Scientific Industries, Inc.
Q2 2022 Earnings Call Transcript
Published:
- Operator:
- Good afternoon and welcome to the Scientific Industries Report Second Quarter of Fiscal Year 2022, Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please, during our conference specialist, . After today's presentation, there will be an opportunity to ask questions. To ask a question, Please note this event is being recorded. I now like to turn the conference over to Joe Darame, Managing Partner. Please go ahead.
- Joe Dorame:
- Thank you, Grant. Good afternoon. And thank you all for joining us today to review the Financial Results of Scientific Industries Inc. for the Second Quarter of Fiscal Year 2022, ended December 31, 2021. With us today on the call are John Moore, Chairman, and Helena Santos, Chief Executive Officer. After the conclusion of today's prepared remarks, we will open the call for questions. If anyone participating on today's call does not have a copy of the press release, you can retrieve it from the company's website at scientificindustries.com or numerous other financial websites. Before we begin with prepared remarks, I would like to remind everyone, certain statements made by the management team of Scientific Industries during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which is 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 this -- I'm sorry, the year ended June 30, 2021. 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, whether as a result of new information, future events, or otherwise. Now, I'd like to turn call over to Helena Santos, CEO of Scientific Industries. Helena.
- Helena Santos:
- Thank you, Joe. Good afternoon and thank you for attending our Company's fiscal 2022, Second Quarter Earnings Call. The second quarter of fiscal 2022 reflected a 7% increase in the company's total net revenues, which was due mostly to sales generated by our Bioprocessing Operations of approximately $403,000, which is double the prior-year same-quarter. And this is attributable to sales of aquilabiolabs products. The product sales of the company's core business, the Benchtop Laboratory Equipment Operations, during the second quarter, were at approximately the same level as the prior year, reflecting increased sales of the Torbal divisions, VIVID pill-counter, and decreased sales of Genie brand products due to raw material shortages, which cost production delays and inefficiencies. In other words, we simply couldn't ship. We are facing challenges and supply of component parts for our products with substantially increased lead times due to underlying raw materials shortages, particularly for digital components. So, while the order input is still at a healthy post-pandemic level, our ability to deliver is hindered by these challenges. This has been true primarily for the Genie brand products. The good news is that thus far, our Torbal brand products have not experienced significant supply chain disruptions. So combined with the first quarter, our company's total revenues for the first half of this fiscal year increased 22% due to high sales of the core Benchtop Lab Equipment. And the first quarter and sales generated from the UH-60 aquilabiolabs products, which we acquired in April of 2021. And John Moore will discuss in further detail. We expect that the order levels for Torbal products when it's continued to increase, and the Genie brand products to remain steady. However, our ability to deliver and therefore recognize the sale, is dependent on the supply chain situation. The gross profit amount to generated during the second quarter was approximately the same as the prior year, which was $1.4 million, with the gross profit percentage of 48.5% and that compares to 50.9% in the prior-year same-quarter, due primarily to increased material and labor costs for the Benchtop Lab Equipment, and decreased percentage for the Bioprocessing Operations compared to last year. And that since last year was mainly royalty revenues, which gave it a higher gross profit percentage. The six-month period's percentages were substantially the same as the quarter that I just discussed. Our operating expenses increased significantly for both the second quarter, as well as the year-to-date period due to the expenses of the Bioprocessing Operations, in particular, the Germany Operation, which did not exist last year, increased product development costs, sales and marketing expenses, non-cash equity comp expense, Investor Relation costs and other professional fees. Other incomes that we recorded this quarter were significantly higher, and that's principally due to taking into income the forgiveness of the Company's second PPP loan, which occurred in December of 2021. Looking at our balance sheet, our cash position at December 31st was approximately $11.2 million in cash and investments, and that's compared to $13.4 million at the end of our fiscal year, ended June 30th, 2021. For the last half of our fiscal year, we will continue to focus on building the Bioprocessing business, as John Moore will discuss in detail, and we will continue to foster our core business so that it can continue to generate immediate positive cash flow for the growth of our company. And with that, I turn it over to John.
