Q4 2022 Trinity Biotech PLC Earnings Call
[music].
Good morning, and welcome to the Trinity Biotech fourth quarter 2022 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 today's presentation there'll 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 with Lytham partners. Please go ahead.
Thank you Gary and thanks to all of you for joining us today to review the financial results of Trinity.
<unk> for the fourth quarter and full year 2022, which ended on December 31 2022, joining.
Joining us on todays call are Eric Hagan, Chief Executive Officer, and John Gilbert Chief Financial Officer.
The conclusion of today's prepared remarks, we will open the call for question and answer session.
Before we begin statements made in this conference call maybe deemed forward looking statements within the meaning of the federal Securities laws.
The 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.
Risks include but are not limited to those set forth in the risk factors statement in the company's annual report on form 20-F filed with the Securities and Exchange Commission.
Biotech undertakes no obligation to publicly update or revise these forward looking statements to reflect events or circumstances. After today or the occurrence of unanticipated events with that I will now turn the call over to CEO , Eric occasion for opening remarks, he will be followed by CFO John .
For a review of the financial result, Mr. <unk> will then provide some additional background after which we will open the call for your questions.
The floor is yours.
Thanks, Joe.
Good morning, everyone.
I'd like to start the call discussing key revenue commercial operating highlights.
I will also give context, the various strategic activities we have underway.
John will follow with a deeper dive into our reported financials and then we'll be happy to take your questions.
First let me discuss the revenue trends total revenue for fiscal 'twenty to 'twenty two.
In Q4, 2022 were $74 8 million and 18 million respectively.
Excluding our Covid focused TCR viral transport media products.
Full year 2022 revenues of 71.5 million were 1% lower than in 2021.
And in Q4, 2022 revenues were less than half a percent lower than in Q4 of 2021.
Our performance in 2022 with focus on our core flagship hemoglobin business.
Where our diabetes product line experienced 27% overall revenue growth and over 60% higher instrument placements versus 2021.
As highlighted by the 43% growth in sales of high margin diabetes consumables in Q4, 2022.
Q4, 2021.
The increments increased instrument placements position the company for strong recurring revenues and contracted consumable sales over the next several years.
We expect to expand on this strategy with the act with the U S launch of our Premier resolution hemoglobin variance instruments this year.
As we continue to work closely with the FDA to gain clearance of our five 10-K submission.
The company also continues to develop.
Its next generation flagship diabetes H b, a once the instrument the premier 90 210.
With an expected launch in Q3 2023 the instrument will feature an improved backward compatible reagent column system that will feature up to three times, the injection capacity and stability limited calibration and improved user interface and lab system integration.
This is the first step of a multi generational product development plan aimed at expanding that target market driving lower service downtime and cost while significantly expanding operating margins.
We're experiencing particularly strong demand for our diabetes products in South America, and Asia Pacific was up 43% year over year revenue growth in South America, and 36% year over year revenue growth in Asia Pac we continue to scale, our commercial coverage in these markets, where the increase in diabetes and purpose.
For hemoglobin variants is that some of its highest rates and are born into Finney technology as a particular competitive advantage.
While our HIV business was down 14% in the year.
This reflected significant nonrecurring bulk orders from Nigeria in 2020 one.
Our run rate core <unk> business continues to perform steadily with 15% growth on the fourth quarter versus last year, and 10% growth versus Q3, 2022 preliminary estimates preliminary estimates for Q1 indicate that over 30% improvement versus Q1, 2022 will be expected.
I would now like to discuss an important milestone for the company that was achieved this week.
The company is very much focused on executing beginning of Q2 Q2 2023.
On the launch and distribution of our trend screen HIV test.
Following the announcement by the Kenyan Ministry of health of the adoption of this new HIV testing algorithm.
It establishes Trinity Biotechs, Trinh screening H I V. As the standard screening tests in Kenya, and the World Health organization guidelines there.
The Kenyan HIV screening program is one of the largest in Africa with an estimated seven to 9 million screening tests annually.
This announcement demonstrates trinity's ability to disrupt a well established incumbent with world class innovative high quality point of care solutions.
We aimed at the Kenyan algorithm is a priority as we believe it sets a key benchmark for the region.
We are leveraging this milestone was significant focus in 2023 on two to three additional countries, which represent a combined expected annual test volume of over $25 million.
