Edited Transcript of PURE earnings conference call or presentation 6-Mar-19 9:30pm GMT

I'll now discuss our Q2 and year-to-date fiscal 2019 operating results. Net product sales for the second fiscal quarter ended January 31, 2019, were $394,000, a decrease of 4% compared with net product sales of $411,000 for the second fiscal quarter ended January 31, 2018. The decrease was entirely due to fluctuations within our existing legacy customer base. Revenues from our core business, food safety, continued to gain traction, increasing 52% quarter-over-quarter.

Total operating costs and expenses, excluding cost of goods sold and share-based compensation, for the second fiscal quarter ended January 31, 2019, and 2018 were $1.1 million and $1.5 million, respectively. Net loss, excluding share-based compensation, for the second fiscal quarter in 2019 was $839,000 as compared with net loss of $1.3 million for the second quarter in 2018.

Net product sales for the 6 months ended January 31, 2019 were $984,000, an increase of 12% compared with net product sales of $875,000 for the 6 months ended January 31, 2018. Core food safety revenues increased 68% as compared with food safety revenues during the 6 months ended 2018.

Total operating costs and expenses, excluding cost of goods sold and share-based compensation, for the 6 months ended January 31, 2019, and 2018 were $2.3 million and $3.1 million, respectively. Net loss, excluding derivative income, inducement expense and share-based compensation for the 6 months ended January 31, 2019, was $1.7 million as compared with $2.6 million for the 6-month period in 2018.

We ended the quarter with a cash and restricted cash position of $410,000. Cash received from financing activities during the 6 months ended January 31, 2019 was $993,000, offset by cash used in operating and investing activities of $1.5 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 around mid-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, Secretary & Director [4]

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Thanks, Mark, and good afternoon, everyone. We certainly appreciate your joining us for today's discussion. As Mark mentioned, for the third consecutive quarter, our core food safety revenues showed strong growth, 52% for the quarter and 68% for the 6-month period. We anticipate that next quarter, fiscal Q3, comparable results will also show strong growth, continuing the validation of the game-changing nature of our nontoxic, SDC-based antimicrobial food safety solutions.

Important to note is that our Q2 revenues did not yet include anticipated revenues from Taylor Farms expanded use of PURE Control. You may recall that Taylor Farms' initial forecast anticipated 4 additional processing plants online by the end of March. While the unfortunate November-December romaine lettuce contamination and recall served to enhance the visibility of, and interest in, our food safety solution in the produce industry, it caused a significant delay in Taylor's plant expansion plans, as that segment of Taylor's business ground to a virtual halt. Processing lines were shut down, and romaine fields were plowed under and replanted.

For this reason, our fiscal Q2 results did not include the plant expansion revenues as expected. Based upon overall revenue and the anticipated rollout plans of our lead produce processor customer, we remain optimistic that we will achieve our goal of cash flow breakeven revenue run rate around mid-calendar 2019. Today, $6 million in annual revenue run rate is our breakeven target. As long as our customers' adoption plans materialize as they project, we'll reach our 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, applied directly on to produce during processing; and EPA-approved PURE Hard Surface disinfectant, applied by food processors and manufacturers in food transportation and by restaurant chains to surfaces and equipment that come into contact with food.

Looking first at produce processing, our key revenue driver. As we discussed, Taylor Farms, the largest U.S. produce processor and our first customer for PURE Control, is continuing its rollout and use of PURE Control into its 14-plant network. As announced this morning, Taylor has combined PURE Control with its own SmartWash processing aid, and now the newly named SmartWash Boost is being actively marketed to their foodservice and retail customers and is in use at 3 Taylor plants today.

As Jim Brennan, President of SmartWash, said, the introduction of SmartWash Boost is "The most advanced risk management approach for prepared salads." Boost is truly a game-changing food safety innovation. Boost enhances food safety by eliminating pathogens causing foodborne illness, including the leading causes, Salmonella, E. coli and Listeria. Once fully deployed, we estimate that each of Taylor's plants represents up to $1 million per year in revenue or up to a $14 million annual revenue opportunity for PURE. Taylor's goal continues to be to have the SmartWash Boost application operational in all 14 of its plants within 12 to 18 months.

Our latest update from Taylor is that they are continuing work to bring 4 new plants online. They have ordered equipment needed to begin their installation process, and work has been initiated at the first of the 4 plants. As Taylor's customer adoption grows, it will bring additional plants online in 2019. They're in the midst of testing treated lettuce for a household name, fast casual restaurant chain, and they anticipate chain-wide adoption once that work is completed.

Currently, Taylor treats shredded romaine and iceberg lettuce with Boost for the customers who request this added processing step. Subway has recently agreed to become a Boost customer for its shredded lettuce, and implementation plans are in process. Taylor tells us that several other leading restaurant chains and retailers are close to approval.

Beyond use on leafy greens, Taylor continues to test SmartWash Boost on additional produce items such as cabbage, 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 10 additional processors conducting or evaluating their own in-house validation and optimization testing, which is industry SOP before placing a first order as compared with 8 processors last quarter. We expect that as Taylor begins to publicize SmartWash Boost, the rest of the industry will move more quickly. And that has already begun with this morning's press release announcing the partnership between PURE and Taylor's SmartWash.

We've made important progress with several of these larger new processors. Del Monte has completed testing PURE Control on strawberries, and we have been approved for that use. We anticipate their first order in calendar Q2 for application in the first of its 20 strawberry processing plants. Del Monte has also successfully completed testing on tomatoes and is completing plans for a late calendar Q2 installation for that use.

For both strawberries and tomatoes, PURE Control will replace currently used chemistries. It will not be an added intervention step as is the case for lettuce and leafy greens treated by Taylor. Del Monte represents a 20-plant opportunity for both strawberries and tomatoes.

Beyond its use of PURE Control, Del Monte is also a customer for PURE Hard Surface for environmental disinfection. It has recently begun expanded use of PURE Hard Surface disinfectant in its 33 banana-ripening rooms. This represents a sizable new opportunity for PURE as all processors have ripening rooms.