Trinity Biotech plc

Welcome to the Trinity Biotech second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. I will now turn the call over to Eric Ribner. Thank you. You may begin.

Thank you. And before we begin, please note that statements made during this presentation may be deemed forward-looking statements within the meaning of federal securities laws. These statements are subject to known and unknown risks and uncertainties and may cause actual events to differ from those expressed or implied in such statements. These risks include but are not limited to those that set forth in the risk factor statements in the company's annual report on Form 20F filed with the FCC. 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. I will now hand the call over to John Guillard, President and CEO of Trinity Biotech, who will give an overview of Q2 performance and a business update. John will be followed by the company's Chief Accounting Officer, Simon Dunn, who will give further details on Q2's financials.

John, turn it over to you.

Shortly after I took over as CEO, I set out a plan that would demand revenue in the short term through scaling trends in HIV production. Two, deliver a sustainably profitable business by transforming operations to deal with the root causes of historical inefficiency. And three, build an exciting and truly scalable new business in wearable biosensors, starting with a meaningfully different continuous glucose molecule. This is an ambitious plan. It is a plan with bold steps. We are now taking those bold steps at speed. This quarter, we are pleased to report that again, significant advances are being made across our entire business. And the plan is working. We are growing our revenue base while at the same time reducing costs. We have had over 50% quarter-on-quarter revenue growth in point-of-care revenue, driven by the continued success of scaling of rapid HIV test output. This was accompanied by a 45% improvement in operating profitability before impairment charges and restructuring costs, quarter over quarter. We are enthusiastic that the ambitious and aggressive comprehensive transformation plan we developed and set out earlier this year is working and delivering results. Given our team's success in executing against this plan, we are now even more confident that we are on the cusp of significant step changes in our financial performance and profitability. We remain on track to achieve annualized run rate revenues of approximately $75 million by Q2 2025, with approximately $20 million in EBITDA, that is earnings before depreciation, amortization, tax and share based compensation costs from our existing business. Now, Let me walk you through some of our key achievements and provide more detail across the three main priority areas for our new leadership team, which to remind you were one, growing trans-green HIV revenue, two, aggressively executing on the key initiatives underpinning our comprehensive transformation plan, and three, progressing our main long-term growth strategy based on our newly acquired continuous glucose monitoring or CGM technology. Firstly, let's discuss growing trans-screen HIV revenues. As I mentioned in our last two calls, we've been focused on successfully ramping up production of rapid HIV tests. In particular, trans-screen HIV. And this continued to scale from Q1 into Q2 2024. As you can see in today's results, the financial impact of that increase, with a quarter-on-quarter increase of over 50% in our point-of-care revenue, which itself is an increase of almost 120% year-over-year, and is a testament to our current team ability to execute. our current focus is to continue to ramp production, while also significantly increasing the profitability and margin contribution from this new product. We successfully implemented further automation of our manufacturing processes as planned, which reduces the net cost of manufacturing. In addition to increasing efficiency through automation, we are running a twin track approach of outsourcing the less complex aspects of our rapid HIV production to