Precipio Q3 2024 Earnings Report

Precipio EPS Results

• Actual EPS: -$0.42
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Precipio Revenue Results

• Actual Revenue: $5.21 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Precipio Announcement Details

• Quarter: Q3 2024
• Date: 11/6/2024
• Time: After Market Closes
• Conference Call Date: Wednesday, November 6, 2024
• Conference Call Time: 2:00AM ET

Precipio (NASDAQ:PRPO) is a clinical-stage diagnostics and medical technology company focused on advancing the detection and management of hematologic diseases. The firm develops precision diagnostic solutions that integrate digital morphology, immunophenotyping, and molecular testing to improve the diagnosis of leukemia and related blood disorders. Precipio’s approach is designed to enhance the accuracy and speed of laboratory workflows, helping physicians tailor treatment strategies more effectively.

The company’s core offerings include an automated digital imaging and analysis platform that captures and classifies blood and bone marrow cell images at high throughput. This platform is complemented by a suite of proprietary reagents and staining kits specifically engineered for hematopathology applications. In addition, Precipio provides specialized molecular assays—including cytogenetics, flow cytometry panels and next-generation sequencing tests—that enable comprehensive profiling of genetic and phenotypic markers in patient samples.

Precipio operates through two primary divisions: a laboratory services arm that performs diagnostic testing on patient specimens using its proprietary technologies, and a product division that markets instruments, reagents and software to hospitals, commercial laboratories and academic research centers. Headquartered in Pittsburgh, Pennsylvania, the company has established strategic partnerships and distribution channels within the United States and is exploring opportunities to expand its presence in select international markets.

Under the leadership of President and CEO Michael Q. McNamara, Precipio has pursued both in-house development and collaborative agreements with academic institutions and industry players to accelerate its product pipeline. Since its founding, the company has remained committed to leveraging innovations in digital pathology and molecular diagnostics, positioning itself as a contributor to the evolving precision medicine paradigm in hematologic oncology.

Precipio Q3 2024 Earnings Call Transcript

Key Takeaways

• The Pathology division achieved breakeven for the second consecutive quarter with revenues of $4.5 M (up 18% QoQ) and is on track to reach a $20 M run rate.
• The Products division posted a 13% QoQ revenue increase to $680 K, with three key customers onboarding expected to drive significant future growth toward breakeven.
• Cash burn was cut by 75% year-over-year to $226 K in Q3, and management expects no need for capital raises as they approach breakeven.
• The company remains on track to achieve breakeven in 2024, aiming to avoid dilution and transition into a profitable, cash-flow positive phase.
• Management plans to enhance investor visibility through earnings guidance, conference participation, and analyst coverage to boost trading volume and share price alignment with revenue multiples.

Presentation

[Operator]

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.

[Operator]

Risks and uncertainties that could cause our actual results to differ materially from those 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 30th, 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, sir.

[Ilan Danieli, CEO at Precipio]

Thank you and good afternoon. Thank you all for joining our 2024 Q3 shareholder update call. Thanks to all those who submitted questions. As always, we'll do our best to address them during this call. Before we jump into the numbers, I'd like to take a moment to remind everyone of the business we're in and the impact we have. We recently crossed the 10,000 case mark for the year, compared to close to 8,000 in 2023. For us, those aren't just numbers that translate into revenue and share price. These are real people, parents and grandparents, siblings and children who have to deal with the awful battle against cancer. I'm really proud of the impact we have on those patients and their families' lives, and as we execute on our mission to battle misdiagnosis.

[Ilan Danieli, CEO at Precipio]

I can assure you that many of those 10,000 people are better off because they were diagnosed by our company. Now, let's jump into the business performance. At the end of last year, we declared our goal of reaching break-even in 2024. Beyond bringing the business to this important successful operational milestone of a company that starts making money, the objective reflects our commitment to avoid raising diluted structured capital and to bring the company to a new era where we are able to deliver appreciation and shareholder value. I'm pleased to report that our Q3 results demonstrate that we are well on track to achieve our goal this year. Let's review each of the divisions' performances in a bit more detail, starting with the pathology division.

[Ilan Danieli, CEO at Precipio]

For the second consecutive quarter, our pathology revenues exceeded the division break-even point, and that $4.5 million per quarter represents a robust 18% increase from the previous quarter of Q2. We're going to continue to grow this division organically with our existing sales team, and our goal is to reach approximately $20 million run rate for this division and remain above that. This creates a division that does two key things for our company. First, the division will generate positive cash flow. Second, it provides a self-sustained, cost-free R&D platform that enables us to support our product customers and build our next generation of products, which is the future growth engine of the company. Our current sales team of five members enabled us to deliver this revenue. We may be hiring one more salesperson to provide additional revenue stability, so we remain well above that break-even point.

