Trinity Biotech Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 4, 2024

There are 6 speakers on the call.

Operator

Greetings. Welcome to Trinity Biotech's 4th Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

At this time, I'll now turn the conference over to Eric Ribner with Investor Relations. Eric, you may now begin.

Speaker 1

Good morning, everyone, and thank you for joining us on today's call. Before we begin, please note that statements made during this presentation may be deemed forward looking statements within the meaning of federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual events to differ from those expressed or implied in such statements. These risks include, but are not limited to, those set forth in the risk factor statement in the company's annual report on Form 20 F filed with the Securities and Exchange Commission. Trinity Biotech undertakes no obligation to publicly advise, update or revise these forward looking statements to reflect events or circumstances after today or the occurrence of unanticipated events.

Speaker 1

And with that, I'll turn the call over to John Gillard, CEO.

Speaker 2

Thank you, Eric. Good morning, everyone, and thank you for joining today's call. We really do appreciate you taking the time. This morning, I would take you through some key business updates, including new financial guidance, our progress in our recently acquired biosensor business and our comprehensive transformation plan that I set out to investors in early March at the Emerging Growth Conference. I will then hand you over to Dave to bring you through the financial results for Q4 fiscal year 2023.

Speaker 2

Right now, Trinity Biotech is an experienced diagnostic company that under new leadership and with fresh thinking plans to transform its existing business into a high performing cash generative enterprise. This morning, we are pleased to introduce financial guidance, which is predicated solely on growth from the existing businesses, including hemoglobin and HIV testing and planned improvements to operating margins. This does not include any contribution from the newly acquired biosensor platform technology. We are targeting approximately $20,000,000 of annualized run rate EBITDA. So so earnings before interest, tax, depreciation, amortization, impairment and share based compensation costs by Q2 2025.

Speaker 2

This is based upon targeted annualized run rate revenues of approximately $75,000,000 by Q2 2025. We believe that this guidance is achievable based on our comprehensive transformation plan for the business, which we will review in more detail today. Additionally, 2024 is already off to a strong start, which increases our conviction in our outlook. In addition to strengthening the base business, we aim to scale the company by building a global business in Werriba Biosensors, initially with a focus on continuous glucose monitors or CGMs. We believe that this product can be a real game changer for the company.

Speaker 2

This represents the key growth driver for Trinity Biotech into the medium term. As many of you will know, just over 2 months ago, we announced the acquisition of the biosensor technology of Waveform Technologies. Waveform had an established and proven biosensor technology with a European regulatory approved CGM product. In addition to acquiring this technology and product rights, we have hired a number of key individuals who created this technology at Waveform. Using this established technology, we intend to update Waveform's existing product and launch a more affordable high quality CGM into a broad number of markets globally.

Speaker 2

Since the acquisition, we have been progressing this plan across a number of areas, including: 1, building out our biosensor team with a number of key appointments from established medical device and diabetes technology companies such as Philips, Johnson and Johnson and LifeScan. 2, we have reestablished CGM manufacturing capability. This greatly assists us in planning and executing sensor design improvements. This work is based on the existing CGM product design and is being carried out with the assistance of world class external technical and design consultants. 3, the team is also initiating enhanced data analysis on Waveform's large existing data bank of clinical trial results.

Speaker 2

And we are very excited by the potential outcomes of that analysis. In addition to this technical work, we are progressing discussions and agreements with potential commercial partners such as Bayer for the launch of our CGM products. Finally, we are establishing a scientific and user advisory group for CGM. This is to ensure that strong clinical outcomes and user needs remain at the forefront of our thinking. As you can see, there are a broad range of activities ongoing, and we will keep investors appraised of our progress on this business as we advance our plan forward.

Speaker 2

Now I would like to transition to discussing Trinity's comprehensive transformation plan for our existing business. This transformation plan is a key pillar of our new management team's fresh vision and strategy for the company. As I have said previously, this is a vision our near term transition plan in 2024 2025 we will drive a step change in our financial performance. By building on our existing revenue base and eliminating unnecessary overhead and complexity. My immediate priority is to dramatically improve the financial performance of the company's existing business.

