Q2 2022 Trinity Biotech PLC Earnings Call
[music].
Good day and welcome to the Trinity Biotech second quarter financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
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Note. This event is being recorded I would now like to turn the conference over to Joe Diaz from with them partners. Please go ahead.
Thank you Jay and thanks to all of you for joining us today to review the financial results of Trinity biotech for the <unk>.
Second quarter of 2022, which ended June 32022.
Joining us on today's call are <unk>, Chief Executive Officer, and John Gilbert Chief Financial Officer.
Conclusion of today's prepared remarks, we will open the call for question and answer session.
While 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 and statements in the company's annual report on form 20-F filed with the secured.
And Exchange Commission.
Any biotech undertakes no obligation to publicly update or revise these forward looking statements to reflect events or circumstances. After today or the occurrence of unanticipated events with that said I will now turn the call over to CEO , Eric <unk> for opening remarks.
Followed by CFO , John Gallery for a review of the financial results, Mr. Kenny and Jim will then provide additional background with regards to the business after which we will open the call for your questions Erez the floor is yours.
Thank you.
Good morning, everyone.
I'm very pleased to be here today, as a new chairman and CEO of Trinity biotech.
As many of you know I've been involved with the Trinity team since May when I joined the board of the company.
During that time I was closely working with John and the team to develop and refine our new business plan and was drawn to the upside potential of the platform as a proactive health care environment continues to evolve as a magazine.
From a macro perspective Trinity has experience in developing and marketing World class point of care rapid tests.
Hey, Joe standards, and it's highly regarded 50 state certified reference lab in United States are critical assets that can be effectively positioned to take advantage of this thing.
I think partnerships channel relationships and industry consolidation will play a big part in servicing the digital and decentralization health care trend.
Another key theme that I was considering it was the fact that pharmaceutical industry is very focused on the autoimmune space spending millions on therapeutics and customer education.
The other thing is the key to the evolution of this complex space. This is a ripe area of opportunity for us to leverage through partnerships as well.
Diabetes is a fast growing problem in developing markets, where we have deep relationships and distribution networks combined with the right product strategy, there's room to grow significantly in this context Trinity's following attributes appeal to me.
First.
I was impressed with the recent leadership hires that have joined the company.
Experienced health care executives in many cases or executives from other large multi-national multinational companies.
We're looking to apply their skills and an entrepreneur old capacity.
In addition, one of the things I did realize was that the Trinity workforce is really highly capable and eager to align itself to a clear mission.
The second attribute that appeal to me.
Is the fact that I was attracted to the point of care lab and auto immune platform possibilities.
I think I also think at the same time, there's untapped potential with our Fitzgerald life Science business.
Ah recently become more clear in my thinking about the part but profit at profitability potential of the hemoglobin business as well.
The sort of attribute that appeal to me.
Was the fact that I personally I like working with our businesses that have global scale and distribution capabilities.
It's my profile well.
And I think Trinity has the ability to take advantage of that because I think globalization offers opportunities to scale growth and profitability.
Well, it's my assessment continues to be.
Trinity biotech is significantly undervalued and trades well below its intrinsic value to the sum of its parts.
And then finally, the NASDAQ listing provides a platform for industry consolidation and a password ecosystem partners to gain access to that liquidity.
It is also a strong tool to attract talent, especially at current valuation levels.
In essence Trinity is a 30 year old business with a serious brand has the ability to operate effectively in a regulated industry.
It's small enough to be nimble and has a public vehicle to enable partnerships industry consolidation value creation for our shareholders and wealth creation for the Trinity biotech team.
My experience in working closely with the portfolio of G health care businesses and other regulated platforms opened my eyes to the fact that in this industry operational and regulatory excellence is a competitive advantage that comes with long term superior returns.
Just a few thoughts about my priorities for the next three to six months I think they are quite straightforward to be honest.
First.
The focus is to establish a clear vision and strategy that aims at scaling our core businesses.
Namely I Wanna position, our point of care platform and lab services capability to enable the decentralized testing disruption that.
That is being led by digital health other parents sponsored programs and new market entrants.
Scaling our autoimmune platform through partnerships and product development are also a priority.
And maximizing profitability and our hemoglobin business.
Is key.
I also would like to leverage our Fitzgerald pits says.
<unk> brand.
And figure out how to maximize it and its capabilities. Both in terms of its efficient sales process and its distribution capabilities and its breadth of offerings.
Further growth capabilities.
The second priority is to build a performance culture and drive ownership and accountability.
