Trinity Biotech PLC Q2 FY2022 Earnings Call

Good day, and welcome to the Trinity Biotech Second Quarter Financial Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Joe Diaz from Lytham Partners. Please go ahead.

Thank you, Kay, and thanks to all of you for joining us today to review the financial results of Trinity Biotech for the second quarter of 2022, which ended June 30, 2022. Joining us on today's call are Aris Kekedjian, Chief Executive Officer; and John Gillard, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. Before we begin, I must inform you that statements made in this conference call may be deemed forward-looking statements within the meaning of federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include, but are not limited to, those set forth in the Risk Factors statements in the company's annual report on Form 20-F filed with the Securities and Exchange Commission. Trinity Biotech undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrence of unanticipated events. With that said, I will now turn the call over to CEO, Aris Kekedjian for opening remarks. He will be followed by CFO, John Gillard, for a review of the financial results. Mr. Kekedjian, the floor is yours.

Thank you, and good morning, everyone. I'm very pleased to be here today as the new Chairman and CEO of Trinity Biotech. As many of you know, I've been involved with the Trinity team since May when I joined the Board of the company. During that time, I worked closely with John and the team to develop and refine a new business plan and was attracted to the growth potential of our platform as the proactive healthcare environment continues to evolve. From a macro perspective, Trinity is skilled in developing and marketing world-class point-of-care rapid tests to WHO standards, and our highly regarded 50-state certified reference lab in the United States are critical assets that can be effectively leveraged in this space. I believe that partnerships, channel relationships, and industry consolidation will play a significant role in addressing the trends of digital and decentralized healthcare. Another important aspect is the pharmaceutical industry's strong focus on the autoimmune sector, where substantial investments are being made in therapeutics and customer education. Testing is essential for advancements in this complex area, presenting us with opportunities to form key partnerships. Furthermore, diabetes is an increasing challenge in developing markets where we have established relationships and distribution networks. With the right product strategy, we can achieve significant growth. In this context, several attributes of Trinity attracted me. First, I was impressed with our recent leadership hires; they bring valuable experience from the healthcare sector and large multinational corporations, eager to apply their skills in an entrepreneurial environment. Additionally, I recognize the capability and commitment of the Trinity workforce to align with a clear mission. The second attribute I found appealing is the opportunities within our point-of-care, lab, and autoimmune platforms. I also see potential for growth in our Fitzgerald Life Science business and have gained clarity on the profitability opportunities within our hemoglobin business. The third aspect I value is working with businesses that possess global scale and distribution capabilities, aligning well with my background, and I believe Trinity can capitalize on globalization to enhance growth and profitability. Fourth, I continue to assess that Trinity Biotech is significantly undervalued compared to its intrinsic worth when considering its components. Our NASDAQ listing offers a platform for industry consolidation and provides liquidity access for our ecosystem partners, serving as a strong tool for attracting talent at current valuation levels. In essence, Trinity is a seasoned business with a strong brand, capable of operating effectively in a regulated industry, nimble enough to respond quickly, and possesses a public vehicle to facilitate partnerships, industry consolidation, value creation for our shareholders, and wealth generation for the Trinity Biotech team. My past experiences working closely with GE Healthcare and other regulated platforms have highlighted that operational and regulatory excellence is a competitive edge that results in long-term superior returns. Looking ahead to my priorities for the next 3 to 6 months, they are quite straightforward. First, I will focus on establishing a clear vision and strategy aimed at scaling our core businesses. I want to position our point-of-care platform and lab services to support the decentralized testing movement led by digital health and other payer-sponsored programs. Scaling our autoimmune platform through partnerships and product development will also be a key priority, along with maximizing profitability in our hemoglobin business. Additionally, I want to leverage our Fitzgerald brand to optimize its sales processes, distribution capabilities, and product offerings for further growth. The second priority is to foster a performance culture that drives ownership and accountability, starting from the top with a focus on operational rigor, clear execution goals, and alignment with shareholder interests. Our Employee Stock Ownership Plan program will be central to this transformation and modeled after my compensation plan, ensuring that shareholder value creation aligns with the wealth generation for the Trinity team. Third, we will renew our emphasis on inorganic growth through partnerships and M&A, which is essential for scaling. With our public currency, we plan to use it wisely. Finally, I am committed to enhancing shareholder communication and rebuilding trust with the investment community, aiming to attract institutional investors who understand our vision and believe in our team. In return, we need to present a clear strategy and deliver results. Now I'll hand it over to John to provide insights into the financials for the quarter.

