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Good morning, and welcome to the Scientific Industries Financial Results for the 6-month transition period ended December 31, 2022 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Joe Dorame, Managing Partner at Lytham Partners. Please go ahead.
Thanks, Andrew. Good morning, and thank you for joining us today to review the Financial Results of Scientific Industries for the 6-month transition period ended December 31, 2022. With us today on the call are Helena Santos, Chief Executive Officer; Daniel Greunes, CEO of Scientific Bioprocessing; and John Moore, Chairman. After the conclusion of today's prepared remarks, we will open the call for questions.
Before we begin with prepared remarks, I would like to remind everyone certain statements made by the management team of Scientific Industries during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed under risk factors and documents filed by the company with the Securities and Exchange Commission, including the annual report on Form 10-K for the transition period ended December 31, 2022. Forward-looking statements speak only as of the date these statements were made. The company can give no assurance that such forward-looking statements will prove to be correct. Scientific Industry does not undertake and specifically disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Now I'd like to turn the call over to Helena Santos, CEO of Scientific Industries. Helena?
Thank you, Joe. Hello, and welcome to the fiscal calendar and fiscal year-end in our 69-year history. Today, we are going to discuss the results and progress in the 6-month transition period that ended December 31, 2022. The relatively flat to slightly down sales comparison for the comparable 6-month period of $5.2 million versus the $5.7 million last year is masking the huge changes that are taking place below the surface of the reported financials.
So when we began the process of remaking Scientific Industries, we decided we needed to find a common theme for our 2 businesses with the greatest growth prospects. Those 2 themes are automation and the digital transformation and simplification of complex manual tasks normally performed by highly trained and expensive PhD-level workers. We believe by transforming manual and analog tasks, we're also positioning our company and our customers to benefit from the coming productivity improvements transforming our economy through the application of machine learning and artificial intelligence.
I can tell you one thing is absolutely certain. Systems like ChatGPT are currently performing tests at a high school level, perhaps as soon as next year, they will even be performing tasks at a college level and soon, they will be performing tests at a PhD-level. As this is happening, we are positioning your company to provide the essential transformation from analog to a digital interface. So our customers and their customers can benefit from this unstoppable, necessary and profound change that artificial intelligence is bringing to our economy.
So let's first discuss Torbal. After 100 years in pharmacy scales, we have created the digitally simplified pharmacy. The VIVID family of automated pill counters is a practical tool that operates as an enterprise solution for running the business and operations of the pharmacy from inventory management and control to drug interactions and generic substitutions. The VIVID is rapidly becoming a must-have for every pharmacy.
You have probably noticed that your local pharmacy is operating on shorter hours. This is because of the high burnout and resulting shortage of pharmacists and high turnover of pharmacy technicians. COVID and the new demands on pharmacists from pending federal track and trace regulations means the status quo of manual pill counting is over. Where in the past, pharmacy owners had many excuses why they didn't want to invest and change from manual accounting.
Now we are finding accelerating adoption as evidenced by the last week sale of 12 VIVID-1s and 11 VIVID-LITEs to a chain of addiction recovery centers representing our largest single order to date. The third and final model, our VIVID Workstation will be launched this year. We are currently selling through our partner Rx systems and their 48 member sales force to the 40,000 independent pharmacies in the U.S.A. Once the workstation product is ready in the few months ahead of us, we will begin soliciting the major chain stores that represent an additional 48,000 locations. When we entered these key accounts, Torbal will have the most complete line of automated pill counters with offerings at the $16,000, $5,500 and $3,500 price point. No matter what price point and feature set our customers require, we will be the only total solution provider.
We will also have the only cloud-based network, and that means every new drug approval results in instantaneous updates versus our only other digital competitor, ICON, which can only make quarterly updates. We are positioned to win and dominate this new exciting market. And now I'm going to turn over the call to Daniel Greunes to discuss the important investments we have been making in scientific bioprocessing. Daniel?
Thank you, Helena, and good morning, everyone. It's afternoon with me already. The second half of calendar 2022 marked a very important milestone for our bioprocessing operations as it saw the first product being launched as a joint organization. Amid the post-merger project in a challenging market environment, we finally released the first version of DOTS, our platform to digitally simplify bioprocessing and a key enabler for our future product road map and to capturing the massive market opportunities ahead of us.
