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spk06: Good morning everyone. Welcome to the ProPhase Labs conference call. The call will begin momentarily. We do thank you for joining today. If you do need assistance prior to the call start, you may do so by pressing star and zero. Once again, the call will begin momentarily. Thank you for holding. Thank you. Good morning, everyone, and welcome to the ProPhase Labs fourth quarter 2021 financial results and corporate update conference call. All participants are currently in a listen-only mode. Should you need assistance, please say no to 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 and then one on your telephone keypad. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. And at this time, I'd like to turn the conference call over to Mr. Ted Karkas, CEO and Chairman of ProPhase Labs. Sir, please go ahead.
spk01: Great. Thank you, Jamie. And thank you all for joining me today. Before we get started, of course, I have to start with a forward-looking statement. I want to advise everyone everyone that today's conference call will contain forward-looking statements, including statements relating to our plans, expectations, future performance, and future events, including with respect to our expectations for Q1 2022 COVID-19 testing revenues and financial results, our ability to provide genomic testing with faster turnaround times and lower price points, our ability to expand direct-to-consumer and big box retail distribution of Nebula's genomic sequencing products by leveraging our distribution network, our goals related to the development of partnerships and research collaborations and our ongoing efforts to evaluate and pursue additional strategic and synergistic acquisitions to build our precision medicine and genomics research capabilities. These statements are subject to risks and uncertainties that could cause our actual results to differ material from those suggested by the forward-looking statements. Additional information concerning factors that could cause our results to differ material from these forward-looking statements are contained in the earnings release that we issued earlier today, as well as in our public filings with the FCC. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required by applicable law. Finally, the conference call is being webcast. The webcast link is available in the investor relations section of prophaselabs.com. That was a mouthful. I'm sorry, but... It's just one of the things you have to go through before we get to the actual conference call. Look, I have a lot to cover, and I want to leave plenty of time for the Q&A, so I'm not going to read the financial numbers. You're all capable of reading the press release and going through the financial numbers. Of course, I'm happy to answer questions in the Q&A about the numbers. Suffice it to say that the numbers were for our fourth quarter and, therefore, for the full year were awfully good. I want to start by thanking and acknowledging our entire management team. Honestly, the achievements and the success we had this year, this past year were pretty remarkable. I don't normally highlight some of our executives and employees, but I think it's important that I do so just because of the amount of success we've had and what we've been through this past year. I have to start with our CFO, Monica Brady. She literally works 24 seven. Um, she used to work, uh, in Doyle town, Pennsylvania. And out of the blue, I just decided to get into this crazy CLIA lab testing business. And before you know it, we blew up this enormous business in garden city, New York blew up, you know, blew up this tremendous lab here in this enormous new business. Um, Monica had to move. Uh, she had to, uh, literally work 24 7 this past year we have new auditors an entirely new business uh you know entirely new subsidiaries acquisitions you name it um so really my hats off to monica nobody is more loyal and nobody has worked harder than she has and i just want to say how much i appreciate her i also have to highlight three of our senior members of our lab diagnostics business Jason Carcass, yes, he not only has the same last name as me, he is my son. He is co-COO. He earned that, every bit of it. Look, at the end of the day, without sales, there would be no earnings. There would be no business, so to speak. He was personally responsible for the vast majority of the sales that were generated this past year, as well as in the first quarter that we're in right now. What he is accomplished is nothing short of remarkable. What he accomplished is the equivalent of what 20 senior salespeople would accomplish at another lab. I also have to acknowledge Alice Liyue. Jason is our co-COO. Alice is our other co-COO. She took on a Herculean task in organizing our lab. I understand it was the first year in the business. Throughout the year, We upgraded and improved our management team and the people that we hired and the people that we promoted. Alice was one of those key people who came in and completely reorganized our lab, made it significantly more efficient. When Omicron spiked late in the fourth quarter, she ramped up the number of employees from 50 to over 250 employees in our lab, really did an incredible job. Since then, I'm going to get more into this later. She's responsible for also significantly reducing the cost to process tests. I'll get into that when I talk more about the diagnostics business. But it was a godsend that Alice came to work for us this year. And finally, Sergio Marais, our chief information officer. Once the lab is operating properly, the most difficult component is actually IT. It's the collection of patient data and the reporting of results. I'm proud to say that we have one of the best, most automated technology platforms and portals in the laboratory industry. And that includes all the big guys. And a lot of these big labs, they're actually using old IT infrastructure. And I can tell you that we're just state-of-the-art in our equipment, in our IT infrastructure, in our security, et cetera. These people... that I just mentioned, um, as well as their teams and that are behind them. Um, I can't thank them enough for, for what they've accomplished and their loyalty to the company. Um, I typically stayed on these investor conference calls, um, that my number one goal is to execute on behalf of shareholders. That has always been my goal for 40 years. I started off as an, as an investor, as a trader on wall street, and then as an investor and then consulting the small cap companies. I've been doing this for 40 years, hundreds of companies. And the one thing I've learned that's most important is something called terminal value on a per share basis. Every decision