Akili (AKLI) 9 Nov 232023 Q3 Earnings call transcript

Good afternoon, ladies and gentlemen, and welcome to the Akili Interactive Labs Third Quarter 2023 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, November 9, 2023. I'd now like to turn the call over to Caty Reid. Please go ahead.

Thank you, Andrew. to call welcome quarter the and XXXX. of afternoon, Akili's for earnings third Good Reid, of by Vice for Caty Officer, is This President I'm Franklin; Chief on Dr. Matt Akili Marketing joined today's CEO, call Akili's our Medical and Communications and and Santosh Scott our Financial Chief Officer, Kollins; Shanbhag. our earnings today. the market after issued We closed release

recorded with a call. release that we'll slides available the access Relations This can website today's earnings is the Investor shortly make section event. during the today's and of on our You on our replay call being website, will along after reference

involve regarding During financial events, today's results call, risks These upon we'll company's statements expressed certain from make those as the considered of that The uncertainties. plans, forward-looking important may forward-looking the statements reasonable of various implied of assumptions materially factors. and by such actual are the based or future and and prospects a company's any company. forward-looking statements expectations, performance while by differ management result

Factors XXXX SEC. to, QX call obligation those filings as the November that uncertainties our update reflects views subsequent are on or not as provided we're our any and in not differences limited such other set representative forth We XX-Q or today views as date. might statements X, as of risks that with revise filing forward-looking well but today's Information outlook. of as our to Form of include, be only cause disclaim today, explicitly our should any and relied upon any subsequent

be earnings as non-GAAP in in measures our with a reconciliation is results and the the release. not substitute a greater our of to financial financial in historical A included earnings to GAAP financial in we measures slides isolation measures. our during non-GAAP or certain prepared complement the does provide financial considered transparency. to but GAAP as to these of call, non-GAAP today's Also measures presentation accordance intend will refer for Management

If the along with slides, please his the I to hand over turn call Matt Matt? you're for now as remarks. following to Slide X prepared

Caty, you, us Thank thanks and those the on call. joining to

some on in back highlight why what not I the reason a XX QX we in from step touch adults we it's X and affected ADHD. moment with million take I widely of key adults to the do. estimated wanted do Before but the or appreciated, that XX U.S. are accomplishments nearly It's to

childhood was even and challenges. and for of condition, For to growing years, the decades, a with been there adult understand a the public health resources leaving ADHD past a for realizing find that their label ADHD there's not several individual ADHD. awareness or of symptoms was struggling over daily considered adults burden their Thankfully,

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to parts evidence-based is in These adults order And mental Endeavor for the OTC care Like need To same subscription-based address OTC to it attention these best in believe treatment each of gap a treatments. launched time. this behavioral exciting medication, the we high-quality treatment Endeavor core solutions. we Endeavor change. What's about scalable June, sustained underscore treatment mechanisms OTC therapy, drive dysfunction delivers the with struggling as brain nonprescription targets like health critical of ADHD, combines in been the leading who've Endeavor for barriers a OTC of ADHD. the that each in

full on than launch changed quarter that market, fundamentally OTC Endeavor of with more our of trajectory the the business. the clear it's a Now has

that revenues, see can OTC contributing prescription engaging in able XXXX, more a revenues removing in individuals strong we've and with the This increase also ADHD. XXX,XXX about $XXX,XXX transform X, our to just the XXXX. over You downloaded by need business real struggling is on in adults the requirement QX than and By individuals $XXX,XXX confidence that QX Slide is us XXX% Endeavor with been from gives QX was there economics. total clinical directly, of total demand over ADHD

second XXXX expense continuing positive while promotional development improvement quarter negative with have will XXXX activities. our provide into Santosh to improvements, the XXXX. focused in These reductions and allowed restructure the margin a announced gross us September fund a gross moments. gross regulatory detail in cash gross dramatic our margins, XXXX, his our product from during our QX to operating to of gross margins in margins crossing for few extend first with from half expectations update coupled of runway in margins additional QX QX saw on

the that revenue consumers Going from ability and have marketing is need there clinical direct efforts. forward, armed with that the the to real, with confidence is the we demand drive our

profitability. accelerating be XXXX on in Our will focus

optimizing user means to drive this our by continuing mix. First, acquisition costs down marketing

have science retention. The continue data products our and our we'll trial optimize work effectiveness. messaging solid monthly and to Here, free capabilities utilize improve parallel, to and channel In engineering systematically conversion progress, we'll to we've made and identified directly to prioritized audience the updates based teams and a improve treatment Endeavor user product the on road and regular map to have experience. OTC feedback adult overall of tailor cadence for enhancements of a

in Stating aggressively consumer even more cash we enable focusing future. more us profitable our our cleanly, which XXXX, to revenue we'll on be optimize will conserving in balance spend while growth the on funnel,

over provide regulatory our detail activities. Now Scott I'll hand it more to to on

