Trinity Biotech plc

Good day and welcome. Trinity Biotech announces second quarter financial results. 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 tonight's presentation will be an opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the call over to Mr. Joe Diaz of Latham Partners. Please go ahead.

Thank you, Operator, and thanks to all of you for joining us today. to review the financial results of Trinity Biotech for the second quarter of 2023. 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 a question and answer session. Before we begin, please note that statements made during 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 events 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 statement in the company's annual report on Form 20F filed with the 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 occurrence of unanticipated events. With that said, I will now turn the call over to CEO Aris Kakajian for opening remarks. He will be followed by CFO John Gillard for a review of the financial results, after which we will open the call for your questions. Aris, the floor is yours.

Thank you. Good morning. As usual, I will discuss the summary highlights for the quarter and John Giller will discuss the detailed financial results. In addition, we took the opportunity this quarter to take you through the in-depth details of our operational initiatives surrounding our core diabetes franchise. We think these are critical for our shareholders to understand as it's critical to our pivot and transformation. Total revenue for fiscal Q2 2023 was $13.9 million. This excluded to Shell Industries, which was disposed of in April 2023. Excluding our COVID-focused PCR viral transfer media or VTM products and Fitzgerald, revenue for the quarter was $13.7 million, which is comparable, properly comparable given the changes. This was 3% lower than in Q1 2023. Our core franchise diabetes consumables revenues increased 10% over Q1 2023. This is a critical financial growth metric that is key to the transformation of the company. Recurring diabetes consumables revenue rebounded strongly in Asia in the quarter, increasing approximately 70% over Q1. This was led by demand recovery in China. Our expectation is that this level of demand will continue for the rest of 2023 in one of our most important markets. In addition, diabetes revenues grew by over 10% collectively over the quarters in our direct distribution markets, namely the U.S. and Brazil. In other product lines, clinical chemistry, chrome systems, and syphilis product lines continue to show positive revenue momentum despite key raw material backorders in some clinical chemistry product lines. I'll reflect on that as continue the dialogue. These revenue gains were offset by lower infectious disease revenue compared to Q1 2023 and reflects the irregular order cycle in this business line. In addition, we phased out our non-core and difficult to scale transplant activity at our Buffalo and New York laboratory during the quarter. Revenue outlook for Q3 is expected to be approximately $14 to $15 million. Based on our current perspective on what we're seeing coming in and the fact that we've more or less closed the quarter, we think that might be closer to the upper end of that range. In addition, order backlogs have increased substantially to approximately 1 million, which is broadly double the run rate for the first half of 2023. I want to give you a further perspective on the outlook for the rest of the year, especially around our hemoglobin franchise. Significant commercial reorganization, customer engagement initiatives, and service quality improvements have positioned the core hemoglobin franchise for a strong second half 2023 revenue performance. We've made strategic instrument placements and focused on maximizing instrument utilization. These are gaining traction toward building and expanding recurring revenue profile for the business. Diabetes consumers are expected to increase over 20% in the second half of 2023 versus the first half. In addition, diabetes instrument placements for the second half of the year are accelerating, are expected to be up double to those placed in the first half of 2023. Now I'd like to turn our attention to some strategic highlights with respect to our key product lines. First, on hemoglobins. In August, Trinity Biotech received U.S. FDA 510K clearance for the premier resolution system, the automated analyzer for accurate and precise quantifications of hemoglobin variants. Our intention is to retake the market leadership position in hemoglobin variants with its modern successor to the highly regarded Ultra 2 platform. The premier resolution system builds on our ion exchange technology reputation of excellence and a market-leading combination of accuracy, speed, and value. We expect this important clearance from the FDA to actually drive further penetration and increase utilization of the premier resolution system in key global markets, including Brazil, where there's substantial scale in the blood screening market, and allow us to begin the regulatory process to, roll out the product in China. The redevelopment of our flagship diabetes HbA1c platform, the PMR9210, is on track for a phased rollout in 2024. The final redevelopment system is expected to feature improved backward compatible column and reagent formalization that should feature up to three times the current injection capacity, reduced calibration frequency, improved user interface, and better lab system integration. The launch of the new column and reagent was the first step in a multi-generation product development plan aimed at expanding the target market into higher throughput segments, driving a lower service downtime and cost while significantly expanding operating margins. Our improved design combined with significant overall of our supply chain are expected to yield significant reductions in the cost. Cost of goods sold related to test volume, cost of service and repair are all on the priority list. These cost competitive actions are aimed at significantly expanding our total addressable market in a high growth diabetes space. We have initiated a program to manufacture a version of our core diabetes instrument in China, the 9210. In addition to optimizing supply chain benefits, we believe this will enable us to double our reach in a very significant proportion of the Chinese hospital market that is limited to