Q3 2020 Earnings Call
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Good.
Afternoon, and thank you for joining out that eat into bio science third quarter fiscal 2020 business update call for the quarter ending March 30, Onest 2019.
With me this afternoon our itwos.
Chairman and Chief Executive Officer, Josh does borough and Chief Financial Officer, Dave Green.
Eight to Biocides issued a press release earlier this afternoon with details of the company's operational and financial results for this corps third quarter.
The company of the press release is available on the new stage of the company's website at 82 vial dotcom I'd like to remind everyone that today's call is being recorded.
A replay of today's call will be available by using the telephone numbers and conference I'd provided in the earnings press release. In addition, a webcast will be accessible live and archived on eight twos website within the Investor section under the events and presentations at 82 bio Dotcom finally I'd.
Like to call your attention to the customary safe Harbor disclosure regarding forward looking information.
Conference call today will contain certain forward looking statements, including statements regarding the goals strategies beliefs expectations and future potential operating results of eight to Biocides.
Although management believes these statements are reasonable based on estimates assumptions and projections as of today May 14, 2020. These statements are not guarantees of future performance time sensitive information may no longer be accurate.
Some of any telephonic and webcast replay actual results may differ materially as result of risks uncertainties and other factors, including but not limited to the factors set forth in the company's filings with the FCC.
Hey to undertakes no obligation to update or revise any of these forward looking statements.
I'd now like to turn the call over to Etudes CEO, Josh Digital. Please go ahead mr. dismal.
Thank you Gerry.
Good afternoon, everyone. Thanks for joining today's call during which Dave and I will review, our fiscal Q3 performance and highlight the company's operational developments in key achievements and will provide an important update on our covidien 18 initiatives.
To say the least we had an exceptional quarter and one I'd call transformative in multiple ways.
First looking at the topline Q3 was our highest revenue quarter in the company's history with 8.2 million in sales importantly that quarterly revenue number exceeds what we did all of last fiscal year combined yet only includes half of the quarter for the newly acquired and Novas consumer health business segment.
Also that revenue number does not include any sales related to the cobot 19 rapid tests as those sales didn't begin until our Q4.
Next from an operational perspective, we achieved an important milestone midway through the quarter as we successfully closed the Innovus pharmaceuticals acquisition.
We are now well underway in integrating that business.
Beginning with the current June quarter, our fiscal Q4, we are booking the entire consumer and Rx business revenues were also now booking Covidien 18 test revenue.
So we expect this quarter to look very different than Q3.
Also from an operational perspective, Q3 was the first full quarter of having a formal former Sarah core commercial business integrated and asset purchase we closed six months ago back in November I am pleased with the progress on that front and believe we have strong growth ahead of us on the Rx side of the business.
Perhaps the most important highlights from the quarter is that we entered the coded 19 fight.
We acquired the distribution rights to covert 19 rapid test and subsequent to the end of the March quarter began distributing the test in the U.S. Following Q3, we acquired the distribution rights to a second coded 90 rapid test from Singapore based biologics.
We're excited about adding this to our rapid test distribution efforts.
Q3 was also transformative for us from a capitalization standpoint, and that the company raise substantial equity capital and ended the quarter was 62.5 million in cash cash equivalents restricted cash. Additionally, given the large number of warrant exercises and the conversion of all preferred shares the common shares we cleaned up the cap table. This.
Quarter.
There are no longer any preferred shares outstanding and over 17 million warrants were exercised for cash over a three week period in March raising approximately $23 million.
For the first time in a long time, the Companys cap structure is clean so to speak and the balance sheet is the strongest in the company's history.
Given our strong cash balance we believe that we have enough cash to get to profitability based on our current operations and revenue expectations and based on what we're seeing today in the business.
We are a very different company today than we were just three months ago and I couldn't be prouder of our team for all their hardworking men in making this transformation happen.
Before I get into some specific operational highlights let me hand, the call over to Dave to cover the quarterly financials Dave.
Thank you Josh and thank you all for joining US today I'll review the financial results for our third quarter that ended March 30, Onest 2020.
As a reminder, we have at June Thirtyth fiscal year end.
I'll preface my comments today by sharing this has been a most productive time for 82.
Despite the disruption many have felt as a result of the covert 19 pandemic, we had a two of them more productive than ever.
From acquiring and distributing Covidien 19 antibody test kits to first responders and others to integrating to transform mation all transactions.
Taking on the development.
Of the promising Hilight technology, and finally, raising more than $70 million during the quarter.
This has been an incredibly productive period for a two and our results show.
Topline net revenue for Q3 is an all time high of $8.2 million substantially higher than the 3.2 million reported last quarter and the 2.4 million reported for Q3 last year.
