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Presentation

Precipio, Inc. beats earnings expectations. Reported EPS is $-0.09, expectations were $-0.1.

Operator: Welcome to the Precipio Second Quarter 2023 Shareholder Update Conference Call. All participants will be in 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 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 30, 2022, 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 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. And thanks for joining our Q2 2023 shareholder update call. Now that you’ve had a chance to review our quarterly results, as well as see our recent press releases on revenues, growth, and our cost savings initiatives, I’d like to provide a bit more color as to where we stand midyear and some of the initiatives we are working towards. Our main goal for 2023 is to reach breakeven and financial independence. That means we will no longer need to raise capital to cover cash burn. We roll these vehicles such as the ATM, we can eliminate all the structures that create an overhang on the stock. We are fully aware of the fact that the biggest weight on our share price is the risk of the company needing to raise more capital, creating further dilution to shareholders.

That’s why management is laser-focused on two things and two things only. Revenue growth and cash burn reduction. So today, I’d like to spend some time on both of those aspects to give you a bit more of a flavor beyond the recent reports and press releases. Let’s start with revenue growth. As you know, we have two revenue generating divisions, our Pathology Services Division and our Products Division. For the Pathology Services Division, let’s start with the goals, which are very simple. Given our case mix, average revenue per unit and gross margin, the breakeven point for the division is approximately $14 million annual run rate, which translates into $3.5 million per quarter or a little under 1.2 million per month. In Q3, we did $2.7 million in revenues or 77% of that goal.

However, in July, for the first time in the company history, we exceeded $1 million and we are at about 85% of the goal and about a $150,000 shy of where we need to get to. My point is, we’re very much trending in the right direction and with the addition of new customers as well as the [NGS testing] in-house, we expect to continue on our path towards reaching that goal. Without providing guidance, my sense is that by the end of the year we have pretty good chance of achieving that goal and reaching breakeven or the Pathology division. Moving to the Products Division, here as well we see continued growth on all fronts. For the products division, the goal is to reach an $8 million annual run rate which equals $2 million per quarter bringing the entire company to breakeven.

We ended the quarter a little under $900,000 which is approximately 45% of the target. However, in contrast to the study and gradual growth on the pathology side, on the product side revenues increase in a step manner, customer we add. And the bigger the customer, the greater the step. So let’s look at our growth and what we got – what we see going forward. We continue to achieve three things that move us closer to that goal. First, we continue to add new customers to grow our customer base. The revenue stream is predictable because it’s driven by the customer’s ongoing case volume which is relatively constant. So each customer creates an annuity of revenue stream that adds to the building blocks of our revenue. Second, we continue to see adoption of additional panels by existing customers.

This adds to those building blocks and increases the revenue per customer and these panels will also create a constant ongoing and predictable revenue stream. I’d like to point out that this predictability is incredibly important not just to the revenue projections of forecasting. From an operational perspective, as we scale up the business, this creates significant efficiencies in terms of purchasing raw materials, production runs, and inventory costs, et cetera, all elements which drive better gross margin for the business. Third, is our pipeline. As we continue to work with our key distributors, we continue to open doors to new customers and with that pipeline growth. As we’ve said today, we’re looking at a pipeline of over $10 million in annual revenue, and we expect that the pipeline will continue to grow as we add more opportunities.

If we close 40% of the today’s pipeline, we are there. Another thing I’d like to discuss is the broadening of our HemeScreen offering. We recently announced our new BCR/ABL panel, which I believe will be a game-changer in the market. It is by far a superior product to all other competing products and already we’re seeing customers, excuse me – who are looking at switching from their current assay to ours. Since we only launched this product recently, it’s not yet factored into our customer base additions nor to our pipeline, but I believe it will give a substantial boost to our revenues as well as customer penetration because it really completes our product offering and provides a very attractive solution to laboratories running these tests.

We’re very excited to see the impact of this new path. I know we haven’t said much about [IV-Cell], this is because we’re focused on our high volume, high margin product HemeScreen. Therefore, we’ve allocated very little sales and marketing resources for IV-Cell. Nonetheless, we have several IV-Cell customers in the pipeline who reached out to us and are in various stages of production evaluation validation and onboarding. I do think that next year, once we’ve achieved our financial goals, we’ll be able to divert more attention to this product. Someone asked if you lost faith in this technology, quite the contrary. It’s a matter of priorities of identifying which product gets us to the financial independence we’re striving towards this year.

