Q3 2022 Prophase Labs Inc Earnings Call
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Good morning afternoon evening and welcome to the Prophase Labs third quarter 2022 financial results Conference call.
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Okay, Chairman and CEO of Prophase Labs. Please go ahead.
Thanks, very much and thank you everyone for joining me today.
I will start with the forward looking statement, then I'm not going to read our third quarter press release, you all capable of doing that yourselves I won't go through some highlights.
Or maybe I don't I don't know, how long 15 or 20 minutes and.
And then hopefully please don't be shy ask questions I do these virtual non deal Roadshows every few weeks, where I usually present the whole company for 25 minutes and then we have a very lively 35 minute Q&A. So I hope people on the call. We'll have some questions. So I can get into more details.
The various topics regarding our company as always I have to start with the forward looking statement.
This presentation contains forward looking statements relating to our strategy and business objectives. All statements other than statements of historical facts included in this presentation may be deemed to be forward looking statements, including statements regarding our strategy plans objectives and initiatives, including those related to our plans to expand our in house clinical testing capabilities and genomics testing offering.
And our plans to develop equity your equity there Jay and wind back that you can identify forward looking statements by words, such as anticipate believe could estimate expect intend may plan predict project Jordan well what are the negative those terms and similar expressions that convey uncertainty of future events or outcomes. These forward looking statements involve known and unknown risks and uncertainty.
And other factors that may cause our actual results performance or achievements to be materially different from those contemplated projected forecast estimate or budgeted whether expressed or implied by these forward. Looking statements include risks related to consumer demand for diagnostic and genomics services, the competitive environment challenges related to entering into new business like the failure to obtain.
And maintain certain regulatory approvals our ability to collect payment for the diagnostic tests, we deliberately putting our ability to collect payments from uninsured individuals. Most of the funding is that al-qaeda harvest uninsured program in the future and our ability to continue executing our business plan additional risks and uncertainties relating to our business can be found under the heading risk factors.
Our annual report on Form 10-K for the year. The December 31st 2021 and our subsequent quarterly reports on Form 10-Q, as well as our other filings with the Securities and Exchange Commission. These forward looking statements are based on current expectations estimates forecasts and projections are not guarantees of future performance or development. The forward looking statements contained in.
On this conference call presentation are made as of debate Europe , we do not assume any obligation any obligation.
Any forward looking statements, except as required by applicable law readers are cautioned not to place undue reliance on any forward looking statements can paint and its presentation or on this conference call Alright, I am sorry.
Sorry that I have to read all that that's a mouthful, but our attorneys.
Love to give me a mouthful startup cool alright, and antibody now that we have a forward looking statement.
The way welcome all are just a couple of quick highlights and reminders.
First of all we do virtual non deal Roadshows I do one every two or three or four weeks with a landmark.
They've really done a great job with those.
Feel free to join even as a shareholder I went through the whole company, but theres always highlights it's always new developments in our company every quarter, there's always more to talk about in the Q&A as always likely so feel free to contact glenmark.
If you'd like to join those calls it really is a great way to communicate to our shareholders.
So we have great relationships with both banks equity at H C. Wainwright are they both follow our stock and Oh, we really appreciate the relationships that we have both with both of our investment Bank I worked on Wall Street for a long time, and I know, who the best investment banks are to work with for our micro caps development stage.
And these are two of the best Okay, having said all of that.
Look our numbers speak.
Speak for themselves we are in a unique situation on Wall Street, Yes, we are in a bear market in a bear market, that's where you know the pretender chop as pretenders at the end of the day, we are growing we're earning capital.
All while developing three subsidiaries.
Two of which have multibillion dollar potential.
And I don't know another Microcap company that can make that claim you know microcap development stage company, that's growing that has earning.
No that is earning money real money are they growing their cash flow and working capital while at the same time.
Develop assets, which have such a tremendous potential so with that I always have to find a balance between how much I'm gonna go over things that most of you should already know, but you know basically we're set up with five subsidiaries and I'm not going to spend too much time on them are two historic businesses.
Manufacturing dietary supplement businesses are growing.
They're doing just fine and borrowers doing a fantastic job in managing our plant in Lebanon, Pennsylvania those businesses. Those two businesses combined are growing this year and generating positive earnings I could probably sell those two businesses I don't know if I had to guess combined I could probably sell them for $25 million, it's just sort of another hidden asset.
The reason why we don't do that is because all of our other subsidiaries or are going to leverage the distribution and the shipping and the logistics that these two subsidiaries provide to us so as I talk a little bit about the other three subsidiaries very briefly you'll you'll see the synergies.
So first a propane diagnostics, obviously, that's generating the bulk of revenues and earnings at the moment.
And the bulk of that testing is COVID-19 testing everybody's been betting that COVID-19 going away at our testing is going to go away for the last year and a half.
And you know it's interesting last summer Ah when I've answered it took probably dropped we lost money I think out of cash flow basically we might have been close to breakeven.
You know, but we reported a loss last year and whereas this year.
At the same.
Level of incidence of Covid, roughly or maybe even less we reported significant growth in revenues and in earnings.
Talk a little bit about the difference between.
