Q3 2021 Applied DNA Sciences Inc Earnings Call
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Pardon me, ladies and gentlemen, the applied DNA Sciences conference call will begin momentarily.
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Pardon me, ladies and gentlemen, thank you for holding for applied DNA Sciences Conference call. The call will begin in a few more minutes. Thank you very much.
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Good day and welcome to the applied DNA Sciences fiscal third quarter 2021 financial results conference call all participants will be in a listen only mode.
Should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please.
Please note. This event is being recorded I would now like to turn the conference over to Sanjay Hurry. Please go ahead.
Thank you Betsy and good afternoon, everyone and welcome to applied DNA conference call to discuss our fiscal 2021 third quarter financial results.
The press release that was issued after market close today as well as the accompanying Powerpoint presentation to this call by going to the IR calendar page of our website.
On the call today are Dr. James Hayward, our CEO and Beth Jantzen our CFO.
Tomorrow, our CLO in Placer rock, our Chief legal officer will also be available to take your questions on the Q&A portion of the call before.
Before we begin please note that some of the information you will hear today during our discussion may consist of forward looking statements I refer you to slide two of the presentation and the company's Form 10-Q filed today on Form 10-K filed December 17, 2020 are important risk factors that could cause the company's actual performance and results to differ materially from those.
As expressed or implied in any forward looking statements. We undertake no obligation to update or revise any forward looking statements or other information provided on this call.
As a result of new information or future results or developments.
And before we begin please note that management will attend and present virtually at H C. Wainwright and company <unk> third annual Global investment Conference next mall. Please contact your HC Wainwright representative to schedule a one on one with management.
Now, it's my pleasure to introduce our first speaker for today CFO Beth Janssen. Please go ahead.
Thank you Sanjay good afternoon, everyone and thank you for joining us.
I will begin this afternoon with a review of our consolidated financial results for the fiscal 2021 third quarter.
On the heels of our COVID-19 testing services award from Q&A.
Jim Hayward, our President and CEO will then take you through our assumptions and modeling for testing based on certain aspects represented in the University systems RFP.
He will also provide operational updates across our industrial DNA and linear Rx businesses before opening the call to questions from analysts and investors.
Starting with the consolidated statement of operations total revenues for the third fiscal quarter of 2021 increased to $1.7 million.
From 432000 in the third fiscal quarter of fiscal 2020.
This represents a 294% increase year over year that was primarily attributable to an increase in service revenue of 686000 associated with Safe Circle, Our COVID-19 testing services program.
On a sequential basis third fiscal quarter revenue decreased 37% compared to second fiscal quarter revenues of $2.7 million.
This is due primarily to lower safe circle revenue, resulting from the non renewal of our Suffolk County testing contract because of progressively higher vaccination rates within the counties employee base.
As well as low positivity rates in our operating area and the start of the summer recess for academic clients, drawing which no testing occurred.
Product revenues increased to 640000 for the third quarter of fiscal 2021 compared to 57000 in the same period in the prior fiscal year.
This increase is due to sales of our linear COVID-19 diagnostic assay kit.
Cost of revenue as a percentage of product revenue in the third quarter decreased to 86% from 272% in the prior period.
The year over year improvement is due in part to a shift in product revenue as our assay kit sales are at a higher gross margin.
The decrease is also the result of certain fixed costs.
That were not fully absorbed with the level of product revenues in the prior period as compared to the period, we're reporting on today.
Total operating expenses increased 30% or by $1.1 million.
Two $4.5 million in the third quarter compared with $3.5 million in the prior year period. This increase was driven principally by greater SG&A.
R&D expenditures.
Yeah.
SG&A expenses increased by 651000 to $3.2 million.
From $2.6 million in the prior period.
The increase was primarily attributable to an increase in payroll consulting and other administrative expenses related to staffing and the establishment of our a D C. L a subsidiary.
R&D expenses increased by 215000.
Two 1 billion from 815000 in the prior period.
The increase relates primarily to increased purchases related to the clinical lab.
As well as for project.
