Laura Pierson - Investor Relations Lawrence Mehren - President and Chief Executive Officer Steve Reichling - Chief Financial Officer.

Karen Koski - BTIG Tycho Peterson - JPMorgan Brian Weinstein - William Blair Bill Quirk - Piper Jaffray.

Good day and welcome to the Accelerate Diagnostics First Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Laura Pierson. Please go ahead..

Before we begin, I would like to advise you that the information presented during this conference call may contain forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934.

Forward-looking statements include statements about our future and statements that are not historical facts. These statements may contain expectations regarding revenues, earnings, operations, and other results and may include statements of future performance, plans, and objectives.

Forward-looking statements include statements pertaining to, among other things, the commercial launch and demand for the Accelerate Pheno system and Accelerate PhenoTest BC kit for positive blood cultures, the potential benefits of our Accelerate Pheno system and Accelerate PhenoTest BC kit including Accelerated identification and susceptibility results and estimates of time reduction to results, expectation on placements, sales and product profitability, the potential of our technology generally, our belief that our expanded manufacturing capability will allow us to meet demand, our expectation of our 2017 performance, and our future development plans and gross strategy including with respect to research and development, as well as product expansion.

These statements represent only our belief regarding future events, many of which are inherently uncertain.

You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors.

Information regarding important factors, including specific risk factors that could cause actual results to differ, perhaps materially, from those in our forward-looking statements are contained in reports we file with the SEC. You should read and interpret any forward-looking statements together with the reports we file with the SEC.

I will now turn the conference call over to Mr. Lawrence Mehren, President and CEO of Accelerate.

Larry?.

Thank you, Laura, and good afternoon, everyone. It is great to have you with us for our Q1 2017 conference call. For this call we will kick it off with an update on global commercial progress. I will then hand it over to Steve Reichling, our CFO to review preliminary Q1 financial results.

I will then cover our product development progress and conclude with Q&A. As many of you know, this past quarter was our first with full commercial teams and clearances in both the U.S. and the EU. And whilst still early we believe we have made solid progress on what we expect to be a great launch.

To date we have signed agreements for 191 instruments, of these 169 are evaluation contracts and 22 are placements.

The evaluation contracts allow a customer to evaluate the system with the intent of purchasing it if performance meets expectations, while placements are installed, validated and revenue generating modules whose contracts have converted from evaluations to commercial agreements. Needless to say we couldn’t be more excited.

This early commercial traction has exceeded our expectations and we believe that sets us apart from recent IVD launches in microbiology. To breakdown our commercial progress in greater detail let's begin with the EU.

To date, here our team has delivered evaluation contracts covering 100 instruments and has converted an additional six systems to placements. These six systems were contracted as reagent rentals at attractive prices and are now actively running patient samples in routine clinical practice.

This is a very strong initial funnel, but as discussed on prior calls we believe the conversion cycle will be substantially longer in the EU primarily due to the public procurement process often we pursue as a tender. Regarding tenders another positive development within the quarter was obtaining French UGAP certification.

This difficult to obtain certification recognizes Accelerate as a novel diagnostic technology allowing us to short cut a lengthy public tender process at hospitals throughout France. In addition to this European commercial progress we are now receiving stories of the impact that the Accelerate Pheno system is having in clinical practice.

One such story we found so compelling that we would like to share with you today. As related to us by our client, earlier this quarter a German customer was struggling to treat two newborn twins who were both suffering from bloodstream infections.

Despite being prescribed broad-spectrum antibiotics their conditions continued to decline and one of infants soon deteriorated into a critical condition.

The clinician ordered the Accelerate Pheno blood culture test which quickly identified that the infant's pathogens were resistant to the antibiotic regimen they were initially provided and that the Accelerate Pheno system had identified several alternative antibiotics that would be effective.

The attending physician armed with this information prescribed the indicated antibiotics and according to our customer both babies made an immediate recovery. The physician told that he believed both babies lives were saved by their use of the Accelerate Pheno system.

Of course we couldn’t be more heartened hear about the impact our system is already having on patients.

So now on to North America, to date a little more than a couple of months post FDA clearance we have secured evaluation contracts which we formally refer to as PVPs, covering 69 instruments and converted an additional 16 instruments into placements.

These numbers exclude a large number of early access program study sites and formal clinical study sites which are actively being moved to evaluation contracts. If you recall our evaluation contracts in the U.S. requires a commitment of the lab to complete their verification study to meet cap clear requirements as a part of their evaluation.

Upon satisfactory completion of the study these accounts then proceed onto acquisition placement. This commercial tactic accelerates the path to routine clinical adoption and ensures that accounts are well-qualified for conversion prior to instruments being installed.