I make is based on what's best for the shareholders in terms of the value of our company today divided by the number of shares outstanding and what the value of our company could be in two, three, five years divided by the number of shares outstanding then. So I pay attention to things like dilution. I pay attention to stock buybacks, to dividends, All of these types of decisions that I'm making and that our board of directors is making, it's all in terms of what's best for shareholders. It's the reason why we went through this tremendous bear market for 14 months and other stocks in the life science industry like ours are currently trading between 50 cents and $3. There's a reason why our stock is where it is. It's because I care deeply about the value of our company on a per share basis. I don't spend money frivolously. We have significantly more capital now than what we raised a year ago. And that's even after an acquisition of Nebula, which I'm going to get into, and two dividends. And even with those tens of millions of dollars that we spent between stock buyback, dividends, and the acquisition of Nebula, we have more working capital now than we did a year ago after capital we raised. I would find I'd be hard pressed. You'd be hard pressed to find another micro-cap company in the entire country who raised a block of money back in January a year ago when things were crazy and we were in a crazy bull market, that have more capital now, made acquisitions, did the things that we accomplished, and have more capital now than they did a year ago. And I will continue in the future. You have my word that in the future I'm going to continue to operate the company the same way. All right. Wow. Let's get into our company in a little bit more detail. I should point out, oh, by the way, I should also point out that we hired a company called Renmark. If you're new to ProPhase, I recommend getting in touch with Renmark to listen to presentations I do in the future. I do live presentations once or twice a month. And these are mostly for new retail investors. But if you call Renmark and they're actually on the press release, you can certainly sign up for that. I more go through all the divisions of the company from beginning to end. You, as shareholders, if you're new to the company, I suggest that you sign up with Renmark. In terms of getting into our particular divisions, let's talk about our lab business a little bit. As you all know, we acquired a small lab in October of 2020 with no customers. minimal operations and we then built out this fabulous lab in garden city new york uh 25 000 square feet state-of-the-art equipment um and we obviously we blew it up big with the covet testing we not only do pcr covet testing we do antigen and antibody testing as well the next step in our business is to build out a fully functional and diversified clinical lab we were able, um, I'm sorry. Um, you know, as I said, we started off with PCR testing with antigen and antibody testing. We are going to diversify. We have 25,000 square feet here in garden city, New York. We are going to diversify, um, by leveraging our customer base. We built out this incredible. Um, customer base, we went from approximately two or three major customers a year ago to, we probably have a dozen major customers now. Um, it's diverse and growing our base of customers. So, uh, we've gone through these waves of COVID, but, um, even as COVID drops now, we're still doing significant testing. Um, and the reason, which is why our testing year over year, It's so fantastic because we built out this tremendous customer base. So yes, of course, when the incidence of COVID goes up, there's more demand for testing. We are going to do more testing. However, you know, with the peaks and the valleys, unlike a year ago when we only had a couple of customers, we have so many customers now. We have testing from so many different places that even when the incidence of COVID is lower, we're still doing a significant amount of testing. Uh, which is why we had a fantastic, not only fourth quarter, but, uh, I already announced that we're gonna have a fantastic first quarter. Uh, because even though army crime has, has the incidence of it has dropped dramatically. We're still, we're still doing a significant amount of testing. Um, testing is not going away. It's the number one way, um, to cut, um, the spread of COVID at the end of the day, you can get vaccinated. But even if you get vaccinated, it doesn't stop you from getting COVID. Certainly, that's now been proven. No one was vaccinated a year ago when COVID peaked in approximately January of 2021. Now, a year later, you know, 70% of the population has been vaccinated, and yet we had this awful Omicron in December and January. Now, as we speak, there's a new subvariant, BA.2. Nobody's been paying attention to it in this country because Omicron is has been dropping, so the incidence of Omicron has been dropping so quickly. But we're getting into a situation now in the coming weeks where the incidence of BA.2 is starting to increase more rapidly than Omicron is dropping. So at some point, you're going to start to see the media turn, and they're going to start paying attention, and all of a sudden, you're going to see, and I can't tell you if it's going to be in two weeks, four weeks, six weeks, you're going to see the incidence of BA.2 likely increasing significantly. And you're going to see a lot of talk about COVID is back again. I don't want to give you depressing news, but that's just the reality. And we are incredibly well positioned for that testing. So that's our diagnostic testing business. It's doing awfully well. We are very well positioned. We have gone from all full-time employees to Half of them are what we call temporary employees that come from temp agencies. Actually about two thirds of our employees is from temp agencies. So we can fluctuate the number of employees. It's very easy to hire temps and let them go as our testing demands fluctuate, which means that our lab is going to be significantly more efficient when testing demand and volumes are lower. We'll be able to decrease our overhead quickly so we can still be profitable even at lower testing volumes, unlike a year ago. So I'm confident in our year-over-year numbers going forward throughout the year, the combination of our larger customer base with the fact that we have this variability and the flexibility with our employees. And then in addition to that, Alice Leoy, our co-COO, was able to significantly reduce the cost to process the test. So our gross margins Whatever gross margins were in the fourth quarter, you can expect them to increase further in the first quarter and into 2022. So that's our diagnostics business. Happy