a lower cost offshore location as part of our comprehensive transformation plan. And I will speak to that further a little later. Outside of scaling production to meet incoming orders and focusing on manufacturing efficiency, Our technical and sales teams continue to be very active in pursuing new commercial opportunities for Trinscreen HIV. They met with many key stakeholders at the recent International AIDS Conference that took place in Germany. There is significant interest from many key stakeholders in sourcing a high-quality test such as Trinscreen HIV from an established and trusted partner, such as Trinity Biotech. As I've mentioned before, trans-screen HIV is in various stages of evaluation processes across several countries in Africa. We expect to further grow trans-screen HIV revenues from new wins across many of these evaluation processes. Now moving on to our Comprehensive Transformation Plan that I set out earlier this year. To recap, this plan is designed to deliver a much lower manufacturing and SG&A cost base, which will drive significant profitability from the growing revenues from our existing business, and importantly, provide an efficient, scalable platform to facilitate the next stage of the company's growth. The new management team continues to be united in our vision that we can fundamentally improve upon the prior commercial and financial performance of our existing business through a series of ambitious and aggressive incremental changes. With the significant progress in execution and successes we have already had We are very excited about the opportunity and believe we are on the cusp of near-term significant step changes in our financial performance. To recap, the transformation plan has three main pillars to optimize the existing business and prepare the company for our next stage of growth. One, consolidate an offshore manufacturing. Two, optimized supply chain, and three, centralized and offshore corporate services. We have again made significant advancements in our key objectives across each of these three pillars since I spoke with you last, with a key focus on executing against our plan. As I did last quarter, let me take a few moments to give you some examples of the key objectives we achieved in this period. With respect to pillar one, consolidate and offshore manufacturing, we continue to prioritize on our two largest businesses, being rapid HIV tests and diabetes HbA1c testing. In HIV testing, I am very excited to report that we have successfully completed the technical transfer of one of our rapid HIV product manufacturing processes to our offshore manufacturing partner. This was a very significant achievement by both teams. It is a complex process. We set out audacious timelines and we have been successful. I believe that this is a critical milestone in our comprehensive transformation plan and further increases our confidence in reaching our ambitious financial performance target. Our team is now preparing the data to support our upcoming submissions to the relevant regulator to permit commercial manufacture with this outsource partner. and we expect this to be received later this year. In diabetes HbA1c testing, as we previously announced, by the end of this year, we are ceasing main manufacturing activities at our Kansas City facility. Since our last earnings call, we have met further significant programs in executing on this closure. We are currently moving many parts of the manufacture of these products to our Irish facility, which will utilize spare capacity created by the offshoring of HIV test assembly, I referred to earlier, while allowing us to maintain the highest quality of product. As part of this move, we have had teams from our Irish facility in Kansas City being trained on these manufacturing processes. We are also moving less complex manufacturing processes currently carried out in Kansas to lower cost offshore locations. This is building on our previously announced manufacturing and supply chain optimization in our Hemoglobus business and would further support us building a business

