HLTH (2021 - Q3)

Good day, and thank you for standing by. Welcome to Cue Health's Third Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Caroline Corner. Thank you. Please go ahead. Caroline

Thank you, operator. Welcome to Cue Health's Third Quarter 2021 Earnings Call. Joining me on today's call to discuss our results are Ayub Khattak, Chairman and Chief Executive Officer; and John Gallagher, Chief Financial Officer. Our prepared remarks will be followed by a Q&A session. During this call, we will be making forward-looking statements, including statements related to the expected performance of our business, future financial results and guidance, strategy, long-term growth and overall future prospects as well as the impact of the COVID-19 pandemic. We wish to caution you that such statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those we projected or implied during this call. In particular, those described in our risk factors included in our final prospectus related to our initial public offering dated September 23, 2021, and in our Form 10-Q for the third quarter of 2021 that will be filed following this call. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of the date hereof, and Cue disclaims any obligation to update any forward-looking statements, except as required by law. Our discussions today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results can be found in our earnings release, which was furnished with our Form 8-K today with the SEC and may also be found on our Investor Relations website at investor.cuehealth.com. Finally, a recording of this call will be available on our Investor Relations website shortly after this call has ended. With that, I would like to turn the call over to Ayub for his comments on third quarter business highlights. Ayub?