Our reported income and our adjusted EBITDA I think it is critically important if you wanted to properly assess our company from a financial performance point of view to focus on our adjusted EBITDA. There are expenses that make up that difference most of those are.
Depreciation.
For example, we acquired Nebula genomics the value of Nebula genomics I believe is growing dramatically and I'll talk more about that at the moment, but at the same time, we're depreciating it because when we acquired <unk>.
Mostly goodwill. So you have examples like that and then we have other examples where we issued stock options. Some stock options were to and executive that's actually not even with us anymore or two executives is not with US anymore. Yeah. We are expecting <unk> expense those stock options and they leave we kept.
Oh, the stock options, but we don't get to revert to the expense.
You know so there are other issues like that and that's why the adjusted EBITDA number is so important to me and what it should be to investors.
Because that's what demonstrates you know the real earnings power of our company and the real execution.
Our and your management team. So those are a couple of examples we also as we build out our lab, but as we expand and as we buy more equipment we are depreciating.
<unk> bought equipment and so we have a lot of these.
And anyway.
That explains a little bit about the adjusted EBITDA wasn't the outcome again, we're earning money even during the seasonally and you.
The second and third quarters seasonally had been the weakest quarter in our company Coincidentally for 25 years back when we had the cold these brands.
You know the seasonal business.
You got into the cough cold season, all of a sudden people are buying a lot more colby well guess what in the cough cold season that saw so when people get cold symptoms when they get flu symptoms and that's just it.
About to hit US now and people are not going to know whether you know, yes, well you have all these mandates had been relaxed with word of mouth and.
Nobody's really worried about COVID-19 the way they were a year ago, but by the same token a year ago. At this time people weren't that worried about COVID-19 and all of a sudden we got slammed with Ami quad.
And the hospital filled up again, I am not suggesting that's going to happen again this year, but by the same token when you've got a cold or flu when you get those for symptoms.
First thing you think is do I have COVID-19.
And so what do you do what what's the best way to deal with those symptoms go find out if you have called they didn't get a PCR test. So are we very conveniently provide both antigen test and.
All the tests and if you walk out on the streets of New York, There's a very high probability when you walk up to one of those tends to get tested it's coming to a lab. We are so efficient now that if you get to that 10.
I can't remember what the cutoff is but if you get to the 10 five mid day, you'll have your results by the end of the afternoon or early evening at the latest alright. So our that's been collected partners Love Us our our turnaround times are fantastic.
We also can't afford to pay them more because we operate at such an impressive level I gave a lot of credit to our management team at Prophase diagnostics, both Jason Cockpits, and Alex Leroy who just do a great job of managing the customer to Madison lab, we are super expensive and.
It means that you know, it's very difficult for other labs to compete with them quite frankly, so even during the slowest part of the year.
We were still very successful in the second and third quarters and generating significant year over year revenue growth and significant earnings are and you know in particular, a significant adjusted EBITDA. So that's just a little bit on the numbers, we can get more into it more and more importantly, the.
Numbers are great.
But I'm not in this business just to generate some profits from our diagnostic testing I am in this business and I'm committed to our company because I truly want to build a multibillion dollar company and the way we're going to do that is by building out.
Our three subsidiaries that have so much potential and so much going for them and the beauty is we got to generate these earnings to support the management team supported our efforts give us flexibility while building out. These other subsidiaries. The other thing is we have such a great platform that we didn't have before so.
You know we had a we had a platform years ago public company with no money and then we had a little money and then we had a little capital and we had a little business and then we built it into a bigger business with more capital. We're now at a point, where we have this great platform. We have over 50 million of net working capital a lot of that is in cash.
And we're earning money and we have a tightly held stock and not a lot of shares outstanding and so you have all of these other companies that have great potential exciting assets exciting science, but they don't have capital and their stock prices are struggling up the Republic some applause.
It is.
And they really have nowhere to turn right now and they're turning to us looking to do deals with us. So there's a lot of opportunities two very inexpensively acquire assets and build out our businesses. That's what we did with prophase Biopharma. We license first we license equity on equity.
G. A broad based anti Virals are one O as an over the counter dietary supplement the other is a prescription.
The over the counter dietary supplement we're looking to do some quick studies over the next few months and potentially introduces the marketplace. Early next year again, leveraging our food drug and mass retail.
You know store distribution, Okay, and then we were able to license linebacker which has enormous potential and I've gone over this before I can do it in the Q&A, but everyone should know by now.
Linebacker inhibits pen pen as a growth factor in cancer, if you inhibit.
The growth of the cancer. When you have cancer. If you can inhibit the growth of that cancer, while you're treating the cancer whatever drug you're taking to treat that characterize a better chance of working at it that logically simple we've gotten great preclinical.
Results to date are Harvard and Dana Farber Cancer Institute, no all compounds, well and they're really excited to continue work on them and so we've just entered an agreement. The other day. So really excited about the developments. They are my point is I believe that there could be some more opportunity if it ain't broke copay.
By apartment that we can pursue particularly in a bear market and.
Then we got the nebulizer.
There's so much to talk about that maybe we will do that in the Q&A I just returned from Abu Dhabi of course, you all saw the.