In fact, our Q3 2020 revenue of 8.2 million is greater than the revenue eight you generated in all of fiscal year 2019.
The substantial growth was due to recognizing revenue from both the Sarah for and Innovus transactions and type of legacy a two revenue.
In Q3, we recognize a full quarter of revenue from the CIRCOR products acquired in Q2, and we captured a partial quarter of Inovas revenue after closing the merger in February.
Year to date 2020, net revenue is $12.8 million more than doubling the 5.6 million reported for the same nine month period last year.
Gross profit for Q3 was $6.2 million, representing a gross profit margin of 75.5%.
Going forward, we expect gross profit margins in the range of 70% to 75% depending on business mix.
Operating expenses, excluding cost of goods sold were $10.95 million for the corridor. This compares to $7.5 million last quarter and 6.1 million in the year ago corridor.
This higher level of operating expenses includes normal up normal expense levels supporting the business.
Plus transaction costs and other costs that we expect to rationalize as we continue to integrate the acquired businesses.
You should note that we recognized only a partial quarter of revenue from Innovus. We also recognized only a partial period of Innovus operating expense.
Operating loss for the quarter narrowed to $4.8 million compared to 5 million last quarter.
Operating loss for the year ago quarter was 4.3 million.
If we subtract out non cash cost from the operating expenses the operating loss for the quarter was $3.1 million compared to $3.8 million in Q2, and $3.3 million and Q3 2019.
Taking it one step further.
By subtracting out nonrecurring transaction costs, the operating loss for Q3 would be in the range of $2.4 million to $2.5 million a substantial improvement over prior quarters.
I expect the operating less decline as we move forward due to active elimination of duplicative operating costs and transaction expenses and as we continue to grow the top line.
Net loss for the quarter was $5.3 million and 4.5 million in the year ago quarter.
Loss per share for Q3 was 15 cents compared to 50 cents in the year ago quarter, and that's based on 35.3 billion and 9.1 million weighted average shares outstanding respectively.
And the balance sheet picture has also improved substantially.
Total assets were 159 million as of 331.
Fair to approximately $35 million as of our prior fiscal year end June Thirtyth 2019.
We reported $83.3 billion of current assets, including $62.5 million of cash and receivable receivables of $10.2 billion.
Our cash position was improved after we executed three separate registered direct financings in March raising $49 million and gross proceeds.
In addition to the R&D offerings investors exercised approximately 17.1 million warrants for cash proceeds of $23 million for total financing proceeds of $72 million during the quarter.
The exercise warrants included a portion of the of the warrants sold in the March offerings, plus some of the pre existing warrants with of exercise price of $1.50.
The higher than normal receivables balances largely due to a lag in customer collections and true ups with asset seller, Sarah core related to the acquired products portfolio.
With regard to liabilities I discussed a more significant liabilities related to the Sarah core asset transaction last quarter. So I won't go into detail and knows the new liabilities. This quarter. Our notes payable was approximately $3 million of short term debt assumed in the innovus trends.
To action.
In CV ours, which represent the innovus milestone based earn out.
The CVR payment was made to the former and over shareholders.
The first CVR payment was made to the former Innovus shareholders afterwards to determine that Inovas revenue for the 2019 calendar year was in excess of the $24 million.
Milestone threshold the $2 million CVR was paid during the quarter, an 82 common stock.
Finally as results of the Q3 capital transactions and warrant exercises after the end of Q3.
We have approximately 120 million common shares outstanding today.
We have zero preferred shares outstanding.
And approximately 21 million, an exercise warrants with exercise prices ranging from a dollars 25 to $2.
Altogether and in summary.
The company continues to make progress toward achieving breakeven operations and is better capitalized now than at any time in the past and with that I'll turn the call back over to Josh.
Thank you Dave.
As it relates the company's operations, let me first touch on the core Rx and consumer health businesses I'll come back to our coded 19 efforts near the end of my prepared remarks offer speak to the newly acquired consumer Health business unit Innovus Pharmaceuticals again, we closed this acquisition on February 14th and only have half of the quarter's revenue for.
As a consumer segment, which was 3.45 million.
It was a solid quarter for this business segment and we're excited about the growth ahead.
We're also looking forward to realizing some key synergies and we've already begun to rationalize many of the consumer segments overlapping DNA functions with the aim of getting this unit to profitability.
Importantly, innovus is unique blend of direct to consumer marketing in E. Commerce has enabled the consumer health segment of our business to continue with relatively little disruption due to coated 19, while we do expect some impact we'd expected to be relatively modest.