This starts at the top with a focus on operating rigor clear execution goals and shareholder alignment.
He saw program will be at the core of this transformation and will be modeled after my compensation plan.
Shareholder value shareholder value creation, and the Trinity teams wealth creation are perfectly aligned.
Third our renewed focus on inorganic growth through partnerships and M&A will be a priority.
This is how we scale, we have a public currency, we intend on using it in an intelligent fashion.
Finally.
I am pledging a renewed commitment to shareholder communication and to rebuilding credibility with the street.
My intent is to attract institutional investors, who get the vision and believe in this team.
In exchange, we need to have a clear strategy and all that and deliver on our results.
Now I'll turn it over to John to give you some perspective on the financials for the quarter.
Thank you Iris and good morning, everyone.
Now I will take you through the results for Q2 2022.
Let me begin by warmly welcoming our new CEO and chairman Paris.
Since <unk> joined the board back in May of this year I've had the pleasure of spending a lot of time with them as we look at the opportunities available to the company and indeed some of the challenges we continue to work through.
I very much look forward to partnering with Iris and the rest of the team and continuing to drive Trinity biotech modernization and transformation to a more dynamic.
<unk> growth and efficient globalized global organization.
Before I begin discussing our Q2 'twenty two result.
I would point out that we have changed certain presentations that our financial statements this quarter.
In previous earnings announcements, we have disclosed one off accounting charges, such as impairment losses in the separate line below profit or loss after tax.
Similarly in the past, we have split our financial income and expenses between those items that are cash and noncash the latter being disclosed low profit or loss after tax.
This presentation reflected how management evaluates the performance of the business.
Although it did not conform to international financial reporting standards <unk>.
Getting this quarter, one off accounting charges would be reported within operating profit profit loss in accordance with I for US we will no longer to school was noncash financial income and expense separately and we will show a full cash flow statement, rather than an abbreviated version.
Moving onto our results for the quarter, starting with revenues total revenues for the quarter were $18 5 million compared to $25 8 million in Q2, 2021.
And as Joel pointed out and has been our typical approach our seal arris will discuss revenues in further detail on the call.
As such I will now move on to discuss other aspects of the income statement.
Gross margin for the quarter was 35, 3% compared to 42, 7% achieved in quarter two 2021.
Our gross margin remains susceptible to product mix changes geographic spread currency fluctuations and product variation.
As was the case in Q1 this year the reduction in gross margin. This quarter was mainly due to the very strong sales and margins recorded in the comparative period within our COVID-19 related portfolio of products.
In the year since then demand for our PCR viral transport media has fallen as the level of PCR testing for Covid has declined in North America.
And the availability of familiar supply from other manufacturers has also hampered demand.
Moving onto R&D expenditure, which was $1 million in the quarter down almost 100000 compared to Q2 2021.
We continue to focus on operating efficiency and cost control and have continued to reduce head count as we pursue greater automation and simplification of processes.
Meanwhile, SG&A expenses in the quarter were $6 5 million down over 100000 compared to Q2 2021.
Here, we are benefiting from the stronger U S dollar against the Euro which is reducing our substantial euro denominated SG&A expenses and this is a trend we expect you'll continue to see in the second half of the year.
Offsetting this has been increase in transaction related to management bonuses and increased travel costs as our sales teams have been focusing on meeting our customers and distributors now that most COVID-19 related travel restrictions have been lifted.
We have recorded an impairment charge of just over 500000, this quarter compared to a charge of $6 1 million in the corresponding quarter in 2020 one.
Well drive for as a company is required to carry out periodic impairment reviews in order to determine the appropriate carrying value of its net assets.
This period's review has resulted in a noncash impairment charge or 0.5 million being recognized.
A number of factors impacted this calculation.
The company share price on June 32022, which was lower than the share price at the time of the prior impairment review being 31 December 2021.
Cash flow projections for each business unit and as asset values across each of these companies individually isn't units.
Yeah. Both factors have resulted in an operating loss for Q2 2022 of $1 4 million compared to an operating profit of 200000 reported in Q2 2021.
The main driver of this reduction in operating profit are the reduction in revenue and margin contribution from our COVID-19 related portfolio of products, along with zero Paycheck protection program income.
In Q2, 2022.
Compared to $2 9 million of Paycheck protection program income and recognized in Q2 2021.
This was partially offset by a lower impairment charge this quarter.
Moving on to net financial expenses of $8 3 million recorded in Q2, 2022 with some with compares to 0.0 point 3 million for Q2 2021.
