Scientific Industries Q3 2023 Earnings Call Transcript

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November 15, 2023

There are 6 speakers on the call.

Operator

Good morning, and welcome to the Scientific Industries Third Quarter Fiscal Year 2023 Financial Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Joe Dorme, Managing Partner.

Operator

Please go ahead.

Speaker 1

Thank you. Good morning and thanks for joining us today to review Financial results of Scientific Industries for the Q3 of 2023 ended September 30, 2023. With us today on the call are Helena Santos, Chief Executive Officer Daniel Grunas, CEO of Scientific Bioprocessing 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.

Speaker 1

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 ks for the year ended December 31, 2022. 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 Industry 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.

Speaker 1

Helena?

Speaker 2

Thank you, Joe, and good morning to all. So today, I'd like to take this opportunity to speak to you from the heart about our company. In 1928, just one mile from our factory here in Long Island, Amelia Earhart delivered the opening dedication for the Islip Airport around the corner. In her remarks, She said, the most difficult thing is the decision to act. The rest is mere tenacity.

Speaker 2

In 2019, I received a mandate from our new Board of Directors at the time and our shareholders to invest and transform Scientific Industries From a private like company that had access cash and was paying a dividend into a fast growing public like High Margin Life Sciences Company. We knew, I knew the process of transforming a business whose revenues were largely from the popular but aging and mature products like the Vortex Genie 2 And the TorBell Pharmaceutical Scales would not be an easy or quick task. We did believe the view would be worth the climb and we could find the right patient investors That we could create exciting new business franchises and shareholder value. So where are we today? Today, we have 2 fast growing businesses that address large market opportunities and the promise of the High margin recurring revenues that our Genie Equipment business lacks.

Speaker 2

Anyone who's heard me before knows That I always say selling equipment is hard. The 2014 acquisition of Torbao Was the first step into diversifying away from our mature lab equipment industry. When we met the sellers back then, what Struck me was their vision for an automated pill counter. They showed me a crude prototype utilizing a tablet, But the concept of vision based pill counting was intriguing and a major reason for our acquisition. So now fast forward to 2023.

Speaker 2

And our TorBell division sales are 36% of the benchtop lab equipment sales, With Vivid automated pill counter sales representing more than half of that and more importantly a 75% increase year over year for the 9 months ended September 30, 2023. And what about the other business platform, Our Bioprocessing segment operating under our FBI division. In 2019, when I received that mandate, We did embark on a strategy to develop that business, spearheaded by John Moore, with our first capital raise in 2020, followed by the acquisition in April of 2021 of our German affiliate, AQUILA Bio Labs. We've spent the last 2 years building an organization that would deliver a product roadmap that would be ready to market at this time, and here we are. We are now ready to launch and market the first set of products that came out of that 2 year effort.

Speaker 2

Mr. Daniel Grunas, who is the leader of our bioprocessing Business will speak to you directly in detail about that right after May. Currently, we have embarked on a fundraising campaign to raise the necessary Capital to fund our next 2 years of growth and an ambitious business plan for the entire company, which we expect will result in the company returning to profitability and positive cash flow. We expect to add new shareholders and garner support from our existing shareholders, whose support we could not do without. We believe this financing will be another stepping stone to position ourselves for an eventual NASDAQ uplisting, but only at the point where our growing business Can't afford the extra expenses of an uplisting.

Speaker 2

As I said before, I'll let Mr. Grunus dive deeper into our bioprocessing business, but The big and relevant news for our TorBell business in the past quarter was a walkout from October 30th November 1 by over 2,000 pharmacists at CVS and Walgreens that they refer to as Farmageddon. The strikes are unusual in that the strikers aren't taking their employers for better pay. They're not asking their employers for better pay. They're asking them to hire more staff, There are signs a lot of pharmacists are unhappy with the state of the business In a non randomized survey in 2021, the American Pharmacists Association and National Alliance of State Pharmacy Associations reported that 74% of 4,482 pharmacy workers polled said that they did not have enough Time to safely perform non clinical work and 75% said there were not enough other staff Like techs and nurses to safely perform the clinical work.