A couple more than ever our core staying home due to the virus. So the ecommerce function in particular has continued to be strong for our consumer health business.
An important product launch for the Inovas team was Ria Super DOCSIS, three excuse me a hair loss treatment for men and women that competes with Rogaine.
This is a consumer health category with approximately 50 million retail units sold in the us annually.
The team has been pleased with the product sales performance in the early weeks.
For the consumer health business. The plan is to continue to build out the otcs medicines in supplements franchise and launch new products over the coming quarters and the right on track in preparing for these product launches.
The product selection strategy, we apply to both business segments. A similar we identified novel products competing in very large markets in order to address significant patient and consumer health needs I look forward to sharing more as the new consumer health products come to market.
The Rx business also had a productive quarter in our first full quarter with the newly expanded prescription portfolio.
And while we are seeing a short term impact of code cobot on prescription sales the expected coded rapid test sales should more than supplement our prescription revenue.
Before I speak to that though I'll note that in the test, though had an important recent clinical development. Just after Q3, we announced the publication on the test all clinical data demonstrating the maintenance of fertility and Hypogonadal men treated with the test, though for six months.
But the clinical data were published in the reputable peer review journal of Urology in April.
We believe that this research is resonating and we'll continue to resonate in the urology community and stands to further separate the test, though from other testosterone replacement therapy in this nearly 7 million prescription category.
Turning to the rest of the Rx portfolio, we had solid revenue contribution across the Rx portfolio as we now have numerous products contributing to the revenue mix.
One specific highlights we saw notable prescription growth from carbon all youre, starting late last calendar year and continuing into the spring allergy season. We're excited about how we're positioned with respect to the Rx business and we see solid growth ahead.
Despite the fact, we've had most of our reps out of the field since late March due to coded they have still been able to have impact importantly, as a company. We've been using this time to have our reps sharpen their selling skills and enhance their product knowledge. Our commercial leadership team has spent considerable time developing important sales training.
The reps have done a great job and have remained busy learning and refining their territory and customer knowledge.
They've been doing this while also getting creative and maintaining contact with some important physician accounts.
I had been conducting virtual sales meetings with prescribers and we've had some great success as reported from the field as the reps find new and creative ways to access the prescribers.
We're all anxious to get back to some semblance of normalcy in our personal and professional lives, but the company will be prudent in how we and our reps ease back into making calls in a safe and effective way as states and municipalities are now starting to open back up.
With respect to our cobot rapid test selling efforts, we've been effectively servicing healthcare accounts purchasing the coded rapid test and have had minimal disruption.
Nearly all of the test selling is being done remotely.
Also the warehousing and shipping has been done with safe social distancing measures put in place.
So with respect to cobot 19 in the high interest in our various cobot projects or have some important updates.
As we previously announced we received an initial shipment of 100000 test into Colorado in early April that we immediately began distributing and selling.
Im pleased to inform you today that we have since received a large number of cobot rapid test into our U.S warehouse and are now released for distribution.
We have had been expecting these and while we did experience a delay in receiving the product I'm happy to say that the tests are now here that are going out to customers.
Perhaps made obvious by the fact that the tests are actually here is the fact that these tests were indeed cleared for export by China.
So the tests are in our warehouse more tests are coming and we expect to steady supply of rapid test going forward.
Finally in my prepared remarks, I'll touch on the he'll light medical device opportunity.
As we announced on April Twentyth, we have signed an exclusive worldwide licensing agreement with Cedars Sinai Medical Center in Los Angeles, the researchers at the Cedars mast program led by Dr., Mark Pimentel have developed a novel approach to treat infections using UBI light administered via a novel catheter. The research began back in 2016.
And with the onset of the coded crisis the group pivoted to study the hilight device as a potential treatment for the coded virus.
Significant preclinical research has been carried out with the device with promising results observed.
Very recently as it relates to the cobot effort. The team has been in discussions with FDA in both the mass team and a two had engaged with sterling medical devices to finalize the devices development.
We are collectively seeking clarity from Indiana path forward for the device and upon receiving such clarity, we expect to move into small scale production of the devices for human use.
We're excited about this potential treatment for coated and we're enthusiastic about the devices potential utility and other conditions such as ventilator associated pneumonia. There are between 250000 300000 cases of ventilator associated pneumonia in the us each year.
And influenza caused over 700000 hospitalizations in the US this past flu season alone.
So to wrap up our prepared comments it was a strong and transformational quarter for the quarter for the company. So to summarize we recorded our highest quarterly revenue in the company's history. We entered the cobot 19 fight through to test kit distribution agreements and now with a large quantity of test just received we closed on the Innovus acquisition.
