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16-05-2025
- Business
- Yahoo
Q1 2025 Omeros Corp Earnings Call
Jennifer Williams; Investor Relations; Cook Williams Communications, Inc. Gregory Demopulos; Chairman of the Board, President, Chief Executive Officer; Omeros Corp David Borges; Chief Accounting Officer; Omeros Corp Nadia Dac; Vice President, Chief Commercial Officer; Omeros Corp Steve Brozak; Analyst; WBB Securities Operator Good afternoon and welcome to today's earnings call for Omeros Corporation. (Operator Instructions) Please be advised that this call is being recorded at the company's request, and a replay will be available on the company's website for one week from today. I'll turn the call over to Jennifer Williams, Investor Relations for Omeros. Jennifer Williams Good afternoon and thank you for joining the call today. I'd like to remind you that some of the statements that will be made on the call today will be forward-looking. These statements are based on management's beliefs and expectations as of today only and are subject to change. All forward-looking statements involve risks and uncertainties that could cause the company's actual results to differ materially. Please refer to the special notes in the risk factor section regarding forward-looking statements, and the company's quarterly report on Form 10-q, which was filed today with the SEC, and the risk factor section of the company's most recent annual report on Form 10k for a discussion of these risks and uncertainties. Now I would like to turn the call over to Dr. Greg Demopulos, Chairman and CEO of Omera. Gregory Demopulos Thank you, Jennifer, and good afternoon everyone. I'm joined on today's call by David Borges, our Chief Accounting Officer; Nadia Dac, our Chief Commercial Officer; Andreas Grauer, our Chief Medical Officer; Cathy Melfi, our Chief Regulatory Officer; and Steve Whitaker, our Vice President of Clinical. Today I'll start with an overview of our first quarter of financial results and provide updates across our development programs. David will then go through our financials in more detail, and we open the call for questions. Now let's look at our financial results for the first quarter. Our net loss was $33.5 million or $0.58 per share, compared to a net loss of $31.4 million or $0.54 per share in the fourth quarter of last year. As of March 31, 2025, we had $52.5 million of cash and investments on hand. I'd like to start with how we are strengthening our balance sheet and addressing our liquidity position and the options available to us for raising capital. While we've been focused on achieving significant milestones across our development programs, which I'll discuss shortly, we've also been actively pursuing ways to strengthen our balance sheet and manage our debt maturities. Earlier this week, we announced an exchange agreement with certain holders of our 2026 convertible notes, exchanging about $71 million in principle for new 9.5% convertible senior notes due out in 2029. We also reached an agreement with two affiliated holders to convert [$10 million] of their 2026 notes into equity over a period of 90 to 120 days, with the entire amount to be converted by September of this year. As a result, the outstanding balance on the 2026 notes will be reduced to approximately $17 million eliminating the need to make a $20 million mandatory pre-payment of our existing term loan by November 1 to avoid triggering an accelerated maturity of the term loan balance. Overall, this will reduce our total debt by $10 million and lower our near-term repayment obligations by over $100 million producing it from approximately $118 million to $17 million. The debt extension moves maturity out to 2029 and removes a major overhang for all routes of securing near-term capital. We also have an active at the market facility in place with the capacity to raise up to $150 million in aggregate, providing meaningful flexibility to access additional capital when needed. With the debt exchange now having been completed, we're in the process of securing additional capital to support our operations through the anticipated approval and launch of our supplement, including active discussions around partnerships, which would bring non-dilutive funding. As we assess capital raising alternatives, we're also keeping a close eye on costs across the organization. We've taken meaningful steps to lower expenses while continuing to advance key initiatives and position the company for long-term growth. We've made good progress, but we know it's critical to remain disciplined. We are carefully managing our cash and liquidity to ensure we have the flexibility to deliver on our priorities and are committed to using our resources wisely, focusing investment on the areas that matter most to our shareholders and for near-term success of the company. This means that certain activities and programs have been suspended or paused in order to prioritize the allocation of our currently available capital to the development of commercial infrastructure and capacities needed to ensure the successful launch of narsoplimab for the treatment of hematopoietic stem cell transplant associated thrombotic microangiopathy or TATMA, following the anticipated approval by FDA of our resubmitted biologics license application and to the completion of our ongoing narsoplimab clinical trials with enrolled patients. As recently announced, FDA has accepted our resubmitted BLA for narsoplimab and TATMA and has assigned a target date for FDA action of September 25. We have received and are responding to information requests as part of the process. Our primary analysis results show a hazard ratio of 0.32 with a P value of less than 0.001, meaning that narsoplimab resulted in a statistically significant threefold greater improvement in survival compared to the well matched control group. All sensitivity analyses, including the analyses directed to our expanding access program or EAP are strikingly consistent and strong, and we look forward to working closely with FDA to bring narsoplimab to market, as the first approved treatment for TATMA. Additionally, the ICD 10 codes established through our collaborative efforts with transplant experts and professional societies will create reimbursement hurdles for off-label treatments since narsoplimab will be the only approved treatment for TATMA. We're also moving forward to complete and submit a marketing authorization application or MAA to the European Medicines Authority for narsoplimab in TATMA. We're targeting to complete that submission later this quarter. Although pre-launch commercialization activities within our narsoplimab program will continue, we are suspending our expanded access program for narsoplimab, also known as compassionate use. Physician requests for access to narsoplimab under this program continue. And we are mindful that the TATMA patients who lack an approved treatment for this often fatal condition will be most affected by cessation of access to narsoplimab prior to approval. Nevertheless, suspension of the program is necessary to eliminate direct costs associated with supplying the drug and the external management of the EAP. We remain committed to support patients who are currently being treated under the EAP. This discontinuation of the program will not affect these currently treated patients. Additionally, our ongoing study of narsoplimab in pediatric patients with TATMA will continue. A manuscript detailing the data related to the primary analysis authored by an international group of leaders in the transplant field has been submitted for publication in a top tier journal. A second manuscript directed to the EAP results again authored by international transplant leaders is planned for submission early next week. A manuscript from Wild Cornell describing the role of MASP-2 in the lectin pathway in long COVID is also under review in a major peer-reviewed journal. We expect that narsoplimab will be the first approved therapy in TATMA, and nearly $1 billion annual market opportunity. Narsoplimab is positioned to become a cornerstone asset for transplant experts with label expansion opportunity in other transplant complications and to other disease fields. Our focus remains bringing our narsoplimab to market as quickly as possible. Transplanters and their patients globally are waiting for it. Our other prioritized program is the development of zaltenibart, our lead antibody targeting mask 3, the most proximal and key inhibitor of the alternative pathway of complement. The initial indication for zaltenibart is paroxysmal nocturnal hemoglobinuria or PNH. The global market for PNH including multiple treatment modalities is estimated to grow about 11% annually to over $10 billion in 2032. There remains significant unmet need for PNH patients, and the complement inhibitor market specifically is expected to more than double from about $2.2 billion today to $4.7 billion in that same time frame. We expect zaltenibart to carve out a significant share of that growing market. Our ongoing clinical trial evaluating zaltenibart for the treatment of TNH and treatment naive patients will continue. Also continuing is the extension study, which enrolls PNH patients treated with zaltenibart who have completed any of our prior zaltenibart studies in this indication. Our Phase 2 study in C3G will also remain ongoing. Our Phase 3's zaltenibart program and PNH began initiating clinical trial sites last quarter. And based on capital considerations, the anticipated ramp up in spending as well on those trials, we are pausing our Phase 3 PNH program temporarily, and are working with our vendors and investigators to ensure that the program is ready to restart with as little disruption to the timeline as possible after securing capital. Market research confirms that zaltenibart's target profile is differentiated from the evolving PNH landscape. Preference drivers for zaltenibart include A compelling efficacy and safety profile with low treatment burden. 4 to 6 times per year dosing, which minimizes how often patients have to think about their disease and infrequent IV administration, which minimizes both the risk of non-compliance and subsequent breakthrough disease while aligning with the existing economic and treatment model of physicians' practices in PNH. Development spending on our long-acting next generation MASP-2 inhibitor OMS 1,029 remains limited. That asset is Phase 2 ready, with drug product needed to support Phase 2 trials having already been manufactured and stored, pending the selection of the first indication and the resources to initiate Phase 2 studies. We've also reduced spending in our other areas of complement franchise, including our small molecule MASP-2 and MASP-3 programs as part of our effort to focus resources on core development priorities. Apart from our complement programs, our PD 7 inhibitor program evaluating OMS 527 for cocaine use disorder or CUD will continue moving forward, funded entirely by a grant from the National Institute on Drug Abuse or NIDA. Work on an upcoming inpatient clinical trial evaluating safety and preliminary efficacy of OMS 527 in patients with CUD is ongoing, with readout of those clinical data expected late this year or early next. In addition, we continue on a limited basis preclinical studies in our novel oncology platform, including IND enabling studies in our OncotoX program. OncotoX is designed to target and kill only dividing cancer cells. Treatment of acute myeloid leukemia or AML is the lead indication. Our OncotoX AML therapeutic has consistently demonstrated superior efficacy to current AML standard of care treatments, both in vitro and in vivo with human cell lines. OncotoX AML shows broad application across AML regardless of genetic mutations, including TP53 and PM1, KMT2A, and FLIT 3. This broad application certainly appears to be unique. Well tolerated and preliminary tolerability studies, IND enabling work is ongoing, and we expect to be in the clinic in 18 to 24 months. This work, as well as clinical trials, will be aided and guided by our distinguished clinical steering committee, all of whom lead AML treatment and research at their respective premier cancer centers. Based on positive feedback from stealth unveiling of our OncotoX data last month at the American Association of Cancer Research with prospective partners, we believe that this program has potential to drive substantial value at an early stage of development, meaning in the near term. I'll now turn the call over to David, our Chief Accounting Officer, to go through a more detailed discussion of our financial results. David? David Borges Thanks, Greg. Our net loss for the first quarter of 2025 was $33.5 million or $0.58 per share compared to a net loss of $31.4 million or $0.54 per share in the fourth quarter of last year. As of March 31, 2025, we had $52.4 million of cash and investments on hand. As Greg just mentioned earlier this week, we entered into an exchange agreement with certain holders of our 2026 convertible notes. We exchanged $70.8 million in aggregate principal amount of the 2026 convertible notes for newly issued 9.5% convertible senior notes due in June 2029 on a one for one basis. In addition, we reached an agreement with one holder to convert $10 million of the 2026 notes into shares of the company's stock in three separate tranches over the next 90 to 120 days, with the conversion to be finalized by September 2025. Following these transactions, the outstanding principal balance of the 2026 notes will be reduced to approximately $17.1 million. Most importantly, this reduction in principle of the 2026 convertible notes enables the company to avoid making a $20 million mandatory pre-payment under our term-loan agreement, which otherwise would have been required on or before November 1, 2025, to avoid an accelerated maturity of the term loan. As a result, our total outstanding debt will be reduced by $10 million, and our potential debt repayments over the next 12 months would be lowered by over $100 million from $117.9 million to $17.1 million. These actions improve our financial flexibility, strengthen our balance sheet, and position the company to better execute on its long-term plans. Constant expenses from continuing operations for the first quarter before interest and other income were $35 million, which was a decrease of $691,000 from the fourth quarter of last year. Research and development expenses in the first quarter were heavily focused on narsoplimab and zaltenibart. Interest expense for the first quarter was $3.7 million which reflects a $477,000 increase as compared to the fourth quarter of last year. The primary components of interest expense are the 2026 notes, the OMIDRIA royalty obligation, and the secured term loan. In the first quarter, we recorded a $3.4 million non-cash measurement adjustment to interest expense related to changes made to the OMIDRIA royalty obligation. This credit was $700,000 lower than a similar adjustment recorded in the fourth quarter of last year and is a primary driver of the increase in interest expense for the first quarter. Interest and other income totaled $1.1 million in the first quarter of 2025 compared to $2.3 million in the fourth quarter of last year. The decrease is primarily attributable to lower interest income and night a grant reimbursement revenue from completion of our animal studies on addiction. Income from discontinued operations in the first quarter was $4.1 million down $1.1 million from the fourth quarter. The first quarter total includes two primary components; $3.9 million of interest earned on the OMIDRIA contract royalty asset and a $166,000 remeasurement adjustment