Precipio Inc (PRPO) 2002 Q3 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the Transgenomic Incorporated Third Quarter Earnings conference call. I'd like to now turn the conference over to your speaker today, Mr. Mitch Murphy. Please go ahead sir.

Thank you. I'd like to welcome all participants to our third quarter conference call and also to anybody who may be listening on the Web cast. I'm Mitch Murphy, Vice-President, Secretary and Treasurer of Transgenomic.

Hopefully everyone has had a chance to look over the press release we issued earlier today. This conference call will be archived and accessible via telephone and Internet. You can refer to our press release from October 23rd or go to our Web site at Transgemonic.com for details of how to access that.

I'll take care of some necessary legal issues here regarding forward-looking information that may be given during this call. And then I'll turn it over to Collin D'Silva, our Chief Executive Officer.

Certain forward-looking statements may be made during this call that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. Such statements are subject to certain factors, risks 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, 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 contained in the Private Securities Litigation Reform Act of 1995 with respect to all such statements.

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

d'Silva: Thanks Mitch.

I'd like to make a few opening remarks and then turn it over to Greg Duman to review the financials in more detail, and then we'll come back to a question-and-answer session to answer any questions that may be come up through the session.

As you can see from what we have just released a little while ago, we continue to experience weakness in top-line revenue growth for Q3. Due to the high fixed costs associated with our manufacturing environment, we continue to see negative impact on the bottom line at these revenue levels.

However, as revenue levels recover, we should regain operating leverage in manufacturing operations. We continue to monitor and manage our operating expenses in a manner consistent with our lack of visibility in this weak economic climate. Despite these challenges in the last few quarters, we have continued to execute our strategy to enter into new higher value markets by diversifying our product and service offerings. This process has involved in investing in new facilities as personnel worldwide.

Our strategy of leveraging our three core competencies, mainly separation chemistry, nucleic-acid chemistries and enzymology has really now positioned us to benefit from a diversified revenue stream derived from bioinstrument products, bioconsumables, nucleic-acid building blocks and specialty nucleic-acid products and services.

This really does now position the company for strong revenue growth and achievement of profitability in the nearer term.

I'd like to now talk a little bit about two of our primary product lines and business areas. In terms of our bioinstruments product line, we continue to see strong interest in our new WAVE MD product offering, as well as an increased general interest in large collaborative efforts to perform specific disease-associated genetic variation studies.

These genetic variation studies are meant to look for variations, mutations in specific disease-related genes with worldwide collaborations. Increasingly, these studies are focused on specific populations of true clinical interests, as opposed to just population discovery type snip studies.

We have now also started to see a stronger appreciation of the capabilities of our WAVE technology in this context with respect to its sensitivity and total cost of operations. In addition, we'll be launching several new applications on the WAVE platform, which should drive demand and restore momentum in WAVE sales growth.

In our synthetic nucleic acid business, we continue to invest in personnel and facilities. We anticipate initiation of a cGMP specialty oligonucleotide facility at our new Boulder, Colorado in 2003. We continue to assemble a leading team of scientist with extensive experience in the commercial development and manufacturing of these products.

As such, we're positioning ourselves to be the true premier provider of specialty nucleic acid products and related services for leading pharmaceutical biopharma and diagnostic companies worldwide. We have already begun in depth discussions with several such companies.

In addition, we also believe our WAVE technology platform will help add value to many of these opportunities in our synthetic nucleic-acid business unit.

With that, I'd like to turn it over to Greg to discuss the financial details and then come back for a question-and-answer session.

Afternoon everyone. I'll begin with just a few revenue statistics for the quarter and also year-to-date, and follow that with discussion of the results.

Total revenues again for the quarter were 9.1 million. That compares to 10.3 million last year in the same quarter. It's a decrease of 11 percent. For the year to date total revenues were 28.3 million compared to 27.7 million last year and that's a slight increase of two percent year over year.

In terms of mix, the current quarter revenues of 9.1, included four million in instrument sales and 5.1 million in consumable sales. This compares to a mix of 4.7 million on the instrument side, and 5.6 million on the consumable side last year.

Looking out at year-to-date, the current year revenue mix included 13 million in instrument sales, and 15.3 million in consumables. That compares to a mix of 17.3 million in instruments and 10.4 million in consumables last year.

So on the instrument side, the decline this quarter compared to last year continues to be related to weak economic conditions, particularly in our business on the commercial sector. This also applied to decline in sales on year-to-date basis, that being the economic conditions.

The decline in the instrument revenues for the year-to-date is 24 percent whereas the decline for the third quartet by itself was not that great. It was 17 percent.

