Q1 2023 Trinity Biotech plc Earnings Call
Ladies and gentlemen, thank you for standing by the call will begin momentarily. Please do not disconnect your lines.
Yes.
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John you should like Bill's background, he's a guy called locally.
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Hello, and welcome to the Trinity Biotech first quarter fiscal year, 2023 financial results.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star keys, followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your telephone keypad to withdraw from the question queue. Please press Star then two please note.
This event is being recorded I would now like to turn the conference over to Joe Diaz with Lytham partners. Please go ahead.
Thank you Jay and thanks to all of you for joining us today to review the financial results of Trinity biotech for the first quarter of 2023.
Joining us on todays call are Eric <unk>, Chief Executive Officer, John <unk>, Chief Financial Officer.
Conclusion of today's prepared remarks, we will open the call for a question and answer session.
Before we begin please note that statements made during this conference call maybe deemed forward looking statements within the meaning of the federal Securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements.
These risks include but are not limited to those set forth in the risk factors and statements in the company's annual report on form 20-F filed with the Securities and Exchange Commission.
Trinity Biotech undertakes no obligation to publicly update or revise these forward looking statements to reflect events or circumstances after today or the occurrence of unanticipated events.
With that said I will now turn the call over to CEO , Chris to Q.
For opening remarks, he will be followed by CFO , John Gilbert for a review of the financial results.
And Mr. <unk> will provide additional background and we will open the call for your questions Eric the floor is yours.
Thank you Joe.
Good morning, everybody.
I'd like to take a few minutes to update you on the summary highlights of the quarter.
And some of the strategic initiatives that we have underway and John will go through more detailed financials and then we'll open up the call for questions.
With respect to the quarter, starting with the revenue discussion our revenues for the quarter for Q1 2023.
Was $17 2 million, excluding our Covid focused PCR products and chicks Cheryl industries.
<unk> revenues, which was disposed in April 2023 revenue for the quarter in terms of what is an ongoing business was about $14 million.
2% higher than last year.
Our performance in the quarter was led by year over year growth of approximately 35%, 15% and 10% respectively for autoimmune clinical chemistry, and the diabetes H B C consumable products.
Demand from key accounts and a focus on clearing order backlogs drove an increase of over 80% of revenues for the U S. Autoimmune.
Business compared to Q1 2022.
Approximately 45% increase in deliveries for diabetes consumables in Brazil, Q1, upon the tried and true.
These were partly offset by good bye.
By revenue gains that we had last year.
On instrument sales were to China that were at a significantly lower margin those sales did not repeat this year and that sale.
French will offset some of the benefits I just spoke to you about.
Gross margin, excluding Fitzgerald was broadly flat compared to Q1 2022.
But we've had a approximately four point improvement over Q4 of 2022, as we increased prices and stabilize our manufacturing and supply chain processes.
I'd like to take a moment to talk about her hemoglobin <unk>.
Alex activities, we continue to work closely with the FDA to gain clearance of our five 10-K submission for the Premier resolution.
Sure.
In addition to the U S market introduction in the second half of the year, we expect FDA approval will drive significant global order activity.
As many of our distributors are we await approval.
We are repositioning technical sales capability for the post FDA rollout.
The development over the next generation of our flagship diabetes HVA once he insurance Premier 90 to 10 is also on track for an expected rollout in early 2020 for the instrument is expected to feature an improved backward compatible reagent column system that should get you up to three times the injection capacity.
Ability limb.
Limited calibration and an improved user interface.
This is the first step of a multi generation product development plan aimed at expanding the target market driving lower service downtime and cost.
While significantly expanding operating margins are these improvements we expect lots can they stay improvement.
Impact.
Cogs on our core our diabetes franchise business. So that's one of the most important priority.
In addition, with respect to hemoglobin, both China and Brazil.
Our markets of particular focus for burst product line expansion.
As well as footprint expansion in both markets both to drive cost competitiveness.
Streamline regulatory pathways and expanding market access we already do some reagent activity manufacturing activity in Brazil, we're looking at optimizing that platform.
And potentially looking at some opportunities for summer in China.
I'd like to take a moment to talk about our transferring HIV product, which is ready to be launched we are focused on executing.
The algorithm establishes buyouts Trinity biotech as the HIV screening standard potassium Kenya on your World Health organization guidelines.
There are there have been some delays as the government currently is addressing some legal challenges to the HIV testing algorithm changes and.
And we expect to receive significant orders in the second half of 2023 upon resolution of legal matters.
The Kenyan HIV screening program is one of the largest in Africa, there's a potential of up to 9 million tests, a year and the intention is to immediately wrap up to deliver.
