Trinity Biotech plc (TRIB) Q4 2022 Earnings Report, Transcript and Summary

Good morning and welcome to the Trinity Biotech Fourth Quarter 2022 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joe Diaz with Lytham Partners. Please go ahead.

Thank you, [indiscernible], and thanks to all of you for joining us today to review the financial results of Trinity Biotech for the fourth quarter and full-year 2022, which ended on December 31, 2022. Joining us on today’s call are Aris Kekedjian, Chief Executive Officer; and John Gillard, 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, statements made in this conference call may be deemed forward-looking statements within the meaning of federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include, but are not limited to, those set forth in the risk factor statements in the company’s annual report on Form 20-F filed with the Securities and Exchange Commission. Trinity Biotech undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrence of unanticipated events. With that, I will now turn the call over to CEO, Aris Kekedjian for opening remarks. He will be followed by CFO John Gillard for a review of the financial results. Mr. Kekedjian will then provide some additional background, after which we will open the call for your questions. Aris, the floor is yours.

Thank you, Joe. Good morning, everyone. I like to start the call discussing key revenue, commercial, and operating highlights. I will also give context to various strategic activities we have underway. John will follow with a deeper dive into our reported financials and then we'll be happy to take your questions. First, let me discuss the revenue trends. Total revenue for fiscal 2022 and Q4 2022 were 74.8 million and 18 million, respectively. Excluding our COVID focused PCR Viral Transport Media products, full-year 2022 revenues of $71.5 million were 1% lower than in 2021 and in Q4 2022 revenues were less than 0.5% lower than in Q4 of 2021. Our performance in 2022 was focused on our core flagship hemoglobins business, where our diabetes product line experienced 27% overall revenue growth and over 60% higher instrument placements versus 2021. As highlighted by the 43% growth in sales of high-margin diabetes consumables in Q4 2022 versus Q4 2021, the increased instrument placements position the company for strong recurring revenues in contracted consumables sales over the next several years. We expect to expand on the strategy with the U.S. launch of our Premier Resolution Hemoglobin Variants instrument this year as we continue to work closely with the FDA to gain clearance of our 510(k) submission. The company also continued to development its next generation flagship diabetes HbA1c instrument, the Premier 9210. With an expected launch in Q3, 2023, the instrument will feature an improved, backward compatible reagent column system that will feature up to 3x the injection capacity and stability, limited calibration, and improved user interface and lab system integration. This is the first step of a multi-generational product development plan aimed at expanding the target market, driving lower service downtime and cost, while significantly expanding operating margins. We are experiencing particularly strong demand for our diabetes products in South America and Asia Pacific, with 43% year-over-year revenue growth in South America and 36% year-over-year revenue growth in Asia-Pac. We continue to scale our commercial coverage in these markets where the increase in diabetes and propensity for hemoglobin variants is at some of its highest rates and our boronate affinity technology has a particular competitive advantage. While our HIV business was down 14% in the year, this reflected significant non-recurring bulk orders from Nigeria in 2021. Our run-rate core Uni-Gold business continues to perform steadily with 15% growth in the fourth quarter versus last year and 10% growth versus Q3, 2022. Preliminary estimates for Q1 indicate that over 30% improvement versus Q1 2022 will be expected. I would now like to discuss an important milestone for the company that was achieved this week. The company is very much focused on executing beginning in Q2 2023 on the launch and distribution of our TrinScreen HIV test. Following the announcement by the Kenyan Ministry of Health of the adoption of this new HIV rapid testing algorithm it establishes Trinity Biotech's TrinScreen HIV as a standard screening test in Kenya under World Health Organization guidelines. The Kenyan HIV screening program is one of the largest in Africa, with an estimated 7 million to 9 million screening tests annually. This announcement demonstrates Trinity’s ability to disrupt a well-established incumbents with world-class, innovative, high-quality point of care solutions. We aimed at the Kenyan algorithm as a priority as we believe it sets a key benchmark for the region. We are leveraging this milestone with significant focus in 2023 on two to three additional countries, which represent a combined expected annual test volume of over 25 million. We expect to achieve at least 20% market share of the 150 million African HIV screening market over the next three years. Now, moving on to a string of activities aimed at transforming our U.S. lab platform. With a 13% CAGR over the last three years, the company continues to see significant growth in its proprietary Sjogren’s bio-marker lab developed tests. This has