Operator
This is Normain Progress. With me I have Cameron Groom, CEO, Ken Hughes, COO, and Jim Curry, CFO. Before we get started, the format will be a bit of an overview of the quarter from the management team, and then we'll jump right into Q&A. So if you have any questions, feel free to submit them in the Q&A box at the bottom of the screen, or you can always email them to me at deborahcap.ca, although I'm sure most of you have my email address at this point. I don't believe that we're going to work off a presentation, but this presentation will contain forward-looking statements if you'd like to know more about those, you can find them on the presentation on the company's website, which I will have updated later today. Unfortunately, I didn't quite get it done for this call, but it should be there this afternoon. With all of that out of the way, and I'm sure you're tired of hearing me talk, I'd like to introduce Cameron Groom, who's gonna kick things off to talk about our Q3. Cameron?
Cameron Groom
Great, well, thank you very much, Deborah. Thanks, Jim and Ken, and thank you everybody for taking a lovely August morning to join us for this Q3-related webinar. Apologies in advance, I picked up a bit of a chest bug at the ADLM, following the ADLM conference in Chicago, so if I cough a little bit, or if Jim and Ken need to take over momentarily, please bear with me. That's what happens when you hang out with 28,000 of your friends that work in clinical labs, you put yourself a little bit out there at risk, but on the mend. So thank you. For Q3, Microbix, as you've seen this morning, reported revenues of $5.1 million Canadian. That's comprised of 3.3 million of sales of our antigen or test ingredient products a little bit ahead of where we were targeting, and 1.7 million of our test control caps products a little bit behind where we were targeting, with the balance of 100,000, they're beds comprised of inbound royalties to us. And that compares to total revenues of 5.5 million the prior year. But it's important to note that in the prior year, 1.4 million of the quarter's revenues were comprised of a kinetic related milestone that was a one time occurrence. So when we're looking at recurring product sales year over year for Q3, they have increased by about 20% year over year, so very respectable growth for our industry. Similarly, within nine months year to date, we've achieved revenues of 19.1 million, 4.1 million of which were kinetic related milestones, and that was comprised of 9.3 million of antigens, 5.3 million caps, and the balance of about 400,000 royalties. So comparatively, that compares to year to date revenues the prior year of 12.2 million of which 1.4 was kinetic related. So when we look at our comparability of year to date product sales for the nine months, we're at 15 million in recurring product sales this year versus 10.9 million the prior year. So for growth year over year sales growth, recurring sales growth of about 38%. So we consider this to be a very strong growth rate for our recurring product sales and are pleased with that performance and frankly we hope you are too. Industry, growth in our industry is considerably lower than that rate, so we are strongly outperforming the overall growth of the diagnostic sector based on what we believe we're doing the right things in terms of our customer servicing and product development efforts. In terms of margins, overall gross margin for Q3 was within a satisfactory range at 54% and that compares to 42% gross margin the prior year. And in Q3 of fiscal 2024, our gross margin was positively influenced by ongoing work that we've undertaken to improve production efficiency and it was negatively influenced by some write downs that provisions we took relate to stale dated caps products which I best describe as BNNs that we could go into. By comparison, gross margins the prior year, gross margins the prior year was void by a kinetic related milestone that I mentioned earlier and also reduced by a write down of expired viral transport medium inventory that was provided for in Q3 of fiscal 2023. So, and looking for the nine months of course, gross margin for the nine months year to date was similarly in a satisfactory range at 63% gross margin for the nine months this year compared to 49% gross margin the prior year. So again, we're pleased with this performance and certainly hope that you are too as shareholders. At this point, perhaps I can ask Jim Curry to speak a little bit about the balance in P&L, our balance sheet position coming out of the third quarter and likewise review of sources and uses of our cash for the nine month period. Jim, please go ahead and you're off camera for me.
Jim
I think he may be having some technical difficulties.
