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TRIB Tribus Enterprises

Participants
Kevin Tansley Chief Financial Officer
Ronan O'Caoimh Chairman & Chief Executive Officer
John Gillard Chief Financial Officer
Jim Sidoti Sidoti & Company
Paul Nouri Noble Equity Funds
Call transcript
Operator

Good day, and welcome to the Trinity Biotech Third Quarter Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, that this event is being recorded.

Now I'd like to turn the conference over to Mr. Kevin Tansley, CFO. Please go ahead, sir.

Kevin Tansley

Thanks very much, Nick. Good morning, everybody. I'm joined today as well by Ronan O'Caoimh, our Chief Executive Officer; and also, John Gillard, our new CFO, as you would have seen from the release.

Before we begin with our prepared remarks, we submit for the record the following statements. Statements made by the management team of Trinity Biotech during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will and other similar statements of expectation identify those forward-looking statements. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including, but not limited to, the results of research and development efforts; the effect of regulation by the U.S. Food and Drug Administration and other agencies; the impact of competitive products, product development, commercialization and technological difficulties; and other risks detailed in the company's periodic reports filed with the Securities and Exchange Commission.

Forward-looking statements reflect management's view only as of today. The company undertakes no obligation to publicly release the results of any revision to these forward-looking statements.

In addition, there is uncertainty about the spread of the COVID-19 virus and the impact it will have on the company's operations, the demand for it's products, global supply chains and economic activity in general.

Moving on then, today I'll be taking you through the financial results for quarter three 2020. Getting with our revenues; this quarter we saw substantial increase in revenues from $24.6 million to $32 million; this represents an increase of over 30% compared with the equivalent quarter last year. And Ronan will take you through the makeup of this later in the call. Obviously, an increase in revenues of this level will have significant impact on the income statement.

Firstly, you'll notice that our gross margin has increased from 41% to 52.4%, and by far the biggest factor driving this was increase in revenues that I've just mentioned.

As well as the underlying margin inherent in these sales, the overall gross margin has also benefited from the spreading of the company's fixed costs over a wider base. Other factors have played this quarter with the impact of fewer instruments sales and a lower depreciation charge, partly offset by adverse FX movements, that both, individually and combined, these are much smaller than the revenue effect.

Moving on to our indirect costs; our R&D expenses for the quarter grew very slightly from over $1.2 million to just under $1.3 million.

However more significantly, our SG&A expenses fell from $7.3 million to $6.3 million. In this regard, we're seeing the benefit of cost cutting measures that were implemented in quarter two in response to the onset of the pandemic. In response to the expected severe decline in revenues at the time, we implemented a series of measures aimed at significantly reducing or eliminating all discretionary expenditure; this includes lower T&E and sales marketing costs; for example, tradeshow costs. Though it is fair to say that some of these costs would have reduced naturally, anyway, given the pandemic [indiscernible] restrictions that have been put in place. Meanwhile, our share option expense for the quarter dropped from $252,000 to $156,000. Both on an overall basis, our total indirect costs fell from $8.8 million to $7.7 million for the quarter, a reduction of over 12%. Net result from this is that our operating profit for the quarter grew from nearly $1.3 million to close to $9.1 million; this increase was achieved through all of the key metrics moving in a positive direction, namely higher revenues and improved gross margin and lower indirect costs.

Moving on to our financing costs.

Our financial income for the quarter was lower than in the comparative periods due to lower levels of cash deposits and lower interest rates. Meanwhile, our financial expenses were broadly in line at $1.2 million quarter-on-quarter. This consisted of $1 million of interest due on our exchangeable notes, and approximately $200,000 relating to notional interest and pre-users into lease transactions which have become a feature of our income statement since the introduction of IFRS 16 last year. Further down the income statements, you will see an additional non-cash expense of $161,000 which represents the non-cash accretion interest arising on our notes. Tax charge for the quarter was $400,000, and this represents a nominal effective rate of 4.5% of operating profit. This is normal -- lower than normal due to our eligibility for R&D tax credits. On an overall basis, the profit after tax for the quarter was over $7.3 million compared to close to breakeven last year. This equates to an EPS of $0.35, or nearly $0.36 when non-cash financial charges are excluded. Meanwhile, fully diluted EPS for the quarter was just over $0.32 compared to $0.043 [ph] for quarter three last year. I'd like to remind you that the profit figures that I have mentioned so far do not include any element of forgiveness of the $4.5 million loans received under the Paycheck Protection Program.

