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applied dna sciences\' (apdn) ceo james hayward on q4 2017 results - earnings call transcript
by：Arojet
2019-11-11
Applied DNA science(NASDAQ:APDN)
On December 28, 2017, at 4: 30 p. m. , the earnings conference call
General counsel for James Hayward
Chairman and Chief Executive Officer
Chief Financial Officer Pierce-
Morgan Stanley Paul Cooney
Good afternoon Joseph gunnaroperator, welcome to financial results for FY 2017 of applied DNA science. [
Operation instructions]
Please note that today\'s event is being recorded.
I want to hand over the meeting to the clay coast now.
Please continue.
Thank you, operator.
Good afternoon, everyone, thank you for attending our fiscal fourth quarter and 2017 performance conference call.
I\'m clay rock, and the legal adviser is applying DNA.
A copy of the company\'s earnings press release and accompanying PowerPoint presentation can be downloaded in the \"Events and Presentations\" section of the investor page of the application DNA website.
It was Dr who called me today.
James Hayward, chairman and CEO
And Beth Jensen, chief financial officer.
As a reminder, please note that some of the information you will hear today in our discussion may include forwarding --
Outlook statements including, but not limited to, revenue, gross margin, operating expenses, other income and expenses, stocks
Based on compensation fees, taxes, earnings per share and future products.
There may be a big difference in actual results or trends.
For more information, please refer to the risk factors discussed in application DNA science Form 10-
K for fiscal 2017 submitted some time ago.
There is no obligation to update any forwarding by applying DNA science
Report or information.
Now, it is my pleasure to introduce our first speaker, Beth Jantzen.
Thank you, Clay.
Good afternoon, everyone. thank you for joining us today.
Let me start by reviewing our financial performance for the fourth and 2017 fiscal quarters and providing you with an update on our cash reserves after our recently completed capital raising. Then, Dr.
Our President and CEO, James Hayward, will summarize the Company\'s achievements this year and outline the key initiatives that are going on in fiscal 2018 and future initiatives.
Start with the operation statement.
Total revenue for the fourth quarter ended September 30, 2017 was $1. 1 million.
This is about 30% less than $1.
The fourth quarter of 2016 reported 6 million, down about 36% from $1.
Revenue for the third quarter of 2017 was 8 million.
These declines are mainly due to the timing of shipment and the recognition of revenue associated with our cotton contracts, as well as the conclusion of two government development contract rulings that expired in the fourth quarter of the last fiscal year of 2016.
For the fiscal year ended September 30, 2017, our income was $4.
8 million, an increase of approximately $600,000, or 13%, compared to $4 in revenue.
The previous fiscal year was 2 million per cent.
Although the revenue for fiscal 2017 is not what we want, this yearover-
The annual growth in revenue reflects our focus on the diversity of income streams and the establishment of our recurring revenue base for the year.
Compared with the same period in 2017, product revenue decreased by about 38% in 2016, an increase of 47% in fiscal 2017 and an increase in fiscal 2016.
Annual growth-over-
This year was mainly due to the recognition of deferred revenue related to DNA concentrates previously used to mark cotton.
It should be reminded that in the third quarter of fiscal 2017, we entered into a new licensing agreement with Himatsingka.
This new agreement provides, among other things, 60-
The daily payment period, and a larger gross profit margin than similar sales, is carried out in accordance with the arrangement that we previously sold DNA concentrates to Mark cotton.
Compared with the same period of fiscal 13%, the fourth quarter and annual service income as of September 30, 2017 increased by 38% and decreased by 2016 respectively.
Due to the increase in the feasibility study, service revenue increased in the fourth quarter, and Jim will discuss this in more detail later.
Compared to 2016, service income for fiscal 2017 declined due to the fact that two government contracts were signed in the previous fiscal year, which expired in July and August 2016.
This is a new 2-
The annual government contract we awarded in the third fiscal quarter, the net reduction in annual government contract award income of about $800,000, was offset by an increase in the feasibility project for fiscal 2017.
In the fourth quarter, gross profit margin as a percentage of product revenue was the same as the same period last year, at 68%. ago period.
Total operating expenses remain around $3.
The quarter ended September 30, 2017 was $7 million, compared to $3.
The same period in the previous fiscal year was 6 million.
For the fiscal year ended September 30, 2017, total operating expenses increased by 8% per cent from $15 compared to the previous fiscal year.
$2 million to $16. 5 million.
This increase reflects an increase in inventory
A base compensation fee of about $1.
2 million, the cost of bad debts increased by about $307,000, and the cost of depreciation and amortization increased by about $180,000, all of which were non-cash expenses.
These increases were offset by about $1.
R & D costs were reduced by 4 million.
In the fourth quarter of 2017, the adjusted EBITDA was minus $1.
Compared with the negative $1, 7 million.
The third fiscal quarter of 2017 was $5 million, down $1.
The fourth quarter of 7 million was 2016. Year-over-
EBITDA increased by about $1 million a year to $8.
Minus $9 3 million.
The previous fiscal year was 2 million per cent.
The improvement in fiscal 2017 mainly reflects the annual revenue growth --over-
The year, and the reduction in operating expenses, are mainly related to certain one-time expenses that did not occur in the current financial year that occurred in the previous financial year.
Turn to balance sheet.
As at September 30, 2017, total cash and cash equivalents amounted to approximately $3 million, compared to $2.
June 30, 2017 for 4 million.
The increase in the cash balance is mainly due to the receipt of proceeds related to our accounts receivable balance and the subscription receivable related to private placement in June.
We completed $4 in December 22.
8 Million Registered Direct supply.
After deducting the commission of the distribution agent and other estimated operating expenses we have payable, the estimated net income is about 4 yuan. 2 million.
This does not include any amount that we may receive from the exercise of the warrants.
As of December 22, including the above estimated net income, our cash position was approximately $4. 9 million.
This capital raising not only strengthens our balance sheet, but also gives us financial flexibility to implement our fiscal 2018 target, which Jim will discuss in more detail later.
As of September 30, 2016, due to cotton sales related to the previous MOU and the new cotton orders, our total balance of accounts receivable was approximately $2 million.
Due to the settlement of the new contract payment terms and the balance of accounts receivable from the previous MOU, we expect to collect the outstanding balance in the first quarter.
As at September 30, 2017, our average monthly cash payment rate for the 2017 fiscal year was approximately $332,000, compared with approximately $859,000 for the same period in the previous fiscal year, a decrease of approximately 62%.
Compared to Fiscal 2017, the monthly burn rate for fiscal 2016 decreased significantly, mainly due to increased cash collection, mainly from cotton clients, and reduced cash expenditure.
We continue to monitor our expenditures closely and intend to maintain discipline and continue to manage costs strategically based on our current and near market opportunities.
As of September 30, 2017, we estimate that our cash and cash equivalents, as well as the collection of our accounts receivable and the financing proceeds recently discussed, are sufficient to fund operations for the next 12 months.
Thank you for joining us today and I would like to give it to Jim now for his input.
James haywardokay
Well, thank you, Beth. Good afternoon, everyone.
Thank you for attending our conference call for the fourth fiscal quarter and annual mergerend results.
In the past fiscal year, we have worked hard to capture the opportunities that have come to us through our disruptive DNA platform and to implement a growth strategy that puts us on the path of greater revenue and profitability.
While our technology is disruptive, we are spending this year on ensuring a constructive way forward for 2018 to support existing business, foster new business and expand overseas business.
We focus on infiltrating large commercial ecosystems such as vertical textiles that we have established, and recently new industrial materials such as pharmaceutical, personal care, fertilizers and bearings and their lubricants.
