Trinity Biotech plc

Good day and welcome to the Trinity Biotech third quarter financial results conference call. All participants will be in listen only mode. Should 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. To ask a question, you may press star then one on your telephone keypad. To withdraw from the question queue, 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 LISM Partners. Please go ahead.

Thank you, Kate. And thanks to all of you for joining us today to review the financial results of Trinity Biotech for the third quarter of 2022, which ended on September 30, 2022. Joining us on today's call are Aris Kakajian, Chief Executive Officer, and John Gillard, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for question and answer session. Before we begin, let me 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 known, these statements, excuse me, 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 forward in the risk factor statements in the company's annual report on Form 20F filed with the Securities 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 occurrence of unanticipated events. With that said, I will now turn the call over to John Gillard financial officer for review of the financial results. He will be followed by Mr. Aris Kakajian, chief executive officer, who will provide additional background on revenues for the quarter and the overall business, after which we'll open the call for your questions. John, the floor is yours.

Thank you, Joe. Good morning, everyone. Now I will take you through the results for Q3 2022. Starting with revenues, total revenues for the quarter were $19.5 million compared to $22 million in Q3 2021. Eris will discuss revenues in further detail later on the call. As such, I will move on to discuss other aspects of the income statement. You will have seen from our income statement that we have recorded significant excess and obsolescence charges related to inventory of $4.7 million this quarter. As this amounts of material to the results this quarter, I will now bring you through the components of this charge. Firstly, there is a viral transport media inventory write-down of 3.5 million. As we've talked about on recent earnings calls, the situation relating to COVID-19 products has been fluid and hard to predict. Last year, when demand for PCR VTM products diminished, we cut back our production, but decided to retain the capability to flex manufacturing volumes should market conditions warrant. As part of this strategy, we maintained an inventory of critically raw materials to allow a ramping up of VTM production to meet peak demand. And it was important that we were able to fulfill high volume orders at short notice in order to retain existing customers and capture new customers at attractive price points. So far, we have not seen any evidence of current or future significant peaks in demand for PCO or VTM products this season. So we revised our strategy of maintaining significant levels of raw materials inventory to meet demand peaks. We now intend to sell the vast majority of this inventory, which given current marketing conditions is expected to be at lower prices. Consequently, the value of inventory has been written down for estimate of its net realizable value. Secondly, we have written down the value of certain excess raw materials and work in progress following review and update to our relevant quality assurance policy. This amounted to a charge of $900,000. The third and final charge relates to write-down of Tri-STAT inventory and amounted to $300,000. We undertook a strategic review of our Tri-STAT instrument as part of a broader review of our hemoglobin product portfolio. With annual sales of approximately $200,000, Tri-STAT is the least significant product in the portfolio. To simplify the Hemoglobin's product portfolio and to allow us to focus our resources on the higher growth products, we've decided to limit sales of Tristat to certain targeted partnerships. Consequently, we have written down the value of this inventory for effect the consequently revised outlook. All of what I've mentioned so far contributed to a gross margin of 10.3% this quarter. Including these significant inventory write-downs, the gross margins for the quarter would have been 34.4% compared to 40.4% achieved in Q3 2021. As was the case in the first two quarters this year, the reduction in gross margin this quarter is mainly due to the very strong sales and margins recorded in the comparative period within our COVID-19 related portfolio of products. Since then, demand for COVID PCR tests has fallen significantly in North America. Additionally, our gross margin this quarter has been negatively impacted by rising prices for raw materials and an under-recovery of labour and overhead costs at three of our manufacturing facilities due to reduced production activity. We addressed the latter problem by reducing headcount of two of the affected production facilities. In relation to the other site in Jamestown, New York, we have started the process of transferring in autoimmune product manufacturing, which up to now has been done at our Buffalo, New York site. In terms of dealing with marginal erosion, which has come from rising input prices, we've already put through some sales price increases where market conditions allowed, and we continue to monitor the opportunities to implement additional price adjustments in the short term, but subject to consistency with our broader strategic objectives. Moving on to R&D expenditure, which was $1 million in the quarter, down by 40,000 compared to Q3 2021. Meanwhile, SG&A expenses in the quarter were 5.8 million down approximately 320,000 compared to Q3 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. We are also benefiting from stronger US dollar against the Euro, which is reducing our substantial Euro