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spk06: Good day and welcome to the Scientific Industries Report's fourth quarter fiscal year 2021 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 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 Dorme, Managing Partner with Lithum Partners. Please go ahead.
spk02: Thanks, Sarah. Good afternoon, and thank you for joining us today to review the financial results of Scientific Industries, Inc. for the fiscal year 2021, ended June 30, 2021. With us today on the call are John Moore, Chairman, and Helena Santos, Chief Executive Officer. After the conclusion of today's prepared remarks, we'll open the call for questions. If anyone participating on today's call does not have a full-text copy of the press release, you can retrieve it from the company's website at scientificindustries.com or numerous other financial websites. Before we begin with prepared remarks, I'd like to remind everyone certain statements made by the management team of Scientific Industries during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed under risk factors and documents filed by the company with the Securities and Exchange Commission including the annual report on Form 10-K for the year-end of June 30, 2021. Forward-looking statements speak only as of the date the statements were made. The company can give no assurance that such forward-looking statements will prove to be correct. Scientific industry does not undertake and specifically disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. Now I'd like to turn the call over to John Moore, Chairman of Scientific Industries. John.
spk10: Thank you, and welcome to our first investor conference call in the 67-year history of scientific industries. Given the transformation taking place at the company, we believe it's important to share our vision and our goals in making scientific industries an even more valuable growth company. We're going to discuss two themes today. One, the demand unleashed for powerful new tools to enhance productivity during unique periods of synergy between different branches of science and engineering. And two, the opportunity we have to create wide-wheel businesses by leveraging the credibility of our well-known product brands and transforming our large installed base of instruments in pharmacy and life sciences from analog products to network systems delivering recurring revenue. Before we tell you about the important year that's just passed, and share some thoughts about upcoming inflection points, I'd like to review some historical context for the wave in demand that has created our current opportunities. Humor me, as I'm a huge history buff, and I promise this aside has important implications for projecting our futures in scientific industries. In 1887, Torvald creates the pharmacy torsion balance. In February of 1953, the structure of DNA was described by Watson and Crick. They note the ability to reproduce DNA, and this is the opening shot, what we now call the synthetic biology revolution. In 1954, scientific industry goes public, raises $50,000, and enters the general scientific instruments market with a line of rotators, peristaltic pumps, and micro gasometers. On October 4th of 1957, Sputnik is launched, excites the imagination of the American public and business community, and accelerates the synergy or collaboration between physics and engineering, allow both fields to answer really interesting questions. It also creates demand for novel productivity-enhancing tools. A lot of money in the USA is poured into the effort to compete with the Russians and to put a man on the moon. The National Science Foundation was established to fund science this year. In April 1959, while working at Scientific Industries, The Kraft brothers invent and patent the vortex mixer and scientific industries launches the vortex genie, which is destined to become a vital utility of every life science lab. More recently, Michael Milken wrote a Wall Street Journal article declaring COVID is the Sputnik of our generation. Again, flooding the life science industries with private and public capital and creating demand for even more productivity enhancing tools. Lastly, in her book, The Age of Living Machines, Dr. Susan Hochfeld, the first biologist president of MIT, claims the 21st century will be defined by the collaboration of biology and engineering. And we would add data science and network. So we're laying the groundwork to be important players in this collaboration between biology and engineering. And we expect to create even more substantial shareholder value. Our Torval business is speeding this convergence to reduce the cost and the delivery of small molecule drugs, commonly called pills, from the pharmacy to the consumer. Scientific bioprocessing is delivering powerful sensors and analytics combined in the first life science Internet of Things to harness the convergence between biologic or large molecule drugs, engineering, and the network, spanning from the research lab, through process development all the way through manufacturing. So we feel a sense of urgency to make the investments to establish our leadership. Why now, you may ask? Michael Greeley, my friend and founder of Flare Capital, a life science venture fund, compares the current state of healthcare to that of the advertising industry in 1996. At that time, the advertising industry had $200 billion of revenue. And the re-architecting and digitization of that industry created over $12 trillion of venture capital-backed value in companies like Google and Facebook. The healthcare industry today is five times the size of the advertising industry and rife with inefficiency. Implementing the power of convergence is the key to eliminating this inefficiency. Michael believes the digital re-architecting of healthcare will in turn create enormous value for investors, coupled with major savings for society. Early movers have huge advantages. Just as in the early days of advertising and the internet revolution, he predicts the next two years will determine the winners of the next five years, and the next five years, the dominant leaders of the next 20. Helena, Carl, and I are excited to share with you the investments we're making and how we intend to more firmly establish scientific industries as a leader in the fast-growing life science tool sector as it transforms industries even beyond healthcare. So fiscal 2021 was a year of growth and renewal for scientific industries. First, we focused on the life science tool business and the divestiture of the non-core asset, Altamira Instruments. We had a record year for the benchtop laboratory business, which our CEO, Helena Santos, will discuss in more detail. We raised capital and we expanded our shareholder base, adding experience, growth, and life science investors, thereby strengthening our relevant network and expertise to increase shareholder value. The continued transformation of the Benchtop Lab Equipment Torval Division from its base in pharmacy scales to renewed product lines with the introduction of the Vivid Pharmacy Enterprise Solution. We have Carl Nowiszewski, the president of Torbao to share the background and opportunity further. We acquired Aquila Biolabs with its roadmap to the first Internet of Things network for life sciences, which I'll explore further later on in the call. The common themes you'll hear about today between the Torbao division of the benchtop lab business and the bioprocessing business is how we're helping our customers reduce labor costs, improve operational efficiencies by elevating workflows of skilled workers, We're moving from products to platforms, and in the process, creating very valuable flywheel-type cloud-based businesses with recurring revenue and network effects. I'll now hand the call over to our CEO, Helena Santos, to discuss the company's fiscal 2021 results and the benchtop lab business.
