Good day, and welcome to the Trinity Biotech Third Quarter Fiscal Year 2019 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joe Diaz with Lytham Partners. Please go ahead.

Thank you, Nicole, and thanks all of you for joining us to review the financial results of Trinity Biotech for the third quarter of fiscal year 2019, which ended September 30, 2019. With us on the call representing the company are Ronan O’Caoimh, Chief Executive Officer; and Kevin Tansley, 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 with those prepared statements, we submit for the record, the following statement. Statements made by the management team of Trinity Biotech during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will and other similar statements of expectations identify forward-looking statements. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including, but not limited to: the results of research and development efforts; the effect of regulation by the United States Food and Drug Administration and other agencies; the impact of competitive products, product development, commercialization and technological difficulties; and other risks detailed in the company's periodic filings with the Securities and Exchange Commission. Forward-looking statements reflect management's analysis only as of today. The company undertakes no obligation to publicly release the results of any revision to these forward-looking statements. With that said, let me turn the call over to Kevin Tansley, Chief Financial Officer, for a review of the results. After Kevin's remarks, we will hear from Ronan O’Caoimh on his review of the quarter. After which, we will open the call for your questions. Kevin?

Thanks very much, Joe. Today, I'll take you through the financial results for quarter 3 2019. Beginning with our revenues. Our total revenues for the quarter were $24.6 million, which compares to $23.7 million in quarter 3 of 2018. As Ronan will provide more details on revenues later in the call, I will now discuss the rest of the income statement. Our gross margin this quarter was 41%, which compares to 42.1% for the same quarter last year. There were 2 principal factors, which led to this reduction. Firstly, we had significant placements of instruments this quarter and as most of you are aware, such sales tend to have a significantly lower gross margin due to the razor-razorblade model that we adopt from sales point of view. Meanwhile, we have again been adversely impacted by currency movements since the dollar continues to increase. This calls the squeeze in margins when we invoice in other currencies such as the euro, sterling, Canadian dollar and, in particular, the Brazilian real, which fell sharply this quarter. Moving on to our indirect costs. Our R&D expenses during the quarter fell from $1.3 million to $1.2 million. However, our SG&A expenses increased in the quarter from $7.1 million to just under $7.3 million, driven by a combination of higher sales and marketing costs and also professional fees that we incurred during the course of resolving our recent tax audit. Meanwhile, our share option expense for the quarter dropped from $367,000 to $252,000. So overall, our total indirect costs were flat at $8.8 million for the quarter. The net result of this is our operating profit from the quarter was $1.3 million, which represents an increase of $100,000 compared to quarter 3 2018. And in summary, this is due to the increase in revenues being largely…

[Operator Instructions] Our first question comes from Jim Sidoti of Sidoti & Company.

Ronan, can you hear me? Ronan O?Caoimh: Jim.

Great, great. First question, the timing of the release, typically you guys report later in the month and you give a week or 2's notice ahead of time. Can you just explain why you put out the release last night that you're going to report today? Ronan O?Caoimh: Yes. No, just after we've traveled and logistics lines both have assisted later on this quarter. We are conscious that we went late last quarter and we just felt that it was appropriate to get out earlier rather than wait for couple of weeks with the -- we're in danger of having to go into November. We didn't particularly want to set that trend 2 quarters in a row. Jim, I think we're also conscious of the -- of where the stock price was and we felt that the results were reasonably strong, we felt we get them out quickly.

Yes, yes. That makes sense. Can you -- any comment on the sales of instruments in Brazil and also the sales of the new instrument here in the U.S. for A1c? I mean are they running about where you thought they would be, a little bit better, a little bit worse? Ronan O?Caoimh: Okay. Well, I mean we're up and running in our factory in Brazil. So despite the weakness in the real versus dollar, it's like at BRL 4.15 now, it's a nightmare rate and we have commenced placing again and so there was modest number of placements in Brazil this quarter. I think it's 4 or 5 instruments. In terms of the new A1c instrument, remember, the resolution is not actually approved -- sorry, the resolution variant instrument is not yet approved in the USA. So we don't have sales there yet. So we're talking about resubmitting in the next -- probably 90 to 120 days and then hoping for an approval before midyear of next year for the resolution.

