Trinity Biotech plc

And then finally, the NASDAQ listing provides a platform for industry consolidation and a path for ecosystem partners to gain access to that liquidity. It is also a strong tool to attract talent, especially at current valuation levels. In essence, Trinity is a 30-year-old business with a serious brand, has the ability to operate effectively in a regulated industry, is small enough to be nimble, and has the public vehicle to enable partnerships, industry consolidation, value creation for our shareholders, and wealth creation for the Trinity Biotech team. My experience in working closely with the portfolio of GE healthcare businesses and other regulated platforms opened my eyes to the fact that in this industry, operational and regulatory excellence is a competitive advantage that comes with long-term superior returns. Just a few thoughts about my priorities for the next three to six months. I think they're quite straightforward, to be honest. First, the focus is to establish a clear vision and strategy that aims at scaling our core businesses. Namely, I want to position our point of care platform and lab services capability to enable the decentralized testing disruption that is being led by digital health, other payer-sponsored programs, and new market entrants. Scaling our autoimmune platform through partnerships and product development are also a priority, and maximizing profitability in our hemoglobin's business is key. I also would like to leverage our Fitzgerald brand and figure out how to maximize it and its capabilities, both in terms of its efficient sales process and its distribution capabilities and its breadth of offerings to find further growth capabilities. The second priority is to build a performance culture and drive ownership and accountability. This starts at the top with a focus on operating rigor, clear execution goals, and shareholder alignment. Our ESOP program will be at the core of this transformation and will be modeled after my compensation plan. Shareholder value creation and the Trinity team's wealth creation are perfectly aligned. Third, a renewed focus on inorganic growth through partnerships and M&A will be a priority. This is how we scale. We have a public currency. We intend on using it in an intelligent fashion. Finally, I am pledging a renewed commitment to shareholder communication and to rebuilding credibility with the streets. My intent is to attract institutional investors who get the vision and believe in this team. In exchange, we need to have a clear strategy and deliver on our results. Now I'll turn it over to John to give you some perspective on the financials for the quarter.

Thank you, Iris. Good morning, everyone. Now I will take you through the results for Q2 2022. Let me begin by warmly welcoming our new CEO and chairman, Aris. Since Aris joined the board back in May of this year, I've had the pleasure of spending a lot of time with him as we look at the opportunities available to the company and indeed some of the challenges we continue to work through. I very much look forward to partnering with Aris and the rest of the team in continuing to drive Trinity Biotech's modernization and transformation to a more dynamic, higher growth, and efficient globalization. global organization. Before again discussing our Q222 results, I will point out that we have changed certain presentations in our financial statements this quarter. In previous earnings announcements, we have disclosed one-off accounting charges, such as impairment losses, in a separate line below profit or loss after tax. Similarly, in the past, we have split our financial income and expenses between those items that are cash and non-cash, the latter being disclosed below profit or loss after tax. This presentation reflected how management evaluated the performance of the business, although it did not conform to international financial reporting standards. Beginning this quarter, one-off accounting charges will be reported within operating profit and loss in accordance with IFRS. We will no longer disclose non-cash financial income and expense separately, and we will show a full cash flow statement rather than an abbreviated version. Moving on to our results for the quarter, starting with revenues. total revenues for the quarter were 18.5 million, compared to 25.8 million in Q2 2021. As Joe pointed out, and has been our typical approach, our CEO, Aris, will discuss revenues in further detail on the call. As such, I will now move on to discuss other aspects of the income statement. Gross margin for the quarter was 35.3%, compared to 42.7% achieved in Q2 2021. our gross margin remains susceptible to product changes, geographic spread, currency fluctuations and product level variation. As was the case in Q1 this year, the reduction in gross margin this quarter was mainly due to the very strong sales and margins recorded in the comparative period within our COVID-19 related portfolio products. In the years since then, Demand for our PCR viral transport media has fallen, as the level of PCR testing for COVID has declined in North America, and the availability of greater supply from other manufacturers has also hampered demand. Moving on to R&D expenditure, which was 1 million in the quarter, down almost 100,000 compared to Q2 2021. We continue to focus on operating efficiency and cost control, and have continued to reduce headcount as we pursue greater automation and simplification of processes. Meanwhile, SG&A expenses in the quarter were 6.5 million down over 100,000 compared to Q2 2021. Here we are benefiting from the stronger US dollar against the Euro, which is reducing our substantial Euro denominated SG&A expenses. And this is a trend we expect you will continue to see in the second half of the year. Offsetting this has been increase in transaction related management bonuses and increased travel costs as our sales teams have