Thank you, Caroline, and thank you, everyone, for joining us today on our first earnings call as a public company. Cue has had a strong quarter, and we're excited to share some of the recent developments in our business including the upcoming launch of our virtual care offering and direct-to-consumer sales channel. You may have seen that we held our initial public offering on September 24 and now trade on the Nasdaq Exchange under the symbol HLTH. While we've only been public for about 6 weeks, I'm pleased to be able to provide an update on our business today, and John will review our third quarter financial results. Before I take a deeper dive into our recent accomplishments this quarter and the path ahead, I would like to briefly introduce our company and our mission, which is to enable personalized, proactive and informed health care that empowers people to live their healthiest lives. Imagine a world where you can perform a simple diagnostic test at home, get the results in minutes, consult with a doctor from your smartphone and get a prescription ordered right away. That's what we built at Cue. And starting next week, people across the U.S. will be able to do exactly this using the Cue platform. When we founded Cue in 2010, we recognized that the first step in most health care journeys is diagnosis. Despite being the basis for care decisions, the most commonly used diagnostic solutions are inadequate because they're not timely, convenient or digitally connected to care delivery. 10 years after Cue was founded, COVID clearly underscored this issue. Our flagship hardware product is the Cue Health Monitoring System, a tool that changes the way people manage their health by bringing lab quality diagnostics into the home or point-of-care setting. The system consists of an easy-to-use, portable battery-operated Cue Reader, which fits in the palm of your hand, a disposable test cartridge and a sample collection want. The Cue testing workflow is easy to use, even for a lay user and provides digitally connected results directly to the user's smartphone in about 20 minutes. The Cue COVID-19 test FDA authorized both at the point-of-care and for at-home use is our first commercially available diagnostic test products and is a driver of our revenues to date. It has been validated by a Mayo Clinic independent clinical study demonstrating 97.8% agreement between the Cue COVID-19 test and central lab PCR testing. This unique combination of convenience, accuracy, ease of use and digital connectivity of our test product offering has led to rapid adoption, making us the official home and point-of-care test of the NBA, and both Google and Netflix have adopted Cue for their entire U.S. employee bases. While we certainly don't see ourselves as just a COVID testing company, our COVID product has allowed us to validate our technological approach, dramatically scale our production and create an installed base of Cue Readers among a quickly expanding set of customers. The course of COVID has proven very difficult to predict, but our recent experiences indicate that with the rise of variance and breakthrough infections even among fully vaccinated individuals many customers and notably large self-insured enterprises and public entities have shifted from thinking about COVID as an acute crisis to thinking about it as an endemic disease that they must manage for the long term. On the consumer front, we expect that individuals will have an ongoing desire for quick and easy to use COVID self-testing when they have a suspicion of infection, wish to engage in social activity with peace of mind or need to satisfy various testing mandates. And as the prevalence of COVID ebbs and flows, we anticipate ongoing outbreaks both nationally and internationally. Accordingly, we expect demand for our COVID-19 testing products to continue for some time. Our installed base of Cue Readers, driven by our success with COVID testing will be compatible with all planned Cue tests, including respiratory health, women's health, men's health, sexual health, cardiometabolic health and chronic disease management testing. Paired with our durable reader-based infrastructure, we believe our COVID test and future test pipeline addresses the $30 billion diagnostic market, including a $10 billion at-home testing market and a $20 billion point-of-care testing market. But diagnostics is just our starting point. From our founding, we intended to build on our core competency in home and point-of-care diagnostics to offer a comprehensive digital health solution that redefines how people access health care. That's where our Cue Integrated Care Platform comes in. Through the Integrated Care Platform, consumers will be able to consult with the physician via telemedicine, conduct the supervised test compliant with CDC requirements for international travel and order a prescription, all through the Cue Health app. Customer health information is stored in our HIPAA-compliant Cue data and innovation layer and Cue test results can be connected to a doctor, pharmacy or electronic medical record. With the launch of our virtual care platform, which I'll discuss more in a moment, Cue marks its entry into the $120 billion digital health market. Through our integrations with last-mile delivery, we're well positioned to deliver product right when people need it. And as new COVID-19 antivirals enter the market soon, with the requirement of time-sensitive administration, we expect our platform to give consumers the ability to go from testing using the Cue COVID-19 test to sharing results with the doctor immediately within our app to getting the right antiviral treatment, if appropriate, all within the comfort and convenience of their own homes. We're very excited for this big step in realizing our vision of making the health care system more accessible, convenient and timely. With that overview, I'd now like to turn to our third quarter performance and recent highlights. As John will discuss in greater detail, our revenue in the third quarter of 2021 was $223.7 million, up from $64.5 million in Q1 and $137.4 million in Q2. We break our revenue streams into 2 sectors, private sector and public sector. Within the private sector, we have 3 customer categories: enterprise, health care providers and starting next week direct-to-consumer or DTC. Public sector revenues include our $481 million agreement with the Department of Defense and U.S. Health and Human Services, or HHS, as well as revenues from other public sector entities such as state public health departments. During Q3, we saw rapid growth in revenue contributions from the private sector. 58% of our product revenue came from the public sector and 42% from the private sector compared to private sector contribution of 4% in Q1 and 24% in Q2. In the public sector, we continue to deliver against our DoD agreement. We've scaled our manufacturing to an average of over 60,000 test cartridges produced per day, and we'll continue to deliver products through the end of Q4. We're in the midst of ongoing conversations with DoD regarding contract renewals and broader opportunities. The DoD contract has also served as a starting point for direct deals with a number of organizations that originally provided key products as part of the DoD contract, including Colorado Department of Public Health, Geisinger and NASA, among others. In Q3, we nearly tripled our direct customer base, adding over 50 customers, ending Q3 with over 80 customers. This does not include new accounts acquired through distributors nor new end user organization accounts in the public sector acquired through our DoD agreement. While not a metric we will update going forward, we're offering this to frame our growing customer diversification. Moving on, I'm really pleased with the progress made by our R&D team. We're progressing well against our near-term milestones for our menu expansion as laid out in our S-1. To review, our pipeline of tests, all of which integrate into our Cue Reader include COVID 510(k), flu, flu COVID multiplex, RSV, strep, chlamydia, gonorrhea multiplex, herpes, fertility, pregnancy, cholesterol, inflammation, HbA1c and vitamin D. While I know that's a lot of targets, let me update you on some key developments. Starting with our goal of 510(k) clearance for our COVID product, we've completed the clinical study site selection and onboarding and have started enrolling patients in the study to continue enrollment through the first half of '22. For our flu test, we're in the process of clinical study site selection and onboarding, including IRB submissions and contracting, and we