been achieved despite limited to almost no commercialization activities. Plans are in development for distribution through ophthalmology, dental, and gynecological channels at scale. We’ll talk to you more about this in the coming months. In January 2023, the company announced a strategic partnership with imaware, Inc. that combines imaware’s built-to-partner digital health platform with Trinity’s advanced reference laboratory facilities. The aim is to power the Digital Health Industry with private and white-label at-home and remote testing programs. We are working closely together to make this operational execution a reality in 2023. Finally, the company intends to introduce up to a dozen new lab developed tests in 2023 targeted at the Therapeutic Drug Monitoring or TDM market. This is aimed at high-growth recurring revenue opportunities in autoimmune diseases such as IBD, Rheumatoid Arthritis, and Psoriatic Arthritis, as well as rapidly expanding biological therapeutics tackling areas such as cancer and degenerative diseases such as Alzheimer’s. Stay tuned for more discussion about this in the coming weeks. I would now like to give you context around significant portfolio formation and M&A activity that we are working on. Obviously, we can't discuss activities that are subject to confidentiality agreements are commercially sensitive or not yet far enough along to be announced. However, I can be quite direct about the company's portfolio focus going forward. We are conducting a portfolio review of all activities that do not align with a strategic focus around three key priorities. Specifically diabetes and hemoglobins; point of care and digital health disruption; and personalized therapeutic drug monitoring. The intention over the coming months is to simplify the portfolio around these three areas where the TAMs are enormous, the risk return profiles are asymmetrically in our favor where we have competitive advantage and where our shareholders are clear on Trinity Biotech's investment thesis. Management intends to exit or optimize for cash its portfolio of non-core products and platforms in order to maximize shareholder value and [concentrate] [ph] leadership's focus on where that value lies. Given the strong pipeline of attractive M&A opportunities in our areas of strategic focus, in February we secured a $20 million flexible term-facility specifically to provide the ability to move quickly when opportunistic transactions arise. This is a very opportune time to gain significant innovative product pipeline at fractions of where they were valued only a few months ago. Our portfolio optimization efforts and opportunistic M&A are key to our efforts to optimize our capital structure and reduce our debt costs in 2023. Now, I'd like to take a moment to discuss some structural and operational initiatives we have underway. Cost optimization and pricing actions have resulted in a Q4 operating gross margin run rate of over 40%, excluding one-time inventory adjustments. This reflects over 5 points of improvement over the same quarter in 2021 and over Q3 2022. The company has reduced headcount by approximately 10% to Q4 2021 as we continue to focus on process simplification and automation. Our increased IT spend in the fourth quarter also reflects significant investments underway in CRM, ERP, and regulatory automation to drive speed and further efficiencies. Our emphasis on supply chain optimization is currently in our hemoglobins division focused at reducing the cost of the premier 9210 diabetes from by approximately 15% in conjunction with our multi-generation product development plan. Significant margin accretive actions for Q2 2023 are the insourcing of key hemoglobin’s manufacturing processes and rapid transformation of our global logistics operations. One of my priorities over the last quarter has been restructuring and revitalization of our commercial sales organization on a global basis. We eliminated an effective leadership overhead, rebuilt commission plans, and continue to refresh our global distribution channels. I am personally managing this effort. Finally, I'd like to take a moment to emphasize our focus on the most important element of our transformation strategy, [namely] [ph] Talent. A highly motivated, shareholder aligned leadership team is at the core of the company’s strategy. We are in the process of rolling out a revised employee share-based compensation program aimed at driving significant shareholder value. The plan follows the same structure as the CEO of share-based compensation plan whereby 60% of options are stock performance based and only pay-out when the stock reaches trading milestones at $3, $4, and $5 per ADS. This structure is designed to be fully aligned with shareholder interest to create exponential shareholder value. As you can tell from the structure of our performance options, moderate stock price improvements to $2 or $3 ADS is not where our interest lies. I think it's important to point out that we are on a multi-year transformation of Trinity Biotech. Our performance option is best over a three-year period and as of the timeframe the entire management is committed to. When I took this role, I underwrote the minimum value for which three years was worth my time. That value is $10 higher than what we are now. At 5 million options, you can do the math. I'll now turn things over to John and come back to answer any questions. Thank you.

