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spk02: Good afternoon and welcome to the Scientific Industries Report's second quarter of fiscal year 2022 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 touchtone phone. To answer your question, please press star then two. Please note this event is being recorded. I'd now like to turn the conference over to Joe Dorme, Managing Partner. Please go ahead.
spk03: Thank you, Grant. Good afternoon, and thank you all for joining us today to review the financial results of Scientific Industries, Inc. for the second quarter of fiscal year 2022, ended December 31, 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 will open the call for questions. If anyone participating on today's call does not have a 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 ended 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 Industries 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 Helena Santos, CEO of Scientific Industries. Helena?
spk00: Thank you, Joe. Good afternoon, and thank you for attending our company's fiscal 2022 second quarter earnings call. The second quarter of fiscal 2022 reflected a 7% increase in the company's total net revenues, which was due mostly to sales generated by our bioprocessing operations of approximately $403,000, which is double the prior year's same quarter. And this is attributable to sales of Aquila Biolabs products. The product sales of the company's core business, the benchtop laboratory equipment operations, during the second quarter were at approximately the same level as the prior year, reflecting increased sales of the Torbell Division's Vivid Pill Counter and decreased sales of Genie Brand products due to raw material shortages, which caused production delays and inefficiencies. In other words, we simply couldn't ship. We are facing challenges in the supply of component parts for our products, with substantially increased lead times due to underlying raw material shortages, particularly for digital components. So while the order input is still at a healthy post-pandemic level, our ability to deliver is hindered by these challenges. This has been true primarily for the Genie brand products. The good news is that thus far, our Torvald brand products have not experienced significant supply chain disruptions. So combined with the first quarter, our company's total revenues for the first half of this fiscal year increased 22% due to high sales of the core benchtop lab equipment in the first quarter and sales generated from the Aquila Biolabs products, which we acquired in April of 2021. And John Moore will discuss in further detail. We expect that the order levels for Torvald products will continue to increase and the Genie brand products to remain steady. However, our ability to deliver and therefore recognize the sale is dependent on the supply chain situation. The gross profit amount generated during the second quarter was approximately the same as the prior year, which was $1.4 million, with the gross profit percentage of 48.5%. and that compares to 50.9% in the prior year, same quarter, due primarily to increased material and labor costs for the benchtop lab equipment and decreased percentage for the bioprocessing operations compared to last year. And that's since last year was mainly royalty revenues, which gave it a higher gross profit percentage. The six-month periods percentages were substantially the same as the quarter that I just discussed. Our operating expenses increased significantly for both the second quarter as well as the year-to-date period due to the expenses of the bioprocessing operations, in particular, the German operation, which did not exist last year. Increased product development costs, sales and marketing expenses, non-cash equity expense, investor relation costs, and other professional fees. Other income that we recorded this quarter was significantly higher, and that's principally due to taking into income the forgiveness of the company's second PPP loan, which occurred in December of 2021. Looking at our balance sheet, our cash position at December 31st was approximately $11.2 million in cash and investments, and that's compared to $13.4 million at the end of our fiscal year, end of June 30th, 2021. For the last half of our fiscal year, we will continue to focus on building the bioprocessing business, as John Moore will discuss in detail, and we will continue to foster our core business so that it can continue to generate immediate positive cash flow for the growth of our company. And with that, I turn it over to John.