[Ilan Danieli, CEO at Precipio]

I'm really proud of the team, both our commercial team and our lab operations, for their contributions to reaching this point. I know of no other lab that can reach break-even at these revenue levels. Indeed, if you look at some of the other competitors in the lab services market, even at revenues tenfold ours, they're still struggling to generate cash. This is a testament to our efficiency of operations, the quality of our service, and our business structure that enables us to achieve this financial milestone. I'm also confident that with the current team, the division will remain in this position, ensuring that the Pathology Services will continue to serve as a positive operational and financial contributor to our broader strategy. Moving along to the Products Division. Although this division has not yet hit break-even, we are making steady progress and moving closer.

[Ilan Danieli, CEO at Precipio]

Q3 revenues increased by 13% over Q2, reaching $680,000. As we discussed, we're building a robust customer pipeline, among which we have three key customers who are in various onboarding stages. We anticipate that in this current quarter, as well as in the next quarter, we're going to see the full weight of those three customers as they onboard our products, and that's going to have a significant impact on the division's performance. Going forward, this division is going to become the main engine of growth for our business, and as one, let me recap and remind you of the three reasons for that. Number one, recurring revenue. The products generate consistent, reliable income streams, unlike the variability of the pathology division. Number two, customer retention.

[Ilan Danieli, CEO at Precipio]

Product customers are committed to this technology, which means there is less likelihood of customer turnover, which in turn contributes to stable and predictable revenue generated. The last point is margins. The margins for our products are significantly higher than those generated by the Pathology Services Division. Developing products require R&D investment, which in our case, thanks to our Pathology Division, is relatively minimal. Selling them requires less overhead, simpler operational complexity, and a small sales force and less management attention. This results in a far higher contribution to the bottom line from the Products Division. The product commercial team consists of three members, and for the foreseeable future, we intend to keep this small team as is. The strategy is to leverage our distribution channel and ultimately reach their full potential.

[Ilan Danieli, CEO at Precipio]

To this date, the majority of our revenues is from direct sales, but going forward, we expect to see a gradual shift increasing the share of revenue that's generated via our distributors. Although our distributors receive 20% of the margin, we in turn gain access to hundreds of sales reps that are not on our payroll and have access to essentially every customer in the country, but with that access, supported by the brand and reach of these distributors, we're able to get in front of many more customers than we would have likely achieved had we gone the direct sales route. Moving to our cash position. In terms of our cash position, as you saw in our filings, our changing cash balance from the end of Q2 to the end of Q3 was $226,000 in cash burn.

[Ilan Danieli, CEO at Precipio]

This is compared to approximately $1 million of cash burn during the same period in 2023, a reduction of 75% in our cash burn. I don't think there is a better metric to show you the impact of our company growth and improved performance than our cash position, as we are rapidly approaching break-even. With our current quarterly performance and our cash balance, at this point, management sees no need for capital raises. With our current market cap, we remain committed to building cash reserves through our organic growth and customer sales, avoiding shareholder dilution. This is a very exciting time for us. Our team is working tirelessly to achieve the goal of financial independence, and it's exciting to see it within reach.

[Ilan Danieli, CEO at Precipio]

Turning the corner from survival mode to build mode is going to be a very refreshing change for us, and we're ready to embrace this new chapter, building on the strong foundations we've established. Some of the questions we received revolved around how to translate the company's business performance into future shareholder value. In our analysis, up until now, two main things have held us back, and I'd like to address both. Number one is the risk of continued capital raises, and the second is the lack of education of our company's vision and market opportunity within the investor community. I think we've reached a turning point in addressing the first concern. With our business performance, progress toward break-even, and cash reserves, we are now in a position where capital raises to cover cash burn, as we've done in the past, are no longer necessary.

[Ilan Danieli, CEO at Precipio]

This marks a significant step forward, and we can confidently say that this challenge is behind us. As for the lack of education about our company, this is going to change next year. Once the company has achieved several consecutive strong performance quarters, we will then be able to point back to both solid past performance as well as provide investors with insight into what they can expect. This will be done through management guidance on certain parameters, such as revenues and EBITDA performance going forward. Our plan also includes participating in investor conferences, building analyst coverage, and other investor-related activities that will help provide more visibility to the company.

[Ilan Danieli, CEO at Precipio]

That, alongside solid and consistent growth and performance, meeting and exceeding our guidance, should hopefully provide a substantial boost to our visibility, increasing trading volume, and ultimately impact our share price, adjusting the market cap to revenue multiples higher than the current level. In summary, it's really exciting to see the company approach these milestones. We have been through a lot, and as Winston Churchill said, "If you're going through hell, keep going," and we did. I think we're going to end the year strong and go into next year even stronger. With the holidays approaching, I want to wish everyone a joyous holiday season with family and friends and a Happy New Year to everyone. I'd like to thank you all for your support, and I look forward to connecting with you in our next call in 2025. Happy holidays and have a nice evening. Thank you.

[Operator]

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

Participants

Executives

• Ilan Danieli, CEO