Speaker 2

As such, we are totally focused on getting us to a position where Trinity's existing business is delivering substantial free cash flow. I believe this is critically important for 3 key reasons. Firstly, the obvious point, cash generated businesses are generally more valuable, which increases value for our shareholders. Secondly, better performing businesses strengthen our balance sheet. And thirdly, we believe that our new and future biosensor technology provides a tremendous opportunity for significant future growth and that a strong balance sheet would permit us to capitalize on this opportunity more rapidly.

Speaker 2

Looking at our transformation plans for the existing business, it has several key components that we believe are rapidly achievable, in most cases by mid-twenty 25. The 3 main components are: 1, reducing complexity and cost through consolidation 2, reducing cost of goods through negotiation and supplier changes and 3, further simplifying our internal operations through consolidation in lower cost locations. Let me expand on these. In the first of these, we are considerably reducing complexity and cost by consolidating our main manufacturing operations into a considerably smaller number of main sites and also moving to an outsourced model for a significant amount of our less complex manufacturing activities. As part of this initiative, we are today announcing that we will cease manufacturing at our Kansas site before the end of 2024.

Speaker 2

This site has traditionally supported our diabetes HbA1c testing and hemoglobin variant tests. We believe that we can create multimillion dollar annualized operational efficiencies by absorbing much of this activity into our other manufacturing footprint and outsourcing other aspects of operations. These additional efficiencies, coupled with the $4,000,000 annualized savings from other projects in our diabetes HbA1c business are a game changer in terms of this business' profitability and cash flow generation profile. This will create a recurring revenue business of significant value. This change is part of a broader strategic objective to centralize our most complex and valuable manufacturing activities so as to maximize quality and intellectual property protection, while outsourcing less complex manufacturing activities so as to drive efficiencies and reduce complexity.

Speaker 2

By using this strategy, we believe we can significantly reduce our costs while maintaining the high quality of our products and protecting our intellectual property. In the second element, we are also considerably reducing the cost of goods of many of our products by changing suppliers and negotiating new deals with existing suppliers. This is an area where we have already achieved 1,000,000 of dollars of annualized savings. And I believe there is even more we can do here over the coming quarters. In the 3rd element, we are further simplifying our internal operations and centralizing business support functions in lower cost locations.

Speaker 2

As such, today we are announcing a project to move a significant portion of our business support functions to a lower cost and centralized location. This should drive a significant reduction in our SG and A expenditure, plus and very importantly, provide us with a cost efficient and highly scalable platform that can efficiently and rapidly support our expansion to the growth of our wearable biosensor business. We are currently well advanced in working with our partners and our staff on these changes and we expect to have these changes complete by Q4 2024. While many of these initiatives are focused on cost optimization, they are within my realm of control. As a result, I have a high degree of confidence that these will deliver the financial benefits we have targeted.

Speaker 2

In my prior role as CFO, before I took over as CEO in late December last year, we began planning and executing on many of these initiatives. And as a result, we are already beginning to realize some of the financial benefits. As you can see from today's announcements, we have clear steps underway to deliver the remaining benefits to the base business between now and Q2 2025. When we are targeting approximately $20,000,000 of annualized run rate EBITDASA. This is on targeted annualized run rate revenues of approximately $75,000,000 We plan to give further details on these initiatives and their progress during our future earnings announcements and presentations.

Speaker 2

As I have said before, we recognize that in this we are taking some big bets, but we believe these are necessary to deliver the fundamental change in financial performance that will emerge from a more streamlined and nimble organization. We have mitigated execution risk in the following ways: a, putting in place a highly skilled and experienced team who have come from large and sophisticated organizations and have significant experience in driving and delivering these types of change projects B, careful selection of our transformation partners. We have selected highly capable and reputable outsourcing and supply chain partners who have a strong track record in our industry and C, developing a strong culture of change execution in the business. Our strong start in 2024 is a testament to the effectiveness of our efforts and the strong culture of execution we are building within Trinity. Let me share some examples.

