Q1 2022 Trinity Biotech PLC Earnings Call
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Good day and welcome to the Trinity Biotech first quarter financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then 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 note. This event is being recorded I would now like to turn the conference over to Joe Diaz with Lytham partners. Please go ahead Sir.
Thank you, Matt and thanks, all of you for joining US today, the management team of <unk> biotech.
The financial results of the first calendar quarter ended March 31 2022.
Joining us on today's call is running a great Chief Executive Officer, and John Keller Chief Financial Officer.
The conclusion of today's prepared remarks, we will open the call for question and answer session.
Before we begin I must inform you that statements made in this conference call maybe deemed forward looking statements within the meaning of federal Securities laws.
Statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include but are not limited to those set forth in the risk factors.
The company's annual report on form 20-F filed with Securities and Exchange Commission.
Biotech undertakes no obligation to publicly update or revise these forward looking statements to reflect events or circumstances after today or the occurrences of unanticipated events.
With that said I will now turn the call over to John Geller, Chief Financial Officer for a review of the quarter's results. He will be followed by growing our CEO to provide further details John Please proceed.
Thank you Joe.
Everyone.
I will take you through the results for Q1 2022.
Starting with revenues total revenues for the quarter were $18 $8 million compared with $25 6 million in Q1, 2021.
As Joel pointed out and as they are typically approach Roland will discuss revenues in further detail later in the call. It as such I will move on to discuss other aspects of the income statement.
Before I begin I would point out that the company recognized once off accounting charges in Q1, primarily related to the refinancing and repayment of its exchange notes.
I will give further details later on those charges, but for now the numbers I quoted exclude the impact of those charges.
Gross margin for the quarter was 38, 7% compared to 42, 6% achieved in Q1 2021.
The reduction in gross margin is mainly due to the very strong sales and margins reported in Q1, 2021 within our COVID-19 related portfolio of products.
In the year since then pricing for such products as far in Progressive me because of lower demand and the level of PCR testing for Covid is declines in North America, and the availability of gracious supply from other manufacturers. There's also negatively impacted demand.
As ever our gross margin remains susceptible to product mix changes geographic spreads currency fluctuations and product lines with variation.
Moving on to R&D expenditure.
This decreased two 1 million compared to $1 4 million in Q1, 2021.
The company continues to focus on operating efficiency and cost control and has continued to reduce head count.
As it pursues greater automation and simplification of processes.
Meanwhile, SG&A costs are broadly stable at $5 $9 million down approximately a $1000 versus the corresponding quarter in 2021.
This resulted in an operating profit for Q1, 'twenty 'twenty to 'twenty two of zero point $2 million compared to $3 1 million reported in Q1 2021.
The aforementioned reduction in revenue and margin contribution from our Covid related portfolio.
Was the main driver of that reduction in operating profit.
But these being somewhat offset by lower R&D and SG&A expenses.
Moving on to financial expenses.
A $2 2 million.
As you may have seen from prior press releases.
Company refinance the majority of exchangeable notes during the quarter.
This has resulted in a change in our interest profile.
Financial expenses in Q1, 2022 were $2 2 million.
<unk> to $1 2 million in Q1, 2021.
The increase of 1 million due to the debt refinancing which took place at the end of January 2022.
$99 7 million of the company's exchangeable notes, which had a coupon rate of 4% were replaced by a senior secured term loan of $81 $3 million in interest rates in the quarter of $5 two 5%.
The remainder of the financial expenses consist of notional financing charges arising on leased assets arising from <unk> 16, which was approximately zero point $2 million in both quarter, one 2022 and quarter one 2021.
You will note that there is also a noncash financial expense of <unk> 1 million this quarter.
And this number comprises accretion interest and the amortization of term loan origination costs, which were partially offset by income arising from the fair value Remeasurement of two derivative balances related to the new term loan.
Coke more about these derivative balances later on.
Loss after tax before once off items are noncash financial income was $1 9 million in Q1, 2022 compared to a profit of $1 8 million in Q1, 2021.
As in prior quarters and as set out in the press release, we pulled earnings per avs.
It would be our equivalent of Etfs.
Earnings per ADR.
From seven seven.
In Q1, 2020, one two loss per <unk> to 50 in Q1 2022.
