Precipio Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 17, 2023

There are 2 speakers on the call.

Operator

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

Operator

These statements may be identified by words such as may, Will, should, could, expect, intend, plan, anticipate, believe, estimate, predict, potential, forecast, continue or the negative of these terms or other words or terms of similar meaning. Risks and uncertainties that could cause our actual results to differ materially from those set forth in any forward looking statements include, but are not limited to, The matters listed under Risk Factors in our annual report on Form 10 ks for the year ended December 30, 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. Now, let me hand the call over to Ilan Daniele, Precipio's CEO.

Operator

Please go ahead.

Speaker 1

Thank you and good afternoon and thanks for joining our Q2 2023 shareholder update call. Now that you've had a chance to review our quarterly results as well as see our recent press releases on revenues, growth and our cost savings initiatives, I'd like to provide a bit more Color as to where we stand mid year and some of the initiatives we are working towards. Our main goal for 2023 is to reach breakeven and financial independence. That means we will no longer need to raise capital to cover cash burn. We won't need vehicles such as the ATM.

Speaker 1

We can eliminate all the structures that create an overhang on the stock. We are fully aware of the fact that the biggest weight on our share price is the risk of the company needing to raise more capital, creating further dilution to shareholders. That's why management is laser focused on 2 things and 2 things only revenue growth and cash burn reduction. So today, I'd like to spend some time on both of those aspects to give you a bit more of a flavor beyond the recent reports and press releases. Let's start with revenue growth.

Speaker 1

As you know, we have 2 revenue generating divisions, our Pathology Services division and our Products division. For For the Pathology Services division, let's start with the goals, which are very simple. Given our case mix, average revenue per unit and gross margin, the breakeven point for the division is approximately $14,000,000 annual run rate. This translates into $3,500,000 per quarter or a little under $1,200,000 per month. In Q3, we did $2,700,000 in revenues or 77% of that goal.

Speaker 1

However, in July, For the first time in the company's history, we exceeded $1,000,000 and we are at about 85% of the goal and about $150,000 shy of where we need to get My point is, we're very much trending in the right direction. And with the addition of new customers as well as being the NGSS in house, We expect to continue on our path towards reaching that goal. Without providing guidance, my sense is that by the end of the year, we have pretty good chance achieving that goal and reaching breakeven for the pathology division. Moving to the Products division. Here as well, we see continued growth on all fronts.

Speaker 1

For the product division, the goal is to reach an $8,000,000 annual run rate, which equals $2,000,000 per quarter, bringing the entire company to breakeven. We ended the quarter a little under $900,000 which is approximately 45% of the target. However, in contrast to the steady and gradual growth on the pathology side, On the product side revenues increase in a step manner, customer we add and the bigger the customer, the greater the step. So let's look at our growth and what we see going forward. We continue to achieve 3 things that move us closer to that goal.

Speaker 1

First, we continue to add new customers to grow our customer base. The revenue stream is predictable because it's driven by the customer's ongoing case volume, which is relatively constant. So each customer creates an annuity revenue stream that adds to the building blocks of our revenue. 2nd, we continue to see adoption of additional This adds to those building blocks and increases the revenue per customer and these panels also create a constant ongoing and predictable revenue stream. I'd like to point out that this predictability is incredibly important not just to the revenue projections and forecasted.

Speaker 1

From an operational perspective, as we scale up the business, this creates significant efficiencies in terms of purchasing raw materials, production runs and inventory costs etcetera, all elements which drive better gross margin for the business. 3rd is our pipeline. As we continue to work with our key distributors, we continue to open doors to new customers and with that our pipeline grows. As we've said today, we're looking at a pipeline of over $10,000,000 in annual revenue and we expect that the pipeline will continue to grow as we add more opportunities. If we close 40% of today's pipeline, we are there.

Speaker 1

Another thing I'd like to discuss is the broadening of our HemeScreen offering. We recently announced our new BCR ABL panel, which I believe will be a game changer in the market. It is by far a superior product to all other competing products And already we're seeing customers who are looking at switching from their current assays to ours. Since we only launched this product recently, it's not yet factored into our customer base additions nor to our pipeline, but I believe it will give a substantial boost to our revenues as well as customer penetration because it really completes our product offering and provides a very attractive solution to laboratories running these tests. We're very excited to see the impact of this new product.

Speaker 1

I know we haven't said much about IV Solvies. This is because we're focused on our high volume, high margin product TeamScreen. Therefore, we've allocated very little sales and marketing resources to IV Cell. Nonetheless, we have several IVCEL customers in the pipeline who reached out to us and are in various stages of production evaluation validation and onboarding. I do think that next year, once we've achieved our financial goals, we will be able to divert more attention to this product.

