Scientific Industries Inc

Good day and welcome to the Scientific Industries Report's third quarter fiscal year 2024 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the start 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 a touch-tone phone. 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 Dornay with Wolfram Partners. Please go ahead.

Thanks, Betsy. Good morning, and thank you all for joining us today to review Scientific Industries' financial results for the third quarter of 2024, ended September 30th, 2024. With us today on the call are Helena Santos, Chief Executive Officer, Daniel Donadie, CEO of SBI, and John Moore, Chairman. After the conclusion of today's prepared remarks, we will open the call for questions. Before we begin 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 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 December 31st, 2023. 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 except as required by law. Now I'd like to turn the call over to Helena Santos, CEO of Scientific Industries. Helena?

Thank you, Joe, and thank you to our loyal shareholders who continue to be our partners in our journey in becoming a more valuable company in the near future. It is my belief that with each quarter, We take a step closer to our ultimate goal of transforming our company's scientific industries into a thriving life sciences tool business with growing sales, growing margins, growing recurring revenue, and growing profitability. Starting with our benchtop lab equipment business, the solid foundation for our company that is crucial in helping to fund our grand strategy. So in this third quarter, the legacy Genie business experienced a nice recovery, mirroring the industry as a whole with the stocking mostly behind us and a trend towards positive growth in the lab equipment markets. This after a couple years of negative industry growth. The Genie business continues to generate positive cash flow, which has enabled us to invest in the growth of our Vivid Pill Counter business, and also support the corporate structure required of a multinational company. Regarding our Torvald business, and more specifically our Vivid pill counter business, we're glad to say that for the most part, the funding constraints that plagued the independent pharmacy market in the first half of this year is for the most part behind us. And as a result, our Vivid sales this third quarter were up 50% compared to the second quarter of this year and 12% compared to the same quarter last year. All very encouraging signs for us. But the real exciting news this quarter is our work on the launch of our new state-of-the-art Vivid Workstation, which gives us the opportunity to catapult beyond the independent pharmacy market. The workstation is a real game-changer. It's an all-in-one pill counter that not only provides superior pill counting, but it also performs the functions of the pharmacy's management system in one complete space-saving machine. And believe me, space is important. Where the pharmacist now will be able to run all of the pharmacy software in one machine. The workstation is also ideal for telepharmacy or remote pharmacy operations. because of its ability to perform PV2 verification remotely with its color image log and vial and label content imagery. This refers to a second prescription verification process that most states require. So why is this important? Because as pharmacies close and more scripts are filled from these remote locations, the workstation will be an ideal pill counter to fulfill this verification requirement that most states are imposing and will continue to impose. We built the initial four units, and our partner, RxSystems, used them beginning in Q3 for internal testing as well as to exhibit at many industry trade shows to build demand. RxSystems has several decades experience in establishing our competitor Icon's product in the marketplace. Two years ago, they dropped the Icon because they bought into and helped shape the vision for our Vivid product line. They believed the Vivid, with its easily upgradable cloud-based architecture, could not only replace the aging installed base of about 13,000 Icons, but also convert the 75,000 independent pharmacies that are either using unreliable mechanical counting systems or are still counting by hand. They have been overwhelmed by customer response and believe it will become our best-selling product in terms of the number of units. And why is this important? Because this product sells for three times the price of our other products. We will be building our first lot of production units in the upcoming weeks. And we're also planning to put various units in the hands of external users next month and start taking orders right away in the beginning of January. Lastly, I'm happy to report that our cost-cutting initiatives and financial discipline are paying off, as evidenced by the continuing reduction in our cash burn without affecting the top line. Quarter by quarter, for the last four quarters, we've been able to reduce our operating expenses, this through voluntary management compensation reductions, as well as many of our valued employees, particularly in our bioprocessing unit, and also efficiencies in personnel and other operational areas wherever we can find savings. We will continue to be good stewards of our shareholders' investments and money, and the confidence they have placed in us to deliver long-term shareholder value. And with that, I'm going to turn it over to Mr. Daniel Donadio so he can talk about our company's bioprocessing segment. Daniel?

