Genetic Signatures Limited (GSS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to this morning's webinar. My name is Maria Halasz, and I am the CEO of Genetic Signatures. With me today is Angie Wang, who is our Head of Finance, and Angie is joining us for the first time. She has recently been promoted, and this is her first annual audit and financial results release. And the fact that, she became quite ill recently right after we released the result has nothing to do with the stress that she may have been under during the course of the audit. With that in mind, I would like to just note the order for the day. The order will be that I'll make a short presentation on the actual results, following which we will open up for questions, and you'll be able to ask. We have had some questions that have been submitted prior to the meeting, and I will start by answering those questions, and then open it for the forum. Obviously, today's topic is the financial results for the 2026 financial year. What we'll be talking about is really, first, I just want to recap on about Genetic Signatures, and the real advantage is all around the company's assets, our product portfolio, and generally where we sit on the market. I will talk about a little bit about the highlights from the financial year, the actual results, some of the key things that we've achieved since I've started in March this year, including the progress we've made on the growth strategy that we've announced on the 10th of June. Finally, I'll talk through some of the outlook and some -- what we see coming in the coming months. So just to recap, we are a respiratory and enteric multiplex PCR solution provider. In addition to these portfolios -- product portfolios, we have molecular diagnostics assays and those will be either regulatory approved by the TGA, FDA or CE marked. We also have a research use only product. We manufacture all our products in Australia in our Maroubra facility under the EasyScreen brand name, and we sell them in U.S., Europe and in Australia. We have distribution partnerships through Europe. We sell direct in the U.K. and in Australia and in the U.S. So what are the key benefits of our products or generally just molecular diagnostics? Well, certainly, our 3base technology provides improved sensitivity, specificity and reliability when it comes to detection of infectious pathogens. We obviously support antimicrobial stewardship in hospitals and GP practices. We provide an increased pathogen coverage of up to 24 pathogens per panel. We provide a multiplex solution to our path labs and hospital labs. Particularly in hospitals when they use our products, we see a reduction in patient burden and an increase in patient flow, which is, of course, a significant health economic benefit. Obviously, it contributes to reduce labor and stress within those work environment for the health professionals that provide those services. And for the hospitals and for the health economy generally, it provides efficiencies. Just to flesh on the market, and we are obviously in the syndromic testing market. And we see that type of testing grow across various regions globally. And it's very much driven by the demand from population growth. Obviously, there's an increased infectious disease prevalence. And increasingly, geographies are more and more aware of multiplex -- the advantage of multiplex testing. Reduced -- $14 million from last year. Our cash outflow was down to $7 million, down from $12.3 million. And we closed the financial year on the 30th of June 2026 with $22.1 million cash remaining. We've reported since that our current cash is $21.3 million. So we are managing to continue to manage our cash flow very prudently. In terms of our revenues, they were $14.8 million, and it's slightly down by 7% to prior year. And that was a result of a couple of things. One is we faced increased competition, which is the nature of any business and particularly molecular diagnostics. And -- but in addition to that, we've observed a delayed and muted flu season this year. Last year, we had a very intense flu season, a lot more testing and a lot more positive cases. This year, positive cases in Australia have been down by 73%. And as a consequence, people probably also tested less. In terms of the organizational restructure, we've completed that in April, and we expect that in 2027, we'll see an annual cost saving of about $5 million as a result of that. We're already beginning to see that, certainly in the last 3 months in the FY '26 financial year, we've seen that those kind of savings have been coming down into the bottom line. What we've also done in April is we signed a 10-year supply agreement with Hvidovre Hospital, one in Denmark. And we have since successfully completed institute validation and received our first commercial order. The actual testing has commenced as well in August. We've secured all our long-term supply agreements. So we've got a very secure annualized