As a linchpin to our portfolio, DOTS allowed us to migrate all of our legacy products to a single platform, to launch a new line of fiber optic pH and the oil sensor systems for flow loop applications and bioreactors and to unlock closed loop control in shake flasks as an essential first step towards bringing down the enormous upstream bioprocessing development costs while increasing experimental throughput. Furthermore, DOTS represent a step change for our R&D and product development as it centers around a software tool chain for automated testing, documentation, continuous integration and deployment. Thereby, it streamlines our development processes, reduces development times and costs, and helps us automate testing whereby we will be able to compress our development cycles towards new software releases every 8 to 12 weeks.
In close collaboration with the more than 120 customers that transitioned to the platform since calendar Q4 in last year yet. We have already been able to deliver 3 version updates with improved feature sets and to leverage the relationships we have with our partners. The feedback that we received from the market in this regard is very impressive.
And I'm happy to report that our recent releases have further attracted larger industry customers and more interest from the production manufacturing space.
As a highlight, I'm glad to share that we have just closed the biggest customer deal in the company's history to date, a roughly USD 200,000 order to monitor the production in a CMO, subcontract manufacturing organization that belongs to the Thermo Fisher Group, which, and I take that as a positive sign, happens to be located in the same building as the headquarter of our main competitor, PreSens.
At the same time, we have continued to restructure -- we have continued the restructuring of our organization and business approaches. We have expanded our research and development efforts with successful proof of concept and new patent filings for a completely innovative way of optical chemo sensing and shake flasks and other agitated vessels. These developments pave the way for our next generation of miniaturized multiparameter sensors and chemo sensor solutions, which are currently anticipated to hit the market in late 2023, so towards the end of this year.
A complete family of sensors around the ground breaking technology will not only enable a new and innovative Experiment as a Service business model, which will increase the lifetime value of customers like Thermo, but which will ultimately enable the democratization of synthetic biology through a tenfold experimental throughput at 10% of the cost. We have more than doubled our production capacities to ensure market-leading dispatching times of less than a week and are prepared to keep these with the stock at hand for at least another year, which will give us a competitive edge over other industry players. We have further developed our marketing department with a comprehensive marketing strategy and state-of-the-art tools to spread our message and in parallel have reorganized our sales team and approach to have them focus on revenue-generating activities, shorten lead times, increase conversion and technology adoption to unlock new sales channels.
As we all know, such significant post-merger, particularly post-merger adjustments take time to deliver the desired outcome. But I'm already happy to see first results that make it very positively to the future. We now have a dedicated distribution management in place and instead of a single global distributor have now entered or about to enter contracts with more than 20 dedicated partners locally, so locally meaning in the respective countries where we don't have a direct sales force, which enables a much tighter engagement with our partners. We have focused our marketing efforts away from scientific publications that we previously focused on and towards content creation around success stories and user interviews.
Companies like Clariant or Bond Pet Foods represent early examples of that new strategy and actual users talking about our tech, their newly gained actionable insights and the return on investment they were able to capture with our products. With our new go-to-market strategy, we were able to cut our time to action significantly ever since last year and are now able to reach out to customers at an average of 30 to 60 minutes following every customer request. Lastly, since last year, we have managed a doubling of the value of our marketing and sales pipeline with twice as many MQLs, twice as many SQLs and twice as many opportunities and prior to more than 30 events and trade shows that we are still to participate at. As such, and that concludes my portion, I'm more than convinced that we can achieve our ambitious target to double our sales in 2023. Thank you. And with that, I hand you back over to Helena.
Thank you, Daniel. So at this point, I'd like to thank everyone for their support, their encouragement and we look forward to an exciting year. And if there are any questions of any one of us, we would be happy to answer them.
[Operator Instructions] The first question comes from Paul Knight with KeyBanc.
Helena, is the 10-Q out yet on Scientific Industries?
So you know that we changed to a calendar year-end and our first Q of this new calendar year ending 12-31-2023 will, for the period that ended in March will be -- is to be filed by May 15.
Okay. And so all of your color really is at this juncture is that revenue was down year-over-year?
Correct.
In 4Q or the year? I didn't quite catch that, sorry.
So we reported on the 6-months period and compared to the same 6-month period last year. That was our transition period.
And Paul, one update is that both of our growth segments, the Torbal business and aquila biolab's product sales were up 20%. So the sort of the retrenchment of the benchtop laboratory that the Vortex-Genie sales were down because of the sort of the COVID, the fall in spending in COVID-related spending that you've been noting in your research, it affected us like it affected everybody else. And so we continue to have these green shoots, but the base business stopped benefiting from the COVID prices.