Speaker 2

I am delighted and very proud of our team's performance in successfully scaling our rapid HIV testing manufacturing capacity in Q1 2024 to meet the additional output requirements for TrendScreen HIV's screening algorithm win in Kenya. Our ability to scale manufacturing output fourfold required some major changes in the business and the way it operates. This was critical for us in demonstrating our capability and commitment to be a strong and reliable partner to our Trin Screen HIV testing partners, just as we have been for many years to our Unigold HIV testing partners. We were also very pleased this week to receive a further purchase order for an additional 2,000,000 Trin Screen HIV tests for the Kenya market. We expect to supply this in Q2 2024.

Speaker 2

We received this order in spite of another legal challenge against the Kenyan government's HIV testing algorithm. This time from the manufacture of a competitor product. We will be monitoring this case against the Kenyan government for any impact on orders for Trin Screen HIV for Kenya. But at this stage, our focus is on delivering the quality tests that have been ordered by our customers to support the critically important HIV screening programs in Kenya. Outside of HIV, we have continued to execute on our key change initiatives in our existing diabetes HbA1c testing.

Speaker 2

We have now completed the development and testing of our new diabetes HbA1c column system on time. As said out in today's press release, the results of this development program have exceeded expectations with our new Collins system now delivering up to 4 times, excuse me, the number of injections compared to the existing product. As planned, we are now executing on the commercial launch of these new products. This new column system is more convenient for many of our users and reduces our cost of goods to service these customers. We expect to see the financial benefits from this rollout to accrue from quarter 2 this year.

Speaker 2

We have also now completely brought in house the manufacturing process of our key diabetes HbA1c consumer and cease ordering any further product from our external provider. Again, this project has been delivered on time and as planned. Finally, we were now using lower cost components in our hemoglobin instrument build. This is as a result of our supply chain optimization focus. These three initiatives are expected to deliver approximately $4,000,000 of annualized savings and significantly benefit the profitability and value of our hemoglobins business.

Speaker 2

So to sum up from me, our recent strategic acquisition gives us a foothold in a vast and rapidly expanding CGM market, into which we plan to introduce a highly competitive offering that we believe can successfully disrupt the market and capture significant value for our shareholders. We are pleased to be progressing on target with our initial plan for the business. Trinity Biotech, as I said, is an experienced diagnostic company that under new leadership and with fresh thinking can transform its existing business into a high performing cash generative enterprise. And we are very focused on executing on this plan. With that, I will hand you over to Des Fitzgerald, our CFO, who will bring you through the financial results for Q4 fiscal year 2023.

Speaker 2

Thank you for your time.

Speaker 3

Thank you, John. I will now speak to our financial results for the Q4 of 2023. And following that, I will briefly discuss our full year 2023 financial results. Revenues for the Q4 of 2023 were $13,400,000 compared to $15,700,000 for the same quarter in 20 22, a decline of $2,300,000 This movement was driven by firstly declines in our hemoglobins of $1,000,000 quarter on quarter as we deferred year end shipments of products at suboptimal pricing as we renegotiated contract terms, terms that are now agreed as of Q1 2024. Secondly, a decline of $600,000 quarter on quarter in our autoimmune business due to the already communicated ceasing of our transplant testing activity in our Buffalo lab business.

Speaker 3

And thirdly, lower period over period revenue from our COVID-nineteen VTM products leading to a decline of $200,000 in that product line. Additionally, in our point of care business, we experienced a decline of $500,000 driven by lower sales in our UNIGOLD test due to a regular artery patterns in that business. That decline was partially offset by revenue from our Trin Screen test of $400,000 This quarter was the Q1 we recorded revenue from our sales of our Trin Screen product Africa and we expect this test to be a key growth driver for us going forward. Our gross profit for the quarter was $4,600,000 representing a gross margin percentage of 34%, which was broadly in line with Q4 2022. Other operating income decreased from $300,000 in Q4 2022 to 0 in Q4 2023.

Speaker 3

Other operating income in Q4 2022 comprised government grants in relation to R and D activities and there is no equivalent Q4 of 2023. Research and development expenses were $1,100,000 for the quarter in line with Q4 2022. SG and A expenses were $6,900,000 in the quarter, dollars 2,800,000 lower than the $9,700,000 incurred in Q4 2022. Key drivers of this reduction were a lower share based payment expense of $2,300,000 when compared to the same period in Q4 2022, primarily due to the reversal of cumulative share based payments expenses for unvested options related to our former CEO's resignation in this quarter. Additionally, included with our SG and A spend this quarter was $1,800,000 of non product development, legal, audit and professional advisory fees.

