hlth-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_________________

FORM 10-Q

_________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40590

_________________

Cue Health Inc.

(Exact Name of Registrant as Specified in its Charter)

_________________


Delaware			27-1562193
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
4980 Carroll Canyon Rd. Suite 100 San Diego, CA 92121			92121
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (858) 412-8151

_________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, par value $0.00001 per share

HLTH

Nasdaq Global Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	o
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 3, 2022 the registrant had 147,453,254 shares of common stock, $0.00001 par value per share, outstanding.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words, variations of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following:

•our expectations regarding our revenue, expenses and other operating results;

•the extent and duration of the COVID-19 pandemic and the impact of the end of the COVID-19 pandemic on our business and our expectations regarding customer and user demand for our COVID-19 test;

•our ability to increase demand for, and the rate of market adoption of, the Cue Health Monitoring System and our platform, tests and other products generally, including with consumers, healthcare professionals, enterprises, insurers and other payors and public health officials;

•our ability to effectively scale our manufacturing capacity and other operations in a timely manner in order to meet contractual obligations, market demand and to be able to successfully operate our business;

•our ability to meet our contractual obligations under our agreements with customers;

•our ability to successfully develop and commercialize additional tests and other products for use with our Cue Integrated Care Platform;

•our expectations of the reliability, accuracy and performance of our products and services, as well as expectations of the benefits to patients, clinicians and providers of our products and services;

•our ability to obtain and maintain regulatory authorizations, clearances or approvals for our tests, including our existing FDA EUAs (“Emergency Use Authorizations”) for our COVID-19 test;

•our ability to accurately forecast demand for the Cue Health Monitoring System, our tests and other products;

•our ability to successfully build out our sales and marketing infrastructure, the costs and success of our marketing efforts, and our ability to promote our brand;

•our ability to increase demand for our products and services, obtain favorable coverage and reimbursement determinations from third-party payors and expand geographically;

•our intellectual property position and our expectations regarding our ability to obtain and maintain intellectual property protection;

•our ability to effectively manage our growth, including our ability to retain and recruit personnel, and maintain our culture;

•the impact of U.S. and international laws and regulations;

•our competitive position and expectations regarding developments and projections relating to our competitors and any competing products and services;

•future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements, future revenue, expenses, the ability to obtain reimbursement for our products and any needs for additional financing;

•our expectations regarding technology trends and developments in the healthcare industry and our ability to address those trends and developments with our offerings;

•our expectations concerning relationships with third parties, including healthcare professionals, enterprises, insurance companies and other payors, public health officials and other stakeholders in the healthcare system;

•the degree to which we are able to help bring about a new healthcare paradigm, and be a significant participant in any such new paradigm;

•our ability to grow our business internationally, in addition to within the United States;

•our ability to implement, maintain and improve effective internal controls and remediate material weaknesses; and

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, results of operations, financial condition, and prospects.

The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements

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will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

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TABLE OF CONTENTS


		Page No.
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (U naudited)	4
	Condensed Balance Sheets (Unaudited)	5
	Condensed Statements of Operations (Unaudited)	6
	Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)	7
	Condensed Statements of Cash Flows (Unaudited)	9
	Notes to Condensed Financial Statements (Unaudited)	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
Signatures		36

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Cue Health Inc.

CONDENSED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts and share data)


	March 31, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	426,465	$	409,873
Restricted cash	13,838		13,837
Accounts receivable, net	75,830		104,589
Inventories	132,567		88,388
Prepaid expenses	42,902		45,889
Other current assets	9,807		7,446
Total current assets	701,409		670,022

Property and equipment, net	182,750		177,456
Prepaid rent	480		1,567
Operating lease right-of-use assets	84,212		79,474
Intangible assets, net	9,240		7,673
Other non-current assets	5,679		3,868
Total assets	$	983,770	$	940,060
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	48,842	$	37,208
Accrued liabilities and other current liabilities	39,809		29,498
Income taxes payable	8,246		8,297
Deferred revenue, current	84,629		82,165

Operating lease liabilities, current	7,594		7,147
Finance lease liabilities, current	2,620		2,621
Total current liabilities	191,740		166,936