This increase of 8 million is mainly due to nonrecurring expenses of approximately $5 6 million associated with the early partial repayment of the perceptive term loan.
As you May know, we repaid approximately 42% of the term loan principal during the quarter.
As a consequence, we incurred a penalty for early payment of approximately $3 5 million and secondly on drive fresh accounting rules, we had to accelerate the recognition of the accretion interest expense and this resulted in an additional noncash expense of $2 1 million this quarter.
I will talk further about this early repayment of the loan later on the call.
The remainder of the increase in net financial expenses, mainly due to higher interest rates applying for our borrowings post the refinancing.
We replaced exchangeable notes with a coupon rate of 4% with a senior secured term loan with an interest rate of approximately 13%.
In Nash Mountain now borrowed is substantially lower.
As a result interest payable increased by <unk> 9 million compared to Q2 2021.
Lastly, we recorded a fair value adjustment on derivatives balances related to the term loan, which this quarter was an expense of 400000.
Loss after tax was $9 7 million in Q2 2021 compared to a loss of zero point $8 million in Q2, 2021.
As Empire prior quarters, and I said that was in our press release, we quote earnings parade, yes, effectively our equivalent of EPS.
Loss per ADR has increased from three 7% in Q2, 2021 two loss per a decrease of $28.06 from Q2 2022.
I will now move on to address some of the main balance sheet movements, we have seen since quarter one 2022.
I'm pleased to be able to report the Trinity biotech is a significantly stronger balance sheet this quarter.
With total liabilities lower by 21 million compared to the end of March 'twenty, 'twenty, two and lower by $28 million compared to last.
Last fiscal year end.
The most significant balance sheet movements during quarter, two 2022, or the $45 2 million investable and from the <unk> group and the partial repayment of the term loan.
Nico investment has resulted in $25 2 million of additional equity capital and a new seven year convertible loan of $20 million.
This 2 million convertible notes is accounted for as a compound financial instrument containing both in equity and liability an element.
But that component is accounted for at amortized cost in accordance with <unk> nine.
At June 30 of 2020 to carrying value of the convertible notes get components with $13 4 million.
The equity component of the convertible notes $6 7 million and has been recorded in the equity section of the balance sheet.
The carrying value of the term loan has reduced by $32 3 million this quarter, reflecting the early settlement of approximately $35 4 million, partly offset by accretion interest.
The remaining balance sheet movements, which I would like to highlight our intangible assets and inventory.
Intangible assets increased by $1 4 million. This is made up by additions of $1 6 million, which mainly comprises capitalize R&D expenditure and this was partly offset by amortization.
Inventories have decreased by <unk> 5 million since the end of Q1 2022.
This increase was within the normal range of fluctuation for inventory levels and that 500, a decrease this quarter, bringing the inventory balance act will ever be reported at the end of December 2021.
Finally, I will discuss our cash flow for the quarter, our cash balance increased by 400000 to $10 5 million in quarter two 2022.
The aforementioned investments of $45 2 million from the <unk> group was received during the quarter was primarily used to fund the near your payment of the term loan of $34 5 million and a release of penalty for early repayment of $3 5 million.
Cash from operations was an outflow of one 9 million.
We had capital expenditure cash outflows of $1 8 million in payments for property leases of 0.7 minutes.
Insurance payments for the quarter were two minutes.
As you may have seen in our earnings announcements, we have made a cash saving to date of approximately $2 3 million from repaying part of the terminal and arity.
While we're speaking about the term loan I would also break to bring your attention to the fact that the minimum liquidity covenant for the perceptive loan has been amended until May 22, 23. So that's the unrestricted cash balance that we are required to maintain is now $2 million down from 5 million previously.
I will now hand, it back to Arris will bring you through the revenue and key business highlights.
Thank you John .
Now I would like to discuss a few revenue highlights for the quarter and priorities for the rest of the year.
Total revenues for Q2, 2022 were $18 5 million.
Excluding our Covid focused PCR viral transfer media products Q2, 'twenty two to 2022 revenues of 18 million were broadly flat compared to Q2, 2021 and were up 7% compared to Q1 2022.
Our strong year over year increase in our diabetes, a one C product line revenues of over 25% offset a decline in legacy infectious disease product demand in Asia.
Due to continuing COVID-19 lockdowns.
Preliminary estimates for Q3 are for expected revenues of between 19 million to $20 million.
Driven by an approximate double digit year over year increase in both our hemoglobin and Fitzgerald life science businesses.
