Trinity Biotech plc
Q1 2024 Earnings Call Transcript

Published: 23 May 2024

[Operator:]

Greetings, and welcome to the Trinity Biotech First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Eric Ribner, Investor Relations for Trinity Biotech. Thank you. You may begin.

[Eric Ribner:]

Thanks very much. Before we begin, please note that statements made during this presentation may be deemed forward-looking statements within the meaning of federal securities law. These statements are subject to known and unknown risks and uncertainties that may cause actual events to differ from those expressed or implied in such statements. These risks include, but are not limited to, those set forth in the risk factor statement in the company's annual report on Form 20-F filed with the Securities and Exchange Commission. Trinity Biotech undertakes no obligations to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrence of unanticipated results. And with that, I will turn it over to John Gillard, CEO of Trinity Biotech.

[John Gillard:]

Good morning, everyone, and thank you for joining today's call. We appreciate your interest in the company. This quarter, we are pleased to report significant advances are being made across our entire business. We are growing our revenue base while, at the same time, delivering higher profit margins. We had almost 40% quarter-on-quarter revenue growth in Point-of-Care revenues driven by the successful scaling of rapid HIV test output. This was accompanied by a 360 basis point improvement to gross margins quarter-over-quarter. We remain on track to achieve annualized revenues of approximately $75 million by Q2 2025 with approximately $20 million in EBITDASO. That is earnings before depreciation, amortization, tax and share-based compensation costs from our existing business. Now let me walk you through some of the key achievements and provide more details across the 3 main priority areas for our new leadership team, which were

[Des Fitzgerald:]

Thanks, John. Before I speak to our financial results for the period, I want to take a moment to mention the most recent correspondence we received from Nasdaq around our continuing Nasdaq listing. On November 21 last year, we received a deficiency letter from Nasdaq notifying the company that for the preceding 30 consecutive business days, the market value of our publicly held shares remains below the minimum $15 million for continued inclusion on the Nasdaq Global Select. At that point, we were provided a 180 calendar days to regain compliance. This 180-day period ended on May 20 of this year. And as expected, yesterday, we received a further notice notify enough that we have not regained compliance. We intend to seek a hearing from Nasdaq. And that will put a stay on any further action until that year. We have appointed specialist adviser to support us in this manner, including the preparation of a comprehensive and compelling compliance plan. The Board has determined that the company will remain Nasdaq listed. And I know from speaking with our top investor that they're supportive of the company maintaining the listing. We'll update shareholders throughout the process. Now I will speak to our financial results for the first quarter of 2024. Our revenues for the first quarter of 2024 were $14.7 million compared to $14.8 million for the first quarter of 2023. Our Point-of-Care business experienced a strong performance in the quarter with revenues increasing by $0.8 million or 38.5% to $3 million. This increase was driven by our HIV screening test, TrinScreen, which had sales in the region of $1.2 million as we shipped further products to Africa following our more initial shipments in December 2023. In addition to this, we have received substantial orders for TrinScreen HIV post quarter end with our revenue for the year expected to be in the region of $8 million. Our clinical laboratory revenues decreased by 7.6% to $11.7 million compared to $12.7 million in the same quarter last year. Despite this drop, there is a strong performance from hemoglobin business, which experienced a 6.4% year-on-year increase in revenue. This, however, was more than offset by decreases in our lab services revenue due to previously reported -- due to the previously reported loss of our transplant testing activity at our Buffalo lab in early 2023. Our gross profit for the quarter was $5.5 million, representing a gross margin percentage of 37.6%, in line with gross margins in the same quarter last year. We recorded improved margins in our Hemoglobins business in the quarter on the back of the optimization of our instrument manufacturing supply chain and our revised in-house manufacturing process, which we fully implemented by the end of last quarter. Offsetting this was the impact of our TrinScreen HIV test, which were achieving lower gross margins than our other products. Increasing sales of TrinScreen over the remainder of 2024 will continue to dilute our overall gross margin percentage, although we do expect TrinScreen HIV to contribute additional gross profit as we progress through the year due to the various cost-saving initiatives that are underway as detailed by John. Additionally, we expect to realize further financial benefits of the previously announced cost-saving initiatives across our business throughout this year and into 2025, again, as John detailed earlier. Research and development expenses for the quarter were broadly flat. Following on from our acquisition of the Waveform assets in January, we continue to progress the development of our CGM offering, in line with our communicated plan. Our overall spend in the quarter related to our CGM biosensor division, including what was capitalized in line with IFRS accounting standard was $1.3 million for the quarter with ongoing spend per quarter expected to be less than $2 million. SG&A expenses for the quarter were $7.5 million, $1.1 million lower than the $8.6 million we incurred in Q1 2023. Key drivers of this improved SG&A expense include lower recurring salary and contractor costs in the last quarter versus the comparative period driven by headcount optimization activities in the latter half of 2023, together with other cost savings across our SG&A base due to the benefits of our cost-saving initiatives across the nonsalary expense base over the last 12 months. All of the above led to an operating loss of $3 million in the quarter compared to $3.9 million in Q1 2023, a decrease in loss for the period of $0.9 million or 23%. Net financial expenses in Q1 2024 was $0.2 million compared to $2.4 million in Q1 2023, a decrease of $2.2 million. The reduction in financial expense this quarter is as a result of the renegotiation of the terms of our term loan with our main lender, Perceptive Advisors, in January 2024. We obtained a 2.5% reduction in the base interest rate for the term loan. The amendment of the term loan is treated as a loan modification resulting in the recognition of a once-off noncash modification gain of $3.6 million in Q1 2024. This gain was based on the difference between the existing carrying amount of the loan as at the modification date and the revised carrying amount. Additionally, the fair value movement to our derivatives associated with our term loan and associated warrants was $0.7 million in the quarter primarily driven by a fair value movement of the warrants granted towards [indiscernible] Perceptive. Offsetting the above was an increase in the term loan interest expense of $0.4 million when compared to Q1 2023, this was driven by a higher outstanding loan balance, albeit at a lower prevailing interest rates in [indiscernible] earlier. Net loss from continuing operations was $3.3 million in the quarter compared to $6.3 million in the same quarter last year, an approximate 47% reduction. Loss before depreciation, amortization, impairments, tax, interest and share option charges, i.e. EBITDASO, was $1.5 million for the quarter compared to a loss of $2 million in the equivalent period last year, an approximate 25% improvement. Basic loss per ADS was $0.37 compared to $0.76 in Q1 2023. Our cash balance increased from $3.7 million in Q4 2023 to $5.8 million at the end of Q1 '24. Cash used by operations was $4 million in the quarter. Our sizable core operations, during the quarter, the company had an investing cash flow of $14 million, the largest element of this related to the outflow for the acquisition of the Waveform assets at $12.5 million. Cash inflows from financing activities were $18.8 million in the quarter primarily driven by net proceeds from the January 2024 drawdown from our lender of $21.7 million. This is offset by our quarterly interest. Now I will hand you back to Eric for questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Jim Sidoti with Sidoti & Company.