to talk more about it in the Q&A. Last year was a great year for COVID testing. We currently, as far as I'm concerned, this year, we've all but made our year already just with what we've accomplished in the first quarter. So I'm looking forward to our next earnings report in six weeks. The second half of this year and into next year, I expect Nebula to be huge and I expect our diversified clinical lab that we're going to build out, I expect that to start to take off as well. So we are not a one trick pony. We are heavy in assets, heavy in cash, heavy in working capital. Again, going back to the idea of the terminal value on a per share basis, Um, we have enormous working capital, enormous cash, minimal debt, uh, earning a ton of money. Uh, and I don't know if I'm allowed to say it's an inexpensive stock, but, uh, our stock price, uh, certainly is attractive relative to the amount of assets we have. And if we continue to earn, uh, you know, earn money the way we have been, um, at a minimum of our stock stays where it is, there's no reason why we can't continue to either do stock buybacks or dividends. I am not stating today that we're going to do either one. Again, I'll refer back to the forward-looking statements, but I have a history of taking such actions, putting it in perspective relative to the amount of money that we're earning. All right, let's talk about Nebula. Nebula is, I think of Nebula today similar to where Um, the internet was 20 years ago. Um, of course I'm talking about prophase, uh, precision medicine. That's our wholly owned subsidiary. Uh, we acquired nebula genomics within that subsidiary. I assume most of you know about nebula, uh, and whole genome sequencing. I'll, I'll touch on it. We can get more into it in the Q and a, if you're not familiar with it, anybody that's a long-term shareholder, um, certainly knows what we're doing there at the end of the day. Precision medicine is all about a couple of things. It's learning about your genetic makeup, and then based on your genetic makeup, changing your lifestyle based on diseases that you might be predisposed to. For example, if after being whole genome sequenced through our company, it turns out you're predisposed to lung cancer, well, guess what? I think you're going to think twice before picking up that first cigarette. That's a pretty easy example. Another example that I like to use, if you're predisposed to colon cancer, well, then instead of waiting until you're 50 years old, that's when the insurance companies say you should get a colonoscopy. Maybe you'll get one at 45 or 40 or 35 if you're predisposed to colon cancer. Ideas like that, things like that, that's the future of medicine in terms of changing your lifestyle based on your genetic makeup and diseases that you're potentially predisposed to. Then taking it a step further, let's suppose you get a disease, you get a cancer and you want to know how to treat it. Historically, you know, you'd rush two women get breast cancer and they rush to get chemotherapy. What if for the cancer that you have, what if for the first person based on their genetic makeup and based on research ongoing and into the future suggests that chemotherapy isn't the way to go that you're going to wait six months and there's an 80 or 90% probability it's not going to work for you. I would think you would want to know that. You would want to know what your genetic makeup is before making such a decision. And conversely, another woman could have breast cancer and it turns out there's 90% probability of success with chemotherapy. You'd want to, you know, you'd want to go into chemotherapy immediately. Decisions like this are what personalized precision medicine are all about. At the heart of it, it all starts with whole genome sequencing, genetic testing, learning about your genetic makeup. Right now, Nebula sells whole genome sequencing direct to consumer online. The business is just starting out. Our goal is to get the pricing down significantly. We found we did a test over Thanksgiving on Black Friday where we dropped the price arbitrarily from $300 to $200. And our sales went up 10 times. It was a fantastic test. It proved the point of the price elasticity of demand as it pertains to whole genome sequencing. We want to get this out to masses. There's only a very small percentage of the population that even knows what whole genome sequencing is. So this literally is in its infancy. So the first thing we want to do is educate consumers and get it out to the masses. How are we going to do that? We're going to drop the price significantly from $300. We're working with partners right now, strategic partners right now to drop the pricing. We sell whole genome sequencing at cost. It has zero growth profit margins for us. I'll explain a little more when I get into the library where we sell a subscription. But just understand our growth model here. One is to get the price down. As I said, we're working with partnerships right now to get the price down significantly. We think that that's going to significantly drive demand for whole genome sequencing to our online consumers. That's direct to consumer. We're also working on a lower price, what's called low pass whole genome sequencing that we're going to sell in stores. Historically, our business has been selling cold, these cold remedy into all the 40,000 food, drug, and mass retail stores, Walgreens, Walmart, CVS, and so forth. Um, we sold the cold, these grandpa, we kept the manufacturing facility, um, where we still sell lozenges and that business is doing very well. Uh, by the way, we developed another line of dietary supplements that we're selling into those stores. So we kept all that infrastructure in place. And now our goal is to sell a whole genome sequencing product in the same food, drug, and mass retail stores where we have all this distribution. So we have access to distribution not only in 40,000 food, drug, and mass retail stores, but also potentially 110,000 convenience stores. So there is enormous possibilities for our ability to distribute whole genome sequencing massively. educate the masses in the same way that we developed this fantastic and efficient marketing campaign for coldies and turned around the coldies brand. I want to do the same thing for whole genome sequencing for nebula. So gross grow, grow sales online by dropping price, grow sales by distributing to retail stores. That's the direct to consumer. And then the third part of this is nebula has a proprietary library. I'm not aware of anyone in the world that has a library like ours. In fact, we have large companies and countries that are very interested in licensing that library and partnering with us. I'm not going to get more into that on this call, but our