<unk> revenue momentum into the second half of 2022 continues with a 25% quarter over quarter growth as a strategy of focusing on high value bulk sales is getting traction.
Q3, Global Health HIV orders for Africa, which are often difficult to predict increased compared to Q2 2022.
And we expect our HIV point of care revenue to grow over 30% on a cobra quarter over quarter basis.
Since World Health organization approval in February of our trend screen HIV product the relevant Kenyan Ministry of Health Task Force recommended trend screen as the first slides screening test for Kenya's new HIV testing algorithm.
In addition, the pre submission process has been started and several other African countries.
For context, our target countries for its strength trend screen HIV active underactive evaluation in 2023 have a combined estimated market size is 30 million tests annually.
We chose Kenya as the first country to submit trend screen for inclusion in the National HIV algorithm given its large market size estimated at five to 6 million tests a year.
And its prestigious leadership role as an innovator in HIV management in Africa.
The use of the new HIV algorithm, our algorithm had been delayed due to the change of government in Kenya following the election in August .
And our legal objection by competitors regarding the overall HIV algorithm evaluation process.
The new government is now in place and we understand they are motivated to scale up the HIV rapid testing program to pre COVID-19 levels.
We understand the implementation of the new testing algorithm will begin before the end of the year and expect the first orders to arrive shortly.
I would also like to take this moment to welcome Tom Lindsey to our board of directors.
Experience and networks in Africa will be a significant benefit during this product rollout.
In May 2022, the company announced the closing of a 40 to $45 2 million investment.
For <unk> limited.
The investment consists of an equity investment of $25 2 million acquire for $2 25 for a D S.
A seven year unsecured junior convertible note of 20 million or with an interest rate of one 5% and mandatory conversion price of $3.24.
As part of its ongoing balance sheet restructuring the company made an early repayment of the 35 million of its stern along with perceptive in may.
The partial repayment will save the company cash interest expense of 5 million annually.
Further refinancing may be optimized in conjunction with the execution of one or more potential strategic transaction opportunities we are contemplating.
Now focusing on our hemoglobin business our largest platform.
We have recently completed a comprehensive three year execution plan for the business that incorporates new targeted product launches and intelligent actions to maximize profitability.
In late August the company submitted its five submission to the F. D. A seeking U S regulatory approval of its premier resolution hemoglobin variant instrument.
Subject to FDA approval and commercial sales are expected to begin by Q2 2023.
The team is also finalizing the development of a lower cost mid throughput a one C instrument that leverages the core consumables technology from our existing Premier ninety-two instrument.
This new instrument is targeted at developing markets where rates of diabetes Roes are substantial but the entry price I administered instrumentation as a barrier.
We are also developing a commercial strategy that combines equipment financing with our core product offerings, ensuring a favorable cost entry point for our customers, while optimizing the Trinity balance sheet.
Supply chain product design optimization and commercial actions are underway in this business to significantly optimize the margins of.
Of the platform.
This includes.
In sourcing key elements of our consumable call of manufacturing.
And streamlining our product focus my expectation is that these actions should deliver a double digit profile for the business over the next three years at well over 50% gross margins.
We see significant growth potential in our autoimmune business as well.
Our focus is on the 2023 launch of our clinical laboratory reader and processor range that complement our existing IFA consumables products.
We are also in the platform evaluation stage, where the adoption and development of Academy Luminescence system aimed at our current Elisa product range.
I'm quite focused on our proprietary sugar as dry eye testing capabilities within our autoimmune portfolio.
And believe we can scale this product lines through pharmaceutical partnerships and applications in adjacent markets such as dentistry.
In an effort to address demand growth for our cryo slides business, we are expanding manufacturing capacity at our Jamestown facility. While also offsetting excess production capacity from the expected runoff in demand from our legacy infectious disease products.
We have launched a strategic review of expansion opportunities in the point of care space and in the sponsored decentralized commercial consumer testing programs.
In order to take advantage of the evolving patient expectations rapid technology convergence focus of ambitious and well funded tech and CPG players.
Players and.
Their focus on controlling health care costs through proactive digital health care.
We are actively exploring acquisition and partnership strategies in these areas aimed at accessing channel distribution.
Product innovation and user experience expertise.
And at the same time, we intend to make a substantial investment toward this effort over the next 18 months in our Buffalo, New York Lab, which is well positioned to serve the decentralized testing market because unlike many other U S lives. It is certified to process samples from all 50 states.
In addition, we are positioning our point of care product business and Irish manufacturing operation to apply its operational capacity product development focus and regulatory know how as an ecosystem enabler of the disruption in the space being driven by market forces.
