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Precipio, Inc. (PRPO)·Q3 2015 Earnings Summary

Executive Summary

  • PRPO (Transgenomic, Inc. in 2015) reported Q3 2015 continuing operations net sales of $3.96M, down 3% year over year, with gross margin improving to 45%; total EPS was $(0.55), with continuing operations EPS of $(0.62) impacted by a $7.0M non-cash impairment and a $1.0M accrual reversal .
  • Structural portfolio actions dominated the quarter: sale of the ion chromatography product line for ~$2.1M cash and a binding term sheet to divest the Genetic Assays & Platforms (GAP) unit (expected to reduce quarterly expenses by ~$1.2M) .
  • Management emphasized accelerating commercialization of Multiplexed ICE COLD-PCR (MX-ICP), launching new liquid biopsy tests/panels, the first commercial license (University of Melbourne), and a pharma pilot study; year-to-date laboratory business up 18% on a stand‑alone basis despite seasonal/one-time factors .
  • Cash was $2.8M at quarter-end; Q3 financing raised ~$2.7M net and asset sale added ~$2.1M; management signaled burn-rate near ~$2M in Q1 2016 pending revenue uptake from MX-ICP .
  • Key stock reaction catalysts: accelerated MX-ICP commercialization/licensing, cost base reset from divestitures, and clarity around non-GAAP impairment effects and forward burn-rate trajectory .

What Went Well and What Went Wrong

What Went Well

  • “We are very pleased with the increasing momentum we are achieving with MX-ICP… now can focus our full resources and energies on commercializing this technology” (CEO); three new liquid biopsy diagnostic tests and ICEme mutation enrichment kits launched; first commercial MX-ICP license secured in Australia .
  • Gross margin improved to 45% (vs. 42% YoY) driven by lower operating supply costs; Modified EBITDA loss narrowed to $(1.3)M from $(3.1)M YoY, highlighting underlying operating improvements despite restructuring .
  • Asset monetization and financing strengthened liquidity: ~$2.1M columns sale and ~$2.7M net financing, supporting commercialization and reducing legacy distractions .

What Went Wrong

  • $7.0M non-cash impairment in Patient Testing long‑lived assets, with continuing ops EPS of $(0.62); even excluding impairment and $1.0M accrual reversal, continuing ops EPS was $(0.18) reflecting ongoing losses .
  • Contract lab services down ~$0.2M as legacy pharma services transition to ICE COLD-based offerings; seasonal and one-time factors obscured standalone lab business growth .
  • QoQ reported net sales declined versus Q2 levels as GAP moved to discontinued operations and structural changes reduced consolidated revenue visibility; burn-rate guidance implies continued cash usage into early 2016 absent faster MX-ICP ramp .

Financial Results

MetricQ3 2014Q1 2015Q2 2015Q3 2015
Net Sales ($USD Millions)$4.064 $6.513 $7.040 $3.960
Gross Profit ($USD Millions)$1.717 $2.974 $2.872 $1.764
Gross Margin %42% 46% 41% 45%
Operating Expenses ($USD Millions)$5.704 $5.621 $5.649 $10.688 (incl. $7.0M impairment; $1.0M accrual reversal)
Operating Loss from Continuing Ops ($USD Millions)$(3.987) N/AN/A$(8.924)
Net Loss (Total) ($USD Millions)$(0.080) $(3.041) $(3.275) $(7.299)
EPS – Continuing Ops ($)$(0.41) N/AN/A$(0.62)
EPS – Discontinued Ops ($)$0.36 N/AN/A$0.07
EPS – Total ($)$(0.05) $(0.36) $(0.30) $(0.55)
Modified EBITDA ($USD Millions)$(3.123) $(1.993) $(2.011) $(1.263)

Notes:

  • Q3 2015 and Q3 2014 reflect continuing operations with GAP treated as discontinued; Q1/Q2 2015 did not break out continuing vs discontinued in press release 8-Ks .

Segment and Drivers (disclosed elements)

ItemQ3 2015 Commentary
Contract Lab ServicesDown ~$0.2M YoY as transition to ICE COLD-PCR offerings
Patient Testing ServicesUp ~$0.1M YoY
Laboratory Business (standalone)Up 18% YTD; obscured by seasonal/one-time factors

KPIs and Balance Sheet

MetricDec 31, 2014Mar 31, 2015Jun 30, 2015Sep 30, 2015
Cash & Cash Equivalents ($USD Millions)$1.609 $5.379 $2.309 $2.787
Accounts Receivable, net ($USD Millions)$5.389 $8.345 $9.719 $9.252
Intangibles, net ($USD Millions)$7.879 $7.854 $7.549 $1.000 (post impairment)
Long-term Debt, less current ($USD Millions)$7.375 $7.925 $4.850 $0.525
Stockholders’ Equity ($USD Millions)$6.553 $10.045 $10.924 $6.717

