Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total revenue increased by 32% to $6.6 million, exceeding guidance and marking a record quarter.
- Placed five Growth Direct systems in Q2, including the first Rapid Sterility system.
- Gross margins showed significant improvement, nearing breakeven in Q2.
- Operational efficiency program expected to enable positive cash flow by the end of 2027 without additional financing.
- Strong customer interest and adoption of the Growth Direct system, with plans for further deployments.
Negative Points
- Net loss of $12.6 million in Q2, though an improvement from $14 million in Q2 last year.
- Product margins were still negative at -8%, despite improvements.
- Operating expenses remained high at $13.2 million, flat compared to the prior quarter.
- Uncertainty related to the timing and scale of customer purchase decisions affecting revenue guidance.
- Inventory levels increased slightly in the first half of the year, impacting working capital.
Q & A Highlights
Q: With the announcement of new targets along with the operational efficiency program, could you comment on working capital initiatives to improve cash uses? How did inventory trend this quarter?
A: Sean Wirtjes, CFO: We are very focused on inventory management. For the first half of the year, inventory was up slightly due to rebalancing, but we expect meaningful reductions in the second half. We maintain safety stock levels to ensure no disruptions, which has been effective even during the COVID period. Rob Spignesi, CEO: We also receive strong feedback from customers about the quality and timeliness of our supply chain.
Q: Could you elaborate more on the customer who placed the Sterility system and the underlying factors that drove them to place that system?
A: Robert Spignesi, CEO: The value proposition of Growth Direct includes full automation, strong data integrity, and reduced errors, which are important even in low-volume environments. The Rapid Sterility system offers a significant advantage with faster time to detection and release, which can be critical for patient safety and business operations.
Q: How are you feeling about the uptake of the Sterility system in general? What will be the difference between those that adopt it versus those that don't within the existing user base?
A: Robert Spignesi, CEO: Early feedback is strong, and the funnel build is promising. Existing large customers who know the Growth Direct system well are likely to be early adopters. However, we are also seeing interest from new customer segments, such as sterile injectables and vaccines.
Q: What are the characteristics of those most likely to adopt the Sterility system early versus those less likely?
A: Robert Spignesi, CEO: The most likely early adopters are large existing customers who are familiar with the Growth Direct system. However, the funnel also includes new customers and segments, indicating broader interest.
Q: On the gross margin trajectory, you sound confident. Is the high single-digit to low-teens range for Q3 and Q4 the right level of increase?
A: Sean Wirtjes, CFO: Yes, the high single-digit to low-teens range for the second half makes sense based on current expectations. We expect positive margins in Q1 and continued improvement throughout 2025.
Q: How does the operational efficiency program impact the expansion of the commercial team?
A: Robert Spignesi, CEO: Our commercial team is in place, and we don't see meaningful growth in the near term. We have a Sterility specialist, and our sales team is trained to handle the full range of applications globally.
Q: Could you provide more details on the operational efficiency program and its impact on cash flow?
A: Sean Wirtjes, CFO: The program involves focused reductions in workforce and non-headcount expenses, expected to reduce annual expenses and cash burn by approximately $7 million. We aim to achieve positive cash flow by the end of 2027 without additional financing.
Q: What are the key drivers for achieving positive cash flow by the end of 2027?
A: Sean Wirtjes, CFO: Key drivers include average annual revenue growth rates between the mid-20s and 30%, meaningful annual improvement in gross margins, relatively flat operating expenses post-2025, and maintenance levels of CapEx.
Q: How are you balancing inventory reduction and stocking to ensure consumables are readily available for customers?
A: Sean Wirtjes, CFO: We maintain safety stock levels to ensure no disruptions and have received strong feedback from customers about our supply chain performance. We expect meaningful inventory reductions in the second half of the year.
Q: What are the expectations for revenue and system placements for the rest of 2024?
A: Sean Wirtjes, CFO: We expect total revenue of at least $27 million for the full year, with at least 20 system placements. For Q3, we expect total revenue of at least $6 million, with at least four system placements, and revenue and placements to peak in Q4.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
