Precipio Diagnostics Q4 2025 Earnings Call - Cash-Flow Positive; Pathology Fuels Growth as Products Reset

Unknown, Conference Moderator/Operator, Conference Services Provider: Welcome to the Precipio Q4 2025 and year-end shareholder update conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note that the conference is being recorded. Statements made during this call contain forward-looking statements about our business. You should not place undue reliance on forward-looking statements as these statements are based upon our current expectations, forecasts, and assumptions and are subject to significant risks and uncertainties. These statements may be identified by words such as may, will, should, could, expect, intend, plan, anticipate, believe, estimate, predict, potential, forecast, continue, or the negative of these terms, or other words or terms of similar meaning.

Risks and uncertainties that could cause our actual results to differ materially from those set forth in any forward-looking statements include, but are not limited to, the matters listed under risk factors in our annual report on Form 10-K for the year ended December 31, 2025, which is on file with the Securities and Exchange Commission, as well as other risks detailed in our subsequent filings with the Securities and Exchange Commission. These reports are available at www.sec.gov. Statements and information, including forward-looking statements, speak only to the date they are provided, unless an earlier date is indicated, and we do not undertake any obligation to publicly update any statements or information, including forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Now, let me hand the call over to Ilan Danieli, Precipio CEO. Please go ahead.

Ilan Danieli, Chief Executive Officer (CEO), Precipio Diagnostics: Good afternoon, and thank you for joining our 2025 fourth quarter and year-end shareholder call. I’d like to thank everyone who submitted questions ahead of time. We will do our best to address them during the call. Before we begin our financial review, and for those of our shareholders that are relatively new to Precipio, I’d like to take a moment to reflect on the impact our work has on patients every day. Behind every diagnostic test we run is a patient waiting for answers, often during one of the most difficult moments of their lives. Our test helps physicians determine the most appropriate treatment options for their patients battling cancer, and those answers must be provided quickly and accurately. While today’s discussion will focus primarily on financial performance and operational progress, it’s important to remember that these results ultimately represent something that is beyond dollars and cents.

It represents our contribution to helping patients with it, and their families navigate their battle against cancer. Now, let’s turn to a review of our performance in 2025. 2025 was a year of financial and strategic inflection. At the beginning of last year, we set out to achieve an important objective for Precipio, transition from a cash using company to a self-sustaining business with positive cash flow. I’m pleased to report that in 2025 we achieved that inflection point. During the year, we also achieved several other important milestones, continued revenue growth, improved gross margin and operational leverage, the exercise of all remaining financial warrants, removing any related overhang, and the completion of the repayment of Change Healthcare loan, allowing the company to move towards a clean balance sheet.

For many years, like most emerging diagnostic companies, we had to manage the business with the constant constraint of conserving capital and extending our runway. That discipline shaped our company into the highly efficient organization that we are today. It also meant that many decisions had to be made with short-term capital preservation in mind. Today, we enter a new phase of the company’s development. The discipline remains, but we are now increasingly able to deploy resources towards growth initiatives and long-term value creation. The company’s moving from focusing primarily on stabilization to one increasingly centered on growth and execution. During the call, we’ll highlight several examples of that shift. Now, let me turn to our financial results for the year. For fiscal year 2025, Precipio delivered $24 million in revenue, representing a 30% increase year-over-year compared to 2024.

This level of growth reflects the continued expansion, primarily in our Pathology Services division, as well as strengthening demand for our specialized cancer diagnostic services and molecular testing technologies. Equally important, this growth demonstrates the operational leverage embedded in our business model. A large portion of our cost structure, including laboratory infrastructure, scientific personnel, and operational systems, is already in place as a fixed cost. As a result, incremental revenue can be absorbed efficiently without requiring proportional increases in operation costs. Therefore, more dollars can go directly to the bottom line. In other words, revenue growth increasingly translates into improved margins and stronger cash flow. This operational leverage has been a key driver of the improvement in our financial performance throughout the year.

