Q1 2025 Precipio Inc Earnings Call
Welcome to the precipitous first quarter 'twenty twenty-five shareholder update 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.
Note that the conference is being recorded.
Statements made during this call contain forward looking statements about our business you should not place undue reliance on forward looking statements. As these statements are based upon our current expectations forecasts and assumptions and are subject to significant risks and uncertainties. These.
These statements may be identified by words, such as May will should could expect intend plan anticipate believe estimate predict potential forecast continue or the negative of these terms or other words or terms of similar meaning.
Risks and uncertainties that could cause our actual results to differ materially from those set forth in any forward. Looking statements include but are not limited to the matters listed under risk factors in our annual report on Form 10-K for the year ended December 31, 2024, which is on file with the Securities and Exchange Commission as well.
The other risks detailed in our subsequent filings with the Securities and Exchange Commission. These reports are available at Www Dot S E C Dot Gov.
Statements and information, including forward looking statements speak only to the date. They are provided unless an earlier date has indicated and we do not undertake any obligation to publicly update any statements or information, including forward looking statements, whether as a result of new information future events or otherwise except as required by law.
Speaker Change: Now, let me hand, the call over to Ilan Daniela Precipitous C. E. O. Please go ahead good afternoon.
Speaker Change: And thank you all for joining us today to review <unk> financial and operational results for the first quarter of 2025.
Speaker Change: I'm pleased to report a strong start to the year in terms of year over year growth improve margins and favorable regulatory developments. This is despite the expected seasonal pressures in the first quarter.
Speaker Change: Which impacted our quarter over quarter results.
Speaker Change: Let's start with a breakdown of our Q1 financial performance.
Speaker Change: As you may have seen in our recent pilot as well as the press release revenues for Q1, 2025 were $4 9 million up 43% year over year, reflecting sustained demand and continued growth in our pathology services.
Speaker Change: However, this also represents a nine 5% decrease from Q4, 'twenty 'twenty, four which will explain in more detail shortly.
Speaker Change: We continue to make significant progress in the following metrics year over year.
Speaker Change: Adjusted EBITDA improved by 92% coming in at 108000 loss this quarter compared to one 4 million loss in Q1 of last year.
Speaker Change: Cash used in operations improved by 93% with a $44000 cash reduction in Q1 2025 down from $667000 cash production in Q1 of last year.
Speaker Change: Net cash used for the quarter was 370000% to 49% improvement year over year.
Speaker Change: These results underscore the ongoing operational discipline and scalability.
Speaker Change: Our business.
Speaker Change: The sequential quarter over quarter decline in revenue from Q4, 'twenty 'twenty four doesn't concern us since this is a typical seasonal pattern, we see across the health care industry, especially in diagnostics.
Speaker Change: As many of you know insurance plans reset on January 1st, meaning deductibles or back to zero and patients often puffs postpone non urgent testing until those out of pocket costs are absorbed.
Speaker Change: This behavior impact test volumes and collection, which in turn creates a temporary dip in both revenue and cash flow. We anticipated. This in our results reflect a well managed quarter in light of these dynamics more importantly, we're already seeing a rebound in Q2, and we expect to return to positive cash flow.
Speaker Change: Two or Q3 of this year.
Speaker Change: On the product side last year's FCA ruling on laboratory developed tests, which was eventually overturned at March of this year caused a number of our perspective customers to delay their plans, bringing our technology in house until this was resolved will discuss that shortly as well.
Speaker Change: Now, let's review each of our two divisions in a bit more detail, we'll begin with our pathology services Division and then turn to our potash division.
Speaker Change: Our pathology division continued to perform strongly.
Speaker Change: Volume increased 46% and revenue grew 53% year over year.
Speaker Change: 11, new physicians began utilizing our services this quarter continuing sign of physician engagement and growing market Trust.
Speaker Change: On the sales side division growth has largely been accomplished by the same existing sales team that successfully tells the story of our mission to battle cancer diagnosis.
Speaker Change: Our value proposition to customers and then allows our lives delivered strong results. This means the company accomplished approximately 50% growth with no substantial increase in sales team headcount and related costs.
Speaker Change: Now I'd like to talk briefly about margins and operating expenses, where we're proud to report continued operational improvement.