Speaker 2

The pressure on pharmacists is about to get worse. On November 23 this year, an FDA mandate called Track and Trace is set to go into effect and this requires pharmacists to visually inspect and approve all of their technicians' pill counts and scan barcodes that enabled the easy recall of drugs and to electronically Store all prescriptions for 6 years. So the status quo of more work and longer hours from us is really untenable. Many retail pharmacies have begun curtailing their hours as I'm sure most of us have heard in the news And this is due to the shortage of pharmacists. TorBell is finding a neater market for our vivid automated pill counters.

Speaker 2

Pharmacy directors of chain stores are facing pressure to make life easier for their pharmacists. We're gaining traction in the 50% of pharmacies that traditionally counted pills by hand. Here I'm referring to independent pharmacies in the U. S. The estimated ROI of Avinvid automated tail counter is less than 2 months versus the labor cost of manual counting.

Speaker 2

We're also gaining market share from our competitor who offers mechanical counters and our one competitor in vision based counting. The Vivid is the only cloud enabled system on the market, which is a big advantage for data storage and adding new drugs to the system. And in today's world, data is vital. Vivid could be seen as the Netflix of pill counters versus our competition, which are more like the old blockbuster video. We are very optimistic about the future of Torbao.

Speaker 2

We feel that we have just scratched Service with over 1,000 devices sold in the 1st 2 years versus a market opportunity Of more than 88,000 units just in the retail pharmacy segment alone. And then there are other segments that we sell into, such as police departments, pill return processors, rehab sensors, Veterinary Clinics, Hospitals and Community Health Clinics TorBell is our 1st business to offer software subscriptions. We are seeing 90% plus of our retail pharmacy clients select the software license auto renew feature. And as we sell more VIVID, the number of potential subscriptions obviously will increase. We have the most complete Product line in the industry with prices ranging from $3,500 for our Vivid Light to 6,500 for our Vivid 1 and we continue to invest in new products.

Speaker 2

We will be introducing the Vivid workstation in the Q1 of Calendar year 2024, which will add a 13,000 to 15,000 price point pill counter and we will offer the fastest, most performant automated pill counter in the industry. Once the Vivid workstation is complete, We plan to aggressively market to the pharmacy chains that represent 65% of the number of locations in the market. We will be releasing a new version of our entry level product, the Vivid Light in 2024, which will be 3 times faster Then the current model that we have in the marketplace. And with that, I'm going to turn the call over to Daniel Grunos, So he can speak to us about our Scientific Bioprocessing business.

Speaker 3

Yes. Thank you, Helena, And good morning, everyone. Before diving into the bioprocessing performance, let me briefly acknowledge the broader global realities that we all are facing And that we as a business are navigating. The aftermath of COVID, the 1 in Ukraine and the conflict in Israel as well as high inflation rates lead to headwinds Many sectors and in key target segments within the pharmaceutical and chemical industry. However, where there are challenges, there are also opportunities, particularly for an innovative start up like us.

Speaker 3

More and more often, we hear of large companies that cannot afford their inventory anymore and that sell their expensive equipment Such as Sartorius' Amber Workstations and Batman Coater Bioelectro Systems to cut R and D operating expenditures and reinvest the money into more cost effective solutions. This is where we come into play. As an enabling technology provider, we at SBI help chemistry, Biopharma, food and other bioprocessing companies around the globe to do their job and stay innovative while reducing their time to market and decreasing the R and D spending. With our new dock sensing platform for digitally simplified bioprocessing, customers are now provided with a solution to perform bioprocess development at 10% the cost of existing solutions. And with that, I'd like to dive into our segment update.

