Precipio Inc (PRPO) 2005 Q3 法說會逐字稿

Good-day. All sites are online in a note this call may be recorded. I would now like to turn the program over to Mr. Mitch Murphy. Please begin, sir.

Thank you. I'd like to welcome all participants to our third quarter 2005 conference call, and also any who may be listening on the webcast. Hopefully, everyone's 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 earlier today or go to our website at transgenomic.com for details. I have a little necessary legal business to take care of regarding forward-looking information that may be given during this call, then I'll be happy to 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 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 out of the way, I'd like to turn the call over to Collin.

Thank you, Mitch. And thanks all of you joining us today on this conference call. I'm going to lead off with some brief general comments and then turn it over to Mike Summers, our CFO, to review the financial results for the quarter in detail. We will then open up the call for questions.

At the end of last year, we began our restructuring efforts to refocus our business on our BioSystems business unit while bringing our cost structure in line with near-term revenue opportunities. As you can see from today’s release, these initiatives have resulted in our best quarterly performance since going public. We achieved two key milestones in the third quarter – positive operating income, and positive net income. We believe we are establishing a sustainable profitable global business with the ability to leverage emerging market opportunities in the area of development of target therapeutics and the advancement of personalized medicine.

Another key objective of ours was to simplify our capital structure, which we accomplished this past month with the addition of several strong institutional equity investors and the elimination of our complex debt structure. In the quarter, WAVE sales were the highest we have attained since the second quarter of 2004. Regional demand continued to be strong in Europe and emerging market territories, while sales in the US remained weak.

During the quarter, we also reached another key milestone. We launched the fourth generation of our flagship WAVE platform, the model 4500. This model is approximately 30% faster in analytic performance and as such affords us many new systems sales opportunities, but also upgrade opportunities for our existing install base.

During the quarter our Discovery Services business continued to expand its portfolio of validated assays helping us to broaden our base of customers and move into additional segments of the oncology market. In addition, during the quarter we were able to leverage our existing infrastructure for Discovery Service to position ourselves to offer clear compliant diagnostic testing services. In recent weeks we have now begun to receive samples – some of the first patient samples for testing. This enables us now to provide a totally vertically integrated suite of services from pre-clinical discovery to GLP compliant clinical trial support to now diagnostic and theranostic (ph) testing. Our services continue to benefit from the unique advantages of our WAVE technology and our in-house expertise in using the technology.

We are enthusiastic about the opportunities that lie ahead of us in both our product and service offerings. We will also continue to aggressively manage our cost structure to attain margin improvement as we also focus on top-line growth in our BioSystems business unit.

Now I’d like to turn it over to our CFO, Mike Summers to provide more details on our financial results for the quarter. Then we will come back for questions. Mike.

Thank you Colin. As you mentioned, for the first time in our history, we generated positive quarterly income from operations and net income. These results were driven by year-over-year net sales growth in every BioSystems product line and expected sales of custom phosphoramidates to Geron. At the same time, operating expenses remained at historically low levels.

Net sales for the quarter ended September 30, 2005 totaled 8.7 million representing a 6% increase from the same period of 2004. This increase was the result of a 21% increase in our BioSystems operating segment offset by an expected 24% decrease in sales from our Nucleic Acids operating segment. Net sales for the nine months ended September 30, 2005 totaled 23.7 million, representing an 8% decrease from the same period in 2004 as a result of an expected 56% decrease in sales from our Nucleic Acid operating segment offset by an 11% increase in sales in our BioSystems operating segment.

The quarterly and year-to-date net sales growth in BioSystems resulted from net sales increases in all product lines – instruments, consumables, and Discovery Services. We sold more WAVEs in the third quarter than in any of the previous four quarters. Recurring revenues, consisting of consumables and service contracts, continues to grow along with our install base of over 1,250 units. Lastly, net sales from Discovery Services increased 38% and 54% during the quarter and nine months ended September 30, 2005 respectively. The expected decline in sales from our Nucleic Acids operating segment is largely the result of sale during the fourth quarter of 2004 of the Boulder, Colorado facility, which generated net sales of 413,000 and 1.8 million during the three and nine months ended September 30, 2004 respectively, and to a lesser extent, lower net sales of chemical building blocks from our Glasgow, Scotland facility.

Gross profit was 3.9 million or 45% of total net sales during the third quarter of 2005 compared to 1.3 million and 16% during the same period of 2004. Gross profit was 10.1 million or 43% of total net sales for the nine months ended September 30, 2005 compared to 7.5 million and 28% during the same period of 2004. This improvement in gross profit reflects a number of initiatives to enhance our gross profit margins, including the positive effects of our 2004 restructuring plan and the sale in the fall of 2004 of our Nucleic Acids facility in Boulder, Colorado.

Operating expenses totaled 3.6 million during the three months September 30, 2005 compared to 6.1 million during the same period of 2004. The 2005 amount includes and impairment charge of 247,000. Operating expenses totaled 12 million during the nine months ended September 30, 2005 compared to 30.2 million during the same period of 2004. The 2004 amount includes impairment charges of 12 million related to impairment of our Nucleic Acids operating segment. The incremental improvement in operating expenses after considering the impairment charges also reflects the positive impact of our 2004 restructuring plan.