Speaker Change: Okay.
Speaker Change: Gross margins increased from 24% to 42% year over year.
Speaker Change: This is due to the increased volume of cases, which translates into further scale efficiencies a lot let.
Speaker Change: Let me give one example from the lab, which will demonstrate that attacks.
Speaker Change: Most laboratory tests are performed in batches, meaning multiple patient samples are tested together in the same right.
Speaker Change: Each batch has a certain number of elements that create a fixed cost without bache, regardless of how many samples are run in that batch one of those elements is called a positive control, which is a known positive sample used to verify that the text test correctly identifies a positive result.
Speaker Change: This control sample cost money to produce but of course, it doesn't generate revenue and therefore it adds to the cost of the badge.
Speaker Change: The cost of that pause as a control has slowed overall actual patient samples.
Speaker Change: If for example, the cost of the control is $200 and we won five samples in the batch then $40 added to the cost of each sample in the batch. However, if we got 20 samples without any additional cost for sample drops to $10, which in turn improves gross margins now.
Speaker Change: Now this begs the question why not always won 20 batches of 'twenty examples right well depending on the number of samples. The lab received for that test every day that decision will impact the turnaround time for life wants to provide your customers.
Speaker Change: <unk> received on average two samples per day that it will take 10 samples.
Speaker Change: Days to fill the boss and that might be longer that the service level with a lot of his problems to its customers.
Speaker Change: Firstly when the lab volume increases then it inherently takes less time to fill a batch in the labs can maintain the same level of service while running larger batteries. This is one factor that contributed to our increased margins.
Speaker Change: These improvements are driven by a combination of operational efficiency improved cost management and scale.
Speaker Change: Going forward, we expect pathology division margins to stabilize in the mid 40% range.
Speaker Change: We also saw meaningful improvement in operational efficiency.
Speaker Change: Operating expenses as a percentage of revenue dropped from 87 to six 1%, a 30% improvement year over year.
Speaker Change: This was achieved by keeping operating expenses flat at approximately $3 million per quarter, while growing revenue by 43% year over year.
Speaker Change: How have really driven this margin growth.
Speaker Change: Cheese margin improvements with strategic investments in two key areas equipment and people.
Speaker Change: With respect to equipment, we've always insisted on investing in state of yard equipment at our lab, which ensures the highest quality directly impacting patient outcomes.
Speaker Change: The cost of each piece of equipment, it's divided by the number of samples run drag along through the machine to get a cost per sample, which is then burden on each patient sample.
Speaker Change: As our volume increases this fall.
Speaker Change: Oh, it's spread over more sample and reduces the cost per sample, thereby improving gross margins.
Speaker Change: Equally true, but it is our investment in talent, we invest heavily in the training of our staff to ensure they have both the highest quality and skill set and are able to conduct their work accurately and efficiently. This translates as did many factors I'll give you two examples.
Speaker Change: First of all a better trained lab employee is able to handle more samples for batch, which drives and improves efficiencies and batching as we discussed before.
Speaker Change: Second our team is constantly handling very expensive wages, which required.
Speaker Change: And accurate work.
Speaker Change: Sometimes maybe two drops to one of our region can cost $1000 and those drugs need to be paid accurately into the right too.
Speaker Change: Not with one small but of course, we just wait for the 1000 Bucks.
Speaker Change: As our business and volumes grow the value of the excellent skill sets of our lab tests directly impacts the financial performance of our business.
Speaker Change: These are just a few examples that reflect our continued commitment to sustainable disciplined operational and financial management.
Speaker Change: Next I'd like to address the major Medicare reimbursement developments that will increase our cash receipts from existing testing.
Speaker Change: In Q1 of this year, we received <unk> approval for our next generation sequencing or NCS testing, a major regulatory milestone for precision.
Speaker Change: For those not familiar <unk> is the Medicare program that governs molecular diagnostic test reimbursement in various states across the U S.
Speaker Change: Securing approval from all that is a rigorous and highly selective process required laboratories to submit an application with robust data supports clinical validity and utility accuracy and reproducibility.
This approval on the laboratory received Medicare patient samples for MTS testing for mold <unk> covered states the lab, that's not yet paid.