The announcement with <unk> 42 at G. 42 is a multibillion dollar company that just formed a 10 billion dollar Tech fund.
And <unk>.
Everyone at <unk> 42, particularly G 42 health care was very interested in working with us.
<unk> 42 health care, they're a leader.
And a global leader in whole genome sequencing are particularly in the UAE, they're tasked with we're testing a million people in the UAE residents that that's their golf they've done about 200000, and so far so because they are doing such a high level of whole genome sequencing they are able to get there.
The best pricing and consumables, which means that they can more.
More efficiently or at lower cost to them process. The specimens we are now in effect partnering with them and piggybacking.
That pricing and so we are going to have excellent pricing for whole genome sequencing at the same time.
Don't really want to go into it for competitive reasons, but we are we have relationships with all of the global with the basically the three global players.
And whole genome sequencing and our goal and my hope and my true belief is that we will be.
The low cost provider of whole genome sequencing in the entire United States of America going into next year and I believe that this is a business that is going to explode because it is at the heart.
Precision medicine, and again, what's that all about all the universities, they're all looking into understanding why do people get a certain form of cancer.
These same two people with the same counter they take a drug they take the same drug of one person. It works great on the other person it doesn't work well.
And the question is why and it comes down to genetics.
And how do your studies someone's genetics, the best way to do it was with whole genome sequencing, which studies the entire genome it's that simple.
This business this industry. It it's it literally is the future of medicine, it's where all the researches going and we expect to be at the heart of it both in our collaboration with a global leader in whole genome sequencing.
And we believe we have the best platform in the United States, particularly with our library, which you can subscribe to so we are.
Right now we're selling online are growing significantly I believe ourselves that'd be like genomics, even though it's off a small base are growing I want to say approximately 35%. However, if we get into retail stores and were doing a test right now with one of the largest REIT.
Pillars in the country.
One of the largest drug retailers in the country and there's another one right behind it and I believe the test is going well the test goes well and we go into these stores our growth.
Genomics could go from you know, 35% it could go up it easily into triple digits like a hockey stick or sales could explode that in addition to that we haven't even tapped the university.
Research business, yet, where we are doing business with one University Oh and also globally. There is a we actually I believe we decided ideal.
Company globally, but we're not even touching the surface here and we expect to be one of the global leaders.
And low cost whole genome sequencing and our next goal is also to build a lab in garden city to do a whole genome sequencing. So we're looking I mean, just aren't selling whole genome sequencing direct to consumers online. We believe that business is going to grow significantly it just by dropping the price, Florida, which we're in the process of doing we're also spending a lot of money on.
Marketing to get our web site to have the best website with the best conversion and the best ads.
Great for them and we're in the process of working on all of that right now, but then as I mentioned, we get into the retail stores. If we do that I'm I'm talking realistically, we could be looking at triple digit growth year over year that'd be a lot and then just thinking about the science think about how well we will be positioned you know.
This is like I I loved to liken this to Silicon Valley with the start up Tech company. There's no revenues our earnings and before you know it has a $1 billion market valuation. So just imagine our company with a proprietary library that you sign up for.
You pay a subscription to that has you know like 99% gross profit margin. So we can tell our whole genome sequencing of cost, which we can do both direct to consumer online as well as in retail stores.
How can anybody who compete with us.
First of all I don't believe that another company could even match our pricing at their clubs and then if they want to make a profit they would have to mark it up we don't have to break it up.
We have a library to sell subscription too so.
So I don't see how anybody can compete with us in a in an industry that's going to explode. Most consumers don't even know what whole genome sequence he knows but I promise you they will a year from now.
So this business is going to explode, where at the heart of it.
We have the capital we have the infrastructure.
We have the relationships we have George Church.
Harvard he he's been a world renowned leader in genomics for the last 20 years, we decided was altman from Stanford University.
Go on any advisory board, we have this tremendous collaboration with GE 42, one of the leaders in the World and then we have great relationships with the two largest companies in the world that manufacture the equipment.
And manufacture the consumables and they want us to be you know, they're leading company in the United States.
Four representing them and so the deals that are being offered to us a really exciting. So there's just an enormous amount going I would nevertheless, it literally is in its infancy, but you've got to invest in our company, where we're earning money. While we're developing these businesses. So we have a lot going on appropriate biopharma, we have a lot going on.
And then I already touched upon it or lab and so to be clear our diagnostic business.
I think we're going to completely transform our diagnostic business over the next six months.
And we're gonna be go into so many different directions between a fully diversified clinical lab genetic testing, but also not just genetic diagnostic test, but also specifically the whole genome sequencing.
Business and then the potential collaboration we have with some of these global leaders could be enormous as I mentioned I just spent a week in Abu Dhabi with senior Madison achieved 42, and I can just tell you there's enormous potential there so.
That's a little bit of a recap on our company at all the things that I'm excited about I'm just kind of very quickly I also just want to point out our trailing 12 months, it's not in the reported numbers.
Trailing 12 month revenues of over $140 million adjusted EBITDA for the trailing 12 months is over $50 million.
