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Edited Transcript of TRIB earnings conference call or presentation 14-Mar-17 3:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Trinity Biotech PLC Earnings Call

Bray, Co Wicklow Mar 14, 2017 (Thomson StreetEvents) -- Edited Transcript of Trinity Biotech PLC earnings conference call or presentation Tuesday, March 14, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joe Diaz

Lytham Partners - IR

* Kevin Tansley

Trinity Biotech plc - CFO

* Ronan O'Caoimh

Trinity Biotech plc - Chairman and CEO

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Conference Call Participants

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* Larry Solow

CJS Securities - Analyst

* Jim Sidoti

Sidoti & Company - Analyst

* Nicholas Jansen

Raymond James & Associates, Inc. - Analyst

* Jack Salzman

Kings Point Partners - Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Trinity Biotech fourth-quarter and fiscal-year 2016 financial results conference call. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Joe Diaz of Lytham Partners. Please go ahead.

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Joe Diaz, Lytham Partners - IR [2]

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Thank you, Allison, and thank all of you for joining us today to review the financial results of Trinity Biotech for the fourth-quarter and year-end 2016, which ended December 31, 2016. With us on the call representing the Company are Ronan O'Caoimh, Chief Executive Officer; and Kevin Tansley, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session.

Before we begin with prepared remarks, we submit for the record the following statement. Statements made by the management team of Trinity Biotech during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties.

The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will, and other similar statements of expectation, identify forward-looking statements.

Investors are cautioned that such forward-looking statements involve risks and uncertainties, including, but not limited to, the results of research and development efforts, the effect of regulation by the United States Food and Drug Administration and other agencies, the impact of competitive products, product development, commercialization, and technological difficulties, and other risks detailed in the Company's periodic reports filed with the Securities and Exchange Commission.

Forward-looking statements reflect management's analysis only as of today. The Company undertakes no obligation to publicly release the results of any revision to these forward-looking statements.

With that, let me turn the call over to Kevin Tansley, Chief Financial Officer, for a review of the results. After Kevin's remarks, we will hear from Ronan O'Caoimh and his perspectives on the quarter and the fiscal year. Kevin?

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Kevin Tansley, Trinity Biotech plc - CFO [3]

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Thanks very much, Joe. Today I'll take you through the results for quarter four and then the results for the full-year 2016. Before going into the details of the income statement, I will point out that there is a significant once-off charge this quarter, which I will deal with at the end of the income statement segment; and that the metrics I quote in the meantime are excluding the impact of this item.

I will now start on an outline of the results for the quarter, and then I'll move on to the results for the year as a whole afterwards. Beginning with our revenues, total revenues for the quarter were $23.7 million, and this compares to $24.9 million in quarter-four 2015.

As we have mentioned in the earnings release, this was driven by lower HIV revenues due to the fluctuating nature of such sales, partly offset by some growth in clinical laboratory revenues. Ronan will provide more details on the revenues for the quarter and the year as a whole later in the call, so I'll move on now and discuss the other aspects of the income statement.

The gross margin for the quarter was 40% compared to 43.2% last year. In fact, this is a lower margin than we have shown for some time, and there are a number of factors which have contributed to this.

Firstly, we are seeing the impact of exchange rate movements. This includes the comparative weakness of the Brazilian real, Canadian dollar, and post-Brexit sterling against the US dollar. But it also includes the impact the strong dollar has had on our pricing in countries where we sell in US dollars.

Secondly, the sales mix has been adverse, particularly due to the lower level of point-of-care sales, which, as you are aware, tend to have higher profit margins.

And thirdly, production levels in our plants were lower in the quarter. This is particularly -- partially reflective of the lower revenues, but was also impacted by culling a number of products during the quarter.

Moving on to our indirect costs, and our R&D expenses for the quarter, at $1.3 million, were slightly lower than the $1.5 million in last year's quarter. Meanwhile, our SG&A expenses have increased this quarter from $6 million to $7.2 million. This is less a case of the 2016 number being high, but rather the 2015 number is low.

For example, the average SG&A for quarters one, two, and three of 2016 were $7.4 million, so quarter four was actually below average for the year. Meanwhile, the $6 million in quarter-four 2015 was artificially low particularly due to some once-off FX gains recognized that quarter.

So in summary, we've had lower revenues and gross margins this quarter while at the same time as hiving higher indirect costs. This has resulted in a lower operating profit of $600,000, which is obviously considerably lower than the $3.1 million recorded in quarter-four 2015.

