Precipio, Inc. (PRPO) Earnings Call Transcript & Summary

Welcome to the Precipio Shareholder Third Quarter 2021 Shareholder Update Conference Call. [Operator Instructions] Please note that the conference is being recorded. Statements made during this call may 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 discussed under Risk Factors in our annual report on Form 10-K for the year ended December 31, 2020, 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 over the call to Ilan Danieli, Precipio's CEO.

Thank you, Grant. Good afternoon, everyone, and thank you for joining our Q3 2021 shareholder call. My goal on this call is to give you an insight as to how we fared the recent quarter beyond what you read in our financial statements that were filed last week and to give you some insights into how we see the future. Let me start by saying we had a rough quarter. We experienced several challenges. We dealt with them and have overcome them. With these challenges, thanks to our team, their passion, dedication and commitment to our cost and to the business, I believe we're coming out of this quarter stronger and with more determination to succeed. Let me begin by providing an insight to each of our business segments and then share with you some of the exciting outlook for our company going forward. Let's start with our clinical pathology services. This quarter was the first quarter where we didn't experience the growth we saw in prior quarters. For the 9 months ending September 30, 2021, year-over-year audited revenues of $6.4 million have increased $2.3 million or 55% in 2020. That's a great accomplishment, but in Q3, our case volume and revenues were relatively flat, not great. As in any complex situation, there is rarely one single cause that could be identified as the sole driver of a problem. Like many companies around the globe, we too had to deal with supply chain issues, unreliable courier services, which we depend on, and in addition, internal lab operational issues, which ultimately translated into service issues to our customers. These problems resulted in us losing several customers, fortunately none of them large enough that our revenue declined, but nonetheless, it resulted in us not achieving the growth we demonstrated previously. And nobody likes losing a customer, certainly not us. So our team stepped up and we worked hard to resolve the issues with our mission in mind, which is, first and foremost, providing the most accurate diagnosis to ensure proper and efficient care, alongside our goal of providing our customers with the service they have become accustomed to from us. With that in mind, we worked hard to address those issues. Today, midway to Q4, I'm pleased to report that the operational issues have been resolved. In addition, we have revamped our sales process, and these steps together are starting to produce the anticipated results. I was proud to watch our team step up, embrace the problem head and work hard to fix them. I believe the company's management of teams are measured not when everything is going smoothly, but rather when challenges arise and the way in which these challenges are addressed. Our team performed outstandingly. And this proved us once again what we already knew that there's nothing that as a team we cannot overcome. On the product side of the business, this quarter was a successful quarter for our HemeScreen product. As previously announced in August, we signed an agreement with AON, a large oncology practice, to onboard HemeScreen. This account was introduced to us by our strategic partner, ION Solutions, who did a great job of bringing this customer to the table and helping to close the deal. To date, AON was the largest customer we onboarded, and our team made sure the onboarding would be successful. We conducted on-site training for the lab team and worked with them to ensure a smooth and successful launch. I'm pleased to announce that as of last week, AON went live with HemeScreen. Now like in any process when onboarding new products, there could be bumps along the way. I'd like to share with you a small example of our team's dedication to our customers' success. Our shipments and reagents to AON is worth hundreds of thousands of dollars, and they're shipped on dry ice so that they can remain frozen until the reagent arrives at the customer site and are safely placed in the customer's freezer. Given several mishaps with FedEx on the pathology services side, we weren't going to take the risk of a very [ serious ] shipment to our largest customer. Driving the reagent by car isn't an option given the business. So one of our managers basically volunteered to fly down with a box of reagents in his luggage and personally delivered them to the customer. Now this may not sound like a big deal, but this is not typical in our industry, and our laboratory is well experienced in receiving reagents from other ventures that are either expired or out of [ temperature ], not with Precipio. Without invitation, our team members rose to the occasion and got the job done. This is a major customer with significant expected revenue and gross margins that will impact our business. Once running at full steam, AON, on its own, is expected to reduce our cash burn by approximately 25%. AON is also a very visible customer, and we're actively working to onboard numerous other sizable customers and to grow this part of our business with continued impact on revenue and profitability. Now I know we haven't discussed IV-Cell for a while. And until today, the reality is there hasn't been to report. Unlike our pathology services, we have limited active full [ lab ] business, or with HemeScreen, where we're still able to present the content and onboard customers, with IV-Cell, the onboarding process really requires hands-on, in-person work together at the client site. Given the ongoing disarray of laboratories due to COVID, this really wasn't possible. Having said that, we've not given up, and in fact, I'm pleased to say that we are making progress in several accounts and I hope to have some good news early next year. We still believe that IV-Cell is a groundbreaking technology, and we see the impact to patient care in our laboratory every day. With persistence, I anticipate that we will win customers and then ultimately, other laboratories worldwide will benefit from this technology. From an organizational perspective, we are in the process of reorganizing our company. And starting next year, we will have 2 divisions. The first is our clinical diagnostic services division, which includes our pathology sales team and our lab operations. This division has 2 