Earnings Transcript for SCND - Q1 Fiscal Year 2023

Operator: Good day, and welcome to the Scientific Industries First Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Joe Dorame from Lytham Partners. Please go ahead.

Joe Dorame: Thanks, Jason. Good morning, and thank you for joining us today to review the financial results of Scientific Industries for the first quarter of 2023 ended March 31, 2023. With us today on the call are Helena Santos, Chief Executive Officer; Daniel Greunes, CEO of Scientific Bioprocessing; and John Moore Chairman. After the conclusion of today's prepared remarks, we'll open the call for questions. Before we begin with prepared remarks, I would like to remind everyone, certain statements made by the management team of Scientific Industries during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties some of which are detailed under risk factors and documents filed by the company with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31, 2022. Forward-looking statements speak only as of the date the statements were made. The company can give no assurance that such forward-looking statements will prove to be correct. Scientific Industries does not undertake and specifically disclaims any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. Now, I'd like to turn the call over to Helena Santos, CEO of Scientific Industries. Helena?

Helena Santos: Thank you, Joe, and thank you, and welcome to Scientific Industries Q1 conference call. Today's comments will be brief since our year-end earnings call was just about a month ago. So in the last call, we shared the price we paid for SBI or Scientific Bioprocessing Inc. and our Torbal division and the quick paybacks we realized from those investments. We also shared how we have reinvested those funds mostly in Scientific Bioprocessing and to a lesser extent in the Torbal-VIVID automated pill counters, this to create further growth and shareholder value. The Benchtop Laboratory business is a combination of the Genie product line as well as the Torbal scale and VIVID's automated pill counting products. While most life science tool businesses that benefited from helping battle the COVID epidemic such as Scientific Industries, they are suffering today, but our Benchtop business reported an 8% increase in sales, and this is because of the 50% increase in the Torbal product revenue. I'm also excited that we have launched the first paid subscription service for VIVID, this in our 70-year history. We are participating -- anticipating a very high level of our installed and growing customer base to sign up for the subscription, which we expect between 350 in the first year, all the way up to 2,500 in five years. And just to remind you, every VIVID pill counter is sold with a fully paid up one-year license, so customers can experience the benefits of automation. We will add new paid subscribers on a rolling 12-month basis from the time of a customer purchase. Then there's US federal track and trace Regulations on prescription drugs, and this is supposed to come into effect this November, of 2023. And we expect this could substantially accelerate the adoption of VIVID systems and Pecos. So when we were seeking to transform scientific industries, from a small, profitable but slow-growing business into a much larger, much faster-growing business that could more richly reward our shareholders. We didn't have to look much further, for inspiration in the Sartorius Ambr System in the revolutionary centers we licensed over the years to them. We have a good authority that Ambr, which is a Miniaturized, Parallelized Bioreactor System, is the most profitable products sold by Sartorius, and this is a $23 billion market capitalization company. There have been over $1 billion of Ambr Systems sold to-date. One company, Ginkgo Bioworks, has 196 systems, at an average sales price of $1 million. That is remarkable investment for a startup. We have committed ourselves to expanding on our original technology and improving the form factor to widely expand the applications. The creative genius of the four Aquila Biolab founders, have exceeded our expectations in this regard. And so I would now like to turn the call over to, Daniel Greunes, the CEO of Scientific Bioprocessing and its Predecessor, Aquila Biolab, so he can speak further about what we're doing at Bioprocessing and all, the segment. Daniel?

