Precipio Inc (PRPO) 2007 Q2 法說會逐字稿

Welcome to today's teleconference.

At this time, all participants are in a listen-only mode. Later there will be an opportunity to ask questions during our Q&A session. As a reminder, this call may be recorded.

I'll now turn the program over to Deb Schneider, CFO. Please go ahead.

Thank you, Kerry. Good afternoon. I'm Deb Schneider, Chief Financial Officer for Transgenomic, Inc.

I would like to welcome all participants to our second quarter 2007 conference call and also extend a welcome to anyone who may be listening on the webcast. Hopefully everyone has had a chance to look over the press release that we did issue earlier today.

Before we start to review our results, I just want to take a minute to care of some administrative matters. This conference call will be archived and accessible via both the telephone and the Internet. Please refer to our press release from earlier or you may go to our Web site, www.transgenomic.com for further details.

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 factors, risks and uncertainties described from time to time in Transgenomic, Inc.'s report to the Securities and Exchange Commission.

Any changes 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 1955 with respect to all such statements. Thanks for being patient while I went through that.

I will now discuss the financial results for the quarter and then I will turn the call over to Craig Tuttle, our President and Chief Executive Officer. At the end we will both be happy to open the line up for questions that you may have.

Today we reported a net profit of $226,000 for the second quarter ended June 30, 2007. This did include two non-recurring items which I would like to highlight so that the quarter results can be clearly understood.

First, we did complete the sale of 250,000 shares of Pinnacle Pharmaceutical common stock that we did discuss at the close of the first quarter call. That sale did close May 10th and the net proceeds were $937,500.

The second item relates to the restructure activity that we did announce in an 8-K in the first quarter. We did record $624,000 of expense in the second quarter related to this restructure activity.

The restructure plan included three components, first, a reduction in force our Omaha, Nebraska, office, second, the closure of production facility in Cramlington, England, and third, the closure of an administrative office outside of Paris, France. Once these activities are complete, we will have one remaining site internationally that will be located in Glasgow, Scotland.

We have completed the Omaha, Nebraska, reduction, we are well under way on the production closure and we have also made good progress on the French office closure. We expect to complete these in the third quarter and our fourth quarter of 2007 should show the majority of the improvement to our cost structure.

Without these two items, and you can do the math with the three numbers that were just presented, our results for the quarter were still very close to breakeven, less than $100,000 of net loss.

Net sales for the second quarter ended June 30, 2007 were $6.3 million, up $100,000 from the same quarter in 2006. Bioinstrument sales were $3.4 million, bioconsumables were $2.2 million and Discovery Services net sales were $671,000. Bioinstrument sales were down 10% as compared to the same period in 2006.

There were 24 WAVE instruments sold in 2006 compared to the 16 in the current quarter. On a positive note, we sold three instruments produced by other external manufacturers through our sales distribution channels in the current quarter compared to only two in the second quarter of 2006.

Bioconsumable net sales were down slightly, or 3%, and that would equate to $78,000. Discovery Services net sales, which includes both our CLIA Laboratory sales and our Pharmaceutical Research Group sales, were up over 300%, or $521,000. Approximately $500,000 was related to the CLIA Laboratory business alone.

These numbers are very impressive. We also had strong sequential quarter-over-quarter growth in this division with 82% growth, or $300,000 in net sales increase in the second quarter ended June 30th as compared to the first quarter ended March 31st this year.

We are extremely pleased with our second quarter net sales results. All areas were in line with our internal expectations with one small exception which was our Pharmaceutical Research Group.

We do have four larger research projects which are signed and will produce sales throughout the remainder of 2007 and 2008 in that division. Timing of these have been a bit slower than we hoped, however, we are beginning to see the samples come in the door from our partners. We remain excited about the opportunities we have with these companies and hope that our pipeline of business will continue to build.

