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PRPO Precipio

Participants
Ilan Danieli CEO
Carl Iberger CFO
Call transcript
Operator

Welcome to the Precipio Q4 2020 and Yearend Shareholder Update Call. All participants will be in a listen-only mode. [Operator Instructions] Please 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 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 may 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, 2020, which is on file with the Securities and Exchange Commission as well as other risks detailed in our subsequent filings with the Securities and Exchange Commission. These reports are available at www.sec.gov. Statements and information including forward-looking statements speak only to the date they are provided unless an earlier date is indicated and we do not undertake any obligation to publicly update any statements or information, including these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Now, let me hand the call over to Ilan Danieli, Precipio's CEO. Please go ahead.

Ilan Danieli

Thank you and good afternoon, everyone. I would like to thank you all for joining our post yearend 2020 10K filing shareholder call.

During the call, I'll provide a recap of 2020 and update on the progress our company has made since the start of 2021 and our plans for 2021 and beyond. With me today is Carl Iberger, our CFO who will share his perspective on the business and our finances. I'll close with a few thoughts on where the company is going 2021 and beyond.

As we filed our 10K filing and the subsequent press release we issued yesterday morning, we've doubled our revenues from 2019 to 2020. This has been an impressive accomplishment in a normal year and 2020 was [ph].

Our sales team stayed limited to no access to customers, operational and other limitations to what is already accomplished workflow, yet with all of that we were able to double the number of patients for whom we provided what we believe to be the most accurate diagnosis that this industry can provide backed by academic experts and proprietary technologies. This is an incredible feat and I want to take a moment to recognize our all team that made this happen. Not only did any of our employees put their personal concerns or need for basic care. Instead while majority of the counties stayed home, they showed up to work every day to take care of the patient in front of us.

As we watch this capital markets disarray, we saw many businesses take immediate action to cut cost through massively layoffs.

Our company culture [indiscernible]. Instead management and employees make sure that while our take-or-pay may be temporarily reduced, nobody had to face the prospect of losing their job and not being able to provide it. This is the commitment we as a company have with each other and to the heart of who we are. I am proud of the team for all they have accomplished for 2020.

On the product side, 2020 was the year we formulated and solidified our strategy as we took our proprietary technologies and converted them into product.

We have the technology of the working format after all we were the first customers to use both IV-Cell [indiscernible] in our lab. In order to create a proper business unit for these technologies, we developed -- we needed a sales channel and a go to market strategy.

Let's start with IV-Cell. IV-Cell is a sophisticated product used in the study in the laboratory which is not only a highly part of the lab but also one that is typically adverse to change.

So we needed a strategy that would get us -- would both get us in the door with decision makers as well as trust worthy relationship with these decision makers to convince them to try something new. In August, we signed a sales and distribution agreement with ADS Biotec, one of the most established and respectable players in the industry with products sold directly into these generic labs. In the laboratory around the world a significant volume provides ADS, through our partnership with ADS, we aim to gain access to these laboratories and the decision makers and with ADS's credibility we would win customers.

The first step in our strategy with ADS was to conduct a data set. ADS would identify several sites in the US and Europe with a view would be open to new innovation.

We will present in the cloud program and work with the customer to show them the impact and results of using IV-Cell compared to the current media they use. The results will be sufficiently compelling for them to transition to use the IV-Cell and become our customer. With a few successful trial customers in our pockets and everyone feels comfortable with the value proposition, we could then move to broader market penetration. With respect to the timeline to complete the file date, the strategy is on track. [indiscernible] we see many labs crippled by regulations they need to adapt in order to meet social requirement as well as safety precaution that include shift arrangements, quarantine. With labs typically understaffed and already struggling to meet their volume capacity, a study like this will always take a backset to clinical work.

As it should, after all there is a basic in front of them and way to provide notice and that certainly comes first.

During the second part of the year, we had to meet the pace of our customers and accept the fact we saw will take longer than expected.

So far, the initial results in the trials we conducted have been positive and I feel we are moving in the right direction and I am confident we'll get there. IV-Cell is a promising technology that offers both clinical accuracy value as well as operational and economic ventures. In a market that's been using the same product for over 50 years laboratories are right for change and I think or product with our distribution partner are in a strong position to capture the market.

Moving on to HemeScreen, our proprietary family of reagent for rapid molecular diagnostic method. After using these in our labs for several years, last year we identified the opportunity to migrate the technology into the POL the Physician Office Laboratory and saw these reagents to run as diagnostic tests and officers in their lab. Similar to IV-Cell, we needed to prepare this technology with a solid sales partner and a successful go to market strategy. In December 2020, we entered into an agreement with [indiscernible] a subsidiary of Amerisourcebergen and a GPO in the oncology market. [indiscernible] supplies oncology products to community oncologist which is precisely our target customer. Furthermore, at the hardware division, its health and community oncology practices provide better care to the patient aligning perfectly with our vision.

