Scientific Industries Transition Period Earnings Call Transcript

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Provided by Quartr
April 18, 2023

There are 8 speakers on the call.

Operator

Good morning, and welcome to the Scientific Industries Financial Results for the 6 Month Transition Period Ended December 31, 2022 conference call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. To withdraw your question, please press star then 2. Please note this event is being recorded.

Operator

I would now like to turn the conference over to Joe Dorme, Managing Partners at Witham Partners. Please go ahead.

Speaker 1

Thanks, Andrew. Good morning and thanks for joining us today to review financial results of Scientific Industries for the 6 month transition period ended December 31, 2022. With us today on the call are Helena Santos, Chief Executive Officer Daniel Brunes, 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 transition period 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 whether as a result of new information, future events or otherwise. Now I'd like to turn the call over to Helena Santos, CEO of Scientific Industries.

Speaker 1

Helena?

Speaker 2

Thank you, Joe. Hello, and welcome to the fiscal calendar and fiscal year end in our 69 year history. Today, we are going to discuss the results and progress in the 6 month transition period that ended December 31, 2022. The relatively flat to slightly down sales comparison for the comparable 6 month period of 5,200,000 versus the $5,700,000 last year is masking the huge changes that are taking place below the surface of the reported financials. So when we began the process of remaking Scientific Industries, we decided we needed to find a common theme for our 2 businesses with the greatest growth prospects.

Speaker 2

Those two themes are automation and the digital transformation and simplification of complex manual tasks normally performed by highly trained and expensive PhD level workers. We believe by transforming manual and analog tasks, We're also positioning our company and our customers to benefit from the coming productivity improvements, transforming our economy through the application of machine learning and artificial intelligence. I can tell you one thing is absolutely certain. Systems like Chat GPT are currently performing tasks at a high school level. Perhaps as soon as next year, they will even be performing tasks at a college level.

Speaker 2

And soon, they will be performing tasks at a PhD level. As this is happening, we are positioning your company to provide the essential transformation from analog to a digital interface, so our customers and their customers can benefit from this unstoppable, necessary and profound change that artificial intelligence is bringing to our economy. So let's first discuss Torbao. After 100 years in pharmacy scales, we have created the digitally simplified pharmacy. The Vivid family of automated tail counters is a practical tool that operates as an enterprise solution for running the business and operations of the pharmacy from inventory management and control to drug interactions and generic substitutions.

Speaker 2

The Vivid is rapidly becoming a must have for every pharmacy. You have probably noticed that your local pharmacy is operating on shorter hours. This is because of the high burnout and resulting shortage of pharmacists and high turnover of pharmacy technicians. COVID and the new demands on pharmacists from pending federal track and trace regulations means the status quo of manual pill counting is over. Where in the past pharmacy owners had many excuses why they didn't want to invest and change from manual accounting, Now we are finding accelerating adoption as evidenced by the last week sale of 12 Vivid Lungs and 11 Vivid Lights to a chain of addiction recovery centers representing our largest single order to date.

Speaker 2

The 3rd and final model, our Vivid workstation will be launched this year. We are currently selling through our partner RX Systems and their 48 member sales force to the 40,000 independent pharmacies in the USA. Once the workstation product is ready in the few months ahead of us, we will begin soliciting the major chain stores that represent an additional 48,000 locations. When we entered these key accounts, TorVel will have the most complete line of automated tail counters with offerings at the $16,000 $5,500 $3,500 price point. No matter what price point and feature set require, we will be the only total solution provider.

Speaker 2

We will also have the only cloud based network, and that means every new drug approval results in instantaneous updates versus our only other digital competitor, Icon, which can only make quarterly updates. We are positioned to win and dominate this new exciting market. And now I'm going to turn over the call to Daniel Grunas to discuss the important We have been making in Scientific Bioprocessing. Daniel?

Speaker 3

Thank you, Helena, and Good morning, everyone. It's afternoon with me already. The second half of calendar twenty twenty two marked a very important milestone for our bio processing operations as it saw the first product being launched as a joint organization. Amid the post merger project and a challenging market environment, we finally released the first version of DOTS, our platform to digitally simplify bioprocessing and a key enabler for our future product roadmap and to capturing the massive market opportunities ahead of us. As a linchpin to our portfolio, DOTS allowed us to migrate all of our legacy products to a single platform to launch a new line of fiber optic pH and the O sensor systems for flow loop applications and bioreactors and to unlock closed loop control in Sheikh Flask as an essential first step towards bringing down the enormous upstream bioprocessing development costs while increasing experimental throughput.