Speaker 1

Someone asked if we lost faith in this technology. Quite the contrary. It's a matter of priorities of identifying which product gets us to the financial independence we're striving towards this year. Big picture strategy for the company. Although HeatScreen has a total available market of approximately $500,000,000 per year and IV Cell As a town of $250,000,000 this is only these are only 2 product lines and you don't get to become a $1,000,000,000 company with a couple of product lines.

Speaker 1

This year is all about achieving cash flow breakeven and financial independence. We first want to eliminate our needs to access capital markets as a source of covering cash burn. As known to reach that goal, our sales and marketing and R and D teams are solely focused on HemeScreen, which is our golden goose. Having said that, in 2024, we plan to turn our attention to focusing on new product development and the expansion of our technologies And as the Heapsy product suite reaches its goal from a portfolio perspective, the R and D team can turn their attention to developing these other technologies. This will create product revenue diversity and reducing the company's risk reliance on one technology platform, expanding our reach into new areas.

Speaker 1

Next, let's discuss our cost cutting metrics. First, I want to be clear, this is not an exercise in cutting out the fact simply because there's very little to our company. We've just always operated in a very lean manner. This initiative is about identifying better ways to run the business in a more cost effective manner. Initiatives like the billing transition have already taken effect and we are projecting a positive net impact of over $40,000,000 in cash annually.

Speaker 1

Restructuring our pathologist operations will accomplish a similar number. Other operational initiatives involve better inventory management, workflow efficiencies And changes in how we do business, all aimed at reducing cash spend are being put into place as we continue to see the impact. Our monthly cash burn continues to drop and that is the key number we're looking at. When it passes the 0 mark, this will be a very different company. In 12 years since the company was founded, I think that will be the happiest news announcement we get to make.

Speaker 1

Finally, let's talk about the share price. Nobody is more frustrated than I in seeing the stagnation of the share price. But like most complex situations there are multiple drivers to this. Our analysis tells us the main reason is the potential overhang of the concern that the company will have to raise more capital. This is in our notion the key driver of any shorting and other price pressure mechanisms in the market.

Speaker 1

As we continue to deliver results and the market realizes that with our Cash position and our roadmap to breakeven, we will not need to go back to the market to raise additional capital for cash burn. At that point, we believe the downward pressure will subside. Now I'm not going to sit here and give excuses of the tough market and the global economy. At the end of the day, our company needs to reach financial independence. The good news is our model shows us that if we continue to execute along the path we're on, we're going to get to that with no additional capital.

Speaker 1

As for the elephant in the room, the reverse split, we're all prepared for we are prepared for all scenarios, which obviously includes effectuating reverse split. I know there's a lot of negative connotations around doing the reverse split, but allow me to remind you of a few factors. Number 1, reverse split is merely an exchange $10, one bills for $110 bill. There is no impact on the value of anyone's hold. When a company decides to perform a reverse split, An increase in the share price while decreasing the number of shares all without a change in its market value.

Speaker 1

And the same is true for every shareholder, there is no change in the value of your holdings The negative causation typically arises from a reverse split when the company is not performing. This is not the case in particular situation. We are growing on all funds. We are reducing our cash burn and we have a clear pathway to breakeven with the cash we have in the bank. That is a very different scenario from what many companies will undergo a reverse split.

Speaker 1

In addition, a reverse split Put the stock price back into the range where many more investors can look at and consider investing in the stock. As I'm sure you are aware, many brokers and banks have minimums of $1 $2 for them to trade in any stock. Moving the share price back into that range expands the demand, which is why oftentimes companies see a significant pop in their stock price immediately after reverse split. Now obviously, the company has to continue to perform in order to maintain that level and I think we're on the right track to doing just that. Would we like to regain compliance organically?

Speaker 1

Of course, we would. But I also think that at the end of the day as we continue to perform, this is If this is a mathematical transaction, if it happens, not a value changing on the new result and some of the benefits that our shareholders realize. Right now, our focus is on the aspects I've discussed today: increasing revenue, reducing costs, reaching breakeven. When we deliver those, I have no doubt that the market will value us at what this company is really worth. I want to thank you for attending the call today and I look forward to connecting with you again and our next quarterly results.

Speaker 1

Thank you and have a nice day.

Operator

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

Powered by Quartr
Earnings Conference Call
Precipio Q2 2023
00:00 / 00:00