We expect to achieve at least 20% market share of the 150 million of African HIV screening market over the next three years.
Now moving onto a string of activities aimed at transforming our U S based lab platform.
With a 13% CAGR over the last three years. The company continues to see significant growth in its proprietary Shoguns biomarker lab developed tests.
This has been achieved despite limited to almost no commercialization activity.
<unk> are in development for distribution through ophthalmology, dental and gynecologist channels at scale.
Talk to you more about this in the coming.
Months.
In January 2023, the company announced a strategic partnership with I'm aware, Inc.
That combines I'm aware is built to partner digital health platform with Trinity's advanced reference laboratory facilities. The aim is to power the digital health industry was private and white label at home and remote remote testing programs.
We are working closely together and make this operational.
Execution of reality in 2023.
Finally, the company intends to introduce up to a dozen new lab developed tests in 2023.
I get it at the therapeutic drug monitoring or Tdm market.
This is aimed at high growth recurring revenue opportunities in autoimmune diseases, such as IBD rheumatoid arthritis Psoriatic arthritis.
As well as rapidly expanding biological therapeutics.
Ling areas, such as cancel cancer and degenerative diseases, such as Alzheimer's.
Stay tuned for more discussion about this in the coming weeks.
I would now like to give you context around significant portfolio transformation and M&A activities that are that we are working on.
Obviously, we can't discuss activities that are subject to confidentiality agreements are commercially sensitive or not yet far enough along to be announced however, it can be quite direct about the company's portfolio of focus going forward.
We are conducting a portfolio review of all activities that do not align with our strategic focus around three key priorities.
Specifically diabetes and hemoglobin <unk>.
Point of care and digital health disruption.
In personalized therapeutic drug monitoring.
The intention over the coming months is to simplify the portfolio around these three areas where the terms are enormous the risk return profiles are asymmetrically in our favor, where we have competitive advantage and where our shareholder a clear on treaty Trinity biotech investment thesis.
Management intends to exit are optimized for cash its portfolio of noncore products and platforms in order to maximize shareholder value and concentrate leadership's focus on where that value lies.
Given the strong pipeline of attractive M&A opportunities in our areas of strategic focus in February we said, we secured a 20 million dollar flexible term facility specifically to provide the ability to move quickly when opportunistic transactions arise.
This is a very opportune time to gain significant innovative product pipeline at fractions of where they were valued only a few months ago.
Our portfolio optimization efforts and opportunistic M&A are key to our authors efforts stop optimize our capital structure.
And reduce our debt costs in 2023.
Now I'd like to take a moment to discuss some structural and operational initiatives we have underway.
Cost optimization and pricing actions have resulted in a Q4 operating gross margin run rate of over 40%.
Excluding onetime inventory adjustments.
This reflects over five points of improvement over the same quarter in 2021 and over Q3 2022.
The company has reduced headcount by approximately 10% to Q4 2021 as we continue to focus on process simplification and automation.
Our increased <unk> spend in the fourth quarter also reflects significant investments on their way and see our EM ERP and regulatory automation to drive speed and further efficiencies.
Our emphasis on supply chain optimization is currently in our hemoglobin division focused at reducing the cost of the premier ninety-two done diabetes instrument by approximately 15%.
In conjunction with our multi generation product development plan.
Significant margin accretive actions for Q2 2023 are the in sourcing of key hemoglobin is manufacturing processes, a rapid transformation of our global logistics operations.
One of my prior is it priorities over the last quarter has it been a restructuring and reorder revitalization of our commercial sales organization on a global basis.
We eliminated and effective leadership overhead rebuilt commission plans and continue to refresh our global distribution channels I am personally managing this effort.
Finally, I'd like to take a moment to emphasize our focus on the most important element of our transformation strategy.
Namely talent.
Our highly motivated shareholder aligned leadership team is that the core of the company strategy.
We're in the process of rolling out a revised employee share based compensation programs aimed at driving significant shareholder value.
The plan follows the same structure as a C E O share based compensation plan, whereby 60 per cent of options or stock performance based and only pay out when the stock reaches trading milestones are three four and $5 Brady yes.
This structure is designed to be fully aligned with shareholder interest to create exponential shareholder value.
As you can tell from the structure of our performance options moderate stock price improvements to $2 or $3 80 S is not where our interest lies.
I think it's important to point out that we are on a multi year transformation of Trinity biotech.