revenue that we can expect in the coming years. And we have completed a comprehensive organizational review, the result of which was a 3-horizon resetting of the business, which we've announced on the 10th of June this year. So let's talk about numbers. Obviously, I've mentioned our revenue was down 7% for a variety of reasons. Our cost of materials have gone up slightly. Our net operating cash outflow was also down by 37% and of course, net loss was down 30% to $14 million. All these are really important because what we're doing is we're securing operational runway for us to really reset the business. In terms of employee expenses in FY '26, they were reduced by 16%, and that's just the beginning of what we see as a result of the organizational restructure. And of course, our cash balance is remaining strong at $22.1 million. In fact, as we released $21.3 million as of the release of that report on the 25th of August. So some key highlights and a little bit more color around what we have done. So the first thing we have to really do is really review where the organization is and be pretty frank about what we have to do to make sure that we secure the business and we reset it for growth. As part of that, we've completed the resizing or rightsizing of the company. We've done a line-by-line review of expenditure. And overall, we expect that will come down to a cost savings of about $5 million in this current financial year. That comes on the back of establishing very strict purchasing processes and controls. We've been very prudent in the way we deploy capital. And again, that is something that we're beginning to see on our cash flows. We've also set up an AI policy, and we expect productivity gains like everyone else in the market. It's very difficult for us to measure productivity, but we've got at least 2 areas where we're already seeing that AI enablement actually facilitates the business. And certainly, in administrative functions, we're already seeing that. But in addition to that, in our regulatory function, where we've been able to utilize AI to develop and file a lot of our regulatory work. All of this resulted in an increased cash runway, as I mentioned before. We've also secured our long-term supply agreement. Hvidovre Hospital, was a real win for our EMEA team. This has been in the making for a few months. Obviously, these agreements take a few months to secure. Following the signing of the contract, the team actually successfully validated and started commercial testing, which was a key milestone for the contract to be active. We've done the same in Australia in terms of securing long-term supply agreements. And we've also implemented 2 product upgrades, and that will just allow us to deliver our services much better to our current customers. We also reviewed our instrument strategy. Obviously, the way we deliver our products is through delivering providing robotics equipment to our customers. Our equipment obviously is under constant upgrade. And so we reviewed our next-generation instrument requirements, and we paused an instrument development program that was really focused around the highly customized solution. Instead, we've looked around the market, and we've developed a -- what we developed a strategy to access off-the-shelf solutions. Not only this will be faster to deliver more cost effective, but really brings us into the 2026 and beyond as far as robotics is concerned. So on the 10th of June, we've announced our growth strategy, which rested on 3 horizons, up to August this year, we wanted to stabilize the business. In the next 12 months, we want to optimize our assets and resources to then set ourselves up for growth and then proceed to scale the business. In terms of what we've announced and what we've achieved, we've actually completed Horizon 1, which is around stabilizing the business. We've obviously implemented the organizational restructure. We separately announced that with the details, reviewed our product strategy, and started 2 new product development programs, both of those on the back of strong internal intellectual property R&D. And there'll be differentiated products on the market that will assist us both in terms of increasing sales, but also improving delivery of service and products to our customers. We've signed our Australian contracts and also we have reviewed our market access strategy in the various geographies we've been active, both in the U.S., EMEA and of course, in Australia. And I've discussed quite a bit around the implementation of financial controls that goes through the entire organization, and we put in systems in place for how we deploy capital from very small amounts up to large amounts, and they are very clear delegations of authorities and controls to make sure that every cent that we spend is -- we understand how the return will come back from that. We also have finalized a product strategy and corporate strategy as we've released. As I mentioned earlier, we