Speaker 3

These fees were elevated in the quarter with the main driver being due to our acquisition of the CGM assets of Waveform in January 2024. Our expected level of non product development advisory, audits and consulting fees going forward is expected to be broadly a quarter of the Q4 2023 level. We recognized an impairment charge of $300,000 in Q4 2023, which compared to a charge of $3,000,000 in the same quarter last year. In the quarter, we recognized $300,000 impairments across our cash generating units, IMCO and Trinity Biotech of Brazil, as their value in use was below their carrying value. We are seeking to implement profit initiatives in both units.

Speaker 3

All of the above led to an operating loss of $3,800,000 in the quarter compared to $8,200,000 in Q4 2022, with the key drivers for the lower loss being lower impairment charges and lower SG and A expenses offset by lower revenue. Financial income representing movements in the derivative liability related to warrants granted to Perceptive Advisors or main lender for the period was $600,000 compared to $300,000 in Q4 2022. Financial expenses in the Q4 of 2023 were $2,300,000 compared to $2,400,000 in Q4 2022, with a slight decrease due to a lower principal amount over the quarter offset by higher prevailing interest rates. Loss before depreciation and amortization impairments, tax, interest and share option charges was $4,000,000 for the quarter. Basic loss per ADS was 0 point 7 $8 compared to $132.3 in Q4 2022.

Speaker 3

Our cash balance decreased from $6,300,000 in Q3 2023 to $3,700,000 in Q4 2023. Cash generated by operations was a positive $300,000 in the quarter inclusive of net movement in net working capital of $4,400,000 In January 2024, the company entered into an amended credit agreement our existing main lender, Perceptive Advisors. Under the amended term loan, an additional $22,000,000 of funding was made available to us with $12,500,000 being used to acquire the waveform assets. The remaining $9,500,000 is available for general corporate purposes, including for the further development of the CGM and biosensing technologies. In addition, the loan provides for additional liquidity of up to $6,500,000 that may be drawn down by us between April December 2024, which can be used for general corporate purposes, again providing further liquidity to fund the development of the CGM and biosensor technology.

Speaker 3

The term loan also the amended term loan also immediately reduced the annual rate of interest on the loan by 2.5 percent to 8.75% plus the greater of the term secured overnight financing rate or sulfur or 4% per annum and allows for a further 2.5% reduction in the base rate to 6.25 percent once the outstanding principal under the amended term loan falls below $35,000,000 Additionally, the term loan reduced the early repayment penalty from a range of 8% to 7%, down to 4% to 3.5% depending on timing of early repayments and also reduced the revenue covenant. The amended term loan matures in January 2026. Now I will move on to the full year 2023 results and give a brief overview of the financial performance of the year. Revenue for the full year is 56 $800,000 a decrease of approximately 9% on revenues in 2022. The key drivers of the decrease were firstly lower COVID revenues of $1,800,000 year on year as COVID testing programs scaled down.

Speaker 3

Secondly, lower autoimmune lab services revenues of $1,800,000 as we lost the key transplant testing service contracts and thirdly, declines in our hemoglobins business due to that predicted decline in sales related to our UltraF2 instrument and also as discussed earlier, lower sales in the 4th quarter as we deferred shipments while we renegotiated contract terms with a key customer. Gross margin for the year amounted to $19,500,000 representing a gross margin percentage of 34.2%. This was 6.6% higher than 2022. This increase was due to a significant inventory in FY2023 increased by $4,200,000 to $31,200,000 versus FY2022, an increase of nearly 16%. Significant elements of this increase relate to an increase of $1,600,000 in technical advisory, legal and professional fees, primarily due to the acquisition and the biosensor assets of Waveform, which was complex in nature as we conducted an asset deal.

