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spk07: 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.
spk01: 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
spk07: 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.
spk01: Matt, we can get started with the questions. I see a number of people already in the queue.
spk07: Thank you. Our first question will come from Yi Chen with HC Wainwright. Please go ahead.
spk04: Thank you for taking my questions. My first question is, could you please clarify that in the first quarter, what percentage of your testing volume was reimbursed by HRSA? And if HRSA is no longer funded, what would be the alternatives? to get lean first for the testing?
spk01: Sure. So, honestly, it's a complicated question. I've never broken it out. The HRSA funding probably was north of 50%. But we are, at the same time, instituting ways to adjust for that so that... So that, for instance, we have any customer, our customers are our collection partners and our collection partners, a couple of our sets of collection partners are actually on the streets of New York City where they have tents. And because of HRSA, if we don't get reimbursed by HRSA, they don't get reimbursed either. So it hurts them as much as it hurts us. And so they are doing an incredibly diligent job and we are adjusting so that they only accept tests from patients that have insurance or for which we have such good information on the patients that it is likely that we are going to get insurance. So, while our numbers, our high-level numbers may drop off a little bit, we're going to adjust by increasing our percentage of specimens that are accompanied by insurance at the outset. So this really is a dynamic situation. But I can tell you our numbers are running up so substantially year over year that even without HRSA, our numbers will still be up substantially year over year in the second quarter and for the foreseeable future. I wish I could give you a more specific answer than that right now. I apologize that I can't, but I hope that somewhat answers your question. And oh, in the last part of this, I just heard the Biden administration they are still fighting to get that funding. And there's a good probability that the HRSA funding is going to come back. If that happens, our numbers will be extraordinary this year for the rest of the year. Otherwise, they're still going to be up substantially year over year, as I said here today. Thank you.
spk04: And my second question is, is the personal genomics testing service already available in the big retail stores? And how's the sales going? How are the sales looking any recently?
spk01: Got it. So, no, we're not in the big box stores yet. We have big box stores. I don't want to mention any names, but we have major retailers that are very interested, and we're actually very far along in the process. But you've got to understand, to go into retail stores, it sounds simple, but we had to completely change the package. The Nebula package that sold online, that's shipped direct to the consumer, That's not a package that's very friendly sitting on the shelf in retail stores. Also, love the job that the founders of Nebula did, Kamal and Dennis, and backed by George Church in starting the company and building it over the last couple of years. But we have 25 years of experience in retail sales, and so we want to optimize the package so that it attracts consumers when they're walking down the aisle. We want to... optimize the package, not only the shape of the package so that the retailer is accepted on the shelves, but we want to optimize the claims on the package. So there's a number of variables that we're working very, very quickly on. We're in late stages of finalizing the package, making final presentations to retailers. But unfortunately, I wish this was a fast process. It just isn't. We've been through it a number of times. And I don't want to give exact timing, but we're in late stages of finalizing the package and getting it on the shelves. You know, but we're talking, you know, months, you know, late this year. We're not talking about the next few weeks. But we expect and our goal and understand the goal in putting the package on the shelf, you have your 5%, 2%, 5%. I don't know exactly what the number is, percentage to the public that knows about whole genome sequencing. 95% of the country doesn't even know what whole genome sequencing is. Our goal is to get this out to the masses and educate them on how interesting it is not just to get information about your ancestry, but to get information about your health, about diseases that you're potentially predisposed to. I mean, that's such critically important personal information. If we educate consumers, we think that there's a monster market that is untapped. And that's the goal. So we have not rolled out in storage yet, but we are highly optimistic that we're going to be successful. We have 25 years of expertise doing this. And I think You know, you can bet your bottom dollar we're going to do this the right way. And I'm very confident in what we're and the packaging that we're developing and the responses so far from the retailers has been excellent.
spk04: Thank you.
spk01: Yeah, thanks so much for your support, and I appreciate the questions. Matt, we can go on to the next question, please.