spk07: Thank you, John, and good afternoon, everyone. Thank you for attending our company's first earnings call. So today, I would like to speak to you directly about not only our company's recent fiscal year results, but our vision and ambitions for our company. So let me first talk about our financial results. We recorded net revenues of $9.8 million, and that was just shy of $10 million, which is an increase of $2 million from our previous year. And that was driven by a record 33%. increase in sales of our legacy benchtop lab equipment business, which was pretty evenly spread between US business and overseas business. As we reported, our business overseas represents just under 40%. And that's because the Torbell brand products are primarily US-based business, while the Genie brand products are split about 50-50 between the US in the rest of the world. This record increase in sales was fueled by increased demand for our flagship product, the Vortex Genie II, which the company introduced in 1985. And to some extent, also sales of our Vivid automated tilt counter, which helped the company achieve record profits in the benchtop lab equipment segment. With EBITDA totaling $1.6 million, compared to $600,000 in fiscal 2020. So, as a result of the increased bench top lab equipment revenues, our gross margins increased to $5 million from $3.9 million for the prior year. The gross profit percentage was approximately 51%, which was about the same as the prior fiscal year. And that's despite increasing costs of components which was partially offset by a lower overhead rate derived from fixed overhead over a higher sales base. Our operating expenses increased from $4.6 million to $9.7 million, primarily due to the expansion of the bioprocessing business, as John will discuss further later on in our call. And this included acquisition-related costs and also non-cash stock-based compensation of 2.1 million. Other income was substantial this year at $654,000, which related to the majority of the first PPP loan that the company received back in April of 2020 being forgiven and therefore taken into income. We received the second PPP loan of $434,000 in March of this year, which we will apply for forgiveness sometime during this fiscal year, 2022. We recorded a net loss from our discontinued operation, which was the Catalyst Research Instruments, operated through our Altamira Instruments, Inc. subsidiary in Pittsburgh. And therefore, our company recorded a net loss of $3.7 million compared to $703,000 the prior year, and that equated to $1.15 loss per common share compared to 46 cents in the prior year. Then looking at our balance sheet, we had approximately $13.4 million in cash and investments, and our working capital, which represents current assets minus current liabilities, was $16.1 million. Due to literally a debt-free balance sheet other than the second PPP loan, And as I said before, it is expected to be forgiven. Through two successful equity financings, we generated a net $16 million in cash with the first financing in April of 2021, which was used for the purchase of Aquila Biolabs and the amount of approximately $7.7 million. And as disclosed in our financials, management allocated that purchase price over the assets acquired and these were principally in the form of intangibles, which included things like technology and process R&D, patents, trade names, customer lists, and deferred tax assets related to NOLs. The difference, which was 4.1 million, was booked to Goodwill on our balance sheet. Looking to our future, I believe we are in a great position to sustain and grow our core business of the Bench Top Lab equipment, which includes continued growth of both the product lines, the Genie line, as well as the Vivid line. As we envisioned when we bought the Torbell business back in 2014, there are synergies between these two product lines. And indeed, we've been able to capitalize on things like our extensive network of worldwide distributors, and our vendor relationships. And as Carl will tell you, we look to our Vivid automated pill counter line to provide us with some of that growth. There are challenges that we must overcome, such as component price increases, raw material shortages, supply chain interruptions, including port congestions, higher delivery costs, labor shortages. But the good news is that we have been able to manage all these challenges thus far. and we continue to be proactive to deal with them. This is not to say that we don't encounter these situations just like the rest of the world, but we're fortunate that thus far we've been able to navigate them without having a major impact on our business. And that's all due to the great team that we have here at Scientific Industries and abroad that takes an ownership interest in everything they do. I'm a great believer in tone at the top, And my team shares my excitement, and it's evident in every aspect of our company and our company's business. And now I'm going to hand over the call to Carl Nowaczewski to discuss Torbell and the Vivid Pill Counter.