of significant value in this area. In pillar two, optimize supply chain.

This past quarter, we successfully transitioned a significant proportion of our hemoglobin instrumentation supply chain to lower cost providers. As we set out in today's press release, we expect this shift to be gross margin accretive and provide meaningful working capital benefits. This is a project that has been ongoing for some time and I believe takes away a significant proportion of costs of our instrumentation and allows us much greater agility commercially as we move forward in that business. In pillar three, we have substantially progressed the setup of our centralized and offshore corporate services function. This is designed to provide us with an efficient and highly scalable corporate services platform to support growth while reducing our SG&A costs. We have identified the functions that will transfer to this new centralized location, and these are currently being recruited for us. Our current focus is ensuring a smooth transition of these functions to this new location and maximizing the operational benefits and ongoing efficiencies that can be delivered by this change. To conclude, we're excited by the very real progress we are making on all major fronts in delivering this step change in financial performance. And that continues to give us the confidence To reiterate, our previous guidance of approximately 20 million of annualized run rate EBITDA, so an annualized run rate revenues of approximately $75 million by Q2 2025. Now, moving to our long-term growth driver, continuous glucose monitoring, or CGM. As I said before, in addition to strengthening our existing business

We aim to build a global business in wearable biosensors, initially with a focus on CGM.

Since we made the acquisitions, we have been, A, further developing our commercial strategy around CGM and biosensors, and B, advancing the design and development of the next generation CGM device. Now, let me take you through our main activities in these areas since we last spoke. With respect to commercial strategy, we attended the American Diabetes Association Conference in Florida, where we met with several key global industry participants. It is clear from these discussions that there is a real desire in the industry for our CGMs key differentiators of being a more affordable and sustainable CGM that delivers a great user experience and that the product development direction we are taking will realize that vision in an exciting and compelling way. That has further increased our confidence that our unique technology provides a great platform on which to develop a next generation CGM that can truly disrupt the diabetes care market. For those of you who may be new to this area or have not heard me speak on this before, our CGM technology is not some unproven, non-invasive solution. Like the two main players, Avid and Dexcom, it uses a minimally invasive sensor wire or filament. I think it is important that I take a moment to again explain the importance of some of the technical differences in the Trinity technology and the valuable differentiated product features they facilitate. Like the other CGMs I mentioned, in the Trinity solution, An ultra-thin sensor wire or filament is inserted a few millimeters into the skin and this transmits live data about the level of glucose in the body to a smartphone. However, a critical distinction and benefit of our technology is that the sensor wire can be inserted into the body without the use of a needle. What this means is that our sensor is inserted using a reusable sensor applicator. The others I refer to require a single-use applicator that punctures the skin with a retractable needle. This leads to the entire plastic and metal applicator becoming non-recyclable biohazard waste. In contrast, our sensor applicator is reusable. and last for years, with all the sustainability and cost benefits that brings. While it may not sound like a big issue, for every person using one of the leading products, over two years, they will generate about 11 pounds or five kilograms of non-recyclable plastic and metal across 72 applicators, which is not insignificant. especially when it is multiplied by the number of global users of these devices. This drives two big problems with the main CGM solutions on the market today. One is cost, which creates a barrier to broader adoption of this life-saving technology. And the second problem is the massive amount of non-recyclable waste they create. By contrast, over that two-year period, our solution would use just one applicator. Our technology, coupled with our design philosophy, greatly reduces the cost and environmentally harmful waste created by just this part of the solution, thereby solving two major problems with the current market-leading CGM devices. But we are not stopping there. As part of our modular solution, we're combining this reusable applicator with a reusable transmitter, encompassing a rechargeable power source and electronics to further reduce the cost and harmful waste of our solution compared to the two main competitors on the market. This powerful combination of reusable applicators and transmitters dramatically reduces the cost of our solution. And we believe we can provide a CGM solution at a daily cost that is at least 40% less expensive than the current main products on market. We believe this gives us a very significant competitive advantage and a great opportunity to disrupt the market And this view was confirmed at our recent meeting with key opinion leaders within the industry. We understand that this is a very large market opportunity for a company of Trinity's current size. And that is why, since the acquisition, we have continued to be focused on creating a team of world-class designers and engineers to develop and design the next generation CGM solutions focused on A, usability, B, affordability, and C, sustainability. We believe that by creating a next generation product around these three teams, we can reach as many people as possible with this lifesaving solution. This is similar to the way that the company has supported accessibility to HIV healthcare for over 25 years. We have substantially moved the project forward over the last quarter, and we are now entering a new and advanced stage. We now have designed two prototypes that showcase the key advantages of our technology and design philosophy. We plan to road test these prototypes with representative user groups over the coming weeks and months. Given our strong focus on usability and accessibility, this engagement is important to us in guiding the finalization of these designs. We are also working with a hyperscale contract manufacturer to optimize these designs for high quality and efficient automated manufacture at scale. We have designed prototypes of the next generation key digital interfaces, and we are working with digital healthcare companies on the development of the overall digital technology stack that can support our vision of delivering key data-driven healthcare and wellness insights Again, these digital prototype designs are focused on true differentiation and usability. Since acquisition, we have also made a number of enhancements to the sensor technology itself, and we have begun a pre-pivotal clinical trial, which we expect to conclude in early September. We have also applied for approval. to begin a second pre-pivotal clinical trial in quarter four 2024, and we expect to receive competent authority approvals to commence the trial in the coming weeks. These pre-pivotal clinical trials will give us insight into the sensor optimization pathway. On overall timing, we remain on track to enter pre-pivotal clinical trials by summer 2025, with EU regulatory approval targeted by the end of 2025. We expect regulatory approval for further global markets will follow the initial approval in the EU. With all these developments, we are more excited than ever of the opportunity CGM represents for Trinity Biotech. And we are rapidly building the team and technology

to deliver on that opportunity.

