hlth-20230331

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, 2023


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 x No o

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	x
Non-accelerated filer	o	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, 2023 the registrant had 151,618,769 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 Federal Drug Administration (the “FDA”) Emergency Use Authorizations (“EUAs”) 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;

•inflationary pressures, supply chain disruptions and other macroeconomic factors;

•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, 2022 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

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Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements 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 Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Stockholders’ Equit y	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
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	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
Signatures		34

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Cue Health Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts and share data)


	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	178,201	$	241,530
Restricted cash	800		800
Accounts receivable, net	9,799		18,751
Inventories, net - current	82,006		82,210
Prepaid expenses	11,617		15,728
Other current assets	4,574		12,134
Total current assets	286,997		371,153

Non-current inventories, net	27,718		25,436
Property and equipment, net	184,197		189,275

Operating lease right-of-use assets	84,542		85,321
Intangible assets, net	19,774		16,867
Other non-current assets	5,333		6,528
Total assets	$	608,561	$	694,580
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	16,644	$	7,150
Accrued liabilities and other current liabilities	40,173		52,378

Deferred revenue, current	754		1,566

Operating lease liabilities, current	7,739		7,739
Finance lease liabilities, current	2,148		2,362
Total current liabilities	67,458		71,195


Operating leases liabilities, net of current portion	42,826		44,045
Finance lease liabilities, net of current portion	417		849
Other non-current liabilities	1,997		1,997
Total liabilities	112,698		118,086
Commitments and contingencies (Note 15)
Stockholders’ Equity

Common stock, $0.00001 par value; 500,000,000 and 500,000,000 shares authorized, 151,567,650 and 150,406,014 issued and outstanding at March 31, 2023 and December 31, 2022, respectively	2		1
Additional paid-in-capital	808,133		794,567
Accumulated deficit	(312,272)		(218,074)
Total stockholders’ equity	495,863		576,494
Total liabilities and stockholders’ equity	$	608,561	$	694,580

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

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Cue Health Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share data)


	Three Months Ended March 31,
		2023		2022
Revenue
Product revenue		$	24,494	$	177,454
Grant and other revenue		271		1,956
Total revenue		24,765		179,410

Operating costs and expenses:
Cost of product revenue		39,823		86,697
Sales and marketing		11,248		34,168
Research and development		44,733		28,787
General and administrative		16,938		26,910
Restructuring expense		7,873		—
Total operating costs and expenses		120,615		176,562
(Loss) income from operations		(95,850)		2,848

Interest expense		(220)		(51)



Other income, net		1,872		6
Net (loss) income before income taxes		(94,198)		2,803

Income tax (benefit) expense		—		—
Net (loss) income		$	(94,198)	$	2,803
Net (loss) income per share – basic		$	(0.62)	$	0.02
Weighted-average number of shares used in computation of net (loss) income per share – basic		151,083,716		146,526,370
Net (loss) income per share – diluted		$	(0.62)	$	0.02
Weighted-average number of shares used in computation of net (loss) income per share – diluted		151,083,716		153,036,804

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

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Cue Health Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)


	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total Stockholders’ Equity
						Shares			Amount
Balance at December 31, 2022			150,406,014	$	1		$	794,567		$	(218,074)	$	576,494




Exercise of common stock options, including ESPP activity, 473,080 shares			1,075,820	1			95			—		96

Issuance of common stock upon vesting of restricted stock units			398,470	—			—			—		—
Tax withholding on exercise of stock options and issuance of shares from restricted stock units			(312,654)	—			(924)			—		(924)


Stock-based compensation			—	—			14,407			—		14,407
Other			—	—			(12)			—		(12)
Net loss			—	—			—			(94,198)		(94,198)
Balance at March 31, 2023			151,567,650	$	2		$	808,133		$	(312,272)	$	495,863

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Cue Health Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)


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


Exercise of common stock options			294,856	—			270			—		270






Issuance of common stock upon vesting of restricted stock units			930,493	—			—			—		—
Tax withholding on exercise of stock options and restricted stock units			(670,044)	—			(720)			—		(720)
Stock-based compensation			—	—			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

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

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Cue Health Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands, except share data)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities
Net (loss) income	$	(94,198)	$	2,803
Adjustments to reconcile net (loss) income to net cash, cash equivalents and restricted cash (used in) provided by operations
Depreciation and amortization	12,064		10,606
Allowance for doubtful accounts provision	312		(229)


Stock-based compensation expense	14,407		16,035

Non-cash lease expense	2,278		1,996


Interest on finance leases	24		51

Non-cash interest expense	79		65
Changes in operating assets and liabilities:
Accounts receivable	8,640		28,988
Inventories	(2,078)		(44,179)
Prepaid expenses and other current assets	11,659		1,618
Other non-current assets	1,116		(1,876)
Accounts payable, accrued liabilities and other current liabilities	(4,656)		18,254

