Scientific Industries Inc

Q1 2022 Earnings Conference Call


spk_0: good afternoon and welcome to the scientific industries first quarter of fiscal year two thousand and twenty two financial results conference call all participants will be in listen only mode could you need assistance please signal a conference specialist by pressing the starkey followed by zero after today's presentation there will be an opportunity to ask questions to ask a question you may press star than one on your telephone keypad to withdraw your question please press star than two please note this event is being recorded i would now it's during the conference over to judge or may managing partner with listen partners please go ahead
spk_1: thank you gary good afternoon at thank you for joining us today to review the fans result of scientific industries for the first quarter of fiscal year twenty twenty two ended september thirtieth twenty twenty one with a stray on the color john more chairman and holiness santos chief executive officer after the conclusion of today's barber remarks from open a golfer question if anyone participating on today's call does not have a full text copy the press release you can retrieve it from the company's website at scientific industries dot com are numerous other financial website before he began with prepared remarks i would 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 for mac that ninety ninety five except for the statement of historical fact this conference call make it a forward lucky today that involve risks and uncertainties summer which are detailed under risk factors and documents filed by the company with the securities and exchange commission a quoting the and report on for ten k for the year ended june thirtieth twenty twenty one or looking stay with speak only as of the date statements were made the company to give no sure to such forward looking statements or prove to be correct scientific industry does not undertake and specifically disclaims any obligation to update any forward looking statements weather as a result of new information future events or otherwise now i'd like to turn the colorado selena santos ceo of scientific industry alia
spk_2: that afternoon thank you jump and thank you for attending our company cisco twenty twenty two first quarter earnings call the first quarter of fiscal twenty twenty two experience formidable results from the company's core business the bench top laboratory equipment operation and began to record low quarterly revenue from the product they'll have the bio processing system operation and that was due to the sales generated by a keel a biolab product attila was acquired by the company and the fourth quarter of fiscal twenty twenty one i would like to take the opportunity to thank our valuable employees could hard work and dedication helped us achieve our results darned this quarter as i am sure you will you all read in art and kill we experienced the forty one percent increased and ravages compared to last year's same quarter and as you can also see that increases generated primarily from the bench top lab equipment operation so what were the drivers of that increase and what can we expect in the near and a long term future the increased sales were result of the continued demand for the flagship product the or text to we also came into the first quarter with a significant bad blood from the fourth quarter of our fiscal twenty twenty one in that was due to some labour challenges which were result and the first score of the fiscal year we had a couple key employees outdoor during the summer on sick leave we hired a few more direct labour employees and we created a new position of operations manager and hired someone to fill deposition which also contributed to the positive result in this first quarter we now have a total of thirty one employees at the bench top wow equipment and we augmented our current facility and bohemia with an additional five thousand square feet of space which is primarily being used for the tour bell division of their product line as well as for additional were helping space and general shortly after the start of the pandemic we began to experience the shop demand worldwide for the vortex tended to fueled by poll with testing labs the man and then followed by stars related research at the same time we did expands the sharp decline in order for other products that were not related the pelvis this is because many labs shut down and took a while come back alive
spk_3: also most of our the products are not considered a commodity and the same way that the vortex to to them said it they are more of a discretionary purchased which is based which based on our knowledge were being put on hold
spk_2: the demand for the war texting it to a still healthy and the demand for other products has things that a growth
spk_3: since the start of and them
spk_2: however we have been impacted with part short this or that non or text in a product most of these products or digital and therefore incorporate digital board which as we all now is a worldwide problem no matter what industry not just auto luckily it has not affected
spk_3: our flagship product because that is the analog brother
spk_2: looking forward to twenty twenty one industry outlook for the bench top lab equipment market is at a growth rate of ten point six percent which combines coburn an uncle that related products the twenty twenty two and three outlook and by that i mean a calendar twenty twenty two is the growth rate of five point one percent which is the one with pre covert growth rate in our industry as with disclose the mark thank you talk about product account for about twenty to twenty five percent of the total bench top lab equipment product they'll total to about product sales have remained at approximately same levels of prior your quarters and that's because the poor talk about products which are basically the digital scale did take a hit thorn covert and have only recently began to recover what has closed the gap on that the priest is the growth rape in the new vivid pill karma and we foresee continued growth from the vivid pill kalmar and the near term and for the long term also from other vivid project and the pipeline you're investing to launched the vivid like and in fiscal q for and also the vivid workstation and que to of our fiscal two thousand and twenty three barring any unforeseen circumstances the or delays have any of any kind sales of the quarterback scales are also make him a recovery and that as and that a due in part to a new website that mr gorbachev get has recently launched i'm i'm going to lead john more give you some insight into the bio profit and systems operations but as you can see from the ten you the new a kill us subsidiary generated a hundred and sixty eight thousand dollars and product sales and there was another sixty eight thousand dollars generated by the us