Despite the disappointment, our financial performance in the fourth quarter did not change what we achieved in fiscal 2017 and did not reflect the momentum we achieved in fiscal 2018.
Let me share with you two data points, which I think best illustrate the progress we have made in implementing our growth strategy over the past year, this puts us firmly on the path to achieving our revenue and profitability goals.
Starting with this slide 6, we describe a quarterly snapshot of the forward
Annual operating rate of recurring income for fiscal 2017.
You will see that in fiscal 2016, we have identified a recurring revenue operating rate of approximately $2 million per year.
A year later, we pulled out of fiscal 2017 and our efforts were driven, or driven. 5-
Recurring income is expected to double to more than $6.
5 million per year
The basis of this annual revenue rate can be found in the long term.
Enter into regular contracts with Himatsingka, Loftex and GHCL with guaranteed or minimum annual revenue, as well as our automotive parts labels in Europe, including the bulk manufacturing business of our DLA parts marking and rapid innovation contracts.
Textiles account for most of our current income today.
You will notice that this trend has taken a step towards the market --
Between the second and third quarters, this coincides with the launch of our specific licensing strategy.
Looking back, there is no doubt that we not only earn from selling our DNA as an asset and related certification services, but when the value of the product reaches its highest, when it\'s on store shelves, we\'re also involved in the economy of the product.
This slide provides compelling reasons for the continued maturity of our business model and the further diversity of revenue sources.
We believe that our efforts to expand the adoption of certain licensing strategies go beyond our textiles that are perpendicular to classic, pharmaceutical, fertilizer and recycled materials and may have a valuable impact on revenue growth in fiscal 2018
Steering slide 7.
You can see that the number of feasibility pilots has increased. by-
Throughout the 2017 quarter, the market awareness of our platform has been increasing.
Our channel is growing because our DNA platform has been proven in the cotton market, we have shown our partner Himatsingka and several of our customers that the economy of our cotton solutions is mainly bedding, toiletries and other supplies, and now there are more retailers and brands.
Companies representing different interests in the industry supply chain
The new retailer and the final supplier of the brand owner joined our feasibility pilot pipeline.
Our current list has grown to 24 pilot projects including projects such as personal care, printing and packaging, pharmaceutical, bio-pharmaceutical, military, industrial products and textiles
Cotton textiles account for 30% of our current efforts.
This diversity reduces our risk concentration and increases our chances of getting a large business ecosystem for future product applications.
These slides show that we are building a stronger foundation for future growth.
The review of fiscal 2017 must also include our performance in the fourth quarter, especially in the context of fiscal 2017.
2018 cotton rolling season, our most developed market, the largest contribution of textiles and the current cotton, synthetic rubber and leather.
Because we are at 2017-
There are 2018 cotton ginning seasons in the fourth and first quarter of this year, and I would like to talk about the market demand for our DNA platform after signing a new exclusive license agreement with Himatsingka in June.
Now in the United States, cotton is grown, planted and harvested once a year.
Right after harvest is the rolling season, and this period is a great opportunity for us to mark cotton with our signature DNA molecular label.
When a retailer needs a new product, the marked Cotton is bent and then shipped to the spinning mill and other parts of the supply chain according to the demand warehouse and shipment.
As you can see on slide 8 describing cotton sales and demand trends, the demand for marked Cotton expressed in blue histogram is growing steadily year by yearover-year.
Our cotton revenues, expressed in line charts, did not achieve this growth, mainly because our previous business model was based on DNA purchases and did not have a historical speed of operation, there is no prospect of demand from our partners.
In fiscal 2015, you can see that this led to orders of nearly $4 million, but it also caused a continuing oversupply in fiscal 2016.
In the fiscal year 2016, the DNA sold in the fiscal year 2015 met our demand for cotton.
As a result, cotton revenues have fallen sharply, which is evident in the negative slope of the second red line on the left.
Despite our supply of demand, our cotton revenue for the fiscal year was lower than the market consumption for label cotton, but it was clearly the previous year.
Payment terms through our previous business model are also a burden for our company, and cash income usually takes 18 months to collect.
This is not a viable long term.
Our long-term strategy.
Therefore, in fiscal 2017, we decided to take advantage of the growing demand in the market for marking cotton, and in better partners built to apply DNA benefits, to ensure a more favourable economy for the cotton business model.
With the signing of the agreement with Himatsingka, we received a more favorable terms of payment, a net 60 days, and a more predictable cash flow, and a larger gross profit margin than our previous agreement.
Selling directly to our end customers, no longer through intermediary sales, reduces complexity and improves the balance of communication and supply and demand with a shorter lead time.
Our taggant order is now in progress, which can be demonstrated from the sales of label cotton, and now the number of label cotton is labeled with our estimate of 2017 and the chart of 2018.
Because of this, looking forward to the future, we expect to receive orders from Himatsingka throughout the year, and we usually only receive orders at the beginning of the rolling season compared to previous years.
Nevertheless, we should still expect seasonal effects on the timing of cotton revenues.
As our DNA labels are increasingly adopted by the cotton market and grow
With regular contracts with retailers through Himatsingka, we can now start to anticipate the demand for the coming year.
As you can see on the right.
In most of the columns, we predict that demand will continue to grow in fiscal 2018, and for a long time after the end of the rolling and labeling of the current season.
Looking back now, I just noticed that the only chance to label cotton is when it\'s ginning.
If demand from retailers increases after the end of the rolling season, if we mark just to meet immediate needs, it will cause our partners and our own revenue opportunities to be delayed or missed.
So we made a strategic decision to provide additional taggant to our partner gins to cover the cotton opportunities that we, our merchants and Himatsingka are working on.
After receiving the cotton order labeled, Himatsingka will purchase the DNA label from us enough to pay for the order.
Since the beginning of the cotton project three years ago, we have actually transformed the industry\'s dependence on paper traces into forensic evidence of origin.
Fast forward, we have proved that in a relatively short period of time, from 5 million in 2014 to more than 0. 2 billion pounds of cotton in 2017, our DNA technology can be extended to billions of pounds of fiber.
It is accepted in the market and we believe it has the potential to extend textiles to apparel in the United StatesS.
In the International
Providing proof of origin is no longer considered a good thing but must have.
From our survey of cotton as far away as Australia and Turkey, international demand is increasing.
We are involved in the Internet of Things in 7 gins with our DNA transfer system.
We are managing the fulfillment of the cotton contract with partners Himatsingka and Louis Dreyfus.
We have tested more than 3,000 cotton samples through the supply chain, all of which are in our textile cloudbased platform.
This season, we collect more than 685,000 sensors and control data points in the cloud every day,
Time monitoring of spray quality, contact with US Department of Agriculture Bell [indiscernible]
Identity and tracking of cotton pounds aligned by using the DNA markers of our transfer unit.
The platform provides manufacturers and retailers with confidence in the quality of cotton transported through our system.
It can also be configured for synthetic material supply chains and other identified prospects that we are developing now.
As long as market penetration continues to grow, we are the market for DNA-labeled Cotton now and in the future.
We can expect to mark more than we can identify in each fiscal year to meet the projected demand for the next fiscal year, but before the next harvest can get new supplies.
As you can see on slide 8, we are the first
Forecast of cotton label DNA sales revenue over $4.
The fiscal year of 4 million grew by 2018, an increase of more than 80% over fiscal 2017.
In addition to this, the new interests of brands and retailers have brought great growth potential.
In order to meet the potential needs, the application of DNA has created an emergency reserve of more than $1.
On our co-operative gins, 4 million of the DNA on the marker cotton can help meet any fiscal year before 2018
Harvest requirements.