Thank you, Aris. Good morning, everyone. Now, I will take you through the results for Q4 2022. As Aris has already discussed revenue trends, I will move on to disclose other aspects of the income statement. In Q4 2022, gross profit was $6.2 million, [getting a] [ph] gross margin of 34.6%. In Q4 2021, gross profit amounted to $7.2 million and the gross margin of 37.1%. The reduction in gross margin is largely due to sales mix changes, lower production activity, and inflationary increases in the price of raw materials. We have started to see the benefit of price increases and cost optimizations implemented in mid-to-late 2022 now starting to be realized, as seen by the fact of the Q4 2022 margin of 34.6% is higher than the adjusted Q3 2022 margin of 34.4% when excluding the significant excess and obsolescence charges related to inventory of $4.7 million reported in Q3. As Iris mentioned in Q4 2022, we saw run rate gross margins, excluding quarter and year-end inventory adjustments of approximately 40%. Other operating income decreased from $0.7 million in Q4 2021 to $0.3 million in Q4 2022. This quarter, other operating income comprises of government grants in relation to R&D activities. In Q4 2021, we recorded $0.7 million of other operating income related to the Paycheck Protection Program loan which was forgiven in that quarter. R&D expenses increased from $0.9 million in Q4 2021 to $1.2 million when compared to Q4 2022. This is because various early-stage development activities did not meet the criteria under IFRS for capitalization as an intangible asset. SG&A expenses have increased significantly this quarter. In Q4 2021, SG&A expenses were 5.6 million and this has increased to $10.2 million this quarter. There are a few significant contributions to this increase. Firstly, our share option increase expense has increased by 1.2 million, compared to Q4 2021. This charge is a notional accounting charge calculated under a Black-Scholes financial model. As previously set out by Aris, one of his key priorities is to build a performance culture and drive ownership and accountability in the company. A share-based compensation model that ensures shareholder alignment is regarded as core to this transformation and we are currently ruling this out. As this point in time, it is intended that these share-based compensation awards will be structured in a manner similar to that of the options granted to our CEO, with a significant proportion of any awards being performance-based awards that only become exercisable if the company’s ADS price reaches a hurdle level. These performance share-based compensation awards are intended to closely align the goals of our team with those of our shareholders in the creation of shareholder value. The majority of the options granted in Q4, 2022 are performance share options and are structured such that they are exercisable only if the company's ADS price increases to certain levels such as $3, $4, and $5 per ADS during the life of the option. None of these performance share options are currently exercisable. Also this quarter, there was an unfavorable quarter-on-quarter variance of $900,000 related to foreign exchange loss and euro denominated lease liabilities right of use assets. We are required under accounting rules to [mark-to-market] [ph] these lease liabilities at the period end FX rates. In Q4 2021, this resulted in a foreign exchange gain on leases of $0.2 million, but in Q4 2022 it was a foreign exchange loss of $0.7 million. We have also incurred higher legal and professional fees of approximately $1 million, mainly comprising non-recurring costs for due diligence, corporate development, and corporate finance activities. Included in this cost are professional fees in relation to several M&A opportunities, of which only the strategic partnership with imaware has been completed to date. Excluding the [non-IFRS] [ph] accounting charges around share based compensation, I do not believe that these types of charges have become inherent in our cost base and thus I don't expect them to continue into the medium-term future. In addition, in SG&A expenses we have seen increase in travel costs in Q4 2022, compared to Q4 2021 of approximately $300,000. With the lifting of COVID-related travel restrictions, we have tasked our sales and marketing teams to increase travel to customers and trade shows as we continue to revitalize our sales activities. Similarly, some key functional leaders based in Ireland have resumed visits to our overseas facilities as we seek to drive operational efficiencies. Management believes this is a worthwhile and important investment, but we do not expect the level of travel to stay at this level going forward. We have recognized an impairment charge of $3 million in Q4 2022, compared to an impairment charge of $900,000 in Q4 2021. At December 31, 2022, two internally developed COVID-19 tests, one on a rapid lateral flow format and one an ELISA format, which had carrying values of $2.2 million and $0.1 million, respectively, within intangible assets, were reviewed for impairment under IFRS. The rapid COVID-19 test is approved for professional use in the EU and we believe it is a very high quality test. However, as previously disclosed by the company, the demand for our COVID-19 portfolio of products is highly uncertain and very difficult to predict and in our experience the market has moved to over the counter rapid COVID-19 tests, for which this product is not yet approved. As such the company’s efforts to commercialize this test have been unsuccessful. In addition, pricing for rapid COVID-19 tests in the EU is relatively weak, with stronger pricing available in, for example, the U.S. market, for which this product is not yet approved. Given the market outlook for rapid COVID-19 testing products and continued uncertainty regarding regulatory approval pathways in key markets, including the U.S., management