Our performance options vest over a three year period and that is the time frame of the entire management is committed to when.
When I took this role I underwrote the minimum value for which three years was worth my time.
Value is $10 higher than what we are now.
At 5 million options you can do the math.
I'll now turn things over to John and come back to answer any questions. Thank you.
Thank you Erez.
Good morning, everyone now I will take you through the results for Q4 2022.
Is that Chris has already discussed revenue trends I will move on to discuss other aspects of the income statement.
In Q4, 2022 gross profit was $6 $2 million, giving a gross margin of 34, 6%.
In Q4, 2021 gross profit amounted to $7 $2 million and the gross margin was 37, 1%.
Reduction in gross margin is largely due to sales mix changes lower production activity and inflationary increases in the price of raw materials.
We have started to see the benefit of price increases and cost.
Nations implemented in mid to late 2022, now starting to be realized as seen by the fact that the Q4 2022 margin of 34, 6% is higher than the adjusted Q3, 2022 margin of 34, 4% when excluding the significant excess and obsolescence charges.
As you to inventory of $4 $7 million reported in Q3.
Is that Chris mentioned in Q4 2022, we.
We saw a run rate gross margins, excluding quarter and year end inventory adjustments of approximately 40%.
Other operating income decreased from zero point $7 million in Q4, 2021 to 0.3 million in Q4 2022.
This quarter other operating income comprises government grants in relation to or R&D activities in.
In Q4, 2021 we recorded <unk> 7 million of other operating income related to a paycheck protection program loan, which was forgiven in that quarter.
Or is the expenses increased from <unk> 9 million in Q4, 2021 to $1 2 million when compared to Q4 2022.
This was because various early stage development activities did not meet the criteria under Ifr S for capitalization as an intangible asset.
SG&A expenses have increased significantly this quarter in Q4, 2021, SG&A expenses were five or $5 6 million and this has increased to 10 point.
$2 million this quarter.
There are a few significant contributions to this increase.
Firstly, our share option increase.
<unk> has increased by $1 2 million compared to Q4 2021.
This charge is a notional accounting charge calculated under a box shows the financial model.
As previously set out by Iris one of his key priorities is to build a performance culture and drive ownership and accountability in the company.
Share based compensation model that ensures shareholder alignment is regards is core to this transformation and we are currently rolling this out.
At this point in time. It is intended that the share based compensation awards will be structured in a manner similar to that of the options granted to our CEO , but a significant proportion of any awards being performance based awards only become exercisable if the company the avs price reaches a heard of them.
These performance share based compensation awards are intended to closely align the goals of our team with those of our shareholders in the creation of shareholder value.
The majority of options granted in Q4, 2022 our performance share options and are structured such that they are exercisable only if the company the avs price increases to certain levels, such as three four and five daughters for Atms during the life of the auction.
None of these performance your options are currently exercise.
Also this quarter, there was an unfavorable quarter on quarter variance of $900000 related to a foreign exchange loss and euro denominated lease liabilities for right of use asset.
We are required under accounting rules to mark to market. These lease liabilities at the period end FX race <unk>.
For 2021. This resulted in a foreign exchange gain on leases of <unk> 2 million, but in Q4 2022. It was a foreign exchange loss of <unk> $7 million.
We have also incurred higher legal and professional fees this quarter of approximately $1 million, mainly comprising nonrecurring costs reduced diligence corporate development and corporate finance activities.
Included in this cost of professional fees in relation to several any opportunities of which only the strategic partnership with Vmware has been completion space.
Excluding the newest life rest accounting charges around share based compensation I do not believe that these types of charges have become inherent in our cost base and there's I don't expect them to continue into the medium term future.
In addition, SG&A expenses, we have seen an increase in travel costs in Q4 2022 compared to Q4 2021 of approximately 300000 donors.
With the lifting of Covid related travel restrictions, we have passed their sales and marketing teams to increase traveling customers and trade shows as we continue to revitalize our sales activity.
Similarly, some key functional leaders based merit didn't have resumed visit to our overseas facilities as we seek to drive operational efficiency.
Management believes this is a worthwhile and important investment, but we do not expect the level of travel to stay at this level going forward.
We have recognized in premium charge of $3 million in Q4, 2022 compared to an impairment charge of $900000 in Q4 2021.
