Precipio Inc (PRPO) 2003 Q1 法說會逐字稿

Good day. All sites are now on the conference line. At this time, I'll turn your program over to Mitch Murphy. Go ahead, please.

Thank you. I would like to welcome all participants to our first quarter 2003 conference call, and also to any who may be listening on the Webcast. I'm Mitch Murphy, Vice President, Secretary and Treasurer for Transgenomic.

Hopefully everyone's had a chance to look over the press release we issued earlier today. This conference call will be archived and accessible by both telephone and internet. You can refer to our press release from April 29th, or go to our website at www.transgenomic.com for details. Before we get started, I'll take a couple minutes here to take care of some legal issues regarding forward-looking information that may be given during this call; then I'll turn the call over to our CEO, Collin J. D'Silva.

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, Inc.'s reports to the SEC. 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 and Litigation Reform Act of 1995 with respect to all such statements. In addition, our presentation today will include the discussion of non-GAAP financial measures. We refer you to the press release of today which is included in the Investor Relations section of our website, in which we have given additional information regarding these non-GAAP financial measures, including a reconciliation of each such measure to the most directly comparable GAAP measure.

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

Thanks, Mitch. Good afternoon, everyone. I'm going to make a few brief comments regarding the general business, and then turn it over to Bill Rasmussen, our CFO, to discuss the financials in more detail.

While we would have preferred more robust revenue growth this past quarter, we nevertheless maintained the trend that began in the fourth quarter of last year, a return to sequential growth. Importantly, we were able to maintain momentum against the back trouble of challenging economic climate and less than favorable industry dynamics.

As we have highlighted in our press release, we have achieved significant expense reduction in line with our previous guidance. The impact of these actions is now readily apparent in our bottom line. We are continuing to focus on personnel and our resources on our most valuable strategic market, as we worked to accelerate the revenue growth. These activities, coupled with ongoing vigilance in the area of cost containment, lead us to anticipate continued progress towards profitability.

Our instrument business posted solid performance this quarter. We continue to see strong demand in our European markets, combined with strength in Asia. North American sales in this quarter showed early signs of recovery. We believe significant and growing opportunities continue to exist in our global core research market, based in part on a broadening recognition that the need to detect novel and previously uncharacterized genetic variation is far from over.

Cancer cells, for example, continuously develop new mutations. The genetic makeup of many microorganisms, as we've seen in the latest SARS outbreak, is constantly changing. And the number of different mutations shown to contribute to various inherited diseases also continues to escalate.

In this past quarter, our intellectual property continued to grow, with the addition of five patents covering aspects of our core WAVE technology platform. In addition, we believe several new proprietary developments in our WAVE system will facilitate our entry into new and emerging global market opportunities. Examples include a support of quality control effort associated with the production of genetic lectures and biologic, clinical and translation research, targeted therapeutic development, and the development of novel molecular diagnostic and [theranostic] [phonetic] tests.

We continue to see significant numbers of scientific publications and presentations from our growing WAVE customer base. This growing body of publications continues to validate the high accuracy and sensitivity, as well as the cost effectiveness of our technology. Furthermore, recent and upcoming product line extensions and additions, coupled with focused marketing initiatives, should strengthen our position in both existing and emerging markets. We plan to launch several new feed product line extensions at major upcoming conferences, and these all should help continue to support accelerating revenue growth going forward.

Our synthetic nucleic business continues to demonstrate lack of visibility currently due to the inherent nature of some of our pharmaceutical and biopharmaceutical customers. However, we expect this to be moderated as we begin to realize meaningful revenue resulting from the investment in our Boulder, Colorado, specialty [indiscernible] manufacturing facility going forward.

With that, I'll turn it over to Bill Rasmusen to go over some of the financial details for the quarter, and then come back for questions. Bill?

Thanks, Collin. Good afternoon, everyone. I would like to thank you all for participating in Transgenomic's first quarter conference call. First, I'd like to go over some quarterly highlights. As Collin mentioned, revenue increased sequentially from Q4. Operating expenses decreased 26 percent in Q1 compared to Q4 2002. This excludes restructuring charges in both quarters and allots some of the loan in Q4 2002. In absolute dollars, operating expenses, excluding charges, decreased to $6.96 million in Q1, from $9.5 million in Q4 2002. EBITDA, excluding the one-time charges mentioned above, improved to a loss of $2.5 million in Q1, from a loss of $4.7 million in Q4.

Now a brief review of operations. Revenues in the first quarter were $9.5 million versus $9.8 million in the prior year. This represented a $3 percent decrease year over year. As mentioned earlier, we did see the sequential revenue increase over Q4 2002. Biosystems revenue was $6.9 million during the current quarter versus $6.1 million in Q1 2002. The instrument business continued to perform well during the quarter. Revenues were $5.3 million compared to $4.9 million in Q1 2002. Europe executed a plan and remained strong. Asia Pacific activity, as Collin mentioned, was above budget. We continue to see weakness in North America, but as Collin mentioned, we're detecting a more promising climate for the future. And placement in commercial accounts remains sluggish.

The average selling price on the WAVE to end users remains relatively unchanged. We have not encountered any price erosion.

Bioconsumable revenues were $1.6 million during the current quarter, compared to $1.2 million in Q1 2002.

