Cesca Therapeutics Inc. (NASDAQ:KOOL) Q2 2019 Earnings Conference Call - Final Transcript

Aug 13, 2019 • 04:30 pm ET

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Cesca Therapeutics Inc. (NASDAQ:KOOL) Q2 2019 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Sean Lee with HC Wainwright. Please go ahead.

Analyst
Sean Lee

Good afternoon, guys. Congratulations on a great quarter, and thank you for taking my questions. My first question is on your AXP-2 devices. You mentioned that, now your largest US customers is switching to this for their new cord blood storage needs. How much of that can we -- how much of revenue can we expect from that business?

Executive
Chris Xu

Thank you for your question, Sean. So, the largest customer is CBR, who is using our AXP system for their processing. Our launch of AXP-2, which replace the existing AXP systems they had. So, from a customer base or from a volume-wise -- base speaking, we not changing how many customers were processed a year. However, the new technology will enable them do that better and more efficiently. So, it involves a a technology shift from CBR which they have to invest in the capital equipment. But in term of a disposable perspective going year by year, I think that will remain as therapeutics continues.

And so, at this point, we've had CBR convert and then some of our other smaller customers who still have many customers that are planning to convert to AXP 2-in the coming quarter to, let's say the next 12 to 18 months. And with that, we expect really that from a revenue standpoint, what you get is that they're buying the new hardware involved. So it should be a couple of $100,000 at least each quarter for the next few quarters as they upgrade to the new hardware.

Analyst
Sean Lee

I see. Thank you for the additional clarity. My second question is on the gross margins. I noticed that you guys have been exceeding 40% gross margins for two quarters in a row now. Could you give us a bit more color on the pushes and pulls on that?

Executive
Jeff Cauble

Yeah. I mean, it really comes down to kind of the areas that I talked about a little bit. I mean, number one, what makes a big difference in that is we did recently -- for 2019 negotiate some lower pricing from our contract manufacturers for disposables. So we're paying about 25% less for each product that we purchase. I mean, that's one big piece. And the other big piece is really all the cost-cutting initiatives we did last year. So we did take a lot of costs out of our overhead pool and have been able to increase sales without having to add back to those costs. So, the combination of the two has really helped drive the higher margins.

Executive
Chris Xu

This is Chris again. Just add one more sentence to Jeff's comment. Jeff is totally correct. By the cost cut, we would really reduce the overhead. But also remember that in the past 12 months, we launch up a series of new products, and those products are all having much higher margin or anticipated margin as compared