Huge numbers, while we're developing these businesses I think the post both properties' biopharma as well as prophage precision medicine that has some turbulent genomics. These are potential you'll of course and theres always the possibility down the road that we could IPL done Oh and by the way I should also mentioned Abu Dhabi Dubai.
How does stock markets in the world. So here, we're developing a collaboration.
With one of the leaders in whole genome sequencing there happened to be based in Abu Dhabi. It happens to be the hottest stock market in the world just imagine the opportunities and strategic initiatives that our little Prophase labs company could be working on and just imagine the potential for our company while having this.
Tremendous space.
That's as I mentioned are the.
The manufacturer and dietary supplement business has a value to it our net working capital was over $50 million you can place whatever value you want to Copays Biopharma, probably has virtually no value in our stock price. It at card. Our diagnostics business. You can you can say all you want to about Covid going away people still want to know whether they are.
Flu or cold or Covid, and they're still getting tested.
The month of August and September we still got a lot of business you've made a lot of money alright. So just imagine I don't know what's going to happen in the month of December last year things were quiet slowly ramped up in October and November, but its really December where things exploding I have no idea what the things are gonna explode this year or not they absolutely may not but even if COVID-19 remains.
At its lowest levels in people or uninterested. We're still you know in August we were still generating lots of revenues and earnings.
As reported in our third quarter and so you know there's certainly the potential for some nice upside there, but rest assured we're earning lots of money. We're gonna have positive earnings in the fourth quarter.
And for the foreseeable future and then where we're expanding with diversified.
So that gives you some nice background are better businesses I'll I'll just mention again with Nabila. There are startup companies had pale in comparison to nebula.
That are raising capital at 50, and 100 million dollar valuations and they they don't have a business model. They don't have a relationship they don't have any of them, they're like startups and there's just no comparison here.
Just to give you some perspective, though.
And again, the last part of the store so the biotech and life science companies, while the major market averages have been in a bear market for all of this year, the biotech and life science companies has been a bear market for two years bear markets as much as it feels like they can go on forever. They Nevertheless, forever knock on wood and the biotech entry.
Indexes, which I actually mentioned mid summer I felt were bottoming and and I thought one indication about what that transaction starting to happen with all the major pharma and larger companies, who are starting to smooth out the smaller companies that actually you did bought them. The biotech index back in June It came back made tested those lows, but if you actually look.
The biotech.
They've actually been outperforming the markets ever since June .
And even now it looks like they're putting in the bottom there's a ton of cash on the sidelines I don't know when the bottom takes place, but you know we've outperformed.
I actually look as far as lab laboratory stocks are concerned we are we outperformed every laboratory company and in the United States in the last 12 months from a stock price perspective, but more importantly at some point the biotech index. It looks like it's bottoming, we're taking advantage of well we're going to be taken advantage of trimmed some tremendous off.
Opportunities, where we can continue to add on and build our subsidiaries, while we're earning money.
So I think we're really well positioned.
To fulfill my dream over the next couple of years, So that's and that's to be managing and building.
And running a multibillion dollar company in and I believe that we have the pieces and I believe that there are opportunities out there. So we'll continue that so with that you know I could go on for another 30 minutes.
But rather than do that.
I wanted to go to a question.
In a moment I'm just going to look at my notes for a quick SEC.
I think I've covered most of what I wanted to cover the rest will cover in the Q&A I hope, there's a lively Q&A I'd love to hear.
If there are questions. Please start lining up for your questions and Jordan and I'm going to hand, it back over to you.
Okay.
Thank you we will now begin.
The question and answer session to ask a question you May Press Star then one on your telephone keypad.
Using a speakerphone please pick up your handset before pressing the Keene.
Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Yeah.
Yeah.
Yeah.
Our first question comes from Frank Mcdonald Private Investor. Please go ahead.
And are you exploring other drugs at linebacker can be used with other than the four cancer drugs.
Yeah. That's a that's a great question. So we're going to be developing linebacker where we're not only going to be working with the Dana Farber cancer Institute and so we will be working in parallel.
Linebacker you know, it's been touched on but it really hasn't been expanded on.
That line linebacker has some significant possibilities and more than just cancer and and not just in the cancer line, but by the same token we're trying to be efficient and.
Go after.
The first cell lines that have the greatest potential you gotta understanding an enormous amount of work has already been done over the last several years in developing line backer in preclinical studies and as I mentioned, Dana Farber slides harbor have already done a lot of work.
On the polyphenol that makeup linebacker and so we're going to hit the ground running knowing.
With a you know an optimistic.
I don't want to say a high probability I have to be careful what I say, but we are all the scientists and our company. We're all very optimistic in the direction that we're going with linebacker at at present and so the most efficient and expedient thing to do is to initially go after the cell lines were the most work has already been done where we've already gotten.
Great results and that's why we're so optimistic that the studies that we're now going to.
Without we're about to initiate with Dana Farber, our we have a pretty high degree of confidence that we're gonna have very positive results and once we do you know you got to understand you didn't go into a phase one phase one is there's typically very little risk in a phase one human clinical study and once we have linebacker are where we are.