Moving on to our financing costs, which includes the impact of the Company's exchangeable notes. Our financial income for the quarter was $221,000, which was higher than the comparative of $132,000, and this was due to higher available interest rates and longer deposit periods. Financial expenses, the vast majority of which relates to the cash interest element of our exchangeable notes, was static at $1.2 million.

With regard to the non-cash financial income, this consists of a gain of close to $5 million on the fair value of the derivatives embedded in the notes, partly offset by $200,000 of non-cash interest relating to the notes. You have seen in the press release that we quote EPS without non-cash amounts, and it is this net amount of approximately $4.9 million which we deduct.

The profit, after tax, for the quarter was $4.9 million. However, if we were to exclude non-cash items, it is actually $0.1 million; and this compares unfavorably to the $1.9 million earned in quarter-four 2015. This quarter's basic EPS was $0.216 per ADR; though, excluding the non-cash financial income, this would have been $0.002.

Meanwhile, fully diluted EPS, which in some ways is a better measure, was $0.043 for the quarter compared to $0.105 last year. Earnings before interest, tax, depreciation, amortization, and share option expense for the quarter amounted to $2.6 million.

I will now make some comments on the full-year results. Annual revenues decreased from $100.2 million in 2015 to $99.6 million in 2016. As I mentioned earlier, Ronan will deal with this later in the call. The gross margins for the year decreased from 46.2% to 43.3%, a drop of 2.9%.

You are seeing the same factors at play here as we saw earlier with respect to the quarter, namely the impact of exchange rate movements, product mix, and lower production levels.

R&D expenses for the year were broadly static at just over $5 million. However, SG&A expenses increased from $26.5 million to $29.5 million. This increase was due to a number of factors: increased amortization charges associated with the launch of Premier Resolution; higher sales and marketing costs; as well as the impact of once-off exchange gains in 2015 which did not recur in 2016. This is the same factor I alluded to earlier in relation to quarter four's results.

Operating profits for the year were $7.5 million, which was down on the $13.4 million in 2015. This reduction is a direct result of the lower gross margin and higher SG&A costs that I mentioned earlier.

Financial income for the year almost doubled to $900,000. This is partly due to the full-year effect of deposit interest being earned on the funds raised in early quarter-two 2015, but is also reflective of higher interest rates being available.

You will see that the financial expense has increased from $3.5 million to $4.7 million. And here you are seeing the same full-year effect at play, namely that 2015 included roughly three quarters of exchangeable note interest, whereas 2016 had a full year. In addition to this, there was a separate net non-cash financial income of $1.5 million versus $12.5 million last year.

These gains were mainly due to changes in the fair value of embedded derivatives in the notes, and I suggest that these gains be ignored when considering the Company's performance. The result is that the profit after tax for the year was $5.2 million. However, if we ignore the non-cash financial income, this would have been $3.6 million, and this compares to $9.3 million in 2015.

As was the case with operating profit, this was due -- this reduction was due to the gross margin and SG&A factors discussed earlier, as well as the full-year effect with respect to the exchangeable note interest.

Earnings before interest, tax, depreciation, amortization, and share option expense for the year was $15 million. This resulted in a basic EPS, excluding non-cash financial income, of $0.157 versus approximately $0.402 in 2015, whilst diluted EPS was $0.29 compared to $0.46 last year.

I will remind you that I said earlier that the measures that I have just given are all before the impact of once-off charges that we have recognized this quarter. I will now talk about these charges in a bit more detail.

The total charge, net of tax, was $105.8 million, and comprised a number of elements. Firstly, there is a charge in respect of Meritas of $66.3 million. Obviously this charge, which itself has a number of sub-elements, has arisen as a direct result of the withdrawal of our Troponin FDA submission. Of this, $56.7 million relates to the write-off of all capitalized development costs, fixed assets, inventory, and other assets associated with this project.

Whilst we still hope to derive some future benefit from the platform, we feel that it is prudent to write off these assets in full, given the inherent uncertainty about timing and size, if any, of any such benefit.

There is also a charge for closure costs of $5.8 million in relation to our Swedish facility, which closed as a direct consequence of the FDA submission withdrawal. This consists of three main elements: redundancy costs associated with the 41 employees who were made redundant following the announcement; termination costs in respect of certain contractual obligations, such as terminating property leases early, and material supply contracts without meeting minimum purchase requirements; and finally, close-out costs in relation to our BNP trials, which at the time of the Troponin announcement, were still ongoing. Of the closure cost, $2.4 million were already paid out prior to year-end.