to the contract asset. As previously discussed, royalties earned are recorded as a reduction of the OMIDRIA contact royalty asset on our balance sheet rather than recognized in our income statement. OMIDRIA royalties for the first quarter totaled $6.7 million based on OMIDRIA net sales of $22.3 million. This compares the royalties of $10.1 million on fourth quarter net sales of $33.6 million, representing a decrease of $3.4 million in royalties and a reduction of $11.3 million in net sales quarter over quarter. And compared to the first quarter of 2024, first quarter of 2025, and midway royalties decreased by $2.7 million, corresponding to an $8.9 million decline in net sales. And as a reminder, in February 2024, we entered into an amended agreement with DRI under which they acquired the right to receive all US and OMIDRIA royalties payable by Rayner through December 31, 2031. Omeros retains all royalty rights to ex-US sales of OMIDRIA, and we're entitled to receive all US royalties on OMIDRIA sales from and after January 1, 2032. In other words, all global royalty payments will accrue to Omaros beginning January 1st, 2032. Now let's take a look at our expected second quarter 2025 results. We anticipate that overall operating expenses from continuing operations in the second quarter of 2025 will be lower compared to the first quarter of '25, as we begin to pause on clinical development of zaltenibart and other programs. Interest and other income for the second quarter is expected to be approximately $625,000 and interest expense -- excuse me, excluding any non-cash adjustments related to the OMIDRIA royalty obligation, should be around $7.6 million. This represents a non-cash increase of $3.3 million from the first quarter, primarily reflecting the absence of significant non-cash adjustment tied to the OMIDRIA royalty obligation and incremental interest expense of about $370,000 associated with the newly issued 2029 convertible notes. The senior term loan transaction we closed in June 2024 included a $29.8 million gain resulting from repurchasing a portion of our 2026 convertible notes. Under GAAP, we are unable to recognize that gain immediately. The $29.8 million gain is deferred and amortized as a premium over the term of the senior loan, reducing interest expense. Inclusive of the deferred gain, we calculate the annual effect of interest rate to be 1.4%. We expect to incur $600,000 in interest expense on the senior term loan for the second quarter of 2025. And finally, income from discontinued operations is expected to be in the $6 million to $7 million range, excluding any non-cash remeasurement adjustments to the OMIDRIA contract asset. With that, I'll turn it back over to Greg. Gregory Demopulos Thanks David. Operator, now let's please open the call to questions. Operator (Operator Instructions) Steve Brozak, WBB Securities. Steve Brozak Hey, thanks for taking the questions. I do have one. Since everything is pretty much being driven to the launch, can you give us as much detail as you can on not just launch plans, but how you are prepared for the launch itself and what does this mean as far as patient access and anything else you want to add? Thanks, and I'll hop back in the queue. Gregory Demopulos Yeah, thanks, Steve. Look, we're well prepared for the launch. Our commercial team has done a lot of work, and I think, we are expecting again assuming approval, which we do that the launch will be very successful. Let me turn that over though to Nadia for more detail. Nadia Dac Thanks, Greg. Now we have a small but mighty team that's been extremely focused in this area. And the good news is that the consolidated prescriber base, we know where the transplant centers are. We understand the allergeneic volume by center. And so our team has been focused on what we call the top-40 centers that are responsible for driving just about 60% of the allergeneic transplant volume. With time, we've actually gone a little deeper to the next 40 that gets us to about 80% of that volume. So we've cultivated what we're calling fast start accounts, and we understand the decision making in these accounts. We know who the transplant champion is. And not only that, these are centers that are actively and proactively monitoring for TATMA signs and symptoms, so they understand this complication of allogeneic transplants. And then we also know the transition from inpatient to outpatient because with profiled narsoplimab, we believe its efficacy plus safety profile lends itself to be infused both in inpatient as well as outpatient settings based on of those experts preference. And we've also been engaging with payers. The exciting news is after we resubmitted our BLA, we've had several payers reach out for what we call product information exchanges. In fact, we've got one set up next week and several immediately after, and we expect that we'll have even more requests for those as we approach our PEDUFA date. This is important because for economic plans they've got to evaluate what's on the horizon, and having a significant value driver for a complication where nothing is currently approved is important to them. And they do view the fact that narsoplimab being the only potential product indicated for TATMA is a significant value driver. So the disease education continues, the identification of accounts, knowing all of the stakeholders, not just the transplant physician, puts us in a really successful position. Plus the data is just so compelling with a significant value proposition for all of those stakeholders involved. So we are excited for that approval to come in. Gregory Demopulos Thank you, Nadia. Did that answer your question, Steve? Steve Brozak Yeah, it did, but it also raised two more. So I will throw them in the equation as well. On the first one, obviously, there's something that has to be I guess, detailed more. These are extremely sick patients. So as far as that goes, if you can provide any color on those patients we're talking about, because obviously, this is a life threatening situation for which there's just no other reasonable therapy that works. Can you talk more about those patients and how they got there? And the additional question along that -- and this time, I do promise to hop back in the queue -- a great deal of money has been spent on these patients. They've had stem cell transplants, and these are not easy procedures, but they're also extremely laborious in terms of healthcare costs. Can you go into any detail about that? And the whole purpose there is to talk about this, the support of these patients buying narsoplimab and what it means, and I leave it to you as to how much detail you can give us on that. Thank you again. Gregory Demopulos Sure, let me just make sure we understand the first question. It was, how did those patients get there, and I just want to make sure we're answering that question. What specifically are you referencing when you say how did they get there? Steve Brozak These are hematological oncology patients who've wound up through medical intervention that are there. So can you detail some of that, because that's the part that people automatically assume of stem cell TATMA? Gregory Demopulos Yeah, sure. Look, TATMA is a complication of stem cell transplant, but it's really wholly unpredictable. So patients, their families, their loved ones go through the transplant process, which as you can imagine, is stressful, is costly, as you've already identified. And there's obviously a tremendous amount of hope that that stem cell transplant is going to extend the life of or cure the patient. And all of a sudden, out of left field without any warning comes TATMA. And this is not a disease that has a long and lingering span. This is a disease that comes hard, it can come fast, and it can result in death not in months and months, but really days to weeks. And you can imagine the hit to the patient, to the family, to all of those concerned about that patient when things are looking great and all of a sudden things turned really south really quickly. So the idea here is that is what we're facing. There is no approved treatment. There are off-label treatments which really have mixed results. There are reports of some efficacy. There are also reports of actually increased safety risks. And you know we are working hard and expect that narsoplimab will be the first drug approved for TATMA. With respect to your second question about the costs, let me turn that over to Nadia, and then I'll see if anyone wants to additionally comment on what I've just relayed in response to your first question. Nadia Dac Yes, Steve, you're spot on in terms of the costs associated with untreated patients, whether it's ICU or inpatient. Those are the significant cost drivers. And so in terms of the economic value that we're looking at and how we're building that story for narsoplimab, when you have a treatment that's the only one indicated for TATMA, with the kind of survival benefit that we've demonstrated in our data, when you compare that versus the cost of a patient developing end organ damage, kidneys failing, dialysis, transplant potentially of organs or death, there is no comparison and preserving that patient and reducing the cost, of course. So that is how we're looking at this and this is also how other stakeholders are taking that into consideration. The other aspect of that that I will highlight is the ability of a drug to be used outpatient is also a significant value driver because it is less expensive to dose a outpatient. So with this kind of efficacy the goal is to get the patient as quickly as possible from ICU to inpatient, from inpatient to outpatient, and that's the goal with the why I say the entire profile, it's efficacy plus safety. Because we know in this space, in the transplant space, there's some treatments that are exclusively inpatient dosed, and that's quite limiting where we don't see the same concerns with narsoplimab potentially. Steve Brozak Got it, thanks for the color and the detail. Let me hop back in the queue. Gregory Demopulos Thanks, Steve. Operator (Operator Instructions) Gregory Demopulos All right, operator, it appears no other questions. So with that, I'd like to thank everyone for joining us today. We appreciate the continued support and confidence of our investors and lenders. We remain focused on executing with discipline and securing the capital resources necessary to bring us through to the anticipated approval of narsoplimab, a successful commercial launch, and the development of our pipeline. We expect all of those things to occur, and we look forward to providing updates over the near term. All of us at Omeros appreciate your continued support. Have a good evening, and we look forward to speaking with you again. Operator This concludes today's conference call. Thank you for participating. You may now disconnect.
Yahoo
15-05-2025
- Business
- Yahoo
Q1 2025 PDS Biotechnology Corp Earnings Call
Mike Moyer; Managing Director; LifeSci Advisors, LLC Frank Bedu-Addo; President, Chief Executive Officer, Director; PDS Biotechnology Corp Lars Boesgaard; Chief Financial Officer, Principal Accounting Officer and Principal Financial Officer; PDS Biotechnology Corp Kirk Shepard; Chief Medical Officer; PDS Biotechnology Corp Mayank Mamtani; Analyst; B. Riley Securities Joe Pantginis; Analyst; H. C. Wainwright & Co James Molloy; Analyst; Alliance Global Partners Operator Greetings and welcome to the PDS Biotech first quarter in 2025 earnings conference call. (operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Moyer, lifestyle you, sir. You may begin. Mike Moyer Thank you, operator. Good morning, everyone, and welcome to PDS Biotech's first quarter 2025 results and clinical programs update call. I'm joined on the call today by the following members of the company's management team. Dr. Frank Bedu-Addo, Chief Executive Officer, Dr. Kirk Shepard, Chief Medical Officer, and Lars Boesgaard, Chief Financial Officer. Dr. Bedu-Addo will begin with an overview of the company's recent progress in its clinical development program. Mr. Boesgaard will review the financial results for the quarter ended March 31, 2025, and Dr. Shepard will then join the call to help address questions from our covering analysts. As a reminder, during this call, we will be making forward-looking. Statements which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our press releases and risk factors discussed in our filings with the SEC, including our quarterly reports on Form 10 and annual report on Form 10k, and cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Now I'd like to turn the call over to Dr. Bedu-Addo. Frank Bedu-Addo Thank you, Mike, and good morning, our pleasure to speak with you again and to provide this brief update on our progress in advancing our clinical first quarter of 2025 in recent weeks have been a productive period for PDS Biotech, led by the initiation of our versatile 003 phase 3 clinical trial of Versamune HPV plus HPV plus pembrolizumab is a potential treatment for first line recurrence and or metastatic HPV 16 positive head and neck squamous cell carcinoma or head and neck with recurrent or metastatic HPV 16 passive head and neck cancer are difficult to treat and represent a large fast-growing population in need of targeted therapies to treat the underlying cause of the is projected that by the mid-2030s, HPV 16 positive head and neck cancer will become the most prevalent type of head and neck cancer in the United States and Europe. Considering the strength and durability of the clinical responses observed in our versatile 002 phase 2 are excited to get the versatile 003 registrational trial underway and are confident in the potential of the combination of Versamune HPV and pembrolizumab to significantly improve outcomes for patients with recurrent and or metastatic HPV 16 positive head and neck are pleased to announce that new sites, including Mayo Clinic sites were recently added to the trial, and we continue the process of activating additional clinical sites. We look forward to the continued progression of this we announced previously, the versatile 003 trial design includes approximately 350 patients. The two-arm registrational trial design has been given the go-ahead by the US Food and Drug Administration or two arms of the trial include a treatment arm of the Versamune HPV and pembrolizumab combination versus the control arm of pembrolizumab are enrolled in a two to one randomization. Median overall survival is the primary endpoint. The trial design is informed by the observed durability of the clinical responses in our versatile 002 clinical trial seen over the last year and a half with the most recent data presented at the European Society for Medical Oncology. ASCO Congress in encouraging patient survival and clinical responses coupled with promising tolerability as seen in the versatile 002 clinical trial will be the subject of a poster presentation of the 2025 American Society of Clinical Oncology annual Meeting, or data underscore our belief in the potential of the combination to be the first HPV-16 targeted therapy for head and neck cancer and a significant advancement in the treatment of the growing population of patients with HPV 16 positive head and neck versatile 003 trial in progress is the first phase 003 trial in the high-risk HPV 16 population and has also been accepted for presentation at the 2025 ASCO annual Mayo Clinic will present the results of the MC20-O-seven 10 study investigating Versamune HPV alone or with pembrolizumab prior to surgery or radiation therapy for locally advanced HPV 16 positive oropharyngeal three presentations will be held on Monday, June 2, 2025, from 9 A.M. to 