spk_3: the subsidiary of a kill a product bolt
spk_2: we're still working on the integration of a killer after an initial period of studying and evaluating both businesses and depth analyzing the synergy east and what made more sense from all angles administration product development sale marketing manufacturing and even accounting for finance they're still work to do but i believe will have a good plan with an amazing came to implement it the challenges that we face and the factors that could negatively impact us in the future or possible shortage of key component which thus far has only have limited effect on our results and that's been primarily in the form of shipping delays the possible labor issues although that is not anticipated we also expect that there may be some pressure on future gross margins due to increased raw material costs which may not be a fully passed on to customers to the competitive pressures we minimized these risks by working very closely with our suppliers and providing oh work friendly environment to retain and attract or employee although in terms of cost increased as we are limited in what we can do an example although test genies used as a typecasting that think which is called them act three fluctuates and price and the path of are casting is the pen them on the market price of them act three no matter where we stores that the bio processing system operations will continue to concentrate on immediate revenue generation from existing product
spk_4: and invest heavily in new product development as john war will further disgust and so with that i'm gonna turn it over to dump thank you so much will to were making the appropriate investments to aggressively grow as be on wish you the opportunity to create a major new category in the bio process the call the category digitally simplified by a process others might understand the best as a key component to the first family of life science internet of thing we're building a system that we believe will be as ubiquitous as the vortex team in mixer and the doorbell pharmacy scale but to be mission critical for a biotech customers are oh e m and our channel partners will have all the benefits to our shareholders have a network system with recurring revenue we've identified several critical components of our plan to build a system and the make it so compelling that would be unthinkable to develop and scale a biologic products without our system every quarter or port you on the progress that we're making as he built a system first that like to provide some clarity on the category with kid so what is it these simplified by a process and our last several recall we discussed how the synthetic biology revolution that to the labeling the we are contacting of industries as diverse as pharmaceuticals energy animal free nutrition agriculture and water trip the synthetic biology revolution is driven by the collaboration of biology engineering regulatory and data science professionals however that each discipline speaking a completely different distinctive language the process of getting new products to market bit disjointed covers to move organisms expeditiously from discover hurry characterization transaction scale upscale down and ultimately the manufacturing a regulatory approval powerful new tools required because of the twin challenges of cost and non communication between the disciplines as a real struggle to integrate the respect respective workplace as a result much of the most innovative members the community are hamstrung by in concert stuff and insufficient data stats from small scale testing human error i labor costs and challenges scaling up and down additionally the data sets often do not have a wide enough right with sensor data government data set prices are not appropriate to power machine learning artificial intelligence that this is is dotted the biotech industry not better fitting or the productivity gains for other industries in a digital age peter thiel noted as bugs zero to one quote despite dramatic advances in biotechnology of the past two century to recent decades our technology hasn't let the expectations of investors a patient he roams law that's more last don't backward observes that the number of new drugs approved per billion dollars spent on a date as have every nine years since nineteen fifty so erupts law is more of our spelled backwards since information technology accelerate faster than ever doing the same ears the big question for biotech today as whether it will ever see similar progress unquote to solve the problem as be eyes peering this new category of deadly simplified by apart the working title for the system is cocoa that enables researchers to do both the current era and research by trial and error albeit one based on the scientific method to an amplified and accelerated by did your twin computational tools italy simplified by a process and means performing at hours two years worth of trial and error in so ago and verified by affordable the scale of experiment the smallest instrumented process scouting vessel it's also easy to use rosetta stone top different disciplines work easily and productively together as be i deadly and i buy a prostitute system that present step change and speed and price points and current it's the offering capital and operating costs that were verse he roams law as be as tools of the building blocks for the first life science internet of think consisting of networks a proprietary tiny optical sensors clicked environmental and process parameters soft answers
spk_5: powerful data analytics visualization tools that vigil twin