Several knowledge passion initial orders from a couple of months.
I'd like to take a moment to discuss portfolio transformation initiatives and our capital structure.
In April the company completed the sale of Fitzgerald industries, Jennifer in her classroom third among the proceeds that were partially used to further reduce debt by approximately $10 million.
This exit is the first of several strategic moves aimed at focusing our current portfolio around our core hemoglobin and HIV franchises.
Streamlining our cost structure, reducing debt and providing fault firepower for M&A.
Our pipeline of attractive M&A opportunities as they named at disruptive Adjacencies, where the total of addressable markets are tamps.
Our significant and matter.
They also potentially provide us access to next generation diagnostic product platforms.
And provide us an opportunity, where we can leverage our global manufacturing and distribution footprint.
In February the company secured a $20 million flexible term facility specifically to provide the ability to move quickly when opportunities for transactions arise.
I'd like to take another moment to highlight and give an update on our structural operational initiatives multi.
Multiple initiatives are underway to significantly reduce cost of goods sold in our core hemoglobin is in HIV franchises.
These include instrument and consumables design updates.
Supply chain optimization.
Outsourcing localized manufacturing.
As well as overall.
Streamlining of.
Processes that support these businesses.
All of these initiatives.
Aimed at driving significantly higher operating margins and the platforms. We are pushing both block loans still have.
Gross margins are.
At around 50 reported 50% on operating margins in the 20% range, but those are our targets. Those are what were working toward and these initiatives will help us get there.
As a final reminder, I'd like to let everyone on the call know that Trinity biotech, we will be participating at the American Association of clinical chemistry, otherwise known as a C Corp Conference.
Taking place in Anaheim from the 23 to the 27th of this month.
We hope to see some of you there.
With that summary, I'd like to pass it on to John to give you more details in your financials and I'll be back after the call.
Thank you Erez good morning, everyone.
Well I will take you through the results for Q1 2023.
I would like to start by talking about the sale of our Fitzgerald Industries Life Sciences supply business, which was completed on April 27th left.
We consider that life sciences apply was no longer core to the group's refined long term strategy pursued this transaction as part of our plan to transform.
And so our high growth innovator in diabetes care decentralized diagnostic solutions.
As Aaron mentioned, we achieved cash proceeds of approximately $30 million, which represented a multiple of approximately 10 times Fitzgerald's EBITA on a historical basis.
This is Jerry generated revenue of approximately 12 million in fiscal year 2022.
In our income statement for quarter. One 2023, the results of Fitzgerald have been reported separately as discontinued operations. Therefore, the revenue gross profit and operating loss numbers I would talk about today, our stated without Fitzgerald for both the Q1, 'twenty tree and comparative quarter.
Moving onto our results for Q1, starting with revenues as Arris third line already pulled revenues for the quarter were $14 8 million compared with $15 7 million in Q1 2022.
Gross margin for the quarter was 36, 7% compared to 38, 2% in Q1 2022.
The reduction in gross margin is largely due to changes in sales mix and the lower sales activity.
I would point out the gross margin in Q1, 2023 is substantially higher than Q4 2022 margin of 33, 4% and here, we're seeing the benefit of price increases and cost optimization initiatives implemented in mid to late 2022.
Moving on to R&D expenditure, which was $900000 in the quarter down by 100000 compared to Q1 2022.
Meanwhile, SG&A expense in the quarter were $8 6 million up $2 4 million compared to Q1 2022.
Of this increase half of fish or approximately $1 2 million was due to higher share based payments expense. This is a noncash accounting charge relating largely to performance share based compensation awards, which are intended to closely align the goals of our team with those of our shareholders and the creation of shareholder value.
Majority of these options granted in Q4 2022 and in Q1 2023 our performance share options are structured such that they are exercisable only if the companies a D. S price increases to certain levels three daughters, $4 and $5 for atheists during the life of the option.
All of these performance your options are currently exercisable.
The remaining increase in SG&A expense was largely due to higher travel and expenses. Following the lifting of Covid travel restrictions higher Saturday cost filing senior leadership put senior leadership team appointments in late 2022.
And lastly, foreign exchange loss largely related to the accounting driven requirement to mark to market Euro denominated lease liabilities for right of use assets.
This resulted in an operating loss for Q1, 2023 of $3 $9 million compared to an operating loss of $1 2 million reported in Q1 'twenty two.
Moving on to net financial expenses of $2 4 million in Q1, 2023 compared to $12 million in Q1, 2022.
The decrease of $9 6 million is because the comparative period included a loss on disposal of exchange, but north of $9 7 million.
