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

Thomson Reuters StreetEvents - finance.yahoo.com Posted 7 years ago
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Last quarter, we told you that among processors, Taylor Farms is using our truck sanitization solution. Taylor is also expanding its use of PURE Hard Surface by developing a new application and protocols for the produce transport bins used to bring harvested products from the field to the processing plants. We look forward to having more information on this initiative in our next quarterly call.

The FDA has rules under the Food Safety Modernization Act requiring food transport companies to have sanitization protocols in place by April 2018. Food transport companies need to find a safe, cost-effective and superior disinfectant. PURE Hard Surface is the perfect solution, as the FDA steps up audits of food transport companies to ensure compliance. PURE Hard Surface achieved several compelling competitive advantages for disinfecting refrigerated and non-refrigerated trucks. It is mist spray-applied as a nontoxic disinfection treatment to a trailer and its refrigeration unit, generating a dramatic 5-log pathogen reduction in just 15 minutes versus the 2 hours it now takes carriers or distributors to clean and sanitize a truck. Of course, this results in significant labor savings and minimizes trailer downtime to get them back on the road, with the significant added benefit of being noncorrosive to refrigeration units. In addition, we have demonstrated extended residual kill in food transport trucks.

Continuing our discussion of PURE Hard Surface, we were building upon the gains made in early fiscal Q3 when PURE Hard Surface was adopted by 2 household brand names in Unilever and Del Monte for plant environmental sanitization, and Taylor Farms began expanding environmental usage and applications within its network of plants. In the past month, we have added adoption by national brands, including Butterball, Ben & Jerry's and Chicken of the Sea. Our superior nontoxic SDC technology solutions drew keen interest from a variety of attendees last month when we exhibited at the Food Safety Summit. We're actively working those new leads. Attendees included retailers, food processors, distributors, manufacturers, growers and restaurant chains, in addition to food safety professionals. Later this month, we'll be exhibiting at the United Fresh Produce Expo in Chicago, where we anticipate significant interest in PURE Control as a solution to mitigate the risks of outbreaks like the recent romaine E. coli contamination.

PURE Hard Surface for plant, equipment and environmental disinfection is now in use by 80 national food manufacturers and processors in a wide range of industry segments including produce, bakeries, pet food, cheese, dairy and meats. Our calendar 2018 goal is to increase that customer base to at least 100 users in this category. We're currently adding new customers and plants at a steady rate of an average of 4 per month.

Restaurant chains continue to have particular interest in the superior ability of our patented SDC technology to eliminate one of the leading causes of foodborne illness outbreaks, Norovirus. In our last call, we told you that we expected in May, a new blue-chip national casual dining chain to begin use of PURE Hard Surface throughout the chain. I'm pleased to report that The Cheesecake Factory initial stocking order was booked in fiscal Q3. And in the month -- in the past month, they've rolled out usage to their entire 210-store system in the U.S. The Cheesecake Factory is currently using PURE front of house on dining tables and will add usage back of house in the coming months.

We continue to expect, as mentioned last quarter, another new national restaurant chain to become a customer in fiscal Q4. We also are set to begin testing with yet another casual dining chain with operations in 9 states. We look forward to announcements indicating achievement of our goal to add at least 3 new restaurant chains in calendar 2018.

Now I'll discuss PURE Control use in poultry processing, where we have USDA approval for use of patented SDC up to 160 parts per million as PURE Control in pre-online reprocessing and post-chill raw poultry processing. We continue in plant testing and validation efforts with major poultry processors for poultry parts, and expect that optimization work to continue through the calendar year. Poultry parts represent approximately 75% of all poultry sold to consumers. It's a large and very important market to us. We know of no other equally effective, nontoxic solution, and believe PURE Control is the breakthrough solution to poultry industry needs.

In initial testing, PURE Control dramatically reduced Salmonella at a rate that interventions currently being used are not consistently achieving. While ounce-for-ounce PURE Control will be more expensive than existing chemistries, we believe our total value proposition is compelling. In addition to seeking a superior answer to reducing Salmonella, the poultry processors that we have talked to and are working with are seeking ways to get rid of the legacy product, PAA, or peracetic acid because of its toxicity and the fact that it's an irritant to employees. PAA, which is currently in general use, has a negative impact on the environment and equipment and has a negative impact on yield.