Europe continues to be the steady sales region for us, while North America and the Asia-Pacific region continue to be sluggish, but our outlook is better on several fronts. Our sales pipeline is stronger than it has been in both North America and Europe in the past. We don't attribute this to improved economic conditions, but rather to growing interest levels in our new applications and our new WAVE MD instrument, as well as the outlook for our product plans, which we discuss with our customers.

I'll turn to consumables here for a few minutes. For the quarter just ended, consumables revenues did decline eight percent from 5.6 million last year to 5.1 million this year. There's a specific reason for that. We were expecting an increase actually in consumables this quarter, particularly in our S&A product line, nucleic-acid product line that is.

We had a good level of order backlog going into to the quarter, but a sizeable portion of a shipment relating to an order for one particular customer got put on hold at that customer's request. This resulted in a shortfall to our revenue expectation of approximately $800,000 this quarter. It's hard to say when that might replenish, but we're, at this stage, unsure when the balance of that shipment might be completed, waiting for the customer's guidance on that. We did complete the product, by the way.

For the year-to-date, consumables revenues have increased 47 percent from 10.4 million last year to 15.3 million this year, due mainly to the increased production of sales activities of our S&A products, and we expect to see some continued growth in this area of our business.

Our sales pipeline in this regard is active and many new opportunities continue to emerge. In conjunction with this, you might recall that in the previous quarter, we completed the purchase of an additional manufacturing facility in Scotland. Over a period of three to four years, this facility's going to give us the ability to increase our annual production capacity of D&A and R&A building block products up to the 20,000-kilogram level.

Switch to gross margin for a moment. Our gross margin for the current quarter was 47 percent as compared to 55 percent last year. For the year-to-date nine months our margin was 50 percent this year compared to 55 percent last year.

Back to the current quarter for a second, gross margins declined in both the instrument and consumable product lines. On the instrument side, we had higher manufacturing cost pool, which had to be absorbed by the lower unit sales volume. This was offset positively by a slight increase in our average selling price per unit year over year.

On a consumable side, we had a similar situation where our manufacturing cross space has increased since last year, but the unit sales level again was not high enough to absorb those incremental costs . The increase in the manufacturing cost space relates back to the need, talked before, to get ahead of the curve to accommodate our initiatives for increased production capacity.

The decline in the margin on a year-to-date basis, from again 55 percent to 50 percent this year related entirely to the consumable side of the business. The gross margin on instrument sales is actually increased slightly year over year. But the decline on the consumables margin was due mainly to the buildup of the manufacturing capacity for S&A products, again, very much like the current quarter discussion just a moment ago.

And in time as our revenues grow in this area, this'll lead to production efficiencies from the related process improvement and equipment upgrades.

Briefly on operating expenses, for the current quarter we were $9.1 million compared to 8.1 million last year. That's 12 percent increase. The increase is due entirely to increased R&D efforts this period compared to last year.

SG&A expenses have remained flat quarter-over-quarter. For the year-to-date, nine months, operating expenses have increased a total of 21 percent from 22 million last year to just under 27 million this year. Half of that increase related to our R&D expenditures and efforts, while the remaining half related to increased selling and administrative costs.

On a net loss basis for the quarter, we incurred 4.7 million in loss, versus 1.9 million in the same quarter last year. On a per share basis, that's 20 cents a share loss this quarter versus eight cents last year. The larger per share loss this quarter, again due mainly to the shortfall in revenues, but also reflects additional costs associated with our expansion efforts this year compared to what we were spending on these efforts last year.

For the year-to-date, our net loss is 12 million, which is 51 cents a share compared to a net loss last year year-to-date, $4.7 million, which is 21 cents a share.

I'll turn to cash flow here. At the end of the current quarter we had approximately 18.4 million in cash and short-term investments. During the quarter we used a net total of $6.6 million of our cash and of that amount, approximately 2.7 million related to capital expenditures. The remainder was used to fund our operating loss for the quarter as well as our associated working capital needs.

This usage was for working capital needs was offset by $1.5 million in financing proceeds that we received from a long-term mortgage, associated with our building purchase in Scotland. That was completed in the previous quarter.

As we're looking forward through the end of this year, that is one more quarter, we still expect to fund additional operating losses and related working capital needs, totaling about $2 million.

We also expect to continue to use some of our current cash for capital expenditures, again relating to our continued expansion efforts in our nucleic acid business; however, we're currently going through a reassessment of the level and the timing of those capital expenditures, and because of this, it's, we're not able to quantify what that cap ex amount for the fourth quarter will be at this time.