Cameron Groom
Okay. Well, let me step in then. I will go through a few of my notes. Just in terms of our looking further, our overall breaking point of course, as we've disclosed is around the 5 million revenues mark. And we came in with a satisfactory bottom line margin, net margin of 5% for Q3. This is largely aligned with our expectations. And in terms of expenses, you can see S, G and A expenses very much tightly controlled and not materially changed year over year. Our cash flow from operations generation was 1.4 million. And of that, this is for the period and we've used about a million of that in capex and about half a million in debt repayment and use of the normal course issue of it. So again, very satisfactory numbers and our liquidity position and leverage remains quite strong as well. We have a current ratio of that 6.6, which is very strong liquidity position. And we continue to de-lever our company and have brought down the debt to equity ratio to 0.35, which again is pursuing a downward trajectory of improvement in terms of the equity that we have employing and paying down debt rather than running out. So strategically, I'll just roll through a little bit. We're now consistently posting sales over our 5 million a quarter breakeven point without any reliance on government related procurements. And this puts us in a very strong and sustainable position to continue growing our company and having, as I mentioned, come back from the largest US industry trade show. I can very much confirm that we continue to add new business with our existing customers and we continue to target and add new customers as well. And all this continues to be amongst the leaders in the proficiency testing and external quality assessment customers. Those are the agencies that do the proficiency testing and accreditation of the clinical labs that are major customers for our CAHPS products. We continue to grow our business with test makers. This is for both our antigen test ingredients products as well as our CAHPS products for inclusion in the kits of test cartridges, often in the point of care but not always. And also direct sales to major clinical labs is continuing to grow as well. So the outlook is very positive overall and the only questions that we continue to ask and answer relate to the timing of our clients' projects. But before we get too granular in terms of outlook, I'll now ask if Ken can provide us an update both on operations in terms of some of the progress we're making there as well as on our therapeutics project, Ken Lillick Eurokinase, which promises to be very important for the company and is also progressing, I would say very well. Ken, please go ahead.
Jim
Thanks, from an operational perspective, basically we just continue to execute. In the last few months, we've announced the commissioning of a new R&D and QC space in our third building, a 275 watt line, which was a subject of an announcement with the provincial minister, Minister Tanguy. And we've also got the full automation unit in another lab in that same building, fully operational now as well. So basically we've executed all of that and we're in the process of actually building additional capacity. To do that, we've been deploying grants from the Ontario Together Fund, as well as interest-free loans from FedDev Ontario, which have inexpensive capital to drive this. And we've basically been delivering as we said we would. In terms of the core business itself, the development and manufacturing and QC teams have done great work in improving manufacturing and throughput efficiency, which is driving margins. We've seen that on multiple products and that will continue to be the case. We really do have an excellent scientific and technical team at Microbix and that's going to continue to be the case. And that's going to drive margins going forward. So from a general operational perspective from our business, in QA2, we've also successfully re-upped our, by audit, our ISO 1345 status and also successfully adapted our European filings to the in vitro diagnostic regulations, the new regulations, as well as the directives, which is a much higher standard. And we passed those audits with flying colours to maintain our ceiling marks in Europe and our ability to settle around the world. So we're excellent in manufacturing, in development, in testing and in the quality systems. In terms of the digital implementation of quality management system in the ERP, both of those are successfully implemented and are just being built upon to make us more efficient and have the additional capacity to build forward as we need and have the capacity to sustain our growth over the coming years. So operationally, everything's going extremely well. Now on kinetic, I have to say, everything's going extremely well there as well. We have an excellent relationship with SQL. We have a CDMO now working on upgrading the drug substance, purified urokinase protein for regulated refilings. And those studies are going exceptionally well. This is a low risk process in the sense that this product was the standard of care in capital management and other symbolic indications for decades. So it's not going to fail clinics. This is about implementation of a process, an updated process. And that's going extremely well and the analytics to go with that. We're now in the process of engaging with a clinical research organization or development manufacturing organization for the drug product, which is the finished form, which will be in the vial, which will be used on patients. And that also, those negotiations are going very well as well. So we're moving forward at a pace in all aspects of the kinetic project. And the timelines are unchanged from the last time we spoke. So bottom line is operations for the general business are going very well. The kinetic project is going very well. And as usual, we're executing exactly as we said we
Cameron Groom
would. Your move,
Jim
Ken.
Cameron Groom
Thank you. Thank you, Ken. That's a great point, which to leave it off. I think it continue that we continue to do what we say we're going to do and have set out to do is very important. And this strength of the operations continuing to improve is really reflective of that. And certainly we're gaining, I would say greater visibility within our industry as go-to providers for not just test ingredients, but also for our test controls which are so essential for our clients. And very pleased with the progress of Kimeli-Gerokinase. Of course, we are selling products a unit at a time for our diagnostics business and growing that quite substantially. The torque additional leverage provided from Kinlytic when that hits in several years time, that will certainly probably provide as much profit again as our entire diagnostics business by that point. So remains extremely relevant to all of us as shareholders in Microbix and delighted to see that progress. Now we lost Jim for a couple of minutes there, Jim. Sorry, sorry about that.
Jim
Can you hear me?
Cameron Groom
We can and I valiantly filled in for you. But maybe if you want to offer any supplemental comments about the financials for the quarter.