To conclude overall, I am very satisfied with the significant progress we have made over the past few months on our ambitious priorities and believe that the company is now at a very exciting point of transformation and opportunity with significant financial benefits set to be realized in the near term. We have again had some key wins getting up print screen HIV, which provides us with growth and additional profitability. We have further executed on our comprehensive transformation plan, which will support us shortly delivering step changes in profitability. Finally, we have made real progress on the realization of a highly impressive but differentiated CGM solution, that can disrupt this massive market, help millions of people globally, and deliver very significant growth to Trinity Biotech. As Eric said, today I'm joined by Simon Dunn, our Chief Accounting Officer. We're excited that our new Group CFO, Louise Tallon, joins us in a few weeks, and I am thankful to Simon for supporting us on this call during this transition period. I would like to thank you all for your attention, and I will now hand you over to Simon to bring you through the Q4 financial results in more detail.

Thanks, John. Our revenues for quarter two 2024 were $15.8 million, which was 14% higher than in quarter two 2023. Our point of care revenues more than doubled, with revenues increasing by $2.5 million to $4.6 million, equating to an increase of 119% compared to Q2 2023. This increase was driven by our HIV screening test, Trinscreen HIV, which had sales of approximately $3.1 million. Our clinical laboratory revenues were $11.3 million, which is a decrease of 4.6% compared to Q2 2023. There was a strong performance in the quarter from our clinical chemistry portfolio, which grew by over 20% year over year. This increase was offset by lower hemoglobin revenues, which were down 10.8% year over year, primarily as a result of lower instrument sales in the period. We expect the decline in instrument sales to be a temporary one, as we're in the process of repositioning our instrument offering in line with our new improved diabetes column system, which is currently being rolled out. Our gross profit for the quarter was 5.7 million, representing a gross margin of 36.2%, which was consistent with the gross margin for the comparative quarter in 2023. There are two main trends in our gross margin, one favorable and one favorable, which are currently offsetting each other, resulting in the gross margin being flat year on year. Firstly, in our largest division, hemoglobins, we are seeing improved gross margins. We succeeded in lowering our manufacturing costs through supply chain initiatives and from our revised in-house manufacturing process. Secondly, the trim screen HIV sales are currently diluting our overall margin percentage, but we are expecting this to improve incrementally over the next three quarters due to increased operational efficiency through automation and the expected transfer of assembly activities to a lower cost manufacturing location by the end of 2024. Research and development expenses for Q2 2024 were $1 million, down $200,000 versus Q2 2023. Following on from our acquisition of the waveform assets in January of this year, we continue to progress the development of our CGM offering in line with our previously communicated plan. Our overall capital expenditure in the quarter relating to our CGM biosensor division was $2.8 million for the quarter. SG&A's expenses were 6.4 million in Q2 2024, compared to 7.9 million in Q2 2023, a decrease of 1.5 million. The majority of the reduction in SG&A expenses is due to lower employee remuneration costs, comprising salary costs and share-based payments charges. The cost saving here is due to the headcount optimization activities during 2023. These SG&A savings were partly offset by an unfavourable movement of half a million dollars in foreign currency retranslation charges. This quarter, you will see from our release that we've incurred restructuring costs totalling $1.9 million related to our comprehensive transformation plan, which John described earlier. These costs mainly comprise termination payments, factory closure costs and costs associated with the transfer of activities to the offshore service provider. The majority of the cash outflow related to these restructuring costs will happen in the second half of 2024. We've recorded a non-cash impairment charge of $0.4 million this quarter, compared to an impairment charge of $10.8 million in Q2 2023. The impairment test performed as of June 30, 2024, identified that the value in use of some of our cash generating units was below the value of the carrying amount of their assets. other than inventories, accounts receivable, cash and cash equivalents, and deferred tax assets. All of what I have described so far led to an operating loss of $4.1 million in the quarter compared to an operating loss of $14.9 million in Q2 2023. Net financial expense reduced by approximately $900,000 from $3.8 million in Q2 2023 to $2.8 million in Q2 2024. In Q2 2023, we incurred a penalty of $905,000 for the early settlement of a portion of our senior secured term loan. And this charge did not repeat in Q2 2024. And this is the main reason for the decrease in net financial expense year on year. You will see from the table in our earnings release that our term loan interest has increased to 3.1 million in Q2 2024, up from 2.5 million in the comparative period. And this increase is mainly due to the additional loan drawdowns related to the waveform acquisition. Just over 800,000 of these incremental borrowing costs have been capitalized to the CGM intangible asset this quarter, as required by IFRS accounting standards. Net loss from continuing operations was 6.8 million in the quarter, compared to 18.3 million in the same quarter last year. The adjusted EBITDA for the quarter, which is the loss before depreciation, amortization, impairment charges, restructuring costs, tax, interest, and share option charges was 1.4 million compared to 2.6 million in the equivalent period last year. Basic loss per ADS was 71 cents compared to 78 cents in Q2 2023. Finally, I'll talk about our cash flow statement for the quarter. The cash balance decreased from 5.8 million at March 31 to 5.3 million at the end of June. Cash used by operations was 1.1 million in the quarter, an improvement of 3.3 million compared to Q2 2023. We had investing cash outflows of 3.2 million, which mainly related to our R&D capital expenditure for CGM and hemoglobin products. Cash inflow from financing activities was 3.9 million in the quarter, primarily driven by the drawdown in April of 6.5 million from our lender perceptive, offset by our quarterly interest payments. Now I'll hand you back to the operator for questions.