Projects related to our genetic sequencing and a project associated with forensic traceability for our textile business.
Net loss for the third quarter was relatively flat at $3.4 million compared to $3.3 million in a year ago period.
Net loss for the third quarter improved to 46 cents.
Per share compared to a net loss per share of zero of 72 sets for the same period in fiscal 2020.
A higher number of weighted average shares outstanding.
Excluding noncash expenses consolidated adjusted EBITDA was unchanged as compared to the same prior period year at a negative $2.8 million.
Turning to our balance sheet cash and cash equivalents totaled $12.2 million on June 32000.2021.
Our strong cash collections caught up with the large increase in accounts receivable that occurred in our fiscal first quarter.
Accounts receivable stood at 737000 at June 30, compared to $2.2 million at March 31st.
Our average monthly cash burn rate net of financing and warrant exercise proceeds for the three months ended June 32021 was 569000 compared to 749000 for the year ago period.
A decrease of 24%.
The improvement in our burn rate was the result of increased cash receipts from the higher revenue levels. During the first half half of fiscal 2021 as well as decreased cash disbursements as the majority of our capital expenditures were paid for in prior quarters.
Our total capital expenditures as of June 30th.
Related to the establishment and scaling of our clinical lab. So the city Aerie was approximately $1.6 million.
Including equipment to support our whole genomic sequencing capacity.
Our cash position at July 31 was approximately $10.4 million.
As for our fiscal fourth quarter, we expect to see an increase in spending in both capital expenditures and supplies and staffing to support our COVID-19 testing services contract with Q&A given.
Given the potential size of this contract. We believe these temporary increases in spending are warranted to support revenue growth in the fiscal fourth quarter and into fiscal year 2022.
This concludes my prepared remarks, thank you for joining us today I will now turn the call over to Jim for his comments.
Okay. Thank you Beth.
Good afternoon, everyone and thank you for joining us on this call.
We're pleased to have delivered a third consecutive quarter of year over year revenue growth driven in large part by demand.
And for Safe Circle.
Our pool COVID-19 testing program.
Demand for Safe circle dropped in the third quarter.
Due to the seasonality inherent to our academic clients and progressively higher vaccination rates and lower positivity rates in our operating area.
However, our recently secured award for COVID-19 testing services for the City University of New York.
One is the need for ongoing and consistent Covid testing.
With this contract in hand, we expect to continue to drive strong year over year revenue group.
Growth over the contract period.
Performance.
And Jim Don ongoing demand for testing.
I'll begin this afternoon with a brief overview of the award.
We already started an initial low volume of testing just this week, but.
But we do not expect weekly testing levels to really equilibrate until after the start of the academic year.
Begins the week of August 25th.
What we can detail at this time are the operating assumptions that guide our execution under this award.
But before I begin.
Want to take a moment to thank our absolutely remarkable employees.
This award is a testament to their efforts and their dedication to your company's goals.
I'm really extraordinarily proud of this accomplishment for each and every one of them.
Despite the clinical success of COVID-19 vaccines.
Infections across the country are spiking due to the steady evolution of viral variance <unk>.
And amplified by vaccine Hesitance.
With the confluence of fully vaccinated, partially vaccinated and unvaccinated populations returning to campuses. This fall.
K through 12 schools and institutions of higher education are faced with a much more complicated reopening than just a year ago.
We have deployed our safe circle testing service, which is a high throughput pooled COVID-19 testing program to.
To provide weekly asymptomatic COVID-19 screening of on campus Unvaccinated students staff and faculty in a random sampling of vaccinated individuals across the CUNY system.
Well, New York City enjoys a high vaccination rate relative to the national average.
16 to 34 years of age group comprising the bulk of the CUNY population.
This is only about 61% vaccinated. According to current New York State data.
We are building a high testing rate program.
Which is especially needed due to the delta there and even in the face of increasing vaccination.
The testing was vaccinated individuals is a key component of.
<unk> planned to see.
<unk> recently published an enduring public health recommendations out among other measures.
Recommends the fully vaccinated people, who have a known exposure to someone with suspected or confirmed COVID-19.