paused the customized instrumentation development, and we are now well in progress of identifying or finalizing an alternative off-the-shelf instrumentation solution. And we have also developed our APAC market access strategy, recently appointed our Head of APAC for Market access, who is already well in the job of delivering that market for us. In terms of other things we've announced in the 3 horizon strategy under the optimize second phase, was build a culture of excellence. And I can genuinely say that the organization's strengths are its people. We've got an amazing team that is now fully committed to deliver organizational goals. We've also said during the strategic release that we're looking for partnerships. And if you've been looking at the announcements today, you may have seen that -- we announced that we are in discussions with Microba around a potential corporate transaction. In terms of scaling, we're not suggesting that we do that until March, but we're well in advancing planning or progressing at various stages, and that's all around APAC. And obviously, that will be a medium-term outcome for us. But as I mentioned before, we're progressing well on that. In terms of new product launches, we again expect that from early next year, we will be able to launch our first product and later on in the year, the second. We have had a substantial gain when we signed the Hvidovre contract in Europe this year in terms of penetrating the market in an area of infection prevention and control. We plan to progress on that, and we are in discussions with a number of hospitals in the U.K. to broaden our market penetration there. I mentioned about our long-term instrumentation strategy. Again, the well in progress. And as a result, we expect that we bring our instrumentation strategy to -- back to the future much faster and at much more cost-effective way. We've had some questions around the U.S. market. We paused the U.S. market and the reason for that was simply to reassess what will be the most effective market access. It's no secret that we have not achieved the traction we wanted to achieve in that market. And that was -- there was a multiple of reasons why that happened, not the least that the market is moving very, very quickly. It's a very advanced market. So we want to make sure that when we actually spend significant amounts in the U.S., it will -- we will get a return on that. So we have not yet commenced a new strategy in the U.S. However, we've got 3 active sites. And the recent cryptosporidiosis outbreak in the U.S. showed us that our product is unique. Our product is very valuable, but we saw some revenue coming out of the U.S. as a result of utilizing our assays there. And this is my final slide on the outlook. Obviously, we are very intent on growing revenue on Ares stabilized business, with our solid long-term supply agreement. We've got annual reliable revenues coming to the company for several years. And we are also well placed to grow on that given improving customer relationships. Very much focused on profitability. We can't predict when that occurs as yet, because there are too many variables, but we are constantly working both on the revenue increase, and also on the margin discipline side to achieve that objective. We also said that we're going to be changing our business model from a fully in-house development to an outsourced mixed model. And as part of that, we continue to develop one of our products fully outsourced to limit our product risk that might occur, if we develop everything inside and given the more constrained internal resources following the restructure. We will -- we are very much intent on continuing our disciplined capital deployment. And as I mentioned, we watch every dollar. We've got very strict processes in place. AI is very helpful in this for us. We can really monitor where our money is going and how our money is returning. We're also pursuing new growth opportunities. Obviously, APAC is an opportunity that we want to explore further and EMEA with our infection prevention and control value proposition for hospitals is coming through strong, and we expect growth from there as well. And finally, we will continue to focus on partnerships. And that doesn't just include corporate partnerships, which you may have seen this morning's announcement, but it also includes manufacturing, product development and distribution and instrumentation partnerships, which we're actively pursuing with various groups. We are looking at renegotiating our contracts to be more cost effective. We're looking at more volume-based pricing for our partners. And we're really making sure that the current terms of our agreements are reflective of the substantial value we ourselves as a business provide to our third-party vendors. So with that, I close the actual presentation. I thank you for your attention. And I will start by answering some of the questions we have received prior to the presentation.

