Thank you, and good afternoon, everyone. I would like to thank you all for taking us on today's call and also thank those who emailed their questions in advance.
On today's call I'd like to share some insights on our Q1 results and some of the business economics around them. I'd also like to discuss the metrics recently released what we can learn about our business. I'll also be discussing the product side of the business and where we see it going, but first I'd like to provided an update on our company situation during the COVID19 period and particularly as it impacts our pathology services side of the business. I'll this begin with the customer and business side and then I'd like to take a few moments to discuss a few operational perspectives.
Our customers are probably [ph] who test their patients for the possible presence of cancer.
During the COVID19 days, hospitals have shifted their focus to COVID patients while any non-urgent patients are asked to delay their visits. In the oncology office settings, physician offices have also scaled down their business with any non-critical patients asked to stay at home.
Many of these cancer patients are dealing with immune deficiencies, old age or both which face them at high risk of COVID and subsequently they elect to stay at home.
Although as one of our client said, cancer doesn’t stop for anything. this has caused a drop in volume for the overall industry.
However, we've been very fortunate to see continued growth in our business which given the circumstances is quite unusual. Q1 saw revenues grow 77% and we continue to grow with April as our strongest month in company history. The reason for this was the ultra-metric transaction which where we absorbed another company feedback [ph] business just in time.
If you recall, the transaction was completed on March 16. The next day the COVID outbreak was drastic statewide stay home orders which are taken to reduce human interaction. Because we were able to complete the [indiscernible] transaction just ahead of the start of his state-wide shutdowns, the [indiscernible] sales team transitioned to [indiscernible] and those customers became our customers.
Therefore while overall the industry saw a drop in volume, as did our own customers, we now have an additional customer base, which fill the gap and made up for the volume drop in our current customers. From an operational perspective, as for many businesses, COVID presented substantial challenges to lab operation.
As an essential business, we remained open and operational 24X7, as we received patient biopsies from our customers for diagnostic services.
In the lab, we're used to working in a relatively tight environment with the lab staff constantly interacting with each other to transfer patient materials, share results, review slides and discuss patient cases. Performing those task while inherent to the guidance provided by the CDC ensuring the state of our employees and maintaining social distancing presented tremendous operational challenges.
This required rearranging scheduling, limiting staff and their interaction while ensuring we retain our service levels and quality standards at all times.
As I mentioned, April was our strongest month with the largest ever number of cases received.
Our team handled those cases with great care, diligence and expediency, as we've always remembered that on the other side of our work, is a cancer patient awaiting a clinical diagnosis.
This resulted in continued consistent quality, turnaround time and service despite those operational challenges. We were part of the entire healthcare industry that has stepped up to take during this period and I'm proud of our lab team for their dedication and flexibility during these completed times.
Now let's turn to business economics. In late 2019, we entered into discussions with [indiscernible] on this transaction. In early 2020, when it appeared likely that this transaction was going through, we began to prepare internally, staffing up in anticipation of a volume increase. At the time [indiscernible] volume was similar to ours meaning that upon closing the deal, our volume would almost double. This means mostly adding staff in the laboratory and customer service department to ensure we maintain the quality of our service.
During the first quarter we hired, brought in and trained additional staff to ensure we hit the goal button and transition to customers, we would be ready to handle their increase.
Given that our lab staff has accounted for as part of variable cost, the increase in staff and headcount would increase cost of goods sold.
This happened ahead of the actual transaction because we needed to begin and trade the team in advance. Therefore, with you a cost incurred before the volume came in, that negatively impacted gross margins.
So these while asking why our gross margin did increase with increase in volume, this is because of the time of the increase in revenue, we were also bringing in new hires in preparation for these metric transaction.
We're already seeing volumes increase as some practices begin to see more patients and opened up.
As we're adequately staffed to handle the increase in volume, we expect that with the potential growth in those volumes, while the existing staff level remains fixed, our gross margins shouldn’t increase.
Next, I'd like to take a few moments to discuss some of the metrics.
Aside from the obvious key metrics of revenue growth, there are three key drivers that we focused on.
The first is case volume.
Our business growth is driven by patient cases being sent to us. Each case being sent to us is a decision by the oncologist to trust Precipio to provide the best, most accurate diagnosis for the patients. Case volume increases when customers increase the usage of our laboratory as well of course as when customers -- new customers are introduced to Precipio.
The next two drivers are related to our customer base growth comprising of two metrics, new customers and recurring customers. We operate in an extremely competitive environment. Each doctor release has already have a laboratory they're using before we introduce our services. In order to win their business, we think to unseen the lab, which means the customer needs to change their existing habits and adopt a new process. This needs change which nobody likes.
Our ability to continue to grow our customer base and increase the customers who use us repeatedly is an indicator of how we match up against the competition. In another words, using plain [ph] it measures the stickiness of our service and our customer loyalty.