[Jim Sidoti:]

Can you talk a little bit, let's start with the TrinScreen sales? Is everything of the 8 -- is all of the $8 million in 2024, is that all to Kenya? Or do you expect to be -- start shipping to other countries in 2024?

[John Gillard:]

Jim, thanks for the question. For commercial reasons, we're not going to give that level of detail at this point, right? But what I will say is we do expect to be shipping to other countries outside of Kenya in 2024.

[Jim Sidoti:]

Okay. All right. And it sounds like there was a considerable amount of onetime on the costs in the quarter as you ramp up production. Can you give us -- can you quantify that at all, the onetime costs to ramp up production for TrinScreen?

[John Gillard:]

It's less onetime cost, Jim, in terms of -- like the CapEx is already spent. It's really around training the staff and then them getting up to speed. The lack of efficiency, I suppose, comes from that space. As I said, we're introducing further automation in June, right? That will further increase our efficiency. And then we're also getting much better pricing on our input materials as part of the work we've done in the supply chain. So it's really just a kind of transition as we move forward from initial scale up to kind of run rate manufacturing and run rate supply chain. But we do expect it will have a significant impact. And we always knew TrinScreen would have a lower margin contribution because of the lower pricing point in the screening market rather than the confirmatory market. So that was nothing that was not new to us or it's not known to us. But really what's happened here is we've had to ramp up so quickly, which is a great sign of success, but that also brings our challenges as we would have expected it takes time for that to bed in. The flip side is these much greater volumes, not just in TrinScreen but across our rapid HIV products generally give us more leverage to negotiate with suppliers and get better pricing. So overall, we'd expect better profitability contribution from our rapid HIV business as a result of this increase. And then obviously, with the move later in the year to assembly in an offshore location going live, we'd expect that to deliver further increases in margin contribution. So overall, we do expect our margins to increase and not just in Point-of-Care but across the organization and our main revenue lines through the various initiatives that we're putting through. And I think as I said in the last call that we would expect our margins to be 50%-plus in 2025, and we still expect that to be the case.