Speaker 3

Throughout this last quarter of 2023, we have made important steps towards rolling out the first fully fledged DOTS platform. The first DOTS component, our DOTS software, has been equipped with remarkable new features that will be released this week. One highlight in this new release is that the software now informs users about specific events in their experiments and processes. We We have integrated a flexible decision logic, whereby we enable our customers to optimize their bioprocessing decision making, such as the selection of optimal harvesting times, the identification of promising feeding strategies or the early detection of contamination, So almost like a satnav system in your car. Our new and automated decision and notification tool chain ultimately In finding optimal process conditions, supports them in defining and monitoring critical process events and allows early detection and termination of failed experiments and So that cost can be saved and process times be reduced.

Speaker 3

Furthermore, we have worked on DOTS software version 2, which will be released together with our multi parameter read and sensor fit. Next to many other features, this next gen version saw us also start with the implementation And technical preparation for future subscription based licensing models enabling us to sell and monetize high value features individually. As regards the 2nd component of DOTS, the multi parameter arena, we have started the 1st production batch comprising 500 devices to be used in further internal and external pilot demo equipment for customers and for sales. This production keeps us on track towards shipping this completely new product category early next year. On the other hand, we have continued to implement and optimize firmware components around connectivity and data acquisition algorithms That gives us a technological and usability edge against established bioreactor competition.

Speaker 3

The multi parameter reader And from a development works were accompanied by optimizations in the handling of our new generation of shake flask holders Also, the 3rd and most revolutionary component of DOTS, our new chemo center pills, have made remarkable progress towards production within the Q3 of 2023. For the soft oxygen sensing pills, as the 1st generation of pills hitting the market in February 2024, we have established Scalable pill production processes from injection loading the plastic cores to coating techniques, packaging and sterilization. While getting our 1st generation chemo sensor pills ready for shipment, we also have received very positive feedback from the patent offices Regarding our field sensing related IP, as we made more progress than anticipated with our DO sensing pre development, It further allowed us to put more focus on to the development of next generation PIDS already in the upcoming quarters. Excitingly, all of these developments cumulated into a successful first round of pilot tests for our upcoming DAS platform. These tests were performed by 6 renowned academic institutions and large industrial customers in Germany.

Speaker 3

All pilot testers were amazed by the While additional pilot rounds will follow to fine tune the product handling and performance to customer needs, One of them, Germany's leading academic research group in bioprocessing technology, will now conduct a publication project on a technology together with us, indicating a quick technology adoption by the academic segment. As regards to the commercial side, we have continued our restructuring of the team. Have consolidated our efforts in marketing, sales and application under one single leadership of Jenspire, while reducing costs and increasing productivity. Furthermore, the commercial team received the fine tuning of our roles, responsibilities and processes So ultimately being ready for the commercialization of the new DAS platform with groundbreaking software readers and sensors. Following the restructuring, the commercial teams were focused on preparing for DOP's platform launch, including the newly introduced multi parameter readout and sensing curve.

Speaker 3

After developing the overall product strategy with voice of customer activities around pricing, messaging and also the launch of our software subscription offering, The team prepared all marketing materials, messages and contents for flyers, web pages and presentations required for sales to take action. All these activities culminated into an orchestrated launch road trip in the USA in October, including a co hosted symposium with Kooner, One of the leading shaking manufacturers in the world, a presentation at MIT and a keynote at Raft, the leading conference on recent advances We launched DOTS on October 25. The launch is showing promising initial traction with over 30 new leads within just 2 weeks of the launch A 2 fold increase in web page traffic around our launch events. With R and D, marketing and applications teams heading towards the release of our new platform, Sales focused on the legacy portfolio. Despite overall softer markets, we saw our best sales quarter in 2023 so far, including also our best sales month in July with almost $250,000 in just 1 month.