As I previously mentioned the company incurred one off costs in the quarter and I want to provide you with more info information on those now.
And our January AGM, our shareholders approved resolutions, which facilitated refinancing.
With respect to substantially all of the company's $99 9 million dollar exchange of a notes.
The accounting measure of the total consideration for the retirement of those exchangeable notes with $92 $9 million.
Rising of cash consideration of $86 7 million and <unk> and the company with a market value of the date of issue of $6 $2 million.
Exchange of a notes were treated as a whole stack instruments under IRS with embedded derivatives attached.
The embedded derivatives related to a number of put and call options, which were measured at fair value and the income statements.
An initial recognition in 2015.
<unk> cash instruments is recognized at the residual value of the total net proceeds on the.
One issue less the fair value of the embedded derivatives.
Subsequently the hostess instruments was measured at amortized cost using the effective interest rate method.
Our state of disposal.
<unk> value of the extinguished exchange of a notes was $83 2 million.
Is the idea for us accounting measure of consideration it was higher by $9 $7 million, the resulting loss of disposal was recorded as a one off charge in the income statement in Q1 2020 for injuring too.
However from a commercial perspective, I would point out that we obtained approximately a 7% discount from the repayment of the exchangeable notes.
The remainder of the one one type items in Q1, 2022 comprises $600000 of professional fees.
In relation to the aforementioned refinancing.
I will now discuss the accounting treatment of our term loan credit facility with perceptive advisors.
It's a four year term loan of $81 $3 million.
In accordance with Ey forensic accounting centers. The term loan is represented by three separate balances in our balance sheet.
$76 $2 million as shown in long term liabilities as the senior secured term loan.
And the initial recognition the balance comprised of principal loan amounts of the $81 3 million.
As loan origination costs of $3 $6 million net to derivative financial balances totaling $1 7 million batteries to give a balance of $76 million.
Q1, 2022 accretion interest and the amortization of loan origination cost of 0.2 million. We recorded just to give a close in carrying value of $76 2 million at March 31, 2022.
The other two balances are one a derivative financial assets and two of derivative financial liabilities and these are initially recognized at fair value under <unk> nine.
The derivative financial asset is valued at 0.2 million at March 31, 22, and represents an estimate based on the value to the company of being able to repay the term loan early pinching potentially refinance at lower interest rates.
The derivative financial stability is valued at $1 $7 million at March 31, particularly to Ah represents the fair value of the warrants issued for perceptive.
The fair value Remeasurement of these two derivative financial balances Q1, 2022 resulted in a noncash financial income of approximately 0.2 million being recognized in the income statement.
I will now move on to address some of the main balance sheet movements, we have seen since quarter four of 2021.
Intangible assets increased by $1 3 million, which is made up of additions of $1 6 million, partially offset by amortization.
Moving on to inventories you.
You'll see that these have increased by 1.7% since last year, and which is in the normal range of fluctuation for our inventory levels.
Or is the influence.
Variations in the fulfillment of purchase and sales orders.
As I described earlier during the quarter the majority of the exchangeable senior notes retired.
As a result, the associated liability has reduced from $83 3 million to $210000 during the quarter.
Finally, I will discuss our cash flow for the quarter.
Cash generated from operations during the quarter was an outflow of $1 $3 million.
The debt refinancing and change below payment resulted in a net cash outflow of $9 million.
Company made paid $3 1 million in interest on the exchange of the note and the terminal.
The other major cash flow for the quarter include the capital expenditure of $1 8 million.
Overall this resulted in a cash balance of $10 million at the end of March 2022.
However, the amounts mentioned above or below the 45 before the 45 million strategic investment received from Eco group in May 2022.
As we mentioned on our last conference call, we expected the Nico investments will support us in refinancing the perceptive test in the near term by reducing our leverage.
To that end in May 2020 to be repaid almost $35 million of the 81 million nominal amount of the loan.
This should reduce our annual interest cost by over $4 million.
We're also engaged with a number of potential credit partners regarding the refinancing of the balance of the precepts of fish.
However at the same time, we're examining how best change your biotech biotech and capture growth in value from the developments in the decentralized diagnostic testing market.
Given the consumer and health care provider changes.
Post the Covid pandemic conditions.