spk07: Thank you. Our next question will come from Patrick E. Patterson with Home. Please go ahead.
spk03: Good morning, Ken. Phenomenal job. Terrific numbers. I'm just really shocked. You're great. Ted, I really have two questions. And the first one is about the whole genome sequencing. And I'm watching a couple ads from Ancestry.com and 23andMe, and they're advertising that they can do health things also with their product. Can you just go in a little bit and explain the differences and what the advantages are that Nebul has? Sure. It's night and day.
spk01: It's not in the same ballpark. If you want to learn about your health, you want to know details. You don't want some just overall picture. You want details. You cannot get the intricate details of from the way they do sequencing compared to whole genome sequencing. What they do is very inexpensive way that they study a very small percentage of your genome. It's great. It's all they need in order to provide you with detailed ancestry information, especially after they've tested so many people around the world. It's easy for them to go with a low-cost genomic test to study a very small percentage of your genome to tie you in to other people around the world that have, you know, that same genetic makeup. So, therefore, they can give you, you know, high level ancestry information the way they do their testing. However, I don't see why anyone, once you learn about whole genome sequencing, would ever pay for their testing if you want to learn about health information. So, to put it in perspective, you can get high level, you know, granular ancestry information and minimal health information from their test, or without a test, you can get, you know, basic ancestry information, but very high-level health-related information. So if the reason you're ordering the test is for ancestry information, yeah, go to one of those companies. You know, most people that want ancestry information have already done that test, okay? So they actually have difficult business models. We, on the other hand, we're at the forefront. You know, we're at the beginning. We're, you know, it's first inning. I don't even know. We're warming up. It's not even the first inning yet. So reaching out to the masses to educate them about health-related information. If you want high-level health-related information about your genetic makeup and diseases that you're predisposed to and so on and so forth, then you're going to want whole genome sequencing. The reason why those companies that you mentioned don't do whole genome sequencing is is because historically it was so expensive. It was out of the reach of the average person. The average person who wants ancestry information doesn't want to spend $600, right? You know, even up to like a year ago, you know, $600 was the lowest, and that was the base price of the whole genome sequencing. That's the cost of the lab. So then to the consumer, it would be like over $1,000. Nobody's paying that to learn about your ancestry information. So it was a model where they could not provide whole genome sequencing. And so it's not the way they do business. They're in a completely different business. But to be honest, we shouldn't even be comparing to them. The only reason we ever even make comparisons to them is because those are the names that everybody hears about and everybody knows about. They're not, excuse me, they're not in the business that we are in. I hope that answers your question, Pat. And I appreciate it. It's a great question.
spk03: No, yeah, that does answer, Ken. My other question is about this potential new product, this over-the-counter antiviral dietary supplement. You mentioned, are we talking a supplement that's preventive or one that's for treatment after you get it?
spk01: That is a great question, and I'm jumping ahead. And I don't know, maybe I shouldn't even put it in the press release, but I want shareholders to understand that we are continuing to diversify and grow. We have an incredible platform. I mean, I had this platform two years ago when we had a dollar and a half stock, you know, we're doing $10 million in revenues and breaking even. Okay. So we had a platform, we had a NASDAQ platform, you know, with a history and people and infrastructure and all that stuff. I and our management team took that to the next level, you know, to be this a hundred million market market cap company with over 50 million in network and capital and We're a different company. It's a different platform now than what we were just a year and a half ago. We're a completely different company, completely different ballpark. Our platform is five levels above what we were a year and a half ago. So now with the platform we have now, now with this platform, I can build the company and our management team can build the company the next day. So one of those things that we're doing, we're looking at opportunities all the time. And I just wanted everyone to know we're in, late-stage discussions on, you know, I'm not sitting here sleeping at the switch and I'm not resting on my laurels. And, yeah, to be honest with you, Pat, I really appreciate, you know, you saying great quarter and all that, but I don't want people to get spoiled by the quarter. Sequentially, we're probably not going to have numbers like this in the second and third quarters. We might in the fourth quarter, but we're not likely to in the second and third quarters. The demand just isn't there, even though we do have this new spike of COVID coming. So, you know, there are a lot of variables. But the point is that's just one business. I'm on to building the next business already and the next two businesses. So we're getting into genomics, and I want to build a pharma company. When I launched the proxy contest to win control of the company, we had a pharma division, and I thought that that was going to be worth a lot of money, and that's why me and a lot of other investors were actually invested in the company. After I won control of the company, I found out it was worthless. What I can tell you is the pharma division that we're going to build now, we're going to execute on the same way we executed on the CLIA lab. So if I tell you we're going to build a pharmaceutical division that has big potential, you can bet on it. And I'm simply telling you I'm in the late stages of developing that. I'm really excited about it, and I will be updating shareholders in the coming months, but I'd rather not get into any more, you know, many more details on it tonight.