Any incremental demand exceeding this level can be met by additional shipments before and after the end of this fiscal year in the 2018 harvest.
There are no other systems on the market that are proven, not even blockchain or RFID, and you can track the fibers of each label from farm to shelf while maintaining economic stability, supply chain system for sustainable development and security.
As for blockchain, let me point out that there is a common limitation for all blockchain and its methods, just like the value of blockchain in logistics.
The most trusted blockchain ledger in the world will not be able to tell whether criminals have replaced the original with bad or fake goods.
If no DNA tags provide forensic tracking of origin, how can any blockchain prove that the initial distributed entries in any ledger represent real goods?
We believe that signature DNA should be the backbone of any blockchain that requires forensic authentication nodes.
We believe this is good for our overall business and for many of our development opportunities.
Looking ahead to fiscal 2018, our goal is clear.
It will continue to drive greater revenue and eventual profitability.
For those of you who listened to our third quarter call in August, you will remember, I said, if we keep our expenses at the third quarter level, and keep the gross margin combination for the quarter, we will get positive cash flow earnings of about $3.
5 million pounds per quarter or $14 million per year.
After rising recurring income into fiscal 2018, we are close to half the cash or even break point today.
I think, let me talk about several recent developments that will contribute to revenue growth this year and continue our progress on breakeven.
In addition to our expectation of strong growth in cotton revenue for fiscal 2018, it is worth noting that in the $4 revenue.
4 million we expect that nearly $2018 will be spent in fiscal 4 million on our projected cotton recurring income base.
I pointed out earlier that we were out of fiscal 2017 and there are currently 23 projects in progress.
The current number is 24.
Every business opportunity.
Large-scale deployment of our platform and related services.
Two of the pilot projects have been commercialized and most of the textile projects are likely to transform rapidly.
We have also seen opportunities for revenue growth in vertical industries, we have gained a foothold in the vertical industry, and my remaining comments will discuss these opportunities.
In the textile sector, we have seen synthetic fiber customers expand their initial fixed license, and we expect that more synthetic fiber manufacturers brought in this fiscal year will receive similar licenses.
They have expanded to include more types of synthetic materials, especially those that follow the cotton value proposition.
Determination, however, applies not only to synthetic materials.
We expect it to be adopted in fertilizer, pharmaceutical and most of our supply chain markets.
Over time, we want it to be a global standard brand for traceability, transparency and trust.
We have expanded the CertainT program for PET recyclers in India and China to provide services for long-term rental agreements for GHCL and Loftex, respectively.
Both agreements require guaranteed minimum annual revenues and license fees.
Living with textiles
Conducting leather feasibility studies with our project sponsors, I think they are now close to 10 people and continue to exceed everyone\'s expectations, the project is expected to be completed by the end of March 2018.
We have started discussions on commercializing leather labels and expect this to be a good source of revenue for fiscal 2018.
Safesolution continues to be very active in Scandinavia, has recently reached a contract extension with a well-known German carmaker, and has recently increased its staff in their sales force
We will also recruit new dealers for the territory of Ecuador, Japan and Ireland in the new year.
After the end of a large pilot project-
Earlier this year, through the molecular markers of the scale of fertilizers successfully tracked by the West African supply chain, our partner and market leader Rosier, a department of borewald, as a commercial product, we are going through the global supply chain.
Now, together, we are ready to enter 60% of global fertilizer consumption.
The agricultural economy is pushing to prevent and ensure that the supply chain is protected from the interest of fertilizers.
We anticipate that the marked fertilizers may enter the target market early in the 2018 calendar and then other locations during the 2018 calendar period.
We also anticipate that, with the implementation of the federal mandate that came into effect on January 1, 2018, Turkey\'s demand for marking fertilizers requires DNA labeling of all domestic fertilizers and safe packaging, including the use of safe barcodes.
The mission is to deal with a series of terrorist acts using chemical fertilizers.
An explosion occurred in Turkey on 2016.
Has been in contact with the Turkish government since the medium term
2016. we believe that our DNA platform, which is a catalyst for government tasks, will create demand for our tagt rather than in the country.
To meet this demand, we have cooperated with domestic fertilizer manufacturers in Turkey.
At the end of September, we announced a strategic partnership with Videojet Technologies.
By working with market leaders such as Videojet and their mature sales teams, we have accelerated revenue growth in key business verticals.
Market leaders already have the customer relationships we seek, and they fully understand the operation of the supply chain they are involved in.
We offer truly scalable and seamless technology that gives them a competitive edge in the market, enabling them to defend market share and gain new market share.
We get new sales by using their sales staff to access their installed customer base and participate in sales of printers and follow-up salesSales of DNA
Label cartridge.
Videojet, one of the world\'s largest inkjet printing and marking systems, has 650 sales staff worldwide and has installed 325,000 machines, over 10 billion items are marked daily with barcodes and other valuable information that involves different supply chains, including military and government, personal care and pharmaceutical serialization.
With weidijie, we have greatly expanded the potential areas of projects that can be marked with DNA ink, and can provide a solution that can be easily integrated into the manufacturer\'s production line, mark their widgets seamlessly.
When inkjet printing is used for printing packaging, the market is almost unlimited.
As part of our cooperation, we launched a cooperation
Brand printers that share revenue with applied DNA, designed to use only DNA-infused inks. With the co-
Videojet-branded printers can provide an alternative technology for their customer base to still print barcodes and other information, but now every printer and cartridge has become a secure supply chain certification tool.
After installing the printer, the customer representative-
The term opportunity to repeat the sale of DNA boxes --
Ink and CertainT platform, perfect signature model.
Videojet security printer is perfect for high
Batch printing on the production line, specifically for the manufacturer to label the parts.
Our goal, our brand protection, and other targets responsible for the brand and supply chain security of OEMs within and to the military.
As a first step, we have started training video aircraft sales people to be effective supporters of our technology platform.
We also saw a lot of cross-cutting.
Sales opportunities based on our existing and potential customers.
I will note that this partnership is going on quickly, and while the initial announcement is centered on black pigment ink, we are already developing additional types of inks that are suitable for different applications, these inks will have the advantage of accelerating development. to-
Market timeline
We recently presented our platform to the market at the DMC exhibition in Florida, where we were very interested.
Now, patient safety is increasingly threatened due to drug counterfeiting and drug transfer, in part because of the fragmentation, complexity and international nature of the drug supply chain.
The passage of the drug supply chain safety law is a watershed moment to strengthen patient safety through the serialization of drug packaging;
However, we believe that by enhancing serialization with signature DNA, there is an immediate opportunity to further enhance the security of the global pharmaceutical supply chain.
More and more experience has shown that due to factors directly related to the loss of supply chain control, demand for drug certification will grow in the coming years.
On December 14, we announced a memorandum of understanding with Colorcon, which brings in accessories and coatings, which is an excellent carrier for direct access to the iconic DNA of most large pharmaceutical companies and many health care companies in the world.
The MOU is not binding, but we expect a final agreement to be signed soon.
After signing the final agreement, we expect to start receiving milestone payments and the sales of products and services sold to customers will start sharing revenue.
We hope to complete our drug master document or DMF next month, then review it with Colorcon and submit it to the FDA shortly thereafter.
It\'s a little later than I suggested a few months ago, and I\'m sorry, but it reflects our efforts to take the most reasonable path in terms of FDA compliance. With industry-
Colorcon, a leading subject matter expert in the field of regulation and compliance, directs us to submit a DMF document to the FDA, which will speed up the implementation time of commercializing our common customers.
Through this process, we have confidence in the sales team and customers.