Our sales force is deeply entrenched with their customers and their ability to open doors and put us in front of the right decision maker have been nothing short of impressive. Since the launch of the partnership in mid-January we presented to more than 50 customers and a majority of them have expressed interest in bringing HemeScreen on board. We already have active customers generating revenue and with a solid and rapidly growing pipeline of customers in the various sales and on-boarding stage.

Our goal is to build a strong base of oncology practices as our customers leaving HemeScreen where we continue to sell these and other products we continue to sell. I really believe that HemeScreen is going to be one of the strongest growth for our company and I am excited to see the progress we've made and lies ahead of us.

Lastly, let's discuss our COVID plan. Again I'd first like to reemphasized that COVID is not our core business and as you can see contrary to some other companies in the industry at no time could we abandon our core business and our focus on it.

However, we took an opportunity to explore using limited resources the ability to take a technology developed by our partner and bring it to market.

Given the sense of highly regulated asset to be held that requires stringent approvals from the FDA, we had to change courses a couple of time throughout the process. We're delighted [indiscernible] who is actually the first US-based company to receive an EUA for process [ph] care use of their COVID antibody. We're working closely with them to explore various distribution channels available to the market, more to come.

In terms of our COVID testing may mean to the company, the way we look at it, it might deliver a nice bonus providing additional revenue and cash, but whether that happen and the magnitude are very difficult to control or predict, but we prefer to look at it just that a nice bonus which may or may not happen and which we will celebrate if it does and not need to be that.

As we continue to make progress we'll update our shareholders accordingly.

Now, let me hand it over to Carl, our CFO to share some thoughts on the business and our financial performance and then I'll end with a few thoughts on where we see 2021, Carl.

Carl Iberger

Thank you, Leon. Good afternoon. I am Carl Iberger, Precipio's Chief Financial Officer. Yesterday Precipio issued a press release that provided a synopsis of our 2020 topline results. This press release followed the filing of our 10K on Monday, March 29. In his opening remarks, Ilan covered a number of items. I'd like to take this opportunity to add some additional comments regarding our sales growth in pathology services the headway we are making developing a distribution market for IV-Cell and finally the impressive reception HemeScreen is receiving with office-based oncologists and larger oncology commercial labs.

First pathology diagnostic services, just prior to the interruption in business shutdown from COVID, we reconstituted and reorganized our sales force at the tail end of February and into early March 2020. This action by the company proved to be extremely timely.

Our initiatives actually enabled Precipio to address the many disruptions of normal business of operations resulting from the economic shutdown.

First on that list of issues, with just basic access to physician accounts by our sales reps.

During Q2 2020 with COVID shutdown ramping up, we seamlessly executed the onboarding of accounts from the non-cash, non-equity acquisition of our Poplar Healthcare's OncoMetrix business and as we move through Q3 and Q4 of 2020, the decisions and preparation affected in February and early March in our sales organization our lab operations and lab logistics allowed the sales force to actually grow account volumes and add new business as our customers experience minimal changes from normal business routines. Stepping back and reviewing 2020, case volume grew throughout the year, issuing our 10K, we reported a year over year volume growth of billable cases of 120%.

While we are just completing Q1 '21, our initial unaudited results are as impressive.

Given the impact of the variety of storms in Southeast and Midwest, we project revenues to approximate Q4 of 2020.

Second IV-Cell, as Ilan stated IV-Cell is a sophisticated, highly complex cytogenetic product being introduced in the commercial lab setting.

Our path of building market revenues has been elongated reflecting the complexity and change this advanced technology has and will have on the cytogenetic lab process.

So where are we today? The bottom line on IV-Cell is that it delivers what is clinically advertised, simultaneous cultures and speed and processing.

Additionally, the financial value proposition to the customer is very real and very meaningful. Therefore, we are extremely confident in the product and our ability to sell through our partnership with ADS and its international customers.

Third HemeScreen, having a product that offers a turnkey solution, both including diagnostic equipment as well as reagent, a product that offers extremely low entry cost for the customer, a product that is able to build new revenues for oncology practices and a product that eliminates the need for the practice to reference out tests that are not only expensive but have a long lead time 10 days to two weeks reducing that to one day, that product defines HemeScreen. We project HemeScreen to produce very meaningful revenues for Precipio in 2021 and for HemeScreen to be a material driver for the company. Taking the growth in HemeScreen and past services together, we anticipate accelerating the company's timeline for cash flow breakeven.

Now moving to financial results, our 10K provides extensive information and financial results of our operations. The press release provided highlights of 2020. Diving into the financial performance, I'd like to address sales and gross profit, operating expenses and our balance sheet. Sales and gross profit both rose in 2020. Sales for 2020 of $6.1 million increased 95% over 2019 driven by pathology services.

Our increases in past services enabled our lab operations to leverage text expenses to maximize our batch processing and to a large extent consolidate purchase expenses, all reducing our purchase costs. 2020 gross profit of $1.2 million increased by 4X in comparison to 2019.

For 2020, gross margin increased to 19% from 7%.