Deferred revenue, net of current portion	10,283		10,283
Operating leases liabilities, net of current portion	47,626		46,464
Finance lease liabilities, net of current portion	2,627		3,271
Other non-current liabilities	6,356		6,356
Total liabilities	258,632		233,310
Commitments and contingencies (Note 15)
Stockholders’ Equity (Deficit)

Common stock, $0.00001 par value; 500,000,000 and 500,000,000 shares authorized, 146,958,296 and 146,402,991 issued and outstanding at March 31, 2022 and December 31, 2021, respectively	1		1
Additional paid-in-capital	746,352		730,767
Accumulated deficit	(21,215)		(24,018)
Total stockholders’ equity (deficit)	725,138		706,750
Total liabilities and stockholders’ equity (deficit)	$	983,770	$	940,060

The accompanying notes are an integral part of these condensed financial statements.

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Cue Health Inc.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share data)


	Three Months Ended March 31,
		2022		2021
Revenue
Product revenue		$	177,454	$	64,499
Grant and other revenue		1,956		—
Total revenue		179,410		64,499

Operating costs and expenses:
Cost of product revenue		86,697		30,035
Sales and marketing		34,168		430
Research and development		28,787		7,409
General and administrative		26,910		11,870
Total operating costs and expenses		176,562		49,744
Income from operations		2,848		14,755


Interest expense		(51)		(535)



Other income, net		6		37
Net income before income taxes		2,803		14,257

Income tax expense		—		1,226
Net income		$	2,803	$	13,031
Net income per share attributable to common stockholders – basic		$	0.02	$	0.09
Weighted-average number of shares used in computation of net income per share attributable to common stockholders – basic		146,526,370		18,378,777
Net income per share attributable to common stockholders – diluted		$	0.02	$	0.08
Weighted-average number of shares used in computation of net income per share attributable to common stockholders – diluted		153,036,804		25,904,338

The accompanying notes are an integral part of these condensed financial statements.

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Cue Health Inc.

CONDENSED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands, except share data)


	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total Stockholders’ Equity (Deficit)
						Shares			Amount
Balance at December 31, 2021			146,402,991	$	1		$	730,767		$	(24,018)	$	706,750




Exercise of common stock options			294,231	—			270			—		270

Tax withholding on exercise of stock options and restricted stock units			—	—			(720)			—		(720)

Vesting of restricted stock units			261,074	—			—			—		—
Stock-based compensation, including employee stock purchase plan activity			—	—			16,035			—		16,035
Net income			—	—			—			2,803		2,803
Balance at March 31, 2022			146,958,296	$	1		$	746,352		$	(21,215)	$	725,138

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Cue Health Inc.

CONDENSED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands, except share data)


	Series A Redeemable Convertible Preferred Stock			Series B Redeemable Convertible Preferred Stock			Series C Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2020	8,350,743	$	7,519	46,176,715	$	66,186	28,998,607	$	102,618	27,995,780	$	—	$	9,036	$	(110,436)	$	(101,400)


Exercise of common stock options	—	—		—	—		—	—		622,749	—		32		—		32
Vesting of early exercised stock options	—	—		—	—		—	—		—	—		46		—		46

Stock-based compensation	—	—		—	—		—	—		—	—		3,021		—		3,021
Net income	—	—		—	—		—	—		—	—		—		13,031		13,031
Balance at March 31, 2021	8,350,743	$	7,519	46,176,715	$	66,186	28,998,607	$	102,618	28,618,529	$	—	$	12,135	$	(97,405)	$	(85,270)

The accompanying notes are an integral part of these condensed financial statements.

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Cue Health Inc.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands, except share data)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities
Net income	$	2,803	$	13,031
Adjustments to reconcile net income to net cash, cash equivalents and restricted cash used in operations
Depreciation and amortization	10,606		4,884



Stock-based compensation expense	16,035		3,021

Non-cash lease expense	1,996		625

Deferred income taxes	—		318


Non-cash interest expense	65		65
Changes in operating assets and liabilities:
Accounts receivable	28,759		(9,410)
Inventory	(44,179)		(14,759)
Prepaid expenses and other current assets	1,618		(1,710)
Prepaid rent	—		983
Other non-current assets	(1,876)		(1,143)
Operating lease right-of-use assets	(4,073)		(2,024)
Accounts payable, accrued liabilities and other current liabilities	18,305		(13,082)
Income taxes payable	(51)		—
Deferred revenue	2,464		(15,989)
Operating lease liabilities	(1,002)		28
Interest on finance leases	51		49
Net cash, cash equivalents and restricted cash provided by (used in) operating activities	31,521		(35,113)