Should be tested three to five days after their exposure.
We applaud <unk> decision to include testing of vaccinated individuals given the high transmission environment likely in most classrooms.
This is especially oppression juxtaposed against recent data from the CDC that vaccinated people may be able to spread the delta there.
Just as easily as on vaccinated people.
I would like to also add that in New York City built.
Delta and its higher transmission rate.
Currently account for 83% of all positive samples.
In fact, all five boroughs or the city each with at least one CUNY institution.
Now meet the CDC guidelines to be considered high transmission areas.
No I'll recap the terms of our contract we're providing a turnkey.
Asymptomatic pool.
COVID-19 screening testing.
The CUNY population comprising students staff and faculty.
On vaccinated individuals will be tested weekly supplemented by random sampling of vaccinated individuals across the entirety of the CUNY school system the <unk>.
Contract is a 12 month period of performance with no minimum testing commitment by CUNY. The contract has a maximum value of $35 million and.
While we would like to provide a forecast of weekly testing numbers under the contract.
Accurate modeling before full implementation is difficult.
Given the multiple dynamic variables in play.
Which include ever changing vaccination rates.
In person student enrollment figures.
And impacts caused by the Delta variant.
Based on these facts, we will be able to give guidance on weekly testing numbers once students start classes.
<unk> 25th.
And full testing under the contract begins.
Based on current information provided by CUNY, we believe actual weekly testing numbers.
We will fall in the previously stated weekly range of 20000 to 65000.
This is potentially the largest contract in the company's history and it's fair to say that we've been preparing for a scenario like this for more than a year.
Our ability to execute on this contract is grounded in our safe circle testing service.
In just over one calendar year, we develop secured.
<unk> approval for and commercialized our assay kit.
We pioneered and refined a COVID-19, pooled surveillance testing method with which to test large populations sufficiently.
We established partnerships to enable the scaling of high volume clients.
We developed a unique expertise in the testing of clients in the educational sector.
And.
We established our applied DNA clinical labs subsidiary as a club CLIA certified laboratory purpose built for rapidly scalable high throughput testing.
Now from a capacity perspective, our clinical lab currently has two automated testing lines that can process 10000 tests daily into shifts.
And we could add a third ship contingent on demand that would expand testing capacity by another third.
Our testing volumes are analogous to manufacturing lines, where demand is met by simply increasing the number of lines.
Our newly.
Completed clinical laboratory space easily accommodate multiple automated testing lives.
Third automated testing line is just being added as we speak and.
And we have three additional lines being assembled in reserve.
We are employing an integrated solution will offer individual scheduling sampling testing and reporting of results performed in concert with our sub contracting partners.
The use of Subcontracting partners allows us to service CUNY, while remaining focused on our core competency, namely.
Testing and the ability to return results rapidly within 24 to 48 hours.
Now we serve as the prime contractor for 'twenty testing sites that will cover the entirety of Q&A is 25 campuses in five administrative centers.
We've partnered with cleared for and its health verification platform to.
To provide value added services of campus access management contact tracing.
And results reporting.
A management layer has been put in place with oversight and staff management led by a new consultant higher.
A senior executive and Logisticians with an international emergency services organization.
Leveraging his unique expertise.
We have established operations structured.
Four zones across the five boroughs that contain the 'twenty sample collection sites.
Samples are collected across all zones multiple times per day with testing centralized.
At applied DNA clinical labs in Stony Brook.
In addition to cleared four we've also brought on a staffing agency to help staff all field operations with the help of the subcontractor. We've deployed approximately 100, new field staffers sub contracted staffers will allow our clinical labs to scale.
L CUNY without additional direct hiring and.
In addition, our medical carrier backed up by our own drivers will ensure timely delivery of samples to our allowance.
Testing will be conducted using our linear COVID-19 assay kit.
Both in a pooled screening modality and.
Excuse me with reflex individual diagnostic testing of those samples contained in a positive pool.
[laughter].
Okay.
Now I will note about our assay.
The high sensitivity and high specificity of our assets means that we can detect is little.