At December 31, 2022, two internally developed COVID-19 test.
On a rapid lateral flow format, I'm wondering elisa format dependent carrying values of $2 2 million and zero for woman Irrespectively within intangible assets were reviewed for impairment on dry for us.
The rapid COVID-19 test is approved for use in the EU and we believe it is a very high quality tests. However, as previously disclosed by the company.
The demand for our COVID-19 port portfolio of products is highly uncertain very difficult to predict.
Our experienced American has moved over the counter rapid COVID-19 test, which this product is not yet approved.
Okay.
As such the company's efforts to commercialize this test have been unsuccessful.
In addition, <unk>.
Writing for rapid COVID-19 testing the EU is relatively weak with stronger pricing available in for example, the U S Americas, which this progress is not yet approved.
Given the market outlook for rapid COVID-19 testing product and continued uncertainty regarding regulatory approval pathways in key markets, including the U S.
Management has chosen to not immediately pursue further regulatory approvals, but doesn't tend to monitor these markets and regulatory pathways with a view to potentially seeking additional regulatory approvals.
However, as the company has no eminent plans to pursue these regulatory approvals will drive rest accounting rules. These intangible assets were written down to zero in Q4 2022.
The impairment test at 31 December 2022 also identified impairment loss of 700.
Eric Laboratories, and trades you biotech.
In.
There were a number of factors taken into account in the chairman impairment tests, including the company's share price at the date of test the cost of capital and future protect cash flows from individual cash generating units in the business.
Operating loss for the quarter was $7 8 million, which represents a decrease in profitability of eight 4 million compared to quarter four 2021.
Was attributed to a lower gross profits lower other operating income and higher indirect cost.
Financial income for Q4, 2022 was 0.1 million compared to $10000.
Q4 2021.
In Q4, 2022 financial income mainly related to the fair value adjustments of the derivative liability related to warrants granted the group's principal lender.
Financial expenses in Q4, 2022, with $2 $4 million compared to $3 million in Q4, 2021 a decrease of six there are 600000 banners.
The interest expense related to the senior secured term loan and a seven year convertible note for $1 $9 million and zero point $3 million, respectively. In Q4 2022.
These amounts consists of both cash interest and noncash accretion interest.
As both these borrowings are new in 2022, there was no interest expense recorded in the comparative periods results irrespective of these facilities.
In Q4, 2021, the cash and noncash interest expense for the exchangeable notes was $1 2 million, which was reduced to almost zero in Q4 2022 due to the debt refinancing earlier the earlier in the year.
In Q4, 2021 loan origination costs of $1 $6 million were encouraged comprising loan commitment and professional fees.
These costs were expensed in the income statement in Q4, 2021 as the loan was subject to shareholder approval and that approval was not received until post the balance sheet.
The remainder of the financial expense in Q4 2022 in Q4 2021.
Of notional interest in life lease liabilities for right of use assets.
Which has remained broadly stable at $160000.
Okay.
I proposed to just talk briefly about our full year numbers for the fiscal year 2022.
Starting with revenues as mentioned by Arris total revenues for 2022 were $74 8 million compared to $93 million in 2021.
Gross margin for the year was 29, 5% compared to 41% for 2021.
The reduction in margin was mainly due to three factors one a $4 7 million dollar inventory right down to a large reduction of ECM product sales. These products at a higher than average margin 2021, and three rising input prices exceeding the price increases we pass onto our customers.
Indirect costs have increased by 3 million year on year, the major movements here the higher shares.
[noise] lifted and lastly, our professional fees, mainly associated with our M&A and corporate development activity.
Financial expenses were higher by $17 6 million three quarters of this increase.
Comprised two nonrecurring expenses on the loss on disposal of the exchangeable notes and two the penalty for early settlement of part of our terminal.
Yes.
I would now move on to address some of the main balance sheet movements, we have seen since quarter three 2022.
Intangible assets decreased by $1 9 million. This is made up of additions of $600000 is mainly comprises capitalize R&D expenditure, partially offset by amortization of $200000.
Permanent charges for the two development projects of $2 3 million.
As noted last quarter the amounts the company spending on capital R&D expenditure has been trending downward and this is because several of the main projects. We've been working on have reached the final phase of their development and then the final phase fewer resources are typically required.
In addition, some of our more recent doron <unk> projects alright, it faded feasibility a very early stage and just don't meet the requirements for capitalization under Ifr.