Thank you, Aris. Good morning, everyone. Now I will take you through the results for Q2 2022. Let me begin by warmly welcoming our new CEO and Chairman, Aris. Since Aris joined the Board back in May of this year, I've had the pleasure of spending a lot of time with him as we look at the opportunities available to the company and indeed some of the challenges we continue to work through. I very much look forward to partnering with Aris and the rest of the team and continuing to drive Trinity Biotech modernization and transformation for a more dynamic, higher growth and efficient global organization. Before I begin discussing our Q2 '22 results, I will point out that we have changed certain presentations in our financial statements this quarter. In previous earnings announcements, we have disclosed one-off accounting charges such as impairment losses in a separate line below profit or loss after tax. Similarly in the past, we have split our financial income and expenses between those items that are cash and noncash, the latter being disclosed below profit or loss after tax. This presentation reflected how management evaluated the performance of the business, although it did not conform to international financial reporting standards. Beginning this quarter, one-off accounting charges will be reported within operating profit and loss in accordance with IFRS. We will no longer disclose noncash financial income and expense separately, and we will show a full cash flow statement rather than abbreviated version. Moving on to our results for the quarter, starting with revenues. Total revenues for the quarter were $18.5 million compared to $25.8 million in Q2 2021. As Joe pointed out and has been our typical approach, our CEO, Aris, will discuss revenues in further detail on the call. As such, I will now move on to discuss other aspects of the income statement. Gross margin for the quarter was 35.3% compared to 42.7% achieved in quarter 2 2021. Our gross margin remains susceptible to product mix changes, geographic spread, currency fluctuations and product-level variation. As was the case in Q1 this year, the reduction in gross margin this quarter was mainly due to the very strong sales and margins recorded in the comparative period within our COVID-19-related portfolio of products. In the years since then, demand for our PCR Viral Transport Media has fallen as the level of PCR testing for COVID has declined in North America, and the availability of better supply from other manufacturers has also hampered demand. Moving on to R&D expenditure, which was $1 million in the quarter, down almost $100,000 compared to Q2 2021. We continue to focus on operating efficiency and cost control and have continued to reduce headcount as we pursue greater automation and simplification of processes. Meanwhile, SG&A expenses in the quarter were $6.5 million, down over $100,000 compared to Q2 2021. Here, we are benefiting from the stronger U.S. dollar against the euro, which is reducing our substantial euro-denominated SG&A expenses. And this is a trend we expect we will continue to see in the second half of the year. Offsetting this has been an increase in transaction-related management bonuses and increased travel costs as our sales teams have been focusing on meeting our customers and distributors now that most COVID-related travel restrictions have been lifted. We have recorded an impairment charge of just over $500,000 this quarter compared to a charge of $6.1 million in the corresponding quarter in 2021. Under IFRS, a company is required to carry out periodic impairment reviews in order to determine the appropriate carrying value of its net assets. This period's review has resulted in a noncash impairment charge of $0.5 million being recognized. A number of factors impacted this calculation, including the company's share price on June 30, 2022, which was lower than the share price at the time of the prior impairment review being 31 December 2021; cash flow projections for each business unit and net asset values across each of these companies' individual business units. The above factors have resulted in an operating loss for Q2 2022 of $1.4 million compared to an operating profit of $200,000 reported in Q2 2021. The main drivers of this reduction in operating profit are the reduction in revenue and margin contribution from our COVID-related portfolio of products along with no Paycheck Protection program income being recorded in Q2 2022 compared to $2.9 million of Paycheck Protection program income being recognized in Q2 2021. This was partly