There may be an opportunity here to leverage our Mako gaiam had relationships in relation to their handheld enzymatic product line.
I like to use the analogy that we are aiming to be the shopify the decentralized testing space.
The combination of our World Class lab operation and decentralized testing product development history is unique in the industry.
Platform optimization actions to date.
That resulted in a significantly more efficient workforce.
Our average headcount in the six months ended June 30th 2022 was approximately 410 compared to over 500 in the six months ended June 30th 2021.
And we expect total head count to be under 400 by the end of 2022.
Operational efficiencies will continue to be a focus across the board as we aim to make our processes leaner more agile and highly automated.
We are undertaking a portfolio wide.
Capital and talent allocation review, emphasizing maximization of return on capital.
And to ensure that our incentive systems are being enhanced to drive significant targeted improvements in gross margin earnings cash contribution as well as revenue growth.
The centerpiece of our incentive system will be in Aesop programmed modeled after my own equity compensation.
This results in substantial financial incentives one shareholder.
Shareholders benefit the most.
Over the past 18 months the company began a program of leadership upgrades, beginning with our CFO John Gilbert.
And subsequently attracted experienced leaders in operations and HR.
Most recently over the last couple of quarters. This brokers on talent has expanded to include new leadership in supply chain regulatory compliance business intelligence and technology.
I urge you to visit our website to see their Bios.
While we have brought in fresh talent to lead key sales initiatives. This area continues to be a direct focus of mine.
Over the coming weeks and months my intention is to further outline Trinity biotech strategic focus for 2023 and beyond.
One such opportunity will be the upcoming Piper Sandler Healthcare conference on Thursday December 1st we're training Trinity biotech is scheduled to present this strategy.
That concludes our commentary regarding the quarter, we're now available to take your questions.
We will now begin the question and answer session.
A question you May Press Star then one on your.
Peloton screen. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Yeah.
The first question is from Jim Sidoti of Sidoti and company. Please go ahead.
Okay.
Good afternoon, and thanks for taking the question. The first one with regards to the ourselves of the V. T M. The COVID-19 related products.
You said down about 7 million in the quarter. So does that mean those sales are basically gone.
John at this point and do you expect them to come back.
Well, let me let me give you some context and I'll have John give you maybe some of the detail.
Detailed trend lines on this but you know look.
Covid is a little hard to predict right now in terms of how we're facing the the winter season, obviously, there is a fair bit of concern.
You know in the in the U S and there's this whole triple triple threat with RSV and flu.
Last year I think you know we saw tick tick up well, we see that again I don't know frankly, we're not predicting it it's down substantially.
We're not counting all of the ATM to be a driver of our strategy going forward. John I know, if you want to add anything to that.
Yeah Jim.
That's down about seven down about $7 million, he said to about 400000 in quarter two.
I'm, hoping not to belabor the point.
<unk> continues to be very fluid situation with Covid. We have seen you know it continued the mice are PCR testing in North America. So you don't.
Hard to predict at this stage it doesn't seem like it's going to be a significant core.
Difficult feature for quarter four.
Okay, and then for the third quarter I believe sales a year ago for the BPM was around 3 million. So it sounds like you expect sales to be up about a half a million.
From a year ago.
<unk> does that sound about right.
Yes, just give that to me again, Jim sorry.
For the September quarter in 'twenty, one I believe are the sales were about 3 million. So if you come in at the midpoint of your guidance.
For our 2022.
I think youre, implying about 3% top line growth you know excluding the.
Covid is that sound about right.
I think we'd have about between three to 400000 of Covid sales in Q3, and as I look over but its preliminary guidance, but I think it's probably going to land somewhere in and around what we havent in Q2.
I think I think John the bin was our guidance at 19, and a half million extra.
Ex COVID-19.
What's our what what's the year over year for third quarter is that does that does that your question.
Yes.
We we covered last year it was about $3 million in quarter, three and this year, we expect it to be between three and 400000.
Okay. So if you come in at 19, and a half million, you're you're you're up maybe a couple of hundred thousand yeah.
2021.
On a year over year basis.
Yeah, Yeah, I understand what you're saying is that what you're saying.
Okay.
Alright, Oh, how should we think about interest expense for the third quarter and going forward I know you know this.
This quarter was unusually high because of the accelerated pay that pay down.
Yeah. So interest on the perceptive that is about 14% now.
Hey.
And there's about $45 million on that so that'll be our.
