Trinity Biotech plc

Good day and welcome to the Trinity Biotech first quarter financial results 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 touchstone 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 Joe Diaz with Litham Partners. Please go ahead, sir.

Thank you, Matt, and thanks to all of you for joining us today. The management team of Henry Biotech will review the financial results of the first calendar quarter ended March 31, 2022. Joining us on today's call is Ronan O'Quive, Chief Executive Officer, and John Geller, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question and answer session. Before we begin, I must inform you that statements made in this conference call may be deemed forward-looking statements within the meaning of federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include but are not limited to those set forth in the risk factor statements in the company's annual report on Form 20F filed with Securities and Exchange Commission. Trinity Biotech undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events. With that said, I will now turn the call over to John Gillard, Chief Financial Officer, for a review of the quarter's results. He will be followed by Ronan O'Keefe, CEO, to provide further details. John, please proceed.

Thank you, Joe. Good morning, everyone. Now I will take you through the results for Q1 2022. Starting with revenues, total revenues for the quarter were $18.8 million, compared with $25.6 million in Q1 2021. As Joe pointed out, and as our typical approach, Rona will discuss revenues in further detail later in the call. As such, I will move on to discuss other aspects of the income statement. Before I begin, I will point out that the company recognized once-off accounting charges in Q1 primarily related to the refinancing and repayment of its exchangeable notes. I will give further details later on those charges. But for now, the numbers I quote exclude the impact of those charges. The gross margin for the quarter was 38.7% compared to 42.6% achieved in Q1 2021. The reduction in gross margin is mainly due to the very strong sales and margins recorded in Q1 2021 within our COVID-19 related portfolio of products. In the years since then, pricing for such products has fallen progressively because of lower demand as the level of PCR testing for COVID has declined in North America and the availability of greater supply from other manufacturers has also negatively impacted demand. As ever, our gross margin remains susceptible to product mix changes, geographic spreads, currency fluctuations, and product level variation. Moving on to R&D expenditure. This decreased to 1 million compared to 1.4 million in Q1 2021. The company continues to focus on operating efficiency and cost controls and has continued to reduce headcount as it pursues greater automation and simplification of processes. Meanwhile, SG&A costs are broadly stable at $5.9 million, down approximately $100,000 versus the corresponding quarter in 2021. This resulted in an operating profit for Q1 2022 of $0.2 million compared to $3.1 million reported in Q1 2021. The aforementioned reduction in revenue and margin contribution from our COVID-related portfolio was the main driver of that reduction in operating profit, with these being somewhat offset by lower R&D and SG&A expenses. Moving on to financial expenses of 2.2 million. As you may have seen from prior press releases, the company refinanced the majority of its exchangeable notes during the quarter, and this has resulted in a change in our interest profile. Financial expenses in Q1 2022 were 2.2 million, compared to 1.2 million in Q1 2021. The increase of $1 million is due to the debt refinancing which took place at the end of January 2022. $99.7 million of the company's exchangeable notes, which had a coupon rate of 4%, were replaced by a senior secure term loan of $81.3 million, with an interest rate in the quarter of 12.25%. The remainder of the financial expenses consist of notional financing charges arising on leased assets arising from IFRS 16, which was approximately $0.2 million in both Q1 2022 and Q1 2021. You will note that there is also a non-cash financial expense of $0.1 million this quarter, and this number comprises accretion interest and the amortization of term loan origination costs. which were partially offset by income arising on the fair value remeasurement of two derivative balances related to the new term loan. I will talk more about these derivative balances later on. Loss after tax before once-off items and non-cash financial income was $1.9 million in Q1 2022 compared to a profit of $1.8 million in Q1 2021. As in prior quarters and as set out in the press release, we quote earnings per ADS, effectively our equivalent of EPS. Our earnings per ADS have decreased from 7.7 cents in Q1 2021 to a loss per ADS of 50 cents in Q1 2022. As I previously mentioned, the company incurred one-off costs in the quarter, and I want to provide you with more information on those now. At our January EGM, our shareholders approved resolutions which facilitated refinancing transactions with respect to substantially all of the company's $99.9 million exchangeable notes. The accounting measure of the total