been focusing on meeting our customers and distributors. now that most COVID-related travel restrictions have been lifted. We have recorded an impairment charge of just over $500,000 this quarter, compared to a charge of $6.1 million in the corresponding quarter in 2021. Under IFRS, a company is required to carry out periodic impairment reviews in order to determine the appropriate carrying value of its net assets. This period's review has resulted in a non-cash impairment charge of $0.5 million being recognised. A number of factors impacted this calculation, including the company's share price on June 30, 2022, which was lower than the share price at the time of the prior impairment review, being 31 December 2021. Cash flow projections for each business unit and net asset values across each of these companies' individual business units. The above factors have resulted in an operating loss for Q2 2022 of $1.4 million, compared to an operating profit of $200,000 reported in Q2 2021. The main drivers of this reduction in operating profit are the reduction in revenue and margin contribution from our COVID-related portfolio products, along with zero Paycheck Protection Programme income being recorded in Q2 2022, compared to 2.9 million of Paycheck Protection Programme income being recognised in Q2 2021. This was partly offset by a lower impairment charge this quarter. Moving on to net financial expenses of 8.3 million recorded in Q2 2022, which compares to 0.3 million for Q2 2021. This increase of 8 million is mainly due to non-recurring expenses of approximately 5.6 million associated with the early partial repayment of the preceptive term loan. As you may know, we repaid approximately 42% of the term loan principal during the quarter, As a consequence, we incurred a penalty for earlier payment of approximately 3.5 million. And secondly, under IFRS accounting rules, we had to accelerate the recognition of the accretion interest expense. And this resulted in an additional non-cash expense of 2.1 million this quarter. I will talk further about this earlier payment of the loan later on the call. The remainder of the increase in net financial expense is mainly due to higher interest rates applying to our borrowings post the refinancing. We replaced exchangeable notes with a coupon rate of 4% with a senior secured term loan with an interest rate of approximately 13%, albeit the net amount now borrowed is substantially lower. As a result, interest payable increased by 0.9 million compared to Q2 2021. Lastly, we recorded a fair value adjustment on derivatives balances related to the term loan, which this quarter was an expense of 400,000. Loss after tax was 9.7 million in Q2 2021, compared to a loss of 0.8 million in Q2 2021. As in prior quarters and as set out in our press release, we quote earnings per ADS effectively our equivalent of EPS. Loss per ADS has increased from 3.7 cents in Q2 2021 to a loss per ADS of 28.6 cents in Q2 2022. I will now move on to address some of the main balance sheet movements we have seen since quarter one 2022. I'm pleased to be able to report that Trinity Biotech has a significantly stronger balance sheet this quarter. The total liabilities lower by 21 million compared to the end of March 2022 and lower by 28 million compared to last fiscal year end. The most significant balance sheet movements during quarter two 2022 are the 45.2 million investment from the MECO group and the part repayment of the term loan. The MECO investment has resulted in 25.2 million of additional equity capital and a new seven-year convertible loan of 20 million. This 2 million convertible note is accounted for as a compound financial instrument containing both an equity and liability element. The debt component is accounted for at amortized cost in accordance with IFRS 9. At June 30, 2022, the carrying value of the convertible note's debt component was £13.4 million. The equity component of the convertible note is £6.7 million and has been recorded in the equity section of the balance sheet. The carrying value of the term loan has reduced by £32.3 million this quarter, reflecting the early settlement of approximately £35.4 million, partly offset by accretion interest. The remaining balance sheet movements, which I would like to highlight, are intangible assets and inventory. Intangible assets increased by 1.4 million. This is met up by additions of 1.6 million, which mainly comprises capitalized R&D expenditure, and this was partly offset by amortization. Inventories have decreased by 0.5 million since the end of Q1 2022. This increases within the normal range of fluctuation for inventory levels, and that 500 decreases This quarter brings the inventory balance back to a level we reported at the end of December 2021. Finally, I will discuss our cash flow for the quarter. Our cash balance increased by $400,000 to $10.5 million in quarter two 2022. The aforementioned investment of $45.2 million from the MECO group was received during the quarter and was primarily used to fund an area repayment of the term loan of $34.5 million and a related penalty for early repayment of $3.5 million. Cash from operations was an outflow of $1.9 million. We had capital expenditure cash outflows of $1.8 million and payments for property leases of $0.7 million. Entrance payments for the quarter were $2 million. And as you may have seen in our earnings announcement, we have made a cash saving to date of approximately $2.3 million from repaying part of the term loan early. While we're speaking about the term loan, I would also like to bring to your attention the fact that the minimum liquidity covenant for the perceptive loan has been amended until May 2023, so that the unrestricted cash balance that we are required to maintain is now $2 million, down from $5 million previously. I will now hand it back to Aris, who will bring you through the revenue and key business highlights.