spk_4: the so seamlessly allow biologist i prompting engineers and data scientists to collaborate and bring biologic based products to market faster to more audibly than ever here's our first update on our efforts to create the building block for cocoa the coca software is being developed in the cloud to enable it's rapid deployment the team is making great progress and are targets to launch the first commercial instance in the first half twenty twenty two to enhance the performance of the cg q and the list devices that we're currently still alan with hired a you x designer the socialist on making the user interface intuitively is idiot we're excited about the first generation of the software which will feature adaptive control something our customers and prospects of and asking for the users can step to maintain their experiments and a fixed design state this will be an interview first and offers an opportunity of sell many of our existing customers
spk_1: in the meantime are putting the finishing touches on the cocoa software simulator that we can use to preview the target customers the type of data that just create
spk_4: once the simulators complete by your end of the scheduling demonstration calls at the scene technical managers our largest target customers our oh yams and our channel partners answers in the area constant innovation pretty a customers are asking not only for dissolved oxygen appeared sensors but also metabolite like glucose and lactate among others we're working with a network of researchers as well as increasing the size of our internal staff to expedite the commercial launch my him a sensors a first offerings combined with
spk_6: the city que platform be like early in the new calendar year
spk_4: hardware in communication the us as be i team visited germany and the quarter as part of integrating the engineering in the application the we have our pittsburgh as be i team will be moving to germany in the new year to work on preparing cocoa for it's commercial launch work is proceeding on time to complete the design and it's gracious the housing battery radio and the l lady once that back with some of the components designed into the coca censor a being affected by the current supply chain challenge given the reality realities beyond our control ravage resign the hardware play hard to get parts but more readily available and to reduce disruptions and parts started with preordered enough parts for two thousand and coca readers to be produced at the end of twenty twenty two
spk_7: though it's not enough to have a a secret about the teacher the have to move the community to that teacher
spk_4: the critical step to making cocoa a blockbuster product is connecting with a synthetic biology comedic sharing the grand vision of cocoa and making the first but important steps to change the current status quo mindset daniel biomass monitoring and that is the current status quo most of my processing power of scientists take mandel samples to to figure out what the by a master a musket that the industry that modern fermentation scientists is real time digital tools to do their jobs the most effective way we can see the interest mindset to raise raise awareness and fell more of our existing product the cg cured the lisbeth the past quarter be added to our existing base of over two hundred eighty customers he added important institutions like the u s a the national noble energy labs i'm as well commercial partners like carnage an anti molecular template and ivanek we receive following orders from existing customers at a dm the of them and for sell us we're currently prospecting over three thousand commercial prospect of a thousand four thousand academic collaborators dwells investing in first class digital marketing program a biggest challenge awareness of are solutions in the community this week will be launched our first teller page on our website noted dominate the organic search term biomass were also engaging with leaders in the biotech education at technical college at the prestigious research institute like university of georgia fermentation facility and stanford university we have also been engaging with kick out switching that only i'm opportunities like sartorius data her channel partners like lab where the leading laboratory information management system provider there are new channel partners emerging every day like the script which has raised over four hundred seventy five million dollars to launch a desktop gene editing tool which could benefit from are solutions to further characterized newly insured microbial strains more affordably and quickly than scaling to buy reactor another major player in the lifestyle internet of things is benchley
spk_0: those recent hundred million dollars series f round was completed last month and a six point one billion dollar valuation were working with the leading oh yeah m accounts and channel partners to discuss integrating cocoa into the product but that despite the value proposition to the new offerings in acquiring a kill a bio labs at the end of may twenty twenty one he joined forces with a terrific and committed management and opportunity for the powerful vision for the future of biological research process development a manufacturing it thank you for your support play happy to take your questions though we will now begin to question and answer session to ask a question you may press star then one on your telephone keypad if you are using a speaker phone please pick up your handset before pressing the keys
spk_8: to drag a question please press star then to at this time we will pause momentarily to assemble a roster
spk_9: our first question is from power night with keybank please go ahead
spk_10: are you guys are you
spk_11: patriot time
spk_4: welcome ball
spk_12: on on on to you my could you talk or fiji que with through the microbial market right now he added that you need oxygen that brecht oh a minute i'm a the handed over to her daniel but then it would you mind addressing a pulse question
spk_11: shall i pod can you can you repeat the second part of your quest to the person what did you choose from microbial and pick up but what if they around to agent provocateurs in reading
spk_13: yeah that's the thought those be gq is the is the haggled quantify a for obama know monitoring him and microbial applications for know i'm an hour and with ph and the old he died and he wants centers
