ProPhase Labs, Inc. (NASDAQ:PRPH) Q3 2023 Earnings Call Transcript

ProPhase Labs, Inc. (NASDAQ:PRPH) Q3 2023 Earnings Call Transcript November 9, 2023

ProPhase Labs, Inc. misses on earnings expectations. Reported EPS is $-0.3 EPS, expectations were $-0.2.

Operator: Good day and welcome the ProPhase Labs Incorporated Third Quarter 2023 Financial Results and Corporate Update. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there’ll be an opportunity to ask questions. Please note that this event is being recorded. I like to turn the conference over to Mr. Ted Karkus, CEO. Please go ahead.

Ted Karkus : Thank you, Nick. And thank you everybody for joining. I’m actually really excited to have this call today, because we are at an inflection point in the company. In fact, we’re going through an inflection point in our company over the last couple of quarters and over the next couple of quarters. But I am tickled pink with how well things are going in our development stage subsidiaries. With that said, I want to start with the forward-looking statement. Before we get started, I would like to remind you of the company’s Safe Harbor language. During this presentation, we will make forward-looking statements including statements regarding our strategies, plans, objectives and initiatives and underlying assumptions. Well, we believe that these forward-looking statements are reasonable as and when made.

Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include but are not limited to our ability to obtain and maintain necessary regulatory approval, general economic conditions, consumer demand for our products and services challenges relating to entering into and growing new business lines, the competitive environment and the risk factors listed from time to time and our filings with the SEC filings. This call will present non-GAAP financial measures such as adjusted EBITDA. Reconciliation of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC prior to this call and available on our website.

All right, couple of — I always like to start with a couple of shout outs. Number one, I think equity done a phenomenal job working with our investment bankers over the last three years not only did they do a large race for us, but they were instrumental in finding some great assets that we acquired over the last three years. And some of those assets are the assets that are going to bear very significant fruit I believe on behalf of our company going forward. We also have excellent coverage by H.C. Wainwright by Joshua Levine at Third Stream Research, and of course, love Diamond Equity Research, Hunter Diamond shout out to Hunter. So thank you all so much. And finally, Renmark I do virtual non deal roadshows presentations. Right now about once a month, we actually have one coming up next Thursday the 16th.

I like to keep our shareholders up to date on what’s going on. So I like to do a VR — it’s a virtual presentation, we go through the company presentation, which is on our website. I update that presentation regularly, I believe we just updated very, very recently. So feel free to go to our website, if you want to get into more details about our company. Okay. So with that said, I don’t like to prepare a lot of remarks to these coils. And everybody knows I love to talk, but I love to get into the Q&A. So I’m going to give everybody sort of stream of consciousness just off the top of my head, because I live and breathe our company every day. And I live and breathe everything that we’re doing. And I just like to explain to everyone what we’re doing, because I think that you will feel very good at the end of this call as I speak that way, as opposed to reading two pages, that I so in any event.

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Q&A Session

Where do I start? Why don’t I start with our accounts receivable actually, because people ask questions about that every quarter. I’m sure I’m going to get some questions as quarter about it. People are going to ask about our finances. We’re in a bear market for microcap development stage companies. We came out of it for a little while, late last year, and at some point this year with interest rates just really took off. It really just killed the ability to raise capital and that kills microcap development space companies that are burning cash that need more cash. And I believe in the biotech industry, the valuations relative to liquidating value relative to cash on hand, the valuations have never been lower. So it’s an incredibly difficult time for microcap development stage companies.

So and then people ask, Well, what about our accounts receivable? Because then they worry do we have the capital that we need to develop the assets? And I make it very clear in our press releases, I’m the largest shareholder in our company. I care about our shareholders more than anything. I even tell the employees that I’m very loyal to our employees. We have a great set of employees that have really evolved over the last year. But number one shareholders come first. I don’t dilute shareholders if I don’t absolutely have to, I never have I’m not aware of ever diluting shareholders with any of the races that we’ve ever done. And I have no current intention, nor are there any prospects of having to dilute shareholders now or anytime soon, which also means for those that are still short out there.

I have no idea how you’re going to cover because it’s not because we’re going to do a raise at some point because there’s absolutely nothing planned to do a raise for our parent company ProPhase Labs. As specifically as far as the accounts receivable is concerned, our accounts receivable, as I’ve explained in the past, is based on a combination of collecting on those receivables, but also operating a business that generates new accounts receivable. So at year end, for example, we had about $37 million at year-end 2022, we had about $37 million in accounts receivable. We in the first half of the year, I believe we collected on a little less than half of that amount. But we had new accounts receivable because we were still doing COVID testing business in the first half of the year.

That’s what we’re collecting on that. Given that we’re no longer — it’s no longer a public health emergency, and a significant percentage of accounts receivable is from COVID testing, the insurance companies are now paying more slowly than they used to, but they are paying but they’re dragging it out. And there’s nothing that we can do about it. So we do have dollars coming in from accounts receivable in fact from — and I’d also point out that from the second quarter to the third quarter, our accounts receivable dropped from $39 million to $33.4 million so they dropped more than $5 million while we were still doing business and understand we’re also doing business now with Nebula Genomics for which we have accounts receivable. In fact, we have some significant accounts receivable at Nebula Genomics and also with Pharmaloz.

So the accounts receivable we are collecting, and then it just becomes a question of time and the accounts receivable with the dollars flowing in to the dollars flowing out and developing our company to build our Nebula Genomics lab required acquiring a lot of state-of-the-art equipment, hiring a lot of people, building a lot of infrastructure. And we believe it’s going to pay off in a huge way in the current year. And I’m going to get and going into next year, and I’m going to get into that in a moment. But I just want to give you sort of the big picture. And honestly, this is the one frustration I have is that the accounts receivable comes in slowly, I’ll be honestly. It puts pressure on me as the CEO, but we have plenty of avenues. So we’re watching the accounts receivable flowing on a weekly basis.

And if we need more capital, I don’t know that we do we have access to a mortgage at Pharmaloz. We own a substantial building we own 12 acres across from a Walmart, it’s valuable land and property. We have the significant accounts receivable that we could set up a credit line again. So to the extent that we need to raise additional capital, we can do so without doing an equity raise and without doing anything that would harm our shareholders. All right, so I just want to put that to rest because that seems to be a major concern at virtually every development stage company at the current time. All right, having said that, let’s talk about some really positive things. And what I’m also going to say is the punchline to all this is I’m going to talk about Pharmaloz.

And I’m going to talk about that’s our largest manufacturing facility. I’m going to talk about Nebula Genomics, both of these subsidiaries are growing dramatically in value as we speak. And I believe that sometime early next year, it is possible that we could create liquidity effects for some of these subsidiaries. And there’s a number of different possibilities for what we could do. But it would represent values that collectively, I believe, would be significantly greater than the entire market cap of the company. So I only mentioned this now because my point is, why would we raise capital for ProPhase Labs the public company and dilute shareholders when we have underlying assets that are so valuable, that we potentially could raise capital for without diluting our shareholders.

And because I am shareholder friendly, this is the way I say. My background is on Wall Street. So rest assured, I believe, if you’re worried about the stock price, I believe that the future is very bright from a capital markets point of view. Let’s get into the businesses a little bit and then I’ll go to the Q&A. Happy to start, Pharmaloz, we did a press release not that long ago. I reviewed everything. I don’t want to go too much into it today. Read our last press release on Pharmaloz and, of course, our press release today. The bottom line is we’re in a sweet spot in an industry where we’ve owned a state-of-the-art manufacturing facility for 30 years. And it just so happens we’re at a point in time where capacity around the country and around, I believe globally has diminished significantly.