Daniel Greunes: Thank you, Helena, and good morning, everyone, from over here in Germany. The popularity and commercial success of technologies like the Ambr System are driven by the evolution of Synthetic biology and the breath-taking possibilities it brings about. In synthetic biology, we don't only just observe processes and living organisms. We redesign them in a way that they do what we expect them to do. As such, Genetically Engineered Organisms are already allow us to create sustainable biofuels and bioplastics, alternative proteins or artificial meat and could help us cure rare and untreatable diseases or clean our polluted waters and air. If you look back a few thousand years, you realize that biology has taken us from gathering seats to engineering DNA and that engineering has taken us from rocks & capes to handheld computers and self-driving cars. We've come a long way already, but the true value lies ahead of us. And in the convergence of these two disciplines or as Steve Jobs put it, the biggest innovations of the 21st century will be at the intersection of biology and technology. However, the technology in which the conversion happens, the bioreactor, has not yet lifted up to the expectation. High-throughput, Automated Bioreactor Systems like the Ambr are obviously very powerful screening and development tools that help us understand, predict and use biological system, but they come at a sticker price of up to $1 million, as Helena already mentioned, in CapEx and per excrement cost of around $2,000. Hence, the vast majority of the market cannot afford these systems. On top of that, they only provide insights into selected process steps, while others remain unaccessible black boxes. As a result of which, a recent BCG study concluded that 90% of all thin Bioprocessors still fail today. Our SBI's DOTS platform for Digitally Simplified Bioprocessing will change that by bringing bioreactor like capabilities to the most ubiquitous and commonly used reaction vessel in the world, the shake flasks. During the last earnings call, I've given you an update on the introduction of the first component of DOTS, our DOTS software, which enabled us to migrate all our legacy products to a single platform to launch a new line of fiber optic pH/DO sensors and to unlock closed loop control in shake flasks. During the first quarter of 2023, we have been working to further develop the DOTS software based on market feedback from our growing customer base, and we have realized and released a new version, a new software version, which includes new feature sets regarding data visualization, handling of experiment groups and advanced data expert options and have implemented paid customer requests to customize thoughts to specific production environment. At the same time, we have worked on our second DOTS component, the Multi Parameter reader. We currently work -- we have currently a working prototype of the new reader in our laboratories and expect to get them into the hands of early access customers for our pilot phase that we will kick off in summer. However, the biggest progress from our R&D team was achieved regarding the remaining component of the DOTS platform, our key more sensing pits [ph]. From the past year's successful proof-of-concept and ID, IP protection phase, we have now transitioned our new pit concept towards the product development phase with our Q1 activities centering around technical evaluation, optimization and first steps towards production and QC planning. Hence, we are well on track for our targeted Q4 hot launch of the new Multi Parameter Reader together with our sensing pit. The first generation of the pits in combination with the new Multi Parameter reader as well as our legacy products, the combination of which we are already extensively testing in internal studies will not only showcase our vision to the market but already today allows us to run small production processes in shake flasks that so far could only be done in a bioreactor. And we're not only doing it at a completely new level of simplicity and usability, but also at a fraction of the cost in a fraction of the time, and that's what we want to share with our customers in the market. We are extremely excited by the launch of the new tech, because we see an increasingly huge appetite from potential and existing customers for the feature set that we will deliver and because we have a very clear and delivering product road map for the foreseeable future, whereby we will be able to add new sensors to the platform every six to 12 months and where we will be able to create tremendous value for our customers. Before I finish my portion, I would like to briefly comment on the commercial side of the business. As you may recall, we have adjusted our go-to-market strategy towards the end of last year. We have set up a dedicated distribution management and have focused our sales team towards a more specialized profile to strengthen our approach to sell from scientists to scientists. It certainly will take a bit of time for those effects and the effects of such adjustments to show -- and while our early stage pipelines are a leading indicator of strategic adjustments, sales successes are usually trading to be reflected in the results. However, I'm already very, very happy on both fronts. Compared to last year, we have doubled the value of our early-stage pipeline with twice as many leads and opportunities in the last couple of months. Customers like Bond Pet Foods or Clariant, so industrial customers are quantifying their return on investment from the use of our tech and sharing their success stories with us in the market and Q1 saw the biggest order in our history as a company, with the leading contract manufacturing company equipping a manufacturing site with our tech to monitor production batches, a company in part where we have a lot more potential for additional sales. Of course, all of these are just stepping stones on our path to success. And I can assure you we will work very hard and diligently to capture the current potential as well as to set up organization to change bioprocessing with our new products in the future. But already, and while the bioprocessing business saw the absence of royalties due to patent exploration, Q1 product sales of $223,000 plus the backlog going into the second quarter indicates the 76% growth in customer orders compared to the same quarter last year, whereby I remain optimistic that we will achieve our 2023 annual targets. And with that, I'd like to hand it back to you, Helena.