Right. No, I was talking about the smaller instrument that you've, I think, started to note. Ronan O?Caoimh: Oh, Tri-Stat. Yes, well, Tri-Stat, we saw very modest numbers in the USA. It's -- really our concentration is on non-USA, non-Europe for that instrument. I mean it's a clear waive market in the USA and we haven't actually even submitted for a clear waiver with the instrument. We might get -- well, get it, but we haven't actually made that submission. So our concentration is very much on the non-U.S., non-European markets.

All right. So then aside from the shift in currency rates, would you say that the sales in Brazil are about where you thought they would be? Ronan O?Caoimh: Yes. I mean Brazil is performing well. We have 68% of the hemoglobin A1c market, for example. So I mean we performed extremely well. Everything has been perfect in terms of what we've done, how we've executed with the single exception of the fact that the dollar has moved from BRL 1.80 when we commenced there to BRL 4.15 at this moment in time, which obviously is a very big headwind.

And then TrinScreen, that sounds like that submission is delayed about a month. Is that the timing for your trial or what caused that delay? Ronan O?Caoimh: It's taking -- the trial is just taking a little bit longer, taking longer to close out the trial in terms of HIV-2 samples, subtype O samples, sensitivity analysis, et cetera. Just the thing is just dragging in the individual sites in South Africa, Kenya, Ivory Coast. But we think we expect that we will get it wrapped up -- we'll get all the data pulled together and wrapped up by the end of January, reasonably confident enough to get there. I know there's been a slippage, but I think we'll meet that time line.

All right. And then, there's been some chatter about your cash flow, your debt position. Can you just remind me -- I know when you bought back some of that note last year, you indicated you thought you'd be cash flow neutral in 2019, 2020. Do you still think that that's the case? Ronan O?Caoimh: I think I said actually, Jim, in the last call that we'd hoped to now revising that. Obviously, our -- the first half of the year revenue-wise wasn't as strong as we had hoped. We had hoped for a second -- a stronger second half. Obviously, quarter 3 has been stronger in that regards sequentially and we'll be hoping for another strong quarter in the quarter 4. I think a few things -- little givings will have to go in our favor to get to cash flow breakeven for H2, but we're still shooting for that. We do have to pay 6 months of interest in the -- in quarter 4. So there's a $2 million headwind there. And we'll have to overcome that by enhanced profitability and hopefully, again, favorable working capital movements. It tends to be a trend of ours that we do suffer a negative working capital in the first half of the year and it tends to go the other way in the second half of the year. So we're still hoping for lash by the end of the year. But I'll say, a couple of things are going to have to go in our favor. Obviously, that a discussion there excludes the impact of the tax payment, which we haven't paid that we announced last quarter.

Right. How about 2020? Do you think you'll be cash flow neutral in 2020?

Yes. I think we're expecting to get that revenue growth in 2020 and as we've discussed before, by getting enhanced revenue growth there's kind of -- there's a lot of leverage in our income statement and that should produce the additional cash and what enables to be cash flow breakeven. We anticipate that our CapEx, like has been the case this year, will continue to reduce next year. So you move from a situation whereby CapEx is -- we have a situation where our CapEx is going down and operating cash flows are going up and that moves us into the cash flow breakeven zone.

Okay. And then I just want to be clear, the -- on the notes, you're not required to repurchase any of those notes until at least 2022. Is that correct?

Well, 2022, that's correct.

[Operator Instructions] Our next question comes from Jonathan Sacks of Stonehill Capital.

Congratulations on a nice quarter and also thank you for providing some additional disclosure on the EBITDA calculation. That's helpful for us. Just a small question. Can you just talk a little bit about your capital expenditure? And what would you characterize as maintenance CapEx or general ongoing CapEx for your existing book of business versus CapEx that is oriented towards growth or new products? And any other color you could provide along those lines would be helpful.

Yes. So if you look at our cash flows -- of our CapEx, if you're -- the intangible CapEx, which as you see this quarter, was additions of about $2.6 million. That is pretty much all directed towards new product. Under IFRS, you can only really capitalize that either for a process enhancement or for the development of a new product. We don't really do much of the former -- this note is really all new products. You can treat all of that $2.6 million run rate as being for new products. In relation to our PP&E, products, plants and equipment as such, that is made up of what I will -- 2 buckets really. We've got instrumentation, which are capital leases. So proportion of that would be made up of instruments in basically Brazil and in the USA, the direct markets in which we operate. So it's little bit $300,000 or $400,000 per quarter in relation to that. And the rest of the CapEx on PP&E is -- essentially includes what you're calling their maintenance capital as such. So you're talking about $400,000 or $500,000. Some of that does include some equipment that we are buying in advance of TrinScreen getting ready for production. So to be honest, if we were not developing new products and we were not introducing new production lines for new products, our capital expenditure would end up being very, very low in the order of $1 million to $2 million a year.