The aim of the DMF is to facilitate our first client to comply with FDA standards and they will perform DNA labeling on their brand solid dose.
Once submitted, we will have regulatory confidence to engage with potential pharmaceutical customers who want to deploy our molecular labels in their products.
It is now clear that the FDA is not expected to respond to the submission of DMF.
Now, molecular tagging or turning a tablet into its own barcode complements FDA regulations on packaging serialization, which is our approach to using Videojet.
Using DNA, Colorcon, and video jet together can deliver drugs to the first pharmaceutical industrytime end-to-
The ultimate supply security far beyond the current global mandate.
Most importantly, we can do this by selling support hundreds of times larger than our own team.
On a relevant but different topic, we continue to develop a strong interest in our ability to manufacture functional DNA, which is more complex than the non-functional DNA labels we intend to manufacture for the bio-pharmaceutical industry
The DNA production contracts we use for diagnosis are stable and efficient and are part of our growing recurring revenue base.
In addition, we continue to cite pilot studies of functional DNA in gene therapy and vaccines.
We are able to convert two of the three Vandalia customers into our own long-term customersterm customers.
The third customer withdrew their product from the market.
In retrospect, our acquisition of Van Daria is very valuable to our capabilities and our current and future revenues.
So, in summary, we expect a significant increase in revenue for fiscal 2018.
Our expected annualized recurring revenue operating rate at the beginning of fiscal 2018 was about $6.
5 million per year
As we work together to acquire customers, we can expect to increase this base through our recent agreement with Videojet and Colorcon.
In addition to the growing recurring base, we can expect to increase revenue in the quarter as major pilot shifts to business.
Let me list our short.
Semester goals are shown in my last slide.
First of all, we will increase the revenue of the vertical industry we have established, especially textiles.
We are looking to grow independently from cotton and synthetic fibers, including recycled PET.
We have built incremental business with existing customers and partners, new retailer interests and new brands and new geographic markets.
We are taking action to achieve these sales.
Secondly, we will take advantage of the sales channels that have been established with new partners whose sales teams are much larger than ours, such as Colorcon, video jet and textile player, Techmer, lof.
We are already training their sales team to identify our initial sales targets and sales targets for this year.
Third, we will increase the number of certain licensees, which will directly increase our income.
Finally, we will adjust the applicability of our technology platform to enter markets adjacent to our core market, such as personal care.
This concludes my prepared statement.
Thank you for your continued support for the application of DNA.
On behalf of the company and my colleagues, I wish you all the best for the festival.
Operator, please open the line if you have any questions. Thank you. Question-and-
[Answer]
Operation instructions]
Our first question came from Craig Pierce at Morgan Stanley.
Please continue.
Craig PierceHi Jim, are you okay?
How are you, Craig?
I\'m sorry I said it for so long, but we have a lot to say this time.
Craig Pierce well, we\'re fine if you want to keep going.
You keep putting more meat in the conversation. Three things.
Of course, one of them is-
Of course I said-
Issuance of shares.
I think you feel the need to do this because by the end of the third quarter I haven\'t looked closely at the numbers, but according to the burn rate described by Beth, need it at this point?
James Hayward, we need confidence.
Craig, we have some ambitious sales plans.
We need to be confident to participate in these transactions because we know we can pay for the support we need to complete these exchanges.
So we are sorry to have to go to the market.
I feel safe as the biggest shareholder of the company.
So, I just think with the greatest forehand under the advice of my colleagues.
Craig Pilsey, you will predict what the next silo will be, and you can predict the future revenue as you do.
Cotton forecast time?
James HaywardGod is willing. this is a pharmaceutical company.
I think there is a good chance there.
There are very few in the industry, and regulators are also trying to serialize.
We don\'t think it will work.
We think we really have the only platform that really can authenticate the original drug.
We think that if you consider that there are thousands of people in Africa who die from fake medicines, it will change the lives of markets around the world.
We want to have an impact on these markets. But even the [indiscernible]
Counterfeit medicines distributed throughout the United States, we feel we can put an end to them.
So we are passionate about getting into the industry and doing the right thing, and we know we have the technology to solve problems.
Craig Pearson III, not one step further than what you obviously feel comfortable with, but to open up milestone payments as much as possible.
What\'s the feeling-
How long will these probably start to accumulate, or do I want to say accumulate, be shared?
James HaywardYes, I expect that we will experience or benefit from milestone payments in a very short and moderate time.
So these represent the typical business of pharmaceutical and bio-pharmaceutical.
This is not our typical business in more industrial applications, and now we are very, very happy to be able to enter these markets.
I think getting a landmark contract proves the appeal of our platform.
Frankly, I think the nature of these contracts will continue to improve as we develop and participate in more and more pharmaceutical companies, more and more bio-pharmaceutical companies.
Craig Pierce can you give us an example of what is the first example?
If that\'s not the case, I mean, you\'re going to say-
For example, milestone payments will be related to your revenue for the fiscal year 2017?
James Hayward our partners asked us not to pass the exact amount, but I can tell you that this milestone is higher than many of the contracts we have signed over the last few years.
So it\'s important.
This makes sense because the work that the industry needs to do and the work done to ensure compliance with FDA requirements makes it expensive for the company to meet the cGMP operating standards.
That\'s why it\'s a typical component of pharmaceutical and bio-pharmaceutical transactions.
Thanks, Craig Pierce.
I will open it for the next person.
James haywardokay
Thanks a lot to Craig.
The next question comes from Paul Kuni and Joseph Gunnar.
Please continue.
Jim Paul Cooney
Paul, James Hayward.
Paul CooneyA several questions about the recent pharmaceutical deal.
Obviously, in this phone call and in the previous phone call, you prove your need for what you have.
Just wondering if the recent deal could provide us with the business scope of the company and the percentage of the industry they have?
Also, if a pharmaceutical company does sign up with you guys, what kind of cost does it add to making some kind of drug, like percentage?
James HaywardOkay.
Let\'s solve the strategic factors you asked first.
In previous conference calls, public presentations and printing, we directed our desire to enter the pharmaceutical industry to address the problem of solid oral doses.
The solid oral dose takes the form of tablets and capsules, and our aim is to recruit partners in both.
These pills and capsules must be placed in the packaging, which is the subject of the FDA\'s law authorizing serialization.
So, we put ourselves in a very good position from Colorcon.
Colorcon is the world\'s recognized manufacturer of solid oral dose excipients and is well received.
In addition to API, active drugs [These are materials for composite finished oral drugs]ph]
The composition itself.
So these are the materials that prevent the tablets from dust in the bottle, which allows the tablets to pass the intestinal coating through your stomach to your intestines, and allows you to identify certain tablets by the color or ink mark on the tablets.
So, this is a good way to enter the market.
We may have gone through a large pharmaceutical company and built a relationship to label their drug.
There is no doubt that this will involve exclusivity.
This could keep us away from other big pharmaceutical companies.
This will be a more difficult entry into the fully accessible or addressable market.
By working with Colorcon, we can address the total addressable market for pharmaceutical solid oral doses in the form of tablets.
They have a great platform.
They have a large market share.
Their sales team is great.
On top of that, we intend to go into the capsule and packaging area and we can talk more about it next time.
It looks like Paul has disconnected his line.
There are no further questions at this time.
So, I want to end this. and-answer session.
I would now like to return the contents of the conference to James Hayward and ask him to make a final statement.
James haywardokay
Thank you very much for attending our conference call, especially at the end of this year.
We apologize for being so late.
But in fact, the environment forces us to do so.
This is not our strategy.
Finally, we would like to thank you for your dedication to the application of DNA and wish you all the best of the festival on behalf of me and my colleagues.