Speaker 3

Furthermore, DART represents a step change for our R and D and product development as it centers around a software tool chain for automated testing, documentation, continuous integration and deployment. Thereby, It streamlines our development processes, reduces development times and costs and helps us automate testing whereby we will be able to compress our development cycles towards new software releases every 8 to 12 weeks. In close collaboration with the more than 120 customers that transitioned to the platform since calendar Q4 in last year yet, we have already been able to deliver 3 version updates with improved feature sets and to leverage the relationships we have with our partners. The feedback that we received from the market in this regard is very impressive and I'm happy to report that our recent releases have further attracted larger industry customers and more interest from the production manufacturing space. As a highlight, I'm glad to share that we have just closed the biggest customer deal in the company history to date, a roughly 200 ks USD order to monitor the production in a CMO, so contract manufacturing organization that belongs to the Thermo Fisher Group, which and I take that as a positive sign, happens to be located in the same building as the headquarter of our main competitor, Precinct.

Speaker 3

At the same time, we have continued to restructure we have continued the restructuring of our organization and business approaches. We have expanded our research and development efforts with successful proof of concept and new patent filing for completely innovative way of optical chemosensing in shake flasks and other agitated vessels. These developments paved the way for our next generation of miniaturized multi parameter sensors and chemo sensor solutions, which are currently anticipated to hit the market in late 2023, so towards the end of this year. A complete family of sensors around the groundbreaking technology will not only enable a new and innovative experiment as a service business model, which will increase the lifetime value of customers like Thermo, but which will ultimately enable the democratization of synthetic biology through a tenfold experimental throughput at 10% of the cost. We have more than doubled our production capacities to ensure market leading dispatching times of less than a week and are prepared to keep these with the stock at hand for at least another year, which will give us a competitive edge over other industry players.

Speaker 3

We have further developed our marketing department with a comprehensive marketing strategy and state of the art tools to spread our message and in parallel have reorganized our sales team and approach to have them focus on revenue generating activities, shorten lead times, increased conversion and technology adoption to unlock new sales channels. As we all know, such significant post merger, particularly post merger adjustments take time to deliver the desired outcome, but I'm already happy to see first results that make me look very positively to the future. We now have a dedicated management in place and instead of a single global distributor have now entered or about to enter contracts with more than 20 dedicated partners locally. So locally meaning in the respective countries where we don't have a direct sales force, which enables a much tighter engagement with our partners. We have focused our marketing efforts away from scientific publications that we previously focused on and towards content creation around success stories and user interviews.

Speaker 3

Companies like Klarion or Bonn Pet Foods represent early examples of that new strategy and actual users talking about our tech, the newly gained actionable insights and the return on investment they were able to capture with our products. With our new go to market strategy. We were able to cut our time to action significantly ever since last year and are now able to reach out to customers at an average of 30 to 60 minutes following every customer request. Lastly, since last year, We have managed a doubling of the value of our marketing and sales pipeline with twice as many MQLs, twice as many SQS and twice as many opportunities and prior to more than 30 events and trade shows that we are still to participate at. As such, and that concludes my portion, I'm more than convinced that we can achieve our ambitious target to double our sales in 2023.

Speaker 3

Thank you. And with that, I hand you back over to Elena.

Speaker 2

Thank you, Daniel. So at this point, I'd like to thank everyone for their support, their encouragement, and we look forward to an exciting year. And if there are any questions of any 1 of us, we would be happy to answer them.

Operator

Thank you. We will now begin the question and answer session. And you'd like to withdraw your question, please press star then to assemble our roster. The first question comes from Paul Knight with KeyBanc. Please go ahead.

Speaker 4

Hi, Elena. Is the 10 Q out yet on Scientific Industries?

Speaker 2

Good morning, Paul. How are you today?

Speaker 5

Good. Good.

Speaker 2

So you know that we changed to a calendar year end and our first Q of this new calendar year ending twelvethirty onetwenty 23 for the period that ended in March will be is to be filed by May 15.

Speaker 4

Okay. And so all your color really is at this juncture is that revenue was down year over year?

Speaker 3

Correct.

Speaker 4

In 4Q or the year? I didn't quite catch that, sorry.

Speaker 2

So we reported on the 6 months period and compared to the same 6 month period Last year, that was our transition period.

Speaker 4

Okay, got it.

Speaker 5

And then Paul, one update is that both of our growth segments, the Torbao business and Aqila Bio Labs product sales were up 20%. So the sort of the retrenchment of the bench top laboratory that the Vortex Genie sales were down because of the sort of the COVID, the fall in spending and COVID related Spending that you've been noting in your research, it's affected us like it affected everybody else. And so we continue to have these green shoots, but the base business stopped benefiting from the COVID prices.