spk09: Thank you, Helena, and thank you all for the opportunity to speak on this call today. I would also like to start with a brief history of Torbell and explain how it ties in with the Vivid Pill Counter that Helena just mentioned. So as John mentioned, the Torvald brand dates back to the late 1800s, and for much of the 20th century, Torvald was the industry-leading manufacturer of mechanical precision balances in the United States. Until June of this year, we continued to produce the iconic torsion prescription balance, which is still in use by tens of thousands of pharmacies around the country. The torsion balance continues to be the gold standard for training in pharmacy schools and universities. The extraordinary popularity of the torsion is what paved the way for Torval to be the brand of choice for most U.S. pharmacies. The torsion balance was the pharmacy balance first patented and introduced by Torval in 1887. In 2006, we were one of the first companies to obtain a weights and measures NTP certification for pill counting in a pharmacy with a digital class two precision scale. The success of our pill counting scales in the early 2000s led to the development of the Torval Cloud, an online enterprise platform that collects and monitors average pill weights of drugs that are dispensed in pharmacies. Torval was in the business of pill counting by weight. Today, the Torval Cloud has over 11,000 average piece weights and is one of the largest private average piece weight databases available. By 2014, as computer version libraries such as OpenCV were starting to flourish and there was an app for everything, We realized that dispensing pills is more than just counting. The Vivid idea was born. Our goal was simple, to create a pill counting software application. Six years later, the Vivid was ready for market. Today, hardware is an important component of the Vivid, but our emphasis is on creating connected pharmacy enterprise solutions. We believe that this vision is what sets us apart from our competition. The Vivid is a cloud platform designed to elevate the pharmacy workflow. Since its launch only 20 months ago, there were over 1.5 million counts performed on Vivid with not a single miscount reported. The usage of the Torback Cloud quadrupled and the platform is now shared by pill counting scale customers as well as new Vivid users. Our goal is not only to replace our huge installed base of pharmacy scales, but also replace our competitors' products. In executing our plan to build a pharmacy enterprise solution, We have nearly doubled the features available in the Vivid over the past 12 months. Our image log function captures a photo of the trade and records exactly what was dispensed when the transaction was completed. As of the beginning of October, the Vivid now interfaces with pharmacy system software providers, which is an integral part of the prescription filling process. This is a big addition to the value proposition of the Vivid. By the end of this year, more than 60% of our customers will be fully interfaced, and as a result, we estimate that the sales of the Vivid in the next 12 months will double. In a few months, we will be introducing the Vivid Plus subscription, a service that will allow our customers to take full advantage of the Vivid software and its cloud features. By the end of next year, our goal is to offer a complete line of Vivid systems, including a mobile application called the Vivid Go, as well as two additional models targeting new market segments. The Vivid workstation will be our most advanced platform, capable of deploying telepharmacy functionality and used to deliver additional products and services to the pharmacy. Just like telemedicine, the need for telepharmacy has been accelerated by the post-pandemic labor shortage, and the Vivid is perfectly positioned to take advantage of these trends. As more states around the country relax existing regulations and pass new ones allowing pharmacists to operate remotely with greater flexibility, Pharmacy owners are looking to centralize their operations and implement telepharmacy technology. One of the most important aspects of telepharmacy is record keeping. The Vivid workstation will be equipped with at least three cameras, which will be used to capture every step of the dispensing process. When combined with our cloud, the Vivid can be the ultimate record keeping system. We believe that our existing cloud-based infrastructure will put us ahead of the competition in this race. There are approximately 88,000 pharmacies in the United States and it's estimated that more than half still count by hand or have pill counting equipment that is not utilized. Our competition recently announced that by the end of this year they will stop the service and support of as many as 4,000 of their pill counting machines. With new pharmacies looking to implement pill counting technology and existing ones looking to replace obsolete counters, we estimate that the market potential is as much as $40 million per year. Over the last 24 months, we were able to build a sales team of over 40 sales reps representing the Vivid in the U.S. and Canada. This network of sales reps will be vital in growing Vivid sales and reaching our full market potential. Thank you, and I will pass it to John to talk about scientific bioprocessing.