offset by a lower impairment charge this quarter. Moving on to net financial expenses of $8.3 million recorded in Q2 2022, which compares to $0.3 million for Q2 2021. This increase of $8 million is mainly due to nonrecurring expenses of approximately $5.6 million associated with the early partial repayment of the Perceptive term loan. As you may know, we repaid approximately 42% of the term loan principal during the quarter. As a consequence, we incurred a penalty for earlier payment of approximately $3.5 million. And secondly, under IFRS accounting rules, we have accelerated the recognition of the accretion interest expense, and this resulted in an additional noncash expense of $2.1 million this quarter. I will talk further about this early repayment of the loan later on the call. The remainder of the increase in net financial expense is mainly due to higher interest rates applying to our borrowings post refinancing. We replaced exchangeable notes with a coupon rate of 4% with a senior secured term loan with an interest rate of approximately 13%, albeit the net amount now borrowed is substantially lower. As a result, interest payable increased by $0.9 million compared to Q2 2021. Lastly, we recorded a fair value adjustment on derivative balances related to the term loan, which this quarter was an expense of $400,000. Loss after tax was $9.7 million in Q2 2021 compared to a loss of $0.8 million in Q2 2021. As in prior quarters and as set out in our press release, we quote earnings per ADS effectively equivalent to EPS. Loss per ADS has increased from $0.037 in Q2 2021 to a loss per ADS of $0.286 in Q2 2022. I will now move on to address some of the main balance sheet movements we have seen since quarter 1 2022. I'm pleased to be able to report that Trinity Biotech has a significantly stronger balance sheet this quarter with total liabilities lower by $21 million compared to the end of March 2022 and lower by $28 million compared to last fiscal year end. The more significant balance sheet movements during quarter 2 2022 are the $45.2 million investment from the MiCo Group and the part repayment of the term loan. MiCo investment has resulted in $25.2 million of additional equity capital and a new 7-year convertible note of $20 million. This $20 million convertible note is accounted for as a compound financial instrument containing both an equity and liability element. The debt component is accounted for at amortized cost in accordance with IFRS 9. On June 30, 2022, the carrying value of the convertible note debt component was $13.4 million. The equity component of the convertible note is $6.7 million and has been recorded in the equity section of the balance sheet. The carrying value of the term loan has reduced by $32.3 million this quarter, reflecting the early settlement of approximately $35.4 million, partly offset by accretion interest. The remaining balance sheet movements which I would like to highlight are intangible assets and inventory. Intangible assets increased by $1.4 million. This is made up by additions of $1.6 million, which mainly comprises capitalized R&D expenditure, and this was partly offset by amortization. Inventories have decreased by $0.5 million since the end of Q1 2022. This increase is within the normal range of fluctuation for inventory levels, and that decrease this quarter brings the inventory balance back to a level we reported at the end of December 2021. Finally, I will discuss our cash flow for the quarter. Our cash balance increased by $400,000 to $10.5 million in quarter 2 2022. The aforementioned investment of $45.2 million from the MiCo Group was received during the quarter, was primarily used to fund an early repayment of the term loan of $34.5 million and a related penalty for early repayment of $3.5 million. Cash from operations was an outflow of $1.9 million. We had capital expenditure cash outflows of $1.8 million and payments for property leases of $0.7 million. Interest payments for the quarter were $2 million. And as you may have seen in our earnings announcement, we have made a cash saving to date of approximately $2.3 million from repaying part of the term loan early. While we are speaking about the term loan, I would also like to bring your attention to the fact that the minimum liquidity covenant for the Perceptive loan has been amended until May 2023, so that the unrestricted cash balance that we are required to maintain is now $2 million, down from $5 million previously. I will now hand it back to Aris, who will bring you through the revenue and key business highlights.