spk_12: and like that we are working on to launch in beginning next year and i did the game coach and are lactose that and be a dishes the asia but now exactly the cocoa system no at stop at first he may be just as a brief explanation thought thought in in gen our entire in the seat like knowledge that up in a way to measure how we call it critical process parameters the and and for know that means you know the assumption is there certain parameters that a critically to be defining the outcome of your process of biomass is a very important one ph of the author newburyport month and then the other be called them and alive it and and in the beginning i mean all of that of at one point transition to be cocoa platform that should then be universe university a platform i'm collecting all kinds of information from various kinds of data sources whether it be a weathered be a external sensors that we integrate a proprietary sense that we develop ourselves at those little cocoa readers if if you remember
spk_11: enter in the meantime in order to bring things up this be what we wanna do is whenever we have those analytic adventures became a census ready either by partnering or by our own development
spk_8: we would also be trying to launching them on the current platform that we know which with then he did you feel empathy pick one software and that's what we were gonna do as an intermediary that or with phd oh and potentially glucose and lactate on our way to them
spk_12: also convincing you know and engaging with all the different prospect and and partners and and potential larger account for that they buy into our vision i'm even prior to up north chicago if you would mention you know you're trying to get to try for two thousand readers and what is going price for a system for a coke of this money or people purchase price for that yeah though we haven't defined that yet back then or let's say i can tell you my ambition my ambition is that from a perspective of cost of goods in the factory costs
spk_14: and at that the ticket challenge that he didn't mention what why we are in the fight for critical component ambition is no called no and bent idea the by the pot at a cheaper price now
spk_12: and then then we have four digit uses them two also keep the the gross margin said eighty percent and idea or higher but we haven't fight the we have you define the marketplace yet i believe if i look at the mvp one that was that the current prototype that we having them for tested the lab dad the the price point the pure manufacturing costs they are a very similar to a huge issue spencer the roughly two hundred sixty three hundred i used to three and fifty dollars to keep our take about that you know not including any standing effect because we buy them at the as a quantity of sixty to seventy or in terms of electronic circuit board and if you if you assume than the scaling effect
spk_4: economies of gave for two thousand and large of a order then we assume you can bring down the coast and that would enable us ideally a bit more flexibility with regard to market pricing although i must say with regard to a perspective on buddy based pricing which we wanna do of course
spk_12: and and knowing that we will have a much more ubiquitous application with at the same time though miniaturization under one head while providing much more a much more universal dempsey platform i believe that margin of my we have a lot of potential for for keeping an increase in homage and stuff and i have yet but we're looking for like eighty percent gross margins on on the hardware and then on the software course the doctors were looking for subscription based business so i know it's hard it's hard to model is where does were trying to figure out what what the mark will bear with these systems but it's a dozen or be work for work hard on and maybe one more comment there the put it helps you probably also to understand what we are doing and the next one or two quarters don't one of the one of the things we had analyze one of the efficacy of and about in the first we a quarter the following the merger which what is it potter and july two and september
spk_11: was also the person plan a bit going forward and one of the they can easily identified in the marketing and product development team from a product management team was a product manager the typically focusing on poco and experience one am and their i think i believe you have made a very good very good higher that with thought beginning you're most likely were still in the process of trying to convince them to
spk_15: it had to get out early of the context of that they are in but they would be highly focused on on identifying exactly that what's the price point what's the application on a target in the should be
spk_16: and a better type of and that an important task in the next one or two quarter
spk_17: thank you and they're not on the yacht on her lap product side
spk_11: the twenty five million would you expect our only one for you to know pick up
spk_3: kinda passed on now that find the business
spk_17: ah yeah i'm in a better my really that ah of prefer ah nothing that material anyway wow i would i would buy that prisoner and and you're adding five thousand square feet manufacturing you that is actually our can expect demand or that would say what's going on with a capacity and
spk_18: okay so currently were at about nine thousand square feet and we were already about thing as a thing bow or he already had a comma requirement or at the not faith at at it
spk_11: that with the growth of the desert help out
spk_19: ah we needed a more stay as bad as they as you primarily for it
spk_17: for that said of the desert as it exists i said for
spk_20: you are is a product that will be common
spk_21: that that the pipeline
spk_17: but that was the you for that the combination of primarily bad
spk_22: ali the of good that seventy percent of what the dedicated to be thought out the better
spk_23: in the now with vr they did it the royalty i think of what you're referring to on the be thousand dollar when that it's will that royalties dream expire
spk_17: okay so ah most of the royalty a stream actually it at higher than other
spk_24: are escape royalties
spk_18: well what the year
spk_17: after at the end of the calvin yeah lp the why the first quarter
spk_0: march or april
spk_25: we have out there the patent that
spk_26: fire by twenty three
spk_27: of that pertain my profile and that is not where the majority of the loyalties are coming from for the guy at the up
spk_28: bad related products
spk_29: and that the pattern that actually bad at other by twenty one as far as way or the fan and for your calling purposes