library, basically, when you get whole genome sequence, you get what's called a polygenic risk score. It tells you about diseases that you're potentially predisposed to based on your genetic makeup. And then we have a library of all the clinical research from around the world that's being conducted, that has been conducted in the past and is being conducted currently that relates to the diseases that you're predisposed to. And it's really interesting that library gets updated regularly and you get, if you sign up for a subscription, you get regular updates on all the research out there and how it relates to the diseases that you're predisposed to. And that obviously is a hugely profitable business for us. You know, it's all on the internet. We have a handful of scientists who continue to build that library. So it has, you know, based on the size that we're doing, the gross margins, you know, are close to 100% on the library. So it's a subscription-based model. So the idea is to sell as many whole genome sequencing tests as possible, which right now, as far as I'm concerned, is in its infancy, the number of tests we're selling. compared to the potential. And then the idea is to sell the subscriptions. So the next part of this is to partner with other companies and countries with regards to our library. And then in addition to that, we're looking into doing other types of partnerships based on the other people that we hired. Again, George Church, who is world renowned in whole genome sequencing. He's a founder of Nebula along with the two gentlemen that, you know, run the business when we acquired Nebula. George Church took stock instead of cash, and he agreed, which he really does. He agreed to be on our advisory board. And so George is very into what we're doing with Nebula, and he's excited to help us. We're having regular calls with him. He potentially is going to bring other companies within Precision Medicine and that we can acquire. So understand, we're just getting started. Yes, whole genome sequencing in and of itself isn't saving the world. That's just a test. It's just a starting point. But we're building a foundation here. Give us a little time. The same way that it took us a year to build out the lab and make it one of the best labs in the country, we believe we're going to do the same thing with Nebula and with precision medicine. So when we call this precision medicine, Of course, it's just a whole genome sequencing test now, but the goal is to turn our company into a precision medicine company over time. All right. And again, in the Q&A, we can talk more about Nebula. I would just add, and I'm going to get to the Q&A very shortly, I would just like to add, so our lab diagnostics, obviously, we had a fantastic year, a fantastic fourth quarter. Our first quarter, we believe, is going to grow even more than the fourth quarter. So we're looking at a fantastic year for our lab diagnostics business. We're looking to in the second half of the year, we're going to be, our goal is to be building out into a more fully diversified clinical lab. Nebula is in its infancy. We have, you know, we think that's going to grow from a very small base of business into a very large base of business. How much of that is going to kick in when? I don't know. It's no different than we built out the lab business. You know, we started slow and then blew it up big. Well, I expect to do the same thing with Nebula. I think Nebula ultimately could, the value of Nebula alone, I believe could be worth multiples of the entire market cap of our company currently. That is what I believe in my heart. Again, forward-looking statement. It's not a guarantee. But I truly believe Nebula is going to be more valuable than our entire company. Meanwhile, we have an asset-rich company right now. So, you know, and earning a lot of money. So what's your downside? TK Supplements is growing. That's our dietary supplement business, albeit from a small base, just by the mere fact that we are fully distributed now into all of these, you know, 40,000 food, drug, and mass retail stores. Just because we added on distribution, of Walmart and CVS this past year. That business is going to grow going into 2022. And the same thing with our contract manufacturing business, just very, very briefly at the end of 2020, the first year of COVID in 2020, everybody raced out to buy paper towels and toilet paper. They also raced out to buy lozenges. It was incredible. Every lozenge and every story shelf was sold out in the middle of 2020. So come late 2020, all of our contract manufacturers all loaded up on inventory like an enormous amount of inventory and so in 2021 they had to work through all that inventory that we built out for them in 2020 and so 2021 we actually had a dip in sales and contract manufacturing we're now back to normalized levels we burned through all that inventory plus we're adding on new customers so we're going to have some nice growth in contract manufacturing so all four Subsidiaries of our company, operating subsidiaries, all look like we're going to have a great year in 2022. And finally, just to summarize, history of executing on behalf of shareholders. Since the time that the stock bottomed 10 years ago at $0.65, our stock is up 10 times. And I've paid out, and I want to say I, obviously, the company, Profase has paid out $2.10. in special dividends. $0.60 of those dividends were between last June and the $0.30 dividend that we just paid out a couple of weeks ago. There's no reason why the success should not continue. We turned around the Cold East brand when it was in a downward spiral and sold it for $50 million. We pivoted into CLIA lab testing, became one of the top performing labs in the country in the first year of operation. Next up, we're going to diversify the CLIA lab for traditional testing, though I still expect COVID testing to be around for the foreseeable future. And next up, Nebula. Literally, it's in the infancy of what we're going to do with Nebula. We're in the first inning. It has enormous potential over the next several years. And with that, Jamie, I kept it to about 30 minutes, which was my goal. I'd like you to open up to Q&A. I'm very happy to answer all your questions and get into whatever else. anybody else would like to ask. Jamie, I'll hand it over to you to start the Q&A.
spk06: Ladies and gentlemen, we will begin the question and answer session. To ask a question, you may press star and then one using a telephone keypad. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two. Once again, to join the queue, that is star and then one. We'll pause momentarily to assemble the roster. And our first question today comes from Yi Chen from HC Wainwright. Please go ahead with your question.