That'll be our expected cash interest cost and the accretion interest is is noncash.
And then the knife rest driven.
Driven.
Yeah.
Okay, and how should we think of the share count for the third quarter and going forward.
In terms of EPS Calix is anyway.
E M.
It will increase somewhat more Jim aim because obviously the musical chairs the shares are issued amigo and will have been outstanding for longer.
Right so.
$38 million does that sound about right.
And are in around that Jim yet around that yet.
Okay, Alright, thank you so Jim.
It's all context on on on the on the revenue.
Effectively you look at kind of where we are quarter over quarter and year over year.
We're kind of fly you know all of the ins and outs of Covid.
Both the T M V T M upside and and and the effects on hemoglobin a you know.
Because it's because of all the COVID-19 testing.
All of that is kind of washing out and we're basically flattening out on revenue.
Somewhere around 19 to 20 million in that range and the idea is to build from there. So that's kind of where were playing out right now.
And now it's kind of where are you John and I are building our base case kind of from this kind of flattening out point in terms of the next three year plan.
Right. So so basically you started out with a 70 580 million dollar business and then you expect to grow it from this point based on the increased sales for the.
For the HIV test in the ER, the autoimmune and diabetes.
Yeah, and some of the initiatives that I highlighted I think have real growth potential in 'twenty, three 'twenty four or so.
I think I think at the end of the day, we feel like we're we're yeah. We're at the run rate now from or where do we want to be able to plan.
And what level do you think you need to achieve a revenue due to obtain profitability on the bottomline.
Where we're really attacking it two ways Jim right. So obviously, we want to grow revenue, but we're very very focused on growing gross margin as well and gross margin contribution. Okay. So it would be flat I think we flagged previously the average selling price up.
The print screen HIV test will be lower than the Unicorn tact. Okay. So we expect that would have a margin percentage erosion, but will add to gross margin contribution okay.
And then we're very focused on managing our SG&A costs and overall our overall.
Cost basis.
I wouldn't want to give guidance in terms of you know.
What level were to reach overall profitability it will depend on progress around not just the revenue number relatively look to optimize our gross margin. So is iris had spoke about for example, if we take our hemoglobin business.
We're looking to in source there is significant aspect of our consumable production.
We think that could add somewhere around a million dollars to our bottom line on an annual basis through that through that action and that we will not hit that for a full year for 2023, and but I'd expect we'd hit back for full year 2024, So we will be.
We're executing on that at the moment and I think it'll start paying dividend in early 2023. So there's a number of key initiatives that we're focused on to make the business much more efficient rather than just rely on revenue growth to get us to breakeven or what we're really focused on is revenue growth.
And efficiency to get us to two two.
Significant profitability.
I mean look I mentioned, the three year plan or on hemoglobin <unk> yeah.
I I.
We are looking at a business that should have growth gross margins well in excess of 50%.
And you know operating profit margins pretax in the 20%, maybe plus or minus range. So in a three year timeframe. So we're you know that's a it'll be a healthy profitable and that's our largest business.
The areas right now that we're spending some time really vetting out is.
Point of care.
How do we position the lab and the product business in point of care to take advantage of high margin.
Opportunities in developed markets as well as what we currently have an IND and especially in the case of the product business in the developing markets.
That that partnership strategy, and we feel very confident in terms of what opportunity do you have it at the lab level, but.
That strategy is a very high margin strategy.
Both for the both for our Irish based lateral flow business as well as our lab business. So.
I think that's going to be one of the key drivers, but we're putting some work around that and we're in discussion with a number of partners and that'll that'll determine that model for a shortly.
So immune to be honest is he's got tremendous growth potential its small right now and that's an area, where we may be willing to.
On the short medium term.
Significantly invest to take advantage.
So the idea is between now and the Piper Conference. We'll have this thing pretty much narrow down and we'll have a pretty good three year view.
Okay and then the last one for me are you actively working on refinancing the.
The remaining piece of that 14% debt.
Well you know look the market is a is a little fluid right now.
And one of the things that John and I discussed.
What I, what I when I got involved was.
Refinancing the debt has penalties associated with it okay. What do you do all the math.
In the short term, it's a fair bit of penalty for the for the amount of refinancing benefit you're getting now.
What I, what I what I.
It had been thinking about was John here is we've got a number of a potential transaction or partnership opportunities in front of us and that we're probably better off going to both debt and equity investors.
Around a transaction idea and do a refinancing once as opposed to doing it twice and paying a penalty.
Okay.
