Trinity Biotech plc

Good morning and welcome to Trinity Biotech Third Quarter Financial Results Conference Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the conference over to Mr. Kevin Tansley, CFO. Please go ahead.

Thanks very much, Nick. Good morning, everybody. I'm joined today as well by Ronan O'Queave, our Chief Executive Officer, and also John Gillard, our new CFO, as you'll have seen from the release. Before we begin with our prepared remarks, we submit for the record the following statement. Statements made by the management team of Trinity Biotech during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties. Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will, and other similar statements of expectation identify those forward-looking statements. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including, but not limited to, the results of research and development efforts, the effect of regulation by the U.S., Food and Drug Administration and other agencies, the impact of competitive products, product development, commercialization and technological difficulties, and other risks detailed in the company's periodic reports filed with the Securities and Exchange Commission. Forward-looking statements reflect management's view only as of today. The company undertakes no obligation to publicly release the results of any revision to these forward-looking statements. In addition, there is uncertainty about the spread of the COVID-19 virus and the impact it will have on the company's operations, the demand for the company's products, global supply chains and economic activity in general. Moving on then, today I'll be taking you through the financial results for quarter three 2020. Beginning with our revenues, this quarter we saw a substantial increase in revenues from £24.6 million to £32 million. This represents an increase of over 30% compared to the equivalent quarter last year, and Ronald will take you through the makeup of this later in the call. Obviously, an increase in revenues at this level will have significant impact on the income statement. Firstly, you'll notice that our gross margin has increased from 41% to 52.4%, and by far the biggest factor driving this was the increase in revenues that I've just mentioned, as well as the underlying margin inherent in revenues in these sales, the overall gross margin has also benefited from the spreading of the company's fixed costs over a wider base. Other factors at play this quarter were the impact of fewer instrument sales and a lower depreciation charge, partly offset by adverse FX movements. Though both individually and combined, these were much smaller than the revenue effect. Moving on to our indirect costs, our R&D expenses for the quarter grew very slightly from over 1.2 million to just under 1.3 million. However, more significantly, our SG&A expenses fell from 7.3 million to 6.3 million. In this regard, we're seeing the benefit of cost-cutting measures that were implemented in quarter two in response to the onset of the pandemic. In response to the expected severe decline in revenues at the time, we implemented a series of measures aimed at significantly reducing or eliminating all discretionary expenditure. This included lower T&E and sales and marketing costs, for example, trade show costs. it is fair to say that some of these costs would have reduced naturally at any rate given the pandemic related restrictions that have been put in place. Meanwhile our share option expense for the quarter dropped from £252,000 to £156,000. Thus on an overall basis our total indirect costs fell from £8.8 million to £7.7 million for the quarter, a reduction of over 12%. The net result from this is that our operating profit for the quarter grew from nearly £1.3 million close to £9.1 million. This increase was achieved through all of the key metrics moving in a positive direction, namely higher revenues, an improved gross margin and lower indirect costs. Moving on to our financing costs, our financial income for the quarter was lower than in the comparative period due to lower levels of cash deposits and lower interest rates. Meanwhile, our financial expenses were broadly in line at £1.2 million quarter on quarter. This consisted of 1 million of interest due on our exchangeable notes and approximately 200,000 relating to notional interest imputed into lease transactions, which have become a feature of our income statement since the introduction of IFRS 16 last year. Further down the income statement, you will see an additional non-cash expense of 161,000, which represents the non-cash accretion interest arising on our notes. Tax charge for the quarter was 400,000, and this represents a nominal effective rate of 4.5% of operating profit. This is lower than normal due to our eligibility for R&D tax credits. On an overall basis, the profit after tax for the quarter was over 7.3 million compared to close to breakeven last year. This equates to an EPS of 35 cents or nearly 36 cents when non-cash financial charges are excluded. Meanwhile, fully diluted EPS for the quarter was just over 32 cents compared to 4.3 cents for quarter three last year. I'd like to remind you that the profit figures that I have mentioned so far do not include any element of forgiveness of the 4.5 million loans received under the Paycheck Protection Programme. While we expect that these loans will be forgiven, we are waiting for the validation process to be completed before reflecting this in the financial statements. Finally, on the income statement, earnings before interest, tax, depreciation, amortization, and share option expense for the quarter amounted to 10 million, and the constituent parts of this can be seen in the release. I will now move on and talk about the significant balance sheet movements since the end of June. Property plans and equipment increased slightly from 9.3 million to 9.5 million, and this is due to additions of 600,000 being offset by depreciation of 400,000. Same period, our intangible assets increased by 1.1 million, and this was made up of additions of 1.4 million offset by amortization charges of 300,000. Moving on to inventories, you'll see these have decreased by approximately 1.8 million to 29.6 million, and this was due to lower level of COVID-related inventories. I'd expect that trade and other receivables have increased significantly from 17 million in June to 21.7 million at the end of September. This was obviously due to the strong increase in sequential revenues, so the fact that the percentage growth in receivables significantly lags the increase in revenues from quarter two to three demonstrates that cash collection rates have remained strong. Meanwhile, our trade and other payables, including both current and non-current, have remained broadly flat at approximately 39 million. Moving on to our cash flows for the quarter next, cash generated from operations for the quarter was just over $7.2 million. Not surprisingly, this was impacted by working capital outflows, especially in relation to accounts receivable, following on from the steep change in our revenues from quarter two to quarter three. Obviously, the biggest single factor in the increase in cash flows were the enhanced revenues that we reported today, but we are also seeing the impact of the closure of our Carlsbad facility, which occurred at the end of June. Meanwhile, capital expenditure in the quarter was £1.9 million versus £3.8 million last year, thus continuing the trend of lower capital expenditure in recent quarters. The other principal cash flow movement in the quarter was a repayment of £800,000 in relation to the capital element of leases which under IFRS 16 are now treated as a financing item. This has resulted in an increase in cash balances of £4.3 million for the quarter, bringing the cash balances at the end of of September to just under 20 million. I'll now hand over to Rowan.