Paul, if I may. We also had a little bit of an issue with some supply chain disruptions and which will be reflected in the next quarter. So while the Vortex-Genie sales was down somewhat, we do see a leveling off in that leveling off of the Vortex-Genie sales, is to a level that was above what it was pre-COVID. So we're encouraged about that.
Okay. And then, Helena, on the workstation product, that -- how much does that increase your addressable market size by? I mean, what was the addressable market size before what will it be after whether it's dollars or units? I didn't quite -- I think you were talking to that, but could you talk to that -- and when is Workstation done, do you think?
I don't have those numbers in front of you, so I would have to have a separate call if you don't mind, because I don't want to give you wrong numbers. Feel free to call me during the week.
And then Workstation is going to be out when do you think?
So we have a working prototype, and we anticipate to have within the next couple of months that completed. We still have a few things to do in the mechanical, particularly in the mechanical engineering area. And then obviously, we will have some beta units and we should be able to launch by the fall and start taking orders by the -- sometime in the last quarter of the year. Just because some of those parts, particularly those that have to do with tooling have some lead times that we have to deal with, but definitely this year. And we are very encouraged by what we have seen thus far.
Is this the best environment you've ever seen for Torbal?
Yes, it is.
Okay. And Daniel, congrats on the quarter. Can you talk -- are you -- where are you with microbial versus mammalian research products?
Paul, do you mean in terms of the market potential that we're looking at?
Yes, and/or product availability. Is it -- are you -- where you want to be with mammalian now? Or you feel...
So for us right now, I mean, we are coming historically from a focus only on mammalian and with DOTS and the products that we are having in the pipeline right now, we are certainly focused and tailored towards an entry into the mammalian space. Right now, our technologies are so far only used from -- or by specific customers that have a certain cell concentration that is high enough for our sensitivity that was tailored towards microbial to also capture the growth in mammalian cultures.
And our new products and new tech will in that regard, unlock a segment, which, of course, is super, super interesting for us, which so far we are neglecting so a lot of additional potential to capture.
And when I look at that at that market, I mean, of course, microbial is a historic market that is historically strong when you look towards industry and production, particularly in red biotechs, mostly pharma then, of course, mammalian is more important and more prominent. But for us, the beauty is particularly of this new platform that we are looking to cover the entire space going forward where previously, we only focused on mammalian.
Got it. And then what would be the key products to look forward to this year, calendar year '23?
Okay. So from my perspective, it's definitely the multiparameter sensor that I briefly alluded to. So essentially, if you look at the legacy portfolio of aquila biolabs, we have dedicated products for dedicated problems. So inch for shake flasks for bioreactor for specific parameters.
And with DOTS, the entire ambition is to develop a sensor platform, which brings together reader technology, software for actionable and data insights and chemo sensor tech. So what -- basically the sensors that you need for PH and oxygen measurements, but also for any kind of substrate and metabolite measurements such as glucose, lactate or whatnot.
And towards the end of the year, so now we launched with the DOTS platform around the software. The first portion of that and we are currently working on the multiparameter sensor for shake flasks and the chemo sensors with a completely new approach away from the spot technologies that will then bring all of that together and enable much more parameters in a much tighter environment dedicated towards shake flasks in the beginning, but then being more ubiquitous. And if you look at that, it's a bit like right now, we are delivering picks to the miners. And in the future, it will be picks and shovels and everything they need in one software platform -- in one product platform and thereby being able to deliver much broader USP.
And you had mentioned Thermo as a customer. How many customers have you had at -- Daniel, is it over 100? Can you talk to the number of customers you have?
Yes. So right now, it's always a bit tricky to look at that number because a single customer, if you mentioned Thermo, for example, we could regard Thermo as a customer. But within Thermo, there's various organizations and various laboratories that could be also regarded as individual customers that with dedicated budget that can -- that we can look at customers. But in terms of individual customers, we are in -- it would be my understanding and my assumption that right now in terms of individual customers, we have about 400 customers.
And then last question, and sorry for so many on the call. But do you think -- are GLP1 customers trying to work out how to do bacterial development as part of their development or is bacterial even happening with GLP-1s? I know it's synthesis, but I know there's been some work on parts of the production process being bacterial. Are you seeing any of that?