Inventories decreased by $1 1 million equating to approximately a 4% reduction.
This is an area we are targeting and we have had and we have an ongoing project aimed at optimizing our inventory levels going forward as part of our focus on improving the overall effectiveness and efficiency of our supply chain.
Accounts receivable balances on the other hand, having decreased by $1 5 million and this is mainly a function of the lower sales this quarter.
Finally, I will discuss our cash flow for the quarter, our cash balance increased by $700000 to $6 6 million in Q4 2022.
Cash generation from operations for the quarter was $2 3 million.
Capital expenditure outflows comprising P. P and R&D were $1 1 million a reduction of one three compared to comparative periods.
Interest payments in the quarter were $1 2 million.
I set out in todays press release I can assure you.
And as the group CFO and a member of the senior management team.
Acutely aware of the relatively high cost of the company's borrowing.
While the financial markets are clearly in a difficult place I believe we have a number of potential options to successfully deal with our debt costs.
While at the same time, releasing capital and management time to focus on high growth areas, where Tracy you can become a globally significant player.
As mentioned by Arris, we are actively examining potential disposal of part of our portfolio of businesses that are noncore to our future vision and strategy.
Where valuations may be attractive.
It also examining a number of alternative financing options.
It is an absolutely key area of focus for us.
I will now how would you how would you say I will now hand, you back to Joe. Thank you everyone.
I'll take it tariffs.
I think we can open it up for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you were using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question is from Jim Sidoti with Sidoti <unk> Company. Please go ahead.
Yeah.
Mr. Sidoti Your line is open on our end, perhaps its muted on yours.
Sorry about that hi, good afternoon. Thanks for taking the question might start off with the HIV business. How quickly do you think you'll start shipping products to Kenya.
I think we'll start shipping in the second quarter, that's the intention.
And the idea.
We're looking somewhere in the range of about 445 million tests for the year.
Okay and can you maybe people aren't spending on production.
Production ramp up.
Can you disclose them on OSB for the test.
I'm, sorry, what was that the pricing per test.
John how are we okay to just discuss it.
Yeah.
And we've previously indicated hey, Jim it's around.
In and around 80% and it's consistent with that.
Okay, and that's just to Kenya.
There's getting Kenya onboard help you with the other two or three countries.
The region.
That was the entire strategy from the beginning.
So Kenya is upwards of <unk>.
9 million tests, a year on a run rate basis. So.
We think.
That's our target to work toward over the next 12 to 18 months in Kenya. We also think that the stat or we just set in Kenya helps establish the momentum.
Around the next two to three markets that I highlighted earlier and we're talking about over 25 million tests in those markets.
And I expect us to get at least 20% market share in this space over the next two to three years.
And what has to have given me.
Sorry, Jim just to make the point and yes, it would be regarded as.
A leader in terms of the HIV cure.
On the continent and.
We believe we'll be had significant influential status in terms of proving out the quality of the product.
So the tab secure that as the first country. It's obviously a large market, but it also we think will have significant persuasive value in terms of opening up other markets to transcript.
And do you think the other countries more than a pause for six or eight months to see how things roll out in Canada before they make any decisions.
Look I think some may but the reality is.
They typically I mean theres a full report you can look at the the Kenyan authorities are put out.
They did extensive studies, we did field tests.
There there's a lot of work that's been done over the last six months six or seven months.
All that information now is in the hands of all of the other authorities to work off and get a head start on so that's that's how I would think about at this point is it is it possible some will wait to see how it rolls out what potentially but like as I said, we expect to start shipping in April so.
I think that'll make a that'll get us going relatively quickly.
And then on the hemoglobin business with the hemoglobin variant and the H B.
Anyone see systems, where do you expect the initial sale.
And is that in Asia, and South America or will those be in the U S.
Which sales you're talking about you're talking about the the hemoglobin variant product.
Both have Eric.
Both.
Well so the 90 210 product is all workhorse product, okay. We we sell it all over the world, including the United States.
We sell direct in the U S and we sell direct and in Brazil.
That that product is going through a 18 months 18 to 24 months.
Product upgrade strategy.
We expect to be working on new releases more than one over the next couple of years around that flagship product that will significantly improve it I think that'll make it.
Attractive not just in the existing high growth markets.
In South America and in Asia, but.