Each of the evaluation contracts signed to date covers multiple modules per site and recently several sites nearing the end of their verification study have requested quotes for additional modules. In addition, data from our U.S.

early access program study sites indicate the potential for the Accelerate Pheno system to be significantly impactful to antibiotic prescribing practices and by extension patient outcomes.

Preliminary data from one of these sites presented at the International Symposium for Intensive Care and Emergency Medicine in March showed that for ICU and ER patients with sepsis that the Accelerate Pheno system could potentially reduce time to appropriate antibiotic therapies by 36 hours for those receiving ineffective regimens.

Furthermore this study demonstrated that antibiotic de-escalation could potentially have occurred 41 hours sooner. We intend to publish this as well as other studies in peer-reviewed journals to provide additional tailwind for our global commercial initiatives. In summary, we are quite excited about progress to date.

We believe the number of valuations puts us in a good position to increase placements in the coming quarters. Further we believe the number of placements demonstrates the eagerness of customers to move our product into routine clinical use.

We are now eagerly awaiting data on reagent pull through which we expect will confirm our expectations for the launch although it is too early to tell. As a result of this strong initial global commercial traction we are reiterating our expectation that we will meet full-year consensus for placements, revenue and gross margin.

In regards to future performance reporting as a leading indicator to placements we plan on providing the number of instrument modules contracted for the next three quarters. However, we plan on discontinuing this in 2018 reporting only placements. I will now hand it over to Steve to review our preliminary first quarter 2017 financial performance..

Thank you, Larry and good afternoon. Revenue for the first quarter was $530,000 as compared to $163,000 for the same period from the prior year. This increase was driven by Pheno system capital sales in the U.S. and Pheno consumable sales in the U.S. and in Europe. Cost of goods sold were $26,000 for the quarter and realized a gross margin of 95%.

This gross margin is inflated due to instrument inventory sold in the quarter that had previously been reported to research and development expense. Selling, general and administrative expenses for the quarter were $10.5 million as compared to $7.7 million from the same quarter in the prior year.

This year-over-year increase was driven by personnel related costs in our U.S. and EU sales and marketing organizations. Research and development cost for the quarter were $4.3 million down from $7.7 million from the same quarter in the prior year.

This year-over-year decrease was due to clinical trial and prelaunch inventory costs incurred in the prior year which did not repeat in the current quarter. Our net loss for the first quarter was $14.2 million resulting in a net loss per share of $0.27 on weighted average basic shares outstanding of $51.9 million.

The net loss contained $3.4 million in non-cash stock-based compensation expense. Net cash used for operations in the quarter was $9.3 million and the company ended the quarter with cash investments of $63.9 million. We anticipate filing the 10-Q for the quarter ended 03/31/2017 on May 5. I will now hand it back to Larry..

Thank you, Steve. On the research and development front I wanted to highlight progress we have made on improvements to our positive blood culture test as well as advances we have made on our respiratory program.

Progress and enhancements made during the quarter include work on new AST assays, improvements to existing IV and AST assays and completion of a feasibility assessment on hVISA.

While the enhancements to our current blood culture test kit improvement already differentiated test our work on hVISA presents the potential to provide important clinical information not currently available to any other diagnostic platform.

At last week's [indiscernible] one of our collaborators presented a poster demonstrating the feasibility of using the unique capabilities of the Accelerate Pheno system to analyze clone counts and division rates for detecting hVISA directly from positive blood cultures.

hVISA or heterogeneous vancomycin intermediate staph aureus is a unique phenotype that is associated with higher treatment failure of vancomycin, one of the most widely used broad-spectrum antibiotics.

We believe this early study demonstrates that the Accelerate Pheno system is uniquely capable of addressing challenging issues like hVISA and has the potential to deliver clinically actionable results that are not available to clinicians today. Additionally, we made steady progress on our respiratory test kit.

During the quarter we initiated a multicenter pilot study under a protocol that delivers ID and AST results in approximately 10 hours directly from lower respiratory samples. This compares with routine laboratory workups which take an estimated 60 or more hours to deliver the same information.

For these critically ill patients every hour saved translates to better outcomes and lower cost of treatment. While significant development work remains we continue to be optimistic of achieving a CE Mark for our respiratory kit in 2017 with an FDA clearance in 2018. And with that I will open it up to questions..

[Operator Instructions] Our first question comes from Karen Koski with BTIG. Please go ahead..

Hi guys, can you hear me?.

Yep, hi..