has chosen to not immediately pursue further regulatory approvals, but does intend to monitor these markets and regulatory pathways with a view to potentially seeking additional regulatory approvals. However, as the company has no imminent plans to pursue these regulatory approvals, under IFRS accounting rules these intangible assets were written down to zero in Q4, 2022. The impairment test at December 31, 2022 also identified an impairment loss of [$700,000] [ph] [Technical Difficulty] Clark Laboratories and Trinity Biotech Do Brazil. There were a number of factors taken into account in the impairment test, including the company’s share price at the date of the test, the cost of capital, and future projected cash flows from individual cash-generating units in the business. Operating loss for the quarter was $7.8 million, which represents a decrease in profitability of $8.4 million, compared to Q4 2021 and was attributable to a lower gross profit, lower other operating income, and higher indirect costs. Financial income for Q4 2022 was $0.1 million, compared to $10,000 for Q4 2021. In Q4 2022, financial income mainly related to the fair value adjustment for the derivative liability related to warrants granted to the Group’s principal lender. Financial expenses in Q4 2022 were $2.4 million, compared to $3 million in Q4 2021, a decrease of $600,000. The interest expense related to the senior secured term loan and the 7-year convertible note were $1.9 million and $0.3 million, respectively in Q4 2022. These amounts consist of both cash interest and non-cash accretion interest. As both of these borrowings were new in 2022, there was no interest expense recorded in the comparative period’s results in respect of these facilities. In Q4 2021 the cash and non-cash interest expense for the exchangeable notes was $1.2 million, which was reduced to almost zero in Q4 2022, due to the debt re-financing earlier in the year. In Q4 2021, loan origination costs of $1.6 million were incurred, comprising loan commitment and professional fees. These costs were expensed in the income statement in Q4 2021, as the loan was subject to shareholder approval and that approval was not received until post the balance sheet date. The remainder of the financial expense in Q4 2022 and Q4 2021 consists of notional interest on lease liabilities for right-of-use assets, which has remained broadly stable at $160,000. I propose to just talk briefly about our full-year numbers for the fiscal year 2022. Starting with revenues, as mentioned by Aris, total revenues for 2022 were $74.8 million, compared to $93 million in 2021. Gross margin for the year was 29.5%, compared to 41% for 2021. The reduction in margin was mainly due to three factors: one, a $4.7 million inventory write-down; two, a large reduction of VTM product sales. These products had a higher than average margin in 2021; and three, rising input prices exceeding the price increases we passed on to our customers. Indirect costs have increased by 3 million year-on-year. The major movements here [Technical Difficulty] and lastly, our professional fees mainly associated with our M&A and corporate development activities. Financial expenses were higher by 17.6 million, three quarters of this increase comprised two non-recurring expenses. One, the last disposal of the exchangeable notes; and two, the penalty for early settlement of part of our term-loan. I will now move on to address some of the main balance sheet movements we have seen since quarter three, 2022. Intangible assets decreased by $1.9 million. This is made up of additions of [$600,000] [ph], which mainly comprises capitalized R&D expenditure, partially offset by amortization of $200,000, and the impairment charges for the two development projects of 2.3 million. As noted last quarter, the amount the company is spending on capital R&D expenditure has been trending downwards. And this is because several of the main projects we've been working on have reached the final phase of their development and then the final phase, fewer resources are typically required. In addition, some of our more recent R&D projects are at a feasibility [are] [ph] very early stage and thus don't meet the requirements for capitalization under IFRS. Inventories decreased by 1.1 million, equating to approximately a 4% reduction. This is an area we are targeting and we have an ongoing project aimed at optimizing our inventory levels going forward. As part of our focus on improving the overall effectiveness and efficiency under [supply chain] [ph]. Accounts receivable balances on the other hand have decreased by 1.5 million and this is mainly a function of the lower sales this quarter. Finally, I will discuss our cash flow for the quarter. Our cash balance increased by $700,000 to 6.6 million in Q4 2022. Cash generated from operations for the quarter was [2.3 million] [ph]. Capital expenditure outflows comprising [PP and R&D] [ph] were 1.1 million, a reduction of [1.3] [ph] compared to the comparative period. Interest payments in the quarter were 1.2 million. As set out in today's press release, I can assure you that as the group CFO and a member of the senior management team, we are acutely aware of the relatively high cost of the company's borrowing. While the financial markets are clearly in a difficult place, I believe we have a number of potential options to successfully deal with our debt costs, while at the same time releasing capital and management time to focus on high growth areas where Trinity can become a globally significant player. As mentioned by Aris, we are actively examining the potential disposal of parts of our portfolio of businesses that are non-core to our future vision and strategy, where valuations may be attractive, while also examining a number of alternative financing options. It is an absolutely key area of focus for us. I will now hand you back to Joe. Thank you everyone.