anticipate admitting patients into the 510(k) study beginning in December. Notably, funding for the COVID and flu clinical trials is provided by BARDA, the Biomedical Advanced Research and Development Authority, a division of HHS and a long-time partner of Cue. Validation studies for RSV tests are expected to start by Q1 '22. For our flu COVID multiplex test, we have completed chemistry proof of concept, and we are now in late-stage technical development. Test within our sexual health category are on track as well with our chlamydia, gonorrhea multiplex test in late-stage development. So more to come later there, too. We are investing heavily in ramp-up of our R&D operations to get the testing products in our pipeline to market as soon as possible. Moving to a software and services update. Next week, simultaneously with our DTC launch, we are rolling out our integrated virtual care offering. This integration enables us to provide users with the closed health care loop providing a diagnostic results, a virtual physician visit and a prescription ordering all in the Cue Health app. We also launched in-app supervised testing compliant with CDC requirements for international travel. Our software development team has been driving the integration of last-mile delivery applications to enable convenient Cue product delivery to homes. Our integration with DoorDash, for example, will allow for same-day delivery of Cue Readers and tests in many locations. Turning to manufacturing. I'm very proud of the crisp execution of our manufacturing team as we successfully scaled capacity to meet burgeoning demand. Importantly, all of our automated lines built to date are universal, meaning they can produce any test in the Cue pipeline. We recently hired a Chief Operating Officer, David Arida, who joined us from Dexcom, where he managed a worldwide operations organization and set up global manufacturing sites as the business scaled from $60 million in revenue to $2.4 billion in 10 years. We're excited to leverage David's experience as we continue manufacturing expansion. Turning to our commercial team. Based on our experiences to date, we've chosen to build out our internal sales force to tackle larger opportunities like enterprise clients and hospital systems and also work with distributors like Henry Schein and Medline to approach doctors' offices and other fragmented markets. This model has worked well so far as a recent illustration of our direct sales force's progress with hospital systems both Memorial Hermann and Geisinger have entered into contracts in the last few months and we're currently integrating into their EMR systems. We believe sales to our provider customers are doing well so far, yet we are so clearly early in the build-out of our commercial team. So we'll make adjustments as we learn over time. In the enterprise customer category, we are seeing increased interest by large employers looking to provide Cue to their employee bases. We've also expanded our existing enterprise relationships. For example, the NBA is now providing Cue to all 30 NBA teams and the league's referees in this season as well as to the WNBA and NBA's minor league. This adoption is an expansion of the successful pilot program the NBA ran using Cue last season. Similarly, Netflix originally contracted to use Cue in just a few offices as a return to work effort and has now expanded to all offices and recently contracted to provide Cue Readers and cartridges to its U.S.-based employees. We believe we are winning over highly sophisticated enterprise customers, not only because we have a class-leading solution to COVID-19 testing, but also because we offer a compelling and cost-efficient employee health solution for the future. Moving on to the direct-to-consumer customer category again. We are very excited that our DTC sales channel launches next week, enabling new retail consumers and current customers to purchase Cue products directly from our app and website, with same-day delivery of the Cue Health monitoring system and test kit in many major markets. The DTC offering also provides ability to subscribe to Cue+, our new membership program, which bundles access to our connected diagnostic product with 24/7 virtual care and supervised testing for travel. Looking ahead now, I'd like to lay out our key growth drivers to help frame how we are planning to build our business and reach our goals. Our first driver is our focus on commercial execution through building and diversifying our customer base. We nearly tripled our private customer base in Q3. And going forward, we expect our sales force to drive continued customer acquisition in both the private and public sectors. Within the private sector, we're adding new enterprises, distributors and large health care networks as well as investing in the success of our DTC program through our first large-scale marketing and advertising campaign. On the public side, in addition to our continued relationship with HHS, DoD, we are engaging directly with several state health systems, school systems and other government organizations. While our recent focus has been on domestic revenues, our regulatory authorizations in locations like Canada, the EU and India demonstrate the global acceptance of Cue's technology and the trend of global regulators permitting users access to at-home testing. Ex U.S. authorizations open up new customers and also allow us to better service our enterprise customers, many of which have a worldwide footprint of employees. We have already begun product sales into the Canadian professional market and look forward to expansion into other international markets. Our second growth driver is expansion of our testing menu. Our COVID 510(k) trial is underway with our flu clinical trial and RSV validation studies starting soon. I very much look forward to updating you further on these efforts as they progress. Our third growth driver is building the technology enhancements for our Integrated Care Platform. As we proudly launched our virtual care integration, supervised testing for travel and e-prescription capabilities, we are also working towards further enhancements to provide a comprehensive and seamless digital health experience. For example, we're currently working to incorporate same-day prescription delivery, the ability to connect with and send test results directly to one's preferred primary care physicians and the ability to book a virtual care appointment in advance. We will also be improving supervise testing functionality to allow users to schedule employment for the supervise test with 24/7 coverage and minimal wait times. Our recently announced partnership, Google Cloud, underscores our focus on enhancing the analytic capabilities of our data and innovation layer. Through this project, Cue plans to equip public health officials and researchers with critical realtime information about variant types, including their geographic distribution as well as adding predictive capabilities to help identify and curb emerging threats. It is our plan, this will be a useful tool, not only in the fight against COVID-19, but also to mitigate future outbreaks of other infectious diseases such as influenza and RSV, which, as you know, are tests in our pipeline. At the same time that we are enhancing our virtual care model, we're continuing to build our integration with EMR systems at our hospital customers, so that our platform can span the continuum between physical and virtual care. In support of this third growth driver and knowing that progressive development of our software and services offering is key to our continued success, we recently hired our Chief Technology Officer, Alan Gao. Alan brings over 20 years of experience in software development and engineering teams at some of the world's leading technology corporations, include Microsoft, Amazon as well as PillPack, an online pharmacy that offers e-prescriptions, medication sorting and delivery. We are thrilled to have him on board and believe Alan will be instrumental in driving the technical integrations I mentioned. In summary, we are proud of our recent progress, and we are excited by the many opportunities ahead as we work to fulfill our mission of making health care more timely and accessible. We see continued expansion of our customer base, product offerings and software and services on the horizon as we look to become the health care delivery platform for the next era. We are truly just getting started, and I look forward to updating you on our progress on future calls. With that, I'll turn it over to John to walk through our financial results.

