Precipio, Inc. (NASDAQ:PRPO), a diagnostic services and products company, reported continued revenue growth in its Q2 2024 earnings call, with its pathology division reaching breakeven at the end of the quarter. CEO Ilan Danieli expressed confidence in the company's trajectory, emphasizing progress in both the pathology and product divisions. The company's cash position improved by approximately $300,000 in Q2, despite earlier disruptions from a cybersecurity incident.
Precipio also outlined its strategy for scaling up through distributor partnerships and provided an update on its FDA submission process for its HemeScreen product, with a meeting scheduled for later in the year. Despite these positive developments, the company's stock price remained around the $5 to $6 range, which management believes does not reflect its revenue multiple compared to industry comparables.
Key Takeaways
- Precipio's pathology division reached breakeven by the end of Q2 2024.
- Two out of three large customers have gone live with the HemeScreen program, contributing to revenue growth.
- The company's cash position improved by approximately $300,000 in Q2.
- Precipio is working towards profitability and financial independence by the end of 2024.
- The FDA pre-submission meeting for the HemeScreen product has been scheduled for later this year.
Company Outlook
- Precipio is on track to hit its goals for 2024, with the aim of achieving profitability by year-end.
- The company is refining its strategy to scale up the products business through distributors in 2025.
- Management plans to rekindle investor relations to improve the company's stock performance post-achievement of its goals.
Bearish Highlights
- The company's stock price remains stable but low, with a market cap of less than 0.5 times the revenue multiple, which management considers unreasonable.
- Ongoing skepticism from the market regarding the company's performance and potential need for raising additional capital.
Bullish Highlights
- Precipio's revenue growth continues, with significant progress towards breakeven in both the pathology and product divisions.
- The company sees the FDA ruling as a competitive advantage and expects FDA approval to further increase market share and credibility.
Misses
- The third large customer for the HemeScreen program is still in progress due to operational issues before going live.
Q&A Highlights
- No specific questions from the Q&A session were included in the summary provided.
Precipio's Q2 2024 results indicate a company on the cusp of profitability, leveraging growth in its pathology division and advancements in its product offerings. With a strategic focus on distributor partnerships and an upcoming FDA meeting, the company is positioning itself for a more robust financial future and increased market share. However, the stock market's current valuation of Precipio does not yet reflect these internal developments, a discrepancy that management is keen to address as it moves towards a profitable 2024 year-end.
InvestingPro Insights
Precipio, Inc.'s (PRPO) recent Q2 2024 earnings report showcased a company on the verge of profitability and growth, but what does the data say? Here are some insights from InvestingPro that shed light on the company's financial health and market performance:
InvestingPro Data indicates a significant revenue growth of 52.61% over the last twelve months as of Q2 2024, with the company posting revenues of $16.72 million USD. This growth aligns with management's positive outlook and the company's strategic efforts in expanding its pathology division and product offerings.
In terms of stock performance, PRPO has seen a notable return over the last month, with a 14.61% increase in its price total return. This suggests a growing investor confidence that may begin to bridge the gap between the company's internal developments and its market valuation.
From an investment standpoint, Precipio is trading at a low revenue valuation multiple, with a Price / Book ratio of 0.71 as of Q2 2024. This could signal an undervaluation by the market, presenting a potential opportunity for investors.
InvestingPro Tips reveal that analysts predict the company will be profitable this year, an expectation that aligns with the CEO's confidence in achieving financial independence by the end of 2024. Additionally, the significant return over the last week indicates short-term investor optimism, which could be tied to the positive earnings report and the anticipated FDA meeting later in the year.
For those interested in a more comprehensive analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/PRPO, providing deeper insights into Precipio's market position and future prospects.