The other sub-elements within the Meritas charge relates to foreign currency translations. This is a bit different to the other elements in that it was actually recognized in previous periods, but as a reserve movement. However, under accounting rules, when a subsidiary winds down its activities, such a charge has to be taken through the income statement in the period in question. So this is effectively an in-and-out during this period.

The next most significant item relates to impairment charges of $43.4 million. These charges arose as was part of the impairment review that we were required to undertake annually. In so doing, companies are required to assess the valuation of the individual assets on its balance sheet. When carrying out this exercise, one important factor to consider is the summation of all these values versus the prevailing enterprise value or market capitalization of the Company.

The significant fall in our share price, post- the Troponin announcement, created a situation whereby the stock was actually trading at a discount to our book values; and in such circumstances, it is deemed prudent to recognize an impairment. It goes without saying that this charge is entirely non-cash in nature.

The final and smallest element of the charge was an amount of $4.8 million in respect of a product cull that we have carried out in respect of a number of older products in our portfolio. This relates to products which would have been developed or acquired many years ago, and have reached the stage in their life cycle at which they have been declining for a number of years and have now become uneconomic.

I have mentioned earlier that the once-off charge was net of tax; in this case, a credit of $8.7 million. This was largely made up of the reversal of deferred tax liabilities that were recognized in prior periods.

Just so that you are able to appreciate the impact of the once-off charges on the balance sheet, I'll give you the principle captions which have been impacted by it. Intangibles, namely goodwill and development costs, a reduction of $87.7 million; property, plant, and equipment, a reduction of $9 million; inventories, a reduction of $6.8 million; other assets, $0.8 million of a reduction; accruals and other payables, an increase of approximately $4 million; and then the tax balances have been affected by approximately $8.7 million.

I will now move on and talk about the significant balance sheet movements since the end of September 2016. Property, plant, and equipment decreased by approximately $8.1 million. This decrease was made up of impairment charges of $9 million, depreciation in the quarter of $800,000, offset by additions of $1.3 million, with the remainder being translation adjustments.

Meanwhile, intangible assets decreased by $86 million. In this case, the impairment effect was $87.7 million; amortization, $800,000; and additions were approximately $3.8 million. And again, the remainder was foreign currency translation adjustments.

Moving on to inventories, you will see that these have fallen also, in this case by $7.4 million. And again the big factor is the once-off charge of $6.8 million made up of both Meritas and culled products. Thus the underlying fall in inventories for the quarter were $600,000 and this is attributable to lower production during the quarter.

Meanwhile, trade and other receivables decreased by $3.2 million to $22.6 million. This is reflective of improved accounts receivable collections and the write-off of other debtors of $800,000. Meanwhile, our trade and other payables, including current and non-current, have gone from $21.9 million to $25.8 million, an increase of $3.8 million. And this has been largely driven by the closure provision required in relation to our Swedish facility.

Finally, I will discuss our cash flows for the quarter. Cash generated from operations for the quarter was $4.6 million, which included positive working capital movements of approximately $1.3 million, which helped to offset some of the impact of the lower profitability.

Meanwhile, capital expenditure in the quarter was $4.2 million, and this compares with close to $6 million for the same period last year. Here you are beginning to see the impact of the lower spend on Meritas. This resulted in the free cash inflow for the quarter of $400,000.

Other cap payments in during the quarter included interest payments on our exchangeable notes of $2.3 million. This represents six months of interest as these payments are made semiannually; share buybacks of $3.3 million; and once-off payments primarily relating to the closure of our Swedish facility. The net result of this is that we had a decrease in cash for the quarter, from $84.8 million to $77.1 million.

I'll now hand back to Ronan who will take you through the revenues and other matters.

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [4]

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I'm going to review our revenues for quarter four briefly, and then I'll review the revenues for the year before opening the call to a question-and-answer session.

Our revenues for quarter four were $23.7 million compared with $24.9 million in the prior quarter, which is a decrease of 5%. Point-of-care revenues, at $4 million, were 27% lower than the $5.4 million recorded in the prior quarter. Clinical laboratory revenues were $19.7 million compared with $19.5 million in the prior quarter, which is a decrease of 1%.

And now to look at the year as a whole, our revenues for 2016 were $99.6 million compared with $100.2 million, which is a decrease of $600,000 or 0.5%. The negative impact of currency fluctuations during the year was $1.8 million. When this impact is taken into account, the rate of revenue accruals for the year would be 1.2%.

In addition, in markets where we invoice in dollars, but where the local currency has weakened, we have been required to reduce our pricing in order to preserve our competitiveness.

