Precipio Inc (PRPO) 2004 Q4 法說會逐字稿

Good day, all sites are now on the conference line. This is Jamie [ph] you operator. (OPERATOR INSTRUCTION).

At this time, I would like to turn the call over to your moderator, Mr. Mitch Murphy.

Thank you. I’d like to welcome all participants to our Fourth Quarter 2004 Conference Call, and also to any of you who may be listening on the webcast.

Hopefully, everyone has had a chance to look over the press release we issued earlier today. This conference call will be archived and accessible by telephone and Internet. And you can refer to our press release from earlier today or got to our website at transgenomic.com for details.

I’ll take a couple of minutes here to take care of necessary legal issues regarding forward-looking information that may be given during this call. Then I’ll turn it over to our CEO, Collin 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’s reports to the Securities and Exchange Commission. Any change in such factors, risks, and uncertainties may cause the actual results, events, or 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. I'll turn the call over now to Collin.

Collin D’Silva: Thanks Mitch. I’d like to take a few minutes to make a few comments and then turn it over to Mike Summers, our CFO to review our financial information for the quarter and for the full year 2004.

2004 was a year of transition for Transgenomic as we took a number of actions that were critical to position the Company for future growth and profitability. We exited the oligonucleotide manufacturing business and downsized our synthetic nucleic business block business to align with near-term revenue potential.

Importantly, we have renewed our focus on our BioSystems business and this renewed focus is yielding encouraging early results in the form of a return to sequential revenue growth in the fourth quarter of 2004.

Importantly, we believe the Company is well positioned to pursue its key strategic objectives for a continued BioSystems growth. As you can see from information in our press release, our BioSystems segment demonstrated strong growth in the fourth quarter. The contribution of consumable products and services to our revenue stream represented 43% of BioSystems revenue for the full year of 2004 compared to 31% in 2003.

In addition, our customer base continued to expand in over 30 countries and especially in the Asia Pacific region. Our domestic discovery services business also continued to post in the fourth quarter on both a sequential and a year-over-year basis, with the majority of these revenues coming from pharma [ph] and bio-pharma customers working primarily in the oncology space.

Our growing BioSystems revenues from an increasingly diverse mix of market segments, coupled with resizing of our expense structure allows us to focus on driving towards profitability and positive cash flow from operation in 2005.

With that, I’d like to turn it over to Mike to discuss his review of Q4 financials and full-year 2004 financials. And after that we’ll then entertain some questions.

Thanks Collin. Let me take a slightly different approach this quarter and reiterate a few of the things you said and add a few things of my own. I first want to discuss the considerable progress we made in the last several months. Then I’ll summarize fourth quarter and year-to-date financial results.

Through the successful sale of our Boulder, Colorado manufacturing facility and the implementation of a sweeping restructuring plan, we’ve redirected the Company’s focus on revenue and margin growth in our BioSystems operating segment. The Boulder sale and the restructuring plan will together result in annual cost savings that exceed $10 million.

We also accomplished another major objective by recently strengthening our liquidity position. Within the past several weeks, we have retained an extension of our borrowing base limitation waiver and converted $1.8 million in principal on our revolving credit facility and $650,000 in principal on our term note into common stock.

Both of these actions provided us with additional liquidity to pursue our 2005 objectives. So let’s start there. At December 31 we had immediately-available liquidity of $2.6 million. That consisted of cash and equivalents and available capacity under our credit facility. Today, our immediately-available liquidity is approximately $3.5 million.

Let’s move on to fourth quarter results. During the fourth quarter of 2004, we generated a net loss of $6.9 million on revenues of $8.0 million and gross margins of $1.9 million. The fourth quarter net loss included a $3.4 million charge related to our restructuring plan and a gain of $1.5 million related to the sale of our Boulder, Colorado manufacturing facility.

Revenue stream to quarter; revenues in the fourth quarter of 2004 from our BioSystems operating segment totaled $6.8 million, and as Collin said that represented a 7% increase over the same period of 2003 and a 23% sequential growth form 3Q. This growth was fueled primarily by recurring consumable and service contract revenue associated with our growing install base. Discovery services also achieved revenue growth compared to 2003 and the prior quarter.

Our Nucleic Acids operating segment generated revenues of $1.2 million representing a decrease over the same period of 2003 and the prior quarter. These decreases were largely attributable to the sale of our Boulder, Colorado facility and reduced sales of the Amadites [ph] to one customer.

Margins; gross margins for the fourth quarter of 2004 were $1.9 million or 24% compared to $2.5 million or 30% for the same period of 2003. Our margins continue to be adversely impacted in the fourth quarter of 2004 by excess manufacturing capacity in our Nucleic Acids operating segment. Beginning in the first quarter 2005, our margins will reflect the benefit of significantly reduced costs resulting from the restructuring and the sale of our Boulder manufacturing facility.

Operating expenses; operating expenses totaled $8 million during the fourth quarter compared to $11.1 million in the same period of 2003. As previously mentioned, 2004 results included a $3.4 million charge related to our restructuring plan and a gain of $1.5 million related to the sale of our Boulder manufacturing facility. The restructuring charge consisted of cash costs of $2.7 million and a write-off of property at closed facilities of $740,000. Personnel costs of $1.4 million represented the majority of cash costs and have been substantially paid. Costs of closed facilities, including future rents net of anticipated sub-lease rents totaled $1.3 million and will be paid out in various periods through 2006.