Thank you, Ayub, and good afternoon, everyone. In Q3, we had a record quarter with revenues of $223.7 million, up 63% from $137.4 million in the prior quarter. Please note that I'll be providing sequential quarterly comparisons. Our rapid growth this year makes the quarter-on-quarter view most meaningful. As Ayub mentioned, we split our revenue by public sector and private sector. The growth in revenue was driven by both public and private sectors. Public sector revenue accounted for $129.5 million while private sector revenue accounted for $94.2 million. Public sector revenue grew 23% sequentially from Q2 and accounted for 58% of total Q3 revenues. For reference, the public sector was 76% of total Q2 revenue. Private sector revenue grew 191% versus prior quarter and accounted for 42% of total Q3 revenue. As a comparison, private sector revenue was 24% of the total in Q2. Also in the quarter, we sold approximately 56,000 readers. As a reminder, these readers are sold to our customers who then distribute them to the end users. As we initiate new customer contracts, we expect reader sales to fluctuate quarter-to-quarter. Disposable test cartridge sales in the quarter were $179 million, up 74% sequentially over Q2. Moving down the P&L. Product gross margin was 60.2% for the third quarter compared with 59.9% in the prior quarter. The gross margin benefited quarter-on-quarter due to the increase in production. That benefit was partially offset by higher labor and material costs. Despite global supply chain constraints, we've been successful in obtaining necessary components and meeting our customers' expectations for supply of our product. Operating expenses were $47.6 million in the third quarter, up 171% from $17.6 million in the second quarter. R&D expense was $9.1 million in the third quarter, up 98% from $4.6 million in the second quarter. The increase in R&D expense was driven by growth in the R&D organization, namely head count, as we continue to work on menu expansion and prepare for upcoming clinical studies. Sales and marketing expense was $5.6 million in the third quarter, up 264% from $1.5 million in the second quarter. The increase was driven by head count related to the expansion of our commercial and sales team, along with some initial investment related to our upcoming DTC launch. G&A expense was $32.9 million in the third quarter, up 187% from $11.5 million in the second quarter. The increase in expense was related to added head count to manage a growing organization and also includes a onetime equity expense of $12.9 million. As we continue to invest in the business, OpEx most notably sales and marketing and R&D, will accelerate in the amount of spend. Net income for the third quarter was $19.3 million compared to net income of $19.8 million in the second quarter. This translates to an EPS of $0.13 in the third quarter versus $0.14 in the second quarter. Net income reflects a 61% effective tax rate for the quarter. For some color on this rate, IPO-related equity adjustments of $49.2 million are not deductible for tax purposes, driving the tax rate higher in the quarter. Adjusted net income for the quarter was $67.1 million, up from $50.2 million in Q2. This translates to an adjusted EPS of $0.52 in the third quarter versus $0.37 in the second quarter. Q3 was impacted by onetime equity adjustments related to the initial public offering. Moving to the balance sheet. We finished the third quarter with cash and cash equivalents of $446.6 million. This represents an increase from the prior quarter of $200.3 million primarily driven by IPO proceeds of $213.9 million net of commissions to underwriters. This cash positions us with a strong balance sheet and the ability to invest in the business to execute on our strategy and vision. I'd now like to move to our full year 2021 guidance. Based on our expectations and contract pipeline, we expect full year revenues in the range of $580 million to $590 million. With that, I would like to thank you for your attention, and I'll now turn the call over to the operator for questions.

