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spk01: Good morning, everyone. Thanks for joining us today to discuss Microbix's Q2 results, which they posted this morning. With me, I have Cameron Groom, CEO, Ken Hughes, COO, and Jim Curry, CFO. I think the format will be just a bit of an overview of the quarter and then Q&A, of course. So if you have any questions, feel free to input them in the Q&A box at the bottom of your screen. Alternatively, you can email them to me. at deborah at adcap.ca. We may not work off a presentation today, but just so you're aware, this session will contain forward-looking statements. You can find out more about those on the company's presentation on their website, which we're hopeful to update later today with the financial results. With that out of the way, Cameron, why don't you take the mic and give us a little bit of an overview on the quarter?
spk02: Sure thing. Thank you so much, Debra. And thank you, everybody, for taking the time to spend with us this morning. These results, of course, are for our second quarter of fiscal 2024. That's the quarter ended March 31st. And we were very pleased to report strong results for the quarter. Our revenues were quite robust at $5.6 million for the quarter, a smidge over $5.6 million. This is in fact our best ever quarter for product sales by a smidge and exceeds a previous high that was heavily weighted with DXTM sales sales to government in the current order, but we beat that prior all-time record in spite of that. The overall sales were up quite strongly, a 34% increase year over year, driven by strength in, interestingly, both our antigens and test ingredients business and our quality assessment products, medical device business were both up strongly. Gross margins were acceptable. I think we could have done better if everything had clicked over perfectly in terms of manufacturing for the quarter. But at 52, 53%, we were broadly satisfied with that. And really, dropping for we had good cost control on the selling general and admin r d expenses and interest expenses so with that level of revenues very much in line with i think the um the loose guidance we provided that about five billion a quarter is our break-even level for revenues with a reasonable product mix And that approximately $0.50 of the dollar beyond that breaking point has the potential to move to the bottom line with $377,000 in net earnings or about $400,000. It's a 7% net. margin for the company in the quarter. And I think given this particular level of revenues, that's what we would hope to achieve with them. So I think by and large, we're pleased with the quarter. The combination of strong revenues and spending control led to that margin and obviously good free cash flow and balance sheet position as well. Maybe I can invite Jim to supplement those comments, and if there's any further color you wanted to provide, Jim.
spk03: Maybe just a few points. One of the areas that we saw some good, strong growth, obviously, was in our antigens or test ingredients business with over $4 million in sales in the quarter. And we're seeing good, excellent growth coming from our agent distributors. of note is the fact that we've actually in the first half of this year quadrupled what we had last year for the first half and we're up more than 50 percent from the second half of last year in terms of sales to that Asian distributor so we've been talking about the fact that we've been starting to see a ramp up we saw the start of the ramp up in last year and we're seeing the the fruits of that ramp up in the first quarter half of this year and we're expecting some strong performance from that distributor in the second half of this year as well. We had a really good strong mix of all products. Often we get margins and bottom line impacted by the mix of the products that we had, but we had contributions from all of our more significant products this quarter. We've got a good strong order backlog. We're sitting at over $9 million in order backlog at the end of the half. Our cash position is still strong. We've got over 12 to 13 million in cash and another 2 million in the credit facility. And we've also been using this cash in a couple of areas. One is in the purchase of capital equipment. So we've added another $600,000 of capital equipment in the quarter. And that has been predominantly used for enhancing the equipment and adding equipment to further the growth in manufacturing. We also have used cash in share buyback program, and we've acquired close to 1.2 million shares in the first half of the year. We've added another 100,000 or so in the last few months or month and a half as well. So overall, good, strong financial performance. Good, strong balance sheet at this point.
spk02: Just to recap the cash level, I think you mentioned it quarter end.
spk03: Yeah. Yeah, the cash position is $12 to $13 million. Perfect, thank you.
spk00: And this is, of course, illustrative of the capacity building we've been doing over the last little while. We've easily serviced the growth in the business with some new innovative products and innovative processes and also operational excellence. And we have the capacity now to take it on from there.