We're trying to be prudent I mean, I don't I have 14% monies stupid right I mean that doesn't make sense to just to sit on.
So that's that's not my intent I expect to refinance out of it I just want to make sure that you know John and I want to make sure we're being clever about it.
Understood Alright, thank you.
Accordingly.
Yeah, and just through the early repayment and we have taken a significant piece of that cash cost out.
And so it's not us.
While the rate is high the amount borrowed at substantially less than we had previously taken taken some of the cost of.
Understood Alright. Thanks, Thank you for taking my questions.
Thanks, Jim.
Okay and if you have a question. Please press Star then one the next question is from Paul Norrie of novel equity. Please go ahead.
Yeah.
Hey, good morning.
Good morning.
What do you see as the size for the a variant instrument at the size of the market for that.
Well look we had a previous I'll, let John give you a little bit of a kind of a.
Forecast.
Our perspective on all those numbers and what they could potentially be but yeah look the varian product is replacing a market leadership position we had.
<unk> historically.
And expect to kind of hit the same rates. Once this product is rolled out it was really a much better version of the ultra product we had in the market right. John So where are we on the ultra roughly in the ballpark.
Yeah.
Well over five to 6 million revenue year right aim in the in the U S predominantly aim.
With very healthy margins, Paul rise and a recurring revenue model, we could get higher to that obviously to the extent that we we pushed is outside the U S. So why do we have launched it under CE Mark.
In a lot of countries because of the U S manufactured product.
Need five 10-K approval, but these home country approval.
And just also from a marketing and credibility perspective, right when it <unk> great strengths and its other areas is the fact that it has a large number of five 10-K approved products right and that market's those products well outside the U S and the same should apply for the for the Premier resolution. So yeah look if we.
We'd hope to be getting five or six if not more million a year out of dash at a good margin and really the growth is only is only dictated by I suppose how far we can we can expand that outside of the U S of which five 10-K is a key pillar of that strategy.
Okay, and then shifting to the screening market.
And that's like how much does how much market share does the current leader have there approximately I know it varies country by country, but you know are they you know predominant over 50% or is it more of a scattered market.
Yeah look I don't think we'd want to necessarily talk about someone elses market share we're more interested in their own books.
I'm B, yeah, they are a predominant position within the markets I'm and rollover.
Forget it so yeah.
Yeah.
That gives us an opportunity Paul to to pick off say a.
A meaningful piece of that Americas, and they have been the incumbent there for many many years.
And.
That gives an opportunity with our product, which we think has key benefits in terms of its performance.
Also the time to test its a faster test Sharon and that matters, a lot where youre running at HIV testing in terms of throughput. So we think that we can pick up a meaningful piece of that Americas notwithstanding.
Their position there.
And do.
Do you anticipate the legal objections might be an issue in each country or is this country unique in some way that way.
They thought that they had to stand up.
[laughter].
And again.
We're not inclined to talk about cases that other parties that are involved with them. We're not involved with aim and I think this was.
Not necessarily an issue that we we had perceived would be a problem in terms of a broader rollout in Africa. So.
You know, we don't foresee it as a major issue I gave you might cause my perspective on having done a fair bit of business in Africa look.
Just as a one step back.
We're talking in our screening market about $150 million a year roughly okay of revenue available in the market.
Given given the attributes of our tests and they are substantial and and the desire for many.
Any countries to have an alternative on their algorithms.
It does it it's it's it's we're not we're not planning to kind of go get 50% of the market or anything like that but it isn't inconceivable for us to have 20% of that market at all I think that's doable. So that'll give you some context.
Of of sizing around that for now and then the other thing I would say is.
You know, whether it's illegal K, sometimes it's a political issue Africa is lumpy and it's going to be lumpy and that's one of the main reasons why we're focusing our point of care test to scale beyond Africa.
Into higher margin more predictable markets okay.
At the same time, we brought down Lindsay onboard Tom Bill Alere business in Africa. He's got the networks. He's got the gravitas to one of the main reasons, we brought him in.
To enhance our transparency and overall.
Intelligence around dealing in Africa.
And getting more predictability out of it. So all those are the best things, we can do but it's always going to be lumpy out of Africa, and we just have to accept that.
Okay.
And I know this is kind of a tough question because you know there's no way that you can predict this kind of thing, but as they're looking for.
Our partners too.
You know, possibly merge wells or whatever the strategic.
The combination would be are you are you leaning more towards.
Younger companies, who have more capital and could you use you know the fact that Trinity has been in the market. So long or is it the other way around where you are looking for.