Looking at Q4 of 2020, our margin increased to 24% and on an incremental revenue basis in 2020, on a $3 million increase in sales year-over-year, gross profit grew 900K and incremental gross margin was 31%. We anticipate the continual pace volume increases in pathology will show a significant and meaningful improvement in gross profit and gross margin percentage in 2021. Continuing our discussion of gross profit, we're very encouraged about the impact HemeScreen will have on our 2021 future gross profits.

As HemeScreen revenues are beginning to build and our upfront investment costs are behind us, we see HemeScreen being a material factor in accelerating total reported revenues, gross profit and the timeline to cash flow breakeven.

Moving towards operating expenses, in 2020, operating expenses were $9.8 million an increase less than $0.2 million or less than 2% when compared to 2019, while revenues during same period almost doubled.

During 2020, we focused on reducing G&A expenses. We took those savings and reinvested in selling and R&D initiatives. Within R&D in 2021, we were actively working on the development of a suite of HemeScreen panels and as we build HemeScreen accounts, we look to expand the HemeScreen offering to those oncology practices.

Moving on to the balance sheet, growth [ph] has provided the company definitely more financial flexibility. With growth to a degree, we've been able to shore up our balance sheet, reduce cash burn, increase cash on hand, reduce accounts receivable and made gains stabilizing the total liabilities to provide the accounts payable and accrued expenses. Ending 12-31-2020, accounts receivable was $0.9 million an increase of only $0.3 million on a sales increase of $3.0 million. DSO at the end of 2020 was 52 days, a decrease of 15 days from 2019.

As the majority of our revenue is patient billing, I'm very pleased with the results turned in by the company's reimbursement team. Accounts payable and accrued expenses remain essentially level year-over-year on a much larger book of business and with the investments in R&D. The improvement in DSO -- improvement in revenue collected per case and accelerating the collections have assisted the company's cash needs and our operations.

Moving on to CapEx, in Q4 of 2020, seeing the monthly case volume continually increase in pathology services, the finance group and operations reassessed the company's CapEx needs for the future. The assessment ended with initiatives by lab operations and renegotiating existing contracts with major equipment and reagent suppliers and additionally operations revisited equipment rental programs and upgraded lab diagnostic competencies, expanding our molecular testing capabilities. This change allows Precipio to bring in-house previously reference out testing that was very expensive and had lengthy reporting times that would impact our services to our customers. We're encouraged that growth in volume will be met by our continual emphasis on diagnostic quality and will provide lower case costs. Financing for the company in 2020, we utilized our equity line to fuel the company's growth in operation. Entering 2021, with anticipated revenues on the rise, we project a reduction in the cash burn rate each and every quarter. Key to this equation will be building HemeScreen revenues.

As Ilan stated earlier regarding COVID, while we are actively moving forward, our endeavor in COVID antibody testing and the resulting revenue performance is as of yet very uncertain.

As such, we do not have a material impact of COVID revenue in our projections.

As we move forward, the company will provide additional shareholder information on this product as material data becomes available. In summary, 2020 was a unique year and a very challenging period for the company.

Going forward, we are truly excited about 2021 and our growth opportunities. Operationally, we anticipate continual improvement through volume growth in pathology services and as HemeScreen revenues build. Financially, we continue to gain strength, but we remain focused on leveraging our assets and driving the company to breakeven. At this time, I done with my portion of the presentation and I will return the meeting over to the Ilan. Thank you. Ilan?

Ilan Danieli

Yes sorry I was on mute. Thank you, Carl. I appreciate the outstanding job, you and your team are doing.

Let me end with a few closing thoughts on where I see us in 2021 and beyond. Pathology services will always be our core business. Pathology business starts with our sales team responsible for the growth we describe on the top of this and the is supported by our dedicated team in the lab and customer service to ensure that we deliver on our promise every day for every patient the doctor sees. It also facilitates our ability to create, test and develop new products that drive the product side of our business and this is where I think that real growth engine exists. The product side of the business offers unique opportunities we've never really think before.

First of all, proprietary products create a barrier to entry not easily overcome by competitors.

Second, these are B2B products with firm revenues from ongoing usage. And lastly, the market the market that issues products are huge exceeding $100 million per year. Therefore, going parts of our company from strategy in which we impact patient care both externally in our labs and by creating products that can be used to achieve the same by outside labs. In 2021, ICS [ph] continue to grow the pathology business, our value proposition is strong and our team is well poised to deliver that message and so we continue to gain customers. And obviously the product side of the business is becoming a substantial part of our revenue and our bottom line. With a solid go to market strategy and formidable partners for both our lead products and the feedback from our customers is outstanding. In short, the pathology business will continue to serve as our anchor for the business and the foundation for developing our proprietary product and those products are what will enable to achieve rapid market and finance growth. Coming out of 2020, I am more excited than ever, we've the team and the tools we need to execute and results are already showing. I want to thank you all for your ongoing support and I look forward to speaking with you soon. Thank you and have a nice evening.

Operator

The conference has now concluded. Thank you for attending today's presentation.

You may now disconnect.