Welcome to the Precipio Third Quarter 2019 Commercial Update Call. All participants will be listen-only mode. [Operator Instructions] Please note that the conference is being recorded. Now, let me hand the call over to Miri Radomski, Precipio’s In-House Counsel. Please go ahead..

Thank you, Ben. Good afternoon. Statements made during this call contain forward-looking statements about our business. You should not place undue reliance on forward-looking statements as these statements are based upon our current expectations, forecasts and assumptions and are subject to significant risks and uncertainties.

These statements may be identified by words such as may, will, should, could, expect, intend, plan, anticipate, believe, estimate, predict, potential, forecast, continue or the negative of these terms or other words or terms of similar meaning.

Risks and uncertainties that could cause our actual results to differ materially from those set forth in any forward-looking statements include that are not limited to the matters listed under risk factors in our annual report on Form 10-K for the year ended December 31, 2018, which is on file with the Securities and Exchange Commission as well as other risks detailed in our subsequent filings with the Securities and Exchange Commission.

These reports are available at www.sec.gov. Statements and information including forward-looking statements speak only to the date they are provided unless an earlier date is indicated.

And we do not undertake any obligation to publicly update any statements or information, including forward-looking statements, whether as a result of new information, future events or otherwise except as required by law. Now let me hand the conference over to Ilan, Precipio's CEO..

IV-cell and HemeScreen. As I said in the past, one of the strategic goals of the company is to diversify its revenue to add a third revenue line item from products and services. Unlike the pathology and pharma revenues, product sales or B2B revenue that's not susceptible to reimbursement or collections or long lead time and DSO.

And once you get a customer, it's very, very predictable. Furthermore, as the lab to lab product usage is relatively consistent and so purchases are predictable with a relatively high degree of accuracy.

So as we aim to build as much of a pipeline as possible, the company took an All Hands On Deck approach and everyone rolled up their sleeves to get these products in front of as many customers as possible.

As in any sales process, it begins with a funnel of prospects, target customers, meetings and presentations that converted into trials and those convert into customers. We've shared some of the results of our work with completing the validation.

And I want to assure you that we are all still moving forward towards onboarding major labs to use our products both domestically and internationally as we work with labs in Asia and South America to introduce our products. And yes, in Q4, we will have our products generating revenue for the company for the first time.

We've now thoroughly tested and incorporated the IV-cell media product produced by Novamed and both in our labs as well as in other labs trialing it. The results are spectacular. Novamed is ready to scale up with us and we have ensured adequate capacity for substantial customer orders.

We continue to believe that this is going to be a substantial growth driver for the company going forward. Having said that, we're not pleased with the results for the quarter and members of the team, including myself, have conducted a thorough analysis to identify the causes, so that this doesn't happen again.

We are a growth company with a lot to offer and our numbers, not our words, must continue to demonstrate that. I have no doubt that the seeds planted this year and in particular in Q3 will show their fruits very soon and these fruits will be long lasting.

Now, let me hand it over to Carl for some additional comments and I'll come back for some closing thoughts.

Carl?.

Thank you, Ilan. Good afternoon and to our shareholders thank you for joining our call today. I am Carl Iberger, Precipio’s Chief Financial Officer. On today's call, I'll cover our 10-Q filing, operating performance and cash requirements. First, as Ilan noted, we have completed and filed our 10-Q with the SEC today.

Consistent with prior reporting, the company is filing a clean quarterly review and audit from Marcum LLP. Moving on to operating performance and on the revenue front, in his remarks, Ilan discussed our Q3 revenue.

While Q3 revenue was lower from the prior quarter Q2 of 2019, our reported revenues on a year-to-date basis were $2.4 million for the nine months and more favorable to the nine months ending 2018 by 12%. While reporting a 12% year-over-year increase and to Ilan's point, our expectations were higher.

We projected a 15% increase and we were attracting to that forecast through August. However, we fell short in the month of September. Our testing revenue decreased as a result of a decrease in patient referrals from several key farmer accounts and certain other ordering accounts.

