ProPhase Labs, Inc.

Hello and good morning everyone. Welcome to today's presentation. My name is Noella Alexander-Young, Virtual Event Moderator here at Runmark Financial Communications. On behalf of our team, we want to thank everyone for joining us today for ProPhase Labs' first quarter 2024 results. ProPhase is trading on the NASDAQ under the ticker symbol PRPH. Presenting today is Ted Karkas, Chairman and Chief Executive Officer. That being said, I will now hand the floor over to Ted.

Before we get started, I'd like to remind you of the company's safe harbor language. During this presentation, we will make forward-looking statements, including statements regarding our strategies, plans, objectives, and initiatives and underlying assumptions. While we believe that these forward-looking statements are reasonable as and when made, forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include but are not limited to our ability to obtain and maintain necessary regulatory approval, general economic conditions, consumer demand for our products and services, challenges relating to entering into and growing new business lines, the competitive environment, and the risk factors listed from time to time in our filings with the SEC filings. This call will present non-GAAP financial measures such as adjusted EBITDA, Reconciliation of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC prior to this call and available on our website. So with that, first of all, I just have to give a shout out to Think Equity, who we have closer to a four-year relationship with. was instrumental in financing our initiatives when we built out the COVID business that went on to do a couple hundred million in revenues. They brought us some fantastic acquisitions that are now developing. So I always give a shout out to Think Equity, also to the other companies that follow us on an analytical research, analytical basis, including HC Wainwright and Diamond Equity Research. So with that, I don't want to go through the presentation again. not that much has changed in the presentation itself from the last time i did an earnings call just six weeks ago and so i was going to start the call by saying not that much changes in six weeks but the fact is if you read the press release today a lot has developed in the last six weeks so before i get into it i always like to put a little perspective i really do believe that a history of execution in a microcap company is critically important when a management executes historically your probability of success goes up on the next initiatives that management is focusing on as opposed to a management team that's new that's starting up a company for the first time has quote some breakthrough technology that they're excited about. The risks are much larger when you have a management team that you can't assess. So I'm not gonna go through all this again, but again, in 2012, when I restructured the company, the stock was 65 cents. Stock's around five and change right now, paid out $2 and 40 cents in special dividends. So you're up 11, 10, 11, 12, 13 times in total returns in the last 11 or 12 years. More recently, a few years ago, our stock was about a dollar and a half. It's more than tripled. We paid out another 90 cents in special dividends since that time. So even in the last few years, tremendous returns to the shareholders. We've transitioned multiple times now. Some years we're a development stage company spending money to develop assets. Some years we're generating revenues and earnings. And it goes back and forth. And that's the life and cycle of a development stage company. So first we turned around the Coldiz brand, lost money building the brand, sold it for $50 million. I did the same thing, by the way, with ID Biomedical. I was instrumental in the turnaround of the company that ultimately was sold for $1.4 billion. That was before I did the same thing with our company. All right, so I have a history of doing this. And it's not just me. We have a great management team in place here. In any event, after we sold the Coldiz brand, Then we went back really to being a development stage company. Again, we did stock buybacks and dividends at the time. And then we got into COVID testing, generated a lot of revenues, made a lot of money. But now we're back to a development stage company again. And so you can expect in a development stage company, developing assets, you're going to lose money. I have no interest in focusing on the losses of the last couple of quarters. We're going to lose money next quarter again. But at some point with the new assets that we're developing, they're going to take off in value. So the one that I really want to focus on today that's the focus of the earnings report is Formulaz because there are some interesting new developments. Very quickly, so we're all on the same page here. Formulaz is a business we've owned for decades. The supply demand over the last several years for manufacturing of lozenges has shifted where there is less supply of manufacturing and there's enormous demand both globally and domestically here in the United States. And so for the last two years, understand this isn't, you know, there's the line about the 20 year overnight success. And I actually looked up some quotes about 10 year overnight successes and it takes 10 years to be an overnight success. Well, formulas is all of a sudden going to sound like an overnight success. But besides the fact we've been developing it for a long time, specifically over the last year or two, we've been specifically focusing on building the capacity so that we can take advantage