spk03: Okay. Thank you, Ted.
spk01: Thank you, Pat. Really appreciate your support. Matt, next question, please.
spk07: Our next question will come from Robert Titus with MRTN. Please go ahead.
spk06: Hey, Ted. Stellar quarter. It's really nice to see so much free cash flow generated again. My question is, with the ramp-up in hiring, and especially particularly Bill Light, I noticed that he had some international experience. And I was just wondering, does Propase have – can you speak to – any plans to expand internationally?
spk01: Wow, that's a great question. Isn't that interesting? So, actually, you know, I mentioned the founders of Nebula Genomics, Kamal Abad and Dennis Grishin, who are really, really bright people in founding Nebula, and, of course, backed by world-renowned George Church. But then we hired Sam Beeler to be our chief strategy officer for that business for the prophase precision medicine subsidiary. And he has tremendous relationships abroad. And, you know, I think I've mentioned, I don't know, I think I mentioned one of the companies. Actually, I think I mentioned before, so I can mention G42. It's a $10 billion company that probably has the greatest initiative of anyone in the world for doing whole genome sequencing through the Emirati genome product, EGP. And they're tasked with conducting whole genome sequencing on, like, everybody in the UAE. I mean, what they're doing is vast, and they want to do something worldwide. And they want to develop a relationship, a partnership with us, because they don't have a presence in the United States. And the United States, of course, is one of the biggest, if not the biggest markets to go after. So they're actually excited to work with us. So Bill is going to complement initiatives that we're already working on. The reason we hired Bill, if we were just going to remain a $100 million company, our current CFO, Monica Brady, is fantastic. She's so loyal, works 24-7 and gets the job done. We switched auditors, built a whole new business. She oversaw all of it from the finance perspective. She did a fantastic job. I want to build to a billion and multi-billion dollar company. To do that, you have to continue to build. Bill brings some tremendous experience and perspective and skill sets. that are complimentary to Monica's. So I think we're going to have the dream team on the finance side. Yes, absolutely. And to be honest with you, I've been working with all the investment banks myself all these years. You know, I have a 40-year history with Wall Street. I worked on, you know, Wall Street for decades. So I've been doing all that myself. Bill has a lot of expertise. It turns out he has a lot of the same relationships I do. In fact, I was introduced to Bill through Think Equity, our investment bank. And so, you know, it's a match made in heaven. He's just going to significantly add to our overall team. And absolutely, on the global front, he's going to be very helpful in working with Sam on the Nebula side, but also in every subsidiary of our company.
spk06: Yeah, that really helps. I was kind of reading the tea leaves there, so I appreciate you shedding some light on that. Thank you.
spk01: Oh, you're quite welcome. Thanks for the questions. Matt, next question, please.
spk07: Again, if you have a question, please press star then 1. Our next question will come from Dennis Waldman with Barrett Productions, LLC. Please go ahead.