While disappointed with September, ordering patterns have rebounded in Q4. Moving on to lab operating costs. At present, it is difficult to show improvement in gross profit because our testing volumes did not allow us to realize economies of scale.

Both fixed and variable expenses are required at their current level to appropriately operate a functioning CLIA and CAP certified diagnostic lab. Simply put, we are staffed at an appropriate level of effort to manage the lab and provide industry standard turnaround.

But taken as a whole, lab operating costs have remained constant over the last 18 months. As testing volumes grow, our margins will improve. That just stands today we do have excess capacity. Estimates are that we could absorb a volume increase approaching 20% before adding to our variable costs. Each incremental revenue dollar heals 55% to 60% margins.

Moving onto our operating expenses. The company's operating expenses consists of sales, marketing, R&D, public reporting expenses, legal, IT, general business operating expenses and management. By cost category, our operating expenses consist of salary, professional fees, facility costs, travel, depreciation and amortization.

In the G&A section of operating expenses, we continually make strides with cost reductions and efficiencies through outsourcing and external systems. These initiatives yield both recurring and non-recurring reductions in our operating business. Key process changes have been in legal, public reporting, state and federal tax filings and business fees.

Once we've locked on a reduction and demonstrate the savings, we in turn look to invest in sales, expanding our business development activities and R&D. During Q2 and Q3, our investments have been expanding our sales team and upgrading our business development activities. Currently our sales force covers 17 States.

Early results of our sales analytics show that we are seeing an increase in both new ordering accounts and a general across the Board increase and orders per account. On the R&D front and I believe Ilan touched upon this. We've commercialized IV-cell and HemeScreen.

Well there have been some starts and stops in the clinical evaluation process and these have elongated our initial estimation regarding completion of clinical trials. Expectations remain for significant revenue contributions in 2020, operating losses.

For the three months ending September 30, 2019 the company reported a net loss of $2.4 million as compared to a net of $4.1 million for the equivalent period in 2018. Off the $1.7 million change, $1.6 million was the write offs associated with Goodwill.

The remaining $0.1 million is the net impact of securing expense reductions in legal and public reporting and then turning around and investing in sales, business development and R&D. So stepping back and viewing the company's operating expenses as a whole. During 2019 we have successfully reduced spending in certain G&A areas and public reporting.

We estimate that between 350 to 0.5 million in annual reductions have enabled the company to focus on its growth initiatives. Moving forward we believe additional reductions or overall public reporting expenses will be evident in future quarters. Turning to our cash and cash requirements, to grow the business, develop new products and expand sales.

The company has relied on cash generated from its revenues and investor financing. We are a consumer of cash today. Cash on hand as of September 30th was $1.7 million. This is an increase of 1.3 million from the year-end December 2018.

Going forward, management believes that current cash balances, continued growth in diagnostic testing revenue, generating additional cash, newly inked clinical research contracts and new product revenues in the form of IV-cell and HemeScreen combined with managing expenses will be sufficient to reach cash flow breakeven during 2020.

And now I'll turn the call back over to Ilan for some closing remarks. Okay..

our employees, our customers, and to you our shareholders. This common vision that unites us is the key ingredient to the continued hard work required to achieve success. Over the past quarter I've personally visited over a dozen labs to discuss products such as IV-cell. The response has been almost unanimous in terms of immediate interest.

The need for better product is clearly there and goes virtually un-refuted. This tells me that we've developed a product that has a clear market need and can provide substantial clinical impact as well as operational value. As with any product, the first few sales are always the toughest, but I'm confident we're on the right track to major success.

As we enter into the year in the holiday season I want to wish you all health and happiness. I spent quite a bit of time in the offices of our customers. And from time-to-time, I see the gut retching image of parents walking out of the treatment room with their teenage daughter wrapped in a blanket with her head covered with a scarf.

Those moments remind me of how lucky we are to be able to do what we do, to be contributed to society and to spend another good year – another year in good health. During this upcoming holiday season, I wish you and your families the same. Have a nice evening and thanks for joining the call..

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

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