We completed our first full quarter as a combined Rx business. We ended the quarter with over 62 million in cash we substantially cleaned up our cap table, having converted all preferred shares into common stock and finally, we're now moving forward the novel opportunity with yield.
With that thank you for joining today's call and we'll now open the call up for questions from the analyst.
Thank you at this time will be conducting a question and answer session.
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On a moment pleased by we pull for questions.
We have a question from Jeffrey Cohen Landenburg Thalmann. Please go ahead Sir.
Hi, Josh and Dave how are you.
Hi, Jeff in well thank you.
So firstly just for clarification.
I believe you already sold through first lot of VLP task than you were referring to the second while we're talking about the you're receiving your Eurs warehouse will result in reference to the first slot.
That's a second the second batch that we had been talking about that we've been expecting guests.
Thats helpful referring to.
Okay. So are you receive some portion of I imagine you did receive all of it because it's a pretty big.
It's a big work.
We got a big supply.
So we'll leave it at that and we want to we want to steer clear of giving people up to the second of exactly how many it exactly when it's coming but the bottom line is where we have a very adequate supply at the moment.
And expect to have additions fly going forward.
Can you give us any further color on the revenue composition for the quarter in are you called out no vision.
Approximately $3.5 million and I'm, assuming that was the proportion for half the quarter. The you booked correct.
That is correct and then the other portion would have been attributable to the Rx.
Rx business, and really fairly well fairly well spread up spread out it's a pretty good.
Pretty good distribution of revenue across the product mix and going forward will be breaking out.
We'll have two segments now we'll have the consumer health segment in the Rx segment. So I always talk about the Rx segment as you know one business.
And the consumer health businesses of business.
Okay and Im assuming also the.
The first loss for Middleby, which included in.
The quarter as well.
So just to be clear there was no revenue in Q3 from the coded 19 test kits no revenue Dollarstwo FFO began falling in Q4.
Got it okay. Thanks for the.
Application can you give us any color on.
The experience said.
In oversubscribed over the past say six or eight weeks I imagine that some businesses online in a situation have been somewhat weak over the past six day reached any color there are new flavor as far as what's been going on there what you're seeing.
So the Innovus business is actually holding in there pretty strongly I'd say.
There's really two two pieces of their business the direct mail.
Approach has had some slowing.
Largely due to the us mail moving slow.
And that's that's due to the covert 19 pandemic the online sales.
Has there and as expected so really no interruptions no slowdowns their dog. So overall, we're pleased with how this is operating right now.
For testing and then lastly from me.
Based on this quarter at least in your forward.
Guidance on margins in the 70% to 75% mix.
Safe to say at that point during our call. It on an EUR $12 million to $14 million per quarter on the topline basis gets you.
Producing cash.
Well you know so shares.
With the merger the acquisition Jeffords SCO that fully.
Consistent and our operating expenses I mean, the gross profit margin. We're confident we'll will fall in that 70% to 75% range.
Innovus gross profit margin is a little bit lower quite a bit lower than the are excited the business.
But you know as we look at the expected revenue contributions from both sides. We're we're confident in that range.
The operating expenses.
They still do duplicative costs that were running through.
There is some adjustments in headcount.
There's shuffling of resources and such so.
Operating expenses of up a little bit next quarter, because we will have a full quarter of innovus, but we do expect to have some reductions as well so it won't be.
An exact increase of expenses due to the other half of Innovus. So there'll be some economies there, but after we get through next quarter to have a much better view to what kind of ongoing cost structure is going to look like.
Got it Okay, and then lastly from me the.
He liked development at Sterling Im assuming that would be a class two content.
Filing.
That's the expectation.
Theres a near term thought obviously around co bid that would be an abbreviated pathway if the FDA.
Clears it that way, but yes, the expectation is I'd be a class two five 10-K and as we mentioned, we'll look at other conditions outside of Cobot, obviously thinking beyond the pandemic such as ventilator associated pneumonia influenza and potentially beyond that so I think the potential for it is quite broad and but obviously, we're in the very early stages of really.
Establishing what this specific clinical applications will be likely because it may be some abroad.
Okay got it that does it for me thanks for taking the questions.
Thanks, Jeff Thanks, Jeff.
There are no further questions I'd like to turn the conference back over to Josh. This is bill for closing remarks. Please go ahead. So.
Thank you Gerry.
Thank you Jeff at the questions. Thanks, everyone for joining our call. This afternoon.
We're looking forward to sharing our fourth quarter in our full year fiscal 2020 results. When we report those out in September. So in the meantime, we will continue to keep you informed of important updates along the way. Thanks very much have a good evening.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.