Speaker 4

Okay, got it. And then

Speaker 2

Paul, if I may. We also had a little bit of an issue with some supply chain disruptions and which will be reflected in the next quarter. So while the Vortex Genie sales was down somewhat, we do see a leveling off and that leveling off of the vortex you need sales is to a level that was above what it was pre COVID. So we're encouraged about that.

Speaker 4

Okay. And then Helena on the workstation product, that how much does that increase your addressable size by I mean what was the addressable market size before? What will it be after whether it's dollars or units? I didn't quite I think you were talking to that, but to talk to that? Thanks.

Speaker 4

And when is workstation done, do you think?

Speaker 2

I don't have those numbers in front of you, so I would have to have a separate call if you don't mind,

Speaker 3

because I don't

Speaker 2

want to give you wrong numbers.

Speaker 3

Okay.

Speaker 2

Feel free to call me during the week.

Speaker 4

And then workstation is going to be out when do you think?

Speaker 2

So, we have a working prototype and we anticipate to have within the next couple of months That's completed. We still have a few things to do in the mechanical particularly in the mechanical engineering area. And then obviously, we will have some beta units and we should be able to launch by the fall and start taking orders by the sometime in the last quarter of the year, just because some of those parts particularly those that have to do with tooling have some lead times that we have to deal with, but definitely this year. And we are very encouraged by what we have seen, thus far.

Speaker 4

Is this the best environment you've ever seen for TorVal?

Speaker 2

Yes, it is.

Speaker 3

Okay.

Speaker 4

And then thanks. And then, Daniel, congrats on the quarter. Can you talk, are you where are you with microbial versus mammalian research products?

Speaker 3

Hi, Paul. Do you mean in terms of the market potential that we're looking at?

Speaker 4

Yes. And or product availability, is it are you where you want to be with mammalian now or are you still?

Speaker 3

So for us right now, I mean, we are coming historically from a focus only on mammalian and with DOTS and the products that we are having in the pipeline right now, we are certainly focused and tailored towards an entry into the mammalian space. Right now, our technologies are so far only used from or by specific customers that have a certain cell concentration that is high enough for our sensitivity that was tailored towards microbial to also capture the growth in mammalian cultures. And our new products and new tech will In that regard, unlock a segment, which, of course, is super, super interesting for us, which so far we are neglecting, a lot of additional potential to capture. And when I look at that market, I mean, of course, Microbial is a historic market that is historically strong. When you look towards industry and production, particularly in red biotechs or mostly pharma, then of course, mammalian is more important and more prominent.

Speaker 3

But for us, the beauty is particularly of this new platform that we are looking to cover the entire space going forward where Previously, we only focused on mammalian.

Speaker 4

Okay, got it. And then what would be the key products to look forward to this year, calendar year 2023?

Speaker 3

Okay. So from my perspective, it's definitely the multi parameter sensor That I briefly alluded to. So essentially, if you look at the legacy portfolio of Aquila Bio Labs, we had dedicated products for dedicated problems. So inch for shake fluff, for Viurecta, for specific parameters. And with DOTS, the entire ambition is to develop a sensor platform, which brings together reader technology, software for actionable and data insights and chemo sensor tech.

Speaker 3

So what basically the sensorics that you need for pH and oxygen measurements, but also for any kind of substrate and metabolite measurements such as glucose, lactate or whatnot. And towards the end of the year, So now we launched with the DOTS platform around the software, the first portion of that and we are currently working on the multi parameter sensor for Shakeflash and the chemo sensors with a completely new approach away from the spot technologies that will then bring all of that together and enable much more parameters in a much tighter environment dedicated towards ShakePlus in the beginning, but then being more ubiquitous. And if you look at that, it's a bit like Right now, we are delivering picks to the miners and in the future, it will be picks and shovels and everything they need in one software platform in one product platform and thereby being able to deliver a much broader USP.

Speaker 4

And you had mentioned Thermo as summer. How many customers have you had at, Daniel, is it over 100? Can you talk to a number you have?

Speaker 3

Yes. So right now, it's always a bit tricky to look at that number because A single customer, if you mentioned Thermo, for example, we could regard Thermo as a customer. But within Thermo, there's various organizations and various laboratories that could be also regarded as individual customers that with a dedicated budget that we can look at customers. But in terms of individual customers, we are in it would be my understanding and my assumption that right now in terms of individual customers, we have about 400 customers.

Speaker 4

And then the last question, I'm sorry for so many on the call, but No, I appreciate it. Do you think that our GLP-one customer is trying to work out how to do bacterial development as part of their development or is bacterial even happening with GLP-1s? I know it's synthesis, but I know there's been some work on parts of the production process being bacterial. Are you seeing any of that?

