ProPhase Labs, Inc.

Good day and welcome to the ProPhase Labs first quarter 2022 financial results and corporate update conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. 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 Ted Karkas, Chairman and CEO of ProPhase Labs. Please go ahead, sir.

Thanks so much, Matt. And thank you all for joining me this morning. Obviously, we had a great quarter, and I'll get into that in a moment. But, of course, I have to do the standard forward-looking statement, which obviously is important. So here goes. Before we begin today's call, I want to advise everyone that today's conference call will contain four lucky statements, including statements relating to our plans, expectations, future performance, and future events, including statements regarding projected financial results for the second quarter of 2022, our expectations regarding the COVID-19 pandemic, future waves of the pandemic, and continued demand for diagnostic testing, HRSA funding, our plans to grow our diagnostic business and expand our lab services, our plans plans to grow our genomics businesses, build a WGS library, and attract academic institutions, and our plans to develop a broad-spectrum antiviral OTC dietary supplement and build a pharmaceutical division, and our expectations regarding the sufficiency of our cancer working capital. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those suggested by the forward-looking statements. Additional information concerning factors that could cause our results to differ materially Materially 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 SEC. 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. Webcast link is available in the investor relations section of ProfaseLabs.com. All right. Thank you for bearing with me while I read all that. I take the forward-looking statement actually quite seriously. I do like to talk a lot about our future plans. And, of course, there are never guarantees. But I will tell you that everything I state today, I believe 100% as of today, no question in my mind, are the things that I talk about. And so, look, let's get into it. I have to start by saying we have built an amazing team. When you start in a new business, and we started in – The CLIA Lab business in late 2020, it was a new business for me. It was a new business for our company. We built out very, very quickly. You hire people. You develop. The good management teams continue to evolve. All right? The people that I thought were strong, understand I didn't know the business a year and a half ago. I thought I was hiring fantastic people for the business. I appreciate all they did in the beginning to get us off the ground. But as the company evolved, we hired people. I was able to learn the business and also understand exactly what we needed to develop the business and exactly the type of people we needed. And quite frankly, we substantially upgraded our management team throughout 2021. We have, excuse the expression, we have a kick-ass management team. And I do these virtual non-deal roadshows. I want to give a lot of thanks to Renmark. financial who sets up the virtual non-deal roadshows. I do one or two of these a month. I start off every one of those calls. I think if you're going to invest in micro cap or startup or development stage companies, there's nothing more important than analyzing your management team. I can tell you from 40 years of investing, I always invest in companies where I'm excited, excited about the product or the service. The management team most of the time doesn't execute. And I've said this quarter after quarter, You want to invest. If you're investing in development-based companies, you have to put a lot of faith in the management teams. And the problem is 95% of the time the management teams don't execute, and that's why you lose money. And so when you look at this bear market that started, and I've been telling everybody for a year that we've been in a bear market. Now all of a sudden, you know, the media in the last few months is picking up on it because the, you know, the larger cap, you know, the Dow average, the NASDAQ indexes, these are all, you know, dropped dramatically over the last, you know, three to six months. But we've actually been in a bear market for micro cap stocks for almost a year and a half. Strikingly reminds me of 1998. And, you know, I'm, you know, dating myself now, but that's the period of time you want to look at. You know, we're talking 24 years ago. And what happened was the micro caps dropped and then the major averages followed. And then we went into this boom for a while with the microcaps and with the high-tech stocks into 2000. And it was a pretty crazy time. The reason I point that out to you is we're going through the exact same thing now, 24 years ago. The microcaps have already been in a bear market for almost a year and a half. This is the time to be looking at them. But what you want to be looking at are the microcaps that have a management team that is demonstrated to execute. And so it's interesting, you go back over time, and yes, we raised capital in January of 2021, as did a ton of other companies, is an enormous time for investment banks to be raising capital for companies. Look at most of those startup companies. They are burning through most of that cash. They've lost most of that cash. And they're going to have to raise more. And we're in a bear market. They can't raise more. And that's why their stocks continue to plummet, because they're going to have to do dilutive rounds of financing or go out of business. Meanwhile, if you look at our capital, we've now paid, we just announced today, another $0.30 dividend. after we just announced a couple of months ago. So that's $0.60 in dividends just in the last couple of months. We also paid a $0.30 dividend last year, in the middle of last year. So we paid $0.90 in dividends, and yet our working capital is up dramatically from the capital that we raised in January of 2021. That's a company and a management team that executes. And again, going back on a little bit of a tangent, I'm so excited about the management team that we have in place now. We have a killer team, people that are incredibly loyal. I don't want to go through their names. I don't want to leave anybody out. But just suffice it to say, in every department, we are incredibly strong. And