spk10: Thanks, Carl. Helena and I believe the day is not far off when the value and income from the Torvald Vivid business will exceed that of the Vortex Genie business. So when Michael Collins, author of Good to Great and the Flywheel Effect, talks about how businesses like Amazon are creating unstoppable franchises that benefit from network effects, he says, first, they fire bullets to gauge the market opportunity. Once they get empirical validation of a market opportunity, they fire a cannonball. For us, the license of our optical sensor technology to Sartorius was like firing a bullet. Our modest several hundred thousand dollar investment in floor metrics gave us not only millions of dollars of royalties, but a ringside seat as Sartorius and their sub-licensee GE sold over a billion dollars of sensor-enabled amber and single-use bioreactors. Clearly, there was a substantial market opportunity. We wondered, might they be missing a bigger market? In 2019, Latham Biopharm surveyed that we commissioned of the market opportunity for intelligent shake flasks only considered academic and industrial customers focused on mammalian cell biopharma business. We didn't consider the microbial market. Alone, the mammalian shake flask market was estimated to be about 3%. $400 million annually in North America. In acquiring Aquila Biolabs at the end of May of this year, we made a strategic investment in the automation of the synthetic biology revolution. Our tools help biologists and chemical engineers quantify cell growth and convert it into engineering models that help them scale up from small, inexpensive experiments to large, commercial-sized production runs reproducibly. Aquila's founders, made an important first step in this automation with their cell growth quantifier, or CGQ system, that frees researchers from manually taking optical density measurements to determine cell growth. This manual method of physically sampling remains the status quo in education and much of industry today. We aim to change this mindset. The wind is at our back as there's a shortage of skilled workers. Aquila's technology is an essential building block and a platform we're creating that will allow step change improvement and the productivity of new product discovery in synthetic biology more importantly the aquila founders had an enormous vision of how they could help accelerate the synthetic biology revolution by creating the first life science internet of things that would eliminate manual sampling and islanded data and instead deliver an always-on real-time monitoring network that would produce terabytes of data structured for easy manipulation by machine learning and AI systems. When we first met Akila Biolabs, we noticed that they had a shared vision of upgrading the functionality of the most common reaction vessel in science, the shake flask. Their focus was on microbial markets, and like us, they were shooting bullets with the development and sale of their cell growth quantifier, CGQ, which, as I mentioned, made an important first step in synthetic biology by automating the measurement of the growth of microbial cells. They followed that success with another important building block for making ShakeFlask more bioreactor-like by introducing the liquid injection system, the LIS. We made this strategic decision to acquire Aquila given the tremendous progress that was accomplished over the past six years to complete the software and engineering to get these first products de-risked and market-ready. However, we're still in the early days of the utility of these devices and their market penetration. I refer to the Akila devices as bullets because the units perform discrete operations and don't talk to each other yet. That's the investment we're making in the Cocoa Cloud Platform and the adaptive control the connected devices will deliver. This function will dramatically increase their value to our customers. Akila has over 250 customers, approximately half academic, half industrial. We've identified 1,000, more than 1,000 academic customers and more than 3,000 target industrial customers in the US and Europe. And these numbers are somewhat misleading because a big biopharma customer will have as many as 40,000 shake flasks in one location. And a startup may have as few as 16 to 32 units. In addition, many of these larger customers may have an installation of only a small number of our units. Our goal is to sell higher up in the organization to the chief technology officer and the VPs of process development and to achieve large-scale enterprise-wide deployments of our customers. There is a blue ocean of fascinating opportunities ahead of us. The value proposition we're offering our target customers by making their ShakeFlask intelligent is that they can double or triple their product and process development capacity at 10% of the capital expenditure and operating expense of their current alternatives. This is the kind of step change that's getting their attentions. Achilles customers are not only those in the biopharma space like Pfizer. We've also expanded our market opportunity with leaders in animal-free nutrition like Impossible Foods, bioenergy researchers like BP and the National Renewable Energy Labs, biology-based agriculture players like the USDA, Archer Daniel Middleton, Cargill, and ingredients players like Simrise. Just one example of the synthetic biology revolution is The animal-free nutrition industry is focused on reducing the carbon footprint of our food production. The field has exploded with over $12 billion invested in the process, creating hundreds of new target customers for us in the past year. The acquisition of Aquila Biolabs is more than just a linear acquisition of another sensor business. We added a great team in Germany with a huge vision. Our cannonball will be the COCO platform. which promises to be the first Internet of Things in the life sciences and broader synthetic biology market. The architecture of the system is cloud-based and designed to be able to service customers from the smallest academic researcher or startup to thousands of distributed devices at the largest biopharmaceutical manufacturers. We're building our marketing and product management team. Within the next months, we'll further invest in growing our current business and integrate dissolved oxygen and pH sensing with the CGQ and the LIS and work towards the market launch of COCO. This will unlock completely new business opportunities for us and our customers, helping them improve yields, develop better products, and get them to market faster than ever. We're aggressively building the community of users and the connectivity of our devices. The academic and workforce development community is a small but powerful gear in our flywheel. Massive investments by new biologic manufacturers has resulted in a global talent shortage of skilled workers. The professors at biotech-focused higher education and technical