spk02: I think these are great points to make. We're continuing meaningfully depleting the financial strength of the business, so we're in a very strong financial and strategic position. I think both of those are important for us at this stage. You know, our customers, we're seeing, as we've noted, a good surge in all categories. Very strong in the test ingredients businesses. Manufacturers demand continues to increase for those critical products. And we're also seeing very strong engagement. and priming the pump for growth in our even far greater growth in our CAPS business with strong relationships with the laboratory proficiency testing and accreditation agencies that segment of the business continues to build very strongly as does the relationships with major test manufacturers particularly point of care side but also in laboratory medicine as well and Last but not least, the clinical laboratories, we're starting to see a greater, a more meaningful number of sales directly to some of the major clinical lab chains, which is nice to see as our name gets out there a little bit more from our regular participation in conferences, and we're seeing revenues So I think we're broadly, we're certainly not complacent, but I think we are seeing evidence of real progress in the fundamentals of our business. We are also moving into additional novel formats for our CAHPS products. I'll note the disclosures we made earlier in the spring in March concerning the paraffin-formatted tissue sample mimetics, which starts to move us into controls in oncology, which is another important area that I think we'll start to see revenues quarters and years, extending the expertise we built in infectious diseases into other exciting new markets as well. So we'll see that with product formats and test types also. So a lot of good things happening and we're making them happen while keeping the company in a very good position of financial strength.
spk00: Yeah, I mean, we've been deploying government grant funding and interest-free loans from government to build capacity, including automation, scale-up, and so on and so forth. And that's been implemented and is now manifested in our ability to satisfy the market and continue with our growth. We have a number of labs coming online right now, and they've been two-thirds supported by external funding. Of course, we reinvest our own monies to make sure that we can build going forward, and everything's going very well in that regard.
spk02: Yeah, very, very much so. We'll see how our Q3 and Q4 shake out, but we certainly see a very strong progression of quarters as we move forward with our customers in building markets and advancing the values. And speaking of which, another thing that we have been able to announce over the course of the spring is, of course, the analytic CDMO engagement, which occurred in March as well, whereby our development partner, Sequel Pharma, has moved forward with engagement of a contract development and manufacturing organization. This is a very meaningful spend that they're undertaking and arguably the most critical stage to advancing that product or critical contractor to engage. Ken, do you want to comment a little bit further on that as well?
spk00: Yeah, sure. The CDMO that Microbics and SQL, SQL ultimately commissioned them, is very sophisticated and the work is going very well. We're very pleased with their technical acumen and their experience in this particular area. I don't really see any problems associated with this. They clearly have a good handle on what we're trying to achieve here. As Cameron correctly says, the production of the drug substance is the but there is a significant amount of expertise and that expertise is clearly there at the CDMO that we've commissioned. So we expect to move forward according to the plan we disclosed previously. At this point in time, I don't see any particular problem with that. We're advancing quickly and the technical, as I say, the technical acumen is very much in place and work is underway and our relationship with sql and their financial backers is maintained as strong and it's going very very well yeah they have excellent technical expertise as well and so as i say we're just moving forward and i don't see any problems at this particular time thank you ken yeah i think um another thing i'll mention is just driving in the um in these fields you know in the test ingredients business certainly we're
spk02: the cutting edge and you are actually growing purifying and enacting the native organisms. Our work in antimicrobial resistance tests and controlling those has been very received. More recently, some of our work in mimicking tissue infected tissue samples has been very well received as presented at a global conference in scandinavia and additional work such as our work with room temperature stable controls for uh detection molecular detection of h pylori uh you know those of us in the business are aware of the discovery of h pylori as the cause for excuse me thank you okay Thank you. Jim was just alerting me that we're having some internet problems and that there is some stability of the feed. So I apologize if I am cutting in and out at all during this. The thing that I was mentioning was that in spite of this organism having been discovered a long, long time ago, there was... There were problems with the controls being inadequate that were preventing the full transition of molecular testing of HPV that we are now addressing and again, demonstrating leadership in this nature. Just if we're bandwidth challenged, I don't need to interrupt, but it might be a good idea for Ken and Jim to turn off their cameras.