spk03: Thank you for taking my questions and congratulations on a very solid quarter. Could you comment on the current trend of COVID-19 testing volume and whether there is any potential for the current quarter to exceed the past quarter?
spk01: Yeah, sure. Thank you. Thanks for joining the call and thank you for continuing to cover our company and write on our company. Yeah, so as I briefly touched on before, no one's really paying attention to COVID right now because Omicron, there was such a tremendous incidence of Omicron back in December and the beginning of January, and that's been dropping like a rock over the last couple of months, over the last two or three months. It just dropped dramatically. And what happened is BA.2, the sub-variant, is now just slowly starting to pick up steam but Omicron was dropping faster than BA2 was rising. It's getting to a point now where Omicron has basically dropped. All right. That's basically off the map. Our positivity rates for Omicron went from 20 or 30%, you know, down to like 1% negligible, but BA2 is just starting to pick up. So I sincerely believe that in the coming weeks, we're going to hear a lot more about BA2. And I think, that you're going to hear a lot more about people getting COVID again and a new spread of COVID. Everybody was thinking, you know, springtime is coming, COVID's over, we'll worry about it next fall. And people don't understand, you know, COVID occurs in the spring and summer as well. And so we're about to go through another wave of COVID. Whether it's a big wave of COVID, a small wave of COVID, I have no idea. You know, I can't worry about those things. What I can tell you is we are such a well-diversified lab in terms of our customers, our customer base, you know, it's diversified and large. And because of that, we still have a significant amount of testing going on even right now. So that it wasn't just in, you know, December, we had obviously an enormous December, which, you know, created an enormous fourth quarter, you know, although the other two months, October and November was strong, but December was, you know, off the charts. We also had January was off the charts. But what's interesting is February and March had been pretty stable. And that's with Omicron dropping as much as it dropped. So the point is it's still if you're, you know, feeling like you're getting a cold or a sniffle or whatever, it's easy. We have concierge services where you can literally walk out the door. We're heavily covered in New York City and we're spreading to other states where you can literally just walk out the door and get a COVID test. If you see those tents that pop up in New York City as an example, a good percentage of those tents are actually sending their business to our lab and they're spreading into other states. And that business honestly is not going away. There is one wrinkle and that's regarding HRSA. A percentage of our business is reimbursed by HRSA, which for those of you who don't know, if you don't have insurance, then HRSA, which is government funded, reimburses our lab for the testing. HRSA ran out of funding as of March 22nd, which means that our uninsured patients, as of right now, it's up in the air. Whether or not we'll get reimbursed for them, that would obviously take a hit to our revenues. However, first of all, our first quarter, we already had a phenomenal first quarter. Even if we hadn't done testing in March, we had a phenomenal first quarter. In fact, I said that two weeks into January gave an update that basically we're going to have a phenomenal first quarter just on what we were doing in January. So HRSA is a question mark. I'm hoping, fingers crossed, that HRSA gets refunded. Again, it should. Congress originally guaranteed funding through 2025. So I think there's a political game going on at the moment. So we'll see what happens in the coming weeks. If we have HRSA, then it's game over. We're going to, you know, we're going to have an an extraordinarily strong year the entire year. Without HRSA, I believe that we'll still have a very good year, and we'll just have to wait and see. Fingers are crossed that within a few weeks that's going to clear itself up. I find it hard to believe that the government is going to turn their backs on the people who are uninsured that are mostly, you know, poor, minorities, and so forth, that they're going to say, oh, you can't get the same health care. So we'll see what happens. I did want to mention that. That's sort of the only flyer. or wrinkle in the ointment, but beyond that, our testing is at a, it's at a robust level with Omicron at its low, which should suggest you testing isn't going anywhere. It's no different from if you have, you know, feel like you're getting flu symptoms and you go get a flu test. Well, well, it's the same thing with, you know, COVID, whether you go to the hospital or not, you're going to get tested. If you have COVID, you want to know it right away so that you can quarantine before you spread it to others. You, do you have another question?
spk03: Yes, with respect to nebular genomics test, the price reduction, is it going to occur in the second quarter? And also, can you tell us when the test will be available in the big box retail distribution channels?
spk01: Yeah, this is, I'd like to say this is all second half of the year events. I can't tell you the exact timing. The negotiations are ongoing. The strategic partnerships are ongoing. Strategic partnerships take longer than you think, especially because we're working with new companies and countries, and these companies and countries need to get to know us, and we need to get to know each other, and that takes time. But everything is moving along incredibly well. I am highly optimistic. We hired a gentleman, Sam Beeler, to be our chief strategy officer. He has a wealth of experience, not only in helping human services, but also has tremendous ties to these companies and countries worldwide. So I was really excited to hire him and he's spearheading and overseeing the development of these partnerships. But you can assume within the next few months, we will have new contracts in place and then we'll be able to drop the price for online sales. So I can't tell you if that's going to happen in the second quarter or, you know, in the third quarter, but somewhere between the second and third quarter, we should have new agreements in place. That's for dropping the price online. And then with retail stores, that always takes longer. We've gotten initial positive responses already from some of the largest retailers in the country. Right now, we're doing market research to optimize our packaging the same way we did for Colby's. We're creating new packaging for a package that would go on the store shelf. We're really excited about it. We're doing marketing research to develop the best claims to put on the package. As we speak, I've done three market research studies in the last month. And so we're close to optimizing the package. Then we have to create the package, go back to the retailers. They have to accept it. Once the retailer agrees to put it in what's called a planogram, it can take three to six months for them to actually put it on the store shelf. So this is a long process, but once you're in, you're in. And so assume, you know, Nebula is really a second half of the year story. So first half of the year, you know, for this year, I still think we're going to do an incredible amount of testing, revenues and earnings for the COVID testing. We'll then diversify with the clinical lab testing, and then Nebula will start kicking in in a bigger way, probably the second half of this year and certainly into 2023. Got it. Thank you. Oh, thanks for your questions. Thanks again, Ian. All right. Next question, Jamie. Next questioner, I should say.