colleges are trusted members of their region's biotech ecosystems, yet their students rarely get a hands-on education in bioprocessing. We're making an important effort to engage with these thought leaders and place our systems in their schools through our engagement with biotech public-private partnerships at the Alliance for Regenerative Manufacturing Institute, Nimble, and Biomade, and funding the creation of curriculum around monitoring and control of bioreactors using our systems. This means these students in Europe, and this means these students in Europe, Akila has a rich community of the most prestigious universities and research organizations like Fraunhofer Institute and the Max Planck Institute. So stay tuned for progress in this area in the USA. This is expected to create a virtuous circle of creating a new generation of users as well as trusted reference customers of our target industrial ecosystems. In conclusion, we're extremely excited about the future of scientific industries. Our goal is to make this an outstanding investment for you and for us by growing our margins from the 50% currently enjoyed by our benchtop laboratory business, to 80% to 90% from a network business, and growing our multiple from two times sales today to 10 to 15 times enjoyed by the bioprocessing peers, as well as growing our sales. As we prepare for expansion of the VividCloud and the market launch of our COCO bioprocessing platform for the synthetic biology market, in 2021 and 2022, we'll be remembered as the period that we metaphorically put a person on the moon. Thank you for your time and attention. This concludes our prepared remarks. We're now available to take your questions. I'm joined by Reinhard Vogt, the chairman of our scientific bioprocessing business, and Daniel Grun as the vice president of operations and R&D of Aquila Biosystems, of scientific bioprocessing. So we're now happy to take questions.
spk06: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster.
spk05: Again, that's star, then 1 to ask a question. Our first question comes from Paul Dwyer with Punch and Associates.
spk06: Please go ahead.
spk03: Hi, good afternoon, everyone, and thank you for the conference call. Nice to connect with you guys this way. Hey, John. I wanted to start with maybe a little more detail on the benchtop business to begin with. Could you just break out What, in terms of the 33% increase year over year, was a bit of a COVID snapback versus what you think is more of a sustainable growth rate in the future for that business?
spk07: How are you, Paul? Nice to hear from you. I'm doing well. Great. Yeah, I'm glad you asked that question because that would be something that would be very interesting for all of us to understand going forward. because that affected not only us, but other businesses that saw an increase derived from the pandemic. The increase in sales, that 33%, yes, there's a portion in there that would relate to COVID testing labs. And so we would expect that some of that business is not repeat business because as these testing labs come online, there will be no need for additional ones, and as a matter of fact, some of them may even close down. Now, with that said, we still see that type of business coming through from certain places overseas, particularly in countries where there's still you know, putting testing labs online. So, but of that growth, a part of it has to do with COVID related research. And that research is currently going on in the science, which is obviously our bread and butter from, you know, for our company. And There's, from our sources, there's still a tremendous amount of funding being put towards that type of research. And it's not just COVID related from what we, you know, from what we know, but SARS related. And that's expected to continue for quite a while, especially based on, you know, what the world saw in the recent past. So in short, I guess I would probably say that Based on our industry information, we can expect at least probably a 20% growth rate in the near future, by the near future, in the next year or so, related overall to COVID with some of that decrease coming from the COVID-related testing lab use of our products.
spk03: Okay, great. And one more question on the benchtop side. What's the breakdown of the revenue between Vortex and Vivid?
spk07: The Vivid, without going into too much non-public information, though we wouldn't have been able to get to the rest of the folks, roughly half a million dollars, just under half a million, would have been related to the Vivid.
spk03: Perfect. Okay. And in terms of the bioprocessing side of the business, could you, John, I know you touched on it a little bit, but can you talk about what scientific industries brought to the table in terms of its existing assets that made it the logical acquirer for Aquila?
spk10: I think one of the, Paul, it's a good question. I think one of the biggest things that thwarts startups in this space is, number one, people's number one objectives are our customers is to keep their jobs and what they don't want to do is buy product and they place a big bet on a company that nobody's ever heard of before and they don't really know what the financial backing is and you know will that company be there to service the product and so scientists generally tend to be pretty conservative despite the fact that a lot of times they're working on pioneering research they want the rest of their life to be to be pretty steady and And that's, I think, attributes, that's the reason why, you know, people keep buying the Vortex Genie, even though it's priced higher than its competitors in the marketplace. So when anybody asks us, okay, scientific bioprocessing, you know, how do we know you're going to be here next year? Well, we say, well, you know, if you've ever heard of the Vortex Genie, too, we say, oh, my gosh, they stop you. You know, they stop you in the middle of the conversation. They say, oh, my God, I've got 12 of them in my lab. Say, well, that's us, right? So that speaks... very loudly to both the quality of our products because they don't really break. They've been in use for, you know, a lot of times 20 or 30 years. And also the fact the brand name recognition. And then, of course, we talk about the great people like Reinhardt and Marcus and Dr. Schumacher, you know, formerly from Kyogen, who are backing the company. Perfect. Okay. I think it's that one thing that people ask us a lot about is, well, you've got 30 distributors around the world that are really established and count on scientific industries for their revenue. Why don't you sell your products, the scientific bioprocessing products, through the existing distribution? I think the reason is that we really need to have a great sales force to build the demand and change the mindset around that manual distribution. processing. So I answered a little bit more than you asked for Paul, but I appreciate the question.