spk01: Yeah, I was going to say as much as we love seeing you guys maybe shut down the cameras and hopefully that helps with the audio.
spk02: I'm all alone here now. OK, well, with that, Deborah, maybe maybe we could break for some questions from our attendees. We've got a number of shareholders and representatives of the capital markets on the call. So delighted to have everybody and to address questions to the best extent we can.
spk01: Sounds good. OK, first question was, was distributor stocking a significant factor in the quarter? How do you monitor distributor inventory levels?
spk02: Most of our sales are direct, with the exception of our antigen distributor into Asia. And because of the abruptness with which demand has resurged on the ingredients business, certainly all product that we're shipping is immediately being sold through to end users. So there's definitely no element test ingredients business. In our controls business, we have for the most part, our proficiency testing and lab accreditation agencies are taking product on an adjusted time basis for their regular program challenge events for the labs that subscribe to their services. For other CAHPS customers, we don't see a significant amount of inventorying going on with the possible exception of validation lots that are generated prior to FDA registrations of assays. But those are relatively small production runs that were pulled through quite quickly on the approval of the assays. I hope that addresses the question.
spk01: I think so. And I've got a couple of other questions that came in via email. So I'm just going to switch over there. So first question, with Quidel Ortho withdrawing the $5, 10K submission for the Savannah for virus respiratory test and developing a next generation RVP4 plus assay that expects to be commercially available during the 2024-25 respiratory season. How much revenue do you expect to get from Quidal for the remainder of this year and next? And how much revenue from other CAPS customers of those two periods? And I apologize, I butchered that question, Cameron.
spk02: There's a lot to unpack there. I've got to make certain that I'm maintaining the required levels of confidentiality from our interactions with Guidel Ortho, which is a disclosed customer of ours.
spk01: It's also the last question in the Q&A box if you need to revisit.
spk02: Okay, sure. Let me pull it up just for that purposes as well. Okay. Quidel Ortho, which is QDVL on NASDAQ, the fifth largest diagnostics company globally, has developed, just for those that may not have followed this as precisely as this question, has developed a very capable, portable or point-of-care PCR testing instrument. It's about the size of a two-slice toaster, maybe a smidge bigger, and fits a cartridge in about the size of a thick slice of toast into the front of it that can simultaneously test for one patient sample and can accept a few different formats of patient samples. So it's a very, very beautifully designed assay and has full PCR on the sample to generate those results. We are supporting the launch of all assays on that instrument. Thus far, there have been two assays commercially available. One is a respiratory virus four-plex panel that is available in Europe. The other is a three-plex genital ulcers panel that is available in North America. Guidel Ortho had filed for a second-generation respiratory four-plex panel for North America for 510K FDA approval and then withdrew that asset. Obviously, and as noted specifically in this question, presumably from Guidel disclosures, they have not sat idly and do not intend to Sorry, I'm just doing a double negative. They certainly don't intend to not participate in respiratory testing. So they are developing, as noted in the question, RVP4 plus assay for launch. And that also has fallen under our relationship with them and we'll be supporting that. So there are other assays that FIDEL has previously disclosed that it's also moving forward with at full pace. And certainly we expect that FIDEL will achieve multiple FDA registrations for the planned suite of assays, which I believe the disclosed suite is eight multiplex assays that Bidel Ortho has targeted for use on the Savannah instrument. They have noted that they do not expect revenues from the savannah to exceed the sort of five percent threshold for materiality that's the general rule of thumb so with their revenues of 2.8 billion you can do the math on that so well revenues may not be as significant for guidel they certainly continue to be significant for microbics and our 2024 budget is really about supporting quite ill ortho with the development of novel multiplex controls for the savannah and the validation orders we don't have anything in our budget for 2024 um in relation to commercial launches that that will start to shake into our 2025 numbers uh as we see that in spite of that we're still on track to achieve record uh revenues and earnings in fiscal 2024 making mistake so i hopefully that addresses that question
spk01: Yeah. And how much revenue from Quidel Ortho are you anticipating this quarter, Q3?