Big picture strategy for the company. Although HemeScreen has a total available market of approximately $500 million per year and IV-Cell has a total of $250 million, these are only two product lines, and you don’t get to become a $1 billion company with a couple of product lines. This year is all about achieving cash flow breakeven and financial independence. We first want to eliminate our needs to access capital markets as a source of covering cash burn. In order, to reach that goal, our sales and marketing and R&D teams are solely focused on HemeScreen, which is our golden goose. Having said that, in 2024 we plan to stream our attention to focusing on new product development and the expansion of our technologies and as the HemeScreen product suite reaches its goal, from a portfolio perspective, the R&D team can turn their attention to developing these other technologies.

This will create product revenue diversity and reducing the company’s risk reliance on one technology platform, expanding our reach into new areas. Next, let’s discuss our cost cutting metrics. First, I want to be clear, this is not an exercise in cutting out the SaaS simply because there’s very little in our company. We’re just always operated in a very lean manner. This initiative is about identifying better ways to run the business in a more cost effective manner. Initiatives like the billing transitions have already taken effect and we are projecting a positive net impact of over $40 million in cash annually. Restructuring our pathologist operations will accomplish a similar number. Other operational initiatives that involve better inventory management, workflow efficiencies and changes in how we do business, all aimed at reducing cash spend are being put into place using their impact.

Our monthly cash burn continues to drop and that is the key number we’re looking at. When it passes the zero mark, this will be a very different company. In the 12 years since the company was founded, I think that would be the happiest news announcement we get to make. Finally, let’s talk about the share price. Nobody is more frustrated than I in seeing the stagnation on the share price. But like most complex situations, there are multiple drivers to this, our analysis tells us the main reason is the potential overhang that the concern company will have to raise more capital. This is in our notion the key driver of any sorting and other price to mechanisms in market. As we continue to deliver results as the market realizes our cash position, and our roadmap to breakeven, we will not need to go back to the market to raise additional capital for cash burn.

At that point, we believe the downward pressure will subside. Now I’m not going to sit here and give excuses for some market, the global economy. At the end of the day, our company needs to reach financial independence. The good news is our model shows us that if we continue to execute along the path we’re on, we’re going to get to that with no additional capital raise. As for the elephant in the room, the reverse split we’re all prepared for all scenarios, which obviously includes actuating reverse split. I know there’s a lot of negative connotations around doing the reverse split, allow me to remind you of a few factors. Number one , reverse split is merely in exchange of 10 $1 bills for 1 $10 bill. There is no impact of the value of anyone’s hold.

When a company decides to perform a reverse split, it increases the share price while decreasing the number of shares all without a change in its market value. And the same is true for every shareholder, there is no change to the value that you’re holding for the company. The negative connotation typically arises from a reverse split when a company is not performing. This is not the case in Precipio situation. We are growing on all funds. We’re reducing our cash burn and we have a clear pathway to breakeven with the cash we have in the bank. That is a very different scenario from what many companies want to go of reverse split. In addition, our reverse split took the stock price back into the range where many more investors can look at and consider investing in the stock.

As I’m sure you are aware, many brokers and banks have minimums of $1 or $2 for them to trade in any stock. Moving to share price back into that range, expands the demand which is why oftentimes companies see a significant profit in their stock price immediately after reverse split. Now, obviously, the company has to continue to perform in order to maintain that level, and I think we’re on the right track to doing just that. Would we like to regain compliance organically? Of course, we would. But I also think that at the end of the day, as we continue to perform, this is – if this is a mathematical transaction, if it happens, not a value changing loan that may result in some of the benefits that our shareholders agree with us. Right now, our focus is on the aspects I’ve discussed today, increasing revenue, reducing costs, reaching breakeven.

When we deliver those, I have no doubt that the market will value us at what this company is really worth. I want to thank you for attending the call today, and I look forward to connecting with you again in our next quarterly results. Thank you, and have a nice evening.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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