Speaker 3

And as such, SBI was able contribute more than $1,000,000 year to date revenue to the SI business, thereby not only closing the royalty gap arising from Sub license patent expiration, but also growing net product sales by more than 42% compared to 2022. Next to the growing revenues, We were also able to further increase our total sales pipeline for our legacy technologies to about $3,000,000 indicating the potential of our technology and anticipation and anticipating an even broader market uptake of our newly launched DOTS platform. Accordingly, we are convinced that we are in a very strong position for the remainder of this and the beginning of next year. Before I hand back to Elina, I just want to make a statement after years of planning, development and preparing, the launch of the DOTS platform represents a key milestone For our bioprocessing business here at SBI. It is both proof of the hard work of the last 2 months and also the end of the chapter of our The end of the first chapter of our SBI story.

Speaker 3

Now what we will do is we'll turn the page and begin the next chapter, which will see us commercialize the DOTS platform and transition from vision to reality. And with that, I'd like to hand back to Elina.

Speaker 2

Thank you, Daniel. And Joe Dorme?

Speaker 1

Yes. Anthony, could you please provide instructions on how to queue up

Operator

First question will come from Paul Knight with KeyBanc. You may now go

Speaker 4

ahead. Hi, Helena. On the quarter, could you mention again the percent of Sales from in the bench top category that were Torvall?

Speaker 2

So on the year to date, it was 36% and between I didn't calculate the quarter, but it's at about the same The 30% to 35%, which is growing from what it used to be because when we first started, it was Anywhere between 15 to 20, so that the and the rate of growth is also increasing as well.

Speaker 4

And the obviously, it's the stirrers and shakers market seems to be like All of the peers, it must be pretty tough right now.

Speaker 2

So what we've seen, yes, no different than from other Companies that you're reporting on, which is the any product that did well during COVID that was a COVID Related type of product is obviously down, okay, to some pre COVID level. And so that's what happened to the Vortex Genie 2. So that decreased to pre COVID level. While some of the other Genie brand products that didn't do well during The COVID pandemic, those came back up so that you had a sort of a reshuffling of the Genie division sales whereby in total, yes, it's down single digits, Same as our peers, same as distributors. So what's happened is that you have the Torvald division sales Growing to a point where it's been able to Account for the decrease in the Genie division.

Speaker 4

And then Vivid Workstation is what, Helena?

Speaker 2

You mean as the what is it as a product? Yes, yes. Okay. So let me just step back a little bit. So currently we have 2 products in that Vivint product line, Okay.

Speaker 2

We came out first with the Vivid, which we then rebranded to call it Vivid 1, Because when we first started, we didn't even envision that we would have a full line of Vivint products. It was only after we introduced the Vivid and we got the feedback from customers and that we So that there was a market for different products within that line for different applications. The Vivid was then rebranded to Vivid 1. Thereafter, we came out with the Vivid Light, and that was early this year. And that was to service a market that did not have their requirements For the Vivid 1 and even more so didn't have the funds to afford a Vivid 1, but they'd still like to use An automated pill counter.

Speaker 2

So we came out with that. And working with our sales reps We and working with the customers, we found that there was an opportunity for this workstation, which you asked about. And what the workstation does is, it's both a workstation for the pharmacist. They do all their work and that will service their pill counter because currently the way it works is you have your pill counter Whether it's an automated one like the Vivid 1 or whether it's a mechanical one or some other one, and you will have your Pharmacy management system on a computer and a monitor. And if anyone's been in the pharmacy and looked in the back there, You'd be surprised how expensive or how that real estate is because They simply don't have the space.

Speaker 2

In addition to that, so it's not only about the saving of the bench top But it's about pill counter that can do even more than what the existing VIVVENT 1 Can do such as counts, pill fragments and translucent pills and just being a much more robust pill counter, Which will also I talked about this track and trace requirement That's being put into play within a week or 2, but then there's another one coming down the pike. And Right now, our workstation is the only Telkonetor Dell will be able to comply with that additional track and trace Requirements.

Speaker 4

Is software now part of the sale when you sell Avivid?