I'll take it. It’s Aris. I think we can open it up for questions.

[Operator Instructions] Our first question is from Jim Sidoti with Sidoti & Company. Please go ahead. Mr. Sidoti, your line is open on our end. Perhaps it's muted on yours.

Sorry about that. Hi, good afternoon. Thanks for taking the question. I'd like to start-off with the HIV business. How quickly do you think you'll start shipping products to Kenya?

I think we'll start shipping in the second quarter. That's the intention. And the idea – we're looking somewhere in the range of about 4 million or 4.5 million tests for the year in Kenya. Maybe more depending on production ramp up.

Can you disclose an ASP for the test?

I'm sorry, what was that?

The pricing per test.

John, are we okay to discuss it?

As we've previously indicated, Jim, it's around – in and around $0.80 and it's consistent with that.

Okay. And that's just to Kenya. Does getting Kenya on board help you with the other two or three countries in the region?

That was the entire strategy from the beginning. So, Kenya is upwards of 9 million tests a year on a run rate basis. So, we think that's our target to work toward over the next 12 months to 18 months in Kenya. We also think that the standard we just set in Kenya helps establish the momentum around the next 2 to 3 markets that I highlighted earlier and we're talking about over 25 million tests in those markets. And I expect this to get at least 20% market share in this space over the next 2 years to 3 years.

And what has to [Multiple Speakers]

Sorry, Jim. Just to make the point, Kenya would be regarded as a leader in terms of HIV care on the continent and we believe will be at significant influential status in terms of proving out the quality of the product. And so, I have secured that as the first country, it's obviously a large market, but it also we think will have significant persuasive value in terms of opening up other markets to [indiscernible].

And do you think the other countries will then pause for 6 months or 8 months to see how things roll-out in Kenya before they make early decisions?

Look, I think some may, but the reality is, they typically – I mean, there's a full report you can look at that the Kenyan authorities have put out. They did extensive studies. We did field tests. There's a lot of work that's been done over the last 6 or 7 months. All that information now is in the hands of all the other authorities to work off and get a head start on. So that's how I would think about at this point. Is it possible some will wait to see how it rolls out or potentially, but like I said, we expect to start shipping in April. So, I think that'll make – that will get us going relatively quickly.

Okay. And then on the hemoglobin business, with the hemoglobin variant and the HbA1c systems, where do you expect initial sales to happen? Is that in Asia and South America or will those be in the U.S.?

Which sales are you talking about? Are you talking about the hemoglobin variant product? [Multiple Speakers]

Both.