[Jim Sidoti:]

Okay. All right. If we move over to the hemoglobin business, it sounds like you've made significant progress on shifting production and lowering the cost for that product. How about on product development side? Do you have everything in the market now that you expect to have in 2024? Or do you expect to have new versions of your premier system out there this year?

[John Gillard:]

So our key next product development is around the new column and buffer combination. And that's really what gives a higher number of injections per column, and the column is the main consumable that we sell. It also provides greater stability, requires less what's called calibration, which is a kind of overhead that our users have to incur. So it has more usability, lower cost, lower consumption of key raw materials. So that, I suppose, Jim, is our next key innovation that we're now bringing to the market. In terms of the instruments, we have been making changes in the background on that. As part of our supply chain optimization, we've not just been looking to reduce the cost of those components. We've also been looking to increase the reliability. So we carried out an analysis of what were the main parts of that component -- the main part of that system that failed. And we've looked to change those out either through supplier changes and/or engineering design changes. So that's really, I suppose, Jim, what we're doing to drive innovation within that. We continue to look at the medium throughput -- low to medium throughput device, which we typically call the T-10 or the T-20, and that's something we are continuing to look at in terms of the appetite for throughput through that instrument if and when we bring it to the market. And -- but for now, our focus is really around rolling out the column and rolling out those changes in the 90 to 10 from a reliability perspective.

[Jim Sidoti:]

Okay. All right. And then on the CGM side, you said development costs this year should be less than $2 million a quarter. Going forward, do you think that number ramps up in 2025 as trial activity continues? Or do you think that $2 million per quarter that stays relatively flat going forward, maybe not 2025, but in general going forward, should that number stay around that level?

[John Gillard:]

Yes. So look, what I indicated in the past is we continue to spend on CGM while we continue to see real progress, right? And believe that we have a disruptive product that we can really make a significant contribution to the market. As I set out in my prepared remarks, we're more confident that now than ever, right? You're absolutely right, Jim. I think in 2025, as we move to pivotal clinical trials, that will increase our expenditure. But we'll only do that if we have a very high degree of confidence that the product would perform well in those trials and will support to getting regulatory approval. What are the benefits of doing this within Trinity is we have a large, large degree of experience in taking products through regulatory approval processes, both from the Trinity team that have been here a number of years and also some of the more senior people we've brought in over the last couple of years. So I think from our perspective, we wouldn't -- we would only go into that process, as I said, with a high degree of confidence. And from an investment and return perspective, Jim, that will be a very compelling proposition I would expect considering the size of the market and the opportunity we believe we have to disrupt it.

[Jim Sidoti:]

Okay. All right. And the last one for me, interest expense. I know you had the onetime adjustment in the quarter this quarter. So going forward, though, for the remainder of 2024 with the new debt level and the new interest, what should we assume a good number is for interest expense?

[John Gillard:]

It's about 2.5 a quarter, I suppose, Jim, based upon that debt level, yes.

[Jim Sidoti:]

Okay. All right. Well, it definitely sounds like you've made a lot of progress on the cost side. So that was good to see. And especially with the increasing revenue from TrinScreen, it should lead to much better operating results. So that's very good to see. So I guess we'll just have to stay tuned to see how development goes on CGM.

[John Gillard:]

Yes, Jim. Look, we’re – as I said, we’re very happy with the progress we’ve had. We’re very happy with the team that we’ve built, and actually, to reiterate a point I made in my prepared remarks, was to be really enlightening for us is the rich partner network that’s out there in terms of people that have built already components, both from a physical perspective and a digital perspective for this type of industry. And I suppose doing this development within an established company like Trinity, where in many cases, we have long, long relationship with these customers means that we’re much more credible than a startup in fostering those relationships and getting to a real point of traction with them. And we think that will really reduce down the amount of work and spend we need to incur in order to really move the development project forward. So outside of the work we’ve done over the last couple of months, reiterating the significant market opportunity and how our differentiated solution can really help capture that, the partner network and our credibility within that has been very, very positive, both from a timing perspective and a cost perspective.

[Operator:]

[Operator Instructions] Thank you, ladies and gentlemen. This concludes our question-and-answer session. I'll turn the floor back to Mr. Gillard for any final comments.

[John Gillard:]

Thank you, Melissa. And just for me, thank you for everyone for your continued interest in the company and joining today’s conference. We continue to be focused on execution on those key priorities that we set out. And I look forward to updating you all over the next coming weeks and months in terms of our further progress. Thank you so much, and have a great day.

[Operator:]

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.