Cash flows from investing activities
Purchase of property and equipment	(12,782)		(30,491)
Expenditures for software development	(1,273)		(1,350)
Net cash, cash equivalents and restricted cash used in investing activities	(14,055)		(31,841)

Cash flows from financing activities





Proceeds from exercise of common stock options	270		32



Proceeds from debt	—		82,250
Tax withholding on exercise of stock options	(720)		—
Proceeds from employee stock purchase plan activity	273		—
Debt issuance and prepayment costs	—		(781)
Repayment of debt	—		(24,478)
Payments for finance leases	(696)		(382)
Net cash, cash equivalents and restricted cash (used in) provided by financing activities	(873)		56,641

Net change in cash, cash equivalents and restricted cash	16,593		(10,313)
Cash, cash equivalents and restricted cash, beginning balance	423,710		129,255
Cash, cash equivalents and restricted cash, ending balance	440,303		$	118,942

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Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents	$	426,465	$	38,942
Restricted cash, current	13,838		—
Restricted cash, non-current	—		80,000
Total cash, cash equivalents and restricted cash	$	440,303	118,942

Supplemental disclosure for cash flow information

Cash paid for interest	$	—	$	267

Supplemental disclosure for non-cash investing and financing matters
Early exercised stock options liability	$	—	$	46
Right-of-use assets obtained in exchange for lease obligations	$	2,611	$	18,621
Prepaid rent reclassified to right-of-use assets	$	50	$	—
Purchase of property and equipment included in accounts payable	$	9,235	$	8,623


Initial public offering costs included in accounts payable	$	—	$	547
Software development costs included in accounts payable	$	897	$	—

The accompanying notes are an integral part of these condensed financial statements.

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Cue Health Inc.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except share data)

NOTE 1. BUSINESS AND BASIS OF ACCOUNTING

Organization and Description of Business

Cue Health Inc. (the “Company”) was originally formed in the State of California on January 26, 2010, prior to being incorporated in the State of Delaware on December 14, 2017. The Company is a healthcare technology company committed to revolutionizing the healthcare experience by providing individuals with a convenient and connected diagnostic platform that bridges the physical and virtual care continuum. The Company’s proprietary platform, the Cue Health Monitoring System, comprised of the Cue Reader and Cue Test Kit, enables lab-quality diagnostics-led care at home, at work or at the point of care. This platform is designed to empower stakeholders across the healthcare ecosystem, including individuals, enterprises, healthcare providers and payors, and public health agencies with paradigm-shifting access to diagnostic and health data to inform care decisions. The Company’s headquarters are located in San Diego, California.

Basis of Presentation

The accompanying unaudited interim condensed financial statements should be read in conjunction with the audited annual financial statements and notes thereto for the year ended December 31, 2021. The unaudited interim condensed balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results for the fiscal year ending December 31, 2022 or any future interim period. The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting and, in the opinion of management, include all adjustments necessary for the fair statement of the Company’s financial position for the periods presented. All such adjustments are of a normal, recurring nature. Certain disclosures have been condensed or omitted from the interim condensed financial statements. The preparation of the accompanying financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses as well as the related disclosure of contingent assets and liabilities.

Initial Public Offering

On September 28, 2021, the Company completed its initial public offering (“IPO”) of 14,375,000 shares of the Company common stock at an offering price of $16.00 per share, including 1,875,000 shares purchased pursuant to the exercise in full of the underwriters’ option to purchase additional shares. The Company received aggregate net proceeds of approximately $206.0 million after deducting underwriting commissions and legal, accounting, and consulting fees related to the IPO.

Upon completion of the IPO, Convertible Notes outstanding, see Note 10, Debt, in the principal amount of $235.5 million and accrued interest of $2.8 million were automatically converted into 18,611,914 shares of common stock. All outstanding shares of the Company’s redeemable convertible preferred stock, see Note 11, Capital Stock, were converted into 83,605,947 shares of common stock. Immediately prior to the IPO, all of the Company’s outstanding warrants to purchase redeemable convertible preferred stock were converted into the redeemable convertible preferred stock and the related warrant liabilities were reclassified to additional paid-in capital.