Yes, definitely. I mean if you look at one of the very recent examples that we're seeing in Germany over here, for example, is that we have engaged with BioNTech as part of their vaccine production and R&D particularly, which also for cost reasons, they are doing in bacterial setups before they -- as part of their scale up and process development switch to other strains. So what we tend to see is that despite the fact that everyone is, of course, in terms of production, looking at the mammalian space, we are seeing a growing number of mammalian requests. And that actually is in line with what we're hearing from industry partners like Eppendorf or [ kuna ] or shaker manufacturers and bioreactor manufacturers like Applikon, IKA or INFORS who tell us that they are more and more selling and receiving requests from the microbial space.
In part because it's very cost efficient and less difficult to work with. So I would say as part of the general market growth in the industry and I, for one, believe that we are just seeing the beginnings of the market that's being formed towards the synthetic biology revolution, McKinsey recently valued that market at $3 trillion by 2035. And I'm happy to share that report with you, Paul. And I believe as part of that general industry growth and industry and market development, I think that many of those market segments and for sure, those two are growing all by different growth rates within them.
The next question comes from [ Allen Klee ] with [ Maxim ] Group.
My questions have really been answered. But maybe if you could talk a little about -- for the pill counter, pill measurement kind of explain a little bit more the go-to-market strategy of who you partner with and how that's going to expand and the sales, the proposition to the pharmacies of what makes them want to buy a new machine.
[ Allen ], thanks so much for that question. I think that we've got probably the world expert on that on the call, Karl Nowosielski, the President of our Torbal business. So Karl, would you mind answering that question?
Yes, sure. So I think there were two parts of your question. So currently, we have an exclusive distribution agreement with Rx Systems. It's one of the largest distributors in the country. We're also partnering with a company called Healthmark in Canada to distribute pill counters there. And pretty much all the sales go through Rx Systems at this point.
Now in terms of the -- what makes the pill counter kind of unique in a pharmacy is -- over the last really 24 months, we have introduced an interface to the pharmacy management system, and we have that interface for pretty much all the major software providers. So the pill counter is really like an integrated part of the pharmacy workflow in the pharmacy. All the scripts are -- that are processed by the pharmacy for patients are automatically sent to the VIVID for prescription filling. So that's kind of how it fits in and that's why it's becoming such an integral part of the entire operation there.
Okay. And also, last question, just on bioprocessing. You mentioned how you're changing your marketing, and I believe you said objective to double sales this year. What's going to be behind that?
Yes. Happy to comment on that. So essentially, we -- when we analyzed when -- I mean following my promotion as CEO of the business, one of the things we did in the leadership team was analyze the current situation and where we could be more effective and efficient in our marketing and sales approaches.
What we did was essentially on the one hand, reducing sales rep activities that have historically also engaged in early marketing portions and lead generation towards solely focusing the activities as of being handed over an SQL, which is a sales-qualified lead. All the activities prior to that are now captured by marketing. And we have created a role that we call business development representative that is enabling us to basically convert, reach out from customers or following requests from customers and early leads and converting them to SQL within hours of that request and thereby making that entire pipeline for sales much more efficient.
Then we're participating on various events. As I said in my little script portion, we are to participate -- we are still to participate at more than 30 events and trade shows for further lead generation. But I believe that most of the potential lies within -- apart from pure lead generation, lies within an improvement of the conversion rates.
And if you look at the marketing portion of that, and that is certainly what I look at after a restructuring of such an approach earlier than the sales return because it gives me much earlier information and insights as to whether our strategic adjustments work.
We already see that, compare that to second half of last year, we already see that our pipeline of marketing qualified needs, sales qualified leads and opportunities has doubled ever since the go-to-market approach. And because of the doubling of that pipeline, if we were to -- and I believe that we can be much better than that. But if we were to keep the same conversion rates from SQLs towards customers within sales that we were able to show last year. So at that same efficiency and that same conversion we would already add a doubling of MQL and SQL opportunities, look towards a doubling of sales in -- by the end of this year.
And with additional activities like attendance of events like a new distribution approach where we engage with much more players than purely one and with a dedicated focus of sales reps on the job at hand and their value-generating activities, I believe we have a lot of additional potential to capture.
This concludes our question-and-answer session. I would like to turn the conference back over to Helena Santos for any closing remarks.
Thank you. At this time, I would just like to thank all of our valuable shareholders. I would like to thank our employees, a great team. And also, I would like to say that -- this is going to be, I think, another year of transformation in the history of our company. It has never been a better time to be at Scientific Industries, whether you're a shareholder or whether you're an employee or an associate of our company. And I thank everyone for their time.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.