Synthetic nucleic acid revenues, or our SNA business, were $2.6 million in the current quarter versus $3.7 million in revenues in Q1 2002. This decrease was due to lower revenues from [the Oligos and Oligo houses,] [phonetic] and also decreased revenues from [triatal] [phonetic] cells. However, the current period SNA revenues did sequentially increase compared to Q4 2002.

Gross margins for the quarter were 39 percent compared to 52 percent in the prior year. Margins were adversely affected by the pre-production manufacturing costs related to our synthesis business in Boulder, Colorado. If we exclude the pre-production costs, gross margins would have improved sequentially to 51 percent in the current quarter versus 50 percent achieved in Q4, and compared reasonably with the 52 percent from last year.

Biosystem margins remained strong. This portion of the business had margins of 58 percent. SNA gross margins were a negative 13 percent. This included Boulder. Ex-Boulder, the SNA margins were 27 percent. Gross margins in all of our product lines, but particularly in synthetic nucleic acid products, were negatively impacted by fixed manufacturing costs being allocated over a small revenue base.

Operating expenses. Total operating expenses were $7.2 million in the current quarter, which included a restructuring charge related to our expense reduction. This charge was $260,000 and consisted primarily of severance charges. Excluding the charge related to restructuring, operating expenses were $6.96 million in Q1 versus $8.68 million in the prior year.

On this basis, operating expenses decreased 20 percent year over year. As mentioned earlier, operating expenses decreased by 26 percent from our Q4 run rate. We may also incur additional restructuring charges in the second quarter.

Net loss. Our loss for the quarter was $3.6 million or 15 cents, compared to $3.4 million or 14 cents in the prior year. Excluded in the restructuring charge, our net loss this quarter was $3.3 million or 14 cents share, a slight improvement over the prior year.

We ended the quarter with $6.4 million in cash. Cash utilized in the first quarter was $6.9 million. Net funds used in operating activities were $3.2 million, which included funding a net operating loss of $3.6 million, offset by non-cash charges of depreciation, amortization, and changes in other working capital amounts.

We are disappointed we did not achieve our goal of reducing that outstanding accounts receivable in inventory during the quarter. We believe we will make progress in reducing our receivable days outstanding, and as cells increase in the SNA area, a quicker turnover of the inventory, and therefore a reduction of the current inventory we're carrying.

The lengthening of the A/R cycle relates specifically to the higher percentage of sales occurring outside the United Sates.

We also utilized $3.7 million for capital expenditures. These expenditures were primarily related to our nucleic expansion plant in Scotland, and our synthesis manufacturing facility in Boulder. We start the current quarter with $6.4 million in cash. The expense reductions and restructuring mentioned earlier should continue to reduce our operating cash burn rate. We are looking at utilizing the products from only $2 to $4 million to support operating activities in Q2 2003. This range is dependent upon our ability to achieve both our revenue and expense objectives, along with managing effectively our other working capital components, particularly inventory and accounts receivable.

Capital expenditures for the remainder of the year should be in the $3 to $3¾ million dollar range. The majority is related to our SNA business and the manufacturing facility in Boulder in particular. This would give us total capital expenditures for the year between $6.7 and $7.4 million. This is a reduction of anywhere between $1 million and $1.7 million compared to the capital expenditure budget noted in the 10-K.

To date, I want to note we have primarily financed our capital expenditures with cash. During the first quarter, we received a letter of commitment to enter into a $5 million dollar line of credit with Silicon Valley Bank. We expect to close on this facility in the second quarter. We believe that our current cash balance, along with this line of credit, will provide us ample cash if we execute our business model.

Our outlook remains difficult in projecting revenues. We are encouraged by the pickup in interest over the last couple quarters in our biosystems business, but still do not have the visibility that we would like. We are currently looking for a slight sequential increase in revenues in Q2 compared to Q1. Gross margins on the biosystems remains strong, and we believe will continue in the historic ranges which we have experienced. The S&S business gross margins will continue to be adversely impacted by the Boulder manufacturing costs. We see this impact at least lasting through the end of the year. We continue our efforts in reducing operating expenses and believe they will be flat to a slight decline compared to Q1.

As also mentioned earlier, we may have additional restructuring charges in Q2. The cash portion of any charges should not exceed $400,000. With that, I'll turn it back to Mitch, or --

I'll take it, Bill, thank you. With that, let's open it up for questions.

At this time, if you have a question, please press the * and 1 on your touchtone phone. To withdraw that question, press the # key.

It appears we have no questions at this time. If you would like to ask a question, please press the * and the 1 on your touchtone phone.

We have no questions at this time.

Okay, thank you, everyone, for joining us. Mitch, do you want to take it over?

Thanks, Collin. I'll just mention one more time that the call is being archived, and it will be available for listening to either over the internet or on a dial-in basis. And the information as to how to do that is contained in our April 29th press release. You can refer to that, or you can also visit our website, transgenomic.com. Also, for the benefit of any who may have joined us after the call was already in progress, 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 circumstances, 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 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. According, the company claims protection of the Safe Harbor for the forward-looking statements, with respect to all such statements. And in addition, our presentation today included a discussion of non-GAAP financial measures. We refer you to the press release of today, which is include on the Investor Relations section of our website, where we have given additional information regarding these non-GAAP financial measures, including a reconciliation of each such measure to the most directly comparable GAAP measure.

With that, I'd like to thank all for listening to the call. Thank you.