I think it puts us in a position to get growth.
At a at a level I'd be happier within the U S.
And and and and some of the more traditional markets outside the U S potentially in Europe , I think the more important question.
In the U S at least in the short run is the timing of getting our AR.
Primary resolution.
Variant instrument.
Basically cleared by the FDA in into the market. We're working very closely on that and I think that one is a key move for us in the U S.
Alright.
When you think about acquisitions is it is it for the hemoglobin business or <unk> or one of the other two businesses.
Identified.
Think of it this way okay. There there are three trends, we care about and that we're we have some gaming real game.
Diabetes and hemoglobin <unk>.
Point of care and decentralized testing.
And what we see more and more in terms of.
Monitoring around a lot of the therapeutics that are being introduced in all the conditions, new kind of chronic conditions that we're dealing with.
And our lobby is a bit of an edge in that area. Okay.
My focus is any M&A it has to fall in that in those categories or an intersection of those categories. You can you can think about what that might mean, but.
Diabetes is the largest decentralized testing market on the planet.
So there's a lot of activity up in that area.
It's an area, we know what scenario I understand so.
I would expect our next couple of moves will be likely in the area of diabetes.
And and decentralized care point of care.
Yeah.
Okay, and then on the other side of that when you're thinking about the divestitures and some of the noncore assets can you.
Can you break out for the Fitzgerald business, what those sales were in 2022.
John .
Do you have the fits number.
Yeah.
About $12 million.
Okay.
Alright, good and then I'll ask one for me.
With the recent option grants.
Warrant repricing, what do you expect the share count to be for 2023.
Yes.
<unk> point.
P M.
The options typically have a three year life rice aim two to three year life. So I wouldn't expect.
I don't expect significant.
Option exercises over the next while.
To be honest with you and then you've got the hurdle rate on top of that as well. So I don't expect significant in that.
In terms of the warrants that's up two.
Perceptive as to what they wanted to do with those.
But outside of that.
It will depend on whether we raise equity.
And so.
There's obviously a number a number of moving pieces within that.
Jim.
Okay.
I guess I did have one more so absent any acquisitions.
Assuming you get the increase in revenue.
From the hemoglobin and it would be.
Any HIV businesses and considering all the expense cutting you've had.
Do you expect to be free cash flow positive in 2023.
I think as we get towards the end of the year.
I would be hopeful we will aim it will depend on how quickly we can rollout train screen.
Hi.
We can get the resolution.
And the market in U S.
One of the things that are.
Yeah.
Great.
Sure.
Okay.
Okay.
It will be.
So in terms of production.
Overhead.
Yeah.
Well the number of moving parts, but I think as we move towards year end, but on top of just operationally cash flow positive.
Very focused on the cost of our days.
The cash outflows associated with those interest costs.
Okay.
Got it alright, thank you.
Again, if you have a question. Please press Star then one the next question is from Paul Nori with Noble equity. Please go ahead.
Hey, good morning.
Now that the inventory came down a bit in the quarter, but still seems elevated.
Talk about it you know if you're expecting that to continue to come down and hopefully there's nothing in there that will warrant.
Write offs.
I'll take that so yes, we do.
Tend to continue to kind of whittle down that rise and we hired a very senior supply chain professionals and.
In 2022, and he's doing a lot of work in terms of.
Optimizing our overall supply chain okay.
It's a balancing act for US Okay. So for example on one side, we want to reduce that.
Inventory at the same time, given everything we've seen over the last two to three years in terms of supply chain challenges, we need to make sure that we've got enough and producing product on hand, particularly around raw materials aim in terms of other areas for write offs you give you some sense.
Yeah.
In total we are carrying COVID-19 related inventory now probably about $1 million, okay in terms of carrying value.
We sold about half a million of COVID-19 related products in quarter four I expect we'll do something similar in quarter. One this year right. So in that sense, we're not holding big day.
Big inventory values from a net basis in terms of.
Products that are that are highly uncertain and then our other inventory is.
Concentrated in our.
Ongoing our ongoing main product areas. So for example associated with HIV. We obviously have the ramp up now production at train screen and that's going to add some headcount reduction as well here in Ireland aim, but we need to increase our inventories. So I think overall the picture might stay the same but I think.
We will effectively be trying to hold lower the amount of inventories for every dollar of revenue that we have going out the door that makes sense for us.