Especially so given our new strategic partnership with Nikko group.
The decisions, we make about how best to capture those growth opportunities will impact on the type of credit partner that can best support our growth over the medium term.
And as such we intend to be powerful about what type of replacement finance partner. We proceed with.
I will now hand back for Ronan, who will bring you to the revenues.
Thank you.
And I'm going to review quarter, one revenues.
Before opening the call to your question and answer session.
Our revenues for quarter, one were $18 $8 million compared with $25 6 million and the corresponding.
Quarter last year, which is a decline of 27%.
Point of care revenues for quarter, one increased to $2 2 million from $1 9 million in quarter, one last year, which is an increase of 15%. This increase was driven by high.
H I V revenues.
Africa, non HIV point of care revenues, which mainly comprise syphilis were broadly unchanged from the prior quarter.
However in February we received nobody's quite sure approval for our twin screen HIV test and since then a number of country algorithms in Africa have come up for review and we are deeply involved in endeavoring to be selected as the HIV screening choice in those countries.
We are very encouraged to be making such rapid progress. So quickly after approval with the belief that this product would be a significant growth driver for the company.
Moving onto clinical laboratory, our revenues were $16 $6 million compared with $23 7 million in the quarter.
A decrease of 30%.
This decrease is almost entirely due to lower revenue somewhat COVID-19 related portfolio of products and in particular reduced sales of our PCR viral transport media products.
Sales volumes for PCR bias transport media products have decreased since the first half of 2021 due to significant scaling down at PCR testing programs for COVID-19 with unit selling prices all such a pretty thing due to ramping up with global manufacturing capacity.
And the market.
And Meanwhile, last month, we received CE Mark European approval for a 10 minute COVID-19 antigen test.
In addition to its ease of use and impressive speed them to result in extensive clinical trials to test demonstrated 99% sensitivity and 99% specificity.
Sure accuracy levels superior to most tests currently on the market.
We are now actively marketing the product throughout Europe .
<unk>, our marketing the product in southeast Asia, where the distribution channels are strong.
We are proceeding for an FDA approval of the product.
Moving on to diabetes testing.
Our premier revenues increased over 20% when compared with quarter. One of 2021 when factoring the fact that patients are returning to their doctors to perform their hemoglobin hate to stable hemoglobin <unk> C tests on a regular basis as the impact of the pandemic. This last thing during the quarter, we paid 54 instruments instrument placements.
Returned towards normalized levels.
Fitzgerald, which is our life science business performed strongly with revenues in line with the corresponding quarter last year.
I would also mean revenues decreased by 4%.
I'm really due to lower revenues and I referenced laboratory.
Related to our New York reference Laboratory, which offers laboratory testing services for auto immune disorders, such as Shoguns hearing North Sea Act lupus rheumatoid arthritis systemic sclerosis.
Revenues for our proprietary Shogun syndrome test increased significantly.
These were offset by a reduction in testing for other disorders due to fewer patients visiting their.
Physicians for pandemic reasons, and also due to supply chain constraints.
We expect demand for Shoguns testing continues to go.
There appears to be a commonality between chosen symptoms and long cold but.
In addition, we continue to focus on expanding the range of test available at the referenced with Barclay, including testing panel, specifically aimed I should also immune conditions associated with lung cobot.
As you know we were delighted to announce a 45 million dollar investments in the company by the mutual group in April .
At an average effective share price of $2 60 per share.
And the transaction closed in early May.
As John said, we utilized most of the money, but they immediately pay down of the high yielding perceptive desk, resulting in a reduction in annual interest of $4 million.
However, we are confident that this investment will enable the elimination of the balance of the high yield debt.
With low cost debt.
Thanks.
And that we can achieve this in the short term even as Tom has said that we are well advanced in that endeavor.
With our restructured balance sheet, we believe that the Trinity can now move forward with confidence and that recent defense constitute a new beginning for the company.
That's why that's injected capital into the company mutual group owns a medical diagnostic subsidiary <unk>.
It will be on that and that company has a range of innovative technologies, including lab on a chip and artificial intelligence based rapid point of care testing applications as well as the <unk>.
Top molecular PCR test platform that has achieved 800 patients over the past years.
Two years.
