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PI

Precipio, Inc. (PRPO)·Q2 2016 Earnings Summary

Executive Summary

  • Q2 2016 net sales were $0.505M, up 14% year over year, while the net loss from continuing operations narrowed to $2.2M ($0.10/sh) from $2.9M ($0.26/sh) as opex declined; gross margin remained negative due to insufficient volume to cover fixed lab costs .
  • Modified EBITDA loss improved to $1.76M from $2.08M YoY, reflecting lower SG&A and franchise taxes; cash was $0.421M at quarter-end and current liabilities were $17.7M, underscoring liquidity risk .
  • Commercial catalysts: VWR distribution for ICEme kits (management expects this to drive material revenue over the next 12 months), launch of new CLIA tests (EGFR C797S), and anticipated pharma/biotech service projects ramping in 2H16 to “single-digit millions” in revenue .
  • No formal numerical guidance was provided; management highlighted expected revenue conversion from pipeline deals and continued cash collections from discontinued operations (~$3M in the last six months) as bridge financing; ongoing NASDAQ listing discussions remain a monitoring point .

What Went Well and What Went Wrong

What Went Well

  • “Significant progress” toward a focused ICE COLD-PCR precision medicine strategy, including launch of multiple CLIA cancer tests and clinical validation (ASCO 97% concordance) supporting liquid biopsy adoption .
  • Non-core asset divestitures reduced expenses and generated non-dilutive cash; SG&A fell by ~$0.5M YoY to $1.436M, helping narrow losses; Modified EBITDA improved to a $1.76M loss from $2.08M .
  • VWR distribution agreement positions ICEme kits for broader reach; management expects “significant revenues” within 12 months; pipeline poised for commercialization with anticipated revenue-generating collaborations “in the coming months” .

What Went Wrong

  • Gross margin remained negative (gross profit -$37k) due to fixed lab costs and low revenue; contract lab services were flat YoY, with lower project activity and timing of sample availability cited as headwinds .
  • Liquidity tight: Cash at $0.421M vs large current liabilities ($17.7M), stockholders’ equity in deficit (-$16.29M); management flagged reliance on discontinued ops receivable collections (~$3M last six months) to supplement cash .
  • Deal closure pace slower than desired due to counterparties’ validation rigor, organizational changes, and broader industry M&A/disruptions; NASDAQ listing status required ongoing dialogue, introducing headline risk .

Financial Results

Income Statement and Key Metrics (Continuing Operations)

MetricQ2 2015Q1 2016Q2 2016
Net Sales ($USD Millions)$0.442 $0.200 $0.505
Gross Profit ($USD Millions)-$0.023 -$0.300 -$0.037
Gross Margin (%)-5.2% [-$0.023 / $0.442] -150.0% [-$0.300 / $0.200] -7.3% [-$0.037 / $0.505]
SG&A ($USD Millions)$1.908 $—$1.436
R&D ($USD Millions)$0.468 $—$0.402
Operating Loss ($USD Millions)-$2.399 $—-$1.875
Net Loss – Continuing Ops ($USD Millions)-$2.854 -$2.100 -$2.179
Diluted EPS – Continuing Ops ($USD)-$0.26 -$0.10 -$0.10
Modified EBITDA ($USD Millions)-$2.076 -$2.000 -$1.760
Weighted Avg Shares (Millions)12.150 $—21.797

Notes:

  • SG&A/R&D/Operating Loss were not separately disclosed for Q1 in the call; management provided Q1 revenue, gross profit, net loss, EPS, and Modified EBITDA .
  • All values reflect continuing operations unless noted.

Balance Sheet KPIs

KPIQ4 2015Q2 2016
Cash & Equivalents ($USD Millions)$0.444 $0.421
Current Assets ($USD Millions)$3.282 $1.803
Current Liabilities ($USD Millions)$16.981 $17.719
Warrant Liability ($USD Millions)$0.350 $1.442
Stockholders’ (Deficit) Equity ($USD Millions)-$12.820 -$16.290

Actual vs Wall Street Consensus

MetricQ2 2016 ActualQ2 2016 ConsensusSurprise
Revenue ($USD Millions)$0.505 N/A (Consensus unavailable via S&P Global)N/A
EPS – Continuing Ops ($USD)-$0.10 N/A (Consensus unavailable via S&P Global)N/A