Thank you, John. Now I would like to discuss a few revenue highlights for the quarter and priorities for the rest of the year. Total revenues for Q2 2022 were $18.5 million. Excluding our COVID-focused PCR Viral Transport Media products, Q2 2022 revenues of $18 million were broadly flat compared to Q2 2021 and were up 7% compared to Q1 2022. A strong year-over-year increase in our diabetes A1c product line revenues of over 25%, offset a decline in legacy infectious disease product demand in Asia due to continuing COVID-19 lockdowns. Preliminary estimates for Q3 are for expected revenues of between $19 million to $20 million, driven by an approximate double-digit year-over-year increase in both our hemoglobins and Fitzgerald Life Science businesses. Fitzgerald's revenue momentum into the second half of 2022 continues with a 25% quarter-over-quarter growth as the strategy of focusing on high-quality sales is gaining traction. Q3 Global Health HIV orders for Africa, which are often difficult to predict, increased compared to Q2 2022. And we expect our HIV point-of-care revenue to grow over 30% on a quarter-over-quarter basis. Since World Health Organization approval in February of our TrinScreen HIV product, the relevant Kenyan Ministry of Health Task Force recommended TrinScreen as the first-line screening test for Kenya's new HIV testing algorithm. In addition, the presubmission process has been started in several other African countries. For context, our target countries for TrinScreen HIV under active evaluation in 2023 have a combined estimated market size of 30 million tests annually. We chose Kenya as the first country to submit TrinScreen for inclusion in the national HIV algorithm given its large market size, estimated 5 million to 6 million tests a year, and its prestigious leadership role as an innovator in HIV management in Africa. The use of the new HIV algorithm had been delayed due to the change of government in Kenya following the election in August and a legal objection by competitors regarding the overall HIV algorithm evaluation process. The new government is now in place, and we understand they are motivated to scale up the HIV rapid testing program to pre-COVID-19 levels. We understand the implementation of the new testing algorithm will begin before the end of the year and expect the first orders to arrive shortly. I would also like to take this moment to welcome Tom Lindsay to our Board of Directors. His experience and networks in Africa will be a significant benefit during this product rollout. In May 2022, the company announced the closing of a $45.2 million investment from MiCo Limited. The investment consists of an equity investment of $25.2 million acquired for $2.25 per ADS and a 7-year unsecured junior convertible note of $20 million with an interest rate of 1.5% and mandatory conversion price of $3.24. As part of its ongoing balance sheet restructuring, the company made an early repayment of the $35 million of its term loan with Perceptive in May. The partial repayment will save the company cash interest expense of $5 million annually. Further refinancing may be optimized in conjunction with the execution of one or more potential strategic transaction opportunities we are contemplating. Now focusing on our hemoglobins business, our largest platform. We have recently completed a comprehensive 3-year execution plan for the business that incorporates new targeted product launches and intelligent actions to maximize profitability. In late August, the company submitted its 510(k) submission to the FDA seeking U.S. regulatory approval of its Premier Resolution Hemoglobin Variants instrument. Subject to FDA approval, commercial sales are expected to begin by Q2 2023. The team is also finalizing the development of a lower-cost mid-throughput A1c instrument that leverages the core consumables technology from our existing Premier 9210 instrument. This new instrument is targeted at developing markets where rates of diabetes growth are substantial, but the entry price of instrumentation is a barrier. We are also developing a commercial strategy that combines equipment financing with our core product offerings, ensuring a favorable cost entry point for our customers while optimizing the Trinity balance sheet. Supply chain, product design, optimization and commercial actions are underway in this business to significantly optimize the margins of the platform. This includes insourcing key elements of our consumable column manufacturing and streamlining our product focus. My expectation is that these actions should deliver a double-digit profile for the business over the next 3 years at well over 50% gross margins. We see significant growth potential in our autoimmune business as well. Our focus is on the 2023 launch of a clinical laboratory reader and processor range to complement our existing IFA consumables products. We are also in the platform evaluation stage for the adoption and development of a chemiluminescence system aimed at our current ELISA product range. I'm quite focused on our proprietary Sjogren's dry eye testing capabilities within our autoimmune portfolio and believe we can scale this product line through pharmaceutical partnerships and applications in adjacent markets such as dentistry. In an effort to address demand growth for our cryo slides business, we are expanding manufacturing capacity at our Jamestown facility while also offsetting excess production capacity from the expected runoff in demand from our legacy infectious disease products. We have launched a strategic review of expansion opportunities in the point-of-care space and in the sponsored decentralized consumer testing programs in order to take advantage of the evolving patient expectations, rapid technology convergence, focus of ambitious and well-funded tech and CPG players and payer focus on controlling healthcare costs through proactive digital healthcare. We are actively exploring acquisition and partnership strategies in these areas aimed at accessing channel distribution, product innovation and user experience expertise. And at the same time, we intend to make a substantial investment toward this effort over the next 18 months in our Buffalo, New York lab, which is well positioned to serve the decentralized testing market because unlike many other U.S. labs, it is certified to process samples from all 50 states. In addition, we are positioning our point-of-care product business and Irish manufacturing operation to apply its operational capacity, product development focus and regulatory know-how as an ecosystem enabler of the disruption in the space being driven by market forces. There may be an opportunity here to leverage our MiCo biomed relationships in relation to their handheld enzymatic product line. I'd like to use the analogy that we are aiming to be the Shopify of the decentralized testing space. The combination of our world-class lab operation and decentralized testing product development history is unique in the industry. Platform optimization actions to date have resulted in a significantly more efficient workforce. Our average headcount in the 6 months ended June 30, 2022, was approximately 410 compared to over 500 in the 6 months ended June 30, 2021, and we expect total headcount to be under 400 by the end of 2022. Operational efficiencies will continue to be a focus across the board as we aim to make our processes leaner, more agile and highly automated. We are undertaking a portfolio-wide capital and talent allocation review, emphasizing maximization of return on capital and to ensure that our incentive systems are being enhanced to drive significant target improvements in gross margin, earnings, cash contribution as well as revenue growth. The center base of our incentive system will be an Employee Stock Ownership Plan program modeled after my own equity compensation, which results in substantial financial incentives when shareholders benefit the most. Over the past 18 months, the company began a program of leadership upgrades, beginning with our CFO, John Gillard, and subsequently attracted experienced leaders in operations and HR. Most recently, over the last couple of quarters, this focus on talent has expanded to include new leadership in supply chain, regulatory compliance, business intelligence and technology. I urge you to visit our website to see their bios. While we have brought in fresh talent to lead key sales initiatives, this area continues to be a direct focus of mine. Over the coming weeks and months, my intention is to further outline Trinity Biotech strategic focus for 2023 and beyond. One such opportunity will be the upcoming Piper Sandler Healthcare Conference on Thursday, December 1, where Trinity Biotech is scheduled to present its strategy. That concludes our commentary regarding the quarter. We are now available to take your questions.