12 P.M. Central Daylight Time during the head and neck cancer poster in our pipeline last week we announced that at the American Association of Immunologists Immunology 2025 annual meeting, pre-clinical efficacy and immune response data in mice and ferrets with a novel infect immune-based universal flu vaccine were featured in two presentations on universal influenza vaccines, including an oral studies were funded by and performed by investigators at the National Institute of Allergy and Infectious Diseases NIA Center for Influenza Vaccine Research for high-risk collaborative approach between NIA and PDS Biotech allows PDS Biotech to focus our resources on our versatile 003 clinical March, we were pleased to announce FDA clearance of our investigational new drug IND application for the combination of Versamune M1 and our IL-12 fused antibody drug conjugate PDS01ADC to treat metastatic colorectal cancer. Several highly prevalent solid tumors are Mach one positive, including non-small cell lung cancer, ovarian cancer, breast cancer, liver cancer, and are pleased to continue our strong relationship with the National Cancer Institute; MCI and this phase 1 and phase 2 clinical trial is scheduled to be run under our collaborative research and development agreement with the MCI. PDS Biotech will continue to focus our efforts on progressing the versatile 003 phase 3 clinical I will turn it over to Lars for a review of our results for [2025], Lars. Lars Boesgaard Thanks, Frank. And good morning, for the first quarter of 2025, we reported a net loss of approximately $8.5 million or about $0.21 per basic and diluted share for the three months ended March 31. That compares to $10.6 million or $0.30 per basic and diluted share for the three months ended March 31, 2024. This decrease is due to increased benefit from income taxes as well as lower operating and development expenses were $5.8 million for the first quarter compared to $6.7 million for the prior year quarter. This decrease was primarily due to lower clinical trial expenses. General administrative expenses were $3.3 million for the first quarter compared to $3.4 million for the prior year total operating expenses were $9.1 million for the first quarter compared to approximately $10.1 million for the prior year quarter. Net interest expenses were $0.6 million for the first quarter, which compared to approximately $0.5 million for the prior year cash balance as of March 31, 2025, was $40 million compared to $41.7 million as of December 31, 2024. You'll recall that on February 27 this year, we announced that we had entered into a securities purchase agreement with new and existing healthcare focused institutional investors, as well as participation for certain directors of the company. And under that arrangement, we raised approximately $11 million upon the closing. And with an additional $11 million that may be funded upon full cash exercise of the warrants that were included in the more recently, at the end of April, we completed a refinancing of our debt with new lenders, resulting in the extension of the term to 36 months, with the first four months being interest that operator we can open the call to questions. Operator (Operator Instructions)Mayank Mamtani, B. Riley Securities. Mayank Mamtani Yes. Good morning team. Thanks for taking your questions and Congrats on getting the versatile 003 phase 3 lamping up. So, first on, the Keytruda head and neck, new achievement data we saw at ACR, could you comment on how such a standard of care, changing data set impacts enrollment expectations of your phase 3, and did we sort of learn anything. If anything, on the HPV positive, tumor set and how maybe checkpoint inhibitors, monotherapy responses, response rate looks like in SPV 16 positive, and then I have a follow up. Frank Bedu-Addo Mike you're referring to the KEYNOTE-689 trial. Mayank Mamtani That's right. Frank Bedu-Addo Okay. Kirk, I'll hand over to you to start if you have any comments on that. Kirk Shepard Sure, can you hear me okay. Frank Bedu-Addo Yes, we can hear you. Kirk Shepard Great. The KEYNOTE-689 trial, should not affect our versatile 003. The reason is 689 was a study of mainly HPV negative patients. That's because the eligibility criteria of the to be that the patients were eligible for surgery and most patients who are HPV positive at this stage are not eligible for surgery. So that resulted in only 3% to 4% of the patients of this study being HPV positive. So, the study was focused mainly on HPV negative patients and not positive. Frank Bedu-Addo Kirk, thanks a lot. So, that's very important because even if this does become standard of care, there is going to be very little impact on the HPV positive it may actually speed up the HPV 16 population becoming the predominant recurrent metastatic head and neck cancer population. And this is something that we actually had our steering committee evaluate and give us advice on. And their feedback to PDS was Even if this new adjapan treatment is approved, since very few HPV positive patients are actually eligible for surgery at this stage, there should be negligible impact on the HPV 16 recurrent metastatic head and neck cancer population. And that's exactly what we saw as Kirk mentioned, only about 3% of the patients were actually HPV positive. Mayank that answered your question. Mayank Mamtani Yes, it you, both. And then, second on this, ask poster presentation coming up, could you talk to what we should be looking to learn on durability, incremental from what you've shown before, and maybe if you could comment on, just your durability, how might that be tracking relative to, also the emerging data from the next generation EGFR targeted therapies. Thanks again for taking your questions. Frank Bedu-Addo Thanks, my I'm not going to speak much about the EGFR inhibitors. I think they will make their presentations at ASCO. We will learn more. At this point, we can't say any more than they have currently presented to the markets. We have no additional information on how their programs are performing. But with regards to PDS Biotech, and our versatile 002 trial, as one of the key characteristics of this technology and the product is the On our corporate deck, one of the slides that shows how these patients react long term. I think one of the key things with oncology today with the current cytotoxic drugs, including cetuximab, is you get pretty good responses upfront, a good objective response rates. But what we have not seen to date in head and neck cancer, and many other cancers is once you are able to achieve these clinical you maintain these responses long term. That is the challenge, and that is exactly what we see with our adverse immune HPV plus KEYTRUDA formulation, where the patients who have clinical responses, including stable disease, partial responses, and complete responses, the majority of these patients appear to be maintaining those clinical responses long term and that has translated also to survival, which is very important. And so, as our last presentation at ASCO, as you recall, we presented a 30-month median overall survival, right. The standard today is approximately 12 months. So, really just putting that into perspective, right. Today, with the standard of care, if a patient had gone on to the standard of care, which have been KEYTRUDA or KEYTRUDA chemo. The probability of living 12 months was about 50%. You had a 50% probability of living for 12 months. However, if that patient had gone on to our versatile 002 trial, They had a 50% probability of living for 30 months or more. Right, that's the kind of durability we've seen in this HPV 16 population, which by the way, in some studies that have been public, have shown that in head and neck cancer, they found that in HPV 16 patients had the worst prognosis for survival once the disease becomes an advanced recurrent metastatic disease, to HPV negative and other types of HPV, the HPV 16 positive patients had by far the worst survival prognosis. So this is for us is an extremely encouraging result. And what we tend to do is to give an additional update on a more recent data cut on that durability and survival of these patients in the versatile 002 trial. Mayank Mamtani Thank you, Frank. Frank Bedu-Addo You're welcome. Operator Joe Pantginis, H. C. Wainwright & Co. Joe Pantginis Hi guys, good morning. Thanks for taking the question. So, I want to ask two nuanced questions regarding your two lead programs, and part of it you've already started to discuss. So first with KEYNOTE-689, when you're comparing it again, it's apples and oranges, even though I think from a perception standpoint. There are some, I guess, investor, comparing apples to oranges here, at least from a perception standpoint, so I'm just curious, how do you view the learning curve here and does it apply at all and I don't think it does, to physicians, impact and being able to want to participate in versatile 003 and then I have a follow up. Frank Bedu-Addo So, no to date and I'll ask Kirk to give his opinions on that. But to date, we have seen very strong enthusiasm from the investigators and the key opinion leaders in actually participating in the versatile 002 trial. I'll actually hand over to Kirk to give any comments before I get back to continuing my answer. Kirk, any comments on interest in the trial based on KEYNOTE-689. Kirk Shepard Yes, no, the response was very brisk and all the same from our steering committee, which are the experts in head and neck cancer, that 689 does not apply to HPV positive patients. And this is even before they saw the data broken down, which we saw at the AACR. And sure enough, when we saw the data, as Frank had mentioned, I mentioned earlier too, only 3% of the patients were HPV positive because it's not appropriate to treat these patients with surgery upfront. So, it's been discussed a lot with our investigators and especially our steering committee that this should not affect our patient accrual at all. And we're very fortunate that we have a number of versatile 002 investigators with us now who have experience with this drug and are very excited for versatile 003 to get started. Frank Bedu-Addo Thanks a lot, Joe, so along those lines, I think very importantly, I think that the oncologist and the key opinion leaders in the space really understand that this there are very few people who are going to be HPV positive who will be eligible for that new Apan treatment. And one of the things you can see in relation to that is that even at Mayo Clinic, one of the studies that we will be presenting at ASCO has to do with utilizing our Versamune HPV plus KEYTRUDA in that new adjuvan setting for HPV 16 positive patients. And one of the key things that the KOLs mentioned on our last AOL call was that their very strong recommendation for this combination based upon the tolerability that we've seen in the patients today would be to rapidly move it into that earlier stage setting, which would be locally advanced head and neck cancer. we have, we've already seen the experts in the field, based upon the promising results that we've seen in versatile 002, take that. Combination to start evaluating it in this patient population who will not be really impacted, who may not get any benefit from the KEYNOTE-689 since the HPV positive, can we take our combination and apply it now to those patients who may not be eligible for surgery, but can go on this new adjuvant/adjuvant treatment with our we see a significant opportunity for this combination there too. Joe Pantginis Great, I appreciate that added color, Frank and Kirk. So, my second nuanced question is your newly or IND approved, MUC1 program, so I wanted to do a little bit of historical perspective to where we are today and especially your program. I want to focus on the antigen itself; this has been a key target. I mean, MUC1 for immunotherapy and or cancer vaccines for more than two decades now, and there have been some, pretty high-profile failures with this target. So, I wanted to just get a little more sense again from you guys, why are you differentiated here, and I guess can you describe interest, from sites to participate knowing this history. Thanks a lot. Frank Bedu-Addo Really great question, Joe. Well, I'll start by saying that very similarly in HPV 16 positive head and neck cancer, cervical cancer over the last 20 years, there have also been some very high-profile failures. Right. However, with our technology, we now see that for the first time, we have a technology and product that has now has really strong data, very durable responses in moving into a pivotal registrational trial for the first time, right. There have been many failures in HPV 16, positive cancer over the last 20 years. the reason I'm giving you this analogy is it's important to recognize two things, not only the antigen. But the technology that is able to now perform the immunological function that the previous technologies have not been able to perform. That's very important in being able to activate the right immunological signaling pathways and also more effectively present those antigens into the right presentation pathways. So having a strong antigen doesn't get you very far. If it can't be effectively presented. And the right immunological pathways also activated both have to go hand in hand, now, moving from where we've demonstrated that this technology can do this effectively in head and neck cancer with the HPV antigens, we're now moving on to the Mach one after this proof of con solid proof of concept that we've generated the Mach one, these are novel antigens, agonist, what we call agonist epitopes that have been designed by the National Cancer Institute. And what they have, what they, these antigens have been designed to do is to be much more immunologically potent than the native MUC1 antigens. Therefore, having a much stronger ability to activate the immune system to recognize MUC1 as a foreign agent. And what we have now done is now taken our verse immune it with those novel or more potent antigens to facilitate their presentation to the immune system and to facilitate the training of the immune system to recognize them as foreign agents and then also activate those trained T cells to now be a lot more potent in attacking and killing the MUC1 positive And so, really, we have to look at it in the entirety of what's really happening here. The antigen alone does not do much to guarantee you or to generate an effective anti-tumor response. And what we're also doing in the study is combining it with our IL-12 anti-used antibody drug conjugate, right. And so, with the IL-12, we have demonstrated also with our HPV programs that by targeting the tumors and really driving the IL-12 away from the circulating blood, but into the tumors, which is the tumors are the required site of T cell activation, right. So, by being able to get both our T cells. And the IL-12 into the patient's tumors. We've also demonstrated significantly enhanced survival and anti-tumor responses. So, the goal is to apply this combination again to this program is being performed as part of our collaboration, collaborative research involvement agreement with the National Cancer Institute. So, this is a program where the first trial is going to be a single-site study and that's going to be done by the NCI. And this collaboration also allows us to focus our resources and efforts on running our versatile 003 program. Joe Pantginis Frank, really appreciate that detailed explanation and looking forward to see initial data thanks a lot. Frank Bedu-Addo You're welcome. Operator James Molloy, Alliance Global Partners. James Molloy Hi Frank, good you for taking my question. Just a quick, follow