Excluding this nonrecurring financial expense and <unk> expenses for Q1, 2022 we're $2 5 million compared to 2.6 in Q1, putting spring tree.
Although our borrowings are now significantly smaller following where payments of dash. The interest expense is broadly similar for Q1 as our main barring accrued interest at a significantly higher interest rates and during Q1 2022 due to base interest rate increases.
And given our repayment of debt and photo Fitzgerald transaction, we should see a reduction in those interest costs, assuming stable interest rates and in the following quarters.
Profit for the period and discontinued operations was <unk> 5 million in Q1, 2023 down from zero point $8 million in Q1, 2022 due to lower profitability of the now disposed Fitzgerald business.
In Q1, 'twenty 'twenty trip tree the loss per <unk> is $15.02 compared to 50 cents loss per a D. S. In Q1 2022.
I will now move on to address some of the main balance sheet movements, we have seen since quarter four 2022.
Since the liabilities attributed to mature industries have been separately presented within assets included in disposal group held for sale and liabilities included in disposal group held for sale separately in the balance sheet at 31 March 2023.
Intangible assets decreased by $13 9 million is made up of the Fitzgerald industries intangible assets of $14 1 million, which are now shown in essence infusion disposable pen for sale.
Amortization was airplane 3 million and this was partly offset by additions of <unk> 5 million, which mainly comprises capitalize R&D expenditure.
Financial assets have increased by 1.5 minutes.
Relates to our investment and I'm aware of which we announced in January 2023.
March 31, 'twenty trees airplanes 7 million have been invested with the 0.8 million balance recorded in current liabilities on the consolidated balance sheet.
I must note that the convertible note investment, which represents an investment in Unquoted equity instruments is presented as a financial asset on the consolidated balance sheet.
As the instruments do not have a quota price in an active market for an identical instrument. The determination of fair value involves the use of appropriate valuation method and certain unobservable inputs require significant management judgment and destination may change over time.
I would highlight that the valuation of this asset may be subject to arrive wide range of possible fair value measurements.
<unk> fluctuate significantly due to changes in market variables as well as available entity specific information.
The senior secured term loan liabilities increased by $4 9 million during the quarter. Following the drawdown of an additional 5 million facility from perceptive advisors in February 23.
Also in the quarter the company secured from our lenders and you 20 minutes millions facility to fund potential acquisitions as Eric mentioned.
None of this 20 million facility has been drawn down days, although as we've discussed we are actively looking at potential acquisitions.
Finally, I will discuss our cash flow for the quarter, our cash balance, including casually by Fitzgerald decreased by $2 4 million to $4 2 million in Q1 2023 cash.
Cash used by operations for the quarter was $2 7 million an increase of about $1 two compared to Q2 2022.
Capital expenditure cash outflows, comprising PP&E and R&D spend and the investment in the I'm aware of and $1 3 million a reduction of 400000 compared to the comparative period interest payments in the quarter were $2 six minutes.
I'll hand, it back to Joe Thank you.
Thank you John we will not go ahead and begin the Q&A session M. James Please set it up thank.
Thank you very much we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw from the question queue. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Today's first question comes from Jim Sidoti with Sidoti and company. Please go ahead.
Hi, good afternoon.
Can you break out what the <unk>.
Covid the V. T M revenue was in the quarter. It was about two or 300000.
Alright.
Just a second I got I believe.
Yeah.
I believe it was a quota.
780.
7000.
Hum.
Which was which is just slightly higher than last year about a couple hundred thousand.
Yeah, but down about $1 2 million from a year ago.
From a year ago, yeah definitely down by country.
Okay.
We saw I mean.
Our expectations on Covid right now are very hard to predict and nothing were a lot of them up.
Right.
You you talked a little bit about Canada. It sounds like there's another legal hurdle you have to get past what when do you think you'll start shipping a product okay.
Well look at all I know is that the government is confident that this challenge is going to get a rule in their favor.
Putting significant.
Pressure on us to be ready and available to deliver.
Like millions of tests between now and the end of the year.
They've indicated they like to start with a million dollar order immediately. So we're we're sort of a million test order and you know so we are literally gearing up and ready and I believe.
Well, there's a oh key court date, John I believe it's a second we can do.
July is almost as much we.
July .
Yeah.
Okay. So it sounds like you do expect revenue in 2023 from from Kenya.
Yeah definitely I mean at least from the standpoint of what we are gauging from the government's actions activities expectations.
And I mean at the end of the day. This is their bottle right at some point, so and if they're feeling confident so based on that what we are getting as feedback right and you've got guys on the ground.
