Applied DNA Sciences, Inc.

Good afternoon and welcome to the Applied DNA Sciences first quarter fiscal 2023 financial results 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Sanjay Hari, Head of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Gary. Good afternoon, everyone, and welcome to ApplyDNA's conference call to discuss our first quarter fiscal 2023 financial results. You can access the press release that was issued after market close today, as well as a slide presentation accompanying this call on the investor relations section of our corporate website. Speaking on the call today are Dr. James Hayward, our chairman, president, and CEO, and Beth Jansen, our CFO. Judy Mara, our COO, and Clay Chirac, our chief legal officer and head of business development, will also be available to answer questions on the Q&A portion of this call. Before we begin, please note that some of the information you will hear today during our discussion may consist of forward-looking statements. I refer you to slide two of the presentation and to our form 10Q filed a short while ago for important risk factors that could cause the company's actual performance and results to differ materially from those expressed or implied in any forward-looking statements. We undertake no obligation to update or revise any forward-looking statements or other information provided on this call as a result of new information or future results or developments. Now, it's my pleasure to introduce our first call speaker on today's call, Beth Jansen. Please go ahead, Beth.

Thank you, Sanjay. Good afternoon, everyone. Thank you for joining us on our fiscal first quarter investor call. I will start this afternoon with an overview of our results for the quarter ended December 31st, 2022. I will then turn the call over to Dr. James Hayward, our president and CEO, who will discuss progress against our strategic initiative. We will then open the line for questions from our analysts and institutional investors. Before I begin my review, and as a reminder, we now report segment data that reflects the results of operations for our three reporting segments. The executive management team uses this data to manage the company's performance on a segment basis, assess expected future cash flows, and make more informed decisions about each segment going forward. We provide this data to investors as a measure of transparency into our management of these segments. Our three reporting segments are therapeutic DNA production, identified as Linea-RX, our majority-owned biotherapeutic subsidiary, MDX, or molecular diagnostic testing services, which is our ADCL clinical laboratory, and DNA tagging and security products, which is our supply chain traceability segment. To begin, we are pleased to report a solid start to the fiscal year. with both sequential and year-over-year revenue growth. Our revenue performance in Q1 was driven primarily by ADCL and its COVID-19 testing service. Orders for linear DNA and deferred cotton tagging revenues also contributed to the quarter's top line performance. Turning to our consolidated results for the quarter, Total revenue in Q1 was 5.3 million, an increase of 26% from 4.2 million in the prior fiscal period. On a sequential basis, Q1 revenues increased 48% from 3.6 million. The 1.1 million increase in Q1 revenues was due to an increase in COVID-19 testing revenues associated with a key client. Notable in Q1's revenues were orders for research and development quantities of linear DNA by first-time biopharma customers for their mRNA development efforts, as well as a recurring commercial order from an existing biotherapeutic customer. The increase in revenues was offset by a decline in product revenues of $310,000 that was primarily attributable to a decrease in sales of our MDX test kits and supplies. Our key COVID-19 testing client is an academic institution, and as such, testing demand is subject to lulls due to semester breaks and school holidays. The current quarter, fiscal Q2, testing levels includes approximately three weeks of winter break during which testing levels were muted. With the start of the spring semester, testing levels are ramping up. Growth profit was 2.4 million, or 45%, compared to 1.1 million, or 27%, in the prior fiscal year period. The improvement in gross margin was the result of an improved gross margin at ADCL. Higher testing levels coupled with cost management efforts for our testing contracts, where we also provide and staff test collection centers, were the main contributors to the improved gross profit. To a lesser extent, the improvement in gross margin for the current period was due to the prior fiscal year period having high COVID-19 positivity rates, which resulted in a reduction in pooling size that had a negative impact on gross margin due to higher consumable costs per sample. Our total operating expenses declined by $2.2 million or 38% in Q1 to $3.6 million from 5.8 million in the prior fiscal period. The decline was primarily attributable to lower stock-based compensation expense of 1.6 million. The balance of the decrease is related to a decrease in bad debt expense of 300,000 for the collection of an outstanding receivable balance that was previously fully reserved for. Our operating loss for Q1 was $1.2 million compared to an operating loss of $4.7 million in the prior fiscal period. Given the unrealized change in fair value of the warrant liabilities included in our net loss, we highlight loss from operations to be the best representation of the company's operations. Net loss for Q1 decreased to $3.8 million or $0.30 per share versus a net loss of $4.7 million or $0.63 per share in the prior period. Excluding non-cash expenses, consolidated adjusted EBITDA for Q1 was negative $1.1 million compared to negative $2.7 million in the year-ago period. Turning to our balance sheet, cash and cash equivalents totaled $12.9 million on December 31. As of December 31, accounts receivable stood at $4.1 million. We expect to collect the bulk of this amount in the current quarter. For Q1, our average monthly burn stood at $779,000. and was essentially flat with average monthly burn for the prior fiscal period. Our current warrants outstanding balance on December 31, 2022 remained unchanged at $7.3 million as our share price did not breach warrant exercise prices during the quarter. Approximately $2.2 million of the $7.3 million warrants have exercise prices ranging from $2.80 to $2.84 per warrant share, which if exercised, could result in exercise proceeds to the company of approximately $6.3 million. $5.1 million of these warrants have an exercise price of $4 per warrant share, which if exercised, could result in total exercise proceeds of approximately $20.3 million. Of the 5.1 million wires, 2.1 million expired September 2023, which if exercised would total proceeds of $8.4 million. Our cash position on January 31st was approximately $10.8 million. Before I turn the call over to Jim, earlier this afternoon, the State of New York and the Empire State Development Corporation announced our receipt of an Excelsior Jobs Program Award valued at up to $1.5 million. The award, which was announced on the State of New York website, could result in refundable tax credits for qualifying net new job creation. over a benefit period of 10 years. We intend to use the award to support LinearDNA's platform development path for use in the manufacture of nucleic acid-based therapies. Jim's remarks will go into greater detail on progress by this business segment and why we are excited about its future prospects. This concludes my prepared remarks. Thank you for joining us today. I will now turn the call over to Jim for his comments.