Jim
Yeah, I'm not sure what you told them yet but I'll add some supplemental, sorry about that. I don't ever switch laptops a day before you go on these calls. So that's the moral of the story here. So I apologize. Yeah, no, a really strong quarter that we had both from a top line and a bottom line perspective. I think Cameron will have identified that we had some favorable items coming from the funding side in terms of our FedDev grant providing us with some more beneficial terms and delay in when we have to start a repayment out until I guess now January, 2026 as opposed to originally starting in December of this year.
Cameron Groom
That FedDev loan, I think you meant. FedDev loan, sorry, yes. Grant to avoid confusion.
Jim
Yeah, apologize. That's the repayment. And OTF, we also saw some favorable grant income recognized in the quarter. So that was excellent. Revenue growth, fantastic. For our caps and antigen businesses both. We're seeing some really strong bounce back. We're now well past COVID, but we certainly saw a downturn on the antigen business during COVID but we are starting to see the results of the bounce back in COVID and especially through our distribution partner in Asia. Capital contributions, we've taken, we're continuing to invest in the business. We're investing in all areas. I don't know whether you mentioned the acquisition of some technology that we were previously playing royalties on. We took the opportunity to acquire the materials and rights and know how from a key supplier of ours. And it was $270,000 that was capitalized during the quarter and that should benefit us as we move forward. Cashflow is great. We're sitting with about a better part of 13 million in cash and we've got our 2 million of credit available to us from TD as well. So we're well funded at this point in time.
Cameron Groom
Thank you. Jim, did you wanna mention anything about the normal course issuer bid and the pace of share buybacks?
Jim
Yeah, yes. Through the third quarter, we had 1.6 million acquired in the form of buyback. We're continuing to look at, and we saw, I think it was in July that we've seen the block transactions as well as the regular daily transactions. So we're continuing to believe that we've got an undervalued stock and we think that we should continue the buyback process and we will continue that as we move forward.
Cameron Groom
Yeah, very much. Thank you, Jim. No, I think that emphasizes the cash balance continuing to be very strong and net positive, even as we are reinvesting strongly into our business to further improve efficiencies as well as buying back stock. Those actions still are not meaningfully eroding our cash balances, which is again very helpful as prospective customers evaluate making us a critical sole source supply chain partner that they know we have the strength and staying power to be there for them as needed.
Jim
No, that's a good point, Kevin.
Cameron Groom
Yeah, again, very strong and at a minimum, our normal course issuer bid activities are enough to offset, fully offset the prospectively dilutive impact of our rolling stock option plan, but certainly we will go well above the 2% buyback level and would happily buy back the allowed maximum of 5% if we can get the blocks to affect that. In the meantime, we buy back as much as we can every day under the prescribed rules of the stock exchange. Thanks, Jim, thanks, Ken. In terms of a little bit of strategic discussions, certainly the outlook for the balance of 2024 into 2025 is strong. We don't give specific quarterly guidance, as everyone knows, but certainly we expect Q4, the September 30 fiscal Q4 closeout to be very strong and certainly will be north of 20% year over year sales growth for Q4, as we have seen in Q3 in the prior quarters. In terms of the 2025 outlook, our budgeting process is conducted through the August, through to a budget approval in November timeframe and we'll be looking at sales growth, certainly in the 20 to 40% range, but where we land precisely there very much depends on a detailed bottom-up forecasting exercise that we do that's a result of analysis customer by customer and skew by skew, so we're not just blindly ballparking but really specifically identifying where revenues will be derived, but we certainly see the very strong growth trajectory that we've seen in 2024 to continue into and through 2025 and in so doing, we will very much be holding to our model of profitable growth and we'll be continuing to manage our liquidity to remain in a position of strength from a valet sheet point of view, while continuing to use the NCID, the share repurchase plan aggressively to reduce our net number of shares outstanding. So that's, I think where I would land is a summary of the quarter and I know we have a good number of attendees on the call and perhaps they would be at this point, Deborah, if there are any questions that you have or any questions that we have from our listeners, participants in the webinar, we'd be delighted to address them.
Operator
Sure, actually I have a question, it's probably not all that relevant, but I was thinking about it this morning when I was reading the news. I believe a number of years ago when Monkeypox first came out, you did develop some test controls for that. Do you think there's a business opportunity with the resurgence of the new strain in Africa?