Finish up most of our preclinical and our human phase one I think at that point. It will have significant right now probably has no value in our stock price I think it will have very significant value may be as much value as our entire market cap right now.
So that is enormous but that's just the starting point so as we move forward. We have some great advisers that we're working with and the prophase Biopharma division, including the CEO of.
Another biotech company, whose expertise is in cancer development that we're working with.
And so we're going to do everything the right way, he's bringing a number of different C. R. O C. The table clinical research organizations and so there there's more to come it's not just it's not just Dana Farber cancer Institute, which by the way I would expect in the coming months, we'll have some really.
Nice results.
Results being preliminary results being reported by them since they've already done so much work, it's not like it's going to take us a year.
I think within months, we'll have some really positive things to say from that initiative, but then in addition to that.
You can expect and I expect that we will have other initiatives that we'll be talking about in the coming months with other companies a debate to be honest with you we're actually doing more with it but we're just not going to announce everything we're doing with it but as we come out with positive results.
Then we will have something to announce so you can you can bet that very cost efficiently, we are going to explore several different initiatives linebacker okay.
Over the next 612 months, while staying well within our budget I don't ever want everybody to get scared I'm the largest shareholder in the company I have zero interest and burning through our capital and then come back in for more in the middle of a bear market, which is about 98% of the other microcap companies do.
I do the exact opposite so I am very very careful I love. The idea that we can develop linebacker over the next 12 months, but less than what we earned in the second quarter or less than what we earned in the third quarter on an adjusted EBITDA basis, and that's the way to run the company and you can count on me to continue to run the company that way I will not put us in a position where we ever.
It had to do some big dilutive round of financing or hurt our shareholders.
Hope that answers your question.
You like you can ask one more.
Yeah that was a great answer thank you Chad Hey, Ted one more question you didn't come about U G 42, and then you visited the United Arab Emirates can you give us some color on your visits what happened there yeah. So look here's the most important thing to walk away with.
One is I met with the senior management.
Oh, Gee 42 health care.
And they'd get it what I found particularly interesting is that we're just interested in nebula genomics.
Obviously, they love our proprietary library, there love, what we're doing over here or they don't have a presence in the United States and they would love for us to be sort of their U S partner and for us to be a platform and for us to grow together in the United States and you know the concept to US though is that ultimately.
You know the United States and one of the biggest countries in the world for you know there's.
This potential business and for a whole genome sequencing. So think about a week, we could be and whole genome sequencing bigger than G. 40 to one day and don't think that they're not aware of that and this would be a great entre for them. Then in addition to that the hottest stock markets in the world the only ones that aren't in a bear market or in Abu Dhabi and Dubai.
Ipos that are doubling and tripling of value.
It's really crazy, what's going on over there.
So theres enormous opportunity.
Both in terms of strategic initiatives are working with <unk> 42, as well as initiatives related to the capital markets all of which I believe would be very bullish and very positive for our company and built a lot of additional value and and again, we got to just think about the fact that you have startup genomics companies the pale in comparison.
And that would be left with just the $100 million valuation. So just imagine if we're if we're backed by <unk> 42 in Abu Dhabi and Dubai, just imagine what we could do it and that would be a lot of them I mean, it's it's and just remember in my background is in Wall Street, Alright, So I I got it alright. So we're working a number of different avenues here, but suffice it to say we're earning.
Money, while building you know potentially very large subsidiaries that have enormous potential.
Hope that answered your question Fred I really appreciate your support thank.
Thank you Greg.
Yeah.
Jordan next question please.
Our next question comes from China with H C Wainwright.
Yeah.
Alright, Thank you for taking my question.
Can you comment on the current trend of diagnostic services.
In the current quarter so far.
They're the non Covid tests offered AP or AR.
Laboratory will start generating revenue in the current quarter.
Okay. So obviously I've mentioned before we do PCR testing antigen testing ability caffeine.
The PCR testing is far and away the bulk of our business antigen testing, we're doing a very we've really grown that business nicely I actually give our adjacent carpets are a lot of credit for that he's going to figure that out with our customers had or.
Had a structure that and now the latest as were validated for flow.
So we're adding that to our repertoire and we're just figuring out the best way, it's a little complicated with insurance.
Because insurance with flow.
They reimburse very differently, if you're in network versus out of network, they reimburse better in network, but for Covid testing.
But our out of network. So it's kind of complicated, but we're figuring out the best way to bring flew into the equation.
And then as far as diversifying were still under construction.
In our lab downstairs at virtually completed and equipment is already on water and so in the fourth quarter other than what I just mentioned in terms of diversifying into blood you already in talks and so forth. You know, we're really looking to start that up in the probably in the first.
Not the fourth quarter this year, but I love to tell you that there are other opportunities in other ways that we could expand more quickly.
That's for another time, but I will just tell you you know we're doing everything we can to expand and diversify our clinical lab sooner rather than later and then of course in parallel the genetics.
We actually can do a part of <unk> are doing a part of the whole genome sequencing in our lab now I don't want to go too much into the specifics, but ultimately our goal not only to do genetic diagnostic testing brought to do a whole genome sequencing and were actually looking right now into purchasing the equipment.