spk06: Our next questioner is Dennis Waldman from Barrett Productions. Please go ahead with your question.
spk04: Hi, Ted. First, I want to say wow and congratulations. I want to talk about the impairment charge of $3.75 million. If I'm seeing this correct, if you did not have that charge, you would have made close to $0.90 a share.
spk01: Um, I'm not gonna, I'm not gonna, you can do the math and I'm not gonna, uh, give you hypothetical numbers because then the SEC gets in again, trouble with the SEC. But the answer is yes, without that impairment charge of 3.7 million, um, our earnings would have been 3.7 million more than what we reported. Now, having said that, that was a non-cash charge because we didn't loan the money in the fourth quarter. It's the fourth quarter in which we wrote it off. So it's a write-off and we're still hopeful. that we can collect that money. It's not like it's a fait accompli that we're not going to collect that money, but given the circumstances around the company that we are going to be collecting the money from, it's questionable whether we will be able to collect it or not. So we'll just have to see over time. If over time we collect that money back, that'll be added to future earnings. But the answer is yes, from an operating point of view, and that's why I made sure to highlight our EBITDA is because EBITDA corrects for non-cash issues like this, which hit your earnings, but don't hit the EBITDA.
spk04: Okay. So I've been involved with ProPhase for quite a while, and I'm assuming this charge has to do with the relationship with Predictive Technology Group. I've watched their technology for a while, and they seem to have quite a few assets that are worthwhile to acquire. Has that been looked at?
spk01: Yeah, so we actually negotiated with them. And listen, I don't want to speak for predictive, but we were very interested in some of their assets. And at one point, we were looking to take the money that they owe us and convert that into an acquisition of one of their assets. They decided one of their core assets that I was actually very interested in they decided to go in another direction in developing that asset or those assets with other parties. And so we're hopeful that they are successful in developing those assets and generating revenues and earnings. And if they do, we're then hopeful that we will get paid back that $3.7 million. So originally, actually, I was negotiating on some of those assets. And it's one of the reasons why we didn't write off a loan before now. was because there was a very good probability that we were going to do a deal with them. We ended up not doing a deal with them, and that's when we decided, you know what, the prudent thing to do is to write off the debt now.
spk04: Okay. Last question. I see, and you know that I'm very positive towards buybacks, and I see that you've only bought a little less than a million of the six million that you committed. Are you going to become more aggressive in your buybacks?
spk01: Okay. So I'm not gonna, well, okay. So first of all, um, we separately, uh, retired some of the debt outstanding, um, and some of that debt was convertible into stock. So one of the debt holders actually converted 200,000 shares, which we also bought in a private transaction of 575 per share, although, you know, that happened in the first quarter. So we didn't put that into this report. So that also was a stock buyback. Um, and then beyond that, I think actually our current stock buyback, expire shortly, and then we'll have to revisit and see. That's certainly a possibility. Stock buybacks are always a possibility. Additional dividends are also a possibility. And we'll just have to see. That's not something I'm going to announce on this call today. That's not a decision that's been made. But, you know, clearly, you know, I'm the largest shareholder in the company. And I don't just say this because I'm the largest shareholder in the company. I also say this for all the people that are long-term shareholders that have supported me and have supported the company. I do right by people and I do right by our shareholders. So whatever decisions are made going into the future are going to be in the best interest of all the shareholders for long-term investors. Traders always say, I wish you the best of luck. That's a tough business. I don't make decisions on, you know, running the stock price up or down or, you know, playing games or any of that kind of stuff. I only care about building the value of the company long-term. And if it's best for long-term shareholders, if I think that the capital, we have excess capital that we don't need and that we don't have a current use for, then by all means, why wouldn't we either do additional stock buybacks and or dividends? But we'll just have to see. We also have to see what the opportunities are with acquisition. Given that we just went through a 14-month bear market in life science companies, there are life science companies out there trading at or below cash. And if we happen to find one, In fact, I told our investment bankers to please, please, please look for companies that were going to IPO. The IPO market all but shut down, you know, in the recent past. And so there may be some exciting companies out there to acquire. Similar to acquiring Nebula, I would like to acquire other companies. You know, if we could buy a company that I think is going to be worth, you know, 10 times more a year or two later, well, that would be great for the shareholders. And that's something I would want to do. So we're weighing all those options. on a daily basis. So it's a good question. I can't give you a better answer than what I just responded with. I hope that answers your question.