of of the global demand so that we could have an asset worth tremendously more over the next six months relative to what it was worth last year. So last year we did about 9.3 million and actually lost a little bit of money. we increased prices on all of our customers they all accepted the price increases they're kicking in now we got uh two new orders in uh from two new uh brands that adds another five million of revenues so between the price increases and the and the two new orders going into the second half of the year just on existing business on the first manufacturing line We're going from $9.3 million losing money to about $16 million in annualized run rate of revenues and making substantial money, somewhere in the order of $3.5 million of profits. That'll be our run rate as the current new customers ramp up their business. One we've started to ramp up already. The other one we're going to be ramping up. probably later in the second quarter, or we're very close in hand. So going into the third quarter, all of a sudden the numbers dramatically changed for Farmless. More importantly, we have a second line of manufacturing equipment. We have additional automation equipment coming in. It's going to significantly increase our capacity, which now for the first time sets us up to be very attractive to very large brands who need capacity. And so as I announced today, we are exploring strategic alternatives with formulas. I don't make that statement lightly. It's not just an idea. This is something that's been in the works literally for a year and a half to two years in terms of the planning and then the execution of building out the capacity, And then starting negotiations with large brands. I mentioned, I can't remember, it was two earnings calls ago that we were in talks. So understand, even just the talks with the large brands, lozenge brands have been in effect for many, many months. This isn't just some new idea. Oh, we're going to talk strategic alternatives. This is very far along in discussions. And it's the only reason that I even mentioned it. Doesn't mean there's a guarantee it's going to happen. It's also not a guarantee that we will accept any offer that comes along if there is an offer. And I don't want to get into details because we have lots of options here. We could either sell the facility now, potentially, or we could negotiate for the second line, which is of course going to have tremendous capacity and will be very attractive. to some very large lozenge brands they may want to lock up the capacity if they lock up the capacity i'm going to want a down payment because it means cutting out all the other customers that we're meeting that want the capacity as well we were recently at an expo we have a potentially a dozen new customers smaller customers that could potentially fill up the second line as well so we have different possibilities a couple of opportunities there a couple of possibilities for significant liquidity events. So this is all very exciting. Happy to talk about it more in the Q&A. I really don't want to spend a lot of time on slides that I've reviewed in the past. This entire presentation, by the way, is available on our website. When there are updates, go to our website at least once a month. Anytime we have a new press release, we usually update this presentation as well. So feel free to go to the website. So that's really exciting for today. Conceptually, before we get into the next slides, we're going to get into Nebula Genomics very, very briefly. I just want to explain that when you're developing assets, when you're developing businesses, there are always bumps in the road. There's no such thing as just snapping your fingers and taking a business and making it worth $5 million, and all of a sudden, it's worth $50 or $100 million. Every once in a great while, it happens with a technology company. You only hear about the one technology company that just takes off. You don't hear about the other 99 that fail unless you're invested in them. And it's not easy building a new business. And so with Nebula Genomics, we have a new go-to-market strategy. I'm not going to go too much into what Nebula Genomics is, other than the fact that it was founded by George Church, world-renowned in the field of genomics. We built a world-class lab. We were doing COVID testing. We converted to a world-class lab here in New York. That lab costs a lot of money to manage right now. We're not generating the business currently to support the lab. However, I believe that six and 12 months from now, the Nebula business is going to take off, and we're going to be happy that we have the lab. We don't need the lab. Historically, when we acquired Nebula Genomics, it didn't have a lab. It sent all the specimens to a partner lab. But our thought is we could provide testing even less expensively if we did it ourselves, but that's in the long term. But the other part of having a lab, it's not just the P&L of sequencing a specimen in-house versus sending it to another lab. There are some other factors at play here. One is in the long term, if somebody is interested in our business, it's going to be a lot more attractive if we're vertically integrated and horizontally integrated and we have a lab and we have all of these other pieces. The other part of it is a lot of people are so worried about data privacy these days, they don't want you sending your specimens abroad. The fact that we can do the sequencing right here in New York, and then ultimately we have four world-class, latest, greatest, state-of-the-art platforms of equipment that allows us to be the most