Deferred revenue	(812)		2,464
Operating lease liabilities	(2,718)		(5,075)

Net cash, cash equivalents and restricted cash (used in) provided by operating activities	(53,883)		31,521
Cash flows from investing activities
Purchase of property and equipment	(3,906)		(12,782)
Expenditures for software development	(4,412)		(1,273)
Net cash, cash equivalents and restricted cash used in investing activities	(8,318)		(14,055)
Cash flows from financing activities





Proceeds from exercise of common stock options	96		270




Tax withholding on exercise of stock options	(924)		(720)
Proceeds from employee stock purchase plan activity	370		273


Payments for finance leases	(670)		(696)
Net cash, cash equivalents and restricted cash used in financing activities	(1,128)		(873)

Net change in cash, cash equivalents and restricted cash	(63,329)		16,593
Cash, cash equivalents and restricted cash, beginning balance	242,330		423,710
Cash, cash equivalents and restricted cash, ending balance	$	179,001	$	440,303

Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents	$	178,201	$	426,465
Restricted cash, current	800		13,838

Total cash, cash equivalents and restricted cash	$	179,001	$	440,303

Supplemental disclosure for cash flow information
Cash paid for taxes	$	—	$	—

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Cash paid for interest	$	—	$	—

Supplemental disclosure for non-cash investing and financing matters

Right-of-use assets obtained in exchange for lease obligations	$	—	$	2,611
Prepaid rent reclassified to right-of-use assets	$	—	$	50
Purchase of property and equipment included in accounts payable	$	2,548	$	9,235



Software development costs included in accounts payable	$	—	$	897

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

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Cue Health Inc.

NOTES TO CONDENSED CONSOLIDATED 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 consolidated financial statements should be read in conjunction with the audited annual financial statements and notes thereto for the year ended December 31, 2022. The unaudited interim condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results for the fiscal year ending December 31, 2023 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 consolidated 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.

Use of Estimates

The preparation of the accompanying unaudited interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.

Significant estimates and assumptions made in the accompanying financial statements include, but are not limited to revenue recognition, net accounts receivable, equity-based compensation expense, product warranty reserve, the usage and recoverability of its inventories and long-lived assets and net deferred tax assets (and related valuation allowance). The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.

Segment Reporting

Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. In addition, the guidance for segment reporting indicates certain quantitative materiality thresholds. The Company views its operations and manages its business in one operating segment which is consistent with how the Chief Executive Officer, who is the chief operating decision-maker, reviews the business, makes investment and resource allocation decisions, and assesses operating performance. The majority of revenue to date is from customers located in the United States and the majority of long-lived assets are located in the United States. Revenues to customers located outside of the United States were not material and $3.5 million for the three months ended March 31, 2023 and 2022, respectively.

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Long-lived assets, which consist of property and equipment, located outside of the United States were $4.4 million and $4.7 million as of March 31, 2023 and December 31, 2022, respectively.

COVID-19 Impact

COVID-19 was declared a global pandemic by the World Health Organization in March 2020 and adversely impacted global commercial activity but served as a catalyst to accelerating the Company’s product pipeline. The Company began selling and recording product revenues for its Cue COVID-19 test in August 2020 after obtaining an EUA from the FDA in June 2020. Currently, the majority of the Company’s product revenues are derived from the Cue COVID-19 test. Given the unpredictable nature of the COVID-19 pandemic, the development and potential size of the COVID-19 diagnostic testing market is highly uncertain.

The FDA issued various EUAs and approvals for COVID-19 vaccines. The widely administered use of an efficacious vaccine or new therapeutic treatment for COVID-19 may reduce the demand for the Cue COVID-19 test and, as a result, the COVID-19 diagnostic testing market may not develop or grow substantially. Given the rapid development of events surrounding the pandemic, there is uncertainty to the Company’s future results and performance.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes to the Company's significant accounting policies from its Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Recent Accounting Pronouncements

In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. The standard provides guidance for estimating credit losses on certain types of financial instruments, including trade receivables, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The Company adopted this standard effective January 1, 2023 under the modified retrospective method whereas comparative period information is not restated. The adoption of this standard did not have a significant impact on the Company’s condensed consolidated financial statements, therefore no cumulative effect or catch up adjustment to the opening balance of retained earnings was recorded.

NOTE 3. REVENUE

Product Revenue

Disaggregation of the product revenue by type of customer for the three months ended March 31, 2023 and 2022, respectively:


	Three Months Ended March 31,
		2023		2022
Private sector customers		$	24,013	$

SEC Form 10-Q filed by Cue Health Inc.