Speaker 2

So yes, so when you buy a visit, you're getting not only the pill counter, so the piece of equipment, But you're also getting the license for the software For a year, which allows you to go on the web and save all your accounts and do all kinds of Transactions that will be saved for you and that will also allow you to look into a very valuable database of drugs that you wouldn't be able to do so if you didn't have access to that. And then after a year, you start getting A pop up on your pill count that it's time to sign up for a subscription and you have 3 to Pick from 3 levels and it keeps telling you if you don't do this by X date, then you will no longer be able to access the your cloud account.

Speaker 4

Great. Okay. And then moving to bioprocessing, Daniel, the dots is what now out Ready to go. And is it really for bacterial? It's not it's my it's that bacterial And it's on for cell growth, right?

Speaker 3

Yes. Hi, Paul. Nice to talk to you again. So we have launched the FullDots platform in its first version, including the The gensenting pills, the multi parameter reader, the feeding system and adult software, 2 weeks ago, marketing launched it and first dispatching will Early next year, but we're already collecting leads and that's what I commented on where we're seeing Way above average initial interest in that new technology, particularly from high value accounts. And that's obviously super promising.

Speaker 3

As regards your question Around usage and applicability for different types of organisms. So obviously, for the entire microbial space for Material and yeast sales, no problem at all. We work for that. And we have First data with industrial accounts and currently working on applications to prove that the tech also Might work for the mammalian segment, so the cell culture segment already. Obviously, the dissolved oxygen as a parameter is less important for cell culture than it is for microbial cells.

Speaker 3

But the more parameters that we'll add, the more relevant will make an impact also in the Fare Culture segment.

Speaker 4

Is the what is the average selling price what is it now with this new system versus prior?

Speaker 3

Okay. So on average, a system in the past sold for roughly 15 ks to 20 ks And the pricing for the new system hasn't been released just yet, But it will roughly double in CapEx and then add recurring components via the PIS, But via the feeding system and the software that we're going to sell as subscription as well, so that you will also participate in the long term value via the OpEx spending on the customers' part.

Speaker 4

Okay. And then lastly, Helena, Your targeted burn rate quarterly is what going forward?

Speaker 2

So, We have various models, but going forward, we are looking to do closer to 250, anywhere between 200 to 250 with Anywhere between 200 to 250 with a restructured business plan all across the business segments.

Speaker 4

Okay. Thank you.

Operator

It appears there are no further questions. This concludes our question and answer session. I would like to turn the conference back over to John Moore for any closing remarks.

Speaker 5

Great. Well, thank you so much. This quarter With the launch of the Vivid workstation and the launch of the DOTS 2.0 multi parameter sensor Represent a real inflection point for the company where with the completion of the $5,000,000 raise, we believe that we're going to be able to Achieve profitability, cash flow positive results within 24 months. So we've changed the trajectory of Scientific Bioprocessing and Scientific Industries And Torbao and the company is on new footing and we're really excited about the future We're very grateful for our shareholders' support. We've changed our products from products that are nice to have

Operator

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

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Key Takeaways

  • The company has pivoted from its legacy lab equipment to two high‐margin, fast‐growing segments: the Torbell automated pill counter business and the new DOTS bioprocessing platform.
  • Torbell sales now account for 36% of benchtop lab equipment revenue, with Vivid automated pill counter shipments up 75% year-over-year in the first nine months and an estimated ROI of under two months; a new Vivid workstation is planned for Q1 2024.
  • The DOTS platform launched on October 25 includes software, a multi-parameter reader and sensor pills, aims to cut R&D costs to 10% of existing solutions, and has already generated a $3 million sales pipeline and $1 million YTD revenue (up 42% YOY).
  • The company is conducting a $5 million fundraising campaign to support two years of growth, return to profitability and positive cash flow, and position itself for a future Nasdaq uplisting.
  • Post‐restructuring, management is targeting a quarterly cash burn of $200,000–$250,000 as it scales both business platforms.
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Earnings Conference Call
Scientific Industries Q3 2023
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