efficient in terms of turnaround times, pricing, and so forth. So it's incredibly well-situated. But the truth of the matter is the real value in Nebula – It's in our bioinformatics platform. It's in the reporting system. And separate from that, it's in our database. So I can go more into it in the Q&A, but understand the real value of Nebula is in our reporting system and our database that we're going to leverage over time. We're building a very exciting new go-to-market strategy where we're going to leverage some world-class social media and podcast experts. We're potentially going to bring in some well-known celebrities to really get behind this. I just think of products and I love to think of Prime because it's just a hydration drink that came out of nowhere it got some celebrities and some social media behind it you know and now they've sold a billion bottles out of nowhere now understand it's completely different business but the concept is the same i believe we have the right people in place it took time to figure this out and that's why i say this is a work in progress nebula is a work in progress but so understand it's nice to have different assets in different stages of development so that we have formulas is about to kick in with either liquidity events or profitability. And that was two years in the making to get it to the point where it is now. Nebula will be next. I can't tell you which quarter it's going to take off. It's going to be, you know, probably fourth quarter and first quarter next year. But Nebula is a really exciting business with enormous potential and the different directions we can go in with it. And again, I'll talk more about it in the Q&A. I'm not going to talk more about it now. But then next, we get into our esophageal cancer test. Again, this is all development stage. This is six years. Nebula is six years in its development. Be smart, esophageal cancer test is six years in its development. It's not an overnight wonder. Nothing happens overnight. But we're going to go from no one paying attention to this test. Clearly, I don't believe there's anything in our market cap for this test. And yet this literally has multi-billion dollar potential. This is a breakthrough cancer test that is sorely needed in the medical community and more importantly, for patients. I sincerely believe this is going to save patients' lives. And I think it's going to save insurance companies billions of dollars. So it only makes sense. I can't tell you exactly how we're going to commercialize this yet. But what I can tell you is I work 24 seven. Everything I do is for the shareholders. I'm the largest shareholder in the company. Friends of mine are the other largest shareholders. I create value over time. That's not a guarantee of the future, but I always have in the past. And frankly, what I'm working on and what our management team is working on right now, I'm significantly more excited about than anything I've ever worked on literally my entire career. Forget everything else that I just talked about. Farm allowance to me is now just crossing T's and dotting I's. That's just a matter of time before we generate some significant value to the shareholders. That I highly believe is going to happen one way or another, whether we sell it, sell the second line, the capacity of the second line, or whether we just build the business and start generating a lot of revenues and earnings, maybe sell it in 12 or 18 months. That's sort of on a fast track to success now, not very complicated. All right. Nebula Genomics, I think, has tremendously more potential than our farm allows manufacturing facility. But it's probably, I don't know, six months, nine months behind in terms of the ramp up in revenues and earnings and recognizable value. And then we have our Be Smart Esophageal Cancer Test, kind of the same thing. But what I like about these assets that we're developing particularly would be somewhere, this is not costing us a lot of money at this point. It's not like a cancer drug where you're spending tens and hundreds of millions of dollars in 10 years to develop it and all that. We're about to commercialize this. And we're not spending $10 million a year or $15 million a year right now getting it ready for commercialization. We're spending a small fraction of that just to complete. Right now, we're not even really doing a lot of studies. We're doing statistical studies, statistical analysis Because originally this was focused on more as a test to tell you whether or not you have cancer. But our test actually does a lot more than that because we have breakthrough IP patented discoveries relating to the proteins that shift and are expressed differently when you're developing esophageal cancer. And so our test can recognize those shifts in proteins. That's something that, by the way, doesn't show up in blood until you're far too progressed, and it's too late, and potentially you get diagnosed, and you're going to die of esophageal cancer. Is it really a great test if it says, yes, you're diagnosed with esophageal cancer, and 80% to 90% of people that are diagnosed die, and if you get diagnosed, and two years later, you die of esophageal cancer? Is that a great test? I guess maybe to put your financial affairs in order. But wouldn't you like a test that actually saves your life, that instead of tells you just before you die, it tells you years before that so that you can get an ablation procedure or take other actions to actually prevent getting the cancer? That's what our test does. So we're actually fine tuning the statistics right now, not only to tell you whether