Who are in contact on a regular basis.
Are you is that there's no merit behind the case and they.
And they will prevail in this will go through.
It's not unexpected that you would expect an incumbent who has had this business for a while to push back as hard as they can.
Got it and then with the new diabetes instrument can you give us a little color on what you think those products hit the market.
Well look we've done.
I believe.
[laughter].
A large number of reviews with the FDA around the Premier resolution I think those have been concluded now is our understanding.
And so we're expecting some news imminently.
From that and we are gearing up our team appropriately to be prepared at a C C.
To highlight.
Highlight the product.
And we are gearing up our technical sales resources.
To be ready to go immediately so those those are all in place and Oh, Yeah, We're our expectation is to be ready.
For this coming quarter.
And then and.
That's on the that's on the hemoglobin variance you want on the diabetes instrument on the magnitude pen.
Our core products, we are in stability testing around the columns are we are in the process of well the key redesigns or are almost done with their with the testing.
That will significantly improve the service quality and maintenance.
Aspects of the cost of the of the product and John will probably give you a little context around some of the supply chain initiatives and the in.
In sourcing activities that are underway, but my expectation is that we will be.
In the market with the with a column updates.
And the quality Redesigns in terms of the phase one.
Improvements are.
And and early 'twenty four.
And I think the supply chain improvements and those Cogs benefit Cogs benefits.
Start trickling in my second quarter, or so is that is that fair.
Yeah. So in terms of the in sourcing of the column aim, which we expect to significantly reduce down our cost of production of our consumable and thats true towards its final stage in terms of the quality review Technical review, we've given notice to our existing supplier that we will be moving away.
On them and so that's that's very real and we would expect that the first creating financial benefit to us.
Probably towards the end of Q3.
And then in terms of chain around our instruments.
We are very much looking at outsourcing and offshoring.
Aspects of those and all of those instruments to much lower cost locations and in terms of supply chain.
We are well advanced in phase one on Nash and are currently testing.
Samples and prototypes and.
In terms of these modules and then we're also actively examining supply chain changes for phase two and our core objective around that is to make our instrument cheaper to produce which then should allow us to supply that to our customers and distributors at a lower cost, which should effectively increased the <unk>.
Total addressable market for for our instruments and that coupled with the increased injection.
Her column.
And the increased reliability and that we're also pursuing and we think you know what.
We give them.
Another lease of life.
And allow us to compete at a lower price point.
Continuing to.
Never has immersion tools.
Yeah.
Okay.
Autoimmune business, which I believe you said it was up about 35% in the quarter is that the the business in upstate New York.
It's the it's the associated test manufacturing business connected to the lab, yes.
And a lot of that activity was a rebound in our U S.
Order book and a clearinghouse in backlogs.
So it sounds like you have multiple areas, where you expect things to improve.
You just reported Q1 around 15 million I would imagine you have a pretty good handle on what you think revenues are for Q2.
Can you.
Give us any kind of range, where you think revenues come in for the year or is it still too early.
Got it.
It's too early to give you guidance for the year. This is.
This is I think revenues for this quarter for Q2 will be ramps are close to 14 million something like that I don't imagine, which unfortunately, but we're still closing the books, but in terms of how the profile plays out a lot of what we're talking about here.
The inflection points play out in the second half Okay. So Kenya.
Trend screen and scaling of that business plays out in the second at.
All of the changes that John and I talked about with respect to your bolt the hemoglobin product launch I'm sorry.
The launch of the hemoglobin product is also a second half play and all the changes around the 92 that are happening in the next six months.
And should be in the market in 2024.
So I don't expect an immediate rebound at these things, but I do expect.
Key milestones that you'll be able to see in the coming quarters that we can point to where we'd get traction around orders and we get traction on the Cogs benefits and we'll highlight those as we go here in the coming months.
Okay Alright. Thank you that was it can be.
Yeah.
As a reminder to ask a question you May Press Star then one.
Seeing no further questions in the queue I would like to turn the call back over to Ara Sketchy Jenn for her closing remarks.
Thank you for attending our call today, I know, it's a bit of a.
Tight Hollywood holiday week for for a number of people in the U S. A I will say that.
I will apologize ahead of time I've said that people, we will report on a more timely basis. This quarter was on me, we got caught up on a number of our corporate development initiatives and travel and.
I'll take blame for that and I'm not sure it doesn't happen again, but.
That being said.
Thank you for being on this journey with Us and we will keep you posted as developments Ross.
Have a good day.
The conference has now concluded. Thank you for your participation you may now disconnect.
Yeah.
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