up on, 003. Has the first patient, have you guys announced the enrollment of the first patient yet. I, did I miss that, or what's the expectation on that. And then any anecdotal comments, from the docs on how they on enrollment and how sort of that's proceeding or how the conversations are going with the potential enrollees. Frank Bedu-Addo No, we have not made it public in how enrollment is going. So, as James, once the sites are activated, we act the sites actually have a number of internal processes they will undergo followed by screening of patients. So, the patients have to be screened that's part of the process of getting all these patients into the trial. This process is occurring as we continue to activate more sites, and the goal is to hopefully eventually get to a steady recruitment as the larger sites such as Mayo Clinic take longer to activate and get going. So our goal here is to update the markets when we have a much better idea of how enrollment is going and when we are able to approximately estimate when we're going to get to that interim data readout point. So, we will provide more updates when we have much better insight into when we, how the, what the recruitment rates should be and when we'll get to those data readout points. James Molloy That makes sense. Just starting the trial literally to try to guess that yet, I guess, and then maybe, on a mechanistic looking at the print for the OpEx for the quarter. Is this sort of the level we should anticipate going forward or expect that to kind of ramp up going through '25 or '26. Frank Bedu-Addo Lars, I'll hand over to you for that. Lars Boesgaard Yes, hi Jim. This is Las here. Yes, so we don't currently provide financial guidance, but I think it's fair to say that that we're happy the trial is, has been started well, the way it has, and as you probably are aware, right, we do tend to see a bit of a higher spend in the first couple of quarters, like we get the year up and running. So, I think without giving you any specific numbers, I think we see a relatively stable in terms of the trial spends going forward. James Molloy Okay great thank you very much for taking the questions. Operator There are no further questions at this time. I would now like to turn the floor back over to Dr. Frank do for closing comments. Frank Bedu-Addo Thank you, closing, we are very pleased to have initiated the versatile 002 registration trial this quarter. This study is the first phase 3 clinical trial specifically in the growing population of HPV 16 positive head and neck are excited based on the strong Versatile 002 results and our fast-track designation about the potential for Versamune HPV in head and neck cancer. We expect to provide updated results from our ongoing phase 2 versatile 002 study at ASCO in a couple of weeks. Our engagement with investors and clinical investigators has validated our approach and the long-term opportunity that we believe the H targeted immunotherapy presents in the HPV 16 positive head and neck cancer look forward to keeping you updated on our progress. And thank you very much again for your time and support. Thanks a lot. Operator This includes today's teleconference. You may disconnect your lines at this you for your participation. Sign in to access your portfolio
Yahoo
15-05-2025
- Business
- Yahoo
Q1 2025 Creative Realities Inc Earnings Call
Operator Good morning. At this time, I would like to welcome everyone to Creative Realities 2025 1st quarter earnings conference call. This call will be recorded, and a copy will be available on the company's website at following the completion of the call. The company has prepared remarks summarizing the interim results for the 1st quarter along with additional industry and company updates. Joining me on the call today is Rick Mills, Chief Executive Officer, George Sautter, Chief Strategy Officer, and Ryan Mudd, Chief Finance Officer. Mr. Mudd, you may begin. Thank you and good morning, everyone. Welcome to our earnings call for the first quarter ended March 31, 2025. I would like to take this opportunity to remind you that remarks today will include forward-looking statements. The words anticipated, will, believes, expects, intends, plans, estimates, projects, should, may propose and similar expressions or the negative versions of such words or expressions as they relate to us or our management are intended to identify forward-looking statements. Actual results may differ materially from those contemplated by such statements. Factors that could cause these results to differ materially are set forth in our Form 10k and other subsequent filings with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our public filings and in our earnings release that was issued this morning. Investors are encouraged to review these materials. We believe the use of these non-GAAP measures, such as adjusted EBITDA and several other important KPIs, represent meaningful ways to track our performance. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities. Thanks, Ryan. Good morning, everybody. Thank you for joining. I'll start by giving some details of our first quarter financials. We posted revenue of $9.7 million. This quarter versus $12.3 million in Q1 of 2024, as I previously discussed, this revenue decrease is a direct result of installation timing. On several large projects. We expect increased revenue as the year progresses. Gross profit was $4.5 million in the 2025 1st quarter versus $5.8 million last year. The gross margin was 46%, roughly in line with the prior year period. Annual recurring revenue or ARR was at a run rate of $17.3 million at the end of the quarter versus $16.8 million at the start of 2025. As we discussed on our last earnings call and similar to the 4th quarter deployment timing. It was expected to impact the Q1 results, particularly our revenue and gross profit level. However, our adjusted EBITDA of $0.5 million was nominally changed versus last year and the previous quarter due to our active management of underlying overhead cost such that the aggregate SG&A expenses. We're down 11% to $5.2 million this year versus $5.8 million in the first quarter of 2024. Operating costs were also down sequentially from $5.6 million in Q4. These reductions will improve profitability as revenue scales back for the balance of the year. And while our debt rose this quarter, it was largely due to the previously discussed settlement of our contingent liability. As a reminder, at December 301, 2024, CRI carried a contingent liability on its balance sheet of approximately $12.8 million from the merger with Reflex Systems Inc. In 2022 that was to become payable in February of 2025. We ultimately resolve the matter for $3 million in cash utilizing our credit agreement, a $4 million- and $0.30-month promissory note that includes a balloon payment in September of 2027 and the issuance of some warrants. We believe this settlement effectively provides us additional long term financial visibility and flexibility. We replaced some $12.8 million in contingent liability risk and roughly $13 million of debt. With $23.2 million of debt, which includes some short-term working capital increases as Ryan Mudd will review in a moment. We are now free to focus on growing the company but will also strategically use our cash flow to manage debt and optimize our capital structure in pursuit of commercial and perhaps strategic growth. We continue to work on an active pipeline of opportunities and are pleased with a win just recently announced. CRI was selected by a well-known upscale quick service restaurant chain with over 1,000 locations across more than 25 states. And to help lead the transformation of its indoor and outdoor menu boards. The restaurant chain is nationally recognized by its cook to order food, farm fresh ingredients, and excellent customer service. After a successful pilot, which will begin in select locations during the 3rd quarter of 2025, national rollout is expected to proceed. Through this partnership will play a key role in the chain's digital transformation strategy, shifting from static displays to dynamic, digitally driven customer engagement, including personalized messaging and real-time promotions. CRI will deliver a turnkey solution along with consulting, content strategy, hardware provisioning, deployment support, and ongoing day to service all powered by our proprietary CMS platform Clarity. It's a great win for CRI and underscores our growing leadership position leveraging digital applications to elevate a customer's experience and satisfaction. This leadership is not just a matter of our technology but demonstrates our subject matter expertise in the actual underlying business of a vertical such as quick serve restaurant, something our competitors do not bring at all. We'll help this client build a more agile, connected restaurant environment that meets guest expectations and provides flexibility for enhanced applications in the future. As stated last quarter, we remain on track for another year of record performance. We continue to expect revenue to accelerate beginning in Q2 and particularly in the second half of the year. And we are engaged in numerous opportunities that will lead to backlog growth, revenue predictability, and improved margins. Even as we look to make headway strengthening our balance sheet through debt reduction whenever possible, we also expect adjusted EBITDA as a percentage of revenue to rise to 15% by year end. The introduction of our Ad Logic CPM platform has gone well, with more potential clients looking at the power it brings to the enterprise. As a reminder, this innovative solution provides customers with the tool to deliver targeted high performance campaigns at significantly reduced cost. Delivering programmatic capabilities within a self-serve interface that simplifies campaign execution, enhances targeting precision, and eliminates unnecessary intermediation fees. It positions CRI's unique one-stop shop for hardware deployments, an array of day 2 services, and the required ad tech solutions with new monetization models for the company and the customer. We will provide an update on this new innovation and the customers using it in the months to come. CRI remains at the forefront of improving the customer experience across a growing list of innovative clients and brands. We look forward to the year ahead, including growing revenue, expanding margins, solid cash flow, and debt repayment. In short, the future looks bright for CRI, and we appreciate our investors' continued enthusiasm and support. I'll turn it back over to Ryan Mudd to share some additional comments on our financials, Ryan. Thank you, Rick. An overview of our financial results for the first quarter of 2025 was provided in our earnings release in Form 10Q filed earlier this morning, which included the condensed consolidated balance sheet as of March 31, 2025, the statement of operations, and the statement of cash flows for the three months ended March 31, 2025, and a detailed reconciliation of net income to EBITDA and adjusted EBITDA for the quarter ended March 31, 2025, as well as the preceding four quarters. While Rick reviewed our operational results in detail, let me provide a couple points of context related to our balance sheet. As of March 31, 2025, the company had cash on hand of approximately $1.1 million versus $1 million at the end of 2024. As mentioned in prior calls, our consolidated balance sheets reflect minimal cash on hand as the company has set up a sweep instrument to apply against the revolving debt facility to further manage our interest expense. Our gross and net debt stood at approximately 23.2 million and 22.1 million respectfully at the end of the first quarter as compared to $13 million and $0.12 million dollars respectfully at the start of 2025. Our debt level rose, as Rick previously discussed by resolving a $12.8 million. Contingent consideration liability for $7 million which was satisfied with a $3 million dollar payment from our credit facility, the issuance of a $4 million promissory note, and some warrants. The additional $3.2 million dollar increase quarter to quarter reflects short term working capital uses. However, when reconstituting debt as it stood at December 31, 2024 to account for this contingent liability, there's an overall reduction of $2.6 million which is the net of the $5.8 million dollar reduction in the contingent liability through the settlement offset by the $3.2 million dollar increase for working capital needs as we ramp up for the new opportunities discussed herein. With an agreement now in place, we are returning to a strategy of optimizing capital structure and creating capacity on the balance sheet wherever possible. At the end of the first quarter, our leverage on a gross and net basis was 4.91% and 4.67% respectfully, up from 2.59 and 2.39 at the beginning of fiscal 2025. However, we see improvement going forward and remain dedicated to managing our debt as we continue to evaluate and mitigate to an optimized capital structure in support of our growth. I will turn it back to Rick for additional comments on our results and customer activities. Thanks, Ryan. Our engagement with potential customers and prospects is at an all-time high. We are pleased with the pipeline and the sheer number of discussions going on with potential prospects. Our sports entertainment team has also been expanded to facilitate our anticipated growth in this sector as we move into 2025. The company completed an NHL arena during the 3rd quarter of 2024, its largest deployment of this kind, and we have tremendous momentum in this market moving into the new year. In Q1 2025, we were awarded three MLB projects of varying sizes and types, and we have an additional 7 POCs or proof of concepts going on at other venues across the US. Now, let's talk about BCTV. The BCTV project continues to move forward at a slower pace in the first two quarters of 2025. All total we have completed 300 plus site installations to date and have recently received communication to move forward with the next 200 or so sites beginning in Q3. We would expect to install more than 50% of these locations through the balance of the year which would generate approximately $3 million in revenue. Another additional network we have previously announced is the Digi point Media Network. This is a retail media network on ice boxes across groceries and sea stores. It appears they are ready to move forward with deploying approximately 2000 sites beginning in the third quarter. Assuming this moves forward, and we install all locations in the second half of 2025, it would generate in excess of $4 million in hardware and installation revenue with additional SA revenue from our CMS and Ad tech software solution. Our cloud and software development teams have been working towards SOC to type 2 compliance. CRI achieved Sock 2 Type 1 compliance in Q1 of this year and expect to achieve Type 2 by year end. SOC2 compliance is a valuable credential that demonstrates the trustworthiness and the credibility of our products to enterprise customers. This is yet another indicator of our acceleration in the marketplace. One additional fact about 1, we revamped our operations and warehouse facilities. We transitioned to a larger space in the same building and significantly increased the capacity of our warehouse to process orders and projects. This significant increase in capacity came at a minimal increase in our cost. We are well positioned for the tremendous growth we expect in the second half of this year. With that, we'll now move to the Q&A portion of the call. Please go ahead, operator. Operator Thank you. Ladies and