The first question is from Jim Sidoti of Sidoti & Company.

The first one with regards to the sales of the VTM, the COVID-related products. You said down about $7 million in the quarter. So does that mean those sales are basically gone at this point? And do you expect them to come back?

Let me provide some context, and John can share some detailed trends on this. COVID is difficult to predict as we approach the winter season. There is a significant amount of concern in the U.S., especially with the combination of RSV and flu. Last year, we noticed an increase. Will we see that again? I don't know. To be honest, we are not predicting it. Sales are down significantly, and we're not relying on VTM to drive our strategy moving forward. John, do you want to add anything?

Yes, Jim, we're down about $7 million, as you said, to about $400,000 in quarter 2. Looking up to labor the point continues to be a very fluid situation with COVID. We have seen a continued decline of PCR testing in North America. So hard to predict. At this stage, it doesn't seem like it's going to be a significant feature for quarter 4.

Okay. And then for the third quarter, I believe, sales a year ago for the VTM was around $3 million. So it sounds like you expect sales to be up about $0.5 million from a year ago if you exclude that. Does that sound about right?

Just give that to me again? Jim, sorry.

For the September quarter in '21, I believe the sales were about $3 million. So if you come in at the midpoint of your guidance for 2022, I think you're implying about 3% top line growth excluding the COVID. Does that sound about right?

I think we'll have about between $300,000 to $400,000 of COVID sales in Q3. And so look, it's preliminary guidance, but I think it's probably going to land somewhere in and around what we have in Q2.

Okay. So if you come in at $19.5 million, you're up maybe a couple of hundred thousand from 2021 on a year-over-year basis?

Yes, yes. I understand what you're saying. Yes, I understand what you're saying.

Okay. How should we think about interest expense for third quarter and going forward? I know this quarter, it was unusually high because of the accelerated paydown.

Yes. So interest on the Perceptive debt is about 14% now. Okay. And there's about $45 million on that. So that will be our expected cash interest cost. The accretion interest is noncash. And it's an IFRS driven charge.

Okay. And how should we think of the share count for the third quarter and going forward?

In terms of EPS calculations, yes, it will increase somewhat more Jim because the shares issued to MiCo will have been outstanding for longer.

Right. So does that sound about right?

In and around that, Jim. In and around that Jim.

So Jim, in terms of revenue context, when we analyze the quarter-over-quarter and year-over-year performance, we see that all the fluctuations due to COVID, including the increase in VTM and the impact on hemoglobin from COVID testing, are balancing out. We're essentially stabilizing revenue at approximately $19 million to $20 million. The aim is to grow from this point, and this is the foundation that John and I are using for our three-year plan moving forward.

Right. So basically, you start out with $75 million, $80 million business, and then you expect to grow it from this point based on the increased sales for the HIV test and the autoimmune and diabetes test.

Yes. Some of the initiatives I mentioned have significant growth potential in 2023 and 2024. Overall, we believe we are currently at the run rate from which we want to develop our plan.