or not you have cancer now. That we can do with an incredibly high degree of accuracy. But in addition to that, right now what we're working on are the statistics to tell you if you're at high risk or low risk. If you're high risk, go out and get an ablation procedure immediately to save your life. If you're low risk, you don't have to get an endoscopy every year. Right now, the insurance companies are spending billions and billions of dollars on unnecessary endoscopies. They're doing that because they don't know. The GI doesn't know if you should be getting an endoscopy every year or not. But our test will help guide the proper diagnosis and prognosis, best course of treatment for the patient based on whether you're low risk, medium risk, high risk, or you have esophageal cancer right now. So this is an incredible test. It's just remarkable to me that there's nothing in our stock price for it. And listen, as CEO, I don't know if I should say this or not. There's no guarantee this is going to happen. Maybe somehow we just don't figure out how to commercialize it. I don't know if there's even a possibility that we would fail in this. I guess there's some forward-looking statement. No guarantees. I don't see how this isn't going to be a monster test. You look at a company like Exact Sciences with a 10, 11, 12, $12 billion market cap. And by the way, they came out with earnings and said that they have competition now, right? We don't have any competition for our test. And what's the value of it in our stock? I don't know, zero? uh what's the potential it's not an at-home test now but we're also going to develop stage two and you know phase two and phase three of this test who knows one day it might be but right now where we're focused on are the endoscopies because there's millions and millions of endoscopies performed every year and we're not telling people get endoscopies but if you're getting one take our test alongside of it and it'll give you a high degree of accuracy for diagnosis and prognosis and course of treatment that you don't have without our test So I think I stated pretty clearly the excitement of this test. So if we have formulas that we're going to realize significant value, knock on wood, very shortly, you know, whether it's through sale or sale of the second line or through just building revenues and earnings for it. And then behind that, we have nebula and our be smart esophageal cancer test. And I'm not going to go more into the numbers. Again, I can do that in the Q&A. Again, our focus is 7 million endoscopies per year. Our goal, once we get CPT codes, assuming we get them, I believe we're going to very soon, if we get them, that the insurance will reimburse somewhere around $1,000 to $2,000. It makes it a $7 billion to $14 billion market with no competition. Pretty incredible. Elsewhere, Equivir just really quickly. Again, we're developing this at very, very little cost. At this point, we're just completing one study, typically a dietary supplement. The class action attorneys jump all over you. If you don't have two studies that total 100 patients, we're totaling over 300 patients. So we're doing this the right way. I learned from coldies. I turned around coldies myself. Equivir is a broad-based antiviral. We're going to sell it in the same stores. We're going to market it the same way. I don't want to talk about coldies. It's not right. We actually still manufacture coldies for the owners of coldies. So I don't want to get into that, but I can tell you Equivir has a lot of potential in the marketplace. We have all the infrastructure in place to roll this out ourselves. We don't need consultants and advisors. We don't need other companies for manufacturing and distribution and logistics or selling. We have all that in place. It's a turnkey solution to rolling this out. We're going to roll it out online first in order to get into stores always takes longer. So I don't want to mislead anyone about that, but it has nice potential, no value in our stock price. It's a nice fourth option. asset or initiative to mention. I don't make a big deal about it right now, but it'll fit in nicely. We also have a product called Legends XL that's already in the store. It does two and a half, $3 million a year of business, makes about a half million a year. It's a nice little product. I think Equivir can be a lot bigger than that. And actually, with the social media podcast experts that are working on Nebula Genomics, we may spread out to a bunch of different health tests that may include things like our Legends XL product, like Equivir. So we could, with the social media podcast infrastructure we're building, we ultimately should be able to leverage that, not only with Nebula Genomics, but with other health tests and other health products and dietary supplements like Legends XL and Equivir. So that's an awful lot. I'm going to leave it there. I want to thank you all for joining me today. Thank you all for those of you that are shareholders for supporting us. I think that I guess I shouldn't really talk about risk reward, but given The value of some of our assets, the fact that we may realize some pretty significant value in the short to intermediate term for farm laws should provide a lot of comfort in terms of downside support. And the upside, as I just laid out, we have several initiatives with enormous upside and a management team with a history of success and execution. I'll turn it back over to Noella for the Q&A.

Thank you, Ted, for the presentation. So now we'll begin the Q&A. The first question is, we're interested in the growth plans of Nebula Genomics.