Precipio, Inc. (NASDAQ:PRPO) Q1 2023 Earnings Call Transcript May 18, 2023

Operator: Welcome to the Precipio Q1 2023 Shareholder Update Conference Call. All participants will be in listen-only mode. Please note that the conference is being recorded. Statements made during this call contain forward-looking statements about our business. You should not place undue reliance on forward-looking statements as these statements are based upon our current expectations, forecasts and assumptions, and are subject to significant risks and uncertainties. These statements may be identified by words such as may, will, should, could, expect, intend, plan, anticipate, believe, estimate, predict, potential, forecast, continue or the negative of these terms or other words or terms of similar meaning. Risks and uncertainties that could cause our actual results to differ materially from these set forth in any forward-looking statements include, but are not limited to, the matters listed under Risk Factors in our annual report on Form 10-K for the year ended December 31, 2022, which is on file with the Securities and Exchange Commission as well as other risks detailed in our subsequent filings with the Securities and Exchange Commission.

These reports are available at www.sec.gov. Statements and information, including forward-looking statements, speak only to the date they are provided, unless an earlier date is indicated, and we do not undertake any obligation to publicly update any statements or information, including forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Now let me hand the call over to Ilan Danieli, Precipio’s CEO. Please go ahead.

Ilan Danieli: Thank you, and good afternoon. And thanks for joining our Q1 2023 shareholder update call. Today, I’d like to spend some time discussing the progress we’re making in our revenue growth and our journey towards breakeven. I’ll start by sharing updates on the Pathology Services Division and then follow up with a more detailed discussion on the Product Division, and in particular, I’d like to provide some more color around the catalysts we provided in today’s earlier press release. Let’s start with the Pathology Services Division. I’m pleased to report that this was yet another record quarter with revenues of over $2 million. Furthermore, with the addition of the customer announced earlier this month, as well as other new business, we will surpass the $11 million run rate and are advancing towards the breakeven mark for this division.

Our case volume, average revenue per case, collections and other key metrics continue to trend upward as we drive this division towards anticipated profitability. Additionally, we’re working on several operational cost-cutting measures within the division intended to reduce expenses and increase gross margins, which will ultimately bring the breakeven number closer and help us reach it sooner. Company management is focused on this goal. Now moving to the Product Division, as we previously announced in a formal filing, we had a record quarter of product sales, exceeding $750,000 per quarter, which is equivalent to a $3 million run rate. We have since continued to add business and are moving closer to the $4 million run rate. I’d like to take a few moments to share how we got there by reviewing the three catalysts we measure as indicators of growth and why we believe this trend will continue.

As we recapped, in late 2022, we signed agreements with major healthcare distributors such as ThermoFisher and others, gaining access to over 200 world class sales reps. Needless to say, engaging such a large group is a massive undertaking, and it happens gradually. Not all sales reps are born equally. They have different interests, different levels of opportunities to new technologies and different levels of comfort with taking a new product to their customers. Just like with many new products, the early adopters are quick to jump to the opportunity, while there are others who will sit on the sideline for a while and watch how we progress to make sure that we, as a new vendor, deliver on our promise. As we said in today’s PR, the first catalyst we look at is rep engagement, which has increased from 16% to 37% since the start of the year.

This is a solid accomplishment in such a short period of time, and we will continue to drive to grow these numbers. One of the questions that came up was how do we measure rep engagement. We’ve defined this as when a rep brings us a qualified vetted customer. This means that the rep has taken the time to learn about the product, understand our target customer, studied the qualifying criteria for our customer, and then conduct the research intended to indeed ensure that the customer is a qualified, quality lead, which represents a real potential for business. This leads me to the next catalyst we look at, qualified leads in our pipeline. As a new customer serves as another building block to our revenue, and once on-boarded, this customer will generate recurring revenue to the company.

As we stated today, our qualified leads grew from 30 to 78, representing a 150% increase since the end of 2022. Sales is very much a shot on goal process. But since our filter is to ensure the leads coming into the funnel are vetted to ensure there’s a fit, we’ve created a high quality sales funnel with qualified, interested customers who are interested in our products. The last catalyst we shared today is the revenue pipeline, which increased from $3.3 million to $6.2 million over the same period since the end of 2022. While these are, by no means, huge numbers, there are three factors I’d like for you to keep in mind. First, the total available market for HemeScreen is estimated over $400 million annually in the U.S. alone. So we have lots of potential market share to grow into.

Second, our breakeven point for the company is $8 million of HemeScreen sales. And so the current pipeline, when added to our existing business, represents a clear path to reach that goal. And lastly, the pipeline number shared is net of conversions to new customers. What this means is that as we continue to sign deals and convert pipeline into account — or pipeline accounts into actual customers, as we have this quarter, this takes dollars out of the pipeline because they are now actual customers and no longer pipeline. The increase in pipeline means that we not only fill the gap created by the conversion of pipeline leads into actual accounts, but this also added more potential revenue to the pipeline. This happens because, over time, more reps become engaged as they see the value of our product, and they are bringing us more qualified accounts to offer the products to.

We expect this trend will continue as more and more sales reps see the success of their customers’ adoption of HemeScreen into their lab. I’d like to end with an anecdotal story that recently took place. One of our HemeScreen customers recently added our AML panel. As a reminder, AML or acute myeloid leukemia, is one of the most deadliest cancers. It’s essentially the code red of hematologic malignancies. When the patient comes in presenting with acute leukemia or suspected acute leukemia, he or she is typically rushed to the hospital to begin immediate treatment, and this treatment is oftentimes very aggressive. With the advent of targeted therapies, molecular or genetic tests are a key part of the diagnosis and development of treatment plan for the patients.

However, most tests take at least 7 to 10 days to receive results. If the doctor waits for those results to begin treatment, there’s a decent chance that patients will not even make it due to the aggressive nature of the disease. Therefore, the doctor oftentimes has no choice but to begin treatment immediately without waiting for these important test results. Precipio AML panel is designed to provide same-day results to the patient. And in this case, it did. The customer rushed the sample to the lab, and the lab provided immediate results to the clinician who is able to make a far more informed decision based on the molecular results received from the HemeScreen AML panel. Incidentally, the testing for this patient found three mutations, which is quite a unique outcome that can completely change the course of treatment.

Getting these results within a day versus a week was a life-impacting game changer. Precipio’s team was supporting the customer during their onboarding and launch of the test, and we were proud to be part of the process that makes such an impact on the patient’s lives. Lastly, I’d like to address the share price and several people’s concerns of meeting the NASDAQ $1 requirement. As you know, we received an extension from NASDAQ, and we now have until October to meet the $1 requirement. As our company continues to make progress and advance towards financial independence, increasing revenue and reducing its cash burn, we believe this will be reflected in the share price as a multiple of these factors. Since the share price is the one thing we can’t control, management and our entire company is laser-focused on two goals, growing revenue and advancing towards breakeven.

And we are accomplishing both. And looking at other comparable companies in our sector, we’ll be one of the few companies to achieve breakeven at such a low revenue number. Furthermore, the combination of large addressable markets, high margins and an engine that continues to develop new proprietary products at almost no cost, presents, in our opinion, a market cap that translates into a share price far above $1. I’d like to thank you for attending the call today, and I look forward to connecting with you again after our next quarter results are out. Thank you, and have a nice evening.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.