Gross profit was $3.4 million, or 54% during the second quarter of 2007 compared to $3 million, or 49% during the comparable period in 2006. There was also improvement in gross margins on a sequential basis. Gross profit margins in the first quarter were 52%.

The largest contributor to this increase is the Discovery Services product line which includes the CLIA Laboratory sales and the research services. That group had negative gross profit in both the second quarter of '06 and the first quarter of 2007.

In the second quarter of 2007, that group produced gross profit of $193,000, or a 29% gross margin. That's extremely high improvement in that area.

Operating expenses for the second quarter, ended June 30, 2007 were $4.2 million as compared to $3.4 million in the same period 2006. Two items drove this increase. The biggest, which was previously mentioned, you can see from our press release also was the restructure charges and that was $624,000.

The other increase is due to this realignment of costs out of discontinued ops during mid '06 and into selling, general and administrative and our international division. This has kind of plagued us for the last year and I'm happy to say that we don't have that comparison to do anymore after this quarter, we should be apples to apples going forward in these areas. So absent these two items, we have held our selling, generally and administrative costs flat.

At June 30, 2007 we had a cash balance of $7.9 million and working capital of $12.7 million. And just to remind you, we did talk about earlier, but included in that number is the $937,000 we received for sale of the Pinnacle stock earlier in the quarter.

While we do not publicly disclose future financial projections, our results for the quarter, as I mentioned, were very close to our internal plan. We are still working to get our hands around projections of the larger research projects and timing of those revenues.

We do have estimated sales of approximately $2 million in this area that relate to signed contracts. We just need to continue to work on timing of these projects, you know, for our expectations of revenue.

Our expenses were in line with our expectations, including the estimate surrounding the restructure activities. These costs will continue into the third quarter.

We plan to be complete early in the fourth quarter with the restructure activities and the fourth quarter should show the majority of the reduced cost structure. We still estimate these actions will result in annualized savings of approximately $1.5 million.

That is all for my prepared remarks and I would now like to turn the call over to Craig Tuttle, our President and Chief Executive Officer.

Thanks, Deb.

It's truly a pleasure to announce our earnings for the quarter. This is a great result for the Company and one that I believe we can continue to realize in the future based on the strength of our products, the dynamic growth of our services business and our cost savings efforts.

Our Q2 results were consistent with our expectations, as Deb noted, and also with our internal plan. We achieved a strong level of new instrument placements, our consumables and service business revenue was level and our laboratory services business achieved dramatic growth in the quarter.

As Deb noted, the strong growth in revenue for our CLIA certified molecular diagnostics lab. This is due to a greater awareness in the market for the value and accuracy of our services and increased sales and marketing investment. We are beginning to add key resources to continue growing this business, particularly from an increased field sales focus.

Our Discovery Research business is growing due to our focus on servicing pharmaceutical partners now and an expanding awareness in the market for the value of mutations in driving or causing disease, particularly cancer. Noteworthy: We completed seven projects for pharma partners during the quarter and added two significant new contracts, which Deb already noted.

Taken all together, we believe that this business will continue to grow based on the current projects that we have under way as well as the number of projects that are in negotiation.

We've also worked very hard in the quarter to complete the consolidation efforts that are driving our cost reduction activities. Although the impact of these efforts will not begin to have a significant impact on our finances in Q4, I want to acknowledge all the efforts and sacrifices our staff have made to support these reductions.

As a reminder, we hope to achieve at least $1.5 million reduction in operating expenses for the two consolidations that Deb described. We've also taken other actions that should result in additional cost savings of 250K in ongoing operating expenses.

In summary, we are investing in our strongest growth opportunities, controlling cost aggressively, and we believe, managing the transition from and profitable to profitable performing company.

With that, I'm now happy to take any questions that you might have.

Kerry we are -- Go ahead, sorry.

Sorry about that. (OPERATOR INSTRUCTIONS) We'll pause a moment to allow any questions to enter the queue. Okay. We'll take our first question from the site of Al Shams from MidSouth Capital. Please go ahead.

