Precipio Inc (PRPO) 2002 Q1 法說會逐字稿

Good day. All sites on the conferencing line. Like to turn the call over to Mr. Murphy.

Thank you. Like to welcome all participants to our first quarter conference call. And also, to any listening on the web cast.

My name's Mitch Murphy, Vice President, Secretary and Treasurer for Transgenomic. Hopefully everyone had what chance to look over first quarter numbers and other information in the press release issued earlier today.

In call is archived and available via telephone and internet. Please refer to the press release from January 23, or you can go to our web site at Transgenomic.com, for details.

Take a few moments here to handle necessary legal issues with forward-looking statements given in the call and turn it over to CEO Collin D'Silva.

Certain forward-looking statements may be made during this call to reflect management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. Such statements are subject to certain risk factors. And uncertainties described from time to time in Transgenomic's reports to the securities and exchange commission.

Any change in such factors, risks and uncertainties may cause the actual results and performance to differ materially from those referred to in such statements.

Accordingly, the company claims protection of the safe harbor for forward-looking statements contained in the private securities and litigation reform act of 1995, with respect to all such statements.

With that, I'll turn the call over to Collin.

Thanks, Mitch.And it was contributed strongly to demand for the weigh system in this quarter. However, this did not materialize.

By building finished goods inventory and continuing our process improvement. In addition, we have recently committed to the purchase of a new 45,000 square foot building in Glasgow that we anticipate to continue and contribute to our capacity expansion in Q4 of this year.

For example, in the market for genetic outbase expected to grow if the current level of several hundred million dollars to several billion dollars in the next ten years. In the theraputics arena, the pending emergence from clinical trials of new molecules should be the start of a large pipeline of nucleic based therapies coming to market in the next few years.

In the instrument business, we plan to launch two new models of our new WAVE M. D. System this year. They'll provide capabilities to enter new applications with the M.D. Platform.

With that, I'd like to turn it over to Greg now to discuss the financials and details for the quarter. Greg?

Thanks. Good afternoon, everyone. Our

revenues for the quarter ended up about $9.8 million,

and this was an increase of 24% compared to our first quarter last year, but again, it was about 1 1/2 million less than what we were initially targeting at the outset of the year.The mix was 50/50 between instrument revenues and consumable revenues each being at 4.9 million dollars for the quarter.It's difficult to pinpoint one particular reason for that weakness in that sector, but generally speaking, we believe that it highly related to the sluggish economy that everybody's experiencing.But rather, we believe purchased decisions postponed or put off indefinitely.

On the positive side, our average selling price for instruments remained healthy. And in fact, steadily increased since a year ago. The average selling price this quarter was about $85,000, compared to about $75,000 a year ago. Part of this relates to our success in selling our newer, high throughput instrument WAVE model HT. We believe on those orders that were awarded during the quarter, we did compete very favorably. We don't think we lost many.That's actually several full percentage points higher than we've seen in the last several quarters of activity.Part of that optimism relates to our newest instrument which Collin referred to earlier. The WAVE M. D. That's ready this month for shipment. We also feel that the availability of next generation of software this month as well is going to add substantial value, and therefore, provide a more compelling solution offering. On the consumable side, exceeded last year's amount, quart over quarter by 3.6 million. That related mainly to acquisition of our nucleic acid business in May of last year. Didn't have it in the first quarter a year ago.

This is actually the first time that we've had a meaningful level of finished goods inventory on that front. I guess the positive side to that is that we'll be able to more quickly respond to increases in demand, and in some cases, just by being able to fill orders more rapidly give us a better shot at winning the business to begin with.

So our outlook for growth in this area is good and pressing forward with expansion efforts again as Collin discussed earlier.Which is actually several percentage points shy of where we would have liked to have gotten to due in part to having to fulfill a sizable supply commitment to one particular customer at prices lower than we like to normally charge. That predates the acquisition of [Anobus].That commitment coming to a close and don't expect to see the impact of that arise much at all going forward.Compared to a year ago, those expenses increased about 2 1/2 million dollars. Due first of all to acquisition last May of [Anobus]. Again, they weren't in the first quarter.

Secondly, increased R&D expenditures, we have been spending more than in the past and thirdly, expansion of operations in general.

Our operating costs down sequentially from the previous quarter, fourth quarter by about $400,000.We have adopted the new accounting standard FAS number 142. That's effective January 1st, whereby we'll no longer amortize goodwill but periodically evaluate the carrying good value of goodwill from an impairment standpoint.