So distribution of joint development agreements. It is intended that will distribute the <unk> molecular PCR and next generation of lives of diagnostic platform.
<unk> core markets, including North America, and Western Europe .
By providing trends you would see a significant expansion of its product portfolio.
Essentially he is now in a position has strengthened its management team and in that respect I'm really pleased to announce the appointment of Dr. Yeung, Hong as Chief strategy Officer of the company Arthur Hong brings to the company a wealth of experience, particularly in rapid point of care diagnostics in the U S and the ask.
Africa, and Southeast Asia market I think this reflects our commitment to grow our rapid point of care business worldwide.
So if I could now open the call to a question and answer session tapes.
Okay.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time your question that's been addressed that and we would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
And our first question will come from Jim Sidoti with Sidoti <unk> Company. Please go ahead.
Hi, good afternoon, thanks for taking the questions.
You mentioned the <unk> the viral transport media revenue was down I believe it was around $8 million in the year ago quarter can you tell us what it was for this for the first quarter of 2022.
Yes, no 2 million Jim.
It was about 2 million so it was down about $6 million.
Yeah.
Okay. Okay. So I mean, that's that's really be.
The bulk of the revenue decline.
The V T M revenue it looks like yeah.
Yes.
Okay.
Alright, and do you think you know it will remain steady at around $2 million a quarter or do you think it will continue to decline throughout the year.
I think we'll see a drop off in Q2, and I think we'll see a ramp up in Q3 second half of Q3, and then as you go into Q4, I think we'd see we'd expect to see demand increase again.
Okay Alright.
Alright, and then you got it.
I'm sorry go ahead.
Oh, no I was going to say in addition to that of course now we received.
The market approval for a COVID-19 antigen test.
And so we should see revenues commence there.
Right and that that was going to be my next question you've gotten to two major approvals since February .
The antigen test.
Erinn screen can you give us an update on when you think you'll start generating revenue from those products.
In terms of churn screen them.
And a number of algorithms just happen to have kind of opened up for you know for a.
Our review and renewal and so where we're seriously in the chase and a number of like you know single digit number of low single digits.
Mm three or four countries, but were five countries, where we're pursuing basically.
We're looking to be included in the new algorithm.
It's too early to be sure, but we're doing well, but doing well and there's a few of the most significant countries where.
We're very encouraged by how we're doing so.
It's still at it.
Still enough to replace.
And then somebody who's been in there for a significant amount of time, but it's looking very encouraging.
I mean bearing in mind the.
W H O themselves.
A very significant trials, which resulted in 100% sensitivity and 100% specificity.
Puts us in a really good position in that sense.
And what about.
Right.
Pardon.
Colby.
Yeah. So in terms of Covid, we received just in the past number of weeks.
CE, Mark approvals, which enables us to sell the product throughout Europe .
And to that it actually opens up many other international markets, albeit not the U S market. So many other countries outside of Europe will accept the CE Mark.
So as I mentioned in my prepared remarks, and Nico be imagine, we'll have a strong distribution channel and in Asia and Southeast Asia are endeavoring to sell a product there I mean, we are basically <unk>.
On setting the product drug distribution.
They are indeed in some cases directly in Europe , and so we haven't made any breakthroughs, yet, but bear in mind with Michigan on behalf of weeks into the market.
But we're pretty encouraged by it but bye bye.
Five developments and we're seeing you know a resurgence of COVID-19 levels COVID-19 infections that at the moment and so we're optimistic sometime.
Breaking into the market and Meanwhile, then.
Assuming an FDA approval.
And so as these sales of these two products start to ramp are you fairly confident that the first quarter of 2022 was the will be the lowest quarter revenue wise of the year.
You know I mean, I don't know I'll say I'll, just add I would hope so but I.
I don't want to.
I mean, Jim, yes, I, suppose so but I'm reluctant to.
No.
Indicate indicate otherwise.
I think we'd be hopeful we'd expect the H two was going to be stronger than H, one because we have some new products coming onto the Americas with sufficient time from regulatory approval to be able to you know.
Sales in America didn't get those volumes actually.
Okay.
Alright, alright.
Hey, Jim.
Yeah.
Oh, I'm, sorry, I should already know about.