spk03: No, that's great. That's great. One, uh, one last question. You know, like I said, we really appreciate you guys doing the conference calls. Um, in terms of raising the investor profile, how are you thinking about, um, uh, potential uplifting in the future or just continued, uh, IR going forward?
spk10: Well, you know, I'd say, uh, that we're really excited by the idea of uplisting, but we're trying to make the main focus of Helena and my and the senior management team's time putting holes in the targets, bringing these new products to market, selling them, and we feel like we're going to have a lot of fun getting the company uplisted and spending time on investor relations, but we think it's just a little early still yet.
spk07: And Paul, while we're doing all of that, we are working in the background, you know, getting our ducks in a row for those things that we would need to have in place in order for that to occur.
spk03: Great. Great. Okay. Well, nice to speak with everyone and look forward to catching up again soon. Thank you for your time.
spk05: Well, thanks, Paul. Our next question comes from Tim Choddard with
spk06: Maros Investments, please go ahead.
spk11: Good afternoon. Just curious if you have any comments about segment profitability. Historically, Benchtop has shown an EBIT profit, and it did in this fiscal year, but I'm just wondering going forward, given that these assets are coming together with Aquila and you have some growth initiatives with Vivid, which sounded very exciting, I mean, Do you have any general ideas as to whether bench top equipment will continue to show EBITDA profitability going forward? And profitability in the bioprocessing segment presumably is not immediate, but just trying to think about that from a modeling perspective.
spk07: Sure. So regarding the bench top lab equipment, I mean, if you look at the historical results unless there was something out of the ordinary historically, that segment has generated profitability. And going forward, based on what we currently know, we expect profitability to continue in that segment. Obviously, you know, everyone knows that there are inflationary pressures on the cost of goods sold that we may not always be able to pass on to our customers. And that is based on the nature of our business. Our customers are generally distributors and that type of customer base increases their prices once maximum, twice a year. And so we, unlike some other businesses, we can't continuously change our pricing to our customers based on what's happening on our cost to get sold line. We can do more of that with the tour bell because we sell primarily on a direct basis, but there's still some constraints of being able to do that there because we're selling more and more through distribution as well. However, the sales mix is also a factor, and obviously we do put into place some pricing increases So one of the things that could impact profitability going forward would be the cost of goods sold, particularly with component costs that we may not be able to control. We do have certain strategies in place whereby we, for example, we will have more than one supplier for certain items, but we can't. We can't always control those costs. Delivery costs are also very high. While we try, where possible, to minimize those as well by sometimes bringing in components via ocean as opposed to air, which can be very expensive, especially for heavy items. Um, we, uh, we're doing some of those things. So I guess, you know, what I'm trying to say is that yes, we do expect profitability to continue in the, in the future. Uh, would I expect it to be, uh, the same as you saw for this fiscal year? Um, taking into consideration everything that we, that we know, um, probably there will be a softening of, uh, you know, of, of those margins.
spk11: And you're talking just about the benchtop segment?
spk07: Yeah, the benchtop segment, correct.
spk11: And so would it be fair to say that the bioprocessing segment would not be profitable?
spk07: We do not expect the bioprocessing segment to be profitable in the near future as we continue to invest in that business. That would be correct.
spk11: Yeah. My understanding is that on the Aquila product, as you're pursuing this project, I guess system, the COCO system is that, um, potentially you might have a, a shaker flask partner or partners that you might be looking to, uh, co-develop a product or forgive the, you know, I'm, I'm, I'm inserting my own opinion there, but is there anything that you might, uh, um, help us look forward to as far as a, a shaker flask partner or partnerships or something along those lines that, uh, would be within the next six or 12 months, it would be helpful for us to be looking out for, or is that really not the way to think about the development of COCO and the milestones?