Looking into 2003, goes without saying that we're striving toward getting to a cash flow positive position from our operations, as a result of becoming profitable, which is still our goal. But we still have a level of capital expenditures, which we need to make to complete and fulfill our production capacity growth plan; however, our cap ex needs for 2003 will be substantially less than 2002, again given the completion of some of those plans.

We're managing our cash in such a manner that our needs for additional financing will be mitigated; however, as we stated before, we'll look to lease a portion of these equipment additions, cap ex additions where it makes sense to do so. We didn't do any of this last quarter, but we'll look forward to perhaps doing that in the fourth quarter or next year.

We'll also evaluate additional financing options and sources to augment our growth plans and to provide a comfortable level of cash reserves.

In summary, we believe this last quarter's level of revenues was at or near, very near the bottom. As mentioned before, our visibility to instrument sales is improving, and we're tracking more prospects and opportunities than we have in a number of quarters. Additionally, the opportunities for consumables and nucleic-acid products continue to be very active. These trailed signs along with other indicators provide us with confidence that we will get back to top line growth as well as margin improvement.

That finished my section. I think we can go ahead and switch to question-and-answer session.

At this time, if you would like to ask a question, press the one on your touch-tone phone. To withdraw your question, press the pound key.

Once again if you would like to ask a question, press the one on your touch-tone phone. One moment while we wait for our first question.

We have a question from the site of with RBC Capital Markets. Please go ahead.

Thanks. Good afternoon. Just a couple questions. One, I'm wondering if you're able to provide fourth quarter guidance for top and bottom line. And in regards to achieving profitability in 2003 it sounds like, what level of revenues do you need to support that? Thanks.

Collin, you want to take the first part, I'll take the second part? Fourth quarter.

d'Silva: Fourth quarter revenue guidance, yes, we expect, , we definitely expect revenues to be over third quarter. That's about the best kind of guidance I can give you at this point, with respect to where it is right now, we definitely orders coming in on the WAVE side that are higher than what we have seen, as Greg said, in any previous quarter this year. So we definitely see a return to some revenue growth on the instrument side for sure.

With regard to break even level of revenues for any particular quarter, it depends on the mix of instruments versus consumables, instruments bringing higher margin to it, but given a relative mix that we have been seeing, we're probably looking at the 15 million to 16 million range of revenues at the break even point.

And that was for any given quarter. What about for the year?

Oh, for any given quarter.

Are you expecting to be profitable for the year or just for a quarter within the year?

More likely a quarter in the year as opposed to the full year.

d'Silva: A quarter and then moving forward quarter, quarter after that.

Right.

OK, and then one final question, last quarter you talked about having a four to $5 million backlog, how much did you eat up, and did you build any new backlog?

I can answer that. Let's see, we produced to more than half of that backlog for the quarter. Let me refresh. Most of that backlog was for nucleic-acid products, and by nature it takes time to build those things, and so that backlog was spread over several quarters. I forget what we said specific to this first quarter was in backlog. But we did produce much of that, save for the one customer that a portion of their order got put on hold on their direction.

So that was an item that was in backlog. We actually did produce it, but the shipment got held. So we have probably in the neighborhood of $3 million of backlog. Our backlog did go down. We didn't have the order level this quarter as we did last quarter. Last quarter was exceptionally good. We would have like to have followed on with an equivalent one, but we just weren't sure.

So we didn't have quite the order level this quarter to carry us with the level of backlog going forward. But we augment that in our minds in terms of pipeline. There's lots of pipeline activity, which is once closed is also producible and shipment, therefore can be recognized in the same quarter as the order received.

d'Silva: And another key point there is also these orders are for, you know, longer time frames as Greg mentioned, so we'll see lumpiness in terms of these large orders in terms of, as we book them. So because they're for longer-term commitments.

Thanks.

Once again if you would like to ask a question, press the one on your touch-tone phone.

We have no further questions at this time. I'd like to turn it back to management for any closing comments.

Thank you. I'd like to mention one more time here for those who may have joined us after the start of the call, this call is being archived and it'll be available for listening to either over the Internet or on the dial-in basis. The information on how you can do that is contained in our October 23rd press release. You can refer to that or you can also visit our Web site, transgenomic.com.

Also I'll reiterate that certain forward-looking statements may have been made during this call that reflect management's current views and estimates of future economic circumstance, industry conditions, company performance and financial results. These statements are subject to certain risks, certain factors, risks and uncertainties described from time to time in our reports to the SEC. Any change in these 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 with respect to all such statements.

With that, I'd like to thank all for listening and or participating in the call.

This concludes today's conference. You may disconnect at any time. Thank you and have a good day.