spk04: That does, Ted. Thank you. Congratulations again. I look forward to hearing again in six weeks.
spk01: Oh, you're quite welcome. All right. Thank you, Dennis. And Jamie, next question. And by the way, before you go to the next question right now, there's only one more question in line. So if you have a question, please get in line. And if not, we have one more question or ready to go. Go ahead, Jamie.
spk06: And that is correct. If you would like to join the question queue, once again, you may press star and one. Our next question does come from Lee Happer from Hammock. Please go ahead with your question.
spk02: Hi. Great quarter. Can you give us a little more color on How many tests you did in the fourth quarter? How many tests you did in the first quarter? And how did the test compare in the beginning of March to the last half of March?
spk01: Okay. So first of all, the fourth quarter, I'm pretty sure in the press release we stated how many tests were performed. For calendar, actually we put it in the press release, for calendar or fiscal year 2022, one, we did 580,000 tests of those 580,000, uh, 350,000 were performed in the fourth quarter ending December 31st. All right. So that's 350,000. All right. And to put that in perspective, I think in the first quarter, which was the biggest quarter in the history of the company, we did 110,000. All right. So that was the first quarter of last year. We did 110,000. The fourth quarter we did 350,000. All right. It just gives you an idea of how much we've grown our business. and how diversified our customer base is to do more than triple the number of tests, you know, even though it was an extraordinary spike back in January of 2021. And now we had another extraordinary spike in, you know, really in December of 2021. And yet we did more than triple the amount of tests in the fourth quarter versus the first quarter. Going into the first quarter, I'm not going to go into more detail than really what I've already said. other than I made it very clear that, you know, our title and our headlines, records financial results also expected for Q1 2022. All right. Now, I'm not saying with Q1 that our record financial results are only compared to year over year of the first quarter of last year. I'm talking about record financial results even compared to the fourth quarter that we just reported. And that should really tell you all you need to know. We're going to have a very strong first quarter, all right? And when people say they're looking forward to our first quarter results, well, you know, we're going to be announcing them in six weeks. The bottom line is I expect that we will be announcing that we did more tests in the first quarter of this year than we did in the fourth quarter that we just reported. And I also stated that our gross margins I believe will improve in the first quarter. And we're not going to have another $3.7 million write-off like we had in the fourth quarter. So when you put all three of those things together, we should have a very strong first quarter. And again, that's going to grow our working capital. It's going to grow our cash levels. It's going to increase our flexibility on what we do with the capital and how we build our company. We don't need capital. We don't have to go do a dilutive round of financing. We're going to be able to build out our clinical lab. We're going to be able to build out Nebula Genomics and our precision medicine business and so on and so forth. I hope that answered your question.
spk02: Okay, but could you give us an idea of how the testing went the first half of March compared to the second half of March?
spk01: I'm not going to get into that. There's no reason to get into that level of detail. We're doing the month of March. Uh, look similar to the month of February. Obviously, uh, January was a big spike, you know, December and January, big spike, but we did a very healthy amount of testing in February and a very healthy amount of testing in March. We're still doing a solid amount of testing in the month of March. Okay. Thank you. You're quite welcome. Uh, Jamie, next question, please.
spk06: Our next question comes from Patrick Patterson. Please go with your question.
spk00: Okay, congratulations, Ted. Wonderful, wonderful numbers. I love seeing it.
spk01: Thank you, Patrick. I appreciate it.
spk00: I know you're more than welcome. You deserve it. Ted, could you go over how you describe your customers? I remember in one of your presentations, you talked about having like 100 or 200 independent pharmacies, but today you say you have like a dozen customers. Could you just explain what a customer is to you?
spk01: Yes. Okay. So when I say a customer, I'm so glad you asked that question. Really, that could be very misleading the way I presented that. That's an excellent point. When I talk about customers, our customers are our specimen collection partners. Our specimen collection partners are the ones that bring in the business. So, you know, Jason, our co-COO who oversees sales, He developed relationships with these dozens, probably like two dozen companies, but one dozen are like super active. These companies all have different ways of bringing in business to us. These specimen collection companies, one of the specimen collection companies is overseeing independent pharmacies. So if we have 100 or 200 independent pharmacies, there's one specimen collection company that's overseeing those 100 or 200 pharmacies. independent pharmacies. I'm not referring to those independent pharmacies as our customers. I'm referring to our specimen collection partners as our customers. So maybe instead of calling them customers, we should really just call them our specimen collection partners or our partners. So our partners bring in the business. So we have one or actually two different partners who bring in independent pharmacies. And that's a fair amount of our business. Then we have several specimen collection partners, each one of which has set up concierge services primarily in New York City, but some of them are now spreading into other states. And so, you know, their customers are people that are walking down the street or they go visit their homes. Then we have another specimen collection partner who is doing our municipal contracts. We won a couple of RFPs, as you know. in Dutchess County and in Township of Oyster Bay and so forth. These are townships and cities or towns where people can go to a central location in town to get tested. And we have a specimen collection partner who actually provides the service of collecting the specimens here and then sending them to our labs. So, and then, you know, we have another specimen collection partner that focuses on schools that has, you know, that has probably a hundred different schools that they test. So we have a pretty, so unlike last year where we probably had two major specimen collection partners who did various business, our two main ones last year, one was doing the schools and one was doing the state of Texas. And then the state of Texas shut down after the bad weather in February, unlike a year ago, uh, you know, we have a dozen like that in all sort of work walks of life, um, testing people in different locations, um, for different reasons. And so because we have the diversity, we have a large number of customers, and because of the diversity, it stabilizes our business somewhat. So even the previous caller that was asking about the last two weeks of February versus the first two weeks, I mean the last two weeks of March versus the first two weeks, the bottom line is we have a nice, stable business, and we're going to have a fantastic first quarter. And it didn't like, you know, unlike a year ago, it didn't drop off a cliff in February and March. Last year, we had a monster January, but testing dropped off a cliff in February and March. It did not drop off this time the way it did a year ago. Pat, does that answer your question?