gentlemen, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your questions simply press 11 again. Please stand by while we compile the again roster. My first question coming from the line of Brian Kinstlinger with Alliance Global Partners. The line is now open. Great, thank you. You talk about the expectations as it relates to screen installs for your large QSR win maybe. That can have 25 and 2026 and then what percentage of franchisees have expressed interest in opting in. Brian Rick here, thanks, great question. So, it is our expectation that we've got POCs actively happening a couple of test sites literally this quarter POCs in Q3 and then beginning end of Q3 20 locations or more per month. As we announced they have over 1,000 locations and they have 600 of those locations have already indicated interest or signed up to convert to digital. So excited about that overall, we look at it as a 2-year project? Probably not, probably 3 years, so probably about 300 sites a year, ballpark ish. Great, that's helpful. And then you highlighted delays in the first quarter. Can you just give us some more detail of what led to those delays and is it broad based or is it, one or two clients? And have, has that reversed yet in the second quarter? We've started to see a reverse. It was actually 3 separate projects, okay? So, it's not across the board. Right, but we had 3 clients, 3 unique projects. Each had its own set of difficulties, and that's why we saw that back in Q3 of last year. And it's why we wanted to communicate crisply to you and the investor base that Q4 and Q1 were going to be like. We're through that period. We're on track and feel very comfortable on a go forward basis. Right Now, it's great to see the QSR win taking over the goal line. I know you've talked about a handful that were right there. Can you talk about the pipeline of the other large procurements that you've highlighted in recent quarters and with the global trade uncertainty, is that slowing decisions or are you still progressing with your discussions on some of the other large opportunities? We're still progressing, but with a number of opportunities. Again, our top 10 opportunities, the quality and size of the top 10 opportunities even versus 18 months ago, are significantly enhanced and improved. Okay, number one, so a very bullish on those. Opportunities #2. You talked about, global uncertainty and tariffs and those things. As of yet. Our industry, when I say industry, the specific signage, okay, market has not yet been terribly affected by tariffs. All the screen manufacturers product comes out of Mexico, right? So as long as the US and Mexico keeps open and doesn't go crazy, should not be an issue with screens. The other issue that we have concerns about are the mounts. Mounts are made of steel and the price of steel coming into the US could affect that. As of now, we don't have any customer that says, hey, I'm putting this project on hold because of tariffs. We have not had any of those conversations. However, I think we would all be cognizant. All of us are looking around and trying to understand the new normal landscape, which appears to be very uncertain with this tariff in play. Great, my last question, the company's Ad tech solution has gone through some significant upgrades and functionality. Can you talk about either how you're seeing any increased demand, how the tax rates maybe are improving, just any kind of progress or success you're seeing as it relates to that offering. Well, first off, the ad tech or what, let me back up. The market or ad tech is very much focused on is what we would use the term retail media networks, right? Retail media networks is very much in the early game. Okay. And why is that in the early game? Because retail media networks require significant capital outlay. Now, the benefit of an end user who is flipping their signage to a retail media network is it now becomes an income producing machine for the end user customer instead of an expense. So, everybody's interested, everybody's looking, everybody's testing. As you know from our pedigree, we have 10 significant large retail customers, we talk about Macy's, we talk about Verizon, Best Buy, etc. All of them are investigating media networks and so we are primed and positioned with a number of current customers and perspective customers to deploy retail media networks. We see our ad tech having significant impact. Significant potential impact from a revenue perspective in 2026 and 2027. Great. Thank you, Rick. Thanks, Brian. Operator Thank you. Now, next question coming from the lineup. Jason Craer from Craig Haum Capital Group. Your line is now open. Great, thank you. This is Cal on for Jason. So firstly, we can just revisit the large QSR win that you had, just curious. Why you won and if you believe that this win could also contribute to larger, additional large wins as you continue to validate your position in the market. Great question, Cal. So, number one, the answer is to the second half of the question is, will it give us credibility for additional wins? Absolutely. Yeah, it's a first-class brand and when you win first class brands, people sit up and take notice. Oho, maybe I need to be talking to those folks, right? That's #1. #2, this one was a unique circumstance. In that They actually went through two RSP processes over a 2-year period and due to some internal shuffle at the customer, we actually won the first time, and they decided to repeat the process using third party advisors and then we ultimately won again so we feel very comfortable that. That's a sign of how strong we have emerged in this vertical over the last 3 or 4 years. Great, and then maybe secondly, just curious, what are the things that you guys are doing today? You kind of alluded to some things, with the warehouse capacity, but just kind of curious the investments and, different changes that you're making today to position your company to kind of build on the second half of the momentum and and into 2026. Again, great question. Number one, we wanted to, we needed to reposition our facility a little bit. We had been in an older part of the building that hadn't been upgraded, remodeled. We took advantage to move to more space at a lower cost per square footage. It was nice upgrade from the administrative operational side of the business. From the warehouse side of the business we have effectively increased significantly. I'm not prepared to say that 50% or 100%, but our cubic storage to move pallets of product through is significantly increased. Why? Because that we believe we need that for the second half of this year. Other than that, investments that we make tend to be on our technology. We don't spend a lot of money on brick and mortar and the need for Enhanced machinery and and computer equipment all tend to be very de minimis in the overall scheme of things. So for us it's investing in our platforms and we continually invest in our platforms every month, but that's about it. Other than that, we don't anticipate any significant CapEx spends by any means. Great and then maybe just to kind of follow up on that one, you talked about the increased warehouse capacity kind of alluded to some of the tariff impacts earlier, but just curious if you're seeing anything as far as a pull forward in demand for signage or deployments given kind of some of the tariff uncertainty and and how things like expanded warehouse capacity can give you more flexibility to kind of adjust to any impact that you know the tariff kind of back and forth can can have on the business and customer demand. We have had some minor hardware pull forwards because people 3 months ago were concerned as the terrorists started to get implemented. Nobody knew the landscape and I think today nobody really knows the landscape at this moment on a go forward basis. So we had a couple smaller customers look at, hey. I'm going to go ahead and hedge my bet. They were relatively small, might be 200 screens here, 300 screens there. We do not have anybody that hedged the bets and said, I'm going to take 10,000 screens my next year, a year and a half, and put it in storage. We have not seen that at this point in time. If we do see that, we would see the use of a bonded warehouse type strategy to get the product in the country but avoid tariffs, etc. Great thank you so much for taking my question. Thanks Kal. Operator Thank you. And as a reminder to ask a question, please press star 11 on your touchdown telephone and wait for your name to be announced. And our next question in you coming from the line of Howard Halpern from Taco Brothers In line is now open. Good morning, guys. Good morning. Hey Howard, hi, could you talk a little bit more about the sports and entertainment vertical? You talked about you have 7 proofs of concepts coming down the road, but could you maybe discuss what's behind that and you know what type of appetite those type of customers have for spending and deploying your product? Great question. Number one, the answer is the sports entertainment vertical, has a high appetite to spend. And when we say high appetite to spend, everybody is looking at how can I upgrade my facility and make it more fan-friendly, right? That's #1. Number 2, as they make it more fan-friendly. They deploy digital, which then gives them a greater ability to generate income from those screens because remember, sports entertainment were the first vertical that generated income from screens, right? That's been doing that for a long time, so they're now all looking at enhancing theirs. So #1, 2, you tend to look at POCs and you do a POC and you tend to do that during your team's season so that once the offseason occurs, that's when you tend to upgrade the facilities. So for example, we had a lot of POCs in baseball because now they're all POCing. When the baseball season ends, we in theory could expect to see some POCs at the end of baseball in the fall go into we could have some wins. So you've got to think about the team or the sport and then when is its season. So we expect our goal is, and we're way out in front of that. We're engaged in probably 3 to 5 conversations with folks who have stadiums either under construction or B in the planning stages and the beauty of sports entertainment is we have the ability as we move into 2026. To sign some potential agreements that are a year and a half out that give us real predictability of revenue. Hope that helps or. If we could talk a little bit about, the, you mentioned the DG point, the icebox, is that. If that gets deployed like you expected to, is that going to be an incremental improvement in revenue and to day two services, especially on maybe the ad tech side or running some of the ad tech that might go on those go on the hardware. Spot on, the thing we really like about the that particular network is they've adopted our entire tech stack from top to bottom, so it would use our CMS, it would use a server, it would, it uses ours campaign planning management tool so it uses all three of the major points of our [SA] and ad tech software so that's, we're looking forward to getting that deployed and running. So that we can use that to show other retailers how it works when it's been deployed at scale at, several 1,000 locations across America. Okay, and one last one, how is the landscape looking in Mexico for opportunities down there? Actually, quite good. We have. what, I maybe not up to date. Literally, I believe it is next week we have a POC going in one of the TOP 3 convenient or C store chains in Mexico. It's supposed to install in May, and I think it's May 20th, so it's probably another week or two. So, there's that as a matter of fact, there's a call this week with. One of the TOP 5 major retailers in Mexico, to talk about a retail media network. So it's, we put our toe in the water, we've been steadily making progress, but for us, and by the way, we also have a couple stadiums that we are engaged in discussions with. We look at Mexico as really potentially adding revenue potentially in 2026. Okay, well, thanks guys and keep up the great work. Thanks Howard. Operator Thank you and I'm showing up for questions from the phone line, so I will not send it back to Mr. Ryan. Thank you. And before we make any closing remarks, I do want to take a moment to acknowledge we did receive some questions through our investor inbox. Rick, can I ask you to go ahead and take a moment to address those questions? Sure, happy to. So a couple of investors took time to send us some questions. Number one, there was some questions about bowling, and I think we've kind of clarified that, so I won't really talk about that. 2, somebody wanted an update on our, win rate and what does that look like, our success rate. And how many RFPs or competitive processes do we enter in a year? So Typically that number in the last 12 to 18 months realistically is between 30 and 40 per year. However, the main thing to understand is typically in a typical year 50% of those customers will not make a decision. It will push for 2 or 3 years just like we talked about the QSRON that took 2 years. So just cause we answer 30 to 40 RFPs, 50% of them never see the light of day, or I don't say see the light of day, 50% of them get pushed or rolled down the pike. Out of the others, we have a still healthy success rate. We've talked about a 70% win rate. Our track record shows that. However, Then once you've won, the customer has to make the decision to go ahead and deploy, and that may take a year or two for a capital cycle. So as we've always talked about our process tends to be long and drawn out. Another question about, is if this customer was one of the customers at the 1 inch line or 1 yard line. The answer is yes. That recent win is we have a couple more that we have been fostering for quite some time that we are very close and hopefully we look forward to making some significant announcements throughout the balance of the year. I think, is there, were there any others, Ryan, that that should look at? I'm showing no more, no, sir. All right. So let me, I guess, go ahead and let me conclude the call by thanking all the shareholders, clients, partners, and employees for their continuing effort, commitment, and support as we work together to transform creative realities into the leading brand in digital signage solution. We look forward to speaking with you and everybody again next quarter. Thank you. This can include today's conference call. Thank you all for your participation, and you may now disconnect. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
15-05-2025
- Business
- Yahoo
Q1 2025 Sanara Medtech Inc Earnings Call