And at what level do you think you need to achieve of revenue to obtain profitability on the bottom line?

We are approaching this in two main ways. We aim to increase revenue while also focusing intently on enhancing gross margin contribution. As previously mentioned, the average selling price of the TrinScreen HIV test is expected to be lower than that of the Uni-Gold test, which may result in some margin percentage erosion but will contribute positively to overall gross margin. Additionally, we are concentrating on managing our selling, general, and administrative costs as well as our overall cost structure. I don’t want to provide specific guidance on what our profitability level will be, as it will depend on our revenue growth and our efforts to optimize gross margin. For instance, in our hemoglobin business, we are planning to insource a significant portion of our consumable production, which we believe could add around $1 million to our annual bottom line through this initiative. While we won’t see the full impact in 2023, we anticipate realizing this benefit in 2024. We are currently executing on this strategy, and I expect it to begin yielding positive results early in 2023. We are focusing on several key initiatives to improve operational efficiency instead of solely relying on revenue growth to reach breakeven. Our primary focus is on increasing revenue and enhancing efficiency to achieve substantial profitability.

I mentioned the 3-year plan for hemoglobins. We are looking at a business that should achieve gross margins well over 50% and operating profit margins pretax in the approximate 20% range within that timeframe. This will be a healthy and profitable segment, and it is our largest business. Right now, we are focusing our efforts on point of care, seeking to position the lab and product business to capitalize on high-margin opportunities in developed markets, as well as leveraging our existing presence in developing markets, particularly in the product business. Our partnership strategy gives us confidence in the opportunities available at the lab level, and it represents a very high-margin approach for both our Irish-based lateral flow business and our lab business. I believe this will be a key driver for us, and we are actively working on this while discussing possibilities with several partners, which will help define our model moving forward.

Okay. And then the last one from me. Are you actively working on refinancing the remaining piece of that 14% debt?

The market is somewhat uncertain at the moment. When John and I started discussing refinancing the debt, we noted that it comes with penalties. After evaluating the situation, it seems the short-term penalties associated with refinancing might outweigh the benefits. We believe it would be more advantageous to approach both debt and equity investors with a transaction idea and then refinance once instead of twice, which would incur additional penalties. We're being cautious about this. Holding onto 14% interest debt isn't practical, so I do plan to refinance it. However, John and I want to ensure we approach this thoughtfully.

Yes. Through the early repayment, we have significantly reduced that cash cost. While the rate is high, the total amount is much lower than what we had previously incurred.

The next question is from Paul Nouri of Noble Equity.

What do you see as the size of the market for the variant instrument?

We had a previous discussion about our forecast on those numbers and what they could potentially be. The variant product is set to take over the market leadership position we had historically, and we expect to achieve similar success once this product is launched. This is actually a significantly improved version of the Ultra product we previously offered. So, John, what is the current status of the Ultra product?

Yes. Well over $5 million to $6 million revenue a year, right, in the U.S. predominantly with very healthy margins, Paul, right, and a recurring revenue model. We could get higher than that, obviously, to the extent that we push this outside the U.S. So while we have launched it under CE Mark in a lot of countries because it's a U.S. manufactured product, it needs 510(k) approval, that needs home country approval. And just also from a marketing and credibility perspective, one of Trinity's great strengths in its other areas is the fact that it has a large number of 510(k) approved products, right? And that markets those products well outside the U.S. And the same should apply for the Premier Resolution. So yes, look, we'd hope to be getting 5 or 6, if not more, million a year out of that at a good margin. And really, the growth is only dictated by, I suppose, how far we can expand that outside of the U.S. of which the 510(k) is a key pillar in that strategy.

Okay. And then shifting to the screening market. In Africa, what is the approximate market share of the current leader? I understand it varies by country, but do they hold more than 50% or is the market more fragmented than that?

Yes. I don't think we want to focus on another company's market share. Our priority is on our own. They do hold a significant position in the market.

I'll let roll over kind of what you targeted. So yes.

Yes. But that gives us an opportunity, Paul, to pick up a meaningful piece of that market. They have been the incumbent there for many, many years, and that gives an opportunity with our product, which we think has key benefits in terms of its performance. But also the time to test, it's a faster test to run and that matters a lot where you're running a HIV testing clinic in terms of throughput. So we think that we can pick up a meaningful piece of that market, notwithstanding their position there.