spk01: Maybe I can chime in here. Yeah, Daniel, go ahead. It's Daniel. Hi, Tim. Nice to meet you. So with regards to your question on the instrumented vessel and the potential of developing our own flask, as part of the post-merger strategy discussions we had internally, I would say we have somewhat a picture of where we want to be, but haven't fully investigated all the opportunities in front of us. there are certain partners that you could partner with or collaborate with, like Thomson, Corning, or more traditional companies like Schott. But on the other hand, we also want to capture the full potential and also full margin potential of that opportunity, and that could very well also go via developing something on our own, because essentially it's an engineering challenge. And maybe since I'm on it just now, maybe one comment on your question in regards to with regards to segment profitability. I think in general, and we had that in the roadshow already, but maybe to repeat, I think we are right now at the verge of being witnesses to the digitalization of an entire industry segment that is bioprocessing and the lab in particular. And I believe that now is the time to invest and to leverage revenue in our customer community. and to launch technological innovations such as COCO and other ideas in the pipeline along with those also instrumented vessels to capture full shareholder value going forward. I mean, with bioprocessing, we see quite interesting growth margins, as we know, but I truly believe that right now investment is the right way forward, and then also uplisting will be more fun, for example.
spk10: Yeah. So Tim, just to, you know, basically, you know, we know that, you know, the bioprocessing has, you know, an 80, 85% gross margin. We just need to sell more of them. And, uh, and, and we need to, we need to connect the pieces together. And that's one of the things by, you know, be able to have the Cocoa software platform to be able to have the list system communicate with the CGQ and, uh, and then to migrate to recurring revenue streams. So that's all ahead of us, and we're excited to put points on the board, but we're also reluctant to sort of predict whether it's going to happen through an OEM relationship or whether it's going to happen through direct sales. I mean, any one of these major biopharma companies, you know, because of the huge installed base of shape class they have, could be as big or bigger than an OEM account. So we're aggressively out there talking to at very high levels inside these biopharma companies, sharing with them our product roadmap. And I would just say stay tuned. We're looking forward to putting points on the board there for you and for other shareholders.
spk11: Understood. Thank you.
spk04: John. I would like to make some points. Thank you.
spk10: Thank you so much.
spk04: This is Reinhard Vogt, the Chairman of Scientific Bioprocessing. And for you investors, I'm thankful that you joined today's call. I have been in the industry for 35 years and I've been 30 years with Artorias. I've been also an Executive Board Member And I developed this strategy in Sartorius to make out of a company that had $20 million when I took over, a $3 billion company it is now, and a market capitalization now of over $40 billion. And, of course, it's in this industry. And if you see the biopharmaceutical industry and the bioprocessing industry, and you compare it with other industries, and you say, okay, we have an interest rate of 4.0 in other industries, Biopharma is at 2.1. And what is it? Because what you see also now with COVID, to bring very fast the products to the market and to produce them very efficiently. Where at the moment, it took six, seven years to develop a product. And when you talk about efficiency of production, then we have faced the thing that we have much too high cost of goods. We see it now with pandemic and with the COVID-19 vaccines. If we want to, the world want to really get rid of COVID-19, we have to sell the vaccine for $1 a shot. So you need new technologies. And what the vision of scientific industries is a transition. We are not talking in the future about benchtop things, but in the future we are talking about technologies and technologies that serve the need of getting much lower cost. And for what you need that is you have a lot of artificial intelligence and you go to automation, but what you need is sensors because you cannot do anything with artificial intelligence if you don't have the right sensors. And you want to measure that in real time. You don't want to make a buyer process. And finally, you test the product and you find out that the product is not meeting the specification. And that is what the transition is where this company of scientific industry is going through to provide real-time measurements online and so to provide the sensors that artificial intelligence can correct the process. Because what you don't want is to produce a product. And of course, you're constantly outside of your design space. And at the end of the day, you find out the product didn't meet the specifications. And that is big value. And if you imagine that in the current industry, 30% to 50% is yield loss in a process of manufacturing and biological process. And if you could just reduce it this loss by 10 or 15%, it's huge value. And that is where the scientific industry is going to, is in this value chain of biomanufacturing. And therefore, you need sensors. And aquila acquisition was the first big step to go into that. But it is the first step. We have to increase our portfolio with other technologies, either by own development or by further acquisition. to really participate in it. And if you see the companies at the moment, like Satoris, like Danaher, like Thermo Fisher, they are growing by high two-digit growth rates. Satoris is growing by 60%. 20% they say it's COVID-19. But anyway, they are growing faster than the therapeutic companies itself. And that is where we position scientific industry in the future to have a big share of this value that we can create for customers. And that is a big transition at the moment where the scientific industry is going. And as there is nobody else at the moment who can provide a solution for all these real-time measurements, we think that there is a niche open And it's a window of opportunities that we will grab. So a little bit more of a high view on it.