Thank you.

We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment please for questions. The first question comes from the line of . Please go ahead.

Hi, good afternoon. Thanks for taking the questions. I start with trend screen, which was very strong in the quarter. I think you said it was 3.1 million. That compares to 1.2 million in the first quarter. You know, how does that compare to your internal expectations? And do you still think that trend screen will be about 8 million in revenue in 2024?

Yeah, it meets our expectations that, you know,

The two greatest uncertainties as we came into this year, Jim, was the ordering pattern for that. We haven't received it before and how that would pan out in terms of quarter-on-quarter variability. And then the second, obviously, was around, frankly, our ability to be able to scale up manufacturing to meet those types of volumes. So it certainly has met our expectations. In terms of the full year outlook, I think we're on track for that 8 million. And we're currently kind of looking at the landscape for the rest of the year. And we're assessing whether there's potentially some upside around that number. And that's something we'll hopefully be able to bottom out on in the short term.

All right. And then moving on to clinical chemistry. that was up very nicely in the quarter. Can you give us some color on what drove that and if that is something that you think will be sustainable?

Yeah, I think a driver that was price increases we were able to put through for one of our products, which the market was able to bear. And that is likely to, I think that's likely to be sustainable, certainly in the short to medium term. And there also has been some challenges in the market more broadly in terms of availability of products and that has allowed some switching in which we've been able to benefit from.

Right. Then moving on to the premier instruments, you indicated those were down in the quarter as the market waits for the new instruments to come out. When do you expect those new instruments to be available?

Yeah, it's less around the new entrance, I suppose it's more about the new column, the new column system. So that is currently being rolled out, that's active at the moment. We have literally people in the field putting through the changes required to the instrumentation to use that new column system. The reason that we held off on instrument placements and sales during the quarter is that, as I said previously, a key driver for us around that new column system is that its higher level of tests per column allow us to be more aggressive on pricing for growth and should allow us to attack parts of the market for A1C testing that we historically have not been able to get into given pricing pressures. And obviously, as you can imagine, we make most of our sales outside of the US and Brazil to distributors And they look at the overall package in terms of cost of the instrument, cost of the consumables, and then how much they can get paid from the health care system per test. And so it's an overall package. And I would also say in the past, there have been placements that we probably would have liked to optimize the level of consumable revenue from further. And that's where we make our money. Selling instruments is not our business. We sell instruments in order to facilitate our business, which is selling HPA1C tests. So because of that combination, we're very much looking at the column and the instrumentation as an overall commercial package. And that's, I suppose, why, while that's being rolled out and the distributors in particular are coming up to speed with the features around the new column system, and the revised economics that allows we not push instrument sales as much as we have in the past.