spk00: Hi, Ted. Congratulations on an awesome first quarter. Pat actually asked my initial question, but I'll ask a question about the diagnostic testing. You're saying that you don't see second and third quarter having the same sort of rates. Yet I live in New England. I watch the New York rates quite a bit. Positivity has gone in the last month from 3% to certain areas that are over 20%. The CDC is saying that we're expecting another surge in the New England area, in the northeast area. How could you be so sure that we're not going to see the same sort of numbers that we saw in the fourth and the first quarter?
spk01: All right. So, Dennis, what an amazing question. First of all, I really appreciate your support. And actually, it's a fantastic question. So here goes. I don't want to get too caught up in myself, and I don't want shareholders to think that every quarter we're just going to keep announcing, you know, revenues up a bazillion percent and earnings up a bazillion percent. All right? It's just not fair to put that, you know, I don't want to put that pressure on myself, and I like to under-promise and over-deliver. And I think that I have done that. for 12 years as CEO of our company, all right? And that's the reason why we've paid out $2.10 in special dividends. We had a stock that bought at $0.65, paid out $2.10 in special dividends, and we now have over $50 million in net working capital, all right? None of that happened by accident. But I'm really interested in continuing to collaborate and partner with long-term investors, and I just can't and won't be changed to short-term traders. And I want our shareholders to keep that perspective that if you're a long-term shareholder, I'm the largest shareholder in the company, and, you know, I'm going to build the value of the company to protect my interests. And I say that just to make all of you feel better. The truth of the matter is I care more about your investments than I do mine. It's just the way I was born, and it's the way I'm wired. And I want everybody who's a long-term shareholder to to do really, really well, but I don't want them to get wrapped up in short-term psychological swings. I've invested in hundreds, if not thousands of companies over 40 years. The only time I ever really made substantial money were in the smart long-term investments. I never made it on the deals where I thought I'd own something for two or three months or five months. Never, ever worked out. Yeah, out of all those investments, I lost a ton of money in all of them. The only ones that I made money were in the ones where I invested in something long-term and the management team executed. And that's why out of a thousand investments, maybe five worked out, but the five worked out big enough to put me in the position where I'm in now. So I just want people to have that perspective. I don't know what our next couple of quarters are going to be. And yes, that Long Island Newsday newspaper, that literally just came out this morning. It was on my driveway. I picked it up coming into work, which is why I mentioned it. Yes. And I've been telling everybody there are more waves of COVID coming, you know, but I can say that, you know, until I'm blue, but, you know, whether people want to listen or not. And so, yes, our testing is continuing. Our testing is significant. We have a wrench in the works in that HRSA isn't funded. And a decent percentage of our business, Yi Chen is nice enough at A.T. Wainwright to follow our company and do updates. He really does a fantastic job. And, you know, he asked the question about the percentage HRSA, and I admitted it is over 50%. So, I mean, that's a dramatic difference. If you cut out half of our revenues, you're going to cut out more than half of our earnings, of course, because you still have the overhead. So I don't know what's going on with HRSA. It's a real wild card. Without HRSA, it means that we're only going to get reimbursed from people who have insurance. But the issue is a lot of times people don't have the insurance with them when they're walking down the streets, but they have it at home. But what we're doing is we're continually, we have such a sophisticated IT system that We're continually upgrading so that if they don't have their insurance with them but they have it, we're instituting policies for collecting specimens only if you provide your legal ID like a driver's license. And we have IT in place to actually scan your driver's license. So the odds of us getting insurance goes way up. So we've got two variables. We have HRSA that may not – and I didn't say the numbers, you know, but the numbers are high and it depends on the customer. So it varies. But it is more than 50%. But on the other hand, I think that we're going to start getting a higher percentage of people that have insurance. So I don't know where the numbers play out. And that's why I know that year over year, the people that we're testing now that have insurance is significantly greater than the total number of tests we were doing a year ago at this time. Significantly greater. So without