Income from operations for the three months ended September 30, 2005 was 303,000 compared to a loss from operations of 4.8 million in the comparable period of 2004. These results included depreciation and amortization expense of 970,000 in 2005 and 1.3 million in 2004. Loss from operations for the nine months ended September 30, 2005 was 1.9 million compared to 22.8 million in the comparable period of 2005. These results included depreciation and amortization expense of 3.3 million in 2005 and 3.7 million in 2004. The 2004 results also included impairment charges of 12 million related to impairment of our Nucleic Acids operating segment.

Other expenses, which primarily include interest and other charges related to our Laurus loans were 184,000 during the three months ended September 30, 2005. They were 1.9 million during the nine months ended September 30, 2005 and included a charge of 1.1 million related to previously reported conversions in March 2005 of Laurus loans with a gross value of 2.5 million into 4.85 million shares of our common stock. This was a non-cash, non-recurring charge representing the fair value of incremental shares received by Laurus plus accelerated amortization of related discounts and premiums.

Net income for the three months ended September 30, 2005 was $111,000 or $0.00 per share compared to a net loss of 8.4 million or $0.29 per share in the comparable period of 2004. Net loss for the nine months ended September 30, 2005 was 3.8 million or $0.12 per share compared to 27.4 million or $0.95 per share in the comparable period of 2004. At September 30, 2005 we had 34.2 million shares outstanding.

At September 30, 2005 our net working capital position was 1.2 million compared to a negative 816,000 at December 31, 2004. At September 30, 2005 we had cash and cash equivalents in short-term investments of 2.9 million. As Colin previously mentioned, we closed a private placement of common stock subsequent to September 30, 2005, which had a very positive effect on our liquidity and working capital positions. That transaction resulted in net proceeds to the Company after repayment of all Laurus debt and transaction costs of approximately $5.4 million. We currently have 49.2 million shares outstanding.

Over the past twelve months we’ve made a significant amount of progress. We’ve sold non-strategic assets, implemented a broad restructuring plan, and enhanced our liquidity and capital structures. We can now focus more of our efforts to enhancing the core financial metrics upon which we will be measured going forward. The demand for instruments, traditional Discovery Services, and our install base will result in some degree of ongoing revenue stability and growth. However, it is essential that we diversify revenue sources. As you can see from the third quarter new product rollouts that Colin discussed, we are increasingly pursuing and implementing opportunities to grow and diversify profitable instruments, consumables, and service revenues in both the research and clinical environments. While gross profit margins in the third quarter represented improvement from prior quarters, we simply aren’t satisfied. BioSystems and Nucleic Acids margins were 47% and 41% respectively resulting in consolidated gross profit margins of 45%. We are aggressively targeting BioSystems gross profit margins that approach 60% and consolidated margins that exceed 50%.

Lastly, I don’t expect that we can, in the short-term, significantly reduce operating expenses from those attained in the third quarter. Those results are extraordinary in light of past performance. However, I do expect that we can leverage on our existing infrastructure to support annual net sales of approximately $40 million.

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

Collin D’Silva: Thank you Mike. With that I’d like to turn it over for questions.

Thank you. (Operator Instructions) John Schneller (ph) with Knott Partners.

Hello, thanks for taking my call. Congratulations on producing net income the first time in the Company’s history. I was on and off the call. Did you discuss the potential strategic alternatives with the Nucleic Acids business? If not, could you potentially do something to elaborate where you might be in various stages.

Collin D’Silva: Thanks, John. I’ll take that. We’re just in the process of evaluating strategic alternatives. We have no real further guidance on that aspect other than to say that we are evaluating them. As we’ve always said that we want to focus on our core BioSystems business. We’ve maintained the existing remaining part of the business to be cash flow neutral to slightly cash flow positive. But we are definitely evaluating some alternatives.

The target of a 60% gross margin going forward – I know you haven’t really put a timeframe on that. Would that include doing something strategic, i.e., a sale, a shuttering, etc.? Or is the 60% gross margin achievable if you retain any or all of the Nucleic Acids business?

Our target right now in BioSystems is 60%. On a consolidated basis, our blended target is 50%. As we look into 2006, I don’t have a lot of clarity right now into Nucleic Acids. I can’t speak to whether I can squeeze this thing from 50% to 60% on an overall basis. So no, what I gave you was really 60 for BioSystems and 50 on a blended basis.

Okay, great. Thank you.

(Operator Instructions) It appears that there are no further questions at this time.

Thank you. I’ll mention one more time that this call is being archived. It will be available for listening to either over the internet or on a dial-in basis. The information as to how to do that is contained in our press release from earlier today. You can refer to that release or you can also visit our website transgenomic.com. Also for the benefit of those 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’d like to thank all for listening and participating today. This concludes Transgenomic’s third quarter 2005 conference call.