what we built out in the lab business, we very quickly became one of the strongest CLIA labs for COVID testing in the entire state of New York and, in fact, in the entire country. We are... the darlings of our customers. We knock on wood. I don't believe we've ever lost a customer. And it's because our turnaround times are better. Our IT is more efficient. Our customer service is fantastic. And so now what we have done in the COVID testing business, we want to expand. So I want to talk about the numbers a little bit. But I did want to just say and acknowledge how great our entire management team is. And we literally have been building in every department. And in that regard, we came up with a press release the other day that we just hired Bill White to be our new CFO. I want to thank Monica Brady for doing an absolute fantastic job when our former COO CFO left the company. She took over as the CFO and provided really a smooth transition and done a fantastic job helping build our company. from a $10 million to a $100 million company. Now, the goal is to build our company from a $100 million company to a billion-dollar company. And the thing that we're building in every other department, we're also building at our finance department so that we're prepared as we grow. And so that's why we hired Bill White. Monica was extremely helpful in helping me and our company and our board of directors in searching for a CFO that she will now work with. She's an incredible team player, incredibly loyal. And honestly, nobody has worked harder than Monica. She works 24-7 to get the job done. And now it's simply time to build the department further. Same thing in all the other departments. We have such strong departments. Our IT, and you've got to understand, we built out this lab in this past year, and we did it with state-of-the-art equipment. And the same thing with our IT department. We've built out really sort of custom-made high-end IT platforms that are so easy to use for our customers. So we really are a state-of-the-art lab. It's very difficult for other labs, quite frankly, to compete with us. And so even in this time where COVID may have slowed a little bit, our business, as you can see, is still booming. And there's a reason for that, because we're not losing customers. We're more – diversified lab in terms of our customer base. I can get into this in the Q&A. There's so much to cover, and I'm really going to leave it up to people to ask questions in terms of what directions they go in. Look, the numbers speak for themselves. I also want to give a quick shout-out to a couple of our investment bankers. Of course, Think Equity has done a phenomenal job for us in the last year and a half. H.C. Wainwright picked up coverage, and I'm working very closely with them as well. They're two fantastic investment banks. a part of my job in order to do a good job and our management team to do a good job, you have to have good relationships with investment bankers. If you really want to build, and we want to build to be a billion or multi-billion dollar company, and you need fantastic relationships. I have 40 years of experience on wall street and we have those relationships with these firms. Uh, and of course I already gave a shout out to Redmark, um, who, um, works with us on, uh, with the retail investors. All right. Um, I don't really want to talk a lot about the numbers. They really speak for themselves. Obviously, Q1 revenue is $47.5 million, up 211% from a year ago. The only reason I point that out, up 211% from a year ago, is a year ago, we were heavy into COVID. There was a huge spike in COVID in the first quarter of 2021. Huge, huge testing, huge spike, and yet our revenues are up 211%. Our earnings are up a ridiculous amount. My point being, why are our numbers up so much this year versus last year when there was a huge spike both times? The difference is we're a much more efficient lab, and we have a much more significant customer base that's diversified that we expanded. And so on sort of an apples-to-apples basis, we had a COVID spike both years, and yet our numbers are up huge year over year. I have to mention HRSA. There's a big question mark around HRSA. HRSA is government funded. And quite frankly, a significant percentage of our testing is from, gets reimbursed by HRSA. And so without HRSA, you know, our numbers are going to drop. So, and I have no way of knowing. I'm hoping that Congress gets their act together and actually pass the bill. I just literally heard the other day that the administration is is requesting yet again. And these requests have been going on for about eight weeks now. So I believe, or I hope that sometime in the near future, HRSA will be funded. If it is, we're going to make an enormous amount of money. If HRSA is not funded, we're still going to make an enormous amount of money, just not as ridiculous. Okay. So you can expect COVID does go in waves. You can expect that typically the fourth quarter and first quarters are going to be our strongest quarters when it comes to COVID testing. So it does go in waves. People typically don't test as much in the summer months. The schools are closed and so on and so forth. People aren't as nervous, whatever the reasons. So you can expect sequentially our numbers are not necessarily going to be as strong. I don't expect these types of numbers from the fourth and first quarters. I don't expect them in the second and third quarters. But our numbers, I do expect them to be up substantially year over year. We are a growing company, and honestly, we're killing it, and we're making a ton of money, and it's a great place to be. I don't want to get ahead of myself. I don't ever want to get it carried away. I don't know that it's going to last forever, but it doesn't matter because you're investing in our company. You're investing in a management team that executes, and we are going to diversify our company. The same way we diversified into the Clio Lab COVID testing business, we're now going to diversify our labs. I'm highly confident that we are going to do that. And in short order, we are going to build out a fully diversified clinical lab. So for those of you that are nervous that we're a quote one trick pony, we are not any thing close to one trick pony. Um, and of course, you know, we have our manufacturing, which is growing this year. We have a dietary supplement