While we expect that these loans will be forgiven, we are waiting for the validation process to be completed before reflecting this in the financial statements.

Finally, on the income statement; earnings before interest, tax, depreciation, amortization, and share option expense for quarter amounted to $10 million; and the constituent parts of this can be seen on the release. I will now move on and talk about the significant balance sheet movements since the end of June. Property, plants and equipment increased slightly from $9.3 million to $9.5 million; this is due to additions of $600,000 being offset by depreciation of $400,000. Same period, our intangible assets increased by $1.1 million; this was made up of additions of $1.4 million offset by amortization charges of $300,000.

Moving on to inventories; you'll see these have decreased by approximately $1.8 million to $29.6 million; this was due to lower level of COVID-related inventories.

As expected, trade and other receivables have increased significantly from $17 million in June to $21.7 million at the end of September; this is obviously due to the strong increase in sequential revenues, though the fact that the percentage growth in receivables significantly lags the increase in revenues from quarter two to three demonstrates that cash collection rates have remained strong. Meanwhile, our trade and other payables, including both current and non-current have remained broadly flat at approximately $39 million.

Moving on to our cash flows for the quarter, next. Cash generations from operations for the quarter was just over $7.2 million. Not surprisingly, this was impacted by working capital outflows, especially in relation to accounts receivable following on from the steep change in our revenues from quarter two to quarter three. Obviously, the biggest single factor in the increase in cash flows with the enhanced revenues where we are fortunate today, but we are also seeing the impact of the closure of our Carlsbad facility, which occurred at the end of June. Meanwhile, capital expenditure in the quarter was $1.9 million versus $3.8 million last year, those continuing the trend of lower capital expenditure in recent quarters. Other principal cash flow movements in the quarter with a repayment of $800,000 in relation to the capital element of leases, which under IFRS 16 are now treated as a financing item. This has resulted in an increase in cash balances of $4.3 million for the quarter, bringing the cash balances at the end of September to just under $20 million. I'll now hand over to Ron.

Ronan O'Caoimh

Thank you, Kevin. I'm going to review our revenues for quarter three before opening the call to our question-and-answer session.

Our revenues for quarter two were $32 million compared with $24.6 million in the comparable quarter last year, which is an increase of 30%. Point-of-care revenues were $2.1 million compared with $3.9 million in the comparable quarter, which is a decrease of 47%. Clinical Laboratory revenues were $30 million compared to $20.7 million in the corresponding quarter, which is an increase of 45%. Coming back to the point-of-care, our revenues decreased 47% but this reflects the fact that HIV [Technical Difficulty] from COVID-19. The reduction compared with last year also reflects that quarter three 2019 was an unusually high quarter for point-of-care revenues.

Our expectation is that HIV revenues in the current quarter will be at normalized levels.

Looking back to Clinical Laboratory, our revenues increased 45% to $30 million compared with $20.7 million in the comparable quarter.

During the quarter, all of the company's product lines are covered significantly from quarter two 2020 levels which had reflected the most severe impact of COVID-19.

However, as expected revenues in quarter three 2020 did not fully return to their pre-COVID-19 levels, particularly in our diabetes business where instrument placements were slow with 40 placements. This is hardly surprising as hospitals and clinics were unlikely to purchase new capital equipment in the midst of the pandemic.

However, we are confident that these placements will recover in a post-pandemic environment. Meanwhile, our autoimmune business was approximately 10% short of normal levels as due to COVID-19 many patients to fare [ph] hospital and doctor visits, except when absolutely necessary.

However, these negatives were more than offset by strong sales of COVID-19 related products which include: firstly, our COVID-19 IgG ELISA antibody test; secondly, our FDA approved PCR viral transport media products; thirdly, our monoclonal antibodies through our lifetime supply business, Fitzgerald; and fourth, and lastly, a very significant boost to demand that we've experienced for our rapid respiratory products which includes Strep pneumonia and Legionella Urinary Antigen. Dealing with these four factors individually: firstly, during the quarter the company filed it's submission to the FDA for an emergency user authorization for it's COVID-19 IgG ELISA antibody test, and we are currently awaiting EUA authorization.

However, as permitted under the EUA regulations, the company has already launched this product in the USA. Meanwhile, we expect to obtain a CE Mark for the product within the next two weeks, thus allowing us to sell the product throughout the European Union. The product has specificity in excess of 98%, and sensitivity in excess of 95% in samples drawn at least 14-days from symptom onset. These percentages comfortably exceed the requirements of the FDA emergency use authorization pathway. The product is manufactured in our facility in Jamestown, New York, and is capable of being run on a wide range of instrumentation platforms, allowing access to virtually every testing laboratory in the world.