Temporarily. If we assume that the growth in the clinical chemistry business continues because of the price increases, and that the... premier business improves as the new columns come out. Should we expect the overall clinical laboratory business, do you expect those numbers to be positive by the fourth quarter of this year?

In terms of growth, Jim?

Yeah.

Yeah, yeah, absolutely. I would expect so.

Okay. All right, and then moving on to CGM. It sounds like you'll have the two pre-pivotal trials completed in the next couple quarters. When do you think you'll lock in the design? And how does the final trial, how does that compare to some of the other trials you've done at Trinity?

Yeah, so I'll answer both questions separately. So in terms of locking in the design, look, it's obviously an iterative process. So we're very, very happy with the progress we have made to date. I'm very, very excited about the designs that we've developed. I think the additional utility that that brings to users is very significant, and the advantages we could have in terms of cost, et cetera, is very exciting, and sustainability. You know, as we said, they are prototypes. We now need to get user feedback, and that's both from people who wear the devices, clinicians, et cetera. That would feed in further to design, and then our manufacturing advisory partners will also feed into it. So these are iterative, right? These are iterative. You know, we will continue and continue to narrow the scope for change as we get towards the end of the year and early into next year. And then I'd expect us to be very much honing in on the final product, probably by the end of Q1, early Q2 next year, just before we go into trials. And in terms of the trials, it's not too dissimilar from previous trials we would have run. And I suppose the difference is, normally in our case, the tests are outside the body. In this case, there's something going into someone's body. And so there's different protocols around that and different safety requirements. But that's something that our team has experience in. And I would say the scale of the trial is the other unknown at this stage. We have not decided whether we would do what's called a global trial. So we would look to gather data from a large number of different sites around the world and use that to support regulatory submissions in a number of different countries and regions, or whether we would do individual trials. And that's probably one of the main unknowns at this point, Jim. And we'll make a decision on that as we progress forward based upon the regulatory environment at the time and the cost difference associated with those options.

OK. All right. And the last one for me. I'm not sure if it was the end of last week or early this week, you announced a new distribution partner for the clinical chemistry products. How do you expect that to impact your business?

Yeah, in short, we expect it to be positive. We've been impressed with our interactions and work with that partner to date. They have got boots on the ground in the UK and they have a strong desire to grow that business. So that allows us in that more kind of simplified organization structure that we're striving for to deliver profitability, to also have the opportunity to have more resource, more trained resource, and more focused on those sales. So we expect that to be margin, sorry, to be gross profit and revenue accretion over the term.

So does that give you access to new geographies?

It's UK-focused, so I wouldn't say it gives us access to new geographies, it gives us access to new sales contacts, okay, where we wouldn't have had access before. And because they have a, you know, a sales force on the ground in the UK, you know, that gives us a greater opportunity to target new hospitals, new clinics, et cetera.

Got it. All right. Thank you.

Thank you. It seems like you're making a lot of progress.

Thanks, Jim.

Appreciate it. Thank you. A reminder to all participants, you may press star and one to ask a question. The next question is from Andrew May, who's an investor. Please go ahead.

Hey, John. Thanks for taking my question for you. Very excited for the future. But as a long-term investor here, we just were curious if there's still a relationship with MECO.

So MECO made a public filing recently. that they had disposed of their investment, I think, late last year or earlier this year. So that's the status on that.

Thank you very much. Thank you.

Thank you. Ladies and gentlemen, as there are no further questions, I would like to hand the conference over to John Gillett for closing remarks.

Thanks everybody for your attention and we continue to be excited about the progress that we're making and we appreciate your support and we look forward to updating you around the time of Q3 results.

Thanks very much and again thanks to Simon for his support today. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.