Precipio Inc (PRPO) 2023 Q2 法說會逐字稿

Welcome to the Precipio second-quarter 2023 shareholder update conference call. (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 30, 2022, 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 obligation 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. Please go ahead.

Thank you, and good afternoon. And thanks for joining our Q2 2023 shareholder update call. Now that you've had a chance to review our quarterly results as well as see our recent press releases on revenues, growth, and our cost savings initiatives, I'd like to provide a bit more color as to where we stand midyear and some of the initiatives we are working towards.

Our main goal for 2023 is to reach breakeven and financial independence. That means we will no longer need to raise capital to cover cash burn. We won't need vehicles such as the ATM. We can eliminate all the structures that create an overhang on the stock.

We are fully aware of the fact that the biggest weight on our share price is the risk of the company needing to raise more capital, creating further dilution to shareholders. That's why management is laser-focused on two things, and two things only, revenue growth and cash burn reduction.

So today, I'd like to spend some time on both of those aspects to give you a bit more of a flavor beyond the recent reports and press releases. Let's start with revenue growth. As you know, we have two revenue-generating divisions, our pathology services division and our product division. For the pathology services division, let's start with the goals, which are very simple.

Given our case mix, average revenue per unit, and gross margin, the breakeven point for the division is approximately $14 million annual run rate. This translates into $3.5 million per quarter or a little under $1.2 million per month.

In Q3, we did $2.7 million in revenues or 77% of that goal. However, in July, for the first time in the company history, we exceeded $1 million. And we are at about 85% of the goal and about $150,000 shy of where we need to get to.

My point is, we're very much trending in the right direction. And with the addition of new customers, as well as bringing NGS testing in-house, we expect to continue on our path towards reaching that goal. Without providing guidance, my sense is that by the end of the year, we have a pretty good chance of achieving that goal and reaching breakeven for the pathology division.

Moving to the product division, here as well, we see continued growth on all fronts. For the product division, the goal is to reach an $8 million annual run rate, which equals $2 million per quarter, bringing the entire company to breakeven.

We ended the quarter a little under $900,000, which is approximately 45% of the target. However, in contrast to the steady and gradual growth on the pathology side, on the product side, revenues increase in a step manner. (technical difficulty) customer we add. And the bigger the customer, the greater the step.

So let's look at our growth and what we see going forward. We continue to achieve three things that move us closer to that goal.

First, we continue to add new customers to grow our customer base. The revenue stream is predictable because it's driven by the customers' ongoing case volume, which is relatively constant. So each customer creates an annuity revenue stream that adds to the building blocks of our revenue.

Second, we continue to see adoption of additional panels by existing customers. This adds to those building blocks and increases the revenue per customer. And these panels also create a constant, ongoing, and predictable revenue stream.

I'd like to point out that this predictability is incredibly important not just to the revenue projections and forecasting. From an operational perspective, as we scale up the business, this creates significant efficiencies in terms of purchasing raw materials, production runs, and inventory costs, et cetera, all elements which drive better gross margin for the business.

Third is our pipeline. As we continue to work with our key distributors, we continue to open doors to new customers, and with that, our pipeline grows. As we stand today, we're looking at a pipeline of over $10 million in annual revenue. And we expect that the pipeline will continue to grow as we add more opportunities. If we close 40% of today's pipeline, we are there.

Another thing I'd like to discuss is the broadening of our HemeScreen offering. We recently announced our new BCR/ABL panel, which I believe will be a game changer in the market. It is by far a superior product to all other competing products. And already, we're seeing customers who are looking at switching from their current assay to ours.

Since we only launched this product recently, it's not yet factored into our customer base additions, nor to our pipeline. But I believe it will give a substantial boost to our revenues, as well as customer penetration. Because it really completes our product offering and provides a very attractive solution to laboratories running these tests. We're very excited to see the impact of this new panel.

I know we haven't said much about IV-Cell recently. This is because we're focused on our high-volume, high-margin product, HemeScreen. Therefore, we've allocated very little sales or marketing resources to IV-Cell.

Nonetheless, we have several IV-Cell customers in the pipeline who reached out to us and are in various stages of production evaluation, validation, and onboarding. I do think that next year, once we've achieved our financial goals, we'll be able to divert more attention to this product.