spk02: I'm not prepared to be that granular.
spk01: Okay. Here's another audience question. Microbics expects meaningful growth in earnings in 2024, but with $2,833,109 in earnings in the first half of 2024. That could mean meaningful losses in the coming two quarters. Does MBX not expect to be meaningfully profitable the next two quarters? That's the first question there, Cameron.
spk02: Let me just look at that here. Just a moment. I'll scroll up. Yes, obviously, we had a fantastic first quarter. And that was driven in part by the recognition of kinetic related milestones. I think we demonstrated in the second, we've been quite transparent in the in terms of where our break-even point stands for the company from operating revenues. And Q2 demonstrates that quite clearly. Above $5 million in revenues, we should report some profits. Were revenues to be below $5 million in order, we would slip into small losses, but those would not be material. And nor is that what we're targeting. So I don't see meaningful losses, quote unquote, coming up in any future order for that matter. And quite to the contrary, we're targeting meaningful profitability losses. The biggest question is, as our customers achieve traction in markets where our products are directly tied in and as we're continuing to build our customer base and our product line, we see those revenues growing border to border, not shrinking.
spk01: How are your costs related to analytics being covered? What is the timing of the $30 million in milestone payments? And are these payments the means that you're being reimbursed for your kinetic costs incurred to advance the drugs? It's the last question there, Cameron.
spk02: Yes, the big purpose of partnering Kinlytic was to not be betting the company on the outcome of a single project or asset. Microbics has a very healthy business in the diagnostics field. and as we grow that it did not make sense to us to jeopardize the overall the company by spending and we're talking about big numbers you're talking um you know on either side of 10 million dollars uh us for the cdmo work that's being undertaken now um so that would take our entire treasury for just that stage of the project So a whole purpose for us was to cover those costs associated with Kinlitic and have a partner pay for them. So certainly our partners are paying for the direct costs associated with that project. for the technical support and other support that we are providing for the project. So there is no drag on microbics from Kinlitik. It is all upside for us. And there are some milestones associated with approval of the product and associated with sales thresholds so again as we've disclosed right now we'll have two to three disclosures a year associated with Kinlitic as different milestones like the CDMO contract signing are achieved but we will be looking at having to having the project make meaningful progress before we start seeing additional big money milestones and those big money milestones are coupled to big money royalties so we look at this as a a supercharger or turbocharger on the earnings we expect to be generating with the engine of our diagnostics business
spk00: Just to comment on that, and obviously the group now can see what my favourite rock band is based on the picture that went up there. In terms of Kinlytic, our expenses are fully covered in real time to support this group. Obviously, we have deep expertise in the scientific manufacturing and regulatory side, and we provide a lot of advice in that regard. Obviously, the CDO was doing the lab work, but we are overviewing that and providing counsel on that. And the costs of doing that and travel and everything else is fully reimbursed in real time and has nothing to do with subsequent milestones. In terms of the timeline, the timeline has not changed as previously disclosed. As I said earlier, everything's going really well and as it should. And we expect to realise revenues at the time we said we would.