As the utility of this product is to detect individuals with an antibody response to COVID-19, indicating past exposure and potential immunity, the specificity is the key performance metric. A high percentage specificity means that there are virtually no false positives, and therefore, for example, patients are not given a false impression that they may be immune. The test may potentially be used for the screening of people prior to vaccination, to avoid vaccinating individuals who already have a circulating antibody response; individuals who have doubts about the vaccine may choose this path. The test can be used to prove further that an individual had previously had COVID-19 and is now assumed immune, and can also be used by governments to manage the prevalence of COVID-19 immunity in the population.

Additionally, the test can be used to monitor patients serological response in the weeks and months following vaccination, as their immune system builds an antibody response to the virus.

So in summary, we believe that with the onset of vaccinations, the use of antibody testing will be much more prevalent.

Moving back to the development of COVID-19 tests; we have previously indicated that the company is also developing a rapid point-of-care COVID-19 test to detect IgG antibodies. The test can run in 12 minutes using one drop of whole blood procured by spring-loaded lancet or finger prick. Like the ELISA test, this test will determine which individuals within population have been exposed to COVID-19, and are therefore regarded as immune.

We expect to complete the development of this test and file an emergency use; although the emergency use applications in EUA, with the FDA, thereby carrying out for sale during next February. We already have in place existing and substantial automated manufacturing capability for such a test given that we already manufacture every year many millions of HIV tests on the same automated equipment. Meanwhile, the company is benefiting from strong sales of the FDA approved PCR viral transport media product in sample collection device for COVID-19 PCR molecular testing, which is used to store the nasal pharyngeal swab which contains the patient sample, allowing it to be transmitted in a stable environment. The transport medium stabilizes the sample and prevents back material [ph] growth, and maintains it's integrity until such time as the test can be run in a laboratory. The company has scaled up it's manufacturing capabilities for this product and demand is expected to be strong, as long as molecular PCR testing volumes remain significant. Meanwhile, the company has also experienced significant increased revenues of our COVID-19 monoclonal antibodies. These monoclonal antibodies are the key raw material used in the manufacture of COVID-19 antigen tests.

Lastly, as a consequence of COVID-19, we have experienced a very significant increase in revenues from our respiratory point-of-care products, which include Strep pneumonia, and Legionella Urinary Antigen.

So, at this stage, could I hand it back to Nick for our question-and-answer session, please.

Operator

[Operator Instructions] First question comes from Jim Sidoti of Sidoti & Company. Please go ahead.

Jim Sidoti

Good afternoon. Can you hear me?

Ronan O'Caoimh

Morning, Jim. Loud and clear.

Jim Sidoti

Okay. Well, first of all, I just want to say congrats. Good luck to Kevin, in whatever you do. And congratulations, John, and welcome to Trinity.

Kevin Tansley

Thanks very much, Jim.

John Gillard

Thank you, Jim.

Jim Sidoti

You called out four items related to COVID that really helped in the quarter; the IgG test, the media, the antibodies, and the respiratory products. Can you give us some quantities; how much revenue they generated? And if you think that they'll continue to generate revenue in the fourth quarter and into 2021?

Ronan O'Caoimh

Yes.

I think that the revenue numbers was rounded in at around -- I think it's about $13 million. Kevin, is it?

Kevin Tansley

Yes.

Ronan O'Caoimh

$12 million to $13 million. I won't break it, I won't break down like between the four categories. But what I will say is that, you know, it's difficult to predict where we're going here. I mean, we're not going to give guidance but it not may seem unusual given that we are halfway through the quarter. But given all the COVID factors, both related to our existing business, our traditional business and these new elements of our business; it's very difficult to predict. But what I would say is that -- I think that antibody testing, I think is going to become more prevalent as we've said already, with the onset of vaccinations.

I think people in general seem to realize at this stage that COVID is not going away, in any real sense. I mean, it's going to be with us for many, many years. I mean, clearly, we come to terms with it but there will be -- well, it's going to be here for a long time. But -- and I do think that PCR testing will continue in significant volume, certainly right through 2021.

So, in those circumstances, I would expect that our COVID-related revenues will remain strong but it's very difficult to predict with any degree of certainty. And that's why I think in this instance, we are going back to our traditional approach of not giving guidance. What I will simply say is that I think -- I think our quarter four will be strong.