domestic manufacturers. We plan to obtain regulatory approval for domestic market entry by late 2024. Now I'd like to take a moment to discuss a strategy to leverage and scale our reference lab in New York. Efforts are at an advanced stage to significantly reposition and scale the commercial focus of our 50-state certified lab in Buffalo, New York. The company continues to see significant potential in its proprietary Shogun's prime marker lab-developed tests. Despite limited commercialization activities to date, we've had 20% average annual growth since 2020. Annual revenues are approaching $4 million. We think we can significantly scale this number. a serious autoimmune complication of the broader dry eye market. Studies indicate that Sjogren's syndrome may affect over 3 million individuals in the US or about 1% of the population. In conjunction with this opportunity, we are entering into a strategic revenue sharing partnership with trusted health advisors to lead our commercial and business development activities aimed at maximizing the Sjogren's opportunity. The team, comprising of ex-senior executives Quest and Mayo Clinics, brings decades of experience and extensive network in the industry. We as partners intend to explore the opportunity to leverage the reference lab's autoimmune capabilities to jointly expand beyond Sjogren's and look at proprietary biomarker library expansion opportunities. This may give us the opportunity to develop this platform into a center of excellence for therapeutic drug monitoring and companion diagnostics across multiple autoimmune diseases. I'm very happy to have a team of this caliber working with us on such an important initiative. Next, I would like to update you on the status of our TrinScreen HIV launch in Kenya. The company is focused on executing the launch and distribution of the TrinScreen HIV screening test. This follows the announcement by the Kenyan Ministry of Health last year of the adoption of this new HIV rapid testing algorithm. This algorithm establishes Trinity Biotech's Trinscreen HIV as a standard screen test in Kenya under World Health Organization guidelines. We have completed field evaluations of the algorithm in June. The Ministry of Health has communicated procurement and use specifications to the agencies that are directly aimed at placing the orders and we have shift kits for training purposes. We along with the Kenyan government are addressing legal challenges to the HIV testing algorithm and related process changes introduced. We're anticipating resolution of the core challenges and hearings being held in early October. Our expectation and the government's actions indicate that we will receive significant orders in the fourth quarter upon resolution of these legal matters. The Canyon HIV screening program is one of the largest in Africa with up to an estimated 10 million screening tests annually. Now, I'd like to take a moment to discuss in a little bit more detail our operating initiatives. John and I thought it'd be worthwhile sharing with you the status of the extensive operational and transformational cash flow improvement activities that have been underway for much of this year. We believe many of those activities are actually reaching an inflection point and we'd like to share those with you now. We are very focused on driving significant operational transformation and optimization to improve cash flow and allow our key products to gain cost competitive advantage in certain market segments. As the company operates in a highly regulated healthcare sector, Significant operational changes are typically subject to complex technical validation processes that can create time lags between initiation of the change and final implementation. In that context, many of the key operational transformational programs we initiated over the past 12 or 24 months are now starting to deliver significant benefits, and we are projected to deliver increased and recurring cash flow benefits while allowing us to target growth in certain lower-priced markets, all the while maintaining target margins. Some of the key operational transformational projects include the following. First, headcount optimization. This has been an ongoing effort, but in Q2 and Q3 2023, management accelerated headcount reductions as a result of process simplification initiatives that have been ongoing for the past several quarters, the implementation of new software tools in quality and regulatory compliance, as well as production planning, and to reflect the lower-than-expected revenues, particularly in light of the delays around the Kenyan HIV roll-up. Excluding the impact of the disposal of Fitzgerald and limited hiring to support trans-grain HIV manufacturing, These changes are expected to deliver an approximately net 20% reduction in headcount by the end of Q4 2023 compared to Q1 2023, with the result in annualized cash flow savings of over $4 million. Overall, this would represent an over 35% reduction in headcount compared to Q4 2020 when we originally started this optimization journey. The majority of these 2023 reductions are in back office functions, such as finance, quality, assurance regulatory, supply chain, etc., reflecting the impact of modernization and simplification projects led by senior functional leaders we have hired over the past couple of years. We expect the financial benefit of the reductions to make a meaningful impact from Q4 2023. To support trend screen HIV manufacturing, we have hired approximately 15 staff. I'd just like to reflect that in light of these numbers I indicated to you. We are highly focused on revenue per headcount as a key KPI for management, and we intend to continue to transform and optimize our operations to improve this KPI over time. And we'll keep you posted on how we progress. Beyond headcount, We are also focused on optimizing the entire hemoglobin's operation to enhance price competitiveness and profitability. We see significant opportunity to truly refine this platform. Specific actions are as follows. Number one, with respect to our diabetes A1C consumables manufacturing optimization efforts. We are now at the final stages of our revised manufacturing process for our key diabetes A1C testing column. It's the key consumable for 9210 instrument platform. Bringing this process in-house in an optimized manner is projected to reduce the cost of goods sold of our diabetes A1C testing column by over 