One question is, do any more contracts look like being signed in the U.S.? So as I mentioned, we paused further expansion in the U.S. until we crystallize our a more effective market access strategy, and we haven't commenced that yet. However, we're actively supporting our current sites. And whilst we're not seeing new sites being immediately signed, we may see revenue continuing to coming through from those sites. Then we've got another question. I am interested to know what the communication has been between GSS and BCAL. Well, we -- I'm not aware of any communications between our companies at this stage. But again, I'm speaking from a management perspective, but I've not been advised by the Board that there are any discussions between the companies at this stage. There's a question about why are we scaled back from your U.S.? And as I mentioned before, there were a number of reasons. There have been changes to both the regulatory environment, market dynamics, new competitors and also a shift in the way diagnostics are delivered. We have to reassess whether we're doing the right thing. We're offering the right solution to customers there. And as a result, we've decided to pause significant investment in the market because we just weren't certain that the results or the returns are going to come back to us. So those are the questions we have received, and I'm going to go into the questions that we've received online. So if you wouldn't mind to give a moment. And I might also ask our Head of Finance, if needed, to address some of these questions herself. Yes. So there's a question around what proportion of the $5 million cost savings in FY '27 would have been eligible for R&D tax rebate? Is the R&D taken into account in calculating the net savings? Obviously, what we've done with the restructure is we really focused on development and market access as opposed to research in the company, whilst we retain research capabilities that have been reduced. And so yes, the restructure will have an effect on our R&D tax rebate. And also, yes, we have actually calculated it into our net savings. There's another question about, again, BCAL, whether we've had any discussions with them. We have not had any discussions with BCAL Diagnostics at this stage. I just saw their change in substantial shareholder notice this morning myself. And I've not been advised by the Board that there have been any discussions between the companies today. What would be the main rationale for a merger with Microba? I think there's a number of things. One is there will be a significant corporate overhead savings between the companies. Microba is in a gut health business. And we also have an enteric molecular license assay. So to some extent, we both have very strong businesses in that area. So that's a synergistic part of our businesses. I think, certainly there will be significant savings around the corporate overhead administrative costs in terms of the business itself, the potentially good share distribution networks -- and this is something that we are exploring currently further. Obviously, we have not done -- nothing is finalized, and we're really currently assessing this opportunity and in the middle of discussions with the companies. So we will be announcing anything else that will be material as these discussions develop. So the next question is around the extend on the 80% holding by BDX and the merger talks with Microba. And I don't think I can add any more than what I've already added on both of those topics. We don't -- to my knowledge, I have not been advised by the Board that there have been any conversations with BDX today. And in terms of Microba, our discussions are really around assessing the corporate transaction. And we're doing a detailed review of what would be -- whether it would be sensible, what would be the key advantages, quantifying those advantages and then coming back to the market with some more information once that's available. So where do we see the main opportunities for revenue growth for us? In the short term, we see some of the -- and when I say short term, 12 to 18 months, certainly new product, increase in our current contracts and new contracts in EMEA and some revenue opportunities out of APAC, although this will be early and smaller. However, in a 2-year horizon and beyond, we see that APAC will provide us with substantial growth opportunities. Obviously, this is a high-risk part of our belief system at the moment because we haven't been out there and actually delivering it. We've got a lot of confidence in both in terms of the team, products and also the opportunity that might be there, and we have started conversations with parties already in that market for potential distribution of our products. So we see that in the short term, 12 to 18 months, it will be existing contracts growth opportunities with new products, new product launches and then APAC is coming online. And beyond that, we'll see growth opportunities there in addition to new contracts in EMEA. We have quite a few questions on BCAL and Microba. And again, I'm not going to be able to say anything more on that. There is a question about who is the right partner for Genetic Signatures, BDX or MAP. And look, we look at every opportunity to scale the business, and we will be making it -- making a recommendation to shareholders on the merits of each proposal that comes to us or each opportunity that we see and we want to pursue. I wouldn't be able to say which opportunity would be better at this stage. We certainly haven't done the work and we haven't done the discussions that would merit a judgment on that or a judgment call on that for you. I don't see any other questions at this stage. I think I've answered all of the 8 questions that were in there. And I note your interest, your deep interest on the announcements today. And because I'm not able to give any more information than what is there at the moment and what I've already said, I think I'm going to close it there. And thank you all, who have attended. I don't see any more questions coming through. Maybe I'll wait a couple of minutes. No, there's no new questions coming through. So I would like to thank all of you who attended today. It was a pleasure to have you on this call. And thank you, Angie as well for attending, even though you're not feeling well. And I will -- I shall close the meeting. Thank you very much.

Thank you, Maria.