spk10: Thank you, Reinhart, for the voice of experience. We really appreciate you contributing that.
spk06: Again, if you'd like to ask a question, please press star, then one. Our next question comes from Sam. Robotsky with SCR Asset Management. Please go ahead.
spk08: Good afternoon. Welcome, Reinhart and John, Helena, and Carl. I've been a stockholder for a long time before all this exciting stuff has happened. And Roy Edelman is who is, was the largest shareholder and still is the largest shareholder, sold his company to Repligen for a very high price multiple. And, uh, and, and I'm excited about everything going on and I just want to, uh, uh, commend the whole team for what they have done so far. and looking forward to future growth. And this conference call was very positive, and keep up the good work, gentlemen. Thank you. Thank you, Sam.
spk10: Thank you so much. Thank you for introducing us to Torval back in 2014, and thank you for introducing us to Lytham Partners as well, Sam. You've been a great friend of the company.
spk04: And, Johnny, we have to say, I mean, a good point that you made. And if you see that the multiples that's paid in this space is sky-raising over the last year. Because when I did acquisition at Sartorius, we talked about multiples, I mean revenue multiples of three to four. But if you see the acquisitions that have been done for these technology companies in the past 12 months, you see what Sartorius does. Danaher, and all these companies face, we are talking about, meanwhile, multiples of more than 15. I mean, for me, as a board member of Sartoris who did 14 acquisitions, I sometimes think it's impossible. I can't believe it. Because we acquire companies as multiples of three and four. But meanwhile, there has been no transaction in that field of technology for the bioprocessing industry that has been taking place below a multiple of 15.
spk08: Yeah. And one other thing, that Scientific had this patent that they licensed to Sartorius, which produced income, produced some good income, and fortunately, they know where they're going, and I'm very pleased with that. And the money that was raised Even in the prospectus, you see the number of people that participated in the financing. So it appears scientific has attracted a lot of interesting people.
spk04: Thank you so much. I made this license deal at that time with Fluoromatics that was acquired by, but I can tell you, When I made this deal, I never expected that it would result in so high royalties to it because the market developed and we acquired a company like CAP with the EMBA system. And all that was falling under the patent. And I also was surprised because... it developed much more dynamically. And so we had to pay more royalties to scientific industries. But I was very happy to pay all these royalties because on the other hand, that means I was selling so much at Sartorius more than I expected. So I never felt bad about paying so much royalties to scientific industry. But it shows the dynamic of that market because this product, was amazing because it contributes so much to the value of customers that they're using a system where they reduce 50, 60% their labor and so on. But the big business of it, it's not the system, it's the consumables. And that is something what we have to bring into also into scientific industry, not just selling some benchtop instruments and so on, But we have to combine it with very smart consumables. And that is what John was talking about now, that we will combine the technology and the superior technology that we have, but also in combination with consumables. And that is a way forward for scientific industry that they have never done in the past, but just selling some instruments, some bench drops. And that is something where I think the company is in a transition phase. but in a very, very positive way of transition to also capture a lot of the value that bioprocessing market offers.
spk05: This concludes our question and answer session.
spk06: I would like to turn the conference back over to John Moore for any closing remarks.
spk10: Great. Well, first of all, I want to thank our shareholders for attending the call and asking great questions and Obviously, we feel very blessed to have great senior industry leaders like Reinhard Vogt and Juergen Schumacher and Marcus Frampton has been a very successful biotech investor. I think maybe sometimes the most challenging thing is when you're investing and the frustration is if we hadn't have done the acquisition of Aquila or invested in scientific bioprocessing, well, you'd have a company with a million and a half shares earning a a dollar a share. But we've made the decision as a board. We were encouraged by our shareholders to invest in bioprocessing. That's not going to happen overnight. We need to make those investments. We need to connect the different tools between the Aquila acquisition and the scientific bioprocessing dissolved oxygen and pH sensors. And in the meantime, we're going to have some great results at a benchtop laboratory in the Torval Pharmacy Enterprise solution. And we just need the time to make the scientific bioprocessing assets work. And I think it's going to be a huge force multiplier. One of the things that Roy Edelman told me was when he sold Repligen, when he sold Spectrum Laboratories to Repligen, they paid him for his entire $40 million of revenue, which includes $30 million of commodity dialysis tubing. he encourages us for that reason to keep the benchtop and the Torval business together with scientific bioprocessing because when we do eventually decide to seek an exit for the company years from now, that we will probably receive one of those very large multiple, but a bioprocessing multiple on the entire package of the entire portfolio of companies. So that concludes our remarks. Thank you so much. We're super enthusiastic about what's happening and glad for your
spk05: involvement in our company thank you all very much the conference is now concluded thank you for attending today's presentation you may now disconnect
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