30%. Based upon current run rate production, This is estimated to deliver over 1.5 million recurring annualized cash flow savings once we have fully transitioned to the revised manufacturing process and should allow our premier 9210A1C testing system to be more competitive in lower-priced, high-volume segments of the market. We expect the financial benefit of the reductions to make a meaningful impact from Q4 2023. with an increased savings level in 2024 as we transition completely away from the legacy manufacturing process. Initiative number two with respect to our core hemoglobin platform. Diabetes A1C instrument supply chain optimization. Over the past 12 months, we have initiated a supply chain optimization program for this instrument. with the intent of reducing costs and optimizing the quality instrument by moving to a more competitive supply chain environment. This program has progressed significantly. We have already commenced securing materials savings of 20% per instrument. Given the success of this program today, we are now targeting savings of 40 to 50% in material costs for our Premier 92 instrument, which is based upon our expected production run rate, and we did deliver Based on that run rate, annualized cash flow savings of $1.5 million when fully completed. These changes are already delivering a working capital benefit in terms of lower inventory costs and expected EBITDA impact to begin in late 2023 or early 2024 as inventories converge into sold products. In addition, this lower cost of production should allow us to competitively target growth in segments the diabetes A1C testing market that are lower priced but much higher volume than our traditional focus segments. This would allow us to significantly scale our business in terms of revenue while maintaining target margins. There is also significant component commonality between our premier 9210 and our hemoglobin variant instrument, the premier resolution that recently received FDA clearance. This means that many of the savings in seed for the 9210 instrument can also carry into meaningful lower cost production for the premier resolution. The third key initiative I'd like to highlight with respect to this platform is the fact that we are rebuilding and repositioning the diabetes A1C reagent column system core to our 9210 instrument. As previously discussed, we are developing an improved backward compatible reagent column system. This system is expected to feature up to three times the injection capacity of our current system. This program is at its final stages of development in technical validation. Subject to this validation, we expect to launch this new reagent column in early 2024 and estimate that this system should deliver recurring annualized incremental cost of goods sold cash flow savings of over one million while again facilitating us more importantly to competitively target growth in segments of the a1c testing market that are lower priced but much higher volume that are traditional focus segments the ability for us to maintain volumes is because our reagent business is much higher margin than our insurance business this is a razor razor blade model And high volume is a critical way to scale. We are applying the same thinking now with all of this discussion about our hemoglobin business to our HIV product manufacturing as well. We have initiated a program to optimize the location and cost of certain downstream manufacturing supply chain activities related to our HIV products. namely Unigold and Trendscreen. Our initial assessment indicates that such a program could well deliver several million dollars of annual cash flow savings while providing the company with additional manufacturing capacity to meet the increased and expected demand for Trendscreen as we roll the product out in additional countries. We expect this key product, excuse me, this key project to start to deliver recurring savings in 2024 And we will provide further updates on this program as it progresses over the next couple of quarters. These initiatives have combined to increase, excuse me, these initiatives have contributed to some increased SG&A expenditure over the last 12 months. And we will continue to require some further investment over the coming quarters. Management believes that the future profitability and growth of the company is significantly dependent on optimizing our cost structure and cost competitiveness, which makes these investments key to delivering significant returns over the medium term. We are prioritizing investing in the delivery of recurring savings or recurring revenue as they should deliver increased sustainable EBITDA and thus increase capital value within each of our core business areas. Before I turn it over to John, I'd like to address ongoing balance sheet optimization, and the development of new growth opportunities. As can be seen from the results for the past three quarters, our SG&A has increased. A major driver of this increase is expenditure on third-party market research, technical assessment consultancy services, and other related costs as we seek to identify next-generation biotech opportunities for the very significant growth market segments within our total addressable market. We are trying to position Trinity and its capabilities where the TAM is significant and larger, especially as it relates to adjacencies around our diabetes franchise. As a result of this work, we have now identified and are pursuing a select number of investment areas and associated targets. In conjunction with pursuing these targets, we're also closely working with our existing lenders, perceptive advisors, to both improve the terms of our existing financing, considering our lower debt levels, and to gain their support and investments in these high growth opportunity areas. These discussions are going well. We continue our strategic review of some of our non-core business lines for potential capital reallocation to lower debt or reallocate capital to high growth opportunities. Our approach to improving cash flow through operational transformation and organic growth in our core business areas should also play a key role in providing cash flow for investment availability to incrementally improve financing. With that, I would like now to turn it over to John Gillard, who will provide you a more detailed review of the financial results for the quarter. Following that, we will take your questions. Thank you.