HRSA, I know our numbers are up. I just don't know how much they're going to be up without HRSA because we were making so much money off of HRSA. And when I say we're making money, it's not a bad thing. It's a good thing. It's testing people that don't have insurance. The amazing thing about all of this is that HRSA funds people who are in poverty, people that don't have insurance, people who are minorities, people who are struggling. You know, those are the people that need a good health care. So how do you not fund HRSA to take care of these people? So I think it's inevitable and logical that HRSA will be funded if it is, you know, I'll be very excited, but long-term, my game plan is a lot bigger than COVID testing, all right? And I hope that I'm sure that came across on this call with the other things that we're working on. The Nebula Genomics, I'm telling you, genomic testing right now is where the Internet, and I've said this before, it's where the Internet was 20 years ago. Why wouldn't you want to invest in a company that's at the beginning of an exploding industry? And we have a demonstration. we've demonstrated that we execute and we have great people. We've got George Church, world renowned leader in genomics working in partnership with us. I mean, what more could you ask for? We have a couple of brilliant people from Harvard who, who founded Nebula and then our whole management team. I think we're going to blow this up big. But this is something over the next few years, did you in, in 1998 or 1999 or 2000, you know, you did look at, you know, Amazon and, and, and Google, and did you look at these companies and say, oh, wait, this took three months longer than I expected. It's a lousy investment. No, there's something you buy, you put it away, and you watch it blossom. That's what I'm doing in genomics. And I'm not even resting on that. I'm going to continue to build the COVID business, but we're going to continue to build our entire clinical lab business. That's going to take time, but we're doing that this year. So we're going to have a fully diversified clinical lab. We're going to have the genomics. And then in addition to that, what I discussed about the pharma business, this is the first time I've mentioned this, and it's the first time I've put it in a press release. But we're in late stages on what we're working on there, and I'm really excited about it. That's something I've been working on for many, many, many months. But I'm the opposite of most management. I'm not going to hype something that's not real, and I don't talk about something until it is real. And so this is something I've been working on for literally, you know, six months or nine months that I haven't talked about before. And if I'm talking about it now, it's in the late stages, not in the early stages. So I have, you know, some exciting things up my sleeve, hopefully for our shareholders, but it's for long-term shareholders. And I hope that answers your question. So look, the short answer is, and I went on because I don't see a lot more questions. The short answer is I don't know what our numbers are going to be for COVID. And frankly, I don't care. Would I like to earn more money over the next couple of quarters? Sure, of course. Why wouldn't I? And I hope to, and I expect that our company is going to be very profitable over the foreseeable future every quarter. But I want to build a multibillion-dollar company. I'm not doing that with COVID testing. COVID is generating an enormous amount of cash. It puts us in the enviable position, unlike the 98% of other micro-caps that are all trying to raise money and have burned for all their capital, and that's why their stocks I've gone down 90%. There's a reason why the stock market just crashed over the last six months, and our stock's up over the last six months. It's not an accident because we're executing, we're generating cash flow, we're generating earnings, and we don't have to raise capital. We don't need investment banks to raise capital right now, but the investment banks are working with us as we build a multibillion-dollar company, and they see the potential. The reason they're following us and working with us so closely is because they know that the potential is there for us to grow big, and so there'll be a lot of capital activity in the coming years. And they're long-term, and that's specifically why I like Think Equity and A.C. Wainwright so much, because they are thinking long-term with me, and they're truly partners. You know, of course, Think Equity, you know, raised all that capital for us a year ago. They just did a phenomenal job. I mean, like, surprisingly phenomenal job. So we have all that to build a company longer term. I'm sorry I ran on a little bit. I'm obviously excited about the future of our company. I just don't want people buying the stock because they're trying to figure out Are we going to earn $0.10? Are we going to earn $1 in the third quarter? It's just not relevant to why you want to be invested in our company. Wow, that was a long answer to your question, Dennis. No, it was.