Well, so the 9210 product is our workhorse product, okay. We sell it all over the world including the United States. We sell direct in the U.S. and we sell direct in Brazil. That product is going through 18 months to 24 months product upgrade strategy. We expect to be working on new releases more than one over the next couple of years around that flagship product that will significantly improve it. I think that will make it attractive, not just in the existing high growth markets in South America and Asia, but I think it puts us in a position to get growth at a level I'd be happier with in the U.S. And in some of the more traditional markets outside the U.S., potentially in Europe. I think the more important question in the U.S., at least in the short run, is the timing of getting our premier resolution variant instrument basically cleared by the FDA and into the market. We're working very closely on that and I think that one is a key move for us in the U.S.

Right. And when you think about acquisitions, is it for the hemoglobin business or one of the other two businesses that you have identified?

So, I think of it this way, okay. There are three trends we care about and that we have some game in real game. Diabetes and hemoglobins point of care and decentralized testing. And what we see more and more in terms of monitoring around a lot of the therapeutics that are being introduced in all the conditions, new kind of chronic conditions that we're dealing with. And our [indiscernible] a bit of an edge in that area, okay. My focus is, any M&A has to fall in those categories or an intersection of those categories. You can think about what that might mean, but diabetes is the largest decentralized testing market on the planet. So, there's a lot of activity up in that area. It's an area we know, it's an area we understand. So, I would expect our next couple of moves will be likely in the area of diabetes and decentralized care, point of care, testing.

Okay. And then on the other side of that, when you're thinking about the divestitures and some of the non-core assets, can you break-out for the Fitzgerald business what those sales were in 2022?

John, you have the Fitz number?

About 12 million, Jim.

Okay. All right. Good. And then a last one for me. With the recent option grants and warrant repricing, what do you expect the share count to be for 2023?

[Indiscernible] point, the options typically have a 3-year life [indiscernible], 2 to 3 year life. So, I wouldn't expect – I don't expect significant option exercises over the [next one] [ph]. To be honest with you, and then you've got the hurdle rates on top of that as well. So, I don't expect significant on that. In terms of the warrants, that's up to perceptive as to what they want to do with those, but outside of that, it's dependent whether we raise equity. And so, there’s obviously a number of moving pieces within that, Jim?

Okay. I guess, I did have one more. So, absent any acquisitions, assuming you get the increase in revenue from the hemoglobin and in the HIV businesses. And considering all the expense cutting you've had, do you expect to be free cash flow positive in 2023?

I think as we get towards the end of the year, I'd be hopeful we will, it will depend on how quickly we can roll out print screens. It depends on how quickly we can get the resolution in the market in the U.S. So, one of the things that our market has been [Technical Difficulty] the number moving parts, but I think as we move towards the year-end, we’re on top of just being operationally cash flow positive. We're very focused on the cost of our [debt] [ph] and the cash outflows associated with those interest costs as well.

Got it. Alright. Thank you.

[Operator Instructions] The next question is from Paul Nouri with Noble Equity. Please go ahead.

Hey, good morning. O thought that the inventory came down a bit in the quarter, but still seems elevated. Can you talk about if you're expecting that to continue to come down and hopefully there's nothing in there that will warrant future write-offs?

Hi, Paul, [let me] [ph] take that. So, yes, we do intend to continue to, kind of whittle down that [indiscernible]. And we hired a very senior supply chain professional in 2022 and he's doing a lot of work in terms of optimizing our overall supply chain, okay? It's a balancing act for us, okay? So, for example, on one side, we want to reduce that [Technical Difficulty] inventory, but at the same time, given everything we've seen over the last 2 years to 3 years, in terms of supply chain challenges, we need to make sure that we've got enough protective product on hand, particularly around raw materials. In terms of other areas for write-offs, to you give you some sense, in total, we're carrying forward related inventory now probably about $1 million okay, in terms of carrying value. We sold about $0.5 million of COVID-related products in quarter four. I expect we'll do something similar in quarter one this year, right. So, in that sense, we're not holding big, big inventory values from a net basis in terms of products that are highly uncertain. And then our other inventory is concentrated in our ongoing main product areas. So, for example, associated with HIV, we obviously have the ramp up now production at TrinScreen and that's going to add some headcount production as well here in Ireland, but we'll need to increase our inventories. So, I think overall the picture might stay the same, but I think, we’ll effectively be trying to hold lower amount of inventories for every dollar revenue that we have going out the door. That makes sense for.