spk00: Oh, that was great. Thank you very much, Tim.
spk01: Oh, you're quite welcome. Best of luck to you. Jamie, next question, please.
spk06: Our next question comes from Robert Donaher, who is a private investor. Please go ahead with your question.
spk05: Hey, Ted, thanks for taking the question. I just wanted to touch on a possible opportunity for your business. And, you know, you're in the manufacturing business and China's watching our clock, you know, with generic drugs and the likes of that. And I was wondering if you ever considered getting into the generic drug business. So, yeah.
spk01: Okay. So first of all, I don't, um, manufacturing tends to be a low margin business. Um, it turns out that you were doing a, a very good job with our manufacturing and that it's going to grow nicely this year. It's going to contribute to profits, you know, to earnings. Um, but it's, it's not a focus, uh, what you're talking about. Um, With generic drug manufacturing, honestly, it's a little far afield from anything we're doing now. We had people that I had an analyst that actually knocked me because we acquired Nebula because it doesn't fit in with a lab diagnostic business, even though actually it not only provided tremendous synergies, But as I said, I think, you know, Nebula could be worth multiples of our current market cap in the coming years. So that's a little far field. I don't know. Listen, I'm an entrepreneur. I'll consider almost anything, but I'm not sure that that's a fit with what we're doing. And I'm not particularly enamored with manufacturing in general. I hope that answers your question. Do you have another one?
spk05: No, that's it. One other thing, you considered over – doing testing overseas. And I just wondering if you follow up on that at all.
spk01: Yeah, sure. So first of all, our COVID testing, you know, we're right now just in the United States. We have worked on initiatives in the past in Central and South America. To date, they have not come through. However, through Nebula, first of all, Nebula does do testing around the world. I think about two-thirds of our testing is the United States, but approximately one-third is actually in other countries around the world. And we are currently working on strategic partnerships with, you know, large companies in other parts of the world. So, yes, I expect our testing to ultimately be global, but not necessarily our COVID testing.
spk05: Okay, great. Thanks, Ted. I want to thank you again for your hard work. Appreciate it.
spk01: Sure, of course. Thanks for the questions, and thanks for following our company and being an investor. Next, and I believe last question as we're about to hit the hour. Jamie?
spk06: Our final question today comes from Fred McDonald. Please go ahead with your question.
spk03: Ted, great job. Hey, Ted, the turnaround times on our test are still 24 hours.
spk01: Yeah, so we had a period in December that was literally out of control. We were inundated with COVID tests coming into our lab. We built out our lab and at that time we had the best turnaround times, consistently best turnaround times in the country. It's one of the reasons why we've never lost a customer. Our turnaround times in general were probably right at 18 to 24 hours. Sometimes even faster than that. You know, of course we had the sporadic, you know, 36 hours, but You know, all of our contracts basically set our goal at 24 to 48 hours. And, again, that's just the goal. In December, things were out of control. We built out quickly from about 50 lab employees to 250. So our capacity went up by multiples. I give Alice Leoy an enormous amount of credit for that. And then things stabilized after a few weeks, and we went right back. to the same great turnaround time. So ever, ever since, I don't remember what the, what the exact date was, but other than like a two or three week period at the end of December and early January, uh, we got back to the, you know, the roughly 24 hour turnaround times soon thereafter. And we stayed there. So our, our customers love us from point of view of, uh, turnaround times. We also, you know, as I mentioned, our head of IT, Sergio Marais, uh, built out a tremendous IT infrastructure. We have an automated platform. and portal that's really easy to use. And that's a big help as well. So we're an incredibly efficient lab for testing right now. Thank you. If that's it, then thank you for the last question. Jamie, I think that this wraps up the call today. I just want to thank everybody for joining the call. I hope it was informative. Again, I do short presentations. They're video presentations. I do one or two per month through Renmark. Particularly if you're a retail investor, feel free to reach out directly to Renmark. If you want to be updated and you want more details, particularly if you're a new investor, if you want a more detailed review of what we're doing with our company, feel free to reach out to Renmark. Thank you all for being here. For those that are long-term shareholders, thank you so much for your loyalty. I am confident that I'm not going to let you down in the future. And with that, have a great day. Jamie, over to you.
spk06: Ladies and gentlemen, with that, we will conclude today's conference call. We do thank you for joining today's presentation. You may now disconnect your lines.
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