It's a little complicated.
But the two global leaders I had had patents.
Litigation against each other which is all finally been settled in as of January .
One of the largest competitors to alumina will be allowed to sell equipment into the United States and so we have great relationships with Illumina and with this other company.
And our goal actually is to get the whole genome sequencing equipment in our lab to leverage leverage lab infrastructure. We have so early next year.
Quickly as possible and actually told our team I want to move on this immediately they get the whole genome sequencing in our lab because when that happens then you know the university's blowup, but but again, that's a first quarter first half of next year phenomenon, it's not fourth quarter of this year.
Okay.
And a question regarding the gross margin so oh, yeah, yeah, yeah yeah.
Yes, excuse me I I you had another question in there, which I didn't answer and that just sort of the current run rate of business look we were profitable in the second and third quarters, you know probably the slowest months of the year or in July and August .
And now we're starting to pick up a little bit it's hard to say, what our numbers are going to be in the fourth quarter.
But there's no question, we're at a very profitable run rate our numbers are significant profits or gross margins. You know we were such an efficiently run company and we're doing such a high level of testing and when I say a high level of testing, obviously not compared to December January of last year, when things went haywire and I don't know if they're going to again.
But even with things calm and nobody's talking about Covid, we're generating a lot of revenues and earnings Ah Ah I fully expect that we're gonna have positive earnings I can't say that they're going to be up year over year, but.
But by the same token a run rate of business is solid and I feel good about it.
Got it I'm sorry.
Yes, Sir yeah, so regarding the gross margin in the third quarter it appears to be.
Much lower than the previous two quarters and had a impact on the bottom line profit. So how shall we look at the gross margin.
Fourth quarter and going forward.
That's a good quite I gotta be honest with you. That's really a question for my Finance Department that I would rather take offline I should mention by the way that in the past few months, we hired three senior executives in our Finance Department, Our Finance Department has never been stronger.
Our our recent meetings with our audit committee and Auditors' went extremely well and I'm very very pleased with him the waters and I'm very very pleased.
With our finance team, it's a really strong team and if you want to get into detailed questions Gee I I'd really like you to put you directly.
Directly in touch with them.
And I'd, rather do that rather than get you know there there are a number of factors with regard to the gross margins are but in general you know it's all are.
Gross margins are pretty solid I wouldn't expect you know significant changes I I can look what variations here, where second quarter versus third quarter I can't do that on this call, but I'm I'm happy to get you the answers to your questions.
Okay. It's certainly nothing to be concerned about it I can tell you that much alright. Thank you.
Thanks for continuing to follow our company I really appreciate you really do a great job and thank you for your questions.
Our next question comes from basketball Man.
Production.
Please go ahead.
Like I said first of all congratulations on another profitable quarter. I was also going to ask you about gross margin. So all.
Table that but I was looking at the accounts receivables I don't know if you could answer that $38 million and that seems to be steady because it take that long for the insurance companies to pay you.
[laughter], it's the worst part of the business.
And it's the reason I am so happy that we had more capital than we needed back in December and January .
Other labs.
We're you know we're inundated with orders like we were but they literally couldn't handle them because they couldn't handle the cash flow is one of the reasons why our customers are so loyal to us is that.
Those these types of cash flow issues are not an issue for us because we have such a strong capital base and it's one reason, it's one of the memory. Many reasons, we run circles around.
The small and mid sized labs.
In fact, there was a lab that I thought was significantly larger than us that that isn't nearly as high.
As intimidating as I thought I mean, where we're a real player in the industry now and our capital really helps us out and yes.
Yes, you you know.
So first of all one of the issues when we add herself.
Is that you know Herschel ran out of funding in March and they owed us a lot of money and that's been trickling into us ever since worked in Italy, we actually are getting paid.
By her side and in fact, some of that we thought we weren't going to get we actually did get so a part of it is.
Over this past year has been hurt and another part is yes.
If you're an insurance company. So that's another part of it is if you think about it is it's really it's a relatively new industry COVID-19 testing and most of the specimen collection companies are relatively new to the industry and they don't always do a great job when they collect patient data they don't often do a great job.
Collecting the insurance information and then we have to go down. It's one of the reason another reason why our customers love. It so much as we help them find.
The accurate insurance information software providers that we work with to help us get that information. So it could be honestly, it's really complicated process I don't want to blame it all on the insurance companies are part of it is also collecting the patient data and in particular the insurance information accurately. We also one of the ways. We grew the business. So we didn't.
A lot of pressure on the patients to give us their insurance information that's back when there was hurt and because we could always track it down later or if they didn't have insurance, we'd get some personnel that hurts them no longer exists we have to be a little more careful with it and so we continue to upgrade and and be flexible with regards to our I T.
For them and how we work with our patients over there.
The service.
Partners I'm, sorry, our hour collection partners, but at the end of the day, yes. It takes time, but it's for all of these different reasons is one of the reasons is because there's a little complicated.
But our team does a great job and I also I haven't mentioned Sergio Marias are ahead of I T.
Integral part of all this with the I T platform that he has built we really have a strong team.
So you know.