spk02: I see a pointy question there, which I'll be happy to answer. It says, except for a stronger Q1, CAP's revenues appear to have been stuck in a range per quarter for about two to two and a half years. The range described 1.1 to 1.6 million a quarter. Why aren't we seeing more robust and consistent growth in this business line? So it's a great question. For starters, I'll just point out that cap sales for the first quarter of fiscal 2024 actually exceeded the range described there were 2.2 million. So cap sales in Q1 didn't break out above the previous range. We've seen them ease back a little bit in Q2. We see very much an inevitability to point of care technology being available and made widely available for more widely available for use in supporting access to care and prompt and accurate diagnoses. The timing of that is where we're all getting a bit frustrated. Some of our major customers, such as Fidel Ortho within Savannah, have seen a meaningful delay of about 18 months over the timeframe they'd originally expected, and we're a little bit caught up. As tests roll out, the math becomes extremely compelling, and we're just making sure that we're positioned to support all of these companies. It's certainly not just Weidel Ortho. Please be disabused of that notion. that we only have one such customer being developed. That is a relationship that formalized to the extent where we could publicly announce it. But there are other relationships we're building that have not been announced that are with very prominent companies in the field as well. So we see this coming. They see it coming. We're also getting very good traction in the clinical lab side with our I mentioned our HPV controls, but also with our supporting installation of new instruments with our onboard kits is very popular, becoming a meaningful revenue source as well. So we see a lot of opportunities in front of us, and it's a question of when, not whether, in our minds.
spk01: Okay, and one last question. So congrats on the continued excellent execution. With respect to the NCIB, is the company still entertaining block sales for motivated sellers?
spk02: Absolutely, yes. Our NCIB, we're able to, of course, there are specific rules around normal course issuer bids or share buybacks, as they're well known. For example, we cannot buy on an uptick. We have to wait for a downtick. We're allowed to buy a certain amount of shares per day and we buy that whenever we can. And we're able to participate in one block trade per week and we will react to blocks. So, you know, our... the investment dealer managing our normal course issue of it is pacific international securities so anybody who is may want to sell a block we are absolutely a buyer um jim mentioned uh you know we bought 1.2 1.3 million shares back since um restarting the normal course issue a bit in December of 2023 and um you know our objective is to buy back well in excess of the um number of shares potentially issuable in association with option plan boards. So we certainly like to buy back 3, 4, 5 million shares if we can. So we are active in that NCIB and want to be more active in that NCIB.
spk01: Excellent. Well, that's all I see for questions. Cameron, was there anything you wanted to talk about today that we didn't get to?
spk02: Yeah, I think, Deborah, the message being we're We're running this company as a professional business. We are engaged in a very material way with many major companies in the diagnostics industry. And there's a slide I've added in our corporate deck where a few slides where we see the microbics M in a horizontal position. And I'll just share that actually. for fun. I think this really illustrates a bit of where we are between position, between our customers and our markets. Just see if I can get this to go full screen here. There we go. You know, we have our different categories of customers. We have the external quality assessment or PT agencies. We have test makers we engage with. We have clinical labs that we're building. And all of these customers are trying to access different markets for whether this is for research use only or lab developed tests, whether it's IBD lab tests, whether it's point of care lab tests. And what we're finding is between our customers and their target markets, there's a need for the products that we're providing, a need for our antigens, a need for our caps, a need for reagents. And this has put us in a very strong position to solve customer needs and build our revenues and profitability by doing so. So all of this is about making sure tests work, whether it's the ingredients, whether it's our caps, whether it's the agents that we're selling in support of those. All of this is critical to the industry and we're demonstrating a critical role. I was at a customer meeting not long ago where we were discussing a project with them and we were asking this major international company, there are different ways we could solve the issues you need us to address. How would you like to approach it? There are different options and they said, well, you tell us, you're the experts. And I found that very gratifying to have a global, multinational, very well-respected, recognizing microbics expertise in this field. And I think as we continue to add to our product lines and our customers and our base of revenues, we'll see that recognized more broadly in equity capital markets as well.
spk00: I think the slide Carmen just showed is really great because it really illustrates what we are and why we've been doing what we're doing. It's clear that we have a lot of opportunities of customers coming through to address their own markets. The slide makes the point that we don't compete with our customers. And so we don't make tests, for instance. As has been said, we make everybody's tests better and we're agnostic to the test which addresses the market. We help them all. It also speaks to why we're building capacity and the opportunities going forward and being successful in implementing the new electronic quality management system, the new enterprise resource planning software, to make sure we have the capacity and the scalability to service those markets going forward and being ready for the opportunities that are clearly coming. I think it's really well illustrated in that slide. And everything we've presented today, despite the dodgy Wi-Fi, is illustrative of that trajectory and that goal. And that slide summarizes the opportunity going forward. And we're pursuing with all vigor. And I want to say we have a great team here, which are continually updating processes, developing new products. validate them to be regulatory and quality compliant. We're just going to continue executing in that regard. And I hope the shareholders see what we're doing that and we're going to build value through doing that and being consistent in doing that.