[Operator Instructions]. Your first question comes from the line of David Delahunt with Goldman Sachs.

Congrats on the strong quarter. Great to see the DTC business getting ready to launch soon, certainly a great opportunity for you guys. Could you tell us more about how many customers you're expecting to sign up for membership over the next few quarters in the next year?

Dave, this is John. Yes, thanks on the quarter. I appreciate that. And we -- we're very excited about the DTC launch. As you noted, it's coming next Monday, along simultaneously with the virtual care offering. As we look at customers, look, this is early days for us. We're a pilot for DTC. We're very excited about the prospect here, and it's a great opportunity to make brand awareness for Cue and our product out there, but it's a little early to call how sizable of an impact this will be.

Got it. And on the customer adds, could you tell us what was the mix of enterprise provider and public customers?

So we had across the board actually. So even in the short time since we did the IPO, we've added additional customers there. So we referenced during the prepared remarks, we talked about the add of customers, and that was nearly 3x of where we were previously, and that was up about 50. Even since the time of the IPO, we've added some more key marquee customers across each of those categories, Dave. So for enterprise, we've got enterprise-wide Netflix now as we look at. We also added Major League Baseball. We've got Geisinger. And so that's taking us across the private category. Thanks for the question, Dave.

Your next question comes from the line of Tejas Savant with Morgan Stanley.

This is Neel on for Tejas. So in light of the strong momentum in 3Q, could you quantify what's driving the quarter-over-quarter decline implied by the guide? And what could drive upside till 4Q?

Yes. Yes. Sure, Neel. So as we look at Q4, this is playing out exactly as we had expected. So we had peak orders and shipments for DoD in Q3. And we knew that would be the case. And so as we move into Q4, DoD-related shipments, as we finalize the initial contract with DoD are going to be lower. So that's really the primary driver of the down sequentially that you would see in Q4. What I'd want to note, that being said, we have an installed base now of 30,000 readers across 19 different states, and we're already seeing demand signals coming in directly from some of these states and municipalities. So we feel good about the positioning there. But that's what it's really on the public sector side that you'd see that.

Got it. And how are you thinking about the road map for international expansion? Can you maybe touch on some of the strategies for DTC in Canada and India? And can you kind of quantify what you expect the contribution for Canada to be going forward?

This is Ayub. So as I noted, we have already started sales in the Canadian professional markets. In the third quarter, we also received the authorization for over-the-counter in Canada. And we expect to roll out into the Canadian OTC market very soon. And internationally, in Europe and India, we are working on expanding. We do have a very global product, a very global value proposition. There's a lot of work to do already here in North America. So it is a priority. And I think the notable thing is that worldwide, you're seeing this macro trend of regulators and public health officials and physicians all getting behind this idea of testing at home. And that's really a big tailwind for us, macro for the future.

Got it. Actually, do you mind if I ask one quick one?

Go ahead.

So could you tell us about some of the enterprise users like Google and Netflix and receptivity to using the platform in a broader context beyond COVID?

Yes. We believe that we have a compelling overall solution for health care delivery, and I think they see that. I think they understand the value proposition of having a single health monitoring system to be able to run multiple different types of diagnostic tests that their employees want to see. And that in the net, reduce their costs over time and are able to provide a health care benefit that will make their employees happier, healthier and more productive.

