Edited Transcript of PURE earnings conference call or presentation 13-Jun-18 8:30pm GMT

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Thank you, Terri. As we reported earlier today in our Q3 fiscal '18 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. We currently have funding in place to support our operations through fiscal year 2018, 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 will now discuss our fiscal Q3 and year-to-date 2018 operating results. Net product sales for the third fiscal quarter ended April 30, 2018 were $390,000, an increase of 15% compared with net product sales of $338,000 for the fiscal quarter ended April 30, 2017. Revenues from our core business, food safety, increased 35% quarter-over-quarter. The increase in total revenue was due to new customer adoption.

Total operating costs and expenses, excluding cost of goods and share-based compensation for the third quarter ended April 30, 2018 and 2017 were $1.4 million and $1.5 million, respectively. Net loss, excluding derivative income and share-based compensation for the third fiscal quarter in 2018 was $1.1 million as compared with $1.3 million for the third quarter in 2017.

Net product sales for 9 months ended April 30, 2018 were $1,000,265,000, a decrease of 4% compared to net product sales of $1,000,316,000 for the 9 months ended April 30, 2017. Core food safety revenues decreased by 8% as compared to food safety revenues during the 9 months ended 2017. The decline in both total and food safety revenues was due to the timing of product orders as the initial systemwide stocking order from Chipotle occurred in Q1 of fiscal 2017. If we back out Chipotle's initial order, food safety sales would be up over 40% for the 9 months ended April 30, 2018.

Total operating costs and expenses, excluding the cost of goods sold and share-based compensation for the 9 months ended April 30, 2018 and 2017 were $4.5 million and $4.7 million, respectively. Net loss, excluding derivative income, inducement expense and share-based compensation for the 9 months ended April 30, 2018 was $3.7 million as compared to $3.9 million for the 9 months period in 2017.

We ended the third quarter with a cash position of $1 million. Cash received from financing activities during fiscal '18 was $2.6 million, offset by cash used in operating and investing activities at $3.3 million. In management's effort to prudently manage our cash position and our opportunities against the anticipated revenue flow, in fiscal Q3, management implemented a number of wide-ranging cost-cutting initiatives to reduce expenses and bring down our cash flow breakeven point. We now target an annual revenue breakeven run rate of approximately $7 million. These overhead reductions were made in various areas, including Board and management compensation, as well as vendor fees. Marketing expenses were essentially cut in half but only in areas that do not directly impact our sales or customer-related activities. The Board continues to actively evaluate our future financing needs and assess the various types of opportunities available to us to meet those needs and to allow us to achieve our previously stated cash flow breakeven target in calendar Q1 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 the 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, and good afternoon, everyone. We certainly appreciate you joining us for today's discussion.

As Mark mentioned, adjusting for Chipotle's large initial systemwide stocking order in the fiscal Q1 of 2017, our core food safety revenues have shown consistent, strong, double-digit growth, thereby validating our strategic focus and the game-changing nature of our SDC-based solutions. In fiscal Q3 2018, Chipotle reorders have begun to ramp, normalizing the inventory turn. Based on this, the expense control actions Mark discussed and the 3 initiatives I'll address now, we remain confident that we will achieve a cash flow breakeven revenue run rate in calendar Q1 2019.

Our cash flow breakeven projection is based on 3 components: first, Taylor Farms' rollout plan for FDA-approved PURE Control in produce processing for calendar 2018 and beyond; second, the encouraging feedback from our food transportation customers led by Sysco using EPA-approved PURE Hard Surface disinfectant; and third, the continued addition and expansion of use of PURE Hard Surface at food processors, manufacturers and restaurant chains. These 3 segments are in addition to our base of approximately $2 million in existing annual sales. Taylor Farms is the largest U.S. produce processor and our first customer for PURE Control, our direct food contact antimicrobial, which is applied directly on the food. The long-awaited use expansion is under way as Taylor continues to employ capital to support the rollout and use of PURE Control into its 14 plant network.

As discussed previously, Taylor Farms is using PURE Control as an added processing step to enhance food safety by eliminating pathogens, causing foodborne illness including the leading causes of Salmonella, E. coli, and Listeria. We estimate each of those plants represent approximately $1 million per year in revenue, in other words, an annual $14 million opportunity when fully deployed.

Today, PURE Control is used by Taylor Farms to process produce on 4 lines in 2 plants in Salinas, California. The next phase of the rollout will be completed by the end of June, with the expansion to 7 lines in 1 of the Salinas plants, bringing the total number of lines to 9 in 2 plants. As Taylor's customer adoption grows, additional plants will be brought online in the coming months.

The source of the romaine lettuce [contaminated] with E. coli that resulted in 197 illnesses and 5 deaths still has not, and will likely never, be identified. That recent outbreak, as well as the Salmonella outbreak linked to melons last week, has once again put the produce industry under the microscope, highlighting the urgent need for a more effective processing aid. It has also accelerated interest from processors and provided us with a wider stage from which to champion our much needed game-changing solution. We are actively following up on multiple leads.

I'm pleased to say that things are progressing so well with Taylor Farms, that we're in discussions with them about a strengthening and formalizing our strategic partnership. I'm not at liberty to discuss this initiative at any more detail today, but I expect to make an announcement before our fiscal year-end in July.

Today, we also have 8 additional produce processors conducting or evaluating their own in-house validation and optimization testing. This is a standard industry procedure before placing a first order. We reiterate, our goal is to obtain at least 5 new produce processor customers for PURE Control by the end of calendar 2018.

Now I'll discuss food transport sanitization, our newest market for PURE Hard Surface disinfectant, which represents an estimated $50 million total addressable market opportunity. Our first 2 transportation customers, including Sysco for trucks, represent a $2 million to $3 million annual revenue opportunity for us when fully deployed. Our sales and business development teams are targeting the more than 200,000 refrigerated and non-refrigerated food transport trucks in the U.S. Sysco, the largest North American food distributor, has approved us for use system-wide in its 90-plus independent operating companies network. This network includes subsidiaries SYGMA and FreshPoint, which is North America's largest wholly owned produce distributor. We sell directly into each operating company and we perform the training and installation at each company individually. To date, we have shipped the product and equipment to 14 of those operating companies, and we are averaging an addition of at least 1 new company each week. Our goal is to be in 50% of Sysco's system by winter and build from there into our $2 million to $3 million annual revenue opportunity.

Word of mouth from users is what drives interest, and we're gaining traction. Beyond Sysco, we continue discussions and testing with other transportation operators, and we are actively presenting our truck sanitization solution to more than a half dozen other food transport companies.