Has the board in all of our subsidiaries. So yes. The insurance, it's a complicated issue it's not all on the insurance companies. It's also in the collection, but when you put it all together the other day, we get paid and if we get paid.
Couple of months later, so bad as long as we get paid and we make the money on the happiest guy in the world.
I think we are in a 1% on our cash balances anyway. So it doesn't really matter as long as we can handle the cash flow. It doesn't really matter. If it takes an extra 30 or 60 days to get paid I'd, rather get the extra business because otherwise what happened to you loosen. The specimen collection partner will go to a different company.
You know, if we don't pay them upfront and or we're not willing to take a.
Specimens with sometimes we don't get the insurance information for later.
It's a complicated business, but the idea is to maximize the business to maximize profitability.
But in the process. It means the tradeoff is it's a little frustrating, sometimes we have to get where we have to wait to get paid but with insurance companies that the other day you get paid which is nice so two years of doing this at the end of the day, even when it took time, we still ended up getting paid and by the way. We also reserve and we're very conservative in how much we reserved.
But potentially not getting paid and we've been we've been pretty good about that in terms of how much reason Joe's.
Okay I hesitate to ask this other question, but I'm going to throw it out there.
I've listened in on the Red Mark presentation did yesterday.
And you run insinuated that there might be an acquisition that is not that is nuc another lab.
Is something in the works that you could talk about.
Well, it's like if it was if I could talk about it I would buy.
So here's how I'll answer the question I am very aggressive and are reviewing initiatives, our strategic initiatives and as I said last year, you know I, probably looked at 60 different labs last year to acquire Oh, but I told you I'm spoiled by our own lab, because we have such.
A nice lab and so efficiently one that I was really turned off by almost all of these other lab, they're all over price I don't want to overpay for something.
As I alluded to on this call I may have alluded to yesterday alluded to it on this call. There are opportunities out there for instance, linebacker which you know has multibillion dollar potential what what we primarily paid licensing piece, but there are companies out there with assets biotech assets and other assets.
And diagnostic tests that have enormous.
Potential.
But they can't raise the capital they don't have the infrastructure. They don't have you know the.
Matter of fact platform. They don't have any of those other ingredients that are so critically important and in this marketplace nobody is giving capital towards startup company.
Just not doing it and so I see there are opportunities coming across my desk, you know a couple of which I am very very excited about the there's no guarantee.
I looked at 60 lab acquisitions lacerte acquire any of them. So I am looking at both the potential lab acquisitions as opposed to.
Other acquisitions that could build our divisions, but again.
Our subsidiaries, but again I'm not going to acquire anything that requires a substantial amount of capital that's going to then kill our stock price and make us the dilutive rounds of financing all of that kind of stuff I'm not getting into any of that.
But if we can if we can make a lab acquisition or a strategic acquisition to build draw their subsidiaries five or $10 million.
Making that in the quarter you know nothing would make me happier, particularly if I think it is a huge upside and so to give you. An example, I had an opportunity last year to buy a lab.
The $40 million that I could've, probably built the value of it to 80 or 100 billion.
Just don't want to do that I'd, rather I'd, rather acquire something from $5 million that has you know multi $100 million potential $1 billion potential and risk 5 million upfront for it than to spend $40 million to build something to 60 or $80 million. So I am looking at both types of acquisitions, but it at least gives you an idea of the way I'm thinking at the end of that.
Day, and I'll say, it again I'm a large shareholder in the company every decision makers on behalf of the shareholders to protect the value that we built and then just continue to grow on that value and that that's the way we operate the company and that's the way I hope to always operate the company.
Okay I appreciate it really appreciate that.
I appreciate that answer.
Q4 <unk>.
And we have one more question here if anybody else has questions. Please queue up and if not we'll finish with one final question.
Jordan.
Again, if you would like to ask a question you can press Star then one our next question comes from Patrick Patterson.
Please go ahead.
Good morning, Ken.
Congratulations on that.
A really great job I mean, when I woke up this morning, I'm waiting for the Orange as soon as it.
6 million plus in EBITDA and I figured the stock would be at 15 by the time I looked at.
I mean really because unused what that meant was that you had figured out a way to get in a water testing and the worst quarter that you could never happen. So I don't know how you did it but I didn't understand why the market didn't realize how positive. Once you just got something to do with the noncash expenses and I'm not an accountant, but.
Good luck and see them.
On the cash flow chart that you've posted up there. It said there was something almost like $2 million worth of noncash expenses for exercising stock options could you take them out.
Talking about that earlier.
Explain what all that even more.
Yeah, So I don't want to get into too many specifics, but as in ing.
And I'll just use this as one example up top my head when we acquired Nabila.
We hired a.
The two key employees from Nabila or two of the founders and we were going to hire them both for stock options, one actually we couldn't hire.
Hum until he is paperwork was in place and so we just issued those stock options more recently and it's a large block of stock options and then you have to expense them now the interesting thing about this is we're expecting them they were out of the money.
So so we have noncash expenses for stock options just as an example to stock options that literally are out of the money and yet it's hitting our earnings and it is so frustrating. So that that's just an example, and then the other thing obviously in the ordinary course of business just in building our business we hired several.