Your next question comes from the line of Charles Rhyee with Cowen.

I just wanted to follow up, John. You said 30,000 readers. Was that 30,000 readers added in the quarter on top of where you were at in 2Q?

No, no. That's -- what I was referencing is the fact that we've shipped and have in place 30,000 readers associated with the DoD, HHS contract in total.

I see. And what is the total number of readers, public and private?

Yes. Yes. What I mentioned was 56,000 readers on the quarter. And so what that does for us right now is we are north of 120,000 readers in total cumulatively.

Great. Okay. That's helpful. And then if I could ask -- congrats on the progress you're making in terms of signing what it sounds like a very diverse and a good slate of clients here. As we think -- not to jump ahead too early here, but as we think about next year, I know you mentioned DoD, you're talking about already for renewals. Maybe an update on the Google contract. I think that comes due shortly. And then just as we think about coverage for next year revenues, can you give us any kind of comments around that?

Yes. Sure, Charles. So as we look at next year, there's 3 key points that I want to lay out there. The first is what we're seeing is the pandemic will shift to endemic over time and what we're all seeing correlated to that is a shift in buying patterns to longer term in nature. And that's with a focus on managing risk, both for organizations and their employees. So that's point number one. Again, all in relation to how do we think about next year 2022. Point number two is, during this year, we've seen peaks and valleys in COVID testing. We've experienced that throughout the year. And despite that, Cue has grown both into the peaks and into valleys. And there's a reason for that, and that's because the market recognizes that we've got a highly differentiated solution. And the third point that I would want to make is just look at the momentum in the business right now. Our 3Q results really speak for themselves. And as we mentioned in the prepared remarks, we said, "We've nearly tripled our private customers in the quarter." Even in the short time since the IPO, we've added Netflix. We've added Major League Baseball. We've added Geisinger in addition to Google, Mayo and the NBA, is a very strong stable of customers so that the customer diversification aspect is growing. And so as you take all these points together, that gives us a lot of confidence as we head into next year.

No, that's really helpful. And if I could just have one last follow-up here. You talked about, obviously, the guide increase and implies 4Q is going up as well. Maybe as it relates to the DoD, I think you mentioned earlier a big part of the revenue this quarter was shipments to the DoD. In terms of tests, how many tests have you delivered to DoD through the end of the third quarter? And maybe kind of any estimate of what you expect for fourth quarter in the public sector.

Yes. Yes. So total tests in cumulatively have been 4.6 million through the quarter. And when you do the math on that, you'll see that what we're looking at, it's 1.4 million then in Q4. And so that's the reason the implied guidance for the quarter is down a bit because we are -- we knew that we'd be peaking in our shipments to DoD. And so as we move into Q4, we're finalizing those shipments on our initial contract.

[Operator Instructions]. Your next question comes from the line of Mark Massaro with BTIG.

Congrats on the IPO and the really terrific start as a public company. My first question is really just seeking a little more intel on the DTC. Obviously, it's a very exciting, huge potential market. Obviously, offering the Cue Reader on your website and on your mobile app would be most helpful, I think, if people knew that they should go to your website. So can you just speak to what types of strategies you have in place? Is it TV? Is it radio? And I would love to hear any comments about your willingness to potentially put the Cue Reader either into an Apple Store or perhaps pursue Amazon.

Thanks, Mark. So to answer your question, yes, we're very excited about it, not only because it's a new sales channel for us, but it's also coincidental with the release of the rest of our virtual health platform with integrated virtual care, supervised testing for travel and a bunch of other things. So as we think about the prospects in this area, you're correct that marketing and sales is a line item that we haven't invested really heavily in the past. And so this will be the mark of our first major advertising and marketing campaign. And so you're looking at a mix of digital, out-of-home and TV in order to execute this campaign.

Okay. That's super helpful. So I understand, so it's going to be a combination of digital and TV, would you be willing to comment on your willingness to pursue Amazon as a strategic partner or perhaps Apple or some other large retailer that's either digital or bricks and mortar?