In summary, before turning to our Q&A session, we continue to have significant confidence that the overall revenues we need to get to cash flow breakeven and beyond are achievable. Our customers control the timing of any roll out. And based on their communications to us and evidenced by the investments they are making to implement our solutions, our path to cash flow breakeven is coming into clear focus.

Our sales and marketing team consists of 5 direct sales and technical service personnel, which are augmented by existing strategic distributor and marketing partnerships. In addition, we have relationships with industry-experienced business development agents, as well as technical service and equipment groups who can assist with implementation.

Over time, as revenues build and can support it, we would certainly expand our direct sales and technical service teams internally.

I'd now like to turn our call over to Ariel, our operator, to begin the question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Dan (sic) [Stan] Caplan, a private investor.

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Stan Caplan, [2]

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It's Stan Caplan. I appreciate all the efforts. And you've got an impressive list of prospects that we are hoping can lead to breakeven, I think you said by first quarter calendar 2019?

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Henry R. Lambert, PURE Bioscience, Inc. - CEO & Director [3]

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Correct.

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Stan Caplan, [4]

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Okay. I don't need to remind you guys, we're 5 years into this. And from a shareholder's perspective, the numbers are still pretty abysmal. I recognize that you're -- again, got all these opportunities, but let's just talk about where we're today and what the investors are looking at. The revenues really are not -- you're running out of cash. The good news is you're cutting your comp and other expenses. The bad news is this should have been done 2 years ago. We're at $0.70 stock, which has basically shown no appreciation in the last few years. And we can't blame it on the markets or the economy. And I'm glad to hear that you're finally sharing some of the pain with the investors. So could you go into a little detail about what you really are cutting, what it amounts to and what your needs are to get the additional financing, and what impact and dilution it might have on your current investors? Enlighten us a little more as to dollars and cents here.

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Henry R. Lambert, PURE Bioscience, Inc. - CEO & Director [5]

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Sure, Stan. Thank you, and we both share your frustration and understand and appreciate your patience. We really can't say too much more in terms of what our financing needs are and timing and what options we're looking at. Clearly, we will have to raise some amount of additional funding -- financing in order to fund operations while we build toward cash flow breakeven in the first quarter of calendar 2018. The cuts that we have made in expenses, and as Mark indicated, they've come in the area of both Board and management compensation, as well as a number of vendors. And we have also significantly cut our marketing expenditures that were not directly impacting our sales or customer-facing efforts. So that has enabled us to bring down our cash flow breakeven revenue run rate from what we've previously been indicating was $10 million to $12 million, down to the neighborhood of $7 million. So significant improvement in where we need to get to from a revenue run rate standpoint in order to hit cash flow breakeven. That's about as much detail as I can give you at this point. We will certainly be sharing our financing needs and the options that we'll be pursuing as we move forward.

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Stan Caplan, [6]

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Okay. So it sounds like you're going to need a couple of million dollars. Is that close?

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Henry R. Lambert, PURE Bioscience, Inc. - CEO & Director [7]

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I'd say that's close. Yes.

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Stan Caplan, [8]

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Okay. Are you exploring any nondilutive ways to accomplish this?

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Henry R. Lambert, PURE Bioscience, Inc. - CEO & Director [9]

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Yes.

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Stan Caplan, [10]

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Okay. I won't press you any harder. Thanks for your efforts, and I'm hoping that next quarter, when we look at the financials, they're a little more appealing and the stock price is doing a little bit better.

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Henry R. Lambert, PURE Bioscience, Inc. - CEO & Director [11]

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Thanks, Stan. We firmly believe they will be.

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Operator [12]

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Our next question comes from [Stuart Sime], a private investor.

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Unidentified Participant, [13]

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Following up to Stan's question, one of the ways I was wondering you might be able to help yourself is you listed a bunch of new names that are pretty impressive that are using your product, including adding lines at Taylor Farms and so on. Is there any good reason that you don't announce those things during the quarter because as we know, very few people listen to quarterly reports although they maybe should.

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Henry R. Lambert, PURE Bioscience, Inc. - CEO & Director [14]

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Right. Great question, Stuart. The -- we're kind of walking a fine line here. We really are working toward being in a position where we can do some joint press releases with a number of these new key blue-chip companies. I mean, Taylor Farms we have -- we did a press release earlier this year on Taylor Farms. With regard to Sysco and Cheesecake Factory and some of the others, we are working with them to do a joint press release as soon as they are comfortable doing that. They are -- they want to be in a position where the product has been sufficiently rolled out and they have some experience with it before they issue that press release. But that's certainly something that we're working on and we expect to happen.