Thank you, Helena, and good morning to everyone on the call. As we look to the bioprocessing segment, we continue to navigate a challenging environment that has been impacting our target audience who are, in part, carefully managing cash flow, tightening budgets, and postponing equipment investments, and particularly affected our business in Europe. However, like many industry leaders, we do see initial signs of relief going into 2025. And as I said last time, I am convinced that what we have experienced in the last two years is only a temporary phase in an otherwise resilient, cooperative, and highly promising market, with tremendous mid- to long-term prospects through new drug approvals, in the biopharma space, in bio applications outside the classical industries, and the rise of machine learning as an important future level. Having said that, challenges in the market like tighter budgets and a demand for more cost-effective research, development, and manufacturing paths by chemical, pharmaceutical, and biotech companies, which at the same time need to be more innovative than ever, means that SBI's fundamental value proposition of a cost-effective scale-up alternative compared to traditional approaches has a huge potential to meet the pulse of the times once the platform is fully developed. Looking at our bioprocessing financials, I'm happy to report that overall, the first nine months ended in September saw us coming in in line with our projections. States compared to last year were up 12%, albeit softer than expected, but improved growth margins and lower expenditures exceeded the projections and resulted in a slightly better EBITDA than planned for this year and a significantly better EBITDA than last year with an improvement of roughly 27%. As product demand in Europe continued to be notably weaker than historically usual, we saw a strong growth in top-line performance in the US, with an almost 90% increase over the quarterly average this year, and a year-to-date, year-over-year growth of 61%. With that, the US team has already exceeded their 2023 annual revenue by 13% after the third quarter. Along the same lines, I'm happy to report that September marked the first month in the history of SBI in which the U.S. entity reported a break-even result with a positive EBITDA margin of 14%, which highlights that we are on the right track and the potential to get the entirely in the foreseeable future. At the same time, nine months into the year, we are ahead of schedule when it comes to our expenditures, as well as our working capital requirements and operative cash flow. As a result of our company-wide cost efficiency program that also Helena just alluded to, which we executed during the first half of the year and a continued effort to be more cost effective, we were able to reduce our operating expenses by more than $1 million, or roughly 22%, compared to the same timeframe last year, and have spent around 5% less than projected for 2024 thus far. The most notable impact on these lower expenditures came from consolidating the organization to around 77%, of last year's team size, which we achieved by investing around $270,000 in severance and remaining comp against the $640,000 USD year-to-date cost reduction and long-term savings of around $1 million annually. All in all, these results show that we are on a good track in line with our plan and that we have transformed our organization to become much more productive on our path towards profitability in the coming years. Having said that, I want to highlight that despite any vital cost management, we have not refrained from making important and targeted strategic investments into our product roadmap and commercial activities. While we acknowledge that we are not yet growing our top line as quickly as we had hoped for in this challenging environment, almost all metrics are extremely positive. On the R&D side, we are on schedule with all major development tracks and have made significant advancements in key projects such as the development of our pH technology, and the new generation of our liquid injection system, both of which will play an important role in fulfilling the value proposition of our platform. At the same time, we have added projects that have not been part of the original roadmap because our DOTS platform has sparked the imagination of some of our potential key accounts and provided ideas that we are currently testing with them for possible market entry in 2025. Most notably, we are currently developing a miniaturized sensor for parallel bioreactor systems with major blue chips and have successfully concluded the evaluation of our technology in customer studies, which showed the earlier than expected applicability of the MPS, so the multi-parameter sensor, and our dissolved oxygen pills in mammalian cell culture for various cell lines and vessels. As a result, I'm happy to share that we are currently preparing the launch of the DOTS platform for selected mammalian cell culture applications already in Q1 2025. On the commercial side, following the platform launch roughly six months ago, a few aspects are worth mentioning. On the one hand, I still look at selected accounts placing an order with us prior to product availability, or in other words, site unseen, as being remarkable. The feedback and endorsement we receive from these early users, both internal and in public, is very promising and helps us to tailor the technology to our customers' needs as we expand the platform to deliver its full value. Following Merck's endorsement in the US of our technology as a cost-effective alternative for strain engineering, not only did they continue to expand the system in this third quarter and becoming an even more important partner for us in the further development of the technology towards industrial applications, but also did their public support and the support of others put dots on the agenda of many of their peers at this early stage of its life cycle. And we have started conversations with many of them regarding joint projects and publications and ultimately for purchase in the next years. Obviously, this is just one of many examples of our activities, but an important one to positively influence our commercial traction. As a result, the third quarter saw us continue growing our pipeline with now 860 generated leads, which represents an increase of about 5% over the entire 2023 number, with a particularly positive impact from conferences and trade shows where we have already exceeded last year's numbers by more than 50%. Even though many of these leads are too early stage to have an impact on the value of the sales pipeline, they do showcase the strong interest in the tech and represent a massive opportunity for the next years. In terms of numbers, ever since the beginning of the year, we recorded a significant increase in our commercial pipeline value, namely a $2.7 million or 90% increase in total pipeline and a weighted pipeline increase of more than $1.8 million, not accounting for sales. And finally, I'm very happy to share that we are now generating the majority of our revenue in the industrial space, and that our newly launched NPS and PIS has surpassed the other products in the portfolio to become the strongest selling product after only six months on the market. Before I finish my portion, I would like to thank our team and all of our investors for the continued support in our bioprocessing business. Changing the face of science and democratizing research development and manufacturing in synthetic biology is not easy and requires a lot of hard work, discipline, and tenacity. Steve Jobs said that the people who are crazy enough to think they can change the world are the ones who do. And after years of restructuring our organization and bringing down costs while making necessary investments to position the company for the future, the feedback we get for our product and technology vision by accounts, large ones like Merck, around the globe is reinforcing our belief to be able to deliver our vision for digitally simplified bioprocessing and our conviction to deliver DOTS as an enabler for the application of artificial intelligence and machine learning in synthetic biology. With that, thank you and back to you.

Thank you, Daniel. Hold on, John.

Are we going to go into Q&A or do you want to go into closing remarks here?

No, I'm going to make the closing remarks before the Q&A. So I just want to say thank you, Daniel. We appreciate the faith and patience of our investors as we continue to invest aggressively in executing the grand strategy of renewing this 70-plus-year-old public company and transforming it from selling a commoditized benchtop lab product line into a fast-growing and profitable business with two highly differentiated, fast-growing product platforms that digitally simplify life science fields of pharmacy and bioprocessing. Another very important account that we landed in the third quarter was the American-type cell culture collection, which is the world's largest collection of cell types. That's going to create a big opportunity for us to grow both in the microbial field as well as into the mammalian field. It's a great referenceable account. In the coming quarters, we expect to complete the hardware development of both platforms and continue to add important customers like the ATCC that validate that we've achieved product market fit and are creating valuable new product categories and have positioned the company to no longer consume capital, but in fact, eventually return capital to our owners. Thank you. This concludes our prepared remarks, and we're now ready to take your questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.

At this time, we will pause momentarily to assemble our roster. Once again, if you would like to ask a question, please press star then 1 to be joined into the question queue. This concludes our question and answer session.

I would like to turn the conference back over for any more closing remarks.

That completes our remarks, and thank you so much, and we look forward to communicating with you in the future.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.