Thanks so much for taking the questions and congrats on the progress. First one from me is just around how we should be thinking about your customer funnel in the U.S.

at this point and I know it is still early days, but when I kind of think of the top of the funnel and the potential customers you've been able to reach and the weeks since you got approval at this point, how far have your reach expanded, how many sites did you talk to, to get to the 69 and 16 conversion number you gave us?.

Yes, so Karen beyond the evaluation contracts we have hundreds of additional prospects and various stages within our funnel. I would tell you that we are increasing our activity and there is significant interest. So we are moving things positively through the funnel and seeing good conversions from the very top into evaluations.

So you can imagine that of the evaluations that we have few of those were part of the PVP program, so many of them have just come to us recently..

Okay that's helpful and then I guess when we think about the numbers you laid out in Europe in terms of instruments and revenue generating units, you have had CE Mark obviously but longer than FDA approval.

What's been the pacing of those placements in Europe? Has – did they accelerate kind of in the back half of last year, have they been kind of steady in the many months or can you just give us more details on what the pacing has been like?.

Yes Karen, so I would say that of the instruments that we have in Europe the majority of those have come at the end of 2016 early 2017 and some of them are relatively recent evals and as mentioned before our early estimates are that time from first customer contact to placement conversion really revenue generation is about 12 to 18 months.

And given that we really didn't have a full team until the summer of 2016 we're on pace to what we would have expected to see..

Okay.

And then in terms of utilization and understanding it is still very early, can you can talk all about how customers intend to use their instruments once they convert or how some of your revenue generating units are being used in terms of specific patient populations is it a 100% of positive blood cultures, are they triaging use in any way or is there any color on utilization that you have so far?.

Yes, so we have not seen significant triaging. We think it's a possibility and where you really are awaiting data on pull-through from the sites that we've converted so far. But of those sites, those sites plan on running the tests on all their positive blood culture samples..

Okay.

And then lastly just on pipeline and specifically the respiratory panel what type of update should we be expecting in the remainder of the year? I know you kind of laid up the timelines for potential approval and launch but in terms of certain data sets and additional color around the menu included and details like that?.

So Karen, I don't have specific timing around when we well will release that, but it will be in the second half of the year..

Okay. Thanks so much and congrats again..

Thank you, Karen..

Our next question comes from Tycho Peterson with JPMorgan. Please go ahead..

Hey, thanks. Larry can you just maybe talk on how you see the evaluation period in the U.S.

as compared to that you have experienced in Europe, do you think it will be a little bit longer or a little bit shorter?.

Yes, so the U.S. will be we believe substantially shorter than that of the EU. We have seen in these first few accounts a valuation period of between 90 and 120 days whereas in the EU we're seeing that extend much longer.

It is not that these evaluations are active, it's just the nature of the process requires them to take a lot more time because of this public procurement process. It's just, it's an extended cycle for them..

And then along those lines the French tender was a nice win and maybe can you just talk on visibility for other tenders, should we expect another tender or two over the course of this year?.

Oh, I would assume Tycho that we should see conversions from the evals happen on a systematic basis. The UGAP approval was quite significant because it allows us to allow us to bypass the tender process for many of the hospitals in France..

Okay and then as we think about U.S.

dynamics presumably almost all reagent rental interest at this point is that a fair assumption or are you seeing actual capital equipment or just…?.

No, our first sales of this quarter were both capital sales in the U.S..

Yes, like we've Tycho mentioned in the past we would expect that a majority of our sales in the U.S. are capital at least in 2017 and our early experience has borne this out. Similarly in Europe by contrast we would expect minority of them to be capital and so far all of our contracts in Europe have been reagent rentals..

Okay and then just lastly on respiratory, I know you talked about the timelines a bit, when can we actually see data on the panel?.

Yes, as mentioned in the second half of the year and likely early on in the second half of the year..

Okay, thank you..

Our next question comes from Brian Weinstein with William Blair. Please go ahead..

Hey guys, thanks for taking the question.

Can you talk a little bit about when you have these evals and they are moving into actually converting is there any minimum commitments to reagents utilization that they make as part of that or is it at that point it's just sort of you have to kind of wait and see?.

Are you talking about do they make it upfront in the evaluation process or after they convert to a commercial contract, Brian?.

I'll take both..

Okay, I mean during the eval process there is no commitment except that they're going to conduct a systematic process that moves them to completely verified and validated and allowing them to run clinically and they do share the cost of the reagents during that process.

When they convert to a commercial contract there are typically minimum associated with that conversion..

Got it and when you say you’re comfortable with kind of the year-end revenue consensus that does that take into consideration the minimums or are you expecting that, are you factoring in something above that in the way you’re thinking of guidance?.