Ronald Nixon; Executive Chairman of the Board; Sanara Medtech Inc Seth Yon; President, Chief Commercial Officer; Sanara Medtech Inc Suresh Muppalla; President and Chief Executive Officer of Tissue Health Plus, LLC; Sanara Medtech Inc Elizabeth Taylor; Chief Financial Officer; Sanara Medtech Inc Yi Chen; Analyst; H.C. Wainwright & Co Ross Osborn; Analyst; Cantor Fitzgerald Operator Welcome to the Sanara MedTech first quarter of 2025 earnings conference call. Please note that this conference call is being recorded, and a replay will be available on the investor relations page of the company's website shortly. The company issued its earnings release earlier today. Before we begin, I would like to remind everyone that certain statements on today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1,995. For more information about the risks and uncertainties involving forward-looking statements and factors that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in the company's most recent annual report on Form 10k. This call will also include references to certain non-GAAP measures, reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings materials available on the investor relations portion of our website. Today's call will be hosted by Ron Nixon, Executive Chairman and CEO, and feature additional remarks from Seth Yon, President and Chief Commercial Officer, Sam Muppalla, President and CEO of Tissue Health Plus, and Elizabeth Taylor, Chief Financial Officer. I would now like to turn the call over to Mr. Nixon. Please go ahead. Ronald Nixon Thanks, operator, and welcome everyone to our first quarter of 2025 earnings call. Let me provide a quick agenda for today's call. I'll start by discussing a few of our financial and operational highlights from the first quarter. Seth will then discuss the commercial execution and progress made in our scenario surgical segment and outline the multiple growth opportunities we're focused on pursuing. Next, SAM will provide an update on our tissue Health Plus segment. And finally, Elizabeth will review our quarterly financial results in further detail before opening the calls for questions. Beginning with our first quarter highlights, our Sonari surgical team delivered net revenue of $23.4 million, representing 26% growth year over year. This performance was consistent with our expectations for the quarter and represents a strong start to 2025. Our net revenue growth was driven primarily by sales of our soft tissue repair products, which increased 28% year over year to $20.5 million. Specifically, we saw strong growth in sales of both our CellerateRX, surgical and Biasurge products, which continue to fuel our performance. We were also pleased to see contributions from sales of our bone fusion products, which increased 18% year over year to $2.9 million, with growth across multiple products in this portfolio. As Seth will discuss in detail, our sales performance reflects impressive execution by our Sanara surgical commercial team on our growth strategy. We remain excited by the large greenfield opportunity that remains ahead of us. In addition to our scenario surgical segment revenue performance, we also enhanced our gross margins. Net loss per Sanara surgical segment increased by $200,000 dollars year over year to $600,000. And importantly, we were pleased to see some neurosurgical segment adjusted EBITDA increased by $1.5 million year over year to $2.7 million. In our tissue Health Plus segment, we continue to invest in the development of this value-based wound care strategy as we prepare to launch our pilot program with a wound care provider later in the second quarter. We are in active discussions with multiple potential financial partners to invest in the execution of our tissue Health Plus strategy and Ryan focused on allocating capital strategically and thoughtfully between our two business segments. In terms of our other operational highlights in the first quarter, as discussed in detail on our last earnings call, we enhanced our new product pipeline by securing the distribution rights to two additional technologies and expanded our senior leadership team with key appointments. We also amended the terms of our debt facility to provide increased financial flexibility as we execute our growth strategy. Lastly, our team has continued their work to strengthen our portfolio of clinical evidence. We look forward to having multiple clinical manuscripts submitted for publication in key medical journals in 2025. I'm proud of our entire team's performance this past quarter across multiple fronts and look forward to continuing our momentum over the balance of 2025. I'll now turn it over to Seth to discuss the commercial execution and growth opportunities in our scenario surgical segment. Seth Yon Thanks, Ron. As Ron mentioned, our Sanara surgical segment commercial team delivered net revenue growth of 26% year over year. This growth was driven by our team's execution with respect to the following 3 initiatives related to our commercial strategy. One advancing and deepening our distributor relationships. Two selling into new healthcare facilities, and three further penetrating the existing healthcare facilities we serve. Beginning with the first of the three commercial initiatives, we significantly expanded our network of distributor partners. Specifically, at the end of the first quarter, our team had engaged and secured selling agreements with over 400 distributor partners compared to over 250 of the first quarter of 2024 and over 350 at the end of 2024. As a reminder, our expanded distributor network provides us with increased sales coverage and presence in key markets across the US. Turning to our second commercial initiative, we continue to add new healthcare facilities to our customer base by securing value analysis committee approvals and commencing sales to surgeons at these facilities. Over the last 12 months, our products were sold in over 1,300 facilities compared to over 1,080 facilities in the prior year period. With respect to our third commercial initiative, we increased our penetration of the existing healthcare facilities we serve by increasing the number of surgeons using our products within these facilities. While it's not our practice to disclose specifics related to our active surgeon user base, I'm pleased to share that we saw solid growth in the number of surgeon users on a year over year basis in quarter one. With this as a backdrop, we're pleased with the execution of our team and the progress we're seeing on our commercial strategy. We believe our commercial performance speaks to the durability of our customer base as well as the value that our Sanara surgical products provide. As surgeons gain firsthand experience with the use of our key products like CelerateRX Surgical and Biasurge, the value they bring to their procedures often leads them to become dedicated long-term users. Looking ahead, we remain focused in 2025 on pursuing these three commercial initiatives to capitalize on the multiple growth opportunities ahead of us. I'll now take a minute to outline some of these growth opportunities and our specific plans to pursue them over the balance of the year. While we will continue to add new distributor partners selectively, given our progress on the front over the last 18 months, we are increasingly focused this year on onboarding our recently added distributors and positioning their reps for success in selling our products. Our existing distributor network represents thousands of third party sales reps. Importantly, only a percentage of these reps are currently selling our products. This is especially true for our larger distributor partners and our distributor partners engaged in recent quarters. With this in mind, increasing the number of distributor reps selling our products within existing distributor relationships represents a significant growth opportunity for our organization. In 2025, our team is focused on onboarding, training, and providing the requisite technical support needed to help additional reps within each distributor to begin selling our products. In parallel, we will continue to focus on adding new surgeon users within the more than 1,300 facilities that we currently serve. The vast majority of these facilities are hospitals and importantly, our surgeon penetration within these facilities remains low. Adding new surging customers within our existing facilities continues to represent one of the largest untapped areas of growth for our organization. Lastly, we'll focus on continuing to add new healthcare facilities to our customer base with the goal of selling into more than 1,450 facilities by the end of 2025. As a reminder, we have contracts or approvals with over 4,000 facilities. This represents a significant opportunity for our commercial team and distributor partners to begin selling into new facilities. For all these reasons, we continue to believe we're in the early innings of our commercialization effort. We look forward to capitalizing on the multiple growth opportunities ahead of us as we educate prospective surgeon customers about the benefits for our products. With that, I'll turn it over to Sam to provide an update on Tissue Health Plus. Suresh Muppalla Thanks Seth, 2025 has been a period of focused execution for Tissue Health Plus. Thanks to the hard work of the team, we announced the availability of the first release of THP's technology platform on May first as planned. This is a pivotal milestone in our journey to disrupt non-acute wound care. The THP Tech technology platform release included THP co-pilot, our software offering which is designed to standardize wound care and reduce the administrative burden for wound care clinicians across all settings. THP Co-pilot consists of a mobile app designed for use by clinicians, which integrates both our software as a medical device and clinical decision support systems. These tools aid clinicians' ability to deliver precise and personalized wound care while not replacing their professional judgment. Additionally, THP co-pilot includes an administrative autopilot which for clinicians automates the process of enforcing reimbursement guard rails, optimizing billing codes, ordering medical supplies from durable medical equipment companies, and tracking the delivery of those supplies. THP co-pilot is also designed to integrate with the clinician's existing electronic medical record systems, which eliminates the need for charting after a clinician's encounter with the patient. THP co-pilot was developed on the top of CarePix Technology stack, which we acquired on April first. In advance of this acquisition, our team had been previously partnered with CarePix over the past year to leverage both the functionality and the technology frameworks which formed the foundation of our THP technology platform. Specifically, we use the mobile app functionality to accelerate the development of our THP copilot app. Our THP technology platform release is being implemented with the wound care provider group in preparation for the launch of our first pilot program. The implementation process involves configuring the wound care provider's clinical and administrative workflows to support an integrated wound care operating system aligned with their growth strategy. With this as a backdrop, we remain on track to launch our first pilot program with the wound care provider group later during the second quarter as previously discussed. Our team is also focused on raising the awareness of our THP offering in the provider market. Our THP solution was very well received last week at the symposium of advanced wound care spring meeting, one of the premier annual conferences for healthcare professionals and companies in the wound care industry, and we're building a strong pipeline of interested providers. In addition to these efforts, we continue to focus on launching a pilot program with the pair during the second half of the year. I would like to now turn this over to Elizabeth to review our first quarter financial results in more detail. Elizabeth Taylor Thanks, Sam. I will begin my remarks at the gross profit line since Ron discussed our quarterly revenue performance unless otherwise specified, all growth rates referenced during my prepared remarks are on a year over year basis. First quarter, gross profit increased $5 million, or 30% to $21.6 million. Gross margin increased approximately 240 basis points to 92% of net revenue, driven primarily by lower manufacturing costs related to Cellerate or surgical. First quarter operating expenses increased $5.5 million, or 30% to $23.7 million. The change in operating expenses was largely driven by a $5.2 million or 32% increase in selling general and administrative expenses and to a lesser extent, a $0.2 million or 18% increase in research and development expenses. The $5.2 million increase in SG&A expenses primarily reflects $2.4 million of direct sales and marketing expenses in our neo surgical segment, $1.7 million of SG&A expenses in our tissue Health Plus segment, and approximately $0.7 million of costs related to the build out of our corporate infrastructure. Note the tissue Health Plus segment SG&A expenses are primarily related to the buildout of certain aspects of the THP platform and infrastructure, which accelerated beginning in the second quarter of 2024. Operating loss in the first quarter was $2.1 million compared to a loss of $1.5 million last year. Importantly, our scenario surgical segment generated operating income of $0.8 million in the first quarter of 2025, an increase of $1 million year over year. Other expense for the first quarter was $1.4 million compared to $0.3 million of expense last year. The increase in the other expense was primarily due to higher interest expense and fees related to our CRG term loan. Net loss for the first quarter was $3.5 million or $0.41 per diluted share compared to a net loss of $1.8 million or $0.21 per diluted share last year. By segment, our scenario surgical segment generated a net loss of $0.6 million compared to a net loss of $0.4 million last year, and our tissue Health Plus segment generated a net loss of $2.9 million compared to a net loss of $1.4 million last year. Adjusted EBITDA for the first quarter of 2025 was $0.7 million, an increase of 111% year over year. By segment, Cinna Surgical generated segment adjusted EBITDA of $2.7 million compared to $1.2 million last year, and Tissue Health Plus generated segment adjusted EBITDA loss of $2.0 million compared to a segment adjusted EBITDA loss of $0.9 million last year. With respect to our balance sheet, as of March 31, 2025, we had $20.7 million of cash, $42.8 million of principal debt obligations outstanding, and $12.25 million of available borrowing capacity. This compares to $15.9 million of cash, $30.5 million of principal debt obligations outstanding, and $24.5 million of available borrowing capacity as of December 31, 2024. During the first quarter, we amended the terms of our CRG term loan agreement to provide more flexibility with respect to the timing and amount of potential future borrowings, and borrowed an additional $12.25 million. As a reminder, our loan agreement provides for one additional borrowing of up to $12.25 million on or before December 30, 2025. Lastly, a few considerations to bear in mind for the remainder of the year. As Ron mentioned earlier, our net revenue performance in the first quarter was consistent with our expectations, and we remain pleased with our start to 2025. Our team remains focused this year on delivering net revenue growth driven by our Sanara surgical segment. We continue to expect improvements in our scenario surgical segment profitability in 2025. With respect to our tissue Health Plus segment, we expect our cash investment in the first half of 2025 to be approximately $7.5 million to $8.5 million compared to our prior expectation of $7.5 million to $10 million, excluding the acquisition of CarePix. This implies cash investment in the second quarter of 2025 of approximately $4 million to $5 million. Note. This expectation does not include the CarePix acquisition, which, as SAM mentioned, we completed on April first for a total of $3.65 million upon closing. We also remain focused on pursuing financial partners to invest in the execution of our tissue Health Plus strategy. With our existing cash on hand, the expected cash generation in our scenario surgical segment in 2025, and the available borrowing on our existing facility, we believe we have the requisite capital to continue to pursue our strategic growth initiatives. Lastly, with respect to tariffs, it is important to note that with the exception of Biasurge, all of our commercial products are manufactured in the United States. With this in mind, we