Speaker 3

Together with other corporate development and corporate finance activities as we continue to assess our strategic opportunities and balance sheet optimization initiatives. We also experienced higher FX losses largely related to the revaluation of euro denominated lease liabilities. We experienced impairment charges of $11,100,000 in FY2023, largely driven by an impairment in Aimco due to the loss of revenue relating to the transplant testing activity together with a write down of our investments in IMOAR. Our operating loss for the year was 27 $1,000,000 Our financial expenses for the year were $11,100,000 compared to $24,700,000 in FY 2022, which is decreased primarily driven by 2 material items. Firstly, we experienced a loss of $9,700,000 in FY 2022 relating to the disposal of exchangeable notes.

Speaker 3

And secondly, we incurred a larger period on period early repayment penalty relating to a repayment of the Perceptive term loan in FY 2022 of $3,500,000 versus a similar penalty of $900,000 in FY2023 related to a smaller repayments during this financial year. Profit from discontinued operations totaled $12,900,000 in FY2023, largely attributable to the gain of CAD 12,700,000 arising from the divestiture of Fitzgerald Industries. Loss on continuing operations before interest tax, depreciation, amortization, share based payments and impairments charges was $12,100,000 Cash used by operations was $11,900,000 in the year, inclusive of a negative net movement in working capital of $2,700,000 To finish, as CFO and as part of this new management team, I will reiterate that we are fully focused on the implementation and execution of the transformation plan that was laid out by John earlier in the call to transform Trinity into a high performing cash generative enterprise and I'm excited to be part of this company as we plan to disrupt the rapidly expanding CGM market on the back of our recent strategic acquisition of Waveform. Now I'll hand you back to the operator for

Operator

questions. Thank you. We'll now be conducting a question and answer Thank you. Our first question is from the line of Jim Sidoti, Sidoti and Company. Please proceed with your question.

Speaker 4

Hi, good morning and thanks for taking the questions. First one on the diabetes business, are all the new products that you have, the new consumables, are those all approved and ready for market? Or are there approvals that you need to get before you can start to sell those devices?

Speaker 2

There may be local registrations required, but they are effectively a variant on the existing approved product. So we don't have to go for a new 5 to 10 or anything like that, Jim. So they're available to roll out immediately in certain markets. In other markets, there's just registration requirements. We finished all the testing, all the trials.

Speaker 2

There's no real regulatory risk at this point around that.

Speaker 4

And so that applies to the fact that you've changed manufacturing locations for the consumable and the instruments, that's all been worked out with the FDA?

Speaker 2

Yes. So they go through what's called a variation change process and you need to show basically comparable performance. So without boring everyone on the call with some of the regulatory issues, but effectively, Jim, there are requirements that the various facilities need to have, okay? And then they have to operate a specific type of quality system. And we need to carry out testing to show that the products that we manufactured in a particular place or in a particular way previous is comparable to the product that we manufacture now.

Speaker 2

And I suppose that's why it's very important for us to have an experienced and highly specialized team that can plan and execute on those types of initiatives. As I said, there's very significant savings associated with this. That's one of the reasons that over the last 2 or 3 years, we have been making these senior hires to give the company the capability to number 1 identify these opportunities and then number 2 to be able to execute on them and execute on them efficiently and quickly. And I think that's something as a business we have developed very significantly over the last 2 to 3 years And we're now seeing the benefits of having those people in place and I suppose having the management focus and discipline around executing on it.

Speaker 4

And so it sounds like by this current quarter, you should be in the market with product that has similar results, but significantly lower manufacturing costs. So I would assume you'd be able to compete on price more effectively starting the Q2 of 2024. Is that correct?

Speaker 2

Yes, exactly, Jim, right? So the reason that we push these changes are really twofold, right? Number 1, to reduce down our cost of manufacture, and that should give us higher revenue and higher cash flows from that business. And then secondly, to allow us to compete in different parts of the market, especially in A1C testing that traditionally hasn't been really that open to us, right? And I would categorize that in 2 ways.