Thanks, Matt.

our FDA XXX(k) application FDA May, on continued for work As and our ADHD, for you clearance can pediatric to age expansion. execute see our prescription ultimate strategy previously we're we that adolescent this to EndeavorRx, seeking expansion the submitted with Slide we in have we for X, regulatory label to the reported. on product continuing In

on to City. our the present the Academy were indication, at For adult was the FDA Endeavor submitted application OTC, findings submission study time review annual New received American this month Adolescent of XX. also we is our OTC by first for and of in FDA York meeting undergoing currently for We submission adult Psychiatry The FDA. and excited last XXX(k) our October to by Child

expected be XXXX. Medical phase by conference results of end phase randomized Shionogi and development includes submit study for the Phase Japan, our follow-up Shionogi The published a in trial collaboration of a a which ADHD in XXXX. the also the of Japan. plans pediatric summary pediatric in with of both presentation III Progress to complete Japan's product continued Agency proceedings. the in this is approval Devices and regulatory for was longer-term to this to has ADHD with QX for Pharmaceuticals The

Finally, of with a ADHD age. the than made mutual TALi was product decision years terminate our children pediatric to for a X younger agreement development for of

hand for to our financials. an off now it Santosh I'll on update

Thank you, everyone. hello, Scott, and

There of period. in with X,XXX XXXX are quarter. on metrics metrics monitor OTC first As number September, is were our third paying of X in quarter I Endeavor the Slide of subscribers and in active active the paid for on these for which X to the the full or OTC users share billings OTC per to the subscribers, Endeavor each continue quarter had of average call the Endeavor subscription shows revenue plan Endeavor and OTC: of indicated market. user a total the ARPU. performance and we These critical in

third revenue per XXXX, average with in Endeavor user Additionally, paying quarter in million of OTC $XX. an the billings generated about of $X.X

Now ARPU between keep that pay our reflects in mind a of customers blend subscriptions. monthly annual what and

adult the revenue take growth our more market. by a let's perspective, we on #X. quarter associated at quarter, was total the revenues in OTC the Endeavor was XXXX. revenues Xx second primarily a third quarter From $XXX,XXX in in with recognized recognized of revenues than total financials Now the within which Slide This driven third look ADHD

in helpful economic Total subscriptions with the to a growth the XXXX third believe second contribution of that $XXX,XXX billings, driven the were compared measure the was we Endeavor financial billings again, provides $XXX,XXX OTC. primarily quarter in associated regarding the the of Once non-GAAP quarter. in information by period

of were margins for lower XX% enabled The to the margin company. quarter XX% compared third the the has the prior of in cost change Gross in inherently margins. XXXX a gross that distribution Endeavor us has negative launch profile Next, of quarter. to OTC gross

fluctuate We expect upcoming over to margins the quarters. gross

pediatric prescription as to of we the nonprescription margins dispensing example, prescription benefit a for from transitioning the may a with population. to a implementation model gross in-house For see our as well

hand, fees certain to gross app On fees we the OTC an to transition likely meet store we XX% will from app margins paying on Endeavor when other paying impact when sales see thresholds. XX% revenue we store

margins XXXX. XX% and we between XX% by expect gross of be However, the to end

severance total and expenses. the acquisition $XX an savings prior non-GAAP OTC increase in expenses slide September. from headcount million reduction increase in operating to about restructuring on third that the million spend, expenses of We quarter announced operating associated the see you incurred was The with to the expenses. to offset the on expenses quarter. supporting customer of total are Endeavor Note we marketing total $XX of costs the related Moving primarily by non-GAAP compared excluded partially in the in driven by operating GAAP was approximately and

non-GAAP to this approximately the net for non-GAAP approximately the GAAP least, last million million a not approximately we in $XX reconciliation slide compared ended appendix $XX loss million was million of of $XX from investments. to quarter year. cash net in loss in compared this the was to the quarter net our is of and GAAP A loss about standpoint, $XX net a GAAP of cash, quarter loss with presentation. available second the Non-GAAP year. short-term capital of equivalents the quarter quarter third but second And in $XX third of million about

total perspective, quarter from billings as the the that the OTC shows financials we from third total believe for us Endeavor changed perspective. trajectory margins summary, revenue as business gross well In a a has

to please on X guidance. Slide Now turn financial

reaffirming had as are We the operating into projected we XXXX well non-GAAP cash and our guidance around margins the as expenses and runway previously half gross XXXX. of second total XXXX provided