While I’m pleased with the progress we made in 2025, I wanna emphasize that we believe we are still in the early stages of realizing the full financial potential of this model. Let’s begin with our Pathology Services division, which continues to serve as the operational and financial backbone of the company. Throughout the year, we experienced strong organic growth in this division, driven by both acquisition of new customers and increased testing volume from existing customers. One of the most encouraging aspects of this growth is that it has been achieved without requiring significant additional capital expenditures or laboratory staffing increases. Our laboratory infrastructure remains well below its maximum capacity, meaning that incremental case volume flows efficiently through the system and contributes directly to the improved margins and cash generation.

Beyond revenue generation, the Pathology Division also provides a unique strategic advantage for Precipio as it relates to our Products Division. Because we operate a full clinical laboratory, we have direct access to incoming patient samples and a real-world testing environment. This allows us to develop, validate, and refine diagnostic products rapidly and efficiently before we introduce them to the market. Few diagnostic companies possess this dual capability of operating both a clinical laboratory and a product development platform under the same roof, and we believe this integrated model provides Precipio with a meaningful competitive advantage. Looking ahead, our objective for the division remains straightforward: continue growing organically while allowing it to serve as a stable, cash-generating foundation for the company. Now, let’s turn to the Products Division, which we believe represents the company’s greatest long-term opportunity.

First of all, it’s important to acknowledge that the Products Division revenues did not grow as expected this year. There are a few reasons for this, and on this call, I’d like to talk about two main causes. First, we experienced several customer operational fluctuations. While we did add new customers during the year, we also had pauses from several other customers due to their internal factors, ranging from machine downtime to lab tech maternity leave. This caused temporary loss of revenues and subsequent fluctuations, which essentially canceled out some of the growth from new customers. The good news is we learned from all these situations, and we implemented additional business continuity measures that are intended to reduce these fluctuations in the future.

For example, as part of our process, when we now onboard a new customer, we may establish at the customer’s selection our lab as a backup testing facility to be used if the customer experiences a temporary operational interruption. If activated, our clinical laboratory is then used as the customer’s send out lab. This means that if they are down for any reason, the samples get sent to our lab in accordance with the customer’s instructions, which helps support continuity of patient testing during those service interruptions. This provides continuous, consistent service to their clinicians, something that’s always important to any laboratory, and it provides continuity of revenues to us. The second reason for the lack of substantial growth was the limited commercial team we had in place. We had one senior executive spending part of their time on product sales, plus another junior sales person.

This team proved to be insufficient for the growth we were targeting. At the start of 2024, that’s all we could afford. That’s an example of the company playing defense. With the shift towards our cash position came a change in the form of now playing offense. Towards the end of 2025, as we saw our business swing to profitability, we focused on strengthening the Products commercial team. In January 2026, we hired an industry veteran, experienced Chief Commercial Officer, plus two seasoned experienced business development officer professionals full-time. We went from barely one person working on the commercial growth of the Products Division to three dedicated, full-time, and experienced team member. This team will focus on both direct sales as well as developing the relationships we need with our distributors to get into tougher to access customers.

I’m confident that with this team, we’ll be making a lot of progress. Having said that, during 2025, we saw encouraging progress in this division. Product revenues were impacted by several factors, including the lapse and subsequent return of several customers to full operational volume, the acquisition of new customers, and organic growth from existing customers expanding their test menu by adopting additional HemeScreen and BloodHound panels. We expect to see the impact of all those factors during 2026. One important characteristic that our platform continues to demonstrate is the following. Once laboratories adopt our technology, they tend not only to stay with it, but also expand their usage over time. We also continue strengthening our distributor partnerships, which represent an important pillar of our long-term growth strategy.

Distribution relationships will eventually allow us to reach a significantly larger number of laboratories than we could through direct sales alone, providing more scalable pathway for expanding the adoption of our technology. As many of you know, onboarding a new laboratory customer in the diagnostic industry involves several steps, including validation studies, workflow integration, IT, and regulatory review. These processes can occasionally delay the start of revenue. However, we continue to see a growing pipeline of laboratories progressing through the onboarding process, each representing potentially substantial recurring revenue as they move into full clinical expansion. Now, turning briefly to margins.