purposes. The first and foremost is to deliver on our mission to battle the problem of misdiagnosis. From our proprietary processes and technologies to our expert academic pathologists, we continue to demonstrate an unparalleled level of quality and accuracy that impact patient care. This is the core of who we are as a company, and this will always remain the heart of our business. The second purpose of this division is to provide a breeding ground for new technology. Both HemeScreen and IV-Cell were born out of the identification of operational and clinical deficiencies in the way laboratories operate and our desire to improve these efficiencies and provide better patient care. Therefore, our laboratory service has dual purpose: one is to provide clinical results to our customers; and the second is to support our R&D team in continuing to identify, examine and develop technologies for laboratories. The second division is our diagnostics products business. This division will include our R&D team and the product's commercial arm that will be bringing these technologies, such as HemeScreen and IV-Cell and others, to market. We believe that this division is going to be the primary growth engine and profitability contributor for the company going forward due to several factors. First off, this is a B2B business that does not require the customer to repeatedly make decisions to use our products. Once the lab has onboarded and validated our product, it's difficult to unseat us as the incumbent especially when our technology is superior to competing products in the market. From the company's perspective, this means a recurring revenue stream with relatively minimal sales and technical support effort required. Second, this is a higher-margin business due to the economics of the product. And lastly, this is a highly scalable business. Spending less than $50,000, we have recently set up a full production facility that can scale up to produce 25x the volume of products we currently produce. All these factors have a direct impact on company revenues as well as gross margin and profitability. It is our intention to continue to invest more in R&D and build our pipeline of products. With a methodical and disciplined process to evaluate new technologies against market needs, I can already visualize doubling our product portfolio next year and bringing to market new, exciting and clinically impactful technologies that not only provide better economic and operational benefits for our customers but also support our core mission of eradicating misdiagnosis and providing the diagnostic tools to ensure the highest level of accuracy for patients. I want to take a few moments to discuss our IR strategy. I know many of you have been disappointed in the decline of the share price over the last quarter and the lack of news. So have I. Hopefully, you can see that neither of these mirror the actual activity going on in the company and that we made tremendous progress. As insiders, we have the benefit of seeing how our company is advancing and making huge strides towards success. But sometimes, you just need to hunker down, keep your head in the game and focus, and that can result in less communication to the outside world as we just focus on our work and let the results speak for themselves. In the past, we've seen press releases made the stock lift up only to return to its previous position relatively quickly. This volatility is not good for the company nor its existing shareholders. And then a third, institution -- that is not good for institutional investors. As our company grows, our goal is to transition from a micro-cap company to a more mature company that can attract and earn the support of long-term, large institutional investors. That's in addition, of course, to the ongoing performance which ensures stability and continuous long-term growth of the share price and reduced volatility for the share price, of course, for our shareholders. I would argue that if previously the share price was not a reflection of the company value and our accomplishments, hopefully with the results that we've shared today, you can see that that's even more true. Let me give you a few anecdotal financial points to support that. For the 9 months ending September 30, 2021, our audited revenues of $6.4 million have increased by 55% or $2.3 million for the same period last year. The company has also reported increased gross profit of $1.1 million and reported gross margins of 27%, both a 68% improvement in the same period in 2020. There are other financial measures that are just as important. Allowance for doubtful accounts has dropped from around 25% to below 10% as well as the significant improvement in DSO, days sales outstanding, from above 100 days to below 30 days. All those have significant cash impact to the company and demonstrates substantial and continuous improvement in the right direction for us. These are some of the financial metrics that institutional investors look at to demonstrate that a company is on its way to becoming a high performer. In summary, we had a challenging quarter, which we overcame. We are stronger, our team is more resilient, and our business will benefit from the learning we experience as we overcome these challenges. I'm proud to be a part of this team and support them as they translate this dedication and commitment to the ongoing improvement for the business. Our goal is to translate these changes into financial performance and shareholder value for you, our shareholders. We have a unique business model that combines the values of clinical labs with technological capabilities to develop real-world solution to true clinical challenges. I have no doubt that continuing to support our diagnostic services division while allocating resources to our diagnostics products division and building a strong team to execute on these technologies and those in the pipeline will result in real enterprise value for our company and for you, our shareholders. We have some amazing content we are working on, but I'm eagerly awaiting the moment when I can share those with you and enable you to share the pride of being part of the Precipio team. With that, I want to wish our shareholders and their families a happy holiday season. I wish you that while you remain our shareholders, you and your loved ones will never require our services. To those who allowed us to provide the quality and accuracy and to deliver on our mission, know that we are and always committed to that goal. Thank you all for your support, and have a great evening. We'll see you next year.

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