Thank you very much.
The meeting is now over.
Thank you for attending today\'s speech.
You can disconnect now.
On December 28, 2017, at 4: 30 p. m. , the earnings conference call
General counsel for James Hayward
Chairman and Chief Executive Officer
Chief Financial Officer Pierce-
Morgan Stanley Paul Cooney
Good afternoon Joseph gunnaroperator, welcome to financial results for FY 2017 of applied DNA science. [
Operation instructions]
Please note that today\'s event is being recorded.
I want to hand over the meeting to the clay coast now.
Please continue.
Thank you, operator.
Good afternoon, everyone, thank you for attending our fiscal fourth quarter and 2017 performance conference call.
I\'m clay rock, and the legal adviser is applying DNA.
A copy of the company\'s earnings press release and accompanying PowerPoint presentation can be downloaded in the \"Events and Presentations\" section of the investor page of the application DNA website.
It was Dr who called me today.
James Hayward, chairman and CEO
And Beth Jensen, chief financial officer.
As a reminder, please note that some of the information you will hear today in our discussion may include forwarding --
Outlook statements including, but not limited to, revenue, gross margin, operating expenses, other income and expenses, stocks
Based on compensation fees, taxes, earnings per share and future products.
There may be a big difference in actual results or trends.
For more information, please refer to the risk factors discussed in application DNA science Form 10-
K for fiscal 2017 submitted some time ago.
There is no obligation to update any forwarding by applying DNA science
Report or information.
Now, it is my pleasure to introduce our first speaker, Beth Jantzen.
Thank you, Clay.
Good afternoon, everyone. thank you for joining us today.
Let me start by reviewing our financial performance for the fourth and 2017 fiscal quarters and providing you with an update on our cash reserves after our recently completed capital raising. Then, Dr.
Our President and CEO, James Hayward, will summarize the Company\'s achievements this year and outline the key initiatives that are going on in fiscal 2018 and future initiatives.
Start with the operation statement.
Total revenue for the fourth quarter ended September 30, 2017 was $1. 1 million.
This is about 30% less than $1.
The fourth quarter of 2016 reported 6 million, down about 36% from $1.
Revenue for the third quarter of 2017 was 8 million.
These declines are mainly due to the timing of shipment and the recognition of revenue associated with our cotton contracts, as well as the conclusion of two government development contract rulings that expired in the fourth quarter of the last fiscal year of 2016.
For the fiscal year ended September 30, 2017, our income was $4.
8 million, an increase of approximately $600,000, or 13%, compared to $4 in revenue.
The previous fiscal year was 2 million per cent.
Although the revenue for fiscal 2017 is not what we want, this yearover-
The annual growth in revenue reflects our focus on the diversity of income streams and the establishment of our recurring revenue base for the year.
Compared with the same period in 2017, product revenue decreased by about 38% in 2016, an increase of 47% in fiscal 2017 and an increase in fiscal 2016.
Annual growth-over-
This year was mainly due to the recognition of deferred revenue related to DNA concentrates previously used to mark cotton.
It should be reminded that in the third quarter of fiscal 2017, we entered into a new licensing agreement with Himatsingka.
This new agreement provides, among other things, 60-
The daily payment period, and a larger gross profit margin than similar sales, is carried out in accordance with the arrangement that we previously sold DNA concentrates to Mark cotton.
Compared with the same period of fiscal 13%, the fourth quarter and annual service income as of September 30, 2017 increased by 38% and decreased by 2016 respectively.
Due to the increase in the feasibility study, service revenue increased in the fourth quarter, and Jim will discuss this in more detail later.
Compared to 2016, service income for fiscal 2017 declined due to the fact that two government contracts were signed in the previous fiscal year, which expired in July and August 2016.
This is a new 2-
The annual government contract we awarded in the third fiscal quarter, the net reduction in annual government contract award income of about $800,000, was offset by an increase in the feasibility project for fiscal 2017.
In the fourth quarter, gross profit margin as a percentage of product revenue was the same as the same period last year, at 68%. ago period.
Total operating expenses remain around $3.
The quarter ended September 30, 2017 was $7 million, compared to $3.
The same period in the previous fiscal year was 6 million.
For the fiscal year ended September 30, 2017, total operating expenses increased by 8% per cent from $15 compared to the previous fiscal year.
$2 million to $16. 5 million.
This increase reflects an increase in inventory
A base compensation fee of about $1.
2 million, the cost of bad debts increased by about $307,000, and the cost of depreciation and amortization increased by about $180,000, all of which were non-cash expenses.
These increases were offset by about $1.
R & D costs were reduced by 4 million.
In the fourth quarter of 2017, the adjusted EBITDA was minus $1.
Compared with the negative $1, 7 million.
The third fiscal quarter of 2017 was $5 million, down $1.
The fourth quarter of 7 million was 2016. Year-over-
EBITDA increased by about $1 million a year to $8.
Minus $9 3 million.
The previous fiscal year was 2 million per cent.
The improvement in fiscal 2017 mainly reflects the annual revenue growth --over-
The year, and the reduction in operating expenses, are mainly related to certain one-time expenses that did not occur in the current financial year that occurred in the previous financial year.
Turn to balance sheet.
As at September 30, 2017, total cash and cash equivalents amounted to approximately $3 million, compared to $2.
June 30, 2017 for 4 million.
The increase in the cash balance is mainly due to the receipt of proceeds related to our accounts receivable balance and the subscription receivable related to private placement in June.
We completed $4 in December 22.
8 Million Registered Direct supply.
After deducting the commission of the distribution agent and other estimated operating expenses we have payable, the estimated net income is about 4 yuan. 2 million.
This does not include any amount that we may receive from the exercise of the warrants.
As of December 22, including the above estimated net income, our cash position was approximately $4. 9 million.
This capital raising not only strengthens our balance sheet, but also gives us financial flexibility to implement our fiscal 2018 target, which Jim will discuss in more detail later.
As of September 30, 2016, due to cotton sales related to the previous MOU and the new cotton orders, our total balance of accounts receivable was approximately $2 million.
Due to the settlement of the new contract payment terms and the balance of accounts receivable from the previous MOU, we expect to collect the outstanding balance in the first quarter.
As at September 30, 2017, our average monthly cash payment rate for the 2017 fiscal year was approximately $332,000, compared with approximately $859,000 for the same period in the previous fiscal year, a decrease of approximately 62%.
Compared to Fiscal 2017, the monthly burn rate for fiscal 2016 decreased significantly, mainly due to increased cash collection, mainly from cotton clients, and reduced cash expenditure.
We continue to monitor our expenditures closely and intend to maintain discipline and continue to manage costs strategically based on our current and near market opportunities.
As of September 30, 2017, we estimate that our cash and cash equivalents, as well as the collection of our accounts receivable and the financing proceeds recently discussed, are sufficient to fund operations for the next 12 months.
Thank you for joining us today and I would like to give it to Jim now for his input.
James haywardokay
Well, thank you, Beth. Good afternoon, everyone.
Thank you for attending our conference call for the fourth fiscal quarter and annual mergerend results.
In the past fiscal year, we have worked hard to capture the opportunities that have come to us through our disruptive DNA platform and to implement a growth strategy that puts us on the path of greater revenue and profitability.
While our technology is disruptive, we are spending this year on ensuring a constructive way forward for 2018 to support existing business, foster new business and expand overseas business.
We focus on infiltrating large commercial ecosystems such as vertical textiles that we have established, and recently new industrial materials such as pharmaceutical, personal care, fertilizers and bearings and their lubricants.
Despite the disappointment, our financial performance in the fourth quarter did not change what we achieved in fiscal 2017 and did not reflect the momentum we achieved in fiscal 2018.