forward, unit economics lowering improving Matt costs, Moving our mentioned XXXX, before in revenue we as will earlier, or growth. customer acquisition be and in on CAC, focus invest

before Matt prepared to wrap This that, drive will and CAC open to questions. With improving marketing then it increase retention I'll up in our to and revenues. to we hand remarks it mean up Matt? investments back

our with changer has the I'll to To revenue to who treatment we're Santosh. adoption that help work Again, been it shift the for satisfied. QX. that, that awareness with the strong optimize trajectory the great Akili directly and strategic game made us to With by We'll our questions. how take operator in progress evidenced model clear you, we and hand sum progress, experience products. we're users accelerated drive reported improve consumer it pleased from a and to back up, systematically demand the and continue we benefit it's not adults, while to a as Thank for nonprescription we've

Thank you. sir. comes go question Your Purohit Please [Operator Morgan from from Instructions] ahead, first Stanley. Vikram

to the So we data to to you need convert set the -- of the use, need have question OTC FDA? pediatric do to what is kind EndeavorRx prepare for to in provide order

Thank the you for question.

in define data might what the that about the working as are and XXXX. to process exist we with more the FDA process, midst unfolds that So collaboratively of we'll requirements in know

from comes Cowen. TD question from Your next Rhyee Charles

Can me? you hear

we can. Yes,

like you're are effective main Great. it right customers? And wanted now? Okay. acquiring it that just most through using how what channels little you ask finding effective? I are about what bit What a the is you're Is And simple is to just pursuing, so finding of far? Maybe on certain what pursuing through social media? bit through main you most are of a the channels types moment? patient give forums it at a little that or you're the sense

on a Matt. primary to other marketing. Appreciate with focus Yes. Not consumer focus, Charles, for similar digital question. surprisingly today companies Thanks is this is health the our it. direct

So use of many emphasizing and we search Instagram other through platforms. that marketing today, and common the then platforms similar

In started own our content. addition to we have build organic to that,

So through the blog those impacted goal to internally live around helping dialogue to is are there drive adult who more to posts, ADHD more contributing traffic treatments successfully, website. and controlled the our

us as think to over continue focus really campaigns on time. channels each of capabilities But to each improvement these of additional optimize science as data go. our of indicated, we really you'll and see So channels I of is a effectiveness and to add methodical utilizing background analyze the we our these

really key is focus So today. and us for it's and test the learn optimize

to curious it's of what of of new Adderall, any, they're stimulant, these on currently like on. you regarding guess, some couple treatment questions. subscribers, great. of of bringing treatments currently. are this That's a when taking lot a And whether Are new onboarding these kind they're or patients see treatment, information case, not any are I already kind And capturing if patients they if in a type you're on --

Yes. question. Good

about initial of for adult clinical detailed do they're give questions here? So this registry. There's or we want to treatment information appropriate that capture But to experience, bit demographics. Scott, not we onboarding treatment. capture little history. offer ask We from we you an ensure an do that we some do offer a detail do what do qualifying

Yes.

product we gather our we've a that the for adult OTC don't just itself, registry, in couple launched gotten has but have pediatric which the Matt weeks than XXX have we registry like more information, of said, participants. actually, in as we approval So with now last and product, the enrolled just product

are up and so for can that information, that, interested, users provide outcomes over then sign for the we on And them gather can there they additional plan time.

quick X And more questions. Okay. just then

a have First, active you think subs. said I X,XXX you little over

think downloads sort of the was what difference more first is I conversion. time XXX,XXX like in and

just wanted quarter previous to or the kind From of clarify.

a Yes. It more have downloads. you first-time seems like lot

hurdles there subscribe do the someone to drop fully where you're see and Just product. trying follow not to people your when Or are through? see to off to you like in -- getting seeing any funnel,

I Yes, understand.

of stages to healthy. mentioned, you top the of We and of process. the fitness It's actually a haven't good conversion, initial provided detailed space. funnel, the download sort paid is compared all quite the Overall, breakdown of the as in benchmarks subscription from health sort to in the

early So stages. the again, pleased very we're given

moments we For trial us, a offer X-day free steps, key we the key the focus as do we period. on that download,

to paid that experience making subscription. experience optimizing that, So trial sure download that trial that first then and results in free

those conversion. on So key the moments kind focused are that overall of we're that improving the

and, Okay. margin? sort R&D, versus And SG&A next OpEx then about between think guess, last I for about maybe year If that we reduction expected one Santosh. this how think should we of year, mix the gross

great a Charles. that's question, Yes,

the as incurred in part sales with XXXX, access. market large well as of included a the force expenses costs remember, operating our So