Yes. So our strategy on the actual fulfillment and distribution aspects to DTC is really oriented around when people want it, they really need it right then. And so that's why we're doing the integration with DoorDash to get the product to people on the same day that they want it, right, in many major markets. If you think about how COVID works and when people have a concern or they want to buy on the consumer side, they really want to know right then. And so the distribution strategy, fulfillment strategy reflects that. And so we wanted all the intelligence that we could get in terms of how to approach the market and learn from it. And we felt like we would have greater visibility to that if we controlled the distribution a little bit more tightly.

Okay. That's helpful. I also wanted to ask about your influenza clinical trial. So I believe you indicated you plan to enroll patients in December. Will that be for stand-alone flu? Or will that be flu/COVID combo? And then related to that, last year was a really bizarre flu season. There was no flu. Is it fair to say that we will need to see flu prevalence for you to enroll and complete enrollment of that trial?

So the flu 510(k) process is kicking off in December with start of enrollment then. We've already done site selection, contracting and so things are expected to begin in December. And that's for flu stand alone. And for COVID 510(k) that -- the clinical studies have already started as well. So we've already started enrolling patients and that's expected to continue through first half '22. The COVID/flu combo is on a different track. So we entered in late-stage technical development here in Q4 just as planned, and that has EUA potential. And so we're looking at that as part of the pathway for that.

Yes. That's super helpful. I guess, I think there was a question earlier about large contract renewals. I guess wanted to just see what your degree of confidence is or if you've heard anything from your 2 largest customers about appetite to continue ordering through 2022, for example. And then the other part of the question is consensus at least heading into this call, look like people were modeling on average, some type of decline in '22 relative to '21. Given your comments that you believe that COVID will be endemic, what are your thoughts about the likelihood that you will grow revenue year-over-year in 2022?

So one of the interesting things from today and it's kind of late-breaking news is that the Biden administration issued an RFP, request for proposal, for molecular testing at the point-of-care. And today, a lot of the buying activity has been on the antigen side. So it's welcome to see that the Biden administration is taking a multimodal approach to testing to help manage this next phase of the pandemic. With regards -- and as we noted in the prepared remarks, we have been having ongoing discussions with respect to future contract renewals. And while I can't -- we can't comment specifically on the details of our existing private customers, we could say that, as we mentioned, we grew significantly the customer base on the private side, and we've been signing deals for -- that take us into '22.

Yes. And Mark, as far as the -- yes, just building on the question around '22 and the consensus there. As I mentioned earlier, we've got a ton of momentum going in the business right now that's going to carry over into Q4, particularly on the customer diversification side. And then what Ayub just mentioned regarding the public sector is certainly interesting news for all of us to take a look at. But -- so we'll give you more on '22, obviously. On the next call, we'll guide '22, but that's probably what we've got for now.

Awesome. Just one last one for me. It's a two-parter. Obviously, you've increased some investment into your growing business. Can you give us a sense for the size of your direct sales force? I mean obviously, you're working with distribution and you're going DTC, but maybe where you are now and where you think it will be a year from now? And then maybe a clarification question. Your installed base is now what appears to be about 123,000 Cue Readers. You indicated that you sold 56,000 readers. How many of the 56,000 are in the field being used if you're aware of that? Because I understand some of those might have been stocking orders to distributors.

It takes time for the readers to get in service. So I think one of the things to recognize is that when we -- we're recognizing that revenue when we ship, and we're talking about those numbers when we ship. And then we ship to our customers who are not ultimately the end users and then they're having to distribute out to the ultimate end users. So I guess that's the way of saying, it can take a little while to get all the way through, Mark.

That being said, the majority of the readers we're seeing are activated or we believe they are. And so at the -- we have tens of thousands of users who are actively using the product and running tests.

And then on your question related to the sales force. Obviously, that's an investment item for us. And as I mentioned in the prepared remarks, we expect OpEx inclusive of sales and marketing to increase because we're investing in the commercial and sales team as well as in the marketing aspects related to DTC. So we've definitely seen traction in ramping up our sales team. And that's something that you're going to see continue into Q4. So the spend that you see in sales and marketing in this quarter will go north of $20 million as we look at Q4.

At this time, that does conclude our question-and-answer session, and this does conclude today's conference call. Thank you for participating. You may now disconnect.