As two copies of the virus in a pooled sample.
This means that the assay potentially allows for very early detection of infection.
And the sooner we can identify an infected individual.
Sooner, we can alert CUNY any individual.
To mitigate the virus spread.
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Excuse me.
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So in this way.
We are.
Hey, enabling CUNY to achieve the enhanced population safety they seek.
Yeah.
Excuse me.
To date we.
<unk> completed all site selections and site installations.
We have established field operations and training at the first 16 of those 20 locations.
With the remaining four sites coming online shortly.
Testing began this week for CUNY faculty and staff.
Testing for the students will begin Monday, the 16th of August.
We expect the volume of testing to approach equilibrium by mid September.
Subsequent modulations in response to population positivity the potential need to test vaccinated participants.
Regional epidemiology and.
Evolution.
We intend to update analysts and investors when we begin to have predictable weekly testing levels.
Our collaboration with county, and the administrative team has been a remarkable and really invigorating experience, we applaud their foresight and commitment to the health and safety of their community.
We look forward to continuing our close collaboration and we have the capacity to manage CUNY testing throughput at all circumstances, while serving other testing finance.
Yeah.
Well the CUNY contract is top of mind.
I want to highlight two points of operational progress made in this quarter. The first relates to our linear Sars Covid two mutation panel.
Formerly our STS mutation panel through which we are broadening our COVID-19 testing offerings.
Subject to the Fda's evolving EUA review priorities, we expect to enter the formal EUA process shortly.
The linear mutation panel has been revised.
To target.
Three mutations designated by the centers for disease control and prevention.
Okay.
<unk> substitution or mutations both therapeutic concern.
Due to the potential impacts on the efficacy of certain EUA authorized antibody treatments.
We believe it's the <unk>.
Granted the EUA the revised mutation panel offers a compelling proposition for its use in determining the applicability of monoclonal antibody treatments for COVID-19 by mutation.
Thereby potentially making clinically relevant again, those treatments, whose EUA as had been revoked.
I have been demonstrated a reduction in efficacy due to the mutational impacts.
The second point of operational progress made in the quarter relates to our veterinary COVID-19 vaccine candidate on the heels of compelling data from our clinical trial in cats.
In the coming weeks, we will launch a clinical trial to determine safety and immunogenicity.
The vaccine candidate in ferrets.
As you are probably aware the commercial application of our vaccine candidate targets. The farmed link population that really has been decimated by the virus.
It's with a sense of irony them that the mink used in clinical studies come from the very farms that have contracted COVID-19, thereby forcing us to proceed with a number another member of their musical did family Ferret.
And parents that are bred specifically for biomedical research.
We will offer more.
Details on our clinical trial, when we formally begin.
Now turning to our supply chain business as we approach the annual start of the cotton ginning season in the U S.
Our recent planning discussions with textile partners and brands suggest a path to revenues from cotton tagging before the end of the calendar year of particular relevance as our cotton business that is rebounding with our current partners.
Beyond the U S market.
Our pipeline of potential orders today includes opportunities in Egypt and India.
India, which is the world's leading copper producer wants to elevate the profile of its cotton on the world stage, while also differentiate it from the cultivated cotton in the Xinjiang region of China.
Against which claims of forced labor had been loaded.
Particularly.
Exciting for me is that the brands are weakening to the utility of our platform and securing our supply chains and then protecting themselves against the unintended use of cotton that may have benefited from forced labor.
Customs and border Protection agency has taken a hard line against the importation of textiles without clear country of origin representation.
We are cognizant that a hardening regulatory environment against forced labor could serve to catalyze interest and our certainty program.
Now this concludes my prepared remarks, operator, please open the call to questions.
We will now begin the question and answer session.
Question You May Press Star then one on the Touchtone phone to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question comes from Jonathan Aschoff with Roth Capital Partners. Please go ahead.
Thank you James can you elaborate on just how likely it is for you to achieve the $35 million Max Rabb with keeney, assuming that the target.
Target requires about 40 to 45000 tests per week.