reduction the operating our that will this quarter, should those to marketing that. go compared in you were this expenses. with not exist so next costs earlier continue year, up we So expect announced to do anticipate to earlier we where year's But we expenses

not -- have the clinical any than per about. the Scott imagine, next side, that On trials year other se as R&D clinical will will not trials talked we can you more registry

are level, cost understanding invest key a in say efficient. the lot get the year. a that operating much of be investments and customer I expenses part a would and more make At better help will us development, acquisition product We will really to our product next higher a

on focus economics, So next be where will that's investments our the will year be. unit and our

question next Your Rahul Capital. comes from Rakhit LifeSci from

trends since ask but X any around of I you pricing kind to full months subscription. -- of just for opting this there's early users on any wanted versus kind before, versus last And if additional been was I X if year wondering month the learnings strategy. asked I if

Thanks, Matt. Yes. Rahul, it's

perspective, optimizing. So continue lines of we from that the along

offer shifts from month. we in mix fairly remained several annual months. subscription annual per the haven't and continue subscription The a remained experiment. monthly at do That's significant quarter, previous around between of $XX $XXX, and monthly has consistent There We to been also that last stable.

settling well. a that's state So as there of steady into sort

We in for economics continue the will to over and different propositions experiment value user focus time. year. a next offer just of our to And segments it's different part of core unit kind

it. Got

And you to Okay. broadly, can understand potential for wondering, or later. just Shionogi just as well us through if milestone was be Shionogi that Is going to would to milestone mentioned submit this just even help is a that helpful. I trigger payment partnership be PMDA payments you going looking

The of the the outcome is Yes. Shionogi NDA. milestone submission, by the more by the but review triggered by not

So gets that's the milestone where triggered, Rahul.

do you have process that long how PMDA Got it. And submission an last? typically review idea

be mean reasonable would wild a a process. it's have They guess. do It a regulatory body. I

similar I say dates they the there see to that unfortunately. I think -- U.S. it's you but would what towards it's march would no or milestones specific are in

submitted, Understood. ending, Appreciate clarify Endeavor the but know wanted next about patients? or or adult COVID-XX more think, that you're before able me. How mandate talked that OTC to X just the to providing that with XXX(k) this to I And more. that. does from week form work? X now in with we I the emergency still you I really guys continue

Yes.

out FDA requirements. of sort guidance the discretion the per that we've transition that issued the enforcement So the around met of

something hear back our X. deadline, are was it until to November we review, under which the So from to XXX(k) able before And we is we while market submitted continue them.

of was recommended XX minutes the comment last you call, retention. full then as that one if play just appreciate of the could Really percentage it. as And those for this for monthly metrics I was it. on well me quarter of mentioned the those, on the kind last subscribers the well. you I kind wondering know Got as

and to also time. in Yes. strong again, in line Those Clearly, opportunity healthy, healthy. And benchmarks. that improvement with line will yes, presented remains continue with be time. that remain for But it last over we those comparable an

question Rhyee from Charles Next TD from Instructions] Cowen. [Operator is

terms but sort more Not should how one -- you guess subscribers. short. still on coming of subscription, sort in traction about And is subscribers? do would just I faster outreach, length that a time expectations Obviously, would increase the good of terms in sense, terms a we're secondly, accelerate of sort maybe of seeing we you new have I people pace? your this had think -- of follow-up then X expect board? sort average of probably Or linearly of Is good we questions, to of directional given you think -- long or at in should growing? how a to on of of that it the question.

In I growth growth other think about, next subscriber guess, the words, periods? should how coming revenue and we over

Yes.

revenue So Santosh of as deemphasizing basis. nor sake focusing we and provided we forecast From have our more to profitability, be for optimizing for the on have on going I've going right, provided for economic perspective, characteristic mentioned, mentioned, that guidance user demand as forward. XXXX a growth on not is focus growth

comments as setting So as towards be. I'll again how expectations for point growth rapid will far those

operating next Santosh expectations also for on year. provided expense guidance our

really, renewal From there. honestly, retention you perspective, and early. help potentially could that So too the

come for a up just months. have more and renewals. Every single more We users few month,

But quarters able of us really couple or gathering detailed going hopefully that around metrics helpful future, be more our are data. in any share forward. would expectations kind learning that. and still Clearly, we could us belt something and under we let that bear we get here, So provide with of is to a the before be

time. proceed are [Operator remarks. no with Instructions] at further There this questions any closing Please

think great. call very you on look I your seeing time quarter. that's next Thank forward and much for the to

gentlemen, ask for lines. We you that and please your you and Ladies disconnect your for conference call this thank today. concludes participating