a better visibility by end of this quarter, when we are doing the initial production ramp. We will give you more color for 2023 at that time.
Unidentified Analyst
Good to know. And then just as a quick follow, I believe from your last issued guidance just for this year, the low end of the guidance range has reduced by $5 million. I was just curious if there’s any specific reason at the low end of the guidance range was reduced
Mahesh Karanth
And be just keeping in mind the political uncertainty, we just are being a little cautious. There is no specific thing which led to that.
Unidentified Analyst
Got it. Thank you.
Operator
Our next question is from Tim Savageau with Northland Capital Markets. Please proceed with your questions.
Tim Savageau
Hi, good afternoon. I want to follow up on you kind of build on this notion of commercial product ship in the second half of this year into medtech. I think you touched on this a little bit saying it’s, probably the, the Baseline features that go in there, but I want to try and relate what you’ll be shipping in the second half, kind of as a, in relation to the, kind of the full throated consumer offering from two different perspectives, one to sort of a core technology perspective, lasers, silicon photonics, sensors, that kind of sensing module, if you could maybe relate what subset of functionality for consumer is shipping in medtech in the second half, would that be, from a hardware perspective, pretty much the whole thing, and you’re waiting on biomarkers, or so maybe from a core technology perspective and then from a kind of a algorithm biomarker perspective, what percentage of your full functionality anticipated will you be shipping with medtech, this is my plotting question….
Andrew Rickman
Hi, Tim. It’s all of it. So if you think about the consumer market, the consumer market for us is the provision of reference module design, which we work with those customers, working with those customers on the design and into their 2023 launch of their wearable products. And with those customers, depending on the customers, depends on the level of stack of the stack all the way up to the AI cloud that we’ll be able to provide to those individual customers. Now, we call in both under vital spec, which is for consumer and Bioptx, which is for medtech under both, we are basically using the same engines. So we’ve got the same engine in the Baseline for the reference module in consumer. And that in the Bioptx in the medtech area is actually built up into our own wearable and the same and the probe and the same. There’s a band, our own band in the Bioptx, for the medtech market.
Now, the thing that’s happened here, that’s evolved since we took the company public, was that our medtech customers wanted to get the technology and get the products and get them out there without waiting for FDA approval. And they also didn’t want to design the bands themselves. We had all that competence. We were build those bands anyway for our human trials. So that created this opportunity for us to create a, if you like a different flash of wearable, it’s not a phone, it’s not, telling you what your emails are, the battery isn’t running flat, in 24 hours, et cetera. And, it’s very easily cleaned and all these kinds of things, because it’s going into a healthcare application where it’s got to sit there and monitor patients and do the dedicated task of monitoring the individual biomarkers and collecting that data and passing that through what we call connect into our cloud platform.
And then in the cloud platform, we’re able to run essentially application which, we like to refer to as a kind of disease applications and we’re developing those applications. So the data is looked at by those applications and you get information warning the healthcare provider about maybe certain conditions that individual has. So it’s a complete suite of solutions in the healthcare area, in the Bioptx area. And these are all coming to market in the second half of the year in the healthcare area. And the reason we can do that is because of that acceptance by the healthcare market that they want to get started in a pre, in a non-regulated sense. And with the consumer market, which is still very, very important to us, it just takes, it just taking us.
It just takes till next year for the introduction of the consumer products into the market, through their cycle time and through our design, into the products. And one of that has changed on the consumer side. What’s changed is the healthcare side has come forward. And the level of complete offering that we’re able to provide there is the, is the complete stack. And that’s, what’s demanded by the healthcare customers. Now we are working with those healthcare customers, and we’re looking forward to, telling the market more in this area, we’re working with those customers also on moving forward to getting all the biomarkers FDA approved. And so from point to - of your question, when we talk about a product being introduced and going on from ramping into volume, et cetera, that the biomarkers are all there. They’re not, we’re not waiting to do other work with the biomarkers, the biomarker algorithms and the human trials are built into those projections.
Tim Savageau
Got it. So, and thanks for that. So, to summarize these two platforms share, a common optical engine, sort of that just powers that technology, which you expect to be basically fully baked and, shipping at least in the medtech format in the second half, and then pending design cycles or other type of optimizations then moving into consumer, but from a core technology standpoint, I mean, it sounds like you have pretty decent visibility into, getting into, to real full production mode and the technology being kind of stable and ramping.
Andrew Rickman
Absolutely. Our customers are at the commitment stage and we are working extremely hard on the volume ramp up.
Tim Savageau
Great. Thanks and congrats on that.
Andrew Rickman
Thank you.
Operator
We have reached the end of the question-and-answer session, and I will now turn the call over to Andrew Rickman for closing remarks.
Andrew Rickman
Thank you for participating in our call today. We are very excited about the opportunities ahead of us, and we’re looking forward to providing you with updates in the near future. Before I close, I want to take a moment to acknowledge the situation in the Ukraine. Our thoughts are with everyone who has been impacted by this terrible event, and we pray for peace in the Ukraine. Thank you.
Operator
This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.
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