Speaker 2

So by updating our column system and now allowing a higher number of injections, that opens us up to labs that run a higher number of tests. And that wouldn't really have been practically available to us in many markets, okay? That kind of increases our TAM across those across the number of labs that are potentially open to our type of solution. And then secondly, by reducing down our cost, it allows us to target maybe lower price markets, right, where we traditionally have either not sought to compete or have been able to effectively compete. And very much what goes hand in hand with that is the work that we've done to reduce down the cost of building the instrument and now what we're doing around outsourcing more aspects of the manufacturing of that instrument.

Speaker 2

So by reducing down the cost of the consumables and reducing down the cost of the instrument, you reduce down the total cost of ownership either to the distributor or the lab themselves of our solution. And we think that will give us a more competitive offering in those other parts of the market that we haven't been able to aggressively attack in the past.

Speaker 4

All right. And then if we switch over to Chinscreen, it sounds like you've made progress getting that manufacturing up and running. You've got sales already in Kenya. Are there other markets in Africa where you can sell the product?

Speaker 2

Yes. Like we because we have WHO PQ approval, there are many markets effectively open to us from a regulatory perspective. As you know, Jim, the way that this testing happens in Africa is through national algorithms. That's effectively a list of approved products or selected products, I should say, to be used in the national testing programs. You typically have a screening test, which what Trin Screen is for.

Speaker 2

You have a confirmatory test, which is unigold, and you maybe have a second line confirmatory test, which again could be unigold, right? So we cover up the screening and the confirmatory test markets with both products. Those algorithms come up for change every so often and that is both a positive and a negative. It is a negative when you're trying to get into new countries, but it's a positive when you get selected from that algorithm because typically it doesn't change that terribly often provided you continue to provide the quality product, right? So it takes some time to build a business within that.

Speaker 2

But as we've seen with our UNIGOOLD business for the last 20, 25 years, that can provide a very stable recurring business. So there are a number of countries that the team is working hard at getting the product into. And it's a competitive market, right? And we will not release the names of those countries until we have to for competitive reasons. But we have a senior team that are very experienced both within Trinity and from other companies that are highly successful in this market working for us on these initiatives.

Speaker 2

And we do expect to win further countries as we move through. And as I said, it doesn't happen overnight, but the flip side of that is that it does give you some recurring revenue and some predictability and as they bow as an asset once you win some of those countries.

Speaker 4

So it sounds like nothing may happen in the near term, but by 2025, you do think that you'll be selling the product to other countries in Africa. Is that I

Speaker 2

think that's exactly. I think that's a fair way to categorize it, Jim. I would agree with that.

Speaker 4

Okay. All right. And then I just want to be clear, the guidance you gave for revenue and EBITDA for 2025, That includes no revenue from CGM. Is that correct?

Speaker 2

Yes, exactly. So that's really built upon the existing business, right? We would expect continued growth from Trendscreen through Kenya and winning some of those under countries as we spoke about. And then also some growth within our hemoglobins business from those changes that we already spoke about in terms of the lower cost and our ability to grow. We typically see year on year growth in our hemoglobins business, but we do expect these changes to really position us for stronger growth in the 2nd part of this year and onwards as we roll out the more efficient instrument from a cost perspective and our new column system.

Speaker 2

So I think we fairly expect additional growth there and that's really where we expect to build over time to that $75,000,000 run rate number that we talked about earlier.

Speaker 4

And when do you think it's reasonable to assume that you'll start generating revenue from CGM?

Speaker 2

At this point, we're not seeing a huge amount on that, right? We are very much looking at the data from the waveform's existing device. And the waveform device has been through a number of clinical trials over the years, right? So there's a rich vein of data for us to work with there. We're also speaking with commercial partners and that will inform what we will do in terms of commercial launch.

Speaker 2

What we've previously said is with regards to the next generation device, we expect to be in clinical trials summer 2025 and we'd expect to be in the market ideally within 6 months after that, right? And depending on the outcome of the various data analysis that we're doing right now and conversations with commercial partners, we may change that. We may take a different approach. But I don't want to say too much about that now until we decide what we're going to do based upon further data analysis and further discussions and feedback from the market. What I will say is, we have been very positively influenced and happy with the feedback from some commercial partners in terms of the desire to have a product on the market as quickly as possible.