Okay. On a -- sort of on an annual normalized basis and I know it'll be rough because some of the distinctions may not be so black and white, but on an annual run rate basis, what would you say total maintenance CapEx is?

Well, of the PP&E, that's probably $1 million to $2 million, which -- and probably closer to the lower end of that range. The intangible expenditure you might end up having maybe $1 million to $2 million there, if you're talking about keeping new instruments refreshed and putting new versions of those instruments out, but the vast majority of that expenditure is on brand-new products. So you're talking about the very low level of maintenance CapEx. So $1 million to $2 million maybe on each of the 2 headings, so $2 million to $4 million, maybe so I would think about as $3 million.

Our next question comes from Matt Reiner of Adirondack Funds.

On the Premier instrument placements, can you -- you said there was 108 in the quarter, I believe. And you are thinking 300 for the year. Can you refresh our memory, what was already placed in the first half of the year? Ronan O?Caoimh: I think it's about 124, I think for the first half.

Yes. I think it was 60-something in each of the first 2 quarters. So yes, we will very comfortably exceed 300.

Okay. All right. So it would imply another 70-or-so in the fourth quarter, roughly? Ronan O?Caoimh: Which we should beat. But -- I mean 108, I think, is a very, very strong quarter I assume.

Yes.

How many of those -- how many Premier out in the market in total now? Ronan O?Caoimh: We're over 2,000 now, 2,100 maybe.

And do any of the -- like what's the lifetime on those? Like do any need to be replaced? Or that -- these are all new placements, correct? Ronan O?Caoimh: Typically, when we sign reagent rentals agreement, we sign for 5 or 6 years. The reality though is that these instruments run for 8 years, and probably about 8. So we did our very first placement in 2012 with a small number. So we're -- I'd say, we're still in the -- we're getting towards the end of -- for some of the instruments, towards the end of their life cycle. But we've replaced very few over the years. So that will just start happening now, I think, in 2020.

Okay. And what's the lag between the placement to when you start getting the renewables or the razor blade, I guess, so to speak, revenue? Ronan O?Caoimh: Well, I mean it depends. I mean it -- in USA or Brazil, if I were distributing direct, it might be a matter of 2 months or something like that, but in China where we ship to our distributor who, in most instances, use sub-distributors, that's probably more like 6 months.

Yes. Okay. Ronan O?Caoimh: Typically, like that...

And is there an average that a machine typically does once it gets old? Ronan O?Caoimh: Yes. What we've said -- we indicate that the typical instrument does between $10,000 and $11,000 worth of reagent annually or of razor blade. And -- but that's the kind of an apples-and-oranges estimation because based on what you have is, you'd have -- you are offsetting direct in Brazil, for example, commanding a higher price at a very -- much higher price than we sell direct to the USA and then, for example, in China, much lower price where we have our distributor selling to a sub-distributor and then for example, in Europe, Menarini, who buy directly from us and place the instruments across Europe. So it's -- we're adding apples and oranges, but on average, we're talking about $10,000 to $11,000 of reagent per annum, which would constitute 25,000 -- in average, 20,000 tests per year, something like that. And it may be lower -- maybe we saw a bit lower. But maybe lower than 20,000 average, 15,000, 16,000 average tests.

Okay. And then, if we look the other instrument, the -- was it the Tri-Stat instrument? Does that have a similar type model where there is reagents with that as well? Ronan O?Caoimh: Yes. But I mean that is more like at doctor's office instrument. So it runs much, much smaller volumes. Typically, it might run maybe be 2,000 or 3,000 tests a year. So it might run 10 tests a day, something like that, all right, on average. Even sometimes, less than us. And so for example, in the USA, the equivalent instrument would be very much at doctor's office, instruments for us. It's a kind of instrument that might be used, say, for example, in Indonesia on islands as a backup, maybe instrument in much smaller diabetes clinics and these, in some instances, in kind of multiple doctor practices, but -- as well as typically on -- in very small diabetes clinics.