Since there are a few questions about the ARPU, the average revenue per unit, I'd like to take a few moments to reiterate the decline in this number the quarter. Each case that is received by us is always unique because of the patient, it's also unique from a revenue perspective because each case is triage and worked up differently in a customized manner as customized manner that matches the clinical circumstances.
Therefore there is no single uniform revenue about the case. In general revenues for our whole biopsy workers for the bone marrow or for biopsy’s can range from $2000 to $5000 per case. What we saw in Q1 is as we continue to introduce our as assay [ph] there was more and more clinicians began sending us samples for those tests. The revenue for [indiscernible] is around $600 which is of course substantially lower than the whole biopsy received.
However it's a good margin business and not only contributes to our profitability, but also provides outstanding clinical care to our patients. We anticipate that the drop in ARPU as we continue to see this assay more broadly adopted and an increase in these lower revenue screen cases which impacted the case mix and ARPU.
For anyone who has been involved in any merger or acquisition, you know that the biggest challenge is making sure customers aren’t at lost during this process.
Our commercial team has done a great job at completing the alpha [ph] transition without a hiccup ensuring that we were able to keep customers during the process. The successful completion of the transaction combined with our strength and quality accuracy driven by our vision of patient care is what makes me confident that this trend of growth should continue.
Next, I'd like to spend a few moments discussing the product side of our business. The challenges of our laboratory faced during COVID19 were not unique to us. Along with the decline in volume, every laboratory faced the same challenges of managing the workflow in the new social distancing environment and the larger the laboratory, the greater those challenges became.
The product side of our business sell to these very customers large laboratories. I know many of you have been waiting to hear new major lab adopting IV [ph] one of our proprietary technology. The reality is as you can imagine, those customers put the evaluation of new technologies on hold under the existing circumstances. Not only did they had the capacity and bandwidth to onboard new technologies, even if they did, like us, they're not allowing any outside vendor into their facilities making such onboarding impossible.
Let me reiterate what I said before, none of these customers, not one has said that they're aborted the process. They've all reiterated their interest in our product and have expressed frustration that they have to delay the onboarding of these technologies. I'm confident that this should happen.
For many businesses, the timing of COVID19 couldn’t be worse.
However, even during these unconventional and extremely difficult times, we did not stop and reviewed this time to find opportunities or to use one of my favorite phrases, making lemonade out of lemons.
So let me share two of these lemonade initiatives with you.
The first is our HemeScreen physician office program.
As we recognize that our product sales to the major labs were going to take a hiatus during COVID, we asked ourselves who else could you see technologies? The HemeScreen physician office program was born out of three factors. Level one, the equipment. The equipment requires for HemeScreen as a single relatively simple and inexpensive machine.
Number two, its effective for both staffing, the training for laboratory person to operate the assay is also the relatively simple and virtually any customer with a small in-office laboratory could operate these assays. Number three is the aired regularly licenses. Most of our target customers already have the necessary licensees to run these assays.
With those factors in mind, we developed a very attractive business model that can help our customers not only provide better care, but also make money. Many physicians offices not only have the bandwidth now to look at these opportunities during the current slowdown, but also the various slowdown and decline in revenue provided a strong investment for them to embrace a new source of revenue such as this program.
The launch in mid April and a month later, last week we got our first customer. This is a very exciting program that I believe should create a great customer base for our HemeScreen technology. This is not only be financially beneficial to our company but it also gives our commercial team a very powerful tool to approach and engage new customers.
Another initiative we've been working on is our next version of IV-cell. We received a lot of feedback from the customers who tested and tried the technology.
Given the situation with those large laboratories, we decided to take this time to improve our product, taking the feedback and designing an improved version of IV-cell.
While this is still in R&D stages, initial results are exciting and we believe that we will come out of this period with an even stronger product and more attractive to our customers. We'll have more on that as we move those the development into production phase.
In summary, despite the challenges of the world we live in today, we're lucky to even move in forward which is more than we can say for many businesses out there.
As I'm sure you know that many companies made the decision to layout staff, contributing to the 35 plus million product we unemployed in the US. We made a different decision to take care of our own during this challenging time.
As one of many cost reduction measures, we've issued a company-wide favorable induction plan to help preserve cash during these times. This decision was taken not only because we released that was the wise thing to do for our team, we also believe that it is a prudent business decision. Layoff laboratory staff we just recently hired seems to be very shortsighted.
Additionally, it would make it difficult for us to rehire some staff once business increases.
I am confident we have the team and the resources to get through this and come out of the other side in trouble.
Our customers have not received better service.
Our products continue to improve and the business opportunities created should be beneficial for us going forward.
I want to thank you for your ongoing support and wish you and your families, health and safety. Have a nice evening and thank you for joining us.