Speaker 2

And people recognize the unique benefits of the waveform device, particularly in terms of cost of care and reducing down that daily cost of this critical technology and solution for people who have diabetes. And so we're confident the demand is there and we just need to decide which way we can best meet that demand in a way that allows us to build a very successful business and brand for the future going forward.

Speaker 4

All right. And then some general modeling questions. What should we use for effective share count for 2024?

Speaker 2

I think we're at about 9,000,000 ADSs now. That's after our reverse share split a number of weeks ago. So I think we're 9,000,000.

Speaker 4

Okay. And that includes the shares that were used to complete the diverse achievements?

Speaker 2

Yes. The Waveform acquisition, Jim.

Speaker 4

I'm sorry, complete the acquisition, right? Yes, yes, yes. Do you think with the cash on hand and the $6,000,000 cash available, do you think you have enough cash to make the changes in 2024 that you want to make?

Speaker 2

We're running fast to do that. The benefit of improving the cost basis of the business is twofold, Jim, right? The quicker we do it, the less cash we need to get there. And then each initiative that we successfully execute on provides further positive cash flow, right, to fund the other initiatives. And that's we're running very, very fast.

Speaker 2

We're being aggressive here. We think it's necessary and we think it's warranted. So I would be hopeful that that would be enough to get us to where we need to get to within the changes around the existing business. But we'll obviously keep that under review. But I said, we're working hard to make sure that's the case.

Speaker 4

Okay. All right. And then you mentioned a couple of times that 2024 is off to a strong start. Can you give us any guidance on the Q1? Or would you rather wait a few more weeks for that?

Speaker 2

We're only 4 days post quarter end. So what I will say is we do expect revenues to be stronger in Q1 2024 than they were in Q4 2023. So certainly some positive momentum there. And yes, so for us, look at the focus is executing on these initiatives to change our cash generation profile and our cost profile and then to build that revenue base. So I think we're we've been a strong start on both sides of the equation.

Speaker 4

All right. It seems like there is quite a bit going on. Appreciate all the color. Thank you.

Speaker 2

Thanks, Jim.

Operator

Thank you. Our next question is from the line of Paul Nuri with Noble. Please proceed with your questions.

Speaker 5

Hey, good morning. Thanks for taking the questions.

Speaker 2

Hi, Paul.

Speaker 5

So do you have a target gross margin for 2025 that you could share or a range?

Speaker 2

We haven't really planned on going that deep, Paul, right? I think we'd expect it to be 60% would be kind of where we would be hoping to get to or targeting to get to. And that's really from the procurement efficiencies that we're talking about, the outsourcing of some of the less complex aspects of our manufacturing, right, and the consolidation of the manufacturing sites. I mean, they will have a significant impact on that gross margin. And then I suppose so that we turn that into a higher degree of cash generation, that's the reason we're focused on our SG and A and very much focused on reducing down the cost of complexity that we have within the business.

Speaker 2

And I know from speaking to shareholders that people have I think rightly be concerned about the extent of SG and A whereas some of the key drivers for that are we have a broad breadth of products, we are operating a highly regulated industry and we also sell to a large number of countries globally, right. And all of those drive complexity. We have traditionally been managing that complexity across a number of different sites, usually typically co located with our manufacturing facilities. And our manufacturing facilities are not in low cost locations. Our manufacturing facility in the whole are in Ireland and they're in the U.

Speaker 2

S. And that leads to a situation where you have a high degree of complexity. You need to resource that complexity and do it in a distributed way reduces down the efficiency and do it in higher cost countries or increases the cost and amplifies the cost of that inefficiency. And that's really why we're focused on centralizing a lot of those functions into a lower cost country, where we can get those efficiencies and we can also reduce down the cost of servicing that compliance burden. So, no, that's gone a little bit longer than gross margin, but I think I want to make it clear, we're targeting all areas of the P and L really, right, to try and get back to that very positive EBITDA so number.

Speaker 2

So it's a comprehensive view we're trying to take.

Speaker 5

Okay. And in terms of the source of the growth because it's pretty dramatic expected growth, do you see it evenly between point of care and the lab business or should it be more weighted towards 1 or the other?