do not anticipate a material impact from tariffs on our results of operations in 2025. With that, I'll turn it back to the operator to open the call for questions. Operator Thank you. (Operator Instructions) Your first question for today is from Ye Chen with HC Wainwright. Yi Chen Good Morning. Eduardo just to get a little bit more color on your rates of penetration and understanding intuitively that seems like the area where, you probably get the most benefit in ROI approaching profitability. It's kind of your vision for how you're going to improve penetration at existing facilities, and your strategy there. Ronald Nixon Yeah, Seth, would you mind taking that, please? Sure, I. Seth Yon Of course, good morning. We do it with really a coupled approach between our RSMs, which we've talked a lot about in the past, territory managers as well, and then our distributor expansion. So our distributor expansion has jumped significantly over the last 18 months, and that's been done intentionally for that very reason. It's to get us access into new accounts but also to penetrate existing accounts deeper and further. So, it's really a coupled approach between both the RSM and our distributor partners. Yi Chen Got it. And is there any kind of signal on reorder rates, that you could provide that, you mentioned that people who use the product really like it, do you have any numbers on the reorder rates? Seth Yon We haven't provided that in the past. I will say this. Our business tends to stick, both on the Cellerate side and Biasurge alike. Once surgeons gain comfort with those two products, and that takes some time to do that. Oftentimes they'll start with high-risk cases to see how products perform, and then as they do perform highly and with highly successful rates, they continue to use that and expand that across more procedures. Yi Chen Okay, got it. That's really helpful. Thanks for the taking the questions. Ronald Nixon You he thanks you. Operator (Operator Instructions) Your next question for today is from Ross Osborn with Cantor Fitzgerald. Ross Osborn Hey guys, this is Matt Park on for us today. Thanks for taking the questions. I guess starting off with gross margin, came in very strong in the quarter. Can you, help us frame how we should think about gross margin cadence for the remainder of 2025 and any areas for further leverage those volume scales? Ronald Nixon So Ross, this is wrong. So how I think about it is when we bought the technology from the original designer developer of the product and, last year, that actually gave us some advantage on the manufacturing side because there was some additional margin there that to be had. So, I would say that it's you never can tell what external other costs could come about. So, I just think modelling it in your, just kind of consistent with how you've done it in the past is probably good to go forward. I can't see us achieving a lot more leverage than what we have today on the gross margin side. Ross Osborn Got it. That's helpful. And then, just one more for me on, tissue health plus, given that you remain on track for a pilot program launched in the second quarter, can you help walk us through what success will look like in this initial phase, whether that's clinical outcomes, patient volume, or economic validation, and how quickly you anticipate scaling beyond the first sight. Thanks. Ronald Nixon Yeah, that sounds good. Suresh Muppalla Sorry Ron, I jumped the gun there. So, Ross, to just to answer your question, we're really looking at the success of the pilot being measured in three sets of metrics. First is the clinician facing metrics. These include things like protocol and formal adherence. So, to just remind you, one of the key things we are actually implementing as part of our platform is a clinical decision support which. The clinic, so how well they adhere to the protocols and the formulary. That's a key metric there. The second metric facing the clinician again is helping them decrease their post-encounter time. So, for every minute the clinician spends in front of a patient, they could be spending up to two to three minutes. After the patient encounter completing the documentation, so that is a key metric we are trying to influence. And the last is clinician metric is around completion of documentation, how well documented is the encountered. On the operating side, which is the second category of metrics, we look at things like increase in staff productivity. And the way we do that is before we started the implementation, we have actually done time and motion studies of them of their practice end to end so we have baseline timings, and we look at improvements based on our workflow technology or how we are helping them with that. We also look at increased capture in billing services per visit, and we also look to decreasing inventory. Wound care related inventory costs and wastage. So, some high level operational metrics. The third bucket of metrics we look at are adoption metrics, which is, for example, the person that the clinicians using our THP copilot, what's the user satisfaction surveys, NPS, so on and so forth. Ross Osborn Got it. That's helpful. Thanks for taking the questions, guys. Operator We currently are seeing no remaining questions at this time. That does conclude our conference for today. Thank you for your participation.
Yahoo
14-05-2025
- Business
- Yahoo
Q2 2025 Genasys Inc Earnings Call
Brian Alger; Senior Vice President Investor Relation and Corporate Development; Genasys Inc Richard Danforth; Chief Executive Officer, Director; Genasys Inc Dennis Klahn; Chief Financial Officer, Secretary; Genasys Inc Scott Searle; Analyst; Roth Capital Mike Latimore; Analyst; Northland Capital Edward Woo; Analyst; Ascendiant Capital Operator Good day: ladies and gentlemen, and welcome to the Genasys Fiscal Second Quarter 2025 results conference call. All lines have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Brian Alger, SVP, Investor Relations and Corporate Development. Welcome, Brian. The floor is yours. Brian Alger Good afternoon. Welcome to Genasys's fiscal 2025 2nd quarter results conference call. I'm Brian Alger, SVP Investor relations and corporate development for Genesis. With me on the call today are Richard Danforth, our CEO; and Dennis Klahn, the company's CFO. During today's call, management will make forward-looking statements regarding the company's plans, expectations, outlook, and future financial performance that involves certain risks and uncertainties. The company's results may differ materially from the projections described in these forward-looking statements. Factors that might cause such differences and other potential risks and uncertainties can be found in the risk factors section of the company's Form 10k for the fiscal year ended September 30, 2024. Other than statements of historical facts, forward-looking statements made on this call are made based on information and management's expectations as of today, May 13, 2025. We explicitly disclaim any intent or obligation to update those forward-looking statements except as otherwise specifically stated. We will also discuss non-GAAP financial measures and operational metrics including adjusted EBITDA bookings and backlog which we believe provide helpful information to investors with respect to evaluating the company's performance. For reconciliation of adjusted EBITDA to GAAP financial metrics, please see the table in the press release issued by the company at the close of the market today. We consider bookings and backlog leading indicators of future revenues and use these metrics to support production planning. Bookings is an internal operational metric that measures the total dollar value of customer purchase orders executed in a given period regardless of the timing of the related revenue recognition. Backlog is a measure of purchase orders received that are scheduled to ship within the next 12 months. Finally, a replay of this call will be available approximately 4 hours through the Investor Relations page on the company's website. Now, at this time, it's my pleasure to turn the call over to the Genasys' CEO, Richard Danforth. Richard? Richard Danforth Thank you, Brian, and Welcome everyone. Fiscal 2025 is turning out to be an exceptional year for Genesis. On a February call, we discussed how the January fires in LA brought global attention to the use of Genesis Protect for managing emergency response and evacuation notifications. As we have stated multiple times, the Genesis Protect platform proved to be incredibly resilient and effective at saving lives. The balance of the March quarter progressed largely as expected, but one meaningful LRAD order that was expected to close moved to our fiscal 3rd quarter. Since last November, we have known that the second half of fiscal 2025 was going to see tremendous growth and acceleration in our hardware business. Throughout the March quarter and continuing into our 3rd fiscal quarter, design, planning, and procurement for the Puerto Rico project has been progressing well. Recently we began implementation and installation work on the first of 19 dams currently approved. Substantially all of the materials for the 1st 3 groups have either been received or are on order. In Puerto Rico since the final week of March quarter, we have been expecting the down payment for the 3rd group of dances. The designs have been approved. Our invoices for the down payment have been delivered and approved. All of the authorizations for the payment have been made. We have not yet received a deposit, however. To be clear, this has absolutely nothing to do with FEMA or anything else occurring in Washington DC. The FEMA money for the development and installation of the early warning system for the identified 37 dams in Puerto Rico was funded in early 2024. We have received multiple assurances from our customer that the payment will be made shortly. That said, management and the board made the decision to obtain additional capital to maintain momentum and enable Genesis to capture the opportunity at our doorstep. Because of the timing and various provisions within our existing secure debt agreement, we signed a $4 million first amendment to the term loan with our creditor White Fox. This smaller loan comes at the same interest rate as the original debt but is intended to be very short term. In fact, it expires at the end of this calendar year. Additionally, the agreement comes with a statement for the availability of an additional $4 million to be made at Genesis. Suffice it to say, if we had received the down payment for the third group, we would not have sourced the bridge capital. We continue to drive to an aggressive timeline that delivers all of the hardware for the 1st 3 groups to the island by the end of this fiscal year with installation schedules already underway. Dennis will go into the revenue recognition in much greater detail, but hitting the schedule as it stands today would result in record quarterly revenue in the 4th quarter this fiscal year. Beyond the project in Puerto Rico, bookings for our LRAD business continue to track ahead of our last year, driving further improvements in our 12-month backlog. This is in spite of a handful of opportunities slipping, including the one I just referenced. International and domestic demand continues to improve for both critical infrastructure as well as military needs. New use cases continue to emerge like a recent article that described the use of LRAD units on autonomous surface vessels in Singapore or the upgrading of physical security systems like the one we recently announced for the SIP-14 electrical substation here in the US. Looking out a bit further, the project award in Puerto Rico is providing a meaningful proof point in a number of countries looking to provide citizens with reliable emergency communication. Finally, I want to take a moment to talk about Crow's AHD program. Like its predecessor, this program is expected to span multiple years with eventual deliveries of thousands of LRAD units. Based on our conversations with the Army Program Office, we expect to receive the initial production order under this program this fiscal year. Given that we don't yet have the purchase order, we cannot state for certain the size of the order or our ability to complete deliveries against that order this fiscal year. However, the importance of this milestone is critical, as it should serve as mice to our LRAD business for the next several years. We look forward to updating you further. Purchase order is issued. Now I would like to shift gears and speak a little about our software business as you all are aware, we had a major proof point this past January. While that won't convert into instant lift in revenues, it has contributed to a number of opportunities. Since the fires within LA County alone, we are in various stages of discussion with three separate communities for implementation of EVAC and acoustic systems. Nationwide, the performance of the system during the LA complex of fires, as well as the high-profile events in Oklahoma, North Carolina, New Jersey, and even Long Island, are contributing to an expanding pipeline. Still a way from closing and being converted to revenue, this pipeline measurement has increased more than 100% since the beginning of fiscal 2025. Many of you are aware of Congressman Garcia's recently released a report regarding lessons from the Kenneth Fire false alerts. The event highlighted a breakdown in alert targeting that originated from within a complex environment of rapidly evolving conditions, overlapping systems, and high-stake decision making during a historic disaster. Importantly, what has not been covered by this investigation, nor in any media reports are the dramatic improvements Genesis software enabled in quickly disseminating evacuation notices to the public. During previous devastating wildfires, the elapsed time from first responder requesting evacuations to evacuation alerts being issued averaged 40 to 60 minutes. Using the Genesis Protect platform, LA County reduced the average time to 6 minutes. This significantly, significant improvement likely saved hundreds and possibly thousands of lives. What we witnessed was more than just technology at work. It was a culmination of dedication, preparation, and coordination across multiple agencies. Emergency teams sent over 400 zone status changes to critical lifesaving situations through Genesis all in record time. As the report mentioned, a local network level disruption interfered with data transfer to a federal alerting backbone iPod. The alert was correctly configured by the operator and properly localized across all channels. Intermittent network issue prevented the targeted area from registering in one channel, result resulting in a broader than intended warning. This wasn't a software failure. It was a breakdown in connectivity in the middle of a crisis. Networks are strained with the unprecedented condition around Los Angeles County. Since that initial incident, we have taken the following actions implementing new safeguards, strengthening cross-channel validation, and introducing fail-safes to ensure that geo-targeting data is fully aligned or any alert is sent. These enhancements will live within 48 hours of the original occurrence. Our technology remains the most widely deployed multi-channel a learning platform in California and continues to expand nationwide. We remain the trusted targeted communication partner to agencies across 39 states with Genesis Protect, and we are expanding rapidly. Our platform is stronger, smarter, and more resilient because of what we've learned, and we're only accelerating from here. In addition to