Our point-of-care revenues decreased from $18.8 million to $16.9 million, which is a decrease for the year of 10%. Our US HIV revenues decreased 11% year on year. This decrease is explained by the fact that public health spend in the US on HIV testing continues to decrease. Meanwhile, our sales into the US hospitals market held up well during the year.

Moving on to Africa, our sales decreased by nearly 10% during the year. However, we do not believe that either the market, or, indeed, our market share has diminished. We believe that this movement is consistent with the haphazard nature of NGO purchasing. In addition, funding continues to increase as more and more Africans are put onto antiretroviral drugs, with the number now [sitting] 20 million people.

For more than 15 years, we have held more than 90% of the African confirmatory market. And we believe that we will continue to do so, given the status of our product as gold standard. However, we have, over the past two years, developed an HIV screening product which is about to be launched in the African market. Given the quality of the product and given the price at which we can manufacture it, and given our long-held reputation as a manufacturer of gold standard on the continent, we believe that we can take significant market share in this market segment.

Moving on to our clinical laboratory business, our revenues for the year were $82.7 million, which is an increase of 1.6% when compared with the prior-year revenues of $81.4 million, given that all of our point-of-care business is dollar-denominated, and the entire negative impact of currency fluctuations during the year of $1.8 million was suffered by our clinical laboratory business. When this negative currency impact is removed, the organic growth rate for the year for our clinical laboratory business increases from 1.6% to 3.8%.

Our diabetes and hemoglobin variant business performed strongly during the year, with revenue increasing 8%. We had strong instrument placements in all of our principal markets, with in excess of 320 instruments being placed during the year. The exception was Brazil, where we made modest placements during the year despite strong demand for our product. This arises due to the weakness of the Brazilian real. However, we plan to reenter this market when we increase our level of manufacturing activity in Brazil, thereby saving on import duties, on sales taxes, and by creating a natural hedge. In addition, we are seeking price increases against the backdrop of the high inflationary environment.

Meanwhile, our Premier placements in the USA, Europe, and China continued strongly. It is important to remember that every instrument we place is new business. We are never replacing an existing Trinity instrument as we are in the early years of the placement cycle.

During the year, we also launched our new Premier Resolution instrument, which serves the hemoglobin variant market for sickle cell anemia and thalassemia. This is a high-value market with few competitors, and we believe that with our best-in-class instruments that we can take market -- significant market share. Since the lunch of the instrument in April this year, we have made 33 placements of instruments. We are confident of our diabetes and hemoglobin business giving double-digit growth in coming years.

Moving on to infectious disease revenues, our revenues here have declined 4% when compared with the prior-year revenues. Our Lyme revenues in the US performed well, as did our Chinese ELISA business. However, our performance in our core US business and in Western Europe continues to suffer as the major five diagnostic companies continue to add new tests to their major immunoassay instruments, and these are tests which compete with our existing ELISA offering.

In addition, our revenues in Canada, Russia, Turkey, Colombia, and the United States continued to suffer due to weakness against the US dollar.

Kevin spoke earlier about the fact that we had culled our MicroTrak and Bartel product lines. We had purchased both of these product lines over 15 years ago. And the past year both, lines had suffered revenue declines in excess of 15% in one case, and 16% in the other. Given the amount of technical support they required, they were rapidly reaching the point of being uneconomical.

In the absence of these product lines, we believe that we can eliminate the decline of our infectious disease business and maintain revenues at current levels, and then continue to benefit from the strong cash flows which this business generates.

On the subject of strong cash flows, our Fitzgerald antibody business declined marginally during the year, but continues to deliver very strong cash flows. Meanwhile, our autoimmune business performed well during the year, with 7% revenue growth. We have consistently grown this business since its acquisition, and believe that it will be a real growth engine for the Company, and that double-digit growth can be achieved this year.

The reference laboratory business has been the best-performing part of the business with significant growth coming from our Sjogren's tests and from the growth of our business with the two US mega-labs. However, the greatest potential in our autoimmune business is in the product revenue side, where we continue to expand our instrument offering in both the US and across the world. And we believe that with this added to our best-in-class immunofluorescence and ELISA product range that we will deliver double-digit growth that I just mentioned.

So in summary, when all the components of our business are taken together, we believe that we can achieve high-single-digit organic growth in our business during 2017, and that this growth can accelerate quickly to double-digit growth in 2018 and thereafter.

I'll now hand you back to a question-and-answer session. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Larry Solow, CJS Securities.

