Precipio Inc (PRPO) 2021 Q4 法說會逐字稿

Welcome to the Precipio fourth quarter shareholder 2021 shareholder update conference call. All participants will be in listen-only mode. (Operator Instructions) Please note that the conference is being recorded.

Statements made during this call contain forward-looking statements about our business. You should not place undue reliance on forward-looking statements as these statements are based upon our current expectations, forecasts, and assumptions and are subject to significant risks and uncertainties. These statements may be identified by words such as may, will, should, could, expect, intend, plan, anticipate, believe, estimate, predict, potential, forecast, continue, or the negative of these terms or other words or terms of similar meaning. Risks and uncertainties that could cause our actual results to differ materially from those set forth in any forward-looking statements include, but are not limited to, the matters listed under Risk Factors in our annual report on Form 10-K for the year ended December 31, 2021, which is on file with the Securities and Exchange Commission, as well as other risks detailed in our subsequent filings with the Securities and Exchange Commission. These reports are available at www.sec.gov.

Statements and information, including forward-looking statements, speak only to the date they are provided, unless an earlier date is indicated. And we do not undertake any obligations to publicly update any statements or information, including forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Now let me hand the call over to Ilan Danieli, Precipio's CEO.

Thank you, Anthony. Hello, and good afternoon, everyone, and thanks for joining our 2021 fourth quarter year end shareholder call. Thanks also to those who sent in their questions, we've done our best to incorporate them into today's call.

My goal today is to give you some insight into how we experienced the recent quarter and how we close out 2021 overall beyond what you read in our financial statements that were filed last week. And lastly, to give you some insight as to how we view the upcoming year, and the expected contributions of each division and the expected impact on shareholder value.

Let's begin with this fourth quarter results. In Q4, we got back on track, closing the quarter with revenues of $2.4 million, an increase of 8% from the prior quarter and year over year increase of $0.5 million or 25% in Q4 2020. For the full year of 2021, revenues increased from $6.1 million to $8.8 million, a $2.7 million or 44% increase from 2020. Our sales team in our internal lab operations are back [double]. We resolved the operational issues and are humming on all cylinders.

From sales conversion metrics, the turnaround time results from COGS to DSO. I'm pleased to report that all metrics are moving in the right direction. This is important because it enhances the performance of the diagnostic service division, and it also enables the company's leadership to focus on growing our new products division, more on that in a few moments.

I'd like to take a moment to discuss Carl Iberger's resignation. Obviously, we were saddened to see Carl resigned as our CFO. Carl joined us in late 2016, several months before we completed the merger and became a public company. I don't think there were many moments in my career where I was more concerned with the adventure, we were about to embark on than at the months leading up to us going public. Remember, I was a tank commander in the Israeli army. But having Carl in our corner gave me the confidence to know we have what it would take to pull this off.

It's safe to say we wouldn't be where we are today without Carl. The organization control, structure, and discipline he brought to the company were critical to getting us through the tough times to a point where we now have a solid operation and a clean, strong balance sheet that enables us to execute on our growth plans. But most important in this capacity, Carl accomplished what many managers fail to see as a key goal a manager could achieve, to build a team to the point where the team can function without them. And that's precisely because of this skill that I know the Carl leaves the finance team that is well equipped to continue to support the company's growth.

Matt Gage, our Director of Finance, who stepped in as interim CFO. Matt has over 20 years of public company finance experience and was Carl's right-hand guy throughout the past five years. I look forward to work with Matt and have full confidence that he and his team will continue to function as well as they did with Carl.

Next, I'd like to review some of the actions we've taken to position the company for further growth. As mentioned, our revenues from diagnostic services grew both QoQ and YoY. I'd like to mention a few key drivers of this growth. First, improved sales team management and performance. Our team is now better trained, better equipped, and better positioned to deliver our message to our customers. We're also seeing access to customers improved with the ability to meet with customers in-person, which significantly impact the prospecting and sales process, as well as interaction with existing customer. This resulted in an increase of 23% in case volume in 2021.

Improved operation. We took various steps to revamp some of the lab operations, resulting in an increase in cases reported within the committed turnaround time from 80% to 96%.

Third, cross-pollination between products and our services division. Last quarter, one of our HemeScreen customers also became a diagnostic service (inaudible). This is the first time that we've seen this cross-pollination effect actually materialize, where the relationship and quality of our product open up the discussion to the other side of our business, the diagnostic services; and we ended with the customers served by both divisions.

The single customer at full throttle is expected to generate over $1 million in combined diagnostic and HemeScreen revenues. This is an exciting validation of our business model, and we expect to see other customers follow through.

Our product division continues to grow in two dimensions. First, we add more customers. The second is the customers growing revenue organically by adding more of our products. Most our HemeScreen customers begin with a conservative volume they commit to knowing they will grow into their full revenue potential. This has been the case with the majority of our customers, which increase our commitment volume, sometimes by more than double since they started.

In a recent conference we attended, we were able to finally meet in-person with many of our prospects to whom we have previously presented only via video call. To anyone who's tried to build the business relationship, you know that making a sale over video calls is virtually impossible. That's why the in-person meeting, especially in this recent conference was such a huge boost to our ability to gain more customers. We anticipate that over the next couple of quarters, we're going to see accelerated growth as our sales team can visit with the customers in-person, build a relationship and the trust, which translates into business.

Our HemeScreen product portfolio currently includes three panels: the NPN, AML, and Anemia panel. We recently completed the update of the Anemia version 2.0 panel, following changes to the guidelines to be launched this quarter. We also expect to launch the long-awaited CLL panel, which has been delayed due to multiple changes in guidelines expected to be adopted by the various regulatory bodies, such as the NCCN and the WHO, also this quarter.