Looking forward, the goal through the remainder of the goal is to hold operating costs fairly steady in an 8.7 to maybe up to the 9.0 million range. Per quarter.

With revenues of expenses there, our loss from operations resulted at 3.6 million dollars for the quarter.But, again, due to the expansion efforts on production operations and our general operations around the globe.

So the net loss for the quarter was 3.4 million versus 1.1 million a year ago.During the quarter, we used a total of 8.7 million dollars of which about 2.7 million of that related to operating loss activities. 3 million related to inventory increases.We had an one-time investment of 1 1/2 million dollars in company called [Gen Oddyssy].Particularly relating to operating levels and inventory levels. As we look forward through the balance of year, we still do expect to fund two additional quarters of operating losses, and we'll continue to invest in our expansion efforts and nucleic acids business.Just a few more comments on some forward looking information for the balance of the year 2002, in light of sluggish first quarter, we do believe it's prudent to take a cautionary stance as it relates to initial growth projections from a quarter ago.

Along this regard, there's several, I guess, note worthy expectations that we're setting. First of all, we do expect to get back to a quarterly sequentially top line growth as Collin mentioned.

Secondly, we're still working toward reaching that profitability stage in our fourth quarter this year. We're targeting a sequentially increase in our second quarter, looking forward. We'd like to see 10% or a little better than that for the second quarter over our first quarter.That would be an increase year over year of better than 30%.

So still a healthy year for us. That concludes my remarks on financial activities. We can open it up for questions now.

At this time, if you would like to register for a question, please press the 1 on your phone. Again, if you would like to register for a question at this time, please press the one on your phone.

And our first question comes from James that really with capital research. Go ahead, please. Q. Thanks.

And if you look at the commercial down tick, it would be from a base of about 22 units in the first quarter '01 down to five. And so, the down tick of 30 units in total is more than half driven by the commercial down tick of about 17 units.

Is that the right way to look at it?Thanks.

That's a -- I guess, a reasonable way to look at it. My -- this is Greg, James. My comment on the commercial percentage, I think I said greater than -- over 25%. I think it's actually higher than that.

I don't have the exact numbers there, but generally speaking, your thinking on that -- your approach is correct. I just didn't give you exact detail to do your math. But, again, most of the short fall was the commercial side.

Average selling price being 85 this quarter, 75 -- you're not far off in terms of quantities.And this quarter we were right around that 50 unit mark.

I think this terms of actual percentage, we were probably 30%, 32% commercial as last year. Maybe a little higher, actually.

We're not sure right now. We have, I know, one large, several unit orders that's pending and still open that we're in negotiations on.

They're off. I haven't had any recent information on it, but as of last week, it was still pending. Q. And then, just looking at the distinction between consumables for the WAVE and the sna business, can you talk about your expectations for those businesses independently? I. E., were WAVE consumers below plan and kind of what's the run rate if you used the first quarter '02 as a guide?

Is it below where it was last year and kind of what's the number?

It's our tradition chromatography consumables down year over year so you don't see that growth increase in bio con consumables that standard business was still there.

By the way, we like that. We're favoring the WAVE consumables, the other ones will continually drift downward.

We're actually seeing definite increases in the WAVE related bio consumables as they go forward, we've gone to a new configuration of our WAVE consumables. Previously, offered a basically non-diluted, a concentrated version of the buffers. We offer a set of buffers.Actually, we're adding capacity as we speak to support that increase in the WAVE consumables.

And, this coming quarter, Q2, even though we're Q1, Q3, Q4 going forward, we should see that increasing WAVE related consumables quite well and we're very comfortable with that. Q. And then, just a couple of others -- Collin, talk a little bit maybe about new applications in the boxes this year.

Sure.How do you finance that given where the equity markets are?

Okay. Let me have Greg talk about the plant, first. I'll come back to the new WAVE MD models and the applications. Greg, you want to talk about the plant?

Sure. There's two components there. The building itself and then the equipment. The seller of the building preferred to actually sell the building versus lease it. We wanted to lease it but they didn't want to be in the leasing business so they gave us a pretty good financial offer to actually buy it.

So we're heading down that path of buying the building. We'll finance the majority of that through pretty good mortgage financing over there in the U.K., and that's getting close to closure here.

And that first phase, James, should allow us to increase capacity going into next year and the strategic plan to evaluate demand at the end of the year, beginning of next year, and then commit to any additional capacity increases there. Q. Okay. And there are no liens or anything else on other parts of the company in terms of the equipment and or the mortgage financing of the building itself?