spk_28: the oil is currently at that city and and significant part of i'll pop rabbit i beg you the next question is from him to tarred with me russ investments please go ahead or you could have you have alone
spk_29: i'm
spk_30: oh i'm just just don't want it of them for color and of under bit at launch ah i guess the first question has that product for than been launched yet orbs it to stir anticipated to launch some time during this fiscal year
spk_2: oh i don't you take that
spk_17: chart and now awesome
spk_31: when we come out the vivid one ah have ah ah
spk_25: march twenty twenty how ah
spk_30: or product the press the did it out there and then and available ah next year we're left to additional models out of it light which will looking to have a very affordable and more accessible unit from it i think standpoint ah and don't could be a much broader down a simplified version of the parent of it that we have now and later on in the air ah we're looking to introduced the most that back that it out there which we will and workstation with are not equipped to do bomb
spk_29: remote verification the pharmacy be a smart them are pharmacy functionality
spk_28: in and the just to recap i think i was mentioned that that the the toward our public my overall it's about twenty percent of that segment on is is that correct it hovered between twenty to twenty five percent of the back and pop lab equipment douglas the bill that would be correct
spk_32: help and in the
spk_29: a quarter so ago where or when you have the or they wouldn't really first journalist can understand with that with the with the vision was for the end of the pill can send them seem like it was a place to have some
spk_33: simpson to both turn into a delayed into the new product itself and
spk_34: it is or whether you can just kind of give me the big picture on that business in other words know how big is that market today
spk_29: no what is your share that more murdered oh what is didn't do to your potential market share over some medium term
spk_34: i'm just a try to understand and with the opportunity observe the sell quite exciting but i just i don't have all the pieces together as far as have think about it
spk_29: ah yes shirt salame at the how is that the vivid is they are efficient base ah out counter and tom about the psni had ah
spk_3: had access to farm see market ah and now we we kind of transitioned from ah from counting by weight and to vision not base personality i'm an accountant find for ah out completely fully automated pharmacy workflow ah a pair of stuff up profiting trap action in the pharmacy and up the allowed to perform did they barely out
spk_2: what's really unique about our machine at that it's a yard in the cloud based on a function properly the on the cloud and that really kept us apart from from our users
spk_3: if the complete
spk_17: the accounting system and bam that a so ya in terms of far as the the out the market share
spk_3: a some it
spk_22: it's i think nowhere really just kind of far
spk_18: getting getting started right now but damn ah
spk_3: we've been able to are successful vivid are and doc
spk_35: it it's very very well for us
spk_36: i think i'll be picking up a couple of about bout are stay open the numbers are ah
spk_37: now we have well with without getting too much and to russia which would that be public
spk_30: the north american pell counter markets is about forty million dollars now that all uncommon thing of all types of help countless not does the type of tell catalyst using the technology that we are talking about air with the went to visit the but that roughly the size of the market and if we you know achieve at least that you're not twenty five to fifty percent share that market and be back to business and having we're not talking about the type alpha
spk_38: of market
spk_3: like those of the fire thing
spk_2: the system for an and that in the states but fill a night market for to go after
spk_35: i'm and that also more yeah
spk_39: immediate
spk_2: for up
spk_3: but in in in in understood to be you know can a lovely that says that but don't know maybe it does seem like a year
spk_39: you everybody wants to save money these days nobody has a just may hurt in the ones a similar did it other the of get the chance would occur
spk_40: but it shown that business and with the meaningful to size of your company to view the deficit share the businesses went fishing for had the opportunity here and during the remarks you mentioned a growth rate based on some industry studies in a one to go back to it was a five percent growth rate quoted in one to ten points
spk_3: six percent growth rate hundred and one of the try that bad too is is that bench bench tub equipment broadly speaking is that for kill kill nurses that for and how does it really to new a revenue of an excellent question that primarily a relate to set up to tell to the seventy five percent
spk_41: isn't that
spk_42: which is referred to as are doing is basically are jamie brand that decision on that general equipment and supplies of under a five thousand dollars okay that's how we define our our market now when i speak of that pinpoint take them at five point one
spk_30: that's primarily afford the genie brand products and not before that the pill campers that that i don't have information on that that on those growth rate what can only speak of between i only have information on our own both right and not on the and the street on the pill counting industry as a whole
spk_4: but that's what i was referring to an end up in and more mature and the street have like deer in our be general sense top lab equipment that's what to expect it now
spk_30: a pre cold blood
spk_4: a good year wouldn't be you know ten percent growth rate and normal year it would be in the single digits right now where in a were obviously experiencing are much higher growth rate than that depends on thick and i think because of our past them are based on we will extend the we expect the to it that i that adept the floor of for but that's what that
spk_0: referred to
spk_4: okay bill deployed that that that up so for a bit and then earth
spk_0: in an intimate that the beer become a related to do to can components together and and in order to do with the the us based he traveled to europe and and with with the key word two thousand reader says but and i didn't quite catch

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