And overall trends were very optimistic I mean at this moment in time I talked about a new beginning I mean, we have moved from a situation where we were extremely worried about repaying you know 100 million dollar loan notes.
And circumstances, why we didn't really have the funds to do so.
We've repaid that.
But it was brought in $45 million worth of equity at a price of two average price of $2 60 per share.
And thereby I think and restructuring effectively very significantly restructuring our balance sheet. We've got a very strong partner, who brings not just a lot of money to the table, but also a lot of expertise in terms I'd say, there's less of them that they have.
A significant diagnostic business of their own.
And they've got a strong management team and we've got a lot of enthusiasm they have multiple investments in various diagnostic.
Sectors, mostly in point of care areas.
And they they intend I think to use Trinity biotech, it's a medium to bring these products all these various products to market.
Products that we haven't talked about it not really necessary in a position to talk about yet, but really really interesting innovative products. So basically what we have is we have a chairman of a makeup emerge who basically has invested significant thick.
First on the money in.
Very interested in diagnostics and has invested significantly in multiple at new point of care platforms, and we see all of these coming through.
Check.
In addition to that now we are now in a position.
To invest in R&D to you can look forward positively to bring in strong management.
We're doing that we just talked about Doctor you on joining us.
We're looking at new R&D programs I think we have a focus on point of care, but it won't be exclusive in that area.
And so I think we're moving forward with genuine confidence and we I think we're a company transformed thank you.
See you know over the coming weeks and months weeks.
I think you'll see the final restructuring of the balance sheet and thereafter, I think you're going to see all at the same time, you're going to see and the signet.
Significant management appointments.
So.
I think a rebirth.
Very positive for the future.
Turning to the.
The improvements at both print screen and they pull the tension test everybody significant as well.
Do you think now that the balance sheet has improved it'll be easier to negotiate contracts with new customers without a concern in the past.
Frankly in Boston is actually no it never that doesn't have a radian issue Flores.
But I mean, I think you know and bringing in strong management has been an issue or having the.
The confidence to invest significantly in new or research and development projects are.
License and the ability to for example license Zane technologies or do joint.
On ventures with partners for innovative new products and it is very difficult to do any of those deals against the background of it.
The first of April repayment of $100 million. When you don't have those in your balance sheet. So yeah. So I think at the customer level I don't think it's been a problem that it hasnt held us back.
Okay, and how about in terms of management resources now.
Or are you able to now focus on some of these new opportunities now that you've got the balance sheet cleaned up.
Yeah absolutely.
We've spoken before about the changes that we see happening in the diagnostic industry.
Post Covid, where people now have a new relationship with diagnostic providers, we see a continually increasing role for a diagnostic providers, who can provide solutions you know outside of the traditional health care setting right. So whether it's at home across over the counter products.
Good care products aim that theyre going to be more and more of a feature in People's health care journeys Theyre typically faster, they're typically cheaper which is also important in the context of maybe some of the economic headwinds that we're facing right. So and we think that.
Covid has really.
Late two breaking of a significant adoption to do and keep learning how to use these types of tests and being able to take biological samples themselves and in that context.
You'll have to ask the question are people going to spend time going to.
Their doctor to get a sense of the test where they can potentially do that at home, they're sands or do it in some other setting such as a pharmacy that's more towards point of care. So we think the <unk>.
Testing volume is going to come to come towards point of care, which is obviously very strong area for Trinity and has been for 30 years.
And then also I suppose as we see continue aging of the population and a greater use in People's lives of information and data to make decisions. The diagnostics really is a very powerful data source for people to take a significant role in their own health care journey. So we think there's a lot of kind of broader.
Train that feed towards where our business is because remember we have a lot of features Jim outside of just being in point of care. We don't want to have our own lab, we develop our own test the manufacturer.
So we have a huge amount of that overall value chain associated with diagnostics in house within Trinity.
And I think to Ron's point, which renewed financial confidence.
That gives us the opportunity really to aggressively attack those opportunities and drive growth and additional value from them.
Okay.
I think that's it for me thank you.
Thanks, very much Jim.
Again, if you have a question. Please press Star then one.
I don't think we have any more questions I don't believe any more questions. So.
Could I just take this opportunity to say thank you very much good afternoon and speak to you soon again.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.