Q. Okay. So, with that let me talk a little bit about the WAVE MD models and some of the new applications rolling out. Two primary applications for the commercial industrial space. One is a basically application in the toxicology area. An automated methodology on WAVE instrument. Looking at a new test for toxicity for either chemical compounds or bio molecules.

And, this application allows potential customer to basically run an [essay] On the WAVE with results within a few hours possibly, four to six hours, whereas traditional manual methods that require culture counting in this area is in the three to four days perspective.

So we feel that on a cost basis, from a quantitation basis, from an accuracy basis, the WAVE based [essay] Has a value proposition for this target marketplace.We feel it's a major new application area that will contribute to moving us into the commercial industrial application area this year.

The second major new application is in the area of plasma stability. This is essentially an area that focused on quality assurance, quality control, especially in the bio [pharma] Area. And this includes basically monitoring the fidelity of constructs or vectors that are used to express particular proteins in a production process.

And, this [essay] In the WAVE, again, takes advantage of the sensitivity of the WAVE system for looking at mutations. Genetic variance. We're working with several key bio tech, bio [pharma] Customers right now to validate the methodology and expect to move it into the bio tech, bio [pharma] Sector this summer.

We feel both of those new applications that will utilize the WAVE MD platform will significant for our growth in the commercial industrial marketplace.

In addition, we'll be launching two new versions of the WAVE MD platform later this year which basically will enable us to move into some additional other market areas, other application domains, with using newer detection technology on our WAVE platform.

And these will be launched the latter part of the third quarter, early fourth quarter, for additional application to make. Just for competitive purposes, I don't want to release information on those new domains, but we feel they're new, sizable domains we'll be entering, also.

Q. Thanks.

Our next question comes from Thomas Landtin with rbc capital markets. Go ahead, please. Q. Just a couple quick questions to follow up. One is, if you could talk about some of the delays you had in deliveries, [ISIF] Last quarter and how that's going. And secondly, consumables are typically much higher margin business than what you guys are at right now, and if you could give broader projections as to how long to ramp to a traditional consumables margin and what you think that might be ultimately for you guys.

Let me just take the [ISIF] Comment quickly. Don't really like to discuss individual customers specifically, but currently on track with the deliveries with [ISIF], specifically.

This is Greg. With respect to the consumables margin, we would want -- we do think that we're very capable of getting back over the 50% range in particular. We fell short of that this quarter.

It's hard to say if we'll jump back into that 50 plus range. We won't do it overnight, but again, I think a lot of it's going to come when we finish out of some our phase 1 efforts in Glasgow which is yet this year. Adding the new equipment, we're going to gain quite a bit of efficiency. We don't really need to add the amount of labor and pick up a lot of leverage there.

Where they go? It's hard to say. I don't know if they'll get to that 60% range. We have a natural -- like any company does -- we'll have a natural push on the other direction in terms of price pressures. We've built that into the long-term plan but we still think we can get well into that 50 plus percent range this year, and even higher going into next year depending on what sale prices do us. Q. So longer 60% is a ceiling at least at this point?

Probably. Q. Okay. Fair enough.And it was down significantly in the first quarter. I think you mentioned. And I was wondering if you could just confirm that and give me a sense as to how much that continues to contribute to our instrument revenues.

And, we see that strength across the board.

So, the HT component of Q1 last year was minimal if any and as we expose people to the HT, the HT definitely looks like it's a platform of choice for many of our labs.

May have been a little confusion. Were you referring the 40% of our total revenues or of our instrument revenues? Q. Instrument revenues.

Yeah. May have been a miscommunication.We'll review what we did talk about in that pre-release and clarify to the public if there was a misinformation there. We see strong demand for the HTs since introduced it. Q. Okay great. Thank you.

If you would like to ask a question at this time, please press the 1 on your phone. And we appear to have no further questions.

Okay. Mitch?

Okay. If you don't have any other comments, Collin, I'll just mention one more time that the call is being archived and be available for listening to either over the internet or a dial-in basis. The information is how to do that contained in the January press release or you can also visit the web site, Transgenomic.com for details.

For the benefit of those that joined us after the call in progress, I'll reiterate that certain forward-looking statements may have been made in this call that reflect management's current views and Midwest it mass of industry conditions, company performance and financial results. These statements are subject to certain factors, risks, and uncertainties described from time to time in our reports to the SEC. Any changes in the factors, risks and uncertainties may cause the actual results, events and performance to differ materially from those referred to in such statements. Accordingly, the company claims protection of the safe harbor for forward-looking statements related to all such statements. With that, like to thank all for listening and participating in the call.