Someone asked if we've lost faith in this technology; quite the contrary. It's a matter of priorities and identifying which product gets us to the financial independence we're striving towards this year.

Big picture strategy for the company. Although HemeScreen has a total available market of approximately $500 million per year and IV-Cell has a TAM of $250 million, these are only two product lines. And you don't get to become a billion-dollar company with a couple of product lines.

This year is all about achieving cash flow breakeven and financial independence. We first want to eliminate our needs to access capital markets as a source of covering cash burn. And in order to reach that goal, our sales and marketing and R&D teams are solely focused on HemeScreen, which is our golden goose.

Having said that, in 2024, we plan to turn our attention to focusing on new product development and expansion of our technologies. And as the HemeScreen product suite reaches its goal from a portfolio perspective, the R&D team can turn their attention to developing these other technologies. This will create product and revenue diversity and reducing the company's risk reliance on one technology platform, expanding our reach into new areas.

Next, let's discuss our cost-cutting measures. First, I want to be clear. This is not an exercise in cutting out the fat, simply because there's very little in our company. We've just always operated in a very lean manner. This initiative is about identifying better ways to run the business in a more cost-effective manner.

Initiatives like the billing transitions have already taken effect, and we're projecting a positive net impact of over [$0.25 million] in cash annually. Restructuring our pathologist operations will accomplish a similar number.

Other operational initiatives that involve better inventory management, workflow efficiencies, and changes in how we do business, all aimed at reducing cash spend, are being put into place (technical difficulty) their impact. Our monthly cash burn continues to drop, and that is the key number we're looking at.

When it passes the zero mark, this will be a very different company. In the 12 years since the company was founded, I think that would be the happiest news announcement we get to make.

Finally, let's talk about the share price. Nobody's more frustrated than I in seeing the stagnation on the share price. But like most complex situations, there are multiple drivers to this. Our analysis tells us the main reason is the potential overhang of the concern that the company will have to raise more capital.

This is, in our notion, the key driver of any shorting and other price-depressing mechanisms in the market. As we continue to deliver results and the market realizes that with our cash position and our roadmap to breakeven, we will not need to go back to the market to raise additional capital for cash burn. At that point, we believe the downward pressure will subside.

Now, I'm not going to sit here and give excuses (technical difficulty) market and the global economy. At the end of the day, our company needs to reach financial independence. The good news is our model shows us that if we continue to execute along the path we're on, we're going to get to that with no additional capital.

As for the elephant in the room, the reverse split, we are prepared for all scenarios, which obviously include actuating reverse split. I know there's a lot of negative connotations around doing a reverse split. But allow me to remind you of a few factors.

Number one, reverse split is merely an exchange of 10 $1 bills for one $10 bill. There is no impact on the value of anyone's holdings. When a company decides to perform a reverse split, it increases the share price while decreasing the number of shares, all without a change in its market value.

And the same is true for every shareholder. There is no change in the value of your holdings in the company. The negative connotation typically arises from a reverse split when a company is not performing. This is not the case in Precipio's situation.

We are growing on all fronts. We are reducing our cash burn, and we have a clear pathway to breakeven with the cash we have in the bank. That is a very different scenario from what many companies who undergo a reverse split.

In addition, a reverse split puts the stock price back into the range where many more investors can look at and consider investing in the stock. As I'm sure you're aware, many brokers and banks have minimums of $1 or $2 for them to trade in any stock.

Moving the share price back into that range expands the demand, which is why, oftentimes, companies see a significant pop in their stock price immediately after a reverse split. Now, obviously, the company has to continue to perform in order to maintain that level. And I think we're on the right track to doing just that.

Would we like to regain compliance organically? Of course we would. But I also think that at the end of the day, as we continue to perform, if this is a mathematical transaction -- if it happens -- not a value-changing one that may result in some of the benefits that our shareholders can realize.

Right now, our focus is on the aspects I've discussed today: increasing revenue, reducing costs, reaching breakeven. When we deliver those, I have no doubt that the market will value us at what this company is really worth.

I want to thank you for attending the call today. And I look forward to connecting with you again in our next quarterly results. Thank you, and have a nice evening.

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