Okay. And then, lastly, have you looked at repurchasing any more of the debt? I mean I know you bought some last year. Is that something that's still on your radar? Ronan O?Caoimh: It's not really. I think -- I mean we took the opportunity to buy back $15 million worth of the bonds at a price of -- for $12 million, basically just -- bought just under $0.80, but I don't think it would make -- I think it'll be foolish for us to do that now given our cash balance. I think we need not just to have a reasonable amount of cash on hand but also to be seen to have a reasonable amount of cash on hand. So despite the fact that we're confident that we don't need all the money that we have on hand at the moment, we think it wouldn't be expedient to be seen to spend it. And I think, we'd have to see strengthening cash balances before we go back into the market. Having said all of that, we are extremely conscious of the fact that the bond matures in 2.5 years' time.

Our next question comes from [ Ron Legrow ] of the Athena Fund.

So this question is for Kevin. We really need to get out and market the company to new investors. Do you intend to do that?

Sorry. Could you repeat that question? I didn't hear you fully, sorry.

We really need to get out and market the company to new investors. Do you intend to do that?

Yes. No. We do that on a continuous basis. We have our own investor relations firms. We attend conferences. We do a lot, both myself and Ronan do a lot of calls to potentially new investors. It's the large part of what we do. But we would concede that maybe we should do more.

Is there any events coming up that you're going to be attending?

We're not booked into anything right now. And I think we'll probably have [indiscernible] Conference in New York in March. That's the only thing I think we are booked into right now. Ronan O?Caoimh: A lot of what we do is -- now sort of just our own roadshows, using our own Investor Relations room.

Our next question comes from Craig Gilbert of Linden Advisors.

Just can you repeat what happened with the Lyme business? I thought we were kind of cycling through the contract loss, but it looks like there's some other stuff at play there. Ronan O?Caoimh: The small amount of residual, I'd say, just in terms that there was a partial quarter that's out there, the contract that we lost, that was having some revenues in quarter 2. I think we'd said before that our first full quarter where we're going to be out of that will be quarter 4. There is a certain amount of residual this quarter. Also I think we are sensing as well this quarter -- this Lyme season is a little bit weaker than last year. So those 2 factors at play there.

Okay, okay. And you mentioned that the Fitzgerald business had strong EBITDA. Can you put some numbers around that? Ronan O?Caoimh: Yes. It's very close to $4 million per year.

Okay. $4 million of EBITDA?

Yes.

Okay. And then on the TrinScreen, the submission to the WHO in January, what does that imply in terms of when do you think we'll start to see revenues? Is that more of a 2021 event? Or do you think we could start to see that in 2020?

I think it's realistic in more 2021 because -- and if we submit in January, you can probably have July, that's 6 months for WHO before we get an approval. I mean you might get it sooner than that, but I think it's reasonable to assume 12 months. And after that, then we have to actually win -- we have to actually get selected on an algorithm in an individual country and they're rotating all the time. All these countries are up for renewable, but by the time you would actually get on to an algorithm and get an order realistically, we're looking probably at 2021. We might get something in 2020, but it's not going to be material.

Our next question comes from John Peters of Highbridge.

I just want to follow up on your previous sort of statements regarding the convertible maturity. I mean as you know, the convertible bond is now trading in the 70s and the equity continues to, I guess, unfortunately trade pretty poorly. Given the apparent debt overhang here, I think all investors would like to get a bit more clarity around how you plan to satisfy the CV in 2022?

I mean just to say, John, I know you're a very big holder off the desk, but -- I mean what can I say other than that we're extremely conscious of this. We know it's something we need to deal with. It's foremost on our minds, but I don't think really this is the forum in which I should outline to you how we might repay your debt, bit of respect. But just to say that we're extremely conscious of this. And I'd say, it's very much on our minds. We bought some back in the market, we could do that again. I explained in response to an earlier question there that in the circumstances where we were more confident of our cash flows there had proven that our cash flows, we might go into the market, but we very much realize that 2.5 years is a very important moment and we may do a transaction before then, we may do many various things. I'd say, we -- I don't think this is really the forum to outline how we would deal with this. Ronan O?Caoimh: Okay. And I think -- I don't -- we don't have any more questions. So could I thank you very much for your support, and wish you a very good afternoon. So thank you so much. Talk soon.

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