Speaker 3

Yes, definitely. I mean, if you look at one of the very recent examples that we're seeing in Germany over here, for example, is that we have engaged with BioNTech as part of their vaccine production and R and D particularly, which also for cost reasons they are doing in bacterial setups before they as part of their scale up and process development switched to other strains. So what we tend to see is that despite the fact that everyone is of course in terms of production looking at the micro the mammalian space, We are seeing a growing number of mammalian requests, and that actually is in line with What we're hearing from industry partners like Aptendorp, Vocuna or Shaker Manufacturers and Biorex manufacturers like Aplicon, ECA or Inforce, who tell us that they are more and more selling and receiving requests from the microbial space, in part because it's very cost efficient and less difficult to work with. So I would say as part of the general market growth in the industry, and I for one believe that we are just Seeing the beginnings of the market that's being formed towards the synthetic biology revolution, McKinsey recently valued that market $3,000,000,000,000 by 2,035.

Speaker 3

And I'm happy to share that report with you Paul. And I believe as part of the general industry growth and industry and market development, I think that many of those market segments and for sure those 2 are growing all by different growth rates within the

Speaker 4

Okay. Thank you very much.

Operator

You're welcome. The next question comes from Allen Klee with Maxim Group. Please go ahead.

Speaker 6

Thank you. My questions have really been answered, but maybe if you could talk a little about for the pill counter, Pill measurement, kind of explain a little bit more the go to market strategy of who you partner with and How that's going to expand and the sales the proposition to the pharmacies of What makes them want to buy a new machine? Thank you.

Speaker 3

I think that we've got

Speaker 5

a probably the world expert on that on the call, Karl Luboszewski, the President of our Topyle business. So Karl, would you mind answering that question?

Speaker 7

Yes, sure. So I think there were 2 parts of your question. So currently, we have an exclusive distribution agreement with Rx Systems. It's one of the largest distributors in the country. We're also partnering with a company called HealthMark in Canada to distribute pill counters there.

Speaker 7

And Pretty much all the sales go through ArcSystems at this point. Now in terms of What makes the PillCounter kind of unique in a pharmacy is, over the last really 24 months, we have introduced an interface to the pharmacy management system And we have that interface for pretty much all the major software providers. So The pill counter is really like an integrated part of the pharmacy workflow in the pharmacy. All the scripts are that are processed By the pharmacy for patients are automatically sent to the Vivid for prescription filling. So that's kind of how it fits in.

Speaker 7

And that's why it's becoming such an integral part of the entire operation there.

Speaker 6

Okay. Thank you. And also Last question, just on bioprocessing. You mentioned how you're Changing your marketing and I believe you said objective to double sales this year. What's going to be behind that?

Speaker 3

Yes. Happy to comment on that. So essentially, when we analyzed when I mean, after my following my promotion as CEO of the business, one of the things we did in the leadership team was analyze the current situation and where we could be more effective and efficient in our marketing and sales approaches. What we did was essentially on the one hand, reducing sales rep activities that have historically also engaged in early marketing portions and lead generation towards solely focusing the activities as of being handed over an SQA, which is a sales qualified lead. All the activities prior to that are now captured by marketing and we have created a role that we call business development representative that is enabling us to basically convert reach out from customers following the question customers and early leads and converting them to SQL within hours of that request, and thereby making that entire pipeline for sales much more efficient.

Speaker 3

Then we're participating on various events. As I said in my little script portion, we are to participate we are still to participate at more than 30 events and trade shows for further lead generation. But I believe that most of the potential lies within apart from pure lead generation lies within an improvement of the conversion rates. And if you look at the marketing portion of that, and that is certainly what I Look at after a restructuring of such an approach earlier than the sales return because it gives me much earlier information and insights as to whether our strategic adjustments work. We already see that compare that to second half of last year.

Speaker 3

We already see that our pipeline of marketing qualified leads, sales qualified leads and opportunities has doubled ever since the go to market approach. And because of the doubling of that pipeline. If we were to and I believe that we can be much better than that, but if we were to keep the same conversion rates from SQS towards customers within sales that we were able to show last year. So at that same efficiency and that same conversion, we would already add a doubling of MQS, SQS and opportunities look towards a doubling of sales by the end of this year and with additional activities like attendance of events like a new distribution approach where we engage with much more players than purely one and with a dedicated focus of sales reps on the job at hand in their value generating activities, I believe we have a lot of additional potential to capture.

Speaker 6

That's great. Thank you so much.

Speaker 3

You're welcome.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Helena Santos for any closing remarks.

Speaker 2

Thank you. At this time, I would just like to thank all of our valuable shareholders. I would like to thank Our employees, a great team. And also, I would like to say that This is going to be, I think, another year of transformation in the history of our company. It has never been a better time to be

Operator

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

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