Full transcript - Precipio Inc (PRPO) Q2 2024:
Operator: Welcome to the Precipio Second Quarter 2024 Shareholder Update Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note that the conference is being recorded. Statements made during this call contain forward-looking statements about our business. You should not place undue reliance on forward-looking statements as these statements are based upon our current expectations, forecasts and assumptions, and are subject to significant risks and uncertainties. These statements may be identified by words such as may, will, should, could, expect, intend, plan, anticipate, believe, estimate, predict, potential, forecast, continue or the negative of these terms or other words or terms of similar meaning. Risks and uncertainties that could cause our actual results to differ materially from those set forth in any forward-looking statements include, but are not limited to, the matters listed under Risk Factors in our annual report on Form 10-K for the year ended December 31, 2023, which is on file with the Securities and Exchange Commission, as well as other risks detailed in our subsequent filings with the Securities and Exchange Commission. These reports are available at www.sec.gov. Statements and information, including forward-looking statements, speak only to the date they are provided unless an earlier date is indicated. We do not undertake any obligation to publicly update any statements or information, including forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Now, let me turn the floor over to Ilan Danieli, Precipio's CEO. Please go ahead.
Ilan Danieli: Thank you very much. Good afternoon, everyone, and thank you for joining our 2024 Q2 shareholder update call. I'd like to thank those of you who submitted questions. As always, I will try my best to address them during this call. As you saw in our recent 10-Q filing last week, we are on track to hit our goals for this year. Revenue continued to grow with the pathology division reaching breakeven at the end of Q2. I'm pleased to inform that so far, we've continued on that track, and in Q3-to-date, we are exceeding our breakeven target for the pathology division. We have a solid team, our existing customer base is stable, and our new customer base is growing. We will continue to build an excess cushion of revenue to ensure that the pathology division fulfills its purpose within the company's strategy, which is to serve as a cost-neutral rapid R&D facility to develop our products, while itself remaining profitable and generating cash to the company. In the product division, we also continue to make progress towards breakeven. In the past, we discussed three large customers that we are working with to go live with our HemeScreen program. And when they do, this division will reach its target. Once we reach breakeven for this division, the entire company will be profitable. In this quarter, two of the three customers have gone live and are growing their volume and adding panels. We expect that by the end of this quarter, they will be in full-fledged activity, which means [beginning in] (ph) Q4, we can expect that these customers will contribute to an increase in revenue. The third customer is still in progress and is working through several operational issues before they go live. We are working diligently with them in order to ensure that this third customer will also be fully onboarded, too. Of course, we have quite a few other small- and mid-sized customers that are either in the process or have gone live during Q2, and we're starting to see their orders come in. Each of these customers forms yet another building block of recurring revenue to the company and brings us closer to hitting our breakeven target. In the previous shareholder call, I commented on our work with the distributors to revamp the working relations with them and identify the recipe for success. We worked closely with the management teams of our distributors to formulate a plan, and in Q2, we began to put it in place. We began to see the fruits of the new recipe of our distributors in the form of better customer targeting, more introductions and conversations with the right decision makers, and progress towards bringing those customers on board. Some of you have asked, why are we spending time and effort with distributors when so far we've been more successful with our direct sales approach? The reason is we believe that distributors are the key to scaling up the business. Although, for now, we're focused on reaching profitability, the total market just for the HemeScreen product is approximately $400 million annually in the US and a similar amount worldwide. We are not even at 1% of that market share. And the way to scale up is through our distributors. Our US distributors, Cardinal Health (NYSE:CAH), ThermoFisher, and McKesson (NYSE:MCK), collectively employ hundreds of sales reps that have spent years building relationships with customers. They know who the decision makers are within those customers and what is the process and best approach to sell product into them. And most importantly, they have access to these customers. It's no secret that in the healthcare field, leveraging a distribution network has the potential for business to scale up far more efficiently and rapidly by tapping into those established channels, expertise and resources and enabling faster market penetration and broader reach as opposed to attempting to go only direct. Therefore, as we establish our presence in the market and build our customer base, we believe that the way to scale