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Larry Solow, CJS Securities - Analyst [2]

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Ronan, I wonder if you can just discuss a little bit more about the Premier placements. I think we were expecting more like 350, so it looked like it was about a 30 shortfall in the quarter. I think even last quarter, you had reaffirmed that over 350. Can you discuss the decline in the quarter and then also how reagent sales are looking, trends there?

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [3]

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We probably came slightly short of our expectations. Some instruments didn't quite go out at year-end. But I think in overall terms, 320 instruments by any yardstick would be -- we would certainly regard as a good year. It constitutes close to 20% of all the instruments placed in the world, in the year. I think China performed very well in terms of instrument purchasing, less so in terms of reagent purchasing. But that situation is improving.

Brazil hardly performed at all, just because it's non-economic really to be placing instruments, given where the real is out at 3.8 -- BRL3.16. The USA performed very well, and Europe performed well. And then we continue to open markets across the world: Southeast Asia, South America, and in the Middle East.

So, all in all, I'd put basically 2016 as having been a very good year for diabetes in Premier; albeit it came up slightly short in the end, but I think a good year. And I do believe that -- I think we can continue to get double-digit growth in this segment, and particularly given the fact that we've just launched a Premier Resolution and it's being adopted very quickly. We've had [take] 33 instruments this year, so I think we're very positive and very confident of the performance of this segment of our business.

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Larry Solow, CJS Securities - Analyst [4]

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And do you expect to be back in Brazil in 2017? Or not necessarily?

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [5]

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We've just been approved in Belo Horizonte for a special basically tax benefit that we can get by doing our manufacturing there. So we're in the process of moving our manufacturing from a contract manufacturer to our own base in that location. And the benefit we'll derive is that we get a reduced sales tax, VAT rate on our business, as a consequence.

I think the combination of that and the saving of import duties and inflation will enable us to reenter the market probably within the next six months kind of time frame. But all of that is contingent on the real not moving in the wrong direction.

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Larry Solow, CJS Securities - Analyst [6]

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Got it, okay. And then on HIV, I know there's certainly quarterly fluctuations. But it's been down for -- I know there's some currency, too -- but it's been down for a couple years in a row. Do you have any visibility in that? Or what are you assuming in 2017 -- if your overall expectation is high-single-digit organic growth for the Company, are you assuming HIV will grow?

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [7]

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We are. Remember, we talked about having developed a screening product and we believe -- so traditionally we've really only done the confirm -- we've only been the confirmer. We basically do all the confirming, give or take, in Africa. I think Uganda is the only significant HIV purchasing country that doesn't use us as a confirmer.

So for over a decade, with minor fluctuations and changes, we've held that position. But we've stood away from the screening market, and that's something that's changed. We developed an excellent screening product based on an entirely different recombinant, and we're about to enter that market. And I think it's really on the back of that development that we believe that we can strongly grow our revenues here.

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Larry Solow, CJS Securities - Analyst [8]

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So you actually believe you'll be in -- you expect some sales in the screening market, even in 2017?

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [9]

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It will be very much towards the end of the year, where we're awaiting a WHO approval. But as soon as that comes through, I think we'll -- revenues which should immediately start.

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Larry Solow, CJS Securities - Analyst [10]

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Okay. And then just last question on gross margin. Took a nice hit this quarter. Can you just -- is it -- was it the biggest factor there the mix? Currency? Overhead absorption, or lack thereof? And what's the outlook going forward?

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Kevin Tansley, Trinity Biotech plc - CFO [11]

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Yes, there were a few factors in there. I won't describe it as a perfect storm, but there's a number of things just did come together and contributed to us there. There's no one that's a particularly dominant of those factors; it's just the fact that the confluence of them all together I would expect to rebound going forward. I don't think this is a reset of our gross margin to 40%, as such. So I expect us to get back to more normal levels, the ones you would've seen during 2016, starting out in quarter one of 2017 hopefully.

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Larry Solow, CJS Securities - Analyst [12]

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Got it. Okay, great. Thank you.

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Operator [13]

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Jim Sidoti, Sidoti & Co.

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Jim Sidoti, Sidoti & Company - Analyst [14]

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I got cut off for a minute, so I might ask some redundant questions. I'm sorry if I do. But can we start with the $3 million in sales of the discontinued product lines? Were those profitable sales?

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Kevin Tansley, Trinity Biotech plc - CFO [15]

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What you've got to consider in relation to those sales: they were at the end of their life, they were going to get smaller and smaller. On top of that, they would've required investment. There would have been a certain degree of profitability associated with them; but going forward, we didn't believe they would be profitable because of the investment that would have been undertaken and the fact that you were going to get down to lower and lower levels; production inefficiencies would kick in fairly quickly; and, thus, essentially make them lossmaking, going forward. So now was the appropriate time to terminate those products.