business, which is growing this year. Um, our COVID testing business is growing this year, obviously. And now we're going to expand into your traditional clinical testing. And then alongside that expansion, not only are we going to expand into clinical testing, at the same time, in parallel, we plan to build a genetics laboratory. This is going to provide, in addition to, and as you know, I'm assuming most of you know our company. I'm not going through all the basics, but with Nebula Genomics, and I'm not going to explain that unless you ask it in the Q&A, but Nebula, Nebula provides whole genome sequencing direct to consumers online. We're going to expand and leverage our food, drug, and mass retail distribution to also sell to consumers in retail stores. We're working on that as we speak. I have this phenomenal head of sales that's been with the company longer than I have, and I've worked very closely with him the last 12 years, Joe Breton. He does a fantastic job. He knows the business inside and out, and I'm highly confident that we're going to be successful in rolling out our whole genome sequencing product in retail stores. If and when we do, I believe that that will be a monster business. All right. So in addition to that, both selling whole genome sequencing online and in the stores, we're going to have a subscription model connected with that. We have a library that is proprietary. We don't believe there's another library in the world like our library where you can go for information when you learn about diseases that you're predisposed to. genetic mutations and so forth. You get to go to our library and learn all about yourself, your personal genetic mutations, potential diseases, et cetera, et cetera. It gets updated with all the latest clinical research from around the world. It gets updated weekly, if not daily. And that subscription model is fantastic for us, huge profit margins. We have a couple of scientists updating it regularly, but So understand the more consumers that sign up for it, it's all electronic. There's very little cost to us to have more people sign up. So it's a phenomenal subscription game plan for us to grow revenues and earnings highly profitable. And then finally, in building out, we want to build, the same way we built out a state-of-the-art COVID testing lab, we want to build out a state-of-the-art traditional clinical testing lab And then we want to build out a state-of-the-art genetics lab. Genetics is huge. It is the future of precision medicine. It is the future of healthcare. At the heart of it is a genetics test. We want to be the leader in this country in providing genetic testing, both whole genome sequencing and a whole range of genetic tests, not only direct to consumer, but then ultimately to physicians. And we're already talking to universities I literally two days ago, I was speaking to a university who does major genetic research and they said this is so exciting that there's going to be a lab right in New York. They don't want to send their specimen outside this country. And he said he has lots of colleagues that are going to be excited about our lab. So there's tremendous potential to all the different things that we're doing in the lab business. No, we are not going to be a one trick pony. And in the meantime, And I'm sorry if I'm ranting a little bit, but as you can tell, I'm very excited about our company. We're going in a lot of directions. We're executing. We're making a lot of money. And there's so much to be excited about. Just this morning in my driveway, pure coincidence, Long Island Newsday. That's the major newspaper on Long Island where our company is located. Big, big headline. Front page headline. COVID alert on Long Island. CDC says community level risk elevated too high. Wear a mask. So... First of all, COVID is not dead. Secondly, even if it's less deadly, it's still spreading as fast as ever. After a year of vaccinations, it spread more this winter than it did a year ago. There was more of a spread. It might have been a little less deadly, but the hospitals were still filled up with patients and everybody needs to be tested. So what's interesting is even if it's a little less deadly, it's still 10 times more deadly than flu. And you still got to get tested. So testing isn't going anywhere. That's what people don't understand. COVID testing is not going anywhere. And our COVID testing business is booming. Okay. So that's it on COVID. That's on expansion. I left a little tweet for all of you in the press release. It's up to you if you want to talk about it. We are also planning on building a pharmaceutical division. There's two aspects to this. One is we are in plans to develop a broad-based antiviral that would be sold in all the same food, drug, and mask stores that we're selling our other dietary supplements in. We think this product would be big. And at the same time, we have plans to develop a pharmaceutical division to develop FDA-approved drugs. We believe that we are – well, I don't know that I want to get too into this right now, But I expect to be licensing some very exciting early stage compounds that we could develop that we can easily afford to develop the first rounds of testing with the working capital that we have. So it's not anything we're all of a sudden we're running out in a bear market to raise capital. That's not how I operate. I do the opposite. I like to pay dividends. I don't like to do dilutive rounds of financing. Big difference depends on what kind of management you want to invest in. Me personally, I'd rather invest in a management team that generates cash and cash flow and pays dividends than a management team that burns through your capital and then asks for more. Okay. I said a mouthful in 20, a little more than 20 minutes. I'm hoping that people are going to sign up for the Q&A. If they don't, I'll go into some more details. um on the call and with that matt uh why don't i hand it over to you i'll get it i'll get more into the various divisions um our subsidiaries um after the q a or during the q a and uh depending on how long the q a is i'm happy to spend a little bit more time talking about the various subsidiaries but i do like the idea of getting into the q a i don't like to be too repetitious um and with that matt why don't i hand it over to you to start the questions

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.