spk02: Yeah, and there's a few interesting trends going on as well that I think are some good tailwinds for us additional to that. One is, of course, the transition in Europe from the in vitro diagnostic directives, IBDD, to the In Vitro Diagnostic Regulations or IVDR. And this is putting a heightened level of rigor, requiring a heightened level of rigor and subjecting companies in our sector to a higher level of scrutiny for their products. And that's a standard we're committed to to meet and exceed, but some levels of competition will fall away as a result of that. And we're also seeing similarly in the United States, the FDA has just issued final guidance and decisions on how they will implement increased scrutiny on laboratory developed tests, which are often used in lieu of formally approved assays that have gone through the 510K or PMA processes. And the FDA is saying, you know, these loopholes weren't intended for use in millions and tens of millions of tests. And we're going to start to put a stop to it over time. And that's going to bring a greater requirement for the quality monitoring, quality assessment of assays in the United States and Europe, and I think positions us very well to help companies and to are accurate, that we're avoiding false negatives and false positives. It's important work. It's work we're demonstrating there's a market for, and we're going to be growing with our customers across their portfolios of new products.
spk00: Regulatory compliance teams all over these changes and is ahead of the curve as these new regulations come into play.
spk02: Jim, what comments would you want to conclude with about our second quarter?
spk03: I think Cameron, it's indicative of the work that we've been doing over the last couple of years in terms of getting, you know, all of our business areas firing at all cylinders. And I think the, the emphasis on growing the antigen business as well as the caps business. And that was interesting, that question on the caps business about, you know, sort of indicating rather level growth, but we're, we're looking at the caps business this year to grow by 40%. And I don't see that as limited growth. We do see some, you know, additional upside to the caps business, but we're also seeing it from the antigen business. And, you know, when we're, we're looking at over, you know, $6 million in the antigen business in the first half of the year, and we've got some excellent strong order backlog for the best ingredients, antigen business in the second half and even into next year or so. We've got, and Ken has identified the fact that we've invested in our infrastructure that will allow us to grow both businesses in the facilities that we've got that we're expanding upon right now. So the outlook for the business, not just Q2, it was a strong quarter, but we're looking for the continued growth and continued strength and profitability of this business as we go into 2025 as well.
spk02: Thank you, Jim. I think those are great points. We're running a very serious business and having state-of-the-art systems, Jim and the team have successfully transitioned to a new ERP system. We're continuing to work for full digital quality management systems. and rolling that out across the organization. And we've done all this, you know, while maintaining profitability. So, you know, we're positioning, we've positioned the company to capture some serious growth and that's what we're doing and what we're continuing to execute on. So, you know, thank you everyone for your interest and support and know that we take it very seriously and are committed to building value and, you know, Everyone on the call here, as well as the management team, owns shares in addition to being incented with participation in our option plan. So our interests really are aligned with shareholders.
spk01: Well, congrats on a great quarter and a great start to the year. You must be happy laying that foundation for growth for the future as well. Market seems to like it. I mean, stock's up two cents since we started the call, up 12% on the day. So hopefully that momentum continues. Thank you all for taking the time to have this webinar. Thanks to the investors that participated and for your questions. If anyone has any follow-up questions, feel free to reach out. Or if you'd like a one-on-one meeting, also feel free to reach out and we could get that arranged for you. Thanks.
spk02: Absolutely. Thank you, everybody.
spk01: Yeah. Have a great day.
spk02: Thanks. Take care, everybody. Bye.
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