Yeah, and and then you know in terms of the income statement the two questions.
Thank you mentioned hitting 40% gross margin adjusted this quarter.
Wondering if you expect to continue that in 2023, and then operating expenses as a whole do you think that you know as you get revenue from trend screen and hopefully the diabetes business continues to perform well in the lab in the U S.
Do you think you'll be able to leverage off those expenses or are you building more of an infrastructure to support the growth.
I think on the.
On the expense side, let me just say one thing.
We're making investments, we're putting a lot of money and he I I T. Right now because we think that's going to drive significant efficiency I think the portfolio rationalization.
We'll address a significant significant amount of carrying costs associated with managing.
The legacy products.
And we can address that.
And then revenue quite frankly is the key here, there's a baseline amount of infrastructure you need for a regulated entity.
And.
Getting a wrap up for example on train screen will drive significant operating efficiency in of itself. So we look at revenues one piece of it but there's no doubt we're putting.
Our significant investment in the infrastructure of the company. So that we can make them much more efficient and it's easier to scale as we do M&A.
Yeah.
Hi.
Jeremy.
Oh go ahead go ahead.
Yeah, Yeah, Paul No I I.
I would be hopeful that we will continue to see that type of margin come through.
We made some price increases second half of 2022, sometimes takes some time for those roll through we have some other price increases we expect to push through now in quarter. Two of this year and said we are significantly focusing on reducing down our costs right.
So between the two of those activities I do expect that we would be able to maintain at margins in around that 40% level and some of it will depend on product mix. So for example, as we place an increased amount of 90 210 instruments.
Our marriage.
Is typically.
High margin consumable revenue as we go forward right. So.
Do I think that number would be about 40% every quarter, probably not but for us we're happy to take an element of variability.
Me around hemoglobin instrument placements as they generally deliver which higher quality revenue both in terms of margin and predictability as we go forward.
So look at train screen.
This is.
It would be interesting to see what impact that has in terms of our margin as well and how big those numbers yes.
Some nodes within that.
Certainly much happier with.
The trends, we're seeing now in terms of margin given given the hard work and the actions that people have taken over the last six months.
Okay, and then last question.
Around the strategic investment for I'm aware, maybe a if you could give us the size of the overall.
Money raise that they did and then be.
What their particular competitive advantages are in this space and.
And I'm I'm kind of assuming that they're using your lab as the exclusive lab.
Maybe you could get into that a little bit yeah, I know, it's not complicated at some level right I mean.
The reason we partner with them.
And we have an exclusive arrangement as we build out our lab will be the exclusive provider for the programs that they're working on their entire strategy is still a beta beta see private label.
White label solutions for digital health providers.
All of health providers and players like that Okay. This is not a direct go to market play. They do have a website, but that's more of a focus group operation than anything else.
So we like that model.
We think that model can scale.
We already do a little bit of work with them, we're working quite closely with them to judge scale up of celiac tests that has quite that has potential.
And then to wrap up across a broad spectrum of tests now.
The pace of that.
Is is going to be you know, what we'll see what that what that pace is we're gonna be careful and prudent as we roll. This thing out we're not gonna be delusional about the complexities of getting into these types of programs. We've got key marquee accounts, where we're working with them on.
I think it's much more important that we have milestones with some of these marquee accounts.
And execute properly on those and demonstrate that this model can work.
No.
I think you'll see us.
Wrap up the celiac tests this year and roll into some of the other tests.
Next year.
Okay I appreciate it.
It's important.
But in terms of money raised there are private companies. So we're not at Liberty to say that all our days.
1.5 investment is relatively minority right they have they've raised significantly more than that.
Okay alright, thank you.
Once again, if you have a question. Please press Star then one please standby as we poll for questions.
Showing no further questions. This concludes our question and answer session I would like to turn the conference back over to Eric could you have to catch even for any closing remarks.
Thank you.
Jon and I appreciate the time, you all took today.
Been with us two up.
Get an update on our journey.
I feel very confident in terms of the progress we're making.
And the focus of the organization.
I think the first phase is well underway.
But we have a lot of execution in front of US we're not delusional this takes time.
But we have a clear three year plan.
And that's what we're executing against.
Thank you for your time.
And we hope to speak to you again.
And the next couple of months. Thank you.
The conference. Thank everybody excuse me. The conference is now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Yeah.
Yes.
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