Let me share with you two data points, which I think best illustrate the progress we have made in implementing our growth strategy over the past year, this puts us firmly on the path to achieving our revenue and profitability goals.
Starting with this slide 6, we describe a quarterly snapshot of the forward
Annual operating rate of recurring income for fiscal 2017.
You will see that in fiscal 2016, we have identified a recurring revenue operating rate of approximately $2 million per year.
A year later, we pulled out of fiscal 2017 and our efforts were driven, or driven. 5-
Recurring income is expected to double to more than $6.
5 million per year
The basis of this annual revenue rate can be found in the long term.
Enter into regular contracts with Himatsingka, Loftex and GHCL with guaranteed or minimum annual revenue, as well as our automotive parts labels in Europe, including the bulk manufacturing business of our DLA parts marking and rapid innovation contracts.
Textiles account for most of our current income today.
You will notice that this trend has taken a step towards the market --
Between the second and third quarters, this coincides with the launch of our specific licensing strategy.
Looking back, there is no doubt that we not only earn from selling our DNA as an asset and related certification services, but when the value of the product reaches its highest, when it\'s on store shelves, we\'re also involved in the economy of the product.
This slide provides compelling reasons for the continued maturity of our business model and the further diversity of revenue sources.
We believe that our efforts to expand the adoption of certain licensing strategies go beyond our textiles that are perpendicular to classic, pharmaceutical, fertilizer and recycled materials and may have a valuable impact on revenue growth in fiscal 2018
Steering slide 7.
You can see that the number of feasibility pilots has increased. by-
Throughout the 2017 quarter, the market awareness of our platform has been increasing.
Our channel is growing because our DNA platform has been proven in the cotton market, we have shown our partner Himatsingka and several of our customers that the economy of our cotton solutions is mainly bedding, toiletries and other supplies, and now there are more retailers and brands.
Companies representing different interests in the industry supply chain
The new retailer and the final supplier of the brand owner joined our feasibility pilot pipeline.
Our current list has grown to 24 pilot projects including projects such as personal care, printing and packaging, pharmaceutical, bio-pharmaceutical, military, industrial products and textiles
Cotton textiles account for 30% of our current efforts.
This diversity reduces our risk concentration and increases our chances of getting a large business ecosystem for future product applications.
These slides show that we are building a stronger foundation for future growth.
The review of fiscal 2017 must also include our performance in the fourth quarter, especially in the context of fiscal 2017.
2018 cotton rolling season, our most developed market, the largest contribution of textiles and the current cotton, synthetic rubber and leather.
Because we are at 2017-
There are 2018 cotton ginning seasons in the fourth and first quarter of this year, and I would like to talk about the market demand for our DNA platform after signing a new exclusive license agreement with Himatsingka in June.
Now in the United States, cotton is grown, planted and harvested once a year.
Right after harvest is the rolling season, and this period is a great opportunity for us to mark cotton with our signature DNA molecular label.
When a retailer needs a new product, the marked Cotton is bent and then shipped to the spinning mill and other parts of the supply chain according to the demand warehouse and shipment.
As you can see on slide 8 describing cotton sales and demand trends, the demand for marked Cotton expressed in blue histogram is growing steadily year by yearover-year.
Our cotton revenues, expressed in line charts, did not achieve this growth, mainly because our previous business model was based on DNA purchases and did not have a historical speed of operation, there is no prospect of demand from our partners.
In fiscal 2015, you can see that this led to orders of nearly $4 million, but it also caused a continuing oversupply in fiscal 2016.
In the fiscal year 2016, the DNA sold in the fiscal year 2015 met our demand for cotton.
As a result, cotton revenues have fallen sharply, which is evident in the negative slope of the second red line on the left.
Despite our supply of demand, our cotton revenue for the fiscal year was lower than the market consumption for label cotton, but it was clearly the previous year.
Payment terms through our previous business model are also a burden for our company, and cash income usually takes 18 months to collect.
This is not a viable long term.
Our long-term strategy.
Therefore, in fiscal 2017, we decided to take advantage of the growing demand in the market for marking cotton, and in better partners built to apply DNA benefits, to ensure a more favourable economy for the cotton business model.
With the signing of the agreement with Himatsingka, we received a more favorable terms of payment, a net 60 days, and a more predictable cash flow, and a larger gross profit margin than our previous agreement.
Selling directly to our end customers, no longer through intermediary sales, reduces complexity and improves the balance of communication and supply and demand with a shorter lead time.
Our taggant order is now in progress, which can be demonstrated from the sales of label cotton, and now the number of label cotton is labeled with our estimate of 2017 and the chart of 2018.
Because of this, looking forward to the future, we expect to receive orders from Himatsingka throughout the year, and we usually only receive orders at the beginning of the rolling season compared to previous years.
Nevertheless, we should still expect seasonal effects on the timing of cotton revenues.
As our DNA labels are increasingly adopted by the cotton market and grow
With regular contracts with retailers through Himatsingka, we can now start to anticipate the demand for the coming year.
As you can see on the right.
In most of the columns, we predict that demand will continue to grow in fiscal 2018, and for a long time after the end of the rolling and labeling of the current season.
Looking back now, I just noticed that the only chance to label cotton is when it\'s ginning.
If demand from retailers increases after the end of the rolling season, if we mark just to meet immediate needs, it will cause our partners and our own revenue opportunities to be delayed or missed.
So we made a strategic decision to provide additional taggant to our partner gins to cover the cotton opportunities that we, our merchants and Himatsingka are working on.
After receiving the cotton order labeled, Himatsingka will purchase the DNA label from us enough to pay for the order.
Since the beginning of the cotton project three years ago, we have actually transformed the industry\'s dependence on paper traces into forensic evidence of origin.
Fast forward, we have proved that in a relatively short period of time, from 5 million in 2014 to more than 0. 2 billion pounds of cotton in 2017, our DNA technology can be extended to billions of pounds of fiber.
It is accepted in the market and we believe it has the potential to extend textiles to apparel in the United StatesS.
In the International
Providing proof of origin is no longer considered a good thing but must have.
From our survey of cotton as far away as Australia and Turkey, international demand is increasing.
We are involved in the Internet of Things in 7 gins with our DNA transfer system.
We are managing the fulfillment of the cotton contract with partners Himatsingka and Louis Dreyfus.
We have tested more than 3,000 cotton samples through the supply chain, all of which are in our textile cloudbased platform.
This season, we collect more than 685,000 sensors and control data points in the cloud every day,
Time monitoring of spray quality, contact with US Department of Agriculture Bell [indiscernible]
Identity and tracking of cotton pounds aligned by using the DNA markers of our transfer unit.
The platform provides manufacturers and retailers with confidence in the quality of cotton transported through our system.
It can also be configured for synthetic material supply chains and other identified prospects that we are developing now.
As long as market penetration continues to grow, we are the market for DNA-labeled Cotton now and in the future.
We can expect to mark more than we can identify in each fiscal year to meet the projected demand for the next fiscal year, but before the next harvest can get new supplies.
As you can see on slide 8, we are the first
Forecast of cotton label DNA sales revenue over $4.
The fiscal year of 4 million grew by 2018, an increase of more than 80% over fiscal 2017.
In addition to this, the new interests of brands and retailers have brought great growth potential.
In order to meet the potential needs, the application of DNA has created an emergency reserve of more than $1.
On our co-operative gins, 4 million of the DNA on the marker cotton can help meet any fiscal year before 2018
Harvest requirements.
Any incremental demand exceeding this level can be met by additional shipments before and after the end of this fiscal year in the 2018 harvest.