More mature companies or maybe looking to.
Bolt on some extra product lines or whatnot look I would say, we're looking at a range. Okay. We're looking at.
Companies that might be similar to us and have what I would find it appealing product pipeline and the point of care space that could be interesting to us.
We are talking to companies that are.
Our plugged in to the neat new health care treatment ecosystem was tele health and all the other digital providers being sponsored by payers.
And who are connected to these networks through.
User interfaces AP is abilities with your private label very interesting.
I T capabilities among other things that are really important if you're going to try to fulfill our solutions in a point, especially as you start getting into over the counter or b to b to C models and over the counter.
Our strategy so those tend to be what I would call yeah younger companies you know more techie companies.
Potentially but who get health care and who get the complexity of being plugged into health care and then I think the third category would be.
You know traditional CPG companies and tech companies.
Who.
Who see this as a real growth opportunity for them and what I like about those discussions as you know we don't have that kind of distribution reach they do.
And they don't have the regulatory and operating excellence in this industry that you need to have that we do so.
I think there's some very interesting dialogues, Illinois, but that's the range of conversations John I don't know if you want to add anything to that.
So I think that's a fair summary, like Paul really what where I suppose what we're trying to do is.
In a post Covid world, we have a capability.
For developing manufacturing point of care tests that now we think we can direct towards them more over the counter higher price point consumer market.
And our laboratory also we can redirect that capability to serve that Americans to support virtual care. So it's really around us taking our existing capabilities and looking to scale them and point them at higher price point higher margin opportunities than we have been maybe over the last what did they say.
Loved it.
Well, we've had inbounds for people wanting to buy a digital companies, who want who'd been wanted to spend a fair bit of money wanted to buy our lab business.
No.
It is we realize we actually have something interesting and allows us. This allows us to lead in terms of the interconnectedness you need to add to this ecosystem.
And then the margins are I got to tell you are a lot higher a lot higher.
Yes.
Chris Yes, if there's any extent theres capabilities, we need to bring in to do that and partnerships or M&A or a way for us offer a way for us to do that as well is.
Building on our existing platform with with product acquisition or synergy plays.
Look you've got you've got a fundamental aside from user.
References that have all evolved and companies like Apple don't want to get into health care and Cvs and everybody wants everyone wants your blood results. If they can get it what's the most important trend is that payers have had enough.
Alright, and and payers are driving digital health.
And everybody knows it progressive proactive testing is critical to make this work.
The ecosystem is looking for solutions, where a piece of that solution, Okay, and what were figuring out is how do we plug what we're good at with people who have other aspects of what this ecosystem needs to provide solutions.
The payers the insurance got they they're just they're looking to put together programs to.
Again, it has a cost issue. So we're just being smart about this we were not trying to be something we're not some some things we'll buy I'm very interested in buying user interface user experience opportunities are or partnering around that kind of thing.
To plug in with our lab and product capabilities, I think that positions us very very well.
And so look stay tuned.
I appreciate all the insight on that and then just the one technical finance question inventories I think southern company has historically been at a high level and I think my understanding of it was that it was mostly related to Fitzgerald and I'm needing to have.
A lot of inventory on hand, a lot of different types of inventory on hand.
Is that still the case and is the current inventory level, where you would expect it to.
Remain approximately in coming quarters.
Paul Yeah, I mean, it's not just down to visitors right. So you know given the supply chain challenges that everyone. Not just us that have had over the last 12 18 months, we made E.
We made a decision to increase our safety stock levels for many of our inventory items and especially in our home hemoglobin business. We had significant supply chain challenges, we were typically ever over overcome them, but they can be quite a distraction okay.
So you know aim we need to be able to produce when our customers and ultimately the patients need our proud of so for that reason, we've made the decision to increase levels of safety stock.
That's the main driver I suppose of that high level.
I'd expect that to maintain in around the same place.
Okay. Thank you.
Okay.
Okay. Now do you have a question. Please press Star then one.
This concludes our question and answer session I would like to turn the conference back over to Eric Hagen for closing remarks.
Well look thank you for attending my first earnings call.
I I thought your question is were very very insightful and I. Appreciate it we will actually be back to you fairly soon to do our third quarter.
Update and and I promise you there will be on a more a more regular schedule going forward.
So stay tuned we look forward to talking to you in a few weeks' time and and I think we have a link on our website to the to the Piper conference. So that'll be live streamed.
And will provide the presentation online so with that thank you for the time and.
Enjoy the rest of the week.
Thanks, everybody now conclude again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.