Thank you, Kevin. I'm going to review our revenues for quarter three before opening the call to a question and answer session. Our revenues for quarter two were $32 million, compared with 24.6 million in the couple of a quarter last year, which is an increase of 30%. Point of care revenues were 2.1 million, compared with 3.9 million in a couple of a quarter, which is a decrease of 47%. Clinical laboratory revenues were 30 million compared to 20.7 million in the corresponding quarter, which is an increase of 45%. Going back to point of care, our revenues decreased 47%, but this reflects the fact that HIV... It's arriving from COVID-19. The reduction compared with last year also reflects that quarter three 2019 was an unusually high quarter for point of care revenues. Our expectation is that HIV revenues in the current quarter will be at normalized levels. Moving back to clinical laboratory, our revenues increased 45% to 30 million compared with 20.7 million in the comfort quarter. During the quarter, all of the company's product lines recovered significantly from quarter two 2020 levels, which had reflected the most severe impact of COVID-19. However, as expected, revenues of quarter three 2020 did not fully return to their pre-COVID-19 levels, particularly in our diabetes business, where instrument placements were slow with 40 placements. This is hardly surprising as hospitals and clinics were unlikely to purchase new capital equipment in the midst of a pandemic. However, we are confident that these placements will recover in a post-pandemic environment. Meanwhile, our autoimmune business was approximately 10% short of normal levels, as due to COVID-19, many patients defer hospital and doctor visits, except when absolutely necessary. However, these measures were more than offset by strong sales of COVID-19-related products, which include Firstly, our COVID-19 IgG ELISA antibody test. Secondly, our FDA-approved PCR viral transport media products. Thirdly, our monoclonal antibodies through our life science supply business, Fitzgerald. And fourth and lastly, the very significant boost in demand that we've experienced for our rapid respiratory products, which include strep pneumonia and Legionella urinary antigen. dealing with these four factors individually. Firstly, during the course of the company filed its submission to the FDA for an emergency use authorization for its COVID-19 IgG ELISA antibody test, and we are currently awaiting EUA authorization. However, as permitted under EUA regulations, the company has already launched this product in the USA. Meanwhile, we expect to obtain a CE mark for the product within the next two weeks, thus allowing us to sell the product throughout the European Union. The product has specificity in excess of 98% and sensitivity in excess of 95% in samples drawn at least 14 days from symptom onset. These percentages comfortably exceed the requirements of the FDA emergency use authorization pathway. The product is manufactured in a facility in Jamestown, New York, and is capable of being run on a wide range of instrumentation platforms, allowing access to virtually every testing laboratory in the world. As the utility of this product is to detect individuals with an antibody response to COVID-19, indicating past exposure and potential immunity, the specificity is the key performance metric. A high percentage specificity means that there are virtually no false positives, and therefore, for example, patients are not given a false impression that they may be immune. The test may potentially be used for the screening of people prior to vaccination to avoid to vaccinating individuals who already have a circulating antibody response. Individuals who have doubts about the vaccine may choose this path. The test can be used to prove further that an individual had previously had COVID-19 and is now assumed immune and can also be used by governments to manage the prevalence of COVID-19 immunity in the population. Additionally, the test can be used to monitor a patient's serological response in the weeks and months following vaccination as their immune system builds an antibody response to the virus. So, in summary, we believe that with the onset of vaccinations, the use of antibody testing will be much more prevalent. Moving back to the development of COVID-19 tests, we have previously indicated that the company is also developing a rapid point of care COVID-19 test to detect IgG antibodies. The test can run in 12 minutes using one drop of whole blood procured by a spring-loaded lancet or a finger prick. Like the ELISA test, this test will determine which individuals within the population have been exposed to COVID-19 and are therefore regarded as immune. We expect to complete the development of this test and file an emergency use application in the EUA with the FDA, thereby clearing the product for sale during next February. We already have in place existing and substantial automated manufacturing capability for such a test, given that we already manufacture every year many millions of HIV tests on the same automated equipment. Meanwhile, the company is benefiting from strong sales of its FDA-approved PCR viral transport media product. It is a sample collection device for COVID-19 PCR molecular testing, which is used to store the nasopharyngeal swab, which contains the patient sample. allowing it to be transmitted in a stable environment. The transport medium stabilizes the sample and prevents bacterial growth and maintains its integrity until such time as the test can be run in a laboratory. The company has scaled up its manufacturing capabilities for this product and demand is expected to be strong as long as molecular PCR testing volumes remain significant. Meanwhile, the company has also experienced significant increased revenues of our COVID-19 monoclonal antibodies, These monoclonal antibodies are the key raw material used in the manufacture of COVID-19 antigen tests. Lastly, as a consequence of COVID-19, we have experienced a very significant increase in revenues from our respiratory point of care products, which includes strep pneumonia and Legionella urinary antigen. So at this stage, could I hand back to Nick for a question and answer session, please?