Edited Transcript of PURE earnings conference call or presentation 13-Dec-18 9:30pm GMT

Thank you, Terri. As we reported earlier today in our Q1 fiscal 2019 operating results and as previously discussed on prior conference calls, we continue to focus on building our commercialization efforts for our patented SDC technology as a food safety solution while simultaneously managing our resources as effectively as possible.

Along with our current revenue projections and upon conclusion of our August 2018 $1.5 million financing, we now have estimated funding in place to support our operations through our third fiscal quarter 2019: accelerate the commercialization of SDC-based PURE Control as an FDA-approved direct food contact processing aid for fresh produce and an FDA- and USDA-approved processing aid for raw poultry; accelerate the commercialization of PURE Hard Surface for the sanitization of food transport trucks and pallets; and further accelerate the development of PURE Hard Surface as a food contact surface disinfectant for both the food processor and restaurant chain markets.

I'll now discuss our Q1 fiscal '19 operating results. Net product sales for the first fiscal quarter ended October 31, 2018 were $590,000, an increase of 27% compared with net product sales of $464,000 for the first fiscal quarter ended October 31, 2017. Revenues from our core business, food safety, continue to gain traction, increasing 124% quarter-over-quarter. Total operating costs and expenses, excluding cost of goods sold and share-based compensation, for the fiscal quarter ended October 31, 2018 and 2017 was $1.2 million and $1.6 million, respectively. Net loss excluding inducement expense, derivative expense and share-based comp for Q1 '18 was $822,000 as compared with $1.3 million for Q1 in 2017.

We ended the quarter with a cash and restricted cash position of $851,000. Cash received from financing activities during Q1 '18 was $993,000, offset by cash used in operating and investing activities of $1.1 million.

Our Board of Directors continues to actively evaluate our future financing needs and assesses the various types and opportunities available to us to meet those needs and to allow us to achieve our cash flow revenue breakeven target in calendar Q2 2019. No future financing determinations have been made at this time regarding size, type or timing.

This concludes my financial review. I will now turn the call over to Hank for a progress update of our business strategy. Hank?

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Henry R. Lambert, PURE Bioscience, Inc. - CEO & Director [4]

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Thanks, Mark. Good afternoon, everyone. We certainly appreciate you joining us for today's discussion.

As Mark mentioned, for the second consecutive quarter, our core food safety revenues showed strong triple-digit growth, and momentum is building. I'm pleased to tell you that fiscal Q2 is also off to a very strong start.

Fiscal Q1 core revenues increased 124%, and we anticipate that fiscal Q2 2019 comparable revenues will again show very strong growth. While this has taken longer than any of us expected, this continues to validate the game-changing nature of our nontoxic SDC-based antimicrobial food-safety solutions.

Based upon the revenue momentum and the anticipated rollout plans of our lead produce processor customer, we remain optimistic that we will achieve our goal of a cash flow breakeven revenue run rate early in calendar Q2 2019. As long as our customers' adoption plans materialize as they project, we'll reach our breakeven run rate target.

Our cash flow breakeven timing forecast continues to be based on our present expectations of customer adoption and rollout of our 2 product lines: FDA-approved PURE Control, which is applied directly onto produce during processing; and EPA-approved PURE Hard Surface disinfectant, which is applied to surfaces and equipment by food processors and manufacturers, in food transportation and by restaurant chains.

Looking first at produce processing, our key revenue driver. Taylor Farms, the largest U.S. produce processor, is our first customer for PURE Control and is continuing its rollout and use of PURE Control into its 14-plant network. Last quarter, we told you that PURE Control had been combined with Taylor's SmartWash processing aid and is being used as the newly branded SmartWash Boost. We also reported that Taylor was set up to use Boost on all lines in 2 plants. Today, Boost is in use in 3 of Taylor's plants. As Taylor's customer adoption grows, additional plants will be brought online in 2019. Taylor plans to bring 4 additional plants online using Boost by the end of calendar Q1. Currently, it treats shredded romaine, iceberg and cabbage with Boost for the customers who specify this added processing step. Taylor is signing new customers, including Subway, and will treat shredded lettuce with Boost for those chains.

I'd like to point out that our board member, Jan Risi, has been instrumental in getting Subway to approve use of Boost on produce sourced from Taylor, making Subway Taylor's flagship customer for the Boost treatment. Taylor reports that they are in discussions with several other household-name restaurant chains and retailers.

Boost enhances food safety by eliminating pathogens causing foodborne illness, including the leading causes: Salmonella, E. coli and Listeria. Once fully deployed, we estimate each of Taylor's plants represent approximately $1 million per year in revenue to PURE, a $14 million annual revenue opportunity.

Taylor began sales and marketing of the Boost solution in earnest to its key food service and retail customers in late September. At that time, Taylor produced a video supporting the launch, in which a Taylor spokesperson states that SmartWash Boost provides "a virtual kill step" that would have prevented the then recent romaine E. coli outbreak and is "the next generation of prevention of outbreaks." This is quite an endorsement as we believe this is the first time anyone has claimed they have a kill step for produce processing.

As an aside, as you might imagine, the most recent romaine lettuce E. coli outbreak, which occurred just before Thanksgiving, served to enhance the visibility of and interest in our solution in the produce industry.

Beyond leafy greens, Taylor has begun testing SmartWash Boost on additional produce items, such as onions, broccoli and strawberries, with positive results, and this success is expected to drive incremental usage in 2019 and beyond.

Looking toward expansion of PURE Control with other produce processors, today, we have 8 additional processors conducting or evaluating their own in-house validation and optimization testing, which is industry SOP before placing a first order. We've made important progress with several of those larger new processors. Del Monte has completed testing PURE Control on strawberries, and we have been approved for that use. Next week, Del Monte will begin the process of rolling out PURE Control to treat strawberries in an initial plant. Already a customer of PURE Hard Surface for environmental disinfection, Del Monte also plans to use PURE Hard Surface disinfectant in calendar Q1 in its 33 banana-ripening rooms. This represents a sizable new application opportunity for PURE as all produce processors have ripening rooms.

Taylor Farms has also been using PURE Hard Surface extensively for successful environmental disinfection inside its processing plants. Our product's superior performance led Taylor to seek to expand the use of our uniquely safe and effective SDC antimicrobial. Taylor Farms is completing the protocols and testing we talked about last quarter for a new application for PURE Hard Surface on the collection bins which transport vegetables from the field into their processing plants. That work is progressing, and we anticipate calendar 2019 sales for this new application, at which point we'll have more information to share with you. Being the largest produce processor in the country, Taylor obviously has the capability to examine every possible alternative to address the risk of foodborne contamination. We are proud of the fact that they have chosen PURE Control and PURE Hard Surface disinfectant to address the threat on the production line and as the products are being transported.

Turning now to food transport sanitization. Our safe, cost-effective and superior PURE Hard Surface disinfectant solution addresses an estimated $50 million total market opportunity. Our first transportation customers, which include the largest North American food distributor, represent a $2 million to $3 million annual revenue opportunity for us when fully deployed, which we estimate to be completed by the end of calendar 2019.