Precipio Q3 2023 Earnings Call Transcript

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November 20, 2023

There are 2 speakers on the call.

Operator

Welcome to the Precipio Third Quarter 2023 Shareholder Update Conference Call. All participants will be in listen only mode. Followed by 0. Please note that the conference is being recorded. Statements made during this call contain forward looking statements about our business.

Operator

You should not place undue reliance on forward looking statements as these statements are based upon our current expectations, forecasts and assumptions and are subject to significant risks and uncertainties. These statements may be identified by words such as may, will, should, Could, expect, intend, plan, anticipate, believe, estimate, predict, potential, Forecasts continue or the negative of these terms or other words or terms of similar meaning. Risks and uncertainties that could cause our actual results differ materially from those set forth in any forward looking statements include, but are not limited to, the matters listed Risk Factors in our annual report on Form 10 ks for the year ended December 31, 2022, which is on file with the Securities and Exchange Commission, as well as other risks detailed in our subsequent filings with the Securities and Exchange Commission. These reports are available at www.sec.gov. Statements and information, including forward looking statements, speak only to the date they are provided unless an earlier date is indicated, And we do not undertake any obligation to publicly update any statements or information, including forward looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Operator

Now, let me hand the call over to Ilan Daniele, Precipio's CEO. Please go ahead.

Speaker 1

Thank you and good evening and thank you for joining our Q3 2023 shareholder update call. As this will be the last shareholder call for the year, I'd like to take a few moments to recap the recent quarter's results and even though we still have 6 weeks left to the end of the year to frame this within the context of 2023. Following that, since our next shareholder call will be in April of next year, I'd like to share some thoughts about what we have lined up for 2024 and what you can expect to see. Let's begin with our Q3 results. As you saw in our filings, we grew revenues by almost 30% from the previous quarter and doubled year over year from Q3 of last year.

Speaker 1

This is a very meaningful jump for us in business volume and was driven both by our pathology business as well as our product business. At $4,500,000 per quarter, This puts us on an annualized run rate of $18,000,000 which begins to approach our breakeven point. Additionally, our cash burn dropped to around $1,000,000 in the quarter, down to approximately 40% of the $2,500,000 which was our cash burn in the same quarter of last year. This is an outstanding accomplishment for our company and it's important to emphasize that this was not a fat cutting exercise. Those who know me and our company, you know that we've always been a very lean and frugal company.

Speaker 1

This cash flow reduction was accomplished by a combination Restructuring operational initiatives that saved a lot of money and of course in addition to our revenue growth, we generated positive cash margin generating positive margins and cash. So overall, we had a good quarter and we are continuing to head in the right direction. Now let me put this within the context of 2023. At the start of 2023, we set a very clear goal for the company to reach cash flow breakeven and achieve financial independence. Breaking this down, this will be achieved by leading 3 targets.

Speaker 1

1st is the pathology division reaches breakeven at a run rate of 14,000,000 The second is that the product division reaches a run rate of $8,000,000 and the third is significant reductions in our expenses. The combination of these three targets gets our business to cash flow breakeven. As of Q3, we have achieved 2 of those three targets. Our pathology division has reached that target and is now a cash neutral division. This has significant implications for our future business and I'll come back to that The important part is the most expensive part of our business, our pathology services operation is no longer a cash drain on the company.

Speaker 1

The second target we achieved is a significant reduction in our expenses through the execution of various operational efficiencies as we've discussed. One example we've mentioned in the past is bringing our billing function in house versus using an outside billing service. Depending on the revenue level and case mix, This billing and collections initiative and subsequent reduction in billing expenses yield savings of about between $50,000 to $75,000 in cash every month. This is just one initiative of many, which in combination have enabled us to significantly flash our cash burn. Since many of these are tied to revenues, The impact will continue to improve as we grow our business.

Speaker 1

While our product division has not yet reached its targets as of Q3, The combination of achieving the 2 other targets has effectively reduced the company breakeven threshold for product division from $8,000,000 to $6,000,000 or $1,500,000 per quarter. With our current pipeline, we are well on our way to reaching that target. Perhaps the most important part of the equation is that we believe we have enough cash to get us to the target, whether and whether it takes 1 or 2 more quarters to get there, We have the gas in the tank to reach our goal of financial independence. Reaching financial independence and beginning to generate cash will be an exciting milestone from my We are well within reach of achieving that target. So what does that mean for the company?