There are no other systems on the market that are proven, not even blockchain or RFID, and you can track the fibers of each label from farm to shelf while maintaining economic stability, supply chain system for sustainable development and security.
As for blockchain, let me point out that there is a common limitation for all blockchain and its methods, just like the value of blockchain in logistics.
The most trusted blockchain ledger in the world will not be able to tell whether criminals have replaced the original with bad or fake goods.
If no DNA tags provide forensic tracking of origin, how can any blockchain prove that the initial distributed entries in any ledger represent real goods?
We believe that signature DNA should be the backbone of any blockchain that requires forensic authentication nodes.
We believe this is good for our overall business and for many of our development opportunities.
Looking ahead to fiscal 2018, our goal is clear.
It will continue to drive greater revenue and eventual profitability.
For those of you who listened to our third quarter call in August, you will remember, I said, if we keep our expenses at the third quarter level, and keep the gross margin combination for the quarter, we will get positive cash flow earnings of about $3.
5 million pounds per quarter or $14 million per year.
After rising recurring income into fiscal 2018, we are close to half the cash or even break point today.
I think, let me talk about several recent developments that will contribute to revenue growth this year and continue our progress on breakeven.
In addition to our expectation of strong growth in cotton revenue for fiscal 2018, it is worth noting that in the $4 revenue.
4 million we expect that nearly $2018 will be spent in fiscal 4 million on our projected cotton recurring income base.
I pointed out earlier that we were out of fiscal 2017 and there are currently 23 projects in progress.
The current number is 24.
Every business opportunity.
Large-scale deployment of our platform and related services.
Two of the pilot projects have been commercialized and most of the textile projects are likely to transform rapidly.
We have also seen opportunities for revenue growth in vertical industries, we have gained a foothold in the vertical industry, and my remaining comments will discuss these opportunities.
In the textile sector, we have seen synthetic fiber customers expand their initial fixed license, and we expect that more synthetic fiber manufacturers brought in this fiscal year will receive similar licenses.
They have expanded to include more types of synthetic materials, especially those that follow the cotton value proposition.
Determination, however, applies not only to synthetic materials.
We expect it to be adopted in fertilizer, pharmaceutical and most of our supply chain markets.
Over time, we want it to be a global standard brand for traceability, transparency and trust.
We have expanded the CertainT program for PET recyclers in India and China to provide services for long-term rental agreements for GHCL and Loftex, respectively.
Both agreements require guaranteed minimum annual revenues and license fees.
Living with textiles
Conducting leather feasibility studies with our project sponsors, I think they are now close to 10 people and continue to exceed everyone\'s expectations, the project is expected to be completed by the end of March 2018.
We have started discussions on commercializing leather labels and expect this to be a good source of revenue for fiscal 2018.
Safesolution continues to be very active in Scandinavia, has recently reached a contract extension with a well-known German carmaker, and has recently increased its staff in their sales force
We will also recruit new dealers for the territory of Ecuador, Japan and Ireland in the new year.
After the end of a large pilot project-
Earlier this year, through the molecular markers of the scale of fertilizers successfully tracked by the West African supply chain, our partner and market leader Rosier, a department of borewald, as a commercial product, we are going through the global supply chain.
Now, together, we are ready to enter 60% of global fertilizer consumption.
The agricultural economy is pushing to prevent and ensure that the supply chain is protected from the interest of fertilizers.
We anticipate that the marked fertilizers may enter the target market early in the 2018 calendar and then other locations during the 2018 calendar period.
We also anticipate that, with the implementation of the federal mandate that came into effect on January 1, 2018, Turkey\'s demand for marking fertilizers requires DNA labeling of all domestic fertilizers and safe packaging, including the use of safe barcodes.
The mission is to deal with a series of terrorist acts using chemical fertilizers.
An explosion occurred in Turkey on 2016.
Has been in contact with the Turkish government since the medium term
2016. we believe that our DNA platform, which is a catalyst for government tasks, will create demand for our tagt rather than in the country.
To meet this demand, we have cooperated with domestic fertilizer manufacturers in Turkey.
At the end of September, we announced a strategic partnership with Videojet Technologies.
By working with market leaders such as Videojet and their mature sales teams, we have accelerated revenue growth in key business verticals.
Market leaders already have the customer relationships we seek, and they fully understand the operation of the supply chain they are involved in.
We offer truly scalable and seamless technology that gives them a competitive edge in the market, enabling them to defend market share and gain new market share.
We get new sales by using their sales staff to access their installed customer base and participate in sales of printers and follow-up salesSales of DNA
Label cartridge.
Videojet, one of the world\'s largest inkjet printing and marking systems, has 650 sales staff worldwide and has installed 325,000 machines, over 10 billion items are marked daily with barcodes and other valuable information that involves different supply chains, including military and government, personal care and pharmaceutical serialization.
With weidijie, we have greatly expanded the potential areas of projects that can be marked with DNA ink, and can provide a solution that can be easily integrated into the manufacturer\'s production line, mark their widgets seamlessly.
When inkjet printing is used for printing packaging, the market is almost unlimited.
As part of our cooperation, we launched a cooperation
Brand printers that share revenue with applied DNA, designed to use only DNA-infused inks. With the co-
Videojet-branded printers can provide an alternative technology for their customer base to still print barcodes and other information, but now every printer and cartridge has become a secure supply chain certification tool.
After installing the printer, the customer representative-
The term opportunity to repeat the sale of DNA boxes --
Ink and CertainT platform, perfect signature model.
Videojet security printer is perfect for high
Batch printing on the production line, specifically for the manufacturer to label the parts.
Our goal, our brand protection, and other targets responsible for the brand and supply chain security of OEMs within and to the military.
As a first step, we have started training video aircraft sales people to be effective supporters of our technology platform.
We also saw a lot of cross-cutting.
Sales opportunities based on our existing and potential customers.
I will note that this partnership is going on quickly, and while the initial announcement is centered on black pigment ink, we are already developing additional types of inks that are suitable for different applications, these inks will have the advantage of accelerating development. to-
Market timeline
We recently presented our platform to the market at the DMC exhibition in Florida, where we were very interested.
Now, patient safety is increasingly threatened due to drug counterfeiting and drug transfer, in part because of the fragmentation, complexity and international nature of the drug supply chain.
The passage of the drug supply chain safety law is a watershed moment to strengthen patient safety through the serialization of drug packaging;
However, we believe that by enhancing serialization with signature DNA, there is an immediate opportunity to further enhance the security of the global pharmaceutical supply chain.
More and more experience has shown that due to factors directly related to the loss of supply chain control, demand for drug certification will grow in the coming years.
On December 14, we announced a memorandum of understanding with Colorcon, which brings in accessories and coatings, which is an excellent carrier for direct access to the iconic DNA of most large pharmaceutical companies and many health care companies in the world.
The MOU is not binding, but we expect a final agreement to be signed soon.
After signing the final agreement, we expect to start receiving milestone payments and the sales of products and services sold to customers will start sharing revenue.
We hope to complete our drug master document or DMF next month, then review it with Colorcon and submit it to the FDA shortly thereafter.
It\'s a little later than I suggested a few months ago, and I\'m sorry, but it reflects our efforts to take the most reasonable path in terms of FDA compliance. With industry-
Colorcon, a leading subject matter expert in the field of regulation and compliance, directs us to submit a DMF document to the FDA, which will speed up the implementation time of commercializing our common customers.
Through this process, we have confidence in the sales team and customers.
The aim of the DMF is to facilitate our first client to comply with FDA standards and they will perform DNA labeling on their brand solid dose.