Speaker 2

It's probably a bit more on point of care, Paul, but not usually so. As I said, we normally see year on year growth with our hemoglobins business anyway, right? So within that, as I said, because of the changes in the product, we do expect to have a more competitive product to go to the market and we do be able to expect to have grow market share over time. And we also have the premier resolution within that. As you know, that type of sales process and installation process is a slow burner, right?

Speaker 2

It's not a high volume type of play, but it's very sticky when you get it into a lab, right? So I think both of them will drive some hemoglobin growth. But obviously, the point of care, especially with Trin Screen, because that is designed for the screening market, they are generally much, much higher volume than the HIV confirmatory testing market that we've been in previously. So the example I always give is, if someone if 10 people go for a screening test, maybe only one person goes and gets a confirmatory test, right, because you got to put positive on the screening test. It might even be less.

Speaker 2

So in that example, the screening market from a volume perspective is 10 times the size of the confirmatory test market. So that's why a win, especially in a reasonable sized country, right, can have quite a big impact in terms of revenue for a company of our size. And that's why it's a little bit of a game changer for us to be into that space. So to take your point, there is growth within that, but I suppose we have built in wins in terms of Kenya and then just growth from the hemoglobins and particularly that new product rollout.

Speaker 5

And I know in hemoglobin you have a presence in China, you have a presence in Brazil. But going forward the next couple of years, do you see more of your growth in the U. S. Or in some of those international markets?

Speaker 2

No, I think it's more in the international markets. Like the reality is HbA1c testing in the U. S. Is typically now on the larger chemistry systems. Where we continue to have a strong presence is in your research areas or some of the more high quality, lower volume type labs, right, that are very focused on very, very focused on the quality of the test and very focused on accuracy, right.

Speaker 2

And we know our product delivers that very well, especially in populations where there is a significant amount of the hemoglobin variance, right. So we continue to hold a position there. If you look where diabetes is growing, it is growing it's still growing in the U. S, but it's growing very much internationally, right? And a lot of the countries that have a high degree of hemoglobin variant where there's arguably a greater benefit from using our technology is in Asia, right, is in Africa and in those types of countries.

Speaker 2

So I expect a good chunk of our growth to come from those more, as you would call it, international markets rather than the U. S. And probably rather than Western Europe. And they're just using a different type of technology.

Speaker 5

And then just two more quick ones. Did the Sjogren's test continue to grow?

Speaker 2

Yes, that continues to grow and continued growth in terms, I think, post COVID, we've all kind of forgotten about that, thankfully, but we're still seeing autoimmune issues arise from that. So it's an area we are focusing on. We think that the autoimmune space, particularly around kind of esoteric tests, our screening tests that have a prognostic value can be very, very beneficial. So look that continues to be a good performing part of our business in terms of the Sjogren's test And we think it is maybe a good model for growth going forward without a huge amount of capital expenditure, which is helpful.

Speaker 5

And then last question, the EBITDASO guidance, that includes the spending you're doing in the CGM segment?

Speaker 2

No. So we'll capitalize that Paul under IFRS, right? And we'll capitalize that expenditure as we typically would have with product development spend. So look, what I would say about that is the CGM spend is optional, okay? We will only continue to spend on developing that product if it is developing results for us, right?

Speaker 2

And we're confident with the technology direction and the market direction. I think we have no question over the market direction. We know that this market is exploding. And we know from speaking with market participants that there is a strong desire for a lower cost solution, right? The technology piece, I think we have substantially derisked by acquiring a technology that's already proven and has European regulatory approval.

Speaker 2

What we're really doing is looking to tweak that, change the form factor, improve the manufacturing process as an experienced high scale medical device manufacturer sales. We're confident we can do that. So that's not a built in ongoing drain on cash resources. We will only continue to invest in that business, but while we are very confident that we will see returns in that. And my own personal view would be we'll see very, very significant returns on any investment in that area.

Speaker 5

Okay. Thanks a lot.

Operator

Thank you. At this time, we've reached the end of our allotted time for question and answer session today, and that will also conclude today's conference. Thank you for your participation, and have a wonderful day.

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Earnings Conference Call
Trinity Biotech Q4 2023
00:00 / 00:00