Scientific Industries, Inc. (SCND) Earnings Call Transcript & Summary

Good day, and welcome to the Scientific Industries' Reports Fourth Quarter and Fiscal Year 2024 Financial Results Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Joe Diaz, Lytham Partners. Please go ahead.

Thank you. Good morning, and thank all of you for joining us today to review Scientific Industries' financial results for the fiscal year 2024 ended December 31, 2024. With us today on the call are Helena Santos, Chief Executive Officer; Daniel Donadille, CEO of SBI; and John Moore, Chairman. After the conclusion of today's prepared remarks, we will open -- pardon me, before we being this call, I would like to remind all that except for the statements of historical fact, this conference may contain forward-looking statements that involve risks and uncertainties, some of which are detailed under Risk Factors in documents filed by the company with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31, 2024. Forward-looking statements speak only as of the date the statements were made. The company can give no assurance that such forward-looking statements will prove to be correct. Scientific Industries does not undertake and specifically disclaims any obligation to update any forward-looking statements, except as required by law. Now I'd like to turn the call over to Helena Santos, CEO of Scientific Industries. Helena?

Thank you, Joe. And thanks to our loyal shareholders for their continued support during this pivotal time for our company. Fiscal 2024 was a transformative year for us in several ways. First, we welcome two valuable Board members, Mr. John Nicols. He's the former CEO of NASDAQ-listed Codexis, a synthetic biology company. And later, we welcome Mr. Michael Blechman. He's former President of Pharma process control provider named ACC Inc. Both John and Michael's expertise are valuable as we position our company for significant growth. Second, we streamlined our organization and improved operational efficiency. By doing that, we reduced operating expenses by nearly $3 million, and we cut cash used in operations by $2.5 million. Third, we launched the final hardware component of our VIVID pharmacy automation product line, the workstation. This state-of-the-art pill counter integrates high-precision counting with powerful PC capabilities, helping pharmacies improve workflow and system integration. Fourth, as Daniel Donadille will discuss shortly right after me, SBI or our Bioprocessing segment made significant strides in product development and commercialization, launching our DOTS MPS and the DO pills on time, and we entered fiscal 2025 with a strong pipeline of opportunities. So let me give a brief summary of our financial results for calendar year '24. Starting with Benchtop Laboratory Equipment segment. Despite challenges in the lab equipment industry related to destocking from the COVID inventory build-out and other economic factors, as we all know, our Genie product line sales were only 3.6% lower than the prior year. Then regarding our Torbal and our VIVID pill counter, we are optimistic about the future of our Torbal business, particularly after overcoming industry cash flow challenges related to PBM rule changes in the independent pharmacy market. Sales were down in the first half of 2024, but improved in the latter half. The recent launch of the VIVID WORKSTATION is a potential game changer, offering not only superior pill counting but also pharmacy management functions in one space saving unit. It's ideal for the growing telepharmacy market, the remote pharmacy operations market and fulfilling state-imposed verification requirements. I'm happy to say that we've sold our first six workstations through our exclusive U.S. distribution partner, Rx Systems, who is replacing the industry first-mover Icon's product with our own VIVID pill counters. Rx plans to replace the aging fleet of about 13,000 Icon units and to upsell to the target of nearly 20,000 independent pharmacies currently using outdated manual or mechanical counting methods, and this isn't even touching upon the bigger chains of about another 45,000 pharmacies. We are very encouraged by the market reaction to the workstation at our first few pharmacy trade shows of the year. And then regarding our Bioprocessing segment, Daniel will provide an overview of our high-growth bioprocessing operations right after me, which we are very excited about. As I look ahead for fiscal 2025, I believe we are poised for an exciting year. Our Torbal business expanding with multiple workstation units in place, and we are preparing for the launch of a machine learning model by the end of fiscal 2025, positioning us at the forefront of automated pill counting. And our Bioprocessing segment has strong momentum, especially with our shift towards the large mammalian cell culture market, which Daniel is going to speak about. We will continue to be good stewards of our company's finances and make good investments to position us as a world-class bioprocessing company in years to come. And with that, I'm going to turn it over to Mr. Daniel Donadille to discuss our exciting bioprocessing business segment. Daniel?