spk00: But I am long-term, and I do wonder about how ProFace gets affected by what's happening in the current world, of course, like everybody else. How are uninsured people getting tested now?
spk01: They can't.
spk03: But they have to pay cash, you know, if they have the cash.
spk01: But now if you're talking about people who are uninsured, they're also poor, then guess what? They're not going to want to get tested, which is a shame. Because at the end of the day, the best way to handle this COVID problem is to get tested and find out as quickly as possible if you have COVID. And if you do have COVID, quarantine immediately before you spread it. I mean, it's the most logical thing in the world to get tested, find out if you have COVID, if you have symptoms. You feel sick. And so right now, what's also, this whole notion, this whole idea with masks and no masks and do we, you know, people are worried now. There's so much government, politics, and psychology and media. That's, which has absolutely nothing to do with what's going on with COVID. We have a monster outbreak of COVID going on right now. A year ago, everybody would have been in a panic. Right now, nobody's paying attention. They just changed the rules. You don't have to wear masks. Now, I don't know if masks help with COVID or not. quarantine and stay away from people does. So listen, I don't know what the answers are. I just know that the way the media covers this isn't always accurate. And the way it's handled politically isn't always accurate, but yeah, for people without insurance, they got a real problem right now. And that's why I think I just heard that in the last two days, the Biden administration again is, is pushing hard on getting HRSA funded again. So I'm assuming it's inevitable. It's going to, it's going to, then we're just going to have, you know, killer numbers. I'm just being honest with you. But my other point is we don't need killer numbers to build our company. We have all the capital. We have all the management. We have all the initiatives in place. I believe we're going to grow a very large company over the next couple of years, with or without COVID. COVID, to me, is sort of icing on the cake that it's just generating extra profits for us while we build these other businesses. Right. And pay dividends. That's such a bad thing, generate capital. I mean, here we pay a $0.30 dividend, and our working capital and the earnings that we generate is dramatically more than the dividend we paid. So we can pay out a dividend and still be better off than before we paid the dividend. You know, two quarters of the world we did this, and we did it last year. It's not a bad place to be.
spk00: Well, congratulations again, and thank you for your answer.
spk01: Thank you so much, Dennis. Really appreciate it. And it looks like, Matt, we have another question.
spk07: Our next question will come from Kyle Kruger with Apollo Capital. Please go ahead.
spk05: Good morning. Ted, how many nebula genomics tests were sold during the quarter? What's the run rate on that since it's your incipient business?
spk01: Yes. That's a great question. I've got to be honest with you. I don't even know the answer to that question. In my mind, we're still in the very early stages of building it. You know, if you wanted to – I really don't know what the numbers are. In general, you should assume that we're probably somewhere around, I don't know, 1,000 tests a month, and we're looking to grow that number, and that's online. But, again, we haven't – formally dropped our prices permanently. We're still working on longer-term major deals for the sequencing. And, you know, we haven't gotten into retail stores yet. And retail stores, you know, those numbers could go up by multiples very, very quickly once we get into retail stores. So we're in the early stages. I literally, I don't know the numbers. It's almost sort of immaterial to me, to be honest with you. And not to mention the fact we haven't posted them publicly, and I don't want to say anything out of turn. So I apologize for not giving you a definitive answer, but I gave you a ballpark, and our goal with this is to grow those numbers dramatically. But even having said that, at 1,000 whole genome sequencing tests per month or in that ballpark, we're a major player in that business direct-to-consumer, a major player. Nobody even comes close. Everyone else pales in comparison. While all the other companies in the business want to partner with us, to use our volume to try and leverage them getting better pricing. But we're the leader and we're just starting out. And with our capital and our expertise, even our numbers, I think we're going to blow them out of the water over the next year.
spk05: Yeah. Okay. My final question is on the reported revenues for the quarter. Are all those revenues associated with reimbursement certainty? Or are you saying that half of the revenues are related to uncertainty.