Thank you, John. Now I would like to discuss a few revenue highlights for the quarter and priorities for the rest of the year. Total revenues for Q2 2022 were $18.5 million. Excluding our COVID-focused PCR viral transfer media products, Q2 2022 revenues of $18 million were broadly flat compared to Q2 2021, and were up 7% compared to Q1 2022. A strong year-over-year increase in our diabetes A1c product line revenues of over 25% offset a decline in legacy infectious disease product demand in Asia due to continuing COVID-19 lockdowns. Preliminary estimates for Q3 are for expected revenues of between $19 million to $20 million, driven by an approximate double-digit year-over-year increase in both our hemoglobins and Fitzgerald life science businesses. Fitzgerald's revenue momentum into the second half of 2022 continues with a 25% quarter-over-quarter growth as a strategy of focusing on high-value bulk sales is getting traction. Q3 global health HIV orders for Africa, which are often difficult to predict, increased compared to Q2 2022. And we expect our HIV point-of-care revenue to grow over 30% on a quarter-over-quarter basis. Since World Health Organization approval in February of our trend-screen HIV product, The relevant Kenyan Ministry of Health Task Force recommended Trinscreen as a first-line screening test for Kenya's new HIV testing algorithm. In addition, the pre-submission process has been started in several other African countries. For context, our target countries for Trinscreen HIV under active evaluation in 2023 have a combined estimated market size of 30 million tests annually. We chose Kenya as the first country to submit TrendScreen for inclusion in the national HIV algorithm, given its large market size, estimated 5 to 6 million tests a year, and its prestigious leadership role as an innovator in HIV management in Africa. The use of the new HIV algorithm had been delayed due to the change of government in Kenya following the election in August. and a legal objection by competitors regarding the overall HIV algorithm evaluation process. The new government is now in place, and we understand they are motivated to scale up the HIV rapid testing program to pre-COVID-19 levels. We understand the implementation of the new testing algorithm will begin before the end of the year and expect the first orders to arrive shortly. I would also like to take this moment to welcome Tom Lindsay to our Board of Directors. His experience and networks in Africa will be a significant benefit during this product rollout. In May 2022, the company announced the closing of a $45.2 million investment from MECO Limited. The investment consists of an equity investment of $25.2 million acquired for $2.25 per ADS and a seven-year unsecured junior convertible note of $20 million with an interest rate of 1.5%, and mandatory conversion price of $3.24. As part of its ongoing balance sheet restructuring, the company made an early repayment of the $35 million of its student loan with Perceptive in May. The partial repayment will save the company cash interest expense of $5 million annually. Further refinancing may be optimized in conjunction with the execution of one or more potential strategic transaction opportunities we are contemplating. Now focusing on our hemoglobin business, our largest platform. We have recently completed a comprehensive three-year execution plan for the business that incorporates new targeted product launches and intelligent actions to maximize profitability. In late August, the company submitted its 510 submission to the FDA seeking U.S. regulatory approval of its premier resolution hemoglobin variance instrument. Subject to FDA approval, commercial sales are expected to begin by Q2 2023. The team is also finalizing the development of a lower cost, mid-throughput A1C instrument that leverages the core consumables technology from our existing Premier 9210 instrument. This new instrument is targeted at developing markets where rates of diabetes growth are substantial, but the entry price of instrumentation is a barrier. We are also developing a commercial strategy that combines equipment financing with our core product offerings, ensuring a favorable cost entry point for our customers while optimizing the Trinity balance sheet. Supply chain, product design, optimization, and commercial actions are underway in this business to significantly optimize the margins of the platform. This includes