As for IV-Cell, we're beginning to see the relaxation of the strict policies laboratories we've adopted during COVID, and we hope this translates into active customers, more of that to come in the coming month.

We're focused on the product side for two reasons. First, this is a new development division in our company compared to the diagnostics service division, which is well established. Second, we believe each product addresses a substantial total available market and has significant demonstrable and sustainable competitive advantages. Management expects that the company will continue to evolve over the next 12 to 24 months to build its technology biotech products business with the portfolio of proprietary technology that is expected to generate revenues and strong margins, while staying true to our mission of eradicating problem of mis diagnosis through our diagnostic services.

Diagnostic services five and our laboratory will remain a mission critical component. After all, none of our products would have existed were it not for the experience we developed in the laboratory using processes that needed a better solution. Our experience also taught us -- we gained substantial credibility with our customers when we tell them that we are user of each technology we developed. Being able to support our customers via our own lab experience, delivers a credibility level that no other manufacturer in our industry can provide. Exact, precise cross collaboration between the two divisions: diagnostic services and product division, that differentiates our company from any other diagnostic ones.

We developed a unique three-pronged business model. For one side, we have an R&D team that can develop proprietary technologies that solve the overall problem. In parallel, we have the functional operating diagnostic laboratories where we identify the technological needs, we test the products we develop and end up using them within our own laboratory. But let's not forget, the diagnostic laboratory is a revenue generating nearly cash flow breakeven division, essentially creating a low-cost R&D function.

If you look at other competitors, they are either diagnostic services companies facing continuous scale up revenue and margin challenges or they are biotech companies creating product while as spending $10 [million] on R&D, and they sell them become a user of their own technologies. We feel that we have a unique value proposition both from a customer, operational, and financial perspective through the combination of both divisions.

I'd like to close with a few thoughts on our company goals for 2022 and how we see those goals translating into shareholder value. Keep in mind that while we feel with the focus and dedication, they're attainable, we also need to be mindful of the fact that we live in a world where pandemic, hostile nation invasion, and other market instabilities can always impact our ability to achieve these goals. And I thought it'd be helpful to share them with you, so you know how we're looking at the future and where we want to go. As my marketing professor from business school recited the famous Alice in Wonderland quote: if you don't know where you're going, any road will take you get there -- while we're laser focused on our goals and where we want to go.

But let me map out to you where I'd like to see our company and each of our divisions at the end of 2022, and then I'll discuss the potential impact of shareholder value.

We have three goals in mind. Number one, we start with the goal of our diagnostic services division. We ended the year at a run rate of approximately $8 million of revenue. Given the business operation and cost structure of operating a lab, this division takes even at around $12 million. Our goal for 2022 is to reach that revenue model.

At that point we will not only have a division that could potentially grow to profitability from there, but we'll also have a cash neutral R&D operation that enables our products division to create new products that virtually no cost. This is unparalleled in the biotech healthcare world. As mentioned, we recently added a new customer with $1 billion revenue potential. So, with that accounts, we will be at 25% on the way to achieving that goal.

Goal number two is for the product division. We are at a current annualized revenue run rate of approximately $2 million per product sales. All generated solely from our HemeScreen MPN panel. Our goal by the end of 2022 is to reach an annual run rate $10 million, led by our two current products, HemeScreen with its [four live panels live] and IV-Cell each with a total available market north of 100 million, and with customers generating recurring revenue both domestically and internationally.

Our sales pipeline is more than adequate to help us reach that goal even without the organic growth I described previously. Our team will be working hard to add customers every month. The goal is aggressive, but I also believe it's attainable.

I also want to see us live with two to three new products from our development pipeline with similar market potential ready to be launched in 2023. At that point, given the attractive margins that the products division generates, our company is expected to be either close to or profitability with a strong growth trajectory for this division.

The combination of these goals will make us one of the few biotech companies that are able to reach profitability and cash independence at $20 million revenue run rate. Look around the industry, I challenge you to find another company with that kind of attractive financial structure.

Goal n umber three is our balance sheet and cash position. We ended Q1 2022 with $9.2 million in cash. That gives us approximately five quarters of runway, if we were to remain at our current operating cash burn rate, which we are decreasing with each new customer we onboard.

If we achieve our goals, as mentioned earlier, we expect that we will have no need to raise capital defensively, in other words, to cover proper operating cash losses; we'll be able to move into the profitability zone, building up our cash reserves to further reinvest in our growth.

Now, I'd like to consider what would be the value of a company that has accomplished the following. A has a revenue-generating diagnostic service division that doubles as a cash neutral R&D facility to develop future products. B has a product division with existing products that have demonstrated the value within major markets and are trying to capture more major market share and a division with a pipeline of additional disruptive technologies in the pipeline. And C, a company with a strong balance sheet either at or very close to cash flow positive and with plenty of runway to achieve profitability.

Now ask yourself what might a company like that be worth? At our current market cap, we're trading at approximately four times revenue. And this is with the splits between diagnostic services and product revenues of approximately 90 to 10.

Now imagine if it's 50 50. With strong margins and demonstrated market penetration both domestically, and the company with cash flow positive, with a strong balance sheet. What might the multiple be then? I'll leave you with those thoughts. That's where I'd like to see the company at the end of the year of 2022.

I hope these closing thoughts have provided you with an insight beyond our recently filed financial statements. These are the goals that our management team is focused on, and this is the best way we believe the company can create tremendous shareholder value. Thank you all for your ongoing support and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.