Speaker Change: Up until now when we received patient cases from a state government <unk> and Lgs was part of the test ordered for that sample. We ran the MTS component there'd be order and ate the cost knowing we could not bill for edge. Yes. For example from the small states.
Speaker Change: This meant that each fund we had dozens of tests, where we incurred the cost of running it but received no revenue.
Speaker Change: Now with this approval going forward will still be running the same test, but we would be able to bill and collect cash for them.
Speaker Change: It will impact the revenue recognized as well as cash received.
Speaker Change: Based on our internal estimates this will equal equal approximately a quarter of million dollars per quarter and increase revenue and cash from our current case volume that is before any growth.
Speaker Change: Overall, the pathology services division is growing at a healthy pace and is a positive revenue and cash contributor to the overall business with.
Speaker Change: With continued volume increases, we expect to see gross margin and contribution improved.
Speaker Change: Moreover, as we discussed before this division is critical to the continued development of our products Division with over 12000 samples received in 2024. This enables us to continuously test develop and launch new products for our products Division.
Speaker Change: We've essentially built a self financed R&D operation that can rapidly and at a very low cost develop our next generation of Fox.
Speaker Change: Now, let's turn to the product division and a bit more granularity.
Speaker Change: Okay.
Speaker Change: In Q1, we on boarded one new customer and launched two new diagnostic panels and two customers began to validation before additional panels collectively.
Speaker Change: With that pipeline, we expect order volumes to increase steadily in Q2 and beyond.
Speaker Change: We also saw a positive trend in customer meetings, driven by distributors and or at least taking hold with our investment in these sales channels is gaining traction.
Speaker Change: One of the factors that slowed down our growth was the uncertainty around the FDA ruling of laboratory tests or L. B piece as they're called which was finally cleared up in March of this year when that ruling was over to R.
Speaker Change: Our products such as hips, we fall under the LDC category and last year. The FDA came out with a cool thing that essentially began the gradual elimination of LTE Ts and conversion of all laboratory testing for FDA approved kits.
Speaker Change: This was a place an enormous cost burden both on manufacturers such as ourselves to create and submit such kits for approval.
Speaker Change: And laboratories, who would have to comply with the Beasley. It also plays an instrumental surmountable burden on the SDA itself, which you would have to review and approve all the submissions.
Speaker Change: In March of this year.
Speaker Change: It was overturned and the industry breathe a sigh of relief.
Speaker Change: Our own customers has told us their consideration of our Cogs was on hold until the FDA situation cleared up and indeed once the reversal of that ruling came out some of our perspective customers reached back out to I'd say they are now ready to proceed.
Speaker Change: With our pipeline of prospective customers that are now in various stages of validation and are expected to go live commercially in Q2 and beyond we expect them to begin to see consistent growth in product revenues in Q2 and further in the year.
Speaker Change: Now lets turn to product operations.
Speaker Change: Gross margins for the products division improved from 37% to 51% year over year.
Speaker Change: I'd like to describe it as an example, one of the factors that contributed to this improvement.
Speaker Change: One factor to drive these cost improvements, it's called shelf life quality control.
Speaker Change: Each time to produce a batch of products, which has made its shelf life. We set aside a number of place for internal testing to ensure quality control.
Speaker Change: For instance to ensure our products maintained a six six months shelf life. We test a couple of places in the same production batch each month.
Speaker Change: So let's say, we produced 100 place we would reserve 12 sites of them for this shelf life testing testing to place each month over a period of six months or so it looks all place.
Speaker Change: That equals 12% of that.
Speaker Change: Manufactured batch, which we don't sell but rather use internally for quality control.
Speaker Change: But now if we produce 200 plates and the production of what we still let me 12 plates for shelf life testing now that quality control testing has utilized only 6% of the badge instead of 12% and we just gave a 6% margin.
Speaker Change: As production scale, the cost and quality control for unit drops and that helps drive up our gross margin. This is just one example, but shows how growing demand at higher output lead to better efficiency and profitability.
Speaker Change: So the entire combined business gross margins rose from 27% to 43% year over year.
Speaker Change: This is a weighted average calculation of our gross margins are both divisions together.
Speaker Change: And since the product side is operationally simpler than the pathology services side and it has a lot more room to grow with Joseph margins.