Yeah.
I'd say, it's well within the range of possibilities.
Implied Jonathan in our.
In my prior comments were.
We're dealing with.
Such a moving target.
It's pretty difficult.
For us to do any prediction of.
Testing rates and consequently, how long that maximum would last until we really reach equilibrium.
There may be more than one equilibrium in the course of the year. So I could see an early equilibrium happening in September or October but.
We've seen the first colleges today.
Sanford announced that they will be testing, 100% of their vaccinated students in fact.
Yeah.
As more of those changes start to impact education across the U S.
No.
Early equilibrium will be preserved and will reach a new one perhaps higher.
Higher testing levels, it's hard to say.
Okay, and if youre heading towards exceeding $35 million is that just require a simple contract amendment nothing major.
Or are they really rethinking that after $35 million.
Well you know.
It's their money.
I'm sure that they will want to try to conserve it.
As much as they can.
Working with them to ensure we operate economically.
At the same time, we want to provide them the best scientific and epidemiological advice, we can do it.
And in the face of the.
Kind of morphing.
Scenario, we just have to be prepared for multiple types of change.
Okay. James Lastly, what progress are you having over the past or have you had over the past quarter come from for the car T manufacturing cell matrix for drug discovery and cannabis tagging.
Okay.
Sure.
So we have continued.
Continued to manage our.
Invasive CTC program.
And with the addition of our Ngls capability in our R&D group and also as a service to our customers.
Our hope is to be able to expand the utility of the invasive CTC.
Business to other forms of oncology.
Oh beyond pancreatic cancer work, we're currently involved in.
Uh huh.
The world of <unk>.
A consequence of Covid.
Has become more and more aware of counterfeits.
Schemes to Rob.
On the public.
Of their money.
Including Ironically counterfeit Covid vaccines.
So industries like the cannabis industry like textiles like nutritional supplements.
<unk> seen a really strong.
Resurgence of interest and really rewarding for me is seeing the interest.
Brands.
And most of our conversations in the tagging business up until this last year have really involved manufacturers, but the brands awakening to the opportunity I think will greatly help us penetrate those markets and I think I may have forgotten your first question.
Uh huh.
No I think you are I think you've got that all Glenn.
James Thank you and I'm glad to see that Theres a carton.
Toward the end of the year, Thank you well.
From your mouth to God's ears.
Yes.
As a reminder, if you have a question. Please press star then one to be joined to the queue.
The next question comes from John Samson with Kim Hello. Please go ahead.
Hi, Jim Congratulations on the acuity contract to you and your team.
Touched your last statement before you took questions.
About textiles, and the concern of slave labor.
<unk> and <unk>.
Products coming into the United States, which is starting to get crushed both in the U N N in the U S papers.
Besides cotton and sure enough I had government mandate that would mandate.
Where our products are made.
Are we looking at that as an area to two.
To get ahead of that.
Yeah.
It's certainly an opportunity for us to provide value to individual markets, but also to accomplish the humanity goal.
That is to do what we can to prevent forced labor.
We do have a strong interest in it always have had and I think we saw.
Some unique technologies to be able to.
To help the marketplace avoid the tragic error of using <unk>.
Products made from forced labor, which of course as you know go way beyond textiles.
Two other food products as well.
And.
I think that some of the technologies that we do have such as next generation sequencing can be particular.
Value.
In identifying the genetic components Xinjiang cotton.
Ensuring its excluded from brands, who are trying to protect their reputations.
Okay. Thank you.
Welcome Tim.
Once again, if you have a question. Please press star then one to be joined to the queue.
Then what.
This.
Fluids, our question and answer session I would like to turn the call back over to James Hayward for any closing remarks.
Okay. Thank you operator I'd like to thank you all for dedicating your time to us this afternoon.
We are very prepared for continued and accelerated execution our teams.
They're really motivated our employees.
Invigorated by the challenge of contributing to the health and welfare.
Of our communities.
And we are all singularly focused on building a base for sustainable growth.
Thank you and look forward to speaking with you again next time.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yes.
Yeah.