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Jim Sidoti, Sidoti & Company - Analyst [16]

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All right. And Ronan --

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [17]

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I'll give you an example. Like the MicroTrak product, we purchased it from Dade Behring in 2001, at a time when they regarded it -- the product as having being in such a rate of -- state of decline that they didn't want it. So we probably harvested that product over the last 15 years to -- it was declining -- it declined 16% last year, so it had reached really the end of its useful life. It's an ELISA Chlamydia product, and Chlamydia has long ago moved to molecular. We were kind of living off crumbs. It just comes a point when you have to cull a product like that.

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Jim Sidoti, Sidoti & Company - Analyst [18]

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I understand. All right, now, Ronan's comments at the end, saying that he expected organic revenue to be up, I think, mid-single digits in 2017. That excludes the $3 million hit that you expect to take from this product continuation, correct?

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [19]

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To explain where we're at, our revenues were $99.6 million. So I think you have to now regard our revenues as $96.6 million. And I don't have your research in front of me, but I's say, on average, say the research -- say your number was -- I'm not sure, but say it was $107 million. Was it $106 million, $107 million for the year? I suppose that you would have to be taking $3 million off that. So we'd be now looking at you were projecting $107 million. I mean you're only hearing about this for the first time, so you'd be $3 million off that. So you'd be at $104 million, $102 million or $104 million, something like that. And that's the kind of level that we anticipate we'd be comfortable with.

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Jim Sidoti, Sidoti & Company - Analyst [20]

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Got you. All right. Any update on the syphilis test in the US, the point-of-care syphilis test, how that's been doing?

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [21]

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Well, we are disappointed at the rate at which sales are developing. I think that's quite clear for a while. We are running at about $1.4 million, $1.5 million as we speak, and that's obviously a significant disappointment. We still believe that it's going to be a $5 million product within a two- to three-year period. And the reason for us believing that is because we've had to make and develop this market without CDC support and that they've been really sitting on the sidelines.

Now, they are just commencing a trial in which they're basically open to being convinced that there's usefulness to utilizing a syphilis point-of-care test; as in, basically, they remain to be convinced that using these tests will actually identify syphilis positives.

And we have absolutely no doubt that when they conduct the trial that they are about to conduct using our -- using I think $330,000 worth of our product, we believe that that trial will prove that, in fact, when you use the product that you do find positives that otherwise wouldn't be identified. And certainly some of the other trials that have been conducted by individual states in the past year have very clearly demonstrated that fact.

So we're confident that we'll get the answer that we expect and want from that trial. Hopefully that will make a significant difference. So on balance, and despite the fact that it's a hard sell, we believe that in a three-year period it could become a $5 million product with possible upside beyond that. So that's basically where we're at on it. So, disappointed, but still hopeful that we can develop that level of sales.

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Jim Sidoti, Sidoti & Company - Analyst [22]

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All right. Then can you make any comment on where you think gross margin will land in 2017, if you do come in at that $104 million revenue line?

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Kevin Tansley, Trinity Biotech plc - CFO [23]

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Difficult to be precise on that; and I suppose we don't give formal guidance on these type of things. But there will be a number of factors still at play. For example, I don't know where the currency is going to go, and what have you, but I see it returning to the types of levels that were in 2016. And then the stronger that revenues become, you could see upside above that.

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Jim Sidoti, Sidoti & Company - Analyst [24]

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And when you say 2016, you mean the first three quarters or the entire year? Because I know the fourth quarter was unusually low.

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Kevin Tansley, Trinity Biotech plc - CFO [25]

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I was referencing the year as a whole. I suppose swings about (multiple speakers) between quarters. But as I say, there's potential -- upside potential on that if the revenues do come in as strong.

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Jim Sidoti, Sidoti & Company - Analyst [26]

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All right. Now, SG&A has been running unusually high in 2016. A lot of that was Troponin development. Should we see that number come down on an absolute basis in 2017?

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Kevin Tansley, Trinity Biotech plc - CFO [27]

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No, I don't think so. I don't think you are going to see a meaningful decline. You're obviously seeing a very stark increase this quarter from $6 million up to $7.2 million. But that's because last year it was artificially low. Quarter four, at $7.2 million, was lower on average than the other three quarters, which were at $7.4 million on average, so it is a little bit lower already.