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Quarterly Expense ReductionOngoingNot specified“Reduced expenses by more than $1 million per quarter” Raised (cost down)
GAP Divestiture Expense ImpactPost-closeNot specified“Reduce Transgenomic’s quarterly expenses by approximately $1.2 million” New
Burn RateQ1 2016Not specified“Q1 is probably going to be in the region… ~$2 million burn rate” New
MX-ICP Revenue MaterialityFY 2015Not specifiedAim to report a “sizeable” MX-ICP number by year-end (licenses, CLIA testing, kits) New (qualitative)
Financing/LiquidityQ3 2015Not specified~$2.7M net financing completed; ~$2.1M asset sale cash proceeds New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
MX-ICP CommercializationQ1: Announced CLIA launch at ASCO and mid‑June kit launch; pursuing licensing; early interest from pharma/biotech . Q2: Launched EGFR CLIA tests; ICEme kits; expanded pharma pilot; forming CCAB .Q3: Three new liquid biopsy tests/panels; first commercial license (University of Melbourne); pharma pilot with four firms; Google marketing initiative .Accelerating adoption and ecosystem building
Portfolio RestructuringQ2: Discussed asset monetization and private placement financing .Q3: Columns business sold for ~$2.1M; binding term sheet to divest GAP; lower quarterly expenses .Executed actions; cost base reset
Financial DisciplineQ1/Q2: Operating expenses reduced; cash raised; margin improvement .Q3: Gross margin up to 45%; Modified EBITDA loss narrowed; expense reductions >$1M/quarter .Improving underlying metrics
Revenue Mix/SeasonalityQ2: Lab services up; GAP down due to Surveyor divestiture .Q3: Contract services down ~$0.2M; patient testing up ~$0.1M; seasonality and transitions noted .Transitional headwinds near term
Liquidity/BurnQ2: Cash $2.3M; private placement $2.7M net in July .Q3: Cash $2.8M; burn-rate guided around ~$2M in Q1 2016; financing and asset sale proceeds .Adequate near-term liquidity; continued burn expected

Management Commentary

  • CEO on strategic focus: “We are very pleased with the increasing momentum we are achieving with MX-ICP… with our new streamlined structure, we now can focus our full resources and energies on commercializing this technology” .
  • CEO on commercialization milestones: “We launched three new liquid biopsy diagnostic tests… announced a new pilot study with four leading biopharmaceutical firms… presented data… with Amgen… announced our first commercial MX-ICP license” .
  • CAO on financials: “Gross profit was 1.8 million or 45%… Operating expenses were 10.7 million… includes $7 million impairment… reversal of an accrual liability of 1 million… net loss from continuing operations… $8.2 million or $0.62 per share” .
  • CEO on laboratory business and seasonality: “Our laboratory business is up 18% this year on a stand‑alone basis, but these gains were obscured in the third quarter due to seasonal and one-time factors” .

Q&A Highlights

  • ICE COLD-PCR revenue timing: Management expects a “sizeable” contribution by year-end across licensing, CLIA testing, and kits; ramp to become a “major number” in 2016 as commercialization scales .
  • Expense reduction drivers: Savings reflect both divestitures and tighter cost control; cash flow benefits expected to be more visible in 2016 as transactions close .
  • Burn-rate outlook: Burn in Q1 2016 guided to “maybe… ~$2 million,” with profitability leverage as fixed-cost lab capacity is utilized .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 2015 and Q2 2015 was unavailable at time of query; therefore, beat/miss analysis versus estimates cannot be provided. Consensus data unavailable (S&P Global)*.

Key Takeaways for Investors

  • Near-term stock narrative centers on MX-ICP commercialization momentum (new tests/panels, first license, pharma pilot) and the strategic exit from legacy GAP/columns businesses to streamline focus .
  • Reported results include significant non-GAAP items (impairment and accrual reversal); underlying margins and Modified EBITDA are improving, suggesting operating progress beneath restructuring noise .
  • Liquidity improved via financing and asset sales; burn-rate guidance (~$2M in Q1 2016) sets expectations for additional capital or accelerated revenue ramp from MX-ICP to bridge to breakeven .
  • Revenue mix is shifting toward patient testing and contract services aligned with ICE COLD-PCR; expect volatility as legacy revenue winds down and new offerings ramp .
  • Watch for incremental licensing deals, clinical validation publications, and pharma services conversions from the pilot study—key catalysts for 2016 revenue and margin expansion .
  • Expense reductions (> $1M/quarter; GAP divestiture ~$1.2M quarterly impact) should structurally lower the cost base, amplifying operating leverage as MX-ICP volumes grow .
  • With consensus estimates unavailable, trading setups will hinge on qualitative catalysts and sequential progress metrics (test launches, contracts, cash burn trajectory) until visibility improves (S&P Global)*.

Footnote: *Consensus data unavailable (S&P Global).