denominated SG&A expenses. Offsetting this are additional travel and trade show related expenditures reflecting an increase in sales and marketing and senior operational staff travel post the lifting of many COVID-related travel bans. We believe it's important for our sales and marketing staff to resume face-to-face interaction with our customers and partners as a key component of rejuvenating our sales revenues. In addition, we also believe it is important that key operational leaders, many of which we have recently recruited have the opportunity to visit our various sites so we can aggressively execute on our operational efficiency objectives. We have recorded impairment charges of $2.3 million this quarter compared to zero in Q3 2021. The development project for the autoimmune smart reader was paused earlier in 2022 as we reviewed other options, including the potential to proceed with a third-party reader instead of our own internally developed reader. Following this review, we determined that there were likely greater opportunities to capture more market share in a more capital-efficient manner through partnering with a third-party reader manufacturer that are pursuing an independent strategy. At this point in time, there is significant uncertainty if we will complete the project to develop our own in-house autoimmune smart reader. And thus, while we may revisit this decision in the future, in the interest of prudence, we have fully impaired the project's carrying value of $1.3 million. The remainder of the impairment charts relates to Tristat. As I mentioned earlier, we undertook a strategic review of our Tristat instrument as part of a broader review of our Hemoglobin's product portfolio. In order to rationalize the Hemoglobin's product portfolio and to allow us to focus our resources on the higher growth products within that portfolio, management decided that Tristat sales will be restricted to only certain targeted partnerships. And this has led to an impairment to the carrying value of the Tristat intangible asset. This resulted in operating loss for Q3 2022 of 7.1 million compared to an operating profit of 2.8 million reported in Q3 2021. I will point out that this quarter we have zero Paycheck Protection Programme income, but in the comparative quarter, just over 1 million of PPP income was recognised. The other drivers of that reduction operating profit are the lower revenue and margin contribution from our COVID-related portfolio products, the significant inventory write-downs and the impairment charges, as well as the aforementioned impact of inflation and under-recovery of overheads. Moving on to net financial expenses of £1.9 million in Q3 2022, which compared to £1.2 million in Q3 2021. The increase is mainly due to higher interest rates applying to our borrowers post the refinancing. We replaced exchangeable notes with a coupon rate of 4%, but a senior secured term loan with an interest rate of approximately 13.5%, albeit the net amount now borrowed is substantially lower. In dollar terms, the interest expense is $600,000 higher this quarter when comparing the interest expense for term loan versus the exchangeable loans that it replaced. Additionally, in 2022, we issued a seven-year convertible note, and the total cash and non-cash interest expense for this debt is approximately $260,000 in Q3 2022. Lastly, we recorded a fair value adjustment on derivative balances related to the term loan, which this quarter was income of approximately 300,000. In the comparative period, we had fair value adjustment on derivative balances related to the exchangeable notes, which was a financial income of just under 200,000. That's after tax was 8.9 million in Q3 2022 compared to a profit of 1.3 million in Q3 2021. As in prior quarters and as set out in the press release, we quote, earnings per ADS effectively are equivalent of EPS. In Q3 2022, the loss per ADS is 23.5 cents compared to a profit per ADS of 6.3 cents in Q3 2021. I will now move on to address some of the main balance sheet movements we have seen since quarter two 2022. Intangible assets decreased by 1.6 million. This is made up of additions of 1 million, which mainly comprises capitalized R&D expenditure partially offset by amortization of 300,000, and the impairment charges for the two development projects of 2.3 million. The amount of capital R&D expenditure reduced this quarter compared to recent quarters, and this is because several of the main projects we've been working on have reached the final phase of development, and in the final phase, fewer resources are typically required. Inventories decreased by 5.6 million, mainly due to the significant excess and obsolescence charges I talked about earlier. Including these significant inventory provisions, our level of inventory has reduced by 3% since the end of Q2 2022. This is an area we are targeting, and we have an ongoing project aimed at optimizing our inventory levels going forward as part of our focusing on improving the overall effectiveness and efficiency of our supply chain. Accounts receivable balances, on the other hand, have increased by 8%, and this is mainly a function of the increased sales this quarter. Finally, I will discuss our cash flow for the quarter. our cash balance decreased by 3.2 million to 7.3 million Q3 2022. Cash generated from operations from the quarter was 700,000, an increase of about 100,000 compared to Q3 2021. In the first quarter this year, we reported positive cash flows from operations, and this is a result of trimming our cost base and better working capital management. Capital expenditure cash outflows comprising PPE and R&D spend were 1.3 million, a reduction of 700,000 compared to the comparative period. interest payments in the quarter were 1.7 million. I will now hand it back to Iris, who will bring you to the revenue. Thank you.