There were some costs associated with the Meritas pre-launch costs in the P&L. A number of those costs, particularly the external ones, have been eliminated. However, there are a number of individuals who are carrying out the review of the technology to remain in the income statement; also any costs which are now incurred in relation to Meritas which in the past would have been capitalized are now going through the income statement. So, there is an offset to the reduction there, so I don't think we're going to see a meaningful reduction to be honest, Jim.

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Jim Sidoti, Sidoti & Company - Analyst [28]

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All right. How about in 2018, will in any of those costs start to come off? Or do you think that will continue at those levels?

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [29]

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I think a certain amount of those will come off. At that stage, I'd be hopeful that with a couple of years of cumulative mid-single-digit or higher organic growth, that there will be a certain degree, then, of normal inflationary and volume-driven SG&A as well. So looked at in isolation, I think those residual Meritas costs would have disappeared. But other factors will be at play at that stage, given the stage development of the Company at that point.

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Jim Sidoti, Sidoti & Company - Analyst [30]

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All right. And then my last question is on share count. And I know you started to buy back some shares. You indicated you were going to buy some more back. What do you think is a reasonable share count for 2017?

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [31]

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I think it will depend on circumstances. It will depend on the price. But I think we're committed to an aggressive buyback. I think that obviously we only have a certain amount of flexibility between now and our next AGM. I think that we could buy -- what is it?

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Kevin Tansley, Trinity Biotech plc - CFO [32]

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1.4.

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [33]

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1.4 million shares. So if we wanted to buy more than that between now and June, we'd have to call an EGM, an extraordinary general meeting, and get the consent of shareholders, if they were willing to give it, to do so. And it's quite possible that we will actually do that, depending on basically where the price is, and how our purchasing goes.

But just to make this point -- and I think we say it in the press release -- that we think that the best use of our capital at this time is actually to buy back shares, and we are very committed to that; more so, indeed, than I suppose we would've been the last time we spoke, at which point we were expressing ourselves as very committed. So given the price has moved lower, we're all the more committed to that course of action.

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Kevin Tansley, Trinity Biotech plc - CFO [34]

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The other factor at play then, Jim, will be exactly when those purchases happen. So if you're looking at the year as a whole, 2017 share count, it will be a weighted average. So the earlier in the year that happens, the more of an impact those share repurchases have. If it happens a little bit later, then it's less of an impact. So just to consider that as well.

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Jim Sidoti, Sidoti & Company - Analyst [35]

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All right. But just to be clear, you ended the December quarter around 28 million shares. Is that correct?

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Kevin Tansley, Trinity Biotech plc - CFO [36]

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That's a fully diluted number, and that will be the average for the quarter as a whole. It will be a little bit less when you take the year-end number. Because the shares that would have been bought throughout quarter four wouldn't be fully reflected in that number, only the weighted element of them.

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Jim Sidoti, Sidoti & Company - Analyst [37]

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Okay (multiple speakers). For 2017, we should expect it to be somewhat below that number. Is that correct?

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Kevin Tansley, Trinity Biotech plc - CFO [38]

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Yes, based on our intention to buy back shares, you could expect it to be lower than that, and meaningfully lower than that.

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Jim Sidoti, Sidoti & Company - Analyst [39]

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Okay. All right, thank you.

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Operator [40]

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Nicholas Jansen, Raymond James.

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Nicholas Jansen, Raymond James & Associates, Inc. - Analyst [41]

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My first question revolves around the strategic alternatives process for Meritas. Where do we stand there now? And when do we expect a conclusion from that regard? Has there been any sort of activity on the M&A front as we perhaps think about disposing that asset to someone who has more resources going forward? Just any thoughts on where we stand since the last update, which was in October.

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [42]

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Nicholas, we don't have any update really on it. Our alternatives remain as they were before; basically to sell it. But I don't think we get a huge amount for it in all the circumstances. I think the experience that -- we bought this technology for $12 million, and I think we probably haven't added to its value in the context of what happened. So that's unlikely to be what we'll do.

We can basically do a joint venture with somebody else where we're both involved, or we can license it out for many applications. Or alternatively, we can continue to look to identify a useful and sensible parameter to put on it, so basically look for a winner that we could put on it.

So, those are the alternatives. We continue to explore those various alternatives. So it's ongoing, but I don't have anything to report at this time. But what I will say is that we believe it's a very valuable platform. We have, I think, just about any parameter can work successfully on it. It's possibly unfortunate that we selected probably the most difficult of all in Troponin. But this is a very useful tool in our armory as we move forward, we believe. So that's where we're at, but no update.