Briefly let me summarize 2004 year-to-date results. BioSystems revenues were $25.2 million compared to $26.0 million in 2003, a decrease of 3%. Nucleic Acid revenues were $8.5 million compared to $7.8 million in 2003, an increase of 9%. Total revenues were $33.8 million compared to $33.9 million in 2003.

The net loss for 2004 was $34.4 million compared to a net loss of $23.0 million in 2003. 2004 results included a $9.9 million goodwill impairment charge, a $634,000 net loss on the sale of our Boulder, Colorado manufacturing facility, a $2.9 million debt extinguishment charge, and restructuring charges of $3.6 million. The 2003 results included a $4.8 million goodwill impairment charge and restructuring charges of $738,000.

At this time, I’ll turn it back to Collin.

Thanks Mike for your review. At this time I’d like to turn it open for questions.

(OPERATOR INSTRUCTIONS). Matt Aarons [ph], Kopp Investment Advisors.

Thank you, a couple of questions here. First of all with a lot of non-cash non-recurring charges in the results here, Mike would it be possible for you to walk us through a little bit of discussion of what the effect would be, what the numbers would look like more on a pro forma basis?

Yes Matt. If we look at the year-to-date results, what I’m prepared to provide you is we can talk about what we could extract. So if we take the 3 major events during the year, and I’ll break those events down to the Boulder transaction, our restructuring plan, and then the impairment charge. If you extract the costs associated with those events, and when I say extract the costs, I mean not only the charges associated with the specific sale or the restructuring charge but rather the underlying costs related to those, margins were adversely affected to the tune of $4.1 million. Operating expenses were adversely affected to the tune of $18.5 million. Does that help Matt?

Yes, that’s very helpful, thank you. Staying with Boulder for a moment here, in the press release, I’m scanning through it now, you talk about what sales look like in the Nucleic Acid business, and that being down fairly substantially. That is including the discontinued revenues, the comparable there is including the discontinued revenues from Boulder. Is that correct?

Correct, so the revenue numbers for fourth quarter for our Nucleic Acid operating segment consisted of in total as we reported it there -- forgive me as I look over her on a piece of paper -- we reported $1.2 million, $900,000 in Amadite sales. The remainder is sales from our Boulder facility prior to its sale.

I know you’re going to reflect those numbers differently going forward. Will you be coming out as you talk about the Nucleic Acids business, will you be giving comparisons on an ongoing operations basis so we can look at kind of apples to apples what that segment is doing?

Correct.

Okay, great.

And also Matt, just to follow up on that as we’ve discussed previously on previous calls the majority of our cost structure on the Nucleic Acid side was associated with the Boulder facility. So that’s a significant piece that goes away.

That’s a good point because I, while you are benefited in terms of -- well I guess benefited is maybe the wrong term -- but as you look at the impact it has on the comparable numbers, it has the kind of double-edged sword of inflating the revenues for the comparable, but also the negative impact of having such a drag on profitability. So that going away would certainly positively impact that and it would also in looking at it on just your ongoing Nucleic Acid business it will give us a much better sense for how that business is operating.

Correct.

Okay, let’s see, next as we had this discussion today about fourth quarter results, obviously on March 31 you have a pretty good window into how the first quarter shaped up. And I’m sure you don’t want to get into specifics but can you give us a little sense for how you’re feeling about the March quarter results?

Yes Matt, our focusing was really to discuss Q4 and ’04 results; however, we intend to release our Q1 ’05 earnings shortly after close of the quarter. And I believe we will see the significant positive impact of our 2004 expense reduction efforts and a continued robust BioSystems segment moving the Company towards profitability and the generation of positive operating cash flow.

Good, that’s certainly good to hear. I guess lastly I would just comment that I’d like to congratulate you guys on the progress that you’re making. I know it certainly hasn’t been reflected in the stock price as of late, but as a large holder of your shares, we’ve certainly been pleased with the activities, both in substantially cutting your costs and successfully getting the Boulder facility off the books for you guys. And all the activities that go along with that, which I think put us in a much better position than we were in say even 6 months ago.

And I really have looked for 3 events from you guys; one is getting your cost structure to where you needed to be. And then that paired with very reasonable growth expectations on your ongoing business will get us to what I think are going to be 2 big events for the Company. It sounds like they’re coming in the near term here, which is getting cash-flow positive and getting profitability, which unless I’m misreading what I’m hearing from you and what I’m looking at, that’s something that we should be able to achieve in the relative near term. And I think that, obviously from the very depressed levels that we’re at right now, should mean very good things for the stock.

So I wanted to take a moment to congratulate you on the progress that we’ve made, and hopefully there are more good things to come.

Collin D’Silva: Thanks Matt. We’re excited about the progress also, and we really believe in the transition from ’04 to ’05 and we look forward to discussing our Q1 ’05 results with you in the near future.

Okay, thanks for taking my questions.

Collin D’Silva: Thank you Matt.

(OPERATOR INSTRUCTIONS). It looks as though we have no further questions. I’ll go on and turn the call back over the moderators for any further comments.

Thank you. I’ll mention one more time that this call is being archived and it will be available either over the Internet or on a dial-in basis. The information how to accomplish that is in our press release that we issued earlier today, so you can refer to that or go to our website at transgenomic.com.

Also, for the benefit for any who may have joined us after this 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. Accordingly, the Company claims protection of the Safe Harbor for forward-looking statements with respect to all such statements.

I’ll conclude here by thanking all for listening and participating in the call.

This concludes today’s conference call. We’d like to thank everybody for their participation. You now may hang up at any time, and have a great day.