Thanks, Helena, and hi, everyone, on the call. As we reflect on 2024, it's clear that the Bioprocessing industry continues to operate in a uniquely complex environment. The aftershocks of the post-COVID inventory correction and a continued conservative capital allocation have led to slower-than-anticipated market recovery. Next to that, realities such as trade conflicts as well as geopolitical tensions and uncertainties have further disrupted supply chains, increased regulatory requirements and prolonged procurement time lines. In Europe, economic growth was slow, customers across the sector have remained cautious and budget constraints have extended decision cycles, while in the U.S., many particularly research-driven players are currently deferring investments due to federal budget and grant freezes as well as an unclear outlook for the scientific environment, whereby technology adoption has been somewhat slow and remains a bit difficult to predict. However, we are also seeing careful signs of an approaching rebound and resurging optimism amongst leading industry players. According to McKinsey and others, the global bioprocessing and biomanufacturing tools market is projected to soon get back to double-digit annual growth driven by biopharma markets like complex biologics or cell and gene therapies, synthetic biology expansions beyond into food, agriculture and sustainable materials as well as the emergence of R&D AI. In the recent earnings calls, giants like Sartorius, Danaher or Thermo Fisher shared that they expect demand to recover in the second half of 2025 and into 2026, anticipate deferred investments to pick up and highlight the convergence of digital tools and biology as a major driver of industry growth in the coming years. At Scientific Bioprocessing, we shared this view. And while we recognize the current difficulties of the market environment in which we operate, we also know that as a scale-up, we are uniquely positioned to navigate these complex dynamics with speed, focus and versatility and turn them into new opportunities as much as our technology platform will be able to quickly shift to addressing new demands as well as towards bullish markets. In 2024, we continue to use the transitional market to advance our own transformation. In '25, we are delivering the first integrated version of our Bioprocessing platform, and we are convinced that by 2026, the business will be positioned to capitalize on the projected market rebound and the growing demands for digital real-time data and the next era of bioproduction. Let's dive into the business. Looking at our operative Bioprocessing financials, I'm happy to report that overall, 2024 came in close to our reforecasted projection. Sales compared to 2023 were up 24% at relatively stable gross margins and lower expenditures, which resulted in a net loss reduction of around $1 million. Furthermore, to account for longer technology adoption cycles and resulting slower moving inventory, management conservatively decided to build $285,000 in reserves, which brought reported gross margins down to 58%. But taking that into account, operative gross margins across commercial deals already improved to plus 70%, particularly driven by the new platform, which highlights the value generation potential of the technology and helped SBI hit the original 2024 target for cash requirements. As shared during the last earnings call, product demand in Europe was notably weaker than historically usual until Q3, but for an above-average seasonal year-end in Q4, whereby both the German entity and the U.S. entity exceeded their 2023 sales by 20% and 29%, respectively. As such, Q4 2024 showed quarter-over-quarter growth of 23% and an increase of 31% compared to the same time frame last year. On the cost side, Q4 saw an 11% year-over-year reduction in operating expenses. And on a full year basis, SBI has reduced costs by a total of $800,000, mainly driven by the company-wide cost efficiency program, which we executed during the first half of the year. Overall, 2024 was a continuation of the efforts that began with the change in leadership in 2022. During this time, SBI have developed into a much more productive organization, recording a 70% increase in sales and a reduction in operating expenses, almost 30%, which shows that the Bioprocessing division is on the right path to achieve profitability and drive value. On the R&D side, we are on schedule with all major development tracks and have made significant advancements in key projects. Most notably, 2024 saw us launching the first two key components of the DOTS platform with the market start of -- with the market start of -- sorry, with the -- give me one second, because my screen throws, with my notes, and I will be back in a second. Most notably, 2024 saw us launching the first two key components of the DOTS platform with the market start of the multiparameter sensor and the sensor kits for dissolved oxygen. In parallel, proof-of-concept was achieved for the new pH sensor technology that is set to launch by the end of 2025 and the second-generation liquid injection system, which was conceptualized, both of which will play an important role in fulfilling the value proposition of our integrated platform. At the same time, we have taken on projects beyond our original road map. Most notably, a miniaturized sensor for parallel bioreactor systems after our DOTS platform drew strong interest from key customers, leading to joint development and testing with major partners for possible future road map addition. Next to that, we have generated a first proof-of-concept for nanoparticles as an alternative path for chemo sensing in highly stress-sensitive cultures as well as OTR vessels, or high oxygen transfer vessels. Hence, what we did is completely successful external studies confirming earlier-than-expected applicability of our technology for mammalian cell cultures with both leading academic and industrial partners, which primed us to launch this technology into the cell culture market beginning of January 2025. On the commercial side, we entered 2024 with high expectations for the launch of our DOTS platform. And in May, when we launched it, I'm proud to say that those expectations were really well met. We closed the year with a 24% year-over-year sales growth. We recorded our strongest sales quarter to date with just below $600,000 revenue and had the strongest single month in sales with more than $300,000 in December. The newly launched DOTS platform has already made a major impact. Since its launch in May 2024, the platform contributed around 50% of revenues and quickly became the best-selling product group in the lineup. At the same time, we are extremely encouraged by the fact that 60% of orders came from industrial customers as well as by the fact that large industry players like Merck and Sanofi are expanding their adoption of SBI's technologies. With revenue as a trailing indicator, we were particularly impressed by the strong and increasing market interest in our portfolio and then our vision as reflected in the pipeline as a leading indicator. Throughout 2024, we generated 40% more leads than in the previous year and with a net new pipeline value of $2.6 million, representing a 94% year-over-year increase. As a result, we are entering 2025 with a robust starting pipeline of just below $4 million, which showcases the interest in the existing SBI portfolio, but also reinforces the demand for the products under development like PH and the next-generation liquid injection system and which we will invest further into to drive pipeline growth. Looking ahead, we anticipate a continued recovery in innovation-focused investment, while we remain mindful of the market volatility and short-term challenges, which we obviously closely monitor. Early 2025 may still reflect these pressures, particularly in grant-driven environment, but this does not reflect and affect our confidence for a soon-to-come recovery and a continuation of SBI's growth trajectory. We remain highly optimistic that synthetic biology will not just come back strong, but thrive. The ability to design and engineer biology at scale will be central to solving some of the world's most pressing challenges from medicine to climate to sustainable manufacturing, but it will only be possible with a drastic reduction of the cost of failure in the scale-up from small-scale R&D to production capacity. And this is precisely what SBI delivers. And with that, I hand the call back to John.

Thank you so much, Daniel. In conclusion, we've taken Scientific Industries, a 70-year-old mixing business with a great brand name, and we have built two businesses that are very poised right now to grow our sales, grow our margins, add substantial recurring revenue and that are both going to hugely benefit from coming AI trends. So we're excited to create new shareholder value. And as Tim Cook, the CEO of Apple says, innovation starts after the product launch. And we think there's going to be continuous efforts now that we've made the bulk of the investment in Torbal and the VIVID product line as well as the scientific bioprocessing business where we're going to be expanding product market fit. We're going to be finding new end users for the products. We're going to be adding exciting customers to our product line, and we're going to be -- we think this is going to be a transformational year for creating shareholder value. Thank you so much for listening to our year-end conference call. This concludes our prepared remarks.

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