insourcing key elements of our consumable column manufacturing and streamlining our product focus. My expectation is that these actions should deliver a double-digit profile for the business over the next three years at well over 50% gross margins. We see significant growth potential in our autoimmune business as well. Our focus is on the 2023 launch of a clinical laboratory reader and processor range. to complement our existing IFA consumables products. We are also in the platform evaluation stage for the adoption and development of a chemiluminescence system aimed at our current ELISA product range. I'm quite focused on our proprietary Sjogren's dry eye testing capabilities within our autoimmune portfolio and believe we can scale this product line through pharmaceutical partnerships and applications in adjacent markets such as dentistry. In an effort to address demand growth for our cryo-slides business, we are expanding manufacturing capacity at our Jamestown facility while also offsetting excess production capacity from the expected runoff in demand from our legacy infectious disease products. We have launched a strategic review of expansion opportunities in the point of care space. and in the sponsored decentralized consumer testing programs in order to take advantage of the evolving patient expectations, rapid technology convergence, focus of ambitious and well-funded tech and CPG players, and payer focus on controlling healthcare costs through proactive digital healthcare. We are actively exploring acquisition and partnership strategies in these areas aimed at accessing channel distribution, product innovation, and user experience expertise. And at the same time, we intend to make a substantial investment toward this effort over the next 18 months in our Buffalo, New York lab, which is well-positioned to serve the decentralized testing market because, unlike many other U.S. labs, it is certified to process samples from all 50 states. In addition, we are positioning our point-of-care product business and Irish manufacturing operation to apply its operational capacity, product development focus, and regulatory know-how as an ecosystem enabler of the disruption in this space being driven by market forces. There may be an opportunity here to leverage our mycobiomed relationships in relation to their handheld enzymatic product line. I like to use the analogy that we are aiming to be the Shopify of the decentralized testing space. The combination of our world-class lab operation and decentralized testing product development history is unique in the industry. Platform optimization actions to date have resulted in a significantly more efficient workforce. Our average headcount in the six months ended June 30, 2022, was approximately 410, compared to over 500 in the six months ended June 30th, 2021. And we expect total headcount to be under 400 by the end of 2022. Operational efficiencies will continue to be a focus across the board as we aim to make our processes leaner, more agile, and highly automated. We are undertaking a portfolio-wide capital and talent allocation review, emphasizing maximization of return on capital, and to ensure that our incentive systems are being enhanced to drive significant target improvements in gross margin, earnings, cash contribution, as well as revenue growth. The centerpiece of our incentive system will be an ESOP program modeled after my own equity compensation, which results in substantial financial incentives when shareholders benefit the most. Over the past 18 months, the company began a program of leadership upgrades, beginning with our CFO, John Gillard, and subsequently attracted experienced leaders in operations and HR. Most recently, over the last couple of quarters, this focus on talent has expanded to include new leadership in supply chain, regulatory compliance, business intelligence, and technology. I urge you to visit our website to see their bios. While we have brought in fresh talent to lead key sales initiatives, this area continues to be a direct focus of mine. Over the coming weeks and months, my intention is to further outline Trinity Biotech's strategic focus for 2023 and beyond. One such opportunity will be the upcoming Piper Sandler Healthcare Conference on Thursday, December 1st, where Trinity Biotech is scheduled to present its strategy. That concludes our commentary regarding the quarter. We are now available to take your questions.