Yes, Craig, it sounds like we got some good momentum going. Two questions. Number one, do we have adequate capital for the next, say, nine to 12 months?

And then secondly, do you think this is a company that can get to $25 million a year in revenues in the next year and a half?

Hi, Al. Thanks for the questions.

Obviously, we believe that we have adequate capital. Our goal is, clearly, to be at a run rate of breakeven by the end of the year and as such, we would start adding to our capital rather than continuing to consume it. So I have no issues around our current capital and our current plans for capital use.

In terms of reaching $25 million in sales on an annual basis, we think we'll do that this year and we're still looking for continued growth in our services business and hopefully even stronger contribution from our OEM products list or product line. So I'm very confident that the $25 million is really a nice baseline from which to grow from.

Okay. Okay.

And had you set out any other corporate goals? Let's say a two-year goal or a three or four-year goal as to where you want to be in terms of, and I realize this is not a guarantee by any means, but it's a target to shoot for in terms of revenue--

First of all, I'm sorry Al, go ahead--

In terms of revenues, cash flow, profitability, net margins, et cetera.

Well, the current margin improvement is driven considerably by the services business that we have which, you know, is very efficient and the laboratories do a great job and by having a consistent volume of business, it's expanding, that margin should improve going forward. So we're happy with the margin status of the Company.

In terms of planning, you know, without getting approval from the board, I can't share that with you. However, if you look at the growth in our laboratory services group, which is the molecular diagnostics lab as well as the discovery, or what I call pharmaceutical serves and academic services out of Gaithersburg, those two areas are picking up substantial momentum and, obviously, revenue growth.

So I would like to see that continue and that's where I noted that we are investing in that to continue driving that growth. If it'll be 200K a quarter, I suppose I'd be happy and obviously we're trying to keep it growing at that rate.

So with that noted, what's nice about that business is that it's relatively sustainable because you have a core of customers that you're doing business from and it's diagnostic testing rather than individual product sales. So the repeat business component is substantial.

So hopefully that answered that question. We think we're going to continue growing. If you look at the reference laboratory business, there is a substantial volume of mitochondrial disease testing that can still be done or that we can capture in the marketplace, and a variety of other genetic markers for inherited diseases that we are targeting or already providing services for that will further drive that growth.

Okay. One last question. There may well not be any other questions, so I'll just pose this one quickly.

Other than just growing the Company in an intelligent fashion, any other ways to get recognition for the Company, do you plan on speaking at various conferences? Talking to various researcher people et cetera?

That's a great question. Actually, and I probably didn't have much time to announce it, we've been very busy, as you would imagine, but I was invited to speak at the C.E. Unterberg, Towbin Investment Conference in New York City last month and so, clearly, I expect to continue doing that in the future.

We're going to look at an investor relations group, bringing them into the fold in the near-term. I think it's time for that now.

I think there's positive momentum in the Company on the revenue and profit side so that there's a story for investors now and a strong posture for investment. Clearly, I want to continue supporting that as much as possible. We're already talking about the time it will take to get out and do that.

We're also signing up a scientific advisory board and we've got one individual who's already with us from Dana Farber Cancer Institute and we'll make a formal announcement on that very soon.

And as well, we're talking with a couple of other really prominent M.D. PhD. oncologists that are thought provoking and nationally recognized or internationally recognized. They should be able to help us craft the strategy going forward on the technical side so as we continue making, you know, I think smart decisions on where we do make investment in both R&D as well as collaborations.

Okay. Great. Thank you

My pleasure.

(OPERATOR INSTRUCTIONS) It appears we have no further questions in the queue.

All right. Well, good questions. We're extremely pleased with the results this quarter and we look forward to reporting again in Q3. Thanks very much for participating.

This does conclude today's teleconference. You may disconnect at any time, and have a great day.