the tailwinds for EVAC that have come in the wake of the LA fires, our CONNECT software is rapidly gaining traction with even greater awareness being fuelled by the signal gate disclosures. Most CONNECT deals are relatively small from a revenue standpoint. Recently, however, we have been engaged with a number of larger organizations. One is a federal agency. Another is a combination of regional agencies in one of the highest populated cities in the United States. Each of these opportunities are currently in trial and are expected to progress to contract. As strong as the momentum and growth in our pipeline is, we do have to acknowledge that a few deals, fewer deals are closing. The opportunities are not going away but rather being delayed. This is particularly true at the state level where access to federal grant money is in question. While some deals are closing, many of the larger Genesis Protect deals, including those with acoustics, have slowed. Up until last Monday, grant payments from the $553 billion Urban Area Security Initiative and the $374 billion state Homeland Security program were frozen. Our expectation is that that funding becomes more certain deals that are further in our pipeline will accelerate through closing. With that said, we still expect sequential growth in our software business over the remainder of fiscal 2025. At the macro level, Genesis is not being impacted by the ongoing tariff and trade negotiations. The administration's rapid pace of change is affecting procurement processes in that it introduces uncertainty into an already complicated process of securing funding, as not only do federal decisions affect federal agencies, but many state budgets rely heavily on the funds from the federal government, thus affecting state appropriation priorities. In summary, fiscal 2025 is challenging to forecast and precisely predict, but it is still on course for substantial growth and improvement in profitability, particularly in the fiscal 4th quarter. Beyond 2025, the outlook continues to improve with a broadening pipeline for both our hardware and software offerings, ultimately delivering increased visibility and predictability. Now, I will turn the call over to Dennis to go through the financials and outlook in greater details. Dennis? Dennis Klahn Thank you, Richard. Before I begin to review the operational and financial details of the quarter, I would like to speak about my decision to retire. I've been fortunate to work with companies doing exciting things and learn something new in every organization I served in my 45-year career. Genasys has been an amazing opportunity, both personally and professionally, with rapid organic growth, multiple acquisitions, worldwide expansion, and essentially growing a new software company out of a hardware company. Genasys has a great team of passionate, hardworking, and dedicated employees that have made it a joy to come to the office every day. I want to thank Richard, the board and the Genasys team for the opportunity to serve as Genasys CFO for the past 8 years. I have some travel plans this year, but I'm available to assist the new CFO as needed to ensure that there's a smooth and orderly transition. In the second quarter of fiscal 2025, Genesis generated roughly flat revenues sequentially and 21% growth compared to the prior year quarter. Hardware revenues grew slightly sequentially and were up 17% year over year. Total software revenue in the quarter grew 29% year over year, but we're down 3% or $64,000 sequentially as a few customers chose not to renew their expiring agreements. Gross profit margin was 37.7% in the March quarter, effectively flat with the prior year's period, but down nearly eight points from December. Sequentially, this is primarily due to a mix of lower margin hardware revenue and the significantly higher volume network and messaging costs linked to software platform usage during the LA Fire event. Quarterly operating expenses were $8.9 million versus $9.1 million in the December quarter and $9.2 million in last year's second quarter. Sequentially, the improvement is seen in SGA, while on a year over year comparison, R&D is down slightly. On a GAAP basis, our second fiscal quarter operating loss was $6.3 million compared to a loss of $7 million in the year quarter and a loss of $5.9 million in the December 2024 quarter. Adjusted EBITDA, which also excludes non-cash do compensation, was a negative $5.1 million. An improvement from the negative $5.7 million in the second quarter of 2024, but down slightly from the $4.8 million in the December 2024 quarter. GAAP net loss in this fiscal year's second quarter was $6.1 million which compares to last year's second quarter net loss to $7 million in the first quarter of fiscal year 2025's $4.1 million-dollar net loss. Which benefited from $2.2 million of non-cash other income related to the quarterly adjustment to the fair value of the warrants issued with thEBITDA term loan last May. Cash equivalents, and marketable securities at the end of March 31, 2025, totalled $7.2 million, down from $13.9 million on December 31, 2024. Cash used in operating activities in the second fiscal quarter was $6.3 million including a $973,000 use of cash from changes in operating assets and liabilities. Subsequently quarter end, we'd expected to receive the deposit for the 3rd group of Puerto Rico dams. The receipt is believed to be imminent. Management and the board of directors chose to shore up the balance sheet to the $4 million bridge loan announced in the earnings released today. With the bridge financing in place and the 3rd deposit expected shortly, we look forward to delivering on the growth investors have been waiting for. Third quarter revenues are expected to recognize additional initial shipments of materials to Puerto Rico as well as improved other LRAD orders. As pertains to the Puerto Rico project, percentage of completion accounting requires that we record hardware material revenues initially at cost and then only after installation and the profit on the material be recognized. Thus, gross margins will initially be compressed before accelerating through installation and implementation of the systems. Initially, cash will precede revenue and profit recognition during the Puerto Rico project. On March 31, 2025, we've received a net $9.7 million of customer deposits, net of local taxes and revenue recognized to date for the first two groups of dams on this project. The final 40% of cash is expected to be received upon customer acceptance of each dam. As Richard indicated, we achieved our first milestones with the project, and initial revenues were recorded in the 2nd fiscal quarter with more significant revenue recognition coming in the June quarter and the broader deliveries and implementation on the first group gets underway. As we have stated from the beginning of this fiscal year, we expect to recognize significantly more revenues in the second half of this fiscal year and the 1st. Once revenue recognition on the completion of dams begins, we anticipate relatively steady contribution through project completion. With a 12-month backlog that has grown to $50 million, including ARR of $8.6 million, and an expanding pipeline of opportunities, Genesis financial turnaround is well underway. Now I'd like to turn the call back to Richard for some final remarks. Richard Danforth Thank you, Dennis. On behalf of myself, the Board of Directors, and all of the employees of Genasys, I would like to express heartfelt gratitude for all you have done for Genasys over the past 8 years. You have been instrumental in transforming this company from a small hardware business with 45 employees to a much more diversified technology leader with more than 200 employees and customers spanning the globe. Although we are all saddened by your retirement, after 45 years it is well deserved. I wish you all the best as you went to this next phase and thank you for all you have done for me personally and for Genasys. Now I would like to open it up for Q&A operator. Operator Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Scott Searle; Roth Capital. Scott Searle Hey, good afternoon. Thanks for taking the questions. Dennis, congratulations and good luck on your retirement. Dennis Klahn Thank you. Scott Searle Maybe just to dive in quickly to start on PREPA, rev-rec issues or assembly gets to change, but in terms of things progressing, it seems on track. Just want to make sure I understand a couple of things for starters that the initial material shipment were basically at cost. So, we're looking at zero gross margin before we start to see the rev-rec again, and then much, much higher gross margins on the remaining portion of the contract as you hit those installed milestones. Is that correct? Dennis Klahn Yes, I mean, the theory is that, you ship the materials, that's part of a solution, but the only way to really measure the percentage of completion of the project is by the level of installation cost and hours that have been expended against what the total project. Dam by dam is anticipated to be. Scott Searle Got you. Okay. And then moving beyond the 1st 3 groups, I think there are 7 groups in total. I'm wondering what the progress is, on groups 4 to 7 at this point in time. Richard Danforth Scott, it's Richard, the 3rd group has been approved. That means all the designs have been signed off and we're ready to go, that was standing to deposit hasn't arrived yet. The next group of dams, we will begin the detailed design process here shortly and then continue that until the 4th and the 7th group is complete. Scott Searle Got you. Okay. And moving on to the impact of federal budgets in terms of what they contribute to your state agencies and state customers. I'm wondering if there's a number in terms of that opportunity pipeline that is dependent on those federal funds. Just kind of a number of ballpark in terms of percentage. And I'm not sure if you provided a total for the opportunity pipeline other than saying it was growing pretty significantly. Richard Danforth Yeah, I don't think we put an absolute on it, Scott. In terms of your first question, it's all over the map. I can't give you a specific percentage, but particularly in our software world, they are frequently dependent on grants. Scott Searle Okay. And moving over to CROWS, it sounds like you don't have an order in hand yet, but you're getting close. I think in terms of how you size the opportunity before, in terms of thousands of vehicles, that the CROWS opportunity would be larger than it historically represented before the old program expired. I'm wondering if that still holds and you would expect this to annualize out at some point in time of $10 million to $15 million or so a year. Dennis Klahn That's exactly right. Scott Searle Gotcha. And finally, and then I'll jump back in the queue. It seems like there's a lot of announcements that go outside of, I'll call it your traditional core base in terms of, local, state, and federal agencies starting to see more utilities. You also announced a Qua product in the last week or so. I'm wondering if you could just give us a quick update in terms of what's going on in those non-traditional markets and opportunities if you're starting to gain some momentum on that front. Thanks. Richard Danforth So, Scott, much like Puerto Rico, the software enabled us to secure a $73 million hardware opportunity. The Shake Alert thing that we released is a similar kind of deal that when all else fails, the acoustic devices will work and will be able to have emergency messages go out when traditional channels no longer work. So, I think, a software piece is driving us into different markets for our hardware. Scott Searle And let me just throw one last in supply chains. I know you had some comments in tariffs not being meaningful, but there were some long lead time items in terms of polls and other things as related to the proper contract. I'm just wondering if you're seeing any other pressures on that front. Thanks. Richard Danforth No, it's the simple answer. And the polls are moving their way to Puerto Rico as we speak. Operator Mike Latimore; Northland Capital. Mike Latimore All right, great. Thank you. Yeah, Dennis, congratulations and great working with you over several years here. Dennis Klahn Thank you. Mike Latimore I guess just on the supplies for the Puerto Rico deal, I think you said you've received some and some are on order. Can you just kind of give an update on what percent of the total amount you've received? What percent on order? And for those that are on order, when do you expect to receive them? Richard Danforth So a 100% is either on order or received for the three groups. All of those materials are expected to deliver to the island before the end of this fiscal year. Mike Latimore Okay. Is that different? I thought there was a large tranche in the supposed to be in mid-May here. Richard Danforth Material is starting to flow to the island, but the large numbers will happen. Later in our 3rd quarter and into our 4th. Mike Latimore Okay, got it. Can you talk about recognizing the hardware at cost in the 3rd quarter. I assume there's a similar dynamic in the 4th quarter as well, given you'll get some of the hardware supplies in the 4th quarter. How do we think about the balance there? Dennis Klahn No. Yeah, that's correct. I mean, there will be a similar, as we start new dams in the fourth quarter, those materials initially will go in at cost. However, the materials that are shipped in the third quarter, presumably there will be installation costs and implementation. Dams will start to be completed. So as that installation, percentage of installation increases, that's when we'll be picking up more margins. So there should be more, a higher level of margin than the cost once you get over that initial material cost at revenue at cost. Mike Latimore Okay. And then over the course of this program, you still expect the same level of EBITDA and cash flow as always. Dennis Klahn Yes, that has not changed. Mike Latimore Okay. Thank you. Operator Thank you. (operator instructions) Edward Woo; Ascendant Capital Edward Woo Yeah, I'd also like to congratulate you, Dennis. I hope you enjoy your retirement. My question is, you mentioned that in the U.S., because of some of the federal budget issues. Have you noticed any longer lead times with any international opportunities? Richard Danforth No. The international opportunities usually take longer by its very nature, but no, we're not experiencing any additional increased time to close. Edward Woo Great. Well, that's all the questions I have. I wish you guys good luck and congratulations again, Dennis. Good luck. Dennis Klahn Right, thank you, man. Operator O[Operator Instructions] And there appear to be no further questions at this time, I'd like to turn the floor back to Brian Alger for closing remarks. Brian Alger All right. Thank you, everyone. Thank you for participating in today's conference call. A replay of the call will be available on our website shortly. For additional information and up-to-date news and activity regarding Genasys, our products, and the customers we serve, we strongly recommend you follow the company and Genasys for deck on your social networks, particularly LinkedIn and X, where we actively post and comment events as they're happening. And as we saw yesterday, keep an eye on our website for blog posts, where we often respond to breaking news as it happens. We look forward to speaking with each of you again next quarter, when we report3rd quarter 2025 results. And with that, good night. Operator Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day. Sign in to access your portfolio