This year, we're growing.
In multiple directions, and anybody that's of a seasoned executive with serious experience, it's really gonna help build their business their.
They're motivated.
By the stock option. So we issued the stock option, but all of those stock options, you know probably or at the money or out of the money and we're expecting that that's a big chunk of the expense.
That at least explains the stock.
Stock option.
A portion of it.
What you're asking and and that's a biggie and then and then again, we're depreciating Nabila alright, even though nebula in my mind is growing dramatically in value weren't depreciating. It because when we acquired is mostly goodwill I mean, that's just another example, and then you know other other assets.
But we acquired that we'd appreciate it so you know.
And it's unfortunate because of course that always have to report the earnings multiples of earnings and all that kind of stuff and so its a little frustrated but what's more important patent what everybody should be paying attention to is the fact that we're building the value of the company that's more important than following SEC gap okay.
Counting rules, okay. So obviously, we have to follow all of those rules and they.
And we do.
But in my mind, what's important is are we building the value of the company and so the beauty of this is.
That adjusted EBITDA number that's a real number alright, and that's while we're building.
The underlying value of our subsidiaries and again, all what five or six cities are are clicking you know are firing on all cylinders.
As I mentioned both.
Our manufacturing dietary supplement business. If you combine that into one that is growing substantially this year and very profitable and by the way that that growth is just starting it wasn't in the first half of the year.
It is now we've added new customers, we're killing it at our manufacturing facility. So that business is growing and profitable and then our our three other subsidiaries that have the big potential.
You know, it's just we're hitting on all cylinders.
Diagnostics is generated.
Revenues and earnings and we're gonna diversified and the other two business just had enormous potential so to me that's more important at the end of the day again, Pat you can worry about how the stock trades hour to hour.
But we've outperformed every livestock in the country and we bought out.
But over the last year, most micro cap development stage company. He said, it's because we execute and so you can't look at it and again I always use. The example, you know you look at any of the big Internet companies from 20 years ago are the successful ones you could've bought them at the high end of year and been sitting on a loss for a year or when they sold off but two years later, you're sitting on a huge.
And you could have bought them at the highest of any virtually any year in the last 20 years and it helps us to now you would have made a fortunate alright. So were building the underlying value of our company, which will come out over time so.
I wouldn't worry about stock price I really shouldn't.
Are you talking about stock price so much anyway.
And you know again I'm I'm, just not worried about it at the moment I'm building the value and again with all the things that I was talking about in Abu Dhabi and with G 42, and with all the other things we're working on.
I wouldn't worry about income versus EBITDA at the moment, but the point is the EBITDA is significant in Israel.
Okay. Thank you very much.
Yeah. It really doesn't tell you the only thing I worry about is you didn't get my boss.
I Love this.
[laughter] well, here's what I can tell you I work out every day.
You know as passionate as I am.
Working at our company I also work out I care about my health.
So I honestly at the age of 63 are in the best shape of my life is at sea.
Me I'm at the gym, you know people keep me at the gym and I'm going to tell about three quarters of the time about the joke with my headphones on and I'm.
I'm living and breathing our company literally 24, seven I think I'll have a few hours and Saturday night to pay attention to my wife and go you know.
Uh huh.
24, seven out of our company.
Literally and I can tell you I've never been more excited because it's one thing.
To build a $15 million company and 400 $150 million company. It does need to build it from $150 million or 175 million dollar company and see very real possibilities of the day and a 1 billion and $2 billion valued company and I got the great investment banks and I've got some great opportunities and a nebulous.
Well situated it is scary.
Going into next year, So forget stock price forget earnings reports I'm, telling you.
Just look at how we're going to position whole genome sequencing.
This is going to be a major industry I, we could literally be one of the leaders we have global leaders coming to us wanting to give us their best deal.
That is how well we are situated right now and that's the type of relationships, we're developing and it's really exciting normally microcap companies don't develop these kind of relationships and to have this type of a platform. So I'm really excited going into next year, all the different things I cant tell you week to week, you know what's going to develop one what we're gonna actually acquire and what we're not.
I can just tell you, we're so well positioned I'm really excited for next year and thank you for your support always tied I really appreciate your question. It's great to hear from you. Thank you.
All the best to you.
Alright, and Jordan back to you if there are any more questions.
This concludes the question and answer session I would like to turn the conference back over to Ted Hurricanes for any closing remarks.
Thank you Jordan again, thank you all for joining you can here by my passion and my enthusiasm.
It's all real I hope I didn't go on too much. We did this at the hour Mark and we we started about five or six minutes. After so we haven't even hit an hour or so.
That's good for me to be under an hour.
Again, if you ever want to hear more about the company.
You can hum.
You can you can always go to the dnb ours that run Marcos.
It's a great way to get updates.
And with that said I really think I just recap through the last.
Two people that ask questions I think I already did a recap of our company I'm Super excited for the future I appreciate all your support.
If you're a long term investor and you really have questions that must be answered feel free to reach out to me I don't avoid investors your question.
But the V. N D are typically will answer most of your questions anyway I wish you all the best of luck and have a great day and thank you Jordan.
Hosting the call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.