Beyond that, we don't really want to go further, Jim.

Jim Sidoti

Okay.

So do you anticipate that even once the vaccine is out that patients will need to get antibody testing prior to the vaccine to make sure they're not already immune?

Ronan O'Caoimh

Well, it depends; different governments will take different approaches.

I think that people may want just but governments may recommend blanket vaccinations, or some may decide to try and identify who already is immune; but I'd imagine they'd go for blankets -- for blanket vaccination. But having said that, individuals may feel by look -- I've already -- you know, if I've already -- basically I am immune and I feel -- you know, I remember I was -- even if I wasn't -- didn't do a PCR test; if I remember, I was sick six months ago, and why would I risk a vaccine? There's going to be many elements of that. I do think that -- I mean, I think there is many reasons as I outlined in my prepared statements why, and -- the -- kind of -- the moment for antibodies will come and it's coming now with the advent of vaccinations. There is numerous reasons why I think antibody testing will increase because their focus standard suddenly becomes on immunity rather than actually live infections.

Jim Sidoti

Okay, understood. And then, switching over to the HIV business. Any update on trial screen and the progress you're making in Africa to get that approved by the WHO?

Ronan O'Caoimh

So, we have submitted all of the modules with WHO, and approval of Trinscreen, with the exception of the actual clinical trials themselves. And what's happened there is that they basically have been stalled because of COVID, and we are still basically a couple of months probably away from -- actually, we've recommenced in the last country in which we're operating. And we're a few months away from the submission of our clinical trials data, but it's difficult because -- with lot of stop-start-stop because of COVID. My estimate at this stage is that they will be into the market by the middle -- certainly by quarter three of 2021 with Trinscreen.

And so, I'm -- when looking at something like a quarter one submission of the final -- of the final piece for clinical trial data to WHO, and then expecting the approval within four or five months. But that comes with a warning, just relating to -- it's still difficult to get trials done at the moment in hospitals.

Jim Sidoti

Okay, all right. Well, that was it for me. Thank you.

Operator

Next question is from Paul Nouri of Noble Equity Funds. Please go ahead.

Paul Nouri

For the COVID sales, are they all into the U.S. and Western Europe? Or is it all over the world?

Ronan O'Caoimh

Paul, they are all over the world, but mostly in the United States.

Paul Nouri

Okay. And Jim just asked about the WHO submission; but is there anything else in terms of pipeline development or FDA submissions that you could update us on?

Ronan O'Caoimh

We are -- one thing is, our premiere resolution variant instrument and test are -- they are at the very final stages for submission to the FDA. And again, we've been held up because of -- difficulty of hospitals not really wanting trials run at this time. And -- but we're hoping to get an approval probably April. There -- that probably is the most significant thing in the pipeline other than Trinscreen.

Paul Nouri

Okay. And if the lab in Buffalo, you know, that's been -- since you purchased, a consistent growth story within the company. Is that still growing or has that stalled due to COVID?

Ronan O'Caoimh

Well, I mean it's still growing, but I mean, it's revenues I mean, we're -- I mean, we're down 90% in the month of April, and still probably down around 10%. And one thing that we're just about to start doing the PCR testing in the lab, now even it traditionally it would have been an auto-immune lab, so it was -- we have to -- equipped ourselves and brought in a personnel to run PCR testing.

So that should give us a boost and we're hoping that will commence just before Christmas, so we're just waiting for some final authorizations.

You know, you need to authorize individuals and certain certificates etcetera, it's hard to get. Again, but -- but -- so we're hoping to get up and running actual PCR testing for COVID. And -- but it's taken a while; so that should give us a reasonably significant boost. But meanwhile, I mean -- I would be confident that our testing volumes will return as pandemic gets under control with vaccinations. But at the moment the reality is that a lot of people are avoiding hospitals, and so the volumes of testing is -- are down. But I mean -- I think the core business is -- it's a growth model and I think in absence of COVID it will return immediately.

Paul Nouri

Okay.

So, where are you in getting PCR testing in the lab? Have you purchased all the equipment that you need already? And you need validation and something like?

Ronan O'Caoimh

We basically just need a certificate from New York State to proceed. We had to bring in especially qualified individuals, who basically -- and our focus has been auto-immunity.

So basically, most of our lab techs in the lab, basically wouldn't be authorized to run PCR testing; so they needed -- we need to bring in new people and new equipment.