Are you asking are we increasing guidance or…?.

No, no, no you've said that you are comfortable with the revenue numbers that you've talked about before and I'm just curious, embedded in your expectation or your comfort level with guidance, your previous guidance does that imply something above minimal, that minimum contractual utilization numbers in the contracts once they go to fully converted?.

Oh, I see, you’re asking whether there’s a linkage between our comfort and guidance and what we're seeing in these contracts?.

Yes..

I would say Brian, it’s based on our forecast models and what we're seeing in the funnel. So that includes the reagent pull-through that you're referring to as well as capital sales in the U.S. and Europe as it relates to revenue..

Got it.

And then when you’re having these discussions, how important are the economic studies that you guys have done? I know when we did our C-Suite you talked about some studies that showed kind of a $1200 savings, can you just talk a little bit more about that particular study and how important that is when you're having discussions with potential customers?.

Yes I would say that our cost justification model is quite advanced and it is crucial, frankly crucial to every sale as we do restate pricing for many hospital microbiology laboratories.

It's important to demonstrate that there is considerable savings to the overall institution and I can't think of an account that we have moved forward that has not concerned themselves with that and we haven't had to go through that process..

Okay, got it. Last one from me, we reached the cash you have about $64 million today, you burned about $9.3 million in the quarter, Steve can you talk about what your expectations are for cash burn for the rest of the year? Thank you..

Yes, $9.3 million to some degree was to be expected, but some of this is timing. I would expect that you'd see a higher cash burn in the follow-on quarters. As we've mentioned we expect lower R&D costs overall in 2017 to be at least partially offset with increases in marketing and sales spend and the cost of working capital..

And our next question comes from Bill Quirk with Piper Jaffrey. Please go ahead..

Great, thanks and good afternoon everybody.

First question is thinking about rate utilization and obviously very early days, we’ve got some obviously early adopters going live, when do you think you might be able to give that sort of colors, is this kind of end of year 2017 or do you think perhaps some time in 2018?.

Yes Bill, I think we will have a much better sense of the pull-through at the end of 2017 and we'll start to see that in the coming quarters and we're cautiously optimistic..

Okay, got it.

And then we've got a couple of costs that's coming up, clinical virology as well as ASM, is it safe to assume that that like ACMED we will probably have some incremental customer data coming out either in posters or podium talks?.

Yes, at ASM we'll have a significant number of posters, podium talks and we are right now submitting a number of papers to peer-review journals..

Okay and then thinking about the customers have gone live is your sales team has gotten feedback throughout the evaluation process, can you help us just kind of order I guess in terms of importance the following three aspects and if there is a forth that I'm missing here, please feel free to throw it out, but speed, cost and automation, what are they I guess honing in on is the key priority? I assume its speed, but I don’t want to put words in your mouth..

Yes, you mean what obvious what ultimately tips the balance?.

That’s right..

Yes, I mean we have to demonstrate clinical value for sure and speed helps demonstrate that clinical value. It's clear to clinicians that getting the patient on the right antibiotic in the right amount of time can be in some cases curative. So, they're quite excited and I would say that helps drive the sale.

As mentioned earlier, financial value is also important to demonstrate and we do that consistently and typically that's directed at the administration showing them that well we might increase the cost of the laboratory that we significantly decrease the cost to the overall institution.

And I would say lastly, there are a number of customers that do concern themselves with the operational efficiency of our instruments and for some institutions it's fantastic. The typical institution in the U.S.

that has 400 or 500 beds that is running multiple shift our instrument is tailor made for them and for some it's a bit of a challenge candidly. But all in all the system has strong operational benefits being that it is a complete walk away, stay away automated instrument that frankly almost anybody can run..

Got it and then lastly from me of the European revenue generating systems can you help us think about kind of how many of those went live in the quarter versus previous quarters? I'm guessing it was the majority in the first quarter given your comment around the selling cycle, but just trying to get a finer point on that..

Bill, I think they all went live this quarter and most of them just recently..

Perfect, thank you, Larry..

Thank you. Welcome..

And this concludes our question answer session for today. I'd like to turn the conference back over to Lawrence Mehren for any closing remarks..

Yes, in closing a quick word of thanks to our now global network of supporters who helped make this year's ACMED most successful today. These collaborators along with our tremendously hard working employees, our customers and our investors are making it possible to build what we expect to be a great life saving business.

So thank you all and good evening, speak to you soon..

The conference is now concluded. Ladies and gentlemen thank you for attending today's presentation and you may now disconnect..