Helena Santos : Thank you, Daniel. At this point, Joe, would you like to make some comments? Joe Dorame?

Joe Dorame: Or ask for questions.

Operator: We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Paul Knight from KeyBanc. Please go ahead.

Paul Knight: Daniel, what will be the difference from the multi-sensor – multi-parameter DOTS versus the DOTS that came out in January?

Daniel Greunes : Okay. So thanks, Paul. Nice to talk to you again. So essentially, DOTS platform has three components, right. It has a software for data analytics. It has the reader tech. And it has the chemo sensing pills. What we launched last year was the DOTS software. And now we are working on the next one of the reader and sensing tech. So the difference is essentially what kind of components are we talking about. Towards the end of the year, what we will be launching is the reader, a new multi-parameter reader and the sensing pills. We will start with the first generation of sensing pills, which we see dissolved oxygen, one of the most common parameters that is -- that bioprocesses are controlled by. And we launch the multi-parameter reader, which will not only see biomass in the -- as a sensing capability as the physical measurement, but it will have multi-spectrum biomass. It will have fluorescence. So it allows us to differentiate between product and producer. It will have -- it will allow us to do the spectroscopy, and it will have environmental sensing such as pressure, humidity, temperature, acceleration, speed. And we can also via soft sensors that we calculate of the data, display combination parameters such as viscosity or stability for example. So we will just enlarge the sensing numbers of that reader. And it will be the hardware that in the future we'll be able to read out all the different sensing pills that we are continuously bringing to the market in that road map of every six to 12 months a new parameter that we will add to the sensing pill platform. And we will start with then we'll likely launch PH throughout 2024. And then we'll focus on the next perimeter, which will be glucose.

Paul Knight: Got it. Okay. And then Helena, could you talk to this shake to the VIVID product, the regulations coming, what, from FDA regarding exactly what?

Helena Santos: Yes. So there's a regulation that is coming into effect on, like I said, on November, November -- and all pills throughout the entire supply chain needs to be traced and tracked -- and we have the ability, we have the ability within our algorithm to do that. And so this is just something that not the competition is able to do. So it puts us in the forefront.

Q – Paul Knight: What is the VIVID market share, Helena?

A – Helena Santos: Well, right now, we are -- right now, we are only in the independent pharmacy market. And out of that, we would probably have since the rest of the of the market is also being addressed by two major competitors, one of which is in the forefront. But we probably have -- I would -- without looking at the numbers, but we probably have a good 50% to 70% of that market today. So we still have -- and that's just an independents. And independents only make up about 40,000 of a total of about 98,000 pharmacies between the US and the Canadian market. So we feel that where the real opportunity lies for us will be when we go after the non-independent after the chain. And that will be when we have our workstation ready.

Q – Paul Knight: Okay. Thanks.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John Moore for any closing remarks.

John Moore: Well, thank you all for attending the earnings call. We're very excited by the progress and the potential of creating outsized shareholder value by increasing the profit margins, the sales growth and the quality of earnings from recurring revenue related to both the VIVID product in the near future for recurring revenue related to single-use sensors and software subscriptions related to scientific bioprocessing. Those recurring revenues will start in the first quarter of 2024 when we start shipping the DOTS multi-parameter sensors. So thank you all so much for your time, and we're looking forward to speaking with you all in the future. Thank you.

Operator: Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.