Cameron Groom
I would say yes, we certainly acted to develop a product on your request of our proficiency testing and lab accreditation partners and we have generated some revenues from that project. We'll be evaluating whether the previously developed Monkeypox controls remain fully relevant for the emerging plates and variants of Monkeypox, but our capabilities are undiminished and to the extent that that or H5N1 or any other emerging pathogen surface, those will be right there to help the industry and make sure that testing is as accurate and well controlled as possible. So yes, all of those opportunities serve as potential sales opportunities for microbics.
Operator
Okay, and then I had an audience question that came in earlier. Previously the company announced on BTN that microbics sees material and emerging interest from private customers and we'll be building that business line going forward. Those are direct quotes, Cameron. Can you please provide an update on progress with BTN?
Cameron Groom
Yes, we've been looking at other opportunities, non-governmental opportunities for BTN and BTN-like products and some of the areas that we've seen are strong interest in for being able to properly elute control samples for use. So effectively combining our caps and our BTN to offer sort of full process solutions for our customers and these can be within the context of our onboarding kits as well as in control materials with the customer to say, hey, you should be using a compatible buffer. This buffer is certainly compatible and please make sure you're validating your workflows properly. So there is a definite value in having BTN and using it for support of our controls business directly with customers. We have seen sales of material fashion in that category but we're not breaking it out as such as it's really tied to the caps business at this point.
Operator
How much of VTM production capacity has been reallocated at this point?
Cameron Groom
A small proportion. It wouldn't be the full capability of the line. The line is made to manufacture millions of vials of product and we're looking at a much smaller scale at this point edging back into that market and it takes time.
Operator
A couple of other audience questions here. Aston and caps sales have been lumpy over the past few quarters. What are some causes of the fluctuations and do you expect this to stabilize in the future?
Cameron Groom
I'm not sure I would call them lumpy but let's assume that that's the case for the interest of this exercise. It's always a question of when a customer is seeking to take delivery of product. So we are always looking to delight our customers with delivery schedules but if a customer says I want to take product on July 1st not June 30th, that's when it's going to happen. So we don't game our quarters in terms of jamming revenues in and out of them. It's really a collaborative relationship with the customer. When can we have made the product and when do they want to take delivery? So we see that. Now oftentimes we've seen, sometimes customers can wait for the last minute and create a bit of a fire drill for us to make a product but we try to work to schedule workflows so that it maximizes our capacity and doesn't overtax our staff unnecessarily. So if we look at our quarters, I think we've been up in the 20 to 40% range each quarter of this year and certainly we'd like to see that continuing.
Jim
Cameron, we do have events sometimes within the PT business that could provide some lumpiness in our sort of caps business from what to on a time to time basis. Where we want to- Great point
Cameron Groom
Jim, if you, maybe you want to expand on that a little bit. Just how do that rolls?
Jim
Well, I'm provisionally testing customers that have events that take place throughout the fiscal year. However, there in one particular customer case, they only have, we only have sales to them in three of the four quarters. So there is a quarter that ends up with and they're fairly significant customers. So that will impact quarterly results. And I think as Cameron identified on the antigen business, it's really highly dependent upon, four or five of our larger customers and the timing of their demand as to when we see the shipments go through. So we can't have, as we've seen in the past, Q1 has typically seen a quieter quarter for us and it's becoming less so than it was a number of years ago. But we're now starting to, so it is impacted by large antigen customer orders as well.
Cameron Groom
Yeah. And then the Pete, just to expand on Jim's comment about the proficiency testing and external quality assessment customers. Often the labs are tested of their competence three times a year. So there are off for those customers, there are often three large shipments throughout the year to each one of those customers adding, creating some of that order to order shifts and the antigen customers that they can take a, half a million or a million dollar delivery and which side of the quarter end that falls upon is typically not in our control.
Jim
I mean, the processes by which antigens and capsules are made can be quite long and the delivery can be quite large. And so that can generate a little bit of lumpiness as well. And as Cameron says, we don't game the quarter, but as this business is growing and there are more events and more deliveries, there will be something of a smoothing associated with that. But if somebody orders $2 million worth of rebella virus, it's a single delivery and that can by definition create a little bit of lumpiness. Which will be diluted by the increase in volume of what we're doing here. And I think we're seeing that. So it's not quite as lumpy as it once was and we're going to continue to smooth.
Cameron Groom
Yeah, I would expect that smoothing process to continue over time. Certainly we're also seeing a growing number of direct lab sales as well. And while that's still a smaller proportion of overall sales, those $500 or $1,000 invoices coming in a more regular stream certainly serve to offset some of the big industrial customer sales.
Operator
Questions here. There's been a strong resurgence in antigen demand this year. Can you share your expectations for antigens going into Q4 and next year based on current visibility that you have?