Consensus estimates were unavailable from S&P Global during retrieval.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Pharma/Biotech service revenues2H 2016NoneAnticipates “single-digit millions” in revenue as projects commence with patient samples Introduced
ICEme Kits (VWR distribution)Next 12 monthsNoneVWR “can produce significant revenues” as distribution scales; targets set, expecting material growth by year-end Introduced
Royalties – LQTS IP (LabCorp)Ongoing (quarterly)NoneWill receive quarterly royalties; pursuing similar agreements with other organizations Introduced
Cash inflows from discontinued ops AR2016None~$3M collected in last six months; expects continued collections through 2016 Introduced
Formal financial guidanceN/ANoneNone provided; management focused on commercialization milestones Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2015, Q1 2016)Current Period (Q2 2016)Trend
Commercialization & licensing pipelineTargeting leadership in liquid biopsy; launched ICE COLD-PCR across services, kits, CLIA; first license with Melbourne; expected distribution deal and partner signings “in next few months” Pipeline growing; partner validation processes deliberate; expect revenue-generating collaborations “in coming months”; distribution via VWR secured Advancing, slower-than-hoped closures
Product performance & value propositionICE COLD-PCR enables in-house testing; low incremental cost; platform-agnostic; pushes precision medicine adoption Emphasized differentiator: in-house assays at ~$500/test vs send-out $2k–$3k; 7–8 day vs faster in-house turnaround Strengthening narrative
R&D execution & clinical validationConcordance data planned; ASCO/T790M studies; breast cancer panel launch ASCO study showed 97% concordance; expanded panels and EGFR C797S CLIA test launch Validation improving
Regulatory/reimbursement backdropMonitoring Medicare ctDNA guidelines; ICE COLD-PCR fits as enrichment step Continued focus on collaborations; no material regulatory updates; strategy remains LDT/partner-driven Stable
Financial health & liquidityBurn reduced to $450–$500k/month; bridging via non-dilutive asset sales and AR collections Cash tight; ~$3M AR collections YTD; cash $0.421M; significant current liabilities; Modified EBITDA improved Liquidity risk persists
Listing statusNot discussedContinuous dialogue with NASDAQ; optimistic on maintaining listing In focus

Management Commentary

  • “We have significantly advanced our ICP commercialization strategy… and are optimistic that we will begin to enter into revenue-generating collaborations in the coming months.” — Paul Kinnon, CEO .
  • “We anticipate providing genetic analysis services… starting in the second half of 2016 and either in the single-digit millions not hundreds of thousands of dollars.” — Paul Kinnon, CEO .
  • “VWR… can produce significant revenues for TBIO in the next 12 months, as VWR… helps develop the market for ICEme Kits in North America.” — Management .
  • “Cash on hand… utilizing collections from discontinued operations… approximately $3 million in cash [last six months]… expect this to continue through the remainder of 2016.” — Management .
  • “Transgenomic Launches… CLIA Test for Detection of EGFR C797S… and… panels… high sensitivity Multiplexed ICE COLD-PCR-based assays…” — Press release .

Q&A Highlights

  • Collaboration gating factors: extended validation cycles, counterparties’ organizational turnover/M&A disruptions slowed timelines; strategy remains to broaden pipeline and close deals despite external hurdles .
  • VWR agreement: broad reach into academia/pharma; expectation of material revenue by year-end with better forecast once run-rate builds; enables in-house testing for clinical trial samples .
  • Non-core monetization: Ongoing royalties from LabCorp on LQTS IP; exploring similar licenses with others; non-core assets provide short-term cash .
  • Liquidity and listing: Management highlighted $3M AR collections, asset sales proceeds ($1M in Q2), and ongoing NASDAQ listing discussions as priorities .

Estimates Context

  • S&P Global consensus estimates for Q2 2016 revenue and EPS were unavailable at the time of retrieval, preventing an estimates-based beat/miss assessment. Where comparisons are required, we anchor on reported results and management commentary .

Key Takeaways for Investors

  • Execution is shifting from restructuring to commercialization: expect near-term catalysts from pharma/biotech project starts and kit distribution ramp via VWR; watch for initial licensing/royalty announcements to validate the pipeline .
  • Liquidity remains a key risk: minimal cash, large current liabilities, and reliance on discontinued ops collections; any delay in revenue conversion or asset monetization could necessitate financing or further restructurings .
  • Operating leverage potential: opex reductions driving improved Modified EBITDA; a modest revenue ramp could meaningfully improve margins given fixed lab costs .
  • Differentiated product positioning: ICE COLD-PCR’s in-house, low-cost, platform-agnostic model addresses key pain points and may accelerate adoption, particularly as reimbursement frameworks evolve .
  • Stock reaction drivers: announcements of signed revenue-generating collaborations, evidence of kit order momentum through VWR, and clarity on NASDAQ listing status are likely to move shares in the near term .
  • Medium-term thesis: Transition to a higher-margin royalty/licensing mix could structurally improve profitability; proof points this year are critical to justify endurance through liquidity constraints .

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