Paul Nouri

Okay.

Okay, and then last question -- yes, good.

Ronan O'Caoimh

So we're just waiting for the State of New York authorization to proceed.

Paul Nouri

And the authorization is a COVID-specific authorization or it's a traditional New York State approval that you need?

Ronan O'Caoimh

It's more PCR -- it's a more PCR [indiscernible]. It's basically that the individuals need to be -- and it needs to be certified for running PCR testing -- PCR rather than COVID, it's -- you know, it's a whole category, molecular testing.

Paul Nouri

Okay. And then, my last question; I know you guys have been placing a good deal of instruments into Brazil, the diabetes instruments; has that proceeded or not yet because of the currency issue still?

Ronan O'Caoimh

We've really stopped placing instruments again in Brazil because the currency is disastrous from our point, it's moved out now; it's [indiscernible] or something today.

So it's been a relentless weakening of the Brazilian currency; so we have -- with rare exceptions we're basically not placing any instruments unless we get a very strong price.

So, it -- yes, so effectively we've stopped placing instruments in Brazil.

Paul Nouri

Okay. All right, thank you,

Kevin Tansley

Nick, just based on the listing here; I think we've got one more question just to take?

Operator

That's correct. One last question. Bill Lap [ph], private investor. Please go ahead, sir.

Unidentified Analyst

Yes, good morning. Thank you for taking the question. I'm -- I'm trying -- good morning. I'm sorry to hear you're leaving, Kevin now, sad to hear about it. Good luck to the new CFO. Anyway, you know, you -- off the four items you talked about on the COVID-19 update; you don't want to break it down but can you say which one has got the most volume of the four there? Is it the viral transport media, the largest revenue producer at this time? Can you mention which one is -- with the $13 million?

Ronan O'Caoimh

Yes, at this moment of time, the viral transport media is ahead of antibody, in terms of value.

Unidentified Analyst

Okay. And one other question; I normally limit it to two. How many tests do you think you'll be doing when you get authorization on the -- for the PCR test in the lab? How many can you do a day, once you get? Is it just a matter of getting the personnel or you have enough volumes? As a test, most people need the lab test right away.

You have any estimate of how many you can do?

Ronan O'Caoimh

I think it has the potential to do like $3 million or $4 million a year, that kind of thing. It's not transformational ability, you know. And -- so we don't have monstrous capacity, so probably $2 million or $4 million a year potential, is the kind of annualized level that we probably achieve.

Unidentified Analyst

Is it pretty profitable?

Ronan O'Caoimh

Yes, it's very profitable. It's just difficult to build, it's difficult to -- you know, it's difficult to build, and basically, it's very, very difficult to run big volumes quickly.

You know, they take time, and classified personnel.

Unidentified Analyst

Okay.

I think that's it; good luck. But you're not giving any forecast. I thought last time you were going to give a forecast for the fourth quarter, but you're withholding any guidance to the fourth quarter. Correct?

Ronan O'Caoimh

I'd say we're making an unusual [ph] type of project, given that we're already halfway through the quarter but given all the uncertainties that COVID has created in terms of our core business and [indiscernible]; it's difficult to give an accurate forecast going forward. But I do -- I already had the case that we've got to have a strong quarter four, and -- but rather put the numbers on the side, I think it's fair to return to our policy of not providing guidance. And the only reason that we did it last time but we had a sudden very significant change, and we thought we needed to be patient about that, you know Q - Unidentified Analyst Okay. All right, thank you. That's all -- I mean, go ahead. What did you say?

Ronan O'Caoimh

I said we are confident of a strong quarter.

Unidentified Analyst

Thank you.

Operator

This concludes our question-and-answer session.

Now, I'd like to turn the call back over to Mr. Ronan O'Caoimh for closing remarks.

Ronan O'Caoimh

Okay. I'd like to say thank you, all, for your time and your support. And I just, on a personal level, I'd like to say that to wish Kevin well, and to thank him for 15 years when we've worked together and for his professionalism and support; I'm going to miss that. And -- so thanks, Kevin. And just to say also that we're very pleased, and we've recruited a super CFO in John Gillard. And I look forward John to working with you in the years ahead.

So, anyway -- but -- so just to leave it for today, I'd say, thanks, Kevin, thank you so much.

Kevin Tansley

Thank you, Ron.

Ronan O'Caoimh

Everybody, good afternoon. Thank you.

Operator

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

You may now disconnect.