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Operator [15]

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Our next question comes from [Chris Conway], a private investor.

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Unidentified Participant, [16]

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My question is really, the industry, obviously, there's more and more foodborne illnesses and food service issues. You obviously know all that, with Chipotle and all this stuff. Is there a particular reason a potential customer wouldn't engage? You're hitting at so many interesting areas as far as nontoxic, more effective. These are great selling points when you use silver. Is there any particular pushback that you get from potential clients?

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Henry R. Lambert, PURE Bioscience, Inc. - CEO & Director [17]

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Great question. The -- our biggest competitor, to be honest, is the status quo. If companies do not perceive that they have a problem, they're very reluctant to bring a new chemistry into their operations or make any changes that would require them to re-train personnel or change their operations in any way. So until a company has a significant issue or believes they're about to have one and it could end up in the headlines, like a Chipotle, it's really difficult to break through to what they're currently doing. And we have -- as you indicated, we have a very strong value proposition. With PURE Hard Surface, we're very cost competitive with alternative legacy chemistries like chlorine dioxide, bleach, quaternary ammonia, hydrogen peroxide, however -- and the fact that we're nontoxic, noncorrosive environmentally and user-friendly. But these companies, unless they believe they have a problem, they think what they're doing is -- must be working. So it's very difficult to break through. And when we have broken through, it's required extensive lengthy testing, which is just as frustrating to us as it clearly is to you because we know we have a superior product and there's no reason why they shouldn't bring us in. But it's a struggle unless they really believe they have an issue.

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Operator [18]

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Our next question comes from Lauren Chung of WestPark Capital.

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Haeyong Chung, WestPark Capital, Inc., Research Division - MD of Healthcare Research & Publishing Equity Analyst [19]

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I apologize for the background noise. My question is so for your revenue ramp, is it more -- are you focusing on sort of the volume orders from the clients that you onboarded in the quarter -- or is it sort of a function of, obviously, adding more clients as [you can?] But also to add to that question, for the new clients, I mean, what was the differentiating factor that propelled them to switch to your product or your -- use your product in conjunction with the status quo?

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Henry R. Lambert, PURE Bioscience, Inc. - CEO & Director [20]

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Great question. Thanks, Lauren. The answer to the first part of your question is that we have a road map to get to cash flow breakeven based on the ramp -- the volume ramp with our current portfolio of customers. And again, as indicated, Taylor Farms, Sysco, our new restaurant chain customers, those are -- the ramp with those customers is what is going to get us to cash flow breakeven. New business that we gain will be incremental to that. So while we're looking to both sources for revenue growth, we can see our way to cash flow breakeven just based on the ramp with our existing customer base. The reasons why the customers that we're currently working with that brought us in range from what I was referring to earlier as companies that either know they have a problem and they've been in the headlines or believe they could have a problem and have brought us in to solve the problem that they either have or believe they're going to have. And that would apply to, for example, Chipotle. With Taylor Farms and PURE Control for produce, we are an incremental intervention to what they're currently doing. So the compelling value proposition for Taylor and other produce processors was the fact that we can provide incremental pathogen kill to what they are currently doing. We've been able to consistently demonstrate that. And the fact that we are nontoxic, noncorrosive to their equipment and the economics work. So clearly, looking at this latest romaine outbreak, for example, which was not the reason why Taylor brought us in. We've been working with Taylor for 3 years. But an event like that really drives home the fact that what produce processors are currently doing is not working effectively. And we have demonstrated that we can provide incremental pathogen kill to what they're currently doing. So that's a very compelling reason to bring us in.

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Operator [21]

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This concludes the question-and-answer session. I would like to turn the conference over back to Mr. Hank Lambert for any closing remarks.

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Henry R. Lambert, PURE Bioscience, Inc. - CEO & Director [22]

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Thanks, Ariel. We certainly appreciate your interest and patience as we grow ever closer to that inflection point we've all been waiting for. And I'm optimistic about the success of our company when I look at our pipeline and runway, as we've been discussing. We continue to acknowledge and appreciate the patience that our shareholders have shown as we gain traction behind our industry-changing solutions, and we have a high degree of confidence that we're on the threshold of cash flow breakeven. I look forward to reporting our continued progress to you in our next call. Thanks again for joining us, and have a great day.

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Operator [23]

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This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

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