spk01: That is a brilliant question. Can I tell you, that is an absolutely brilliant question. Oh, my God, you have no idea what we've had to work through between our finance team and our auditors. The answer to your question is we have reserved for whatever revenues are questionable. that we're not going to earn. So, so what you, what you see is what we expect to get. All right. And so our earnings are based on, so basically our earnings are based on us not earning anything from HRSA after March 22nd, because HRSA says that they're not accepting claims after March 22nd. So any testing that we've done since that time on uninsured people is not in our is not in our numbers, although there's still a possibility that we could actually collect on those. And then, you know, we have reserves. We have big reserve numbers. I don't want to – Monica's going to kill me if I say something I'm not supposed to or that I say something incorrectly. But what I can tell you is our numbers, our auditors make sure, and we make sure anyway, to report the accurate numbers on what's real and not what we hope. So those are not inflated numbers at all. I think that's the best way to answer that question. And I hope that answers your question. Yes, absolutely. Our numbers, you know, all right, good, good, good. Really appreciate it. That was a great question. Thank you, Matt. We have another question. Thank you.
spk07: Our next question will come from Fred McDonald, a private investor. Please go ahead. Hi, Ted.
spk02: Hey, Ted, how many currently do we have for temporary employees and how long does it take to get them productive?
spk01: Oh, good question. So, um, You know, I've covered this before when things were crazy in December and January. You know, and I've mentioned, I don't love mentioning names per se. Jason Karkas built a tremendous customer business that absolutely exploded, particularly in December and January. And Alice Leoy completely restructured our lab, and they worked together as the co-COOs. And Alice developed a strategy for hiring temps. so that as the business builds, she adds more temps. As the business flows, she lets the temps go so that our overhead is more in line and our overhead is more variable and it's not all fixed so that we can still be profitable at lower levels of testing. So I can't tell you what the exact numbers are right now, but we have a nice cushion so that if the testing ramps up significantly again, like it did a few months ago, we'll be prepared for it. But at the same time, our overhead is very efficient at the moment. So we're monitoring this on an almost daily basis in terms of the amount of testing we're doing, the amount of testing we expect to be doing, and then varying our overhead and our employees accordingly. But you've got to understand, after a year and a half of doing this now, we have a really good team. We just had something called Lab Week two weeks ago that everybody participated in, and it was like a little special party each day with wearing different clothes and doing different things. And there was so much camaraderie within our lab. I was so proud of everybody truly. And so we have a great lab. We have a great team in terms of the overhead and the temps fit right in and the flexibility is fantastic. So we're in great shape. We have a, we always keep a cushion relative to where we are now. So we have a cushion if things grow. And I gotta be honest, we're, we're, we're doing, I mean, we're doing more business now than we were a year ago. Things were crazy. First quarter, 2021, things were crazy. You know, if we did 2,000 tests in a day, we're like, oh, my God, we just did enormous. Now, you know, we've had days where we do 3,000 or 4,000 tests, and it's like the lab is quiet. It just runs so efficiently. It's scary. You know, how nice is business? And I also got to throw in Sergio Morales, who did such a great job on our IT, which is what also helps make it run so efficiently. So this whole team has just made things run so efficiently. So, yeah, we have a nice cushion of people. The employee overhead, which was such a big deal last year, isn't an issue for us at all anymore. And so we're very well positioned if we ramp up again. And if not, we're hugely profitable with the amount of testing we're doing at And, again, even without HRSA, we're doing more testing now, significantly more testing right now than we were a year ago at this time. And that's without HRSA. If HRSA comes back, you know, the numbers, you know, overnight, you know, could double or more. I hope that answers your question. And we're at the top of the hour, so, all right, you're quite welcome. Matt, if there are no more questions, I believe we should probably end the call now.
spk07: okay the conference has now concluded thank you for attending today's presentation you may now disconnect
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