Once submitted, we will have regulatory confidence to engage with potential pharmaceutical customers who want to deploy our molecular labels in their products.
It is now clear that the FDA is not expected to respond to the submission of DMF.
Now, molecular tagging or turning a tablet into its own barcode complements FDA regulations on packaging serialization, which is our approach to using Videojet.
Using DNA, Colorcon, and video jet together can deliver drugs to the first pharmaceutical industrytime end-to-
The ultimate supply security far beyond the current global mandate.
Most importantly, we can do this by selling support hundreds of times larger than our own team.
On a relevant but different topic, we continue to develop a strong interest in our ability to manufacture functional DNA, which is more complex than the non-functional DNA labels we intend to manufacture for the bio-pharmaceutical industry
The DNA production contracts we use for diagnosis are stable and efficient and are part of our growing recurring revenue base.
In addition, we continue to cite pilot studies of functional DNA in gene therapy and vaccines.
We are able to convert two of the three Vandalia customers into our own long-term customersterm customers.
The third customer withdrew their product from the market.
In retrospect, our acquisition of Van Daria is very valuable to our capabilities and our current and future revenues.
So, in summary, we expect a significant increase in revenue for fiscal 2018.
Our expected annualized recurring revenue operating rate at the beginning of fiscal 2018 was about $6.
5 million per year
As we work together to acquire customers, we can expect to increase this base through our recent agreement with Videojet and Colorcon.
In addition to the growing recurring base, we can expect to increase revenue in the quarter as major pilot shifts to business.
Let me list our short.
Semester goals are shown in my last slide.
First of all, we will increase the revenue of the vertical industry we have established, especially textiles.
We are looking to grow independently from cotton and synthetic fibers, including recycled PET.
We have built incremental business with existing customers and partners, new retailer interests and new brands and new geographic markets.
We are taking action to achieve these sales.
Secondly, we will take advantage of the sales channels that have been established with new partners whose sales teams are much larger than ours, such as Colorcon, video jet and textile player, Techmer, lof.
We are already training their sales team to identify our initial sales targets and sales targets for this year.
Third, we will increase the number of certain licensees, which will directly increase our income.
Finally, we will adjust the applicability of our technology platform to enter markets adjacent to our core market, such as personal care.
This concludes my prepared statement.
Thank you for your continued support for the application of DNA.
On behalf of the company and my colleagues, I wish you all the best for the festival.
Operator, please open the line if you have any questions. Thank you. Question-and-
[Answer]
Operation instructions]
Our first question came from Craig Pierce at Morgan Stanley.
Please continue.
Craig PierceHi Jim, are you okay?
How are you, Craig?
I\'m sorry I said it for so long, but we have a lot to say this time.
Craig Pierce well, we\'re fine if you want to keep going.
You keep putting more meat in the conversation. Three things.
Of course, one of them is-
Of course I said-
Issuance of shares.
I think you feel the need to do this because by the end of the third quarter I haven\'t looked closely at the numbers, but according to the burn rate described by Beth, need it at this point?
James Hayward, we need confidence.
Craig, we have some ambitious sales plans.
We need to be confident to participate in these transactions because we know we can pay for the support we need to complete these exchanges.
So we are sorry to have to go to the market.
I feel safe as the biggest shareholder of the company.
So, I just think with the greatest forehand under the advice of my colleagues.
Craig Pilsey, you will predict what the next silo will be, and you can predict the future revenue as you do.
Cotton forecast time?
James HaywardGod is willing. this is a pharmaceutical company.
I think there is a good chance there.
There are very few in the industry, and regulators are also trying to serialize.
We don\'t think it will work.
We think we really have the only platform that really can authenticate the original drug.
We think that if you consider that there are thousands of people in Africa who die from fake medicines, it will change the lives of markets around the world.
We want to have an impact on these markets. But even the [indiscernible]
Counterfeit medicines distributed throughout the United States, we feel we can put an end to them.
So we are passionate about getting into the industry and doing the right thing, and we know we have the technology to solve problems.
Craig Pearson III, not one step further than what you obviously feel comfortable with, but to open up milestone payments as much as possible.
What\'s the feeling-
How long will these probably start to accumulate, or do I want to say accumulate, be shared?
James HaywardYes, I expect that we will experience or benefit from milestone payments in a very short and moderate time.
So these represent the typical business of pharmaceutical and bio-pharmaceutical.
This is not our typical business in more industrial applications, and now we are very, very happy to be able to enter these markets.
I think getting a landmark contract proves the appeal of our platform.
Frankly, I think the nature of these contracts will continue to improve as we develop and participate in more and more pharmaceutical companies, more and more bio-pharmaceutical companies.
Craig Pierce can you give us an example of what is the first example?
If that\'s not the case, I mean, you\'re going to say-
For example, milestone payments will be related to your revenue for the fiscal year 2017?
James Hayward our partners asked us not to pass the exact amount, but I can tell you that this milestone is higher than many of the contracts we have signed over the last few years.
So it\'s important.
This makes sense because the work that the industry needs to do and the work done to ensure compliance with FDA requirements makes it expensive for the company to meet the cGMP operating standards.
That\'s why it\'s a typical component of pharmaceutical and bio-pharmaceutical transactions.
Thanks, Craig Pierce.
I will open it for the next person.
James haywardokay
Thanks a lot to Craig.
The next question comes from Paul Kuni and Joseph Gunnar.
Please continue.
Jim Paul Cooney
Paul, James Hayward.
Paul CooneyA several questions about the recent pharmaceutical deal.
Obviously, in this phone call and in the previous phone call, you prove your need for what you have.
Just wondering if the recent deal could provide us with the business scope of the company and the percentage of the industry they have?
Also, if a pharmaceutical company does sign up with you guys, what kind of cost does it add to making some kind of drug, like percentage?
James HaywardOkay.
Let\'s solve the strategic factors you asked first.
In previous conference calls, public presentations and printing, we directed our desire to enter the pharmaceutical industry to address the problem of solid oral doses.
The solid oral dose takes the form of tablets and capsules, and our aim is to recruit partners in both.
These pills and capsules must be placed in the packaging, which is the subject of the FDA\'s law authorizing serialization.
So, we put ourselves in a very good position from Colorcon.
Colorcon is the world\'s recognized manufacturer of solid oral dose excipients and is well received.
In addition to API, active drugs [These are materials for composite finished oral drugs]ph]
The composition itself.
So these are the materials that prevent the tablets from dust in the bottle, which allows the tablets to pass the intestinal coating through your stomach to your intestines, and allows you to identify certain tablets by the color or ink mark on the tablets.
So, this is a good way to enter the market.
We may have gone through a large pharmaceutical company and built a relationship to label their drug.
There is no doubt that this will involve exclusivity.
This could keep us away from other big pharmaceutical companies.
This will be a more difficult entry into the fully accessible or addressable market.
By working with Colorcon, we can address the total addressable market for pharmaceutical solid oral doses in the form of tablets.
They have a great platform.
They have a large market share.
Their sales team is great.
On top of that, we intend to go into the capsule and packaging area and we can talk more about it next time.
It looks like Paul has disconnected his line.
There are no further questions at this time.
So, I want to end this. and-answer session.
I would now like to return the contents of the conference to James Hayward and ask him to make a final statement.
James haywardokay
Thank you very much for attending our conference call, especially at the end of this year.
We apologize for being so late.
But in fact, the environment forces us to do so.
This is not our strategy.
Finally, we would like to thank you for your dedication to the application of DNA and wish you all the best of the festival on behalf of me and my colleagues.
Thank you very much.
The meeting is now over.
Thank you for attending today\'s speech.
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