spk04: Thank you, Helena. This is a pivotal quarter for SBI, as for the first time, our product revenue has exceeded our royalty revenue. Our SBI revenue in Q2 was $400,000, up 91.9%, and $700,000, up 143.2% for the first six months of our fiscal year, and our blended gross margin was a healthy 69%. As expected, our royalty revenue is declining as our licensed patents expire. In Q2, royalties only contributed 4.8% for $19,000 and 15.4% or $108,000 of our six-month bioprocessing revenue. We're investing strategically to both grow revenue and develop our new product line of digitally simplified bioprocessing tools. Research and development represents 52% of our cash expenses and sales and marketing is 42%. Daniel Grunus, the former CEO of Aquila Biolabs, is now our VP for operations and R&D. We're consolidating all research functions in Germany to improve our operational efficiencies. Three of our Pittsburgh-based employees with their supporting lab equipment are relocating to Germany, and we're investing into further infrastructure to ramp up our R&D capabilities. Operationally, all of our manufacturing is being conducted in Germany. We've ramped our inventory from 269,000 at the beginning of fiscal year to $822,000 at December 31st, 2021. 48% of our inventory is in raw materials, and 52% is in finished goods. We've done a good job managing supply chain challenges and have had no problems filling orders on a timely basis, and we're prepared to deliver on the anticipated revenue growth for 2022. Bucky Polk is now our VP of Global Sales, and our sales force consists of three professionals in Europe and two in the USA. We sold systems to two OEM accounts, Inforce and BioStream International. Other customers in the quarter included two prestigious research institutes, Max Planck and the Fraunhofer Institute. In the biopharma field, we placed systems with Janssen J&J, Bollringer Ingelheim, Siemens Diagnostics, and vaccine developer CureVac. Major chemical customers included Evonik, Clariant, ADM, and BASF Enzymes. Lastly, the synthetic biology revolution is coming to the food ingredient industry, and we landed two of the biggest, International Flavors and Fragrances and Simrise. In all, our customer list expanded to over 290 customers, and that's going to be a terrific foundation of referenceable customers and opportunities to upsell and expand our footprint at existing customers as our product development pipeline matures and we have new opportunities to expand our sales to this growing clientele. 90% of our sales during the six months were delivered to customers in Europe. Our focus for the foreseeable future is to expand our sales in North America, the world's largest market for biotech. Adoption by the academic community preceded the success of Achilles sales in Europe, and the U.S. will likely follow a similar path. To that end, we applied for and were awarded a $650,000 grant with University of Georgia's Fermentation and Gene Expression Facility to develop a curriculum for our products. Stay tuned to our annual meeting presentation and our next quarterly earnings call for further details on how we plan to jumpstart SBI's academic community. Jens Beyer was the head of sales and marketing at Aquila and now serves as the VP of our new marketing department. Jens now has two product managers who are responsible for guiding our R&D team on what features and functions our new products need to have and at what price point. This planning is planting the seeds for what we believe we have the potential to be blockbuster products. We also have two people in digital marketing and content creation. Since in-person trade shows traditionally have been Aquila's dominant source of leads, they've been shut down due to the pandemic, we've made a major investment in digital marketing. We currently have the leading content on biomass monitoring on the web, and that plus digital advertising has generated a strong pipeline of opportunities. In conclusion, We're looking forward to expanding the sales of our existing products to the USA and the launch of our new software developed under the project name COCO and our dissolved oxygen and pH sensing products with beta customers in the first half of calendar 2022. Likewise, the launch of our new reader by the end of calendar 2022 will further accelerate our growth. The importance of the software launch is that we'll bring new and existing customers the first adaptive control for experiments in shake flask. This means customers that are using a new generation of desktop gene editing tools will finally have an affordable system for high throughput characterization and ranking of hits at 10 to 15% of the capital and operating costs of their current alternatives. The launch of the hardware at year end will deliver the biotech industry the only miniaturized multi-parameter sensing system which will enable them to extract value from the significant investment they're making in the emerging life science Internet of Things, which promises to transform the current workflows from the lab to process development and manufacturing. We're excited about the future and the significant business opportunity your investments are allowing us to unlock. This concludes our prepared remarks, and Helena and I and the senior management team are available to answer your questions.
spk01: We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone.
spk02: If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.
spk05: This will conclude our question and answer session.
spk02: I would like to turn the conference back over to John Moore for any closing remarks.
spk04: Well, I think we'd just like to say thank you so much to our great community of investors, and we're particularly happy to have our friend Sam Robotsky, Hale and Hardy, and with us on the call. So thank you so much. Helena, do you have any concluding remarks you want to make?
spk05: No, thank you. The conference has now concluded. Thank you for attending today's presentation.
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