Yes. And then in terms of the income statement, two questions. I think you mentioned hitting 40% gross margin adjusted this quarter, wondering if you expect to continue that in 2023 and then operating expenses as a whole, do you think that as you get revenue from TrinScreen and hopefully the diabetes business continues to perform well in the lab in the U.S.? Do you think you'll be able to leverage off those expenses or are you building more of an infrastructure to support the growth?

I think on the expense side, let me just say one thing. We're making investments. We're putting a lot of money in the IT right now because we think that's going to drive significant efficiency. I think the portfolio rationalization will address a significant amount of carrying costs associated with managing legacy products. And we can address that. And then revenue quite frankly is the key here. There's a baseline amount of infrastructure you need for regulated entity. And getting a ramp up for example in TrinScreen will drive significant operating efficiency in and of itself. So look, revenue is one piece of it, but there's no doubt we're putting significant investment in the IT infrastructure in the companies so that we can make it much more efficient and it's easier to scale as we do M&A. [Multiple Speakers] Go ahead, John.

Yes. Paul, no, I would be hopeful that we will continue to see that type of margin come through. As I mentioned, we made some price increases second half of 2022, sometimes take some time for those to roll-through. We have some other price increases. We expect to push through now in quarter two of this year and that we are significantly focusing on reducing down our costs, right. So, between the two of those activities, I do expect that we would be able to maintain margins in around that 40% level. Some will depend on product mix. So, for example, as we place an increased amount of [9210 instruments] [ph], as you know, our margin on them is typically [Technical Difficulty] high margin consumer revenue as we go forward, right. So, do I think that number will be [indiscernible] 40% every quarter? Probably not, but for us, we're happy to take an element of variability, particularly around hemoglobin instruments placements as they generally deliver, which higher quality revenue both in terms of margin and predictability as we go forward. And also, look at TrinScreen, this is – it could be interesting to see what impact that has in terms of our margin as well and how big those numbers get. Some unknowns within that, but we're certainly much happier with the trends we're seeing now in terms of margin given the hard work and the actions that people have taken over the last 6 months.

Okay. And then last question is around the strategic investment for imaware. Maybe, a, if you could give us the size of the overall money raise that they did? And then b, what their particular competitive advantage is in this space? And I'm kind of assuming that they're using your lab as the exclusive lab, but maybe you could get into that a little.

No, it's not complicated at some level, right? I mean, the reason we partner with them and we have an exclusive arrangement as we build out our lab will be the exclusive provider for the programs that they're working on. Their entire strategy is still B2B2C, private label. White label solutions for digital health providers, telehealth providers and players like that, okay. This is not a direct go-to-market play. They do have a website, but that's more of a focus group operation than anything else. So, we like that model. We think that model can scale. We already do a little bit of work with them. We're working quite closely with them to scale up [celiac test] [ph] that has potential and then to ramp up across a broad spectrum of tests. Now, the pace of that is going to be – we'll see what that pace is. We're going to be careful and prudent as we roll this thing out. We're not going to be dilutional about the complexities of getting into these types of programs. We've got key marquee accounts. We're working with them on. I think it's much more important that we have milestones with some of these marquee accounts, and execute properly on those and demonstrate that this model can work. So, I think you'll see us ramp up the celiac test this year and roll into some of the other tests next year.

Okay. I appreciate the detail.

Well, in terms of money raised, they're a private company so we're not at liberty to say that. All I'd say is, our 1.5 investment is relatively minority, right. They [indiscernible] significantly more than that.

Okay. All right. Thank you.

[Operator Instructions] Showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Aris Kekedjian for any closing remarks.

Thank you. John and I appreciate the time you all took today to spend with us and to get an update on our journey. I feel very confident in terms of the progress we're making and the focus of the organization. I think the first phase is well underway, but we have a lot of execution in front of us. We're not delusional. This takes time. But we have a clear three-year plan and that's where we're executing against. Thank you for your time and we hope to speak to you again in the next couple of months' time. Thank you.

Thank you everybody.

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