up this business and capture significant market share is through our distribution channel, but like with any other partner you work with, it takes time to build successful relationships. We continue to work closely with our distributors to refine the program and messaging and to build relationships to help foster growth in our sales. Next, I'd like to discuss our cash position. As you saw in Q2, we actually had an increase in cash of approximately $300,000. While this is terrific news, and yes, we are getting close, this is not to be confused with us being profitable just yet. We're still dealing with the aftermath issues from the Change Healthcare (NASDAQ:CHNG) hack earlier this year, including fund transfers from Change Healthcare, delayed payments to Medicare and other payers, and we've not yet returned to a steady state of billing collection. However, we believe that the situation is getting much better and we are moving towards returning to that stable situation we had prior to the hack. From an operational perspective, we are reducing our cash burn and moving towards breakeven. And as we stand today, we believe that we have sufficient cash to meet our obligations and reach that target of profitability by year-end. You've heard me say this many times, it's time for our company to be financially independent and stand on our own two feet. I still believe that we have sufficient resources to reach that point. Next, I'd like to provide an update on our process with the FDA. We submitted to the FDA the required materials for our pre-submission meeting. Those materials have been accepted and the meeting with the FDA has been scheduled for later this year. We feel that we are in a good position to submit our application to the FDA soon after a meeting, and we hope to receive approval sometime in 2025. We're still seeing in the market significant confusion around the FDA ruling, both from customers, who are not sure how to handle the situation, and from manufacturers, who have not yet decided what they're going to do. We actually view this as a competitive advantage for us, and believe that this ruling will weed out quite a few of the competitors. Once received, we believe having an FDA seal of approval on our products will help us gain further market share and provide additional credibility to our products. Finally, I'd like to comment on our share price performance. For the recent months, we've been hovering around the $5 to $6 range and it seems that the share price is at least stable and no longer suffers from the tremendous shorting pressures we used to experience. So that's a good thing. Having said that, if you take our Q2 revenues of $4.4 million, which translates into about $17.5 million annualized run rate, this still equates to a market cap of less than 0.5 times on revenue multiple. Looking at comparables in the market and at the company's situation, this doesn't seem to us and to many outside observers as a reasonable multiple. But we ask ourselves, what's keeping the stock price at its current place? We consider two factors. The first is that the market is still skeptical of our performance, our revenue growth and our cash needs, and believes we will still need to raise diluted capital. As we continue on track, the next couple of quarters will hopefully dissolve this notion entirely. The second factor is that the company and me personally have not spent any significant time and resources on the IR side of the Investor Relations. All companies, and especially microcap companies such as ours, battle for investor attention and work to build their presence and brand within the investment community. For the past few years, we've spent our effort building our business and have spent very little time on the IR side. Our plan is that upon achieving our goals by the end of this year and demonstrating to the market that we are indeed a profitable company with a growing customer base, with a backlog and pipeline of new business, and a roadmap to scale this business to our distributors, then we have a story that we can go out and share with the investor community. A combination of presence at investor conferences and meetings, coupled with work on the digital side, can help build a substantial audience of people who will potentially follow the company. With continuous performance and results, that should translate into an increase in trading volume and presumably a correction of our company's revenue multiple for its current 0.5 times revenue to a number that is more in line with industry comparables. Needless to say, our company is working hard to achieve its business results and the impact of the business results on the company's share price is a key focal point at all times. In summary, we're in a good place and I'm really excited to continue with the momentum we have. With the pathology division stabilized and exceeding its breakeven target and product division heading in that direction, we have enough gas in the tank to get there. I think the hard work will pay off when our company reaches its goals for 2024. Furthermore, as you can see, we're also thinking about our strategy for 2025 in terms of scaling up the products business, as well as rekindling our IR strategy so that we can translate all the good work that our team has accomplished into shareholder value. I'd like to thank you for your support. And I look forward to connecting with you on our next quarterly call. Thank you, and have a nice evening.
Q -:
Operator: Ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.
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