consideration for the retirement of those exchangeable notes was $92.9 million, comprising of cash consideration of $86.7 million and ADSs in the company with a market value at the date of issue of $6.2 million. The exchangeable notes were treated as a host debt instrument under IFRS, with embedded derivatives attached. The embedded derivatives related to a number of put and call options, which were measured at fair value in the income statement. On initial recognition in 2015, the host debt instrument was recognized at the residual value of the total net proceeds on the bond issue, less the fair value of the embedded derivatives. Subsequently, the host debt instrument was measured at amortized costs using the effective interest rate method. At date of disposal, the carrying value of the extinguished exchangeable notes was $83.2 million. As the IFRS accounting measure of consideration was higher by £9.7 million, the resulting loss in disposal was recorded as a once-off charge in the income statement in Q1 2022. However, from a commercial perspective, I would point out that we obtained approximately a 7% discount on the repayment of the exchangeable notes. The remainder of the one-to-half items in Q1 2022 comprises $600,000 of professional fees, primarily in relation to the aforementioned refinancing. I will now discuss the accounting treatment of our term loan credit facility with Perceptive Advisors. It's a four-year term loan of $81.3 million. In accordance with IFRS accounting standards, the term loan is represented by three separate balances in our balance sheet. $76.2 million is shown in long-term liabilities as a senior secured term loan. An initial recognition, the balance comprised the principal loan amount of $81.3 million, less loan origination cost of $3.6 million, less two derivative financial balances totaling $1.7 million, to give a balance of $76 million. In Q1 2022, decrease in interest and the amortization of loan origination costs of $0.2 million were recorded to give a closing carrying value of $76.2 million at March 31, 2022. The other two balances are one, a derivative financial asset, and two, a derivative financial liability. And these are initially recognized at fair value under IFRS 9. The derivative financial asset is valued at $0.2 million at March 31, 2022, and represents an estimate at that date of the value to the company of being able to repay the term loan early and potentially refinance at lower interest rates. The derivative financial liability is valued at $1.7 million at March 31, 2022, and represents the fair value of the warrant issued to perceptive funds. fair value measurement of these two derivative financial balances in Q1 2022, resulting in a non-cash financial income of approximately $0.2 million being recognized in the income statement. I will now move on to address some of the main balance sheet movements we have seen since Q4 2021. Intangible assets increased by $1.3 million, which is made up of additions of $1.6 million, partially offset by amortization. Moving on to inventories, you will see that these have increased by 1.7% since last year end, which is in the normal range of fluctuation for our inventory levels, and are largely influenced by timing variations in the fulfillment of purchase and sales orders. As I described earlier, during the quarter, the majority of the exchangeable senior notes were retired, and as a result, the associated liability has reduced from 83.3 million to $210,000 during the quarter. Finally, I will discuss our cash flow for the quarter. Cash generated from operations during the quarter was an outflow of $1.3 million. The debt refinancing and exchangeable notes payment resulted in a net cash outflow of $9 million. The company paid $3.1 million in interest on the exchangeable note and the term loan. The other major cash flow for the quarter included capital expenditure of $1.8 million, Overall, this results in a cash balance of $10 million at the end of March 2022. However, the amounts mentioned above are before the $45 million strategic investment received from MECO Group in May 2022. As we mentioned on our last conference call, we expect that the MECO investment will support us in refinancing the perceptive debt in the near term by reducing our leverage. To that end, in May 2022, we repaid almost $35 million of the $81 million nominal amount of the loan. This should reduce our annual interest costs by over $4 million. We are also engaged with a number of potential credit partners regarding the refinancing of the balance of the preceptive debt. However, at the same time, we're examining how best Trinity Biotech can capture growth and value from the developments in the decentralized diagnostic testing market. given the consumer and healthcare provider changes post the COVID pandemic conditions, especially so given our new strategic partnership with MECO Group. The decisions we make about how best to capture those growth opportunities will impact on the type of credit partner that can best support our growth over the medium term. And as such, we intend to be thoughtful about what type of replacement finance and partner we proceed with. I will now hand back to Ronan, who will bring you to the revenues.