Speaker Change: The product side of the business begins to grow faster than the services side, we will see the overall company gross margins continue to increase.
Speaker Change: We're making a big push to grow our products customer base panel used and subsequent revenue. So Q4 2024 to Q1 2025, our revenues were flat.
Speaker Change: One of the key factors that have been largely out of our control is the timeline. It takes our customers to complete the validation and go live with our products, which means. They then begin to consistently place recurring orders.
Speaker Change: As an example, we are currently in the process of Onboarding, a major laboratory that decided to replace their testing and that's selected five out of our six panels that we offer.
Speaker Change: In Q2 Q2 of this year they began a validation for the first panel and we hope they will be able to complete and go live with the second panel by the beginning of Q3, we anticipate that this customer could reach full operating capacity by the end of the year, representing a potential seven figure annualized revenue.
Speaker Change: There are more stories like this in our pipeline, but unfortunately oftentimes as a manufacturer we have limited ability to influence these probably as.
Speaker Change: As much as we'd liked.
Speaker Change: Therefore in order to shorten that timeline, we've created several structured plans the support and encourage a more efficient and rapid onboarding process.
Speaker Change: These programs improve the commercial terms for customers, who complete validation on a timely basis and transition to routine use in most cases, we find that these discounts are earn back within one quarter and accelerated customer activation and revenue realization.
Speaker Change: We will continue to track the impact of these initiatives and look forward to sharing our progress and future updates.
Speaker Change: Now I'd like to update you on two items that have a positive nonrecurring impact on both cash and profits during 2025.
Speaker Change: First change health care, the billing platform, we rely on for processing a substantial portion of our patient claims and whom in early 2024 experienced a cyber attack the temporary shut down he cisco's proprietary nationwide.
Speaker Change: Like most health care providers, we too were affected the disruption caused delays in billing reimbursement and impacted our collections during the first half of 'twenty 'twenty four.
Speaker Change: To help bridge the gap, we received approximately $1 1 billion to change healthcare temporary funding assistance program.
As far as where interest free offering important short term released by the change healthcare works to restore it systems, which they confirmed its fully operational in late October 'twenty 'twenty four.
Speaker Change: Following the system restoration, we entered into discussions with J child care about suddenly up.
Speaker Change: First we negotiated a write off of $130000 to offset costs during incurred as a result of their problems.
Speaker Change: We negotiated a one year repayment of the funds they have passed.
Speaker Change: Since the beginning of the year, we repaid approximately 200000 to NGL written off the 130000 and the remaining obligations just under 800000 will be paid out over the year.
Speaker Change: Yeah.
Speaker Change: The second positive nonrecurring impact on both cash and profits with our recent receipt of over 400000 of Covid relief funds from the Treasury.
Speaker Change: As you May recall part of the federal government's response to COVID-19 was the cares Act, which included in employee retention credits to help companies like ours like ours offset payroll tax expenses during the pandemic.
Speaker Change: Based on the eligibility criteria back in November 'twenty, two we submitted a claim for approximately $1.4 million.
Speaker Change: Yeah.
Speaker Change: Last month, we received the first installment of that credit of around $400000.
Speaker Change: To be honest, we didn't expect it would be this money at all at least not without significant delays or complications were still pursuing the remaining $1 million and are taking all appropriate steps to assure that we receive those funds.
Together. These two items resulted in a nonrecurring income of over half a million dollars, which will be reported in our second quarter results and make our remaining obligations James health care much easier just wholesale.
Speaker Change: Looking ahead to the remainder of 2025.
Speaker Change: We expect revenue growth to continue in Q2 and accelerate in the second half of the year, particularly on the product side as we continue to add new customers and recurring revenue and expand existing customer purchases of new panels.
Speaker Change: We also anticipate returning to positive operating cash flow in Q2, or Q3, driven by higher pathology volumes increased product sale and the Ngls Medicare reimbursement previously discussed.
Speaker Change: In closing we sit here today with a strong pathology business, great prospects for our product pipeline and a strong balance sheet we.
Speaker Change: We appreciate the continued support of our shareholders and look forward to a strong Q2 could you give them the metrics throughout the year.
You and have a nice evening.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: [music].