- John Moore:
- Thank you, Helena (ph). This is a pivotal quarter for SBI, as for the first time, our product revenue has exceeded our royalty revenue. Our SBI revenue in Q2 was $400,000 of 91.9% and $700,000 up a 143.2% for the first six months of our fiscal year and our blended gross margin was a healthy 69%. As expected, our royalty revenue is declining as our licensed patents expire. In Q2, royalties only contributed 4.8% for $19,000 and 15.4% for a $108,000 of our 6-month bio-processing revenue. We're investing strategically to both grow revenue and develop our new product line of Digitally Simplified Bioprocessing tools. Research and development represent 52% of our cash expenses, and sales and marketing is 42%. Daniel Grunes, the former CEO of aquilabiolabs, is now our VP for Operations at R&D. We're consolidating all research functions in Germany to improve our operational efficiencies. Three of our Pittsburgh-based employees with their supporting lab equipment are relocating to Germany, and we're investing into further infrastructure to ramp up our R&D capabilities. Operationally, all of our manufacturing is being conducted in Germany. We've ramped our inventory from $269 thousand at the beginning of fiscal year, to $822 thousand at December 31, 2021. 48% of our inventory is in raw materials, and 52% isn't finished goods. We've done a good job managing supply chain challenges that have had no problems filling orders on a timely basis. And we're prepared to deliver on the anticipated revenue growth for 2022. Bucky Polk is now our VP of Global Sales and our sales force consists of three professionals in Europe and two in the USA. We sold systems to two OEM accounts, enforce, and bio stream international. Other customers in the quarter included two prestigious research institutes, Max Planck and the Fraunhofer Institute in the biopharma field, we placed systems with Janssen J&J, Boehringer Ingelheim, seamless diagnostic and vaccine developer CureVac. Major chemical customers included Evonik, Clarient, ADM, and BASF Penza. Lastly, the synthetic biology revolution is coming to the food ingredient industry, and we landed two of the biggest international flavors and fragrances and . In all our customer list expanded to over 290 customers, and that's going to be a terrific foundation of replicable customers and opportunities to upsell and expand our footprint and existing customers, as our product development pipeline matures, and we have new opportunities to expand our sales for this growing and clientele. 90% of our sales during the six months were delivered to customers in Europe. Our focus for the foreseeable future is to expand our sales in North America, the world's largest market for Biotech. Adoption by the academic community proceeded the success of aquila sales in Europe, and the U.S. will likely follow a similar path. To that end, we applied for and were awarded a $650,000 grant with University of George's Fermentation and Gene expression Facility, to develop a curriculum for our products. Stay tuned at our annual meeting presentation, and our next quarterly earnings call for further details on how we plan to jumpstart SBI's academic community. Jens Bayer was the head of sales and marketing in aquila, and now serves as the VP of our new marketing department. Jens now has two product managers who are responsible for guiding our R&D team, on what features and functions our new products need to have, and at what price point. This planning is planting the seeds for what we believe we have, the potential to be blockbuster products. We also have two people in digital marketing and content creation. Since in-person tradeshows traditionally have been aquila's dominant source of leads. They've been shutdown due to the pandemic. We've made a major investment in digital marketing. We currently have the leading content on biomass monitoring on the web, and that, plus digital advertising, has generated a strong pipeline of opportunities. In conclusion, we're looking forward to expanding the sales of our existing products to the USA and the launch of our new software developed under the project name COCO. And our dissolved oxygen and Page sensing customers products with beta customers in the first half of calendar 2022. Likewise, the launch of our new reader by the end of calendar 2022 will further accelerate our growth. The importance of the software launch is that we'll bring new and existing customers the first adaptive control for experiments and shake flask. This means customers that are using a new-generation desktop gene-editing tools, we'll finally have an affordable system for high throughput characterization and ranking of hits had 10% to 15% of the capital and operating costs for their current alternatives. The launch of the hardware at year-end will deliver the Biotech industry the only miniaturized, multi-parameter sensing system, which will enable them to extract value from the significant investments, they are making in the emerging, life science Internet of things, which promises to transform the current workflows, from the lab to process, development and manufacturing. We're excited about the future, and the significant business opportunity year investments are allowing us to unlock. This concludes our prepared remarks, and Helena and I and the senior management team are available to answer your questions.
- Operator:
- John Moore:
- I think we just like to say thank you so much to our great community of investors, and we're particularly happy to have our friend Sam Rebotsky, hale and hearty and with us on the call. So thank you so much. Helena, do you have any concluding remarks you want to make?
- Helena Santos:
- No. Thank you.
- John Moore:
- Thank you.
- Operator:
- The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.