Speaker 1

Let's review a few things. First of all, by reaching the exciting milestone of breakeven, it doesn't mean we change our mindset from the Fulda way in which we operate our business. One of the things I'm proud of proud about is that management and indeed the entire team treats every dollar as if it's coming out of their own pocket. That mindset has enabled us to look at our operations closely and find ways to operate in a more cash efficient manner generating the same and even better results Now let's talk about a few other impacts. First of all, having a pathology vision that is breakeven essentially means we have achieved a significant component of our business model, which is to create a cost free R and D center.

Speaker 1

As you know, the company's strategy is to develop and sell diagnostic products that make labs better. In our industry, Developing a product for laboratories typically means an expensive process of coming up with a product, finding a fully operational lab, which has all the equipment and staffing to test it, which is itself is quite expensive. Perhaps the most challenging and most expensive element is to find patient samples upon which the company can test their process. If you look at our competitors, you will find R and D cost in the tens of $1,000,000 to develop their products. Our incremental cost is minimal Because we have a revenue generating, now cash neutral laboratory with all the equipment, staffing and patient samples coming in every day, which Once we're done with the clinical work, we can utilize for our product development needs.

Speaker 1

Essentially, we've developed a business model where our cost to develop a product In August, we announced the release of our new breakthrough BSR ABL assay. The development cost for this assay was less than $100,000 To the best of our knowledge, there is no other company that has developed this kind of model. And what it means is that in a relatively low budget and with tremendous flexibility, We can develop future products without a significant need of capital. Think of what this does for the potential ROI of the business Well, we can launch such a product like BCRDL with revenue potential as high as $40,000,000 a year and with an incremental product development cost of less than $100,000 We like that business model. 2nd, this allows us to make small investments In sales and marketing of our products, right now we've relied on a combination of a direct sales effort in addition to the distributors we work with Thermo Fisher and McKesson.

Speaker 1

We believe that with minor marketing efforts costing less than $100,000 for the entire year, we can significantly boost product awareness and generate additional product sales for our product. Up until now, we've been very limited in spending to enable us to reach this milestone of cash flow breakeven. Yet another impact is the ability to invest in our product production line. We currently control the entire supply chain and manufacturing to ensure product availability and its quality. By purchasing various pieces of equipment over time, we can reduce our manufacturing cost and increasing margin, Generating a positive ROI from those equipment purchases within less than 12 months.

Speaker 1

Having the volume to do that The financial stability of the cash generating business changes the decision making process for such purchases and subsequently improves our business economics. These are just a few of the impacts we will see once the company reaches cash flow breakeven. This is of course very exciting for our company in particular To reach this point at such low revenue numbers. With the total available market potential for some of our products, For example, Dreamstream at approximately $400,000,000 a year, there is tremendous growth potential. Just imagine what this business looks like when we capture 10% of Now let's turn to a few things we have planned for 2024.

Speaker 1

Number 1, 1st and foremost, we are setting in place the infrastructure so that when we reach cash flow positive, we stay there. We've always maintained clear visibility and transparency within the entire organization as it relates to cash management and we intend to keep it that way to ensure The numbers continue to trend in the right direction. Number 2, product growth. We're working on several strategies and partnerships It will significantly accelerate the growth of our product revenues. Those will include various business development and collaboration issues that will get us directly in front of the right and large customers.

Speaker 1

More on that to come in the future. Number 3, R and D development. In 2023, our R and D team's marching orders were to remain fully focused on HeatScreen and leave the other product on the back burner. This was done in order to focus on the full development of the HeatScreen product line as well as to provide the proper support to our customers. Going into 2024, We're going to unleash our R and D team to begin developing some of the new products that have been parked while we got DeepStream up and running.

Speaker 1

Keep in mind, our vision was never to be a one product company, but rather to build out a suite of products we can sell to the same customers. Next year, we will see the start of executing of that component of our vision. And lastly, I think next year we get to tell the story to the public market. The questions about our company's ability to execute, Reach cash flow positive and grow the product business will have largely been addressed. But the public markets don't really know us And it's time they did.

Speaker 1

So I myself am going to be spending significantly more time attending conferences and meeting with investors to share our story. We also plan to develop social media and digital marketing campaigns to get the story out. These are things that require relatively minimal resources and with the right messaging, Getting to the right audience, I think we can get many more ears to hear the story and many more eyes on the stock. I believe that the combination Our story of continued financial success and growth and the expansion of the audience that hears the story will create a multiplying impact for our shareholders. I'm really excited to see and share with you the results of the year end and especially for next year as we turn the corner on delivering on Precipio's vision.

Speaker 1

I want to thank you for attending the call today, and I wish you and your families a happy Thanksgiving and a happy holiday season at the year end. And look forward to connecting with you again in 2024. Thank you and have a nice evening.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Precipio Q3 2023
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