And do you anticipate that legal objections might be an issue in each country? Or is this country unique in some way that they thought that they had a like to stand on?

Look, but again, not inclined to talk about cases that other parties are involved with and we're not involved with. But I'd say this was not necessarily an issue that we had perceived would be a problem in terms of a broader rollout in Africa. So we don't foresee it as a major issue.

I would like to share my thoughts based on my experience in Africa. The screening market we're discussing is approximately $150 million a year in revenue, reflecting the significant characteristics of our tests and the interest from various countries in alternative algorithms. While we do not aim to capture 50% of the market, achieving 20% is realistic. This provides some context for the market size at this time. Additionally, whether it's related to legal matters or political situations, Africa can be unpredictable, and we recognize this challenge. That’s why we are extending our point-of-care testing efforts beyond Africa into higher-margin, more stable markets. Moreover, we have brought Tom Lindsay on board, who previously built Alere's business in Africa. He possesses the necessary connections and expertise to help us improve our visibility and overall understanding of operating in Africa, allowing for more predictable outcomes. While we are taking these steps, we must acknowledge that inconsistency will always be a factor in Africa, and we need to accept that reality.

Okay. And I know this is kind of a tough question because there's no way that you can predict this kind of thing. But as you're looking for partners to possibly merge with or whatever the strategic combination would be. Are you leaning more towards younger companies who have more capital and could use the fact that Trinity has been in the market so long? Or is it the other way around where you're looking for more mature companies or maybe looking to just bolt on some extra product lines or whatnot?

We are considering a variety of companies that have appealing product pipelines in the point-of-care space. We are engaging with firms that are integrated into the new healthcare treatment ecosystem, including telehealth and other digital providers supported by payers. These companies have capabilities such as user interfaces, APIs, and private label options that are essential for delivering solutions, particularly in over-the-counter B2B2C models. Many of these companies are younger and more tech-focused, yet they understand the complexities of healthcare. Additionally, we are also exploring opportunities with traditional consumer packaged goods and tech companies that view this as a significant growth opportunity. These companies have established distribution networks that we lack, while we have the necessary regulatory and operational expertise in this industry. Overall, we are having interesting discussions across this spectrum. John, do you have anything to add?

I believe that's a fair summary. Similar to Paul, what we're aiming for in a post-COVID world is to develop manufacturing point-of-care tests. We now see an opportunity to focus on the higher price point consumer market for over-the-counter products. Additionally, we can adjust our laboratory capabilities to support this market and effectively serve payers. Ultimately, it's about leveraging our existing capabilities and scaling them to target higher price point, higher margin opportunities than we have pursued over the last year.

We have received interest from several digital companies looking to invest significantly in our lab business. We have come to realize that we possess something valuable that positions us well within the interconnected ecosystem. Furthermore, the profit margins are significantly better than before.

Yes, to some extent, there's capabilities we need to bring in to do that, and partnerships and M&A are a way for us to do that as well as building on our existing platform with product acquisition or synergy plays.

The next question is from Paul Nouri of Noble Equity.

Inventories, I think, for the company have historically been at a high level. And I think my understanding of it was that it was mostly related to Fitzgerald and them needing to have a lot of inventory on hand, a lot of different types of inventory on hand. Is that still the case? And is the current inventory level where you would expect it to remain approximately in coming quarters?

It's not solely about Fitzgerald. Considering the supply chain challenges that have affected everyone over the last 12 to 18 months, we decided to increase our safety stock levels for many of our inventory items, particularly in our hemoglobin business. We've faced significant supply chain issues. While we usually manage to overcome these, they can be quite distracting. It's essential for us to be able to produce when our customers and the patients require our products. For this reason, we've opted to boost our safety stock levels. That's the primary reason for the higher inventory levels, and I expect them to stay around the same level moving forward.

This concludes our question-and-answer session. I would like to turn the conference back over to Aris Kekedjian for closing remarks.

Well, look, thank you for attending my first earnings call. I thought your questions were very insightful, and I appreciate it. We will actually be back to you fairly soon to do our third quarter update. And I promise you that we'll be on a more regular schedule going forward. So stay tuned. We look forward to talking to you in a few weeks' time, and I think we have a link on our website to the Piper conference. So that will be live streamed and we'll provide the presentation online. So with that, thank you for the time and enjoy the rest of the week.

Thanks, everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.