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Nicholas Jansen, Raymond James & Associates, Inc. - Analyst [43]

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Okay. That's helpful. And then thinking about the organic growth color that you commented on, in terms of 2017 and improvement further in 2018, it's been over two-plus years since you've been delivering that type of organic growth. I know there's a variety of factors to consider, including FX. But given the stock price where it is today, it feels like you're setting yourself up for some higher expectations than was necessary.

So just wanted to get your better thoughts on the actual bridge to that organic growth improvement. Because from where we see it, going from low single digits to high single digits isn't an easy step, given the lack of material new products starting the year. Thanks.

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [44]

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Well, what we've indicated is that we can do middle-single-digit growth in 2017, and double-digit in 2018 and thereafter. And I think given the combination of the various components of our business, we think we can do that. At the risk of boring you and just repeating myself, basically I -- the Premier diabetes business has been growing at 8%; and in the prior year, higher than that. And we believe that that could certainly do double-digit growth. We think the Autoimmunity business has been growing strongly and will deliver -- continue to deliver strong growth.

We believe, ironically, that the infectious disease business has benefited probably from the cull that we've just performed. And generally from the decline it's experienced has become -- and basically as it declines and the other segments grow, it becomes a less important component of our overall business.

But meanwhile, like the Lyme business has done well, and the Chinese component has done well. We've culled some; so we believe that we can hold that just stable now, at this stage. The Fitzgerald antibody business, we believe we basically held it stable this year. We think we can do that and continue expand it from its strong cash flows. And that really leaves HIV, which I've explained just a moment ago, I thought that we can grow it given basically the emergence of our new screening product.

So I think when you put all those factors together, I think we can grow the business. And I think it is important to recognize that over the past two years, we have faced fairly horrendous currency headwinds, and that they really need to be factored in. Not just the reconversion of balances back into dollars at a disadvantage, but also the fact that we have customers whom we invoice in local currency who simply just can't afford the product. We've had to either walk away from the business, as we did in Russia, where we've had $1.8 million translate into nothing; or, alternatively, drop our price to take market share -- or to keep our business.

So those currency headwinds -- they've been so significant; they've hurt very badly. I don't basically have a crystal ball. I'm not sure where the currency will go. But I'll just give you one simple example. Our Brazilian business, based on the dollar rate two years ago, would now be $13 million, but instead it's $6 million. So that's the extent of the impact of the movement. It's huge.

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Nicholas Jansen, Raymond James & Associates, Inc. - Analyst [45]

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Thanks for the color.

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Operator [46]

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Jack Salzman, Kings Point.

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Jack Salzman, Kings Point Partners - Analyst [47]

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Ronan, the Company has really not executed very well in the last couple of years in both of its key major product lines, with the collapse of Troponin and the more recent passes as sort of atop of all these problems. And as the Company has not been able to achieve a lot of its forecasts, even in the smaller product lines over the last few years.

So my question is multifaceted. Number one, have you thought about changing management teams, bringing in new management to achieve a more successful focus on new product flow in a more successful rate of product introductions than in the past?

Additionally, have you changed the methodology in forecasting? You have put out forecasts; and for quite some time, the Company has always come up short in these forecasts, either substantially or in a small way, but never exceeding or meeting the general forecasts of the last few years.

And lastly, have you thought about bringing in an investment banker to reassess the Company, for the value of the Company, to achieve better enhancement of shareholder value in terms of looking at all other avenues that could benefit all shareholders?

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [48]

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Thank you, Jack, for your question. Actually, I don't think we ever met. I don't know if I -- I'm not sure where you've come from, but thank you for your question. In terms of management change, we continue to look to strengthen the management team, and we continue to do that.

In terms of forecasting, you talked about us forecasting; but, in fact, we don't forecast. We don't give guidance. And in terms of bringing in a merchant bank, no, we haven't determined to do that at this time. And I think what we are looking to do really was to put this dreadful event of the Troponin which all behind us. To put some distance in their rearview mirror to basically work hard at building the business. And I think then, with distance put between us and that Troponin event to reconsider -- to continue to consider where we go from there.

So thank you very much for that question. Are there any more questions?

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Operator [49]

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And at this time, we are not showing any additional questions.

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [50]

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All right. In that case (multiple speakers) we will close the call, then.

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Operator [51]

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I was going to turn the conference back to you for closing remarks.

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Ronan O'Caoimh, Trinity Biotech plc - Chairman and CEO [52]

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Thank you very much. So if I could just say thank you very much to everybody, and thank you for your interest and attention. And we look forward to talking to you in a number of weeks, when we will announce our quarter-one results. Good afternoon.

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Operator [53]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.