Overall gross margin improved year over year from 41% in 2024 to 45% in 2025, primarily driven by higher case volumes in our Pathology Services division, a more favorable case mix towards higher-margin tests, and continued improvement of operational efficiency. In the Products Division, margins were temporarily, in fact, impacted by strategic investments made during the year, including expansion into a larger facility and additional manufacturing in Q3, resulting in gross margins of 30%. However, in Q4, we saw a leap to 90% gross margins for our product. Now, I know this is a surprising number, especially leaping from 30% in the previous quarter. Let me take a moment to explain this operationally.

First of all, as a reminder, historically, we were consistently at around 40%-50% gross margins, and in Q3 we dropped to 30% because of the additional expenses that were burdened into the manufacturing costs. I’d like to treat 50%, the 50% margin number, as our baseline given our current production volume. Here’s why Q4 margins jumped to 90%. As part of our production planning in Q4 2025 and looking to Q1 2026, we anticipated two disruptions to our production schedule. The first was downtime due to year-end holidays and staff taking time off. The second was equipment maintenance expected in Q1 of 2026, where our production machines would be down for approximately 2-4 weeks.

Therefore, in order to ensure we had adequate inventory for our customers, in addition to the scheduled production runs to fulfill orders in Q4, we produced significantly more inventory to cover expected Q1 2026 demand. Keep in mind, when we produce these products, they are intended for sale to our product customers as well as consumed in our own clinical lab. As a result of this larger, more concentrated production run, we inadvertently achieved a much higher margin of 90%. While this was unusually high due to manufacturing circumstances, this is an illustration of the scalability of our products manufacturing capabilities and the impact to margin we can expect to achieve in the Products Division as we scale up. As volumes grow, we expect the division to demonstrate the strong margin profile typical of successful diagnostic product companies. Beyond Financial Performance, 2025 included several important operational and commercial achievements.

I’d like to share a few of them with you. We continued the expansion of the HemeScreen and BloodHound molecular platform. We published an exciting joint academic study with one of the leading cancer centers in the country, Memorial Sloan Kettering Cancer Center in New York, demonstrating the novel clinical value of our BloodHound BCR-ABL product. We presented a poster at the AMP Annual Meeting & Expo, Association for Molecular Pathology, in collaboration with Wayne State University, showcasing the clinical value of our HemeScreen Cytopenia panel. We made improvements in customer onboarding processes, we expanded our manufacturing capacity, and we strengthened the company’s financial position through debt repayment. We believe that each of these milestones contributes to building a more scalable and durable business. Moving now to market interaction. In 2025, we also began to interact more with the public markets.

In 2024 and before, we remained relatively silent and didn’t really engage with investors. If an investor reached out to us requesting a call with management, we typically politely declined and responded that management is not currently speaking directly with investors. As our story developed and our performance improved, in 2025, we began responding to those inquiries and engaging with investors, both in one-on-one meetings as well as in various public forums and conferences. During 2025, we had more than 50 unique interactions with investors, family offices, institutional funds, and analysts. I believe that while the 300% share price appreciation we saw in 2025 was primarily due to the company’s business and financial performance, it’s also due to the increased engagement with investors. We plan to continue to engage with the market this year. Looking ahead to 2026, our focus is on growing the products business.

With our new dedicated and experienced product sales team, as well as process improvements we’ve implemented, we will focus on accelerating the adoption of our HemeScreen and BloodHound products, converting our pipeline of laboratories into active revenue-generating customers, and expanding the number of institutions utilizing our platform. We expect to see continued growth in the Pathology Services side of the business as well, further generating cash that will be reinvested primarily into the Products business growth. One example of an opportunity for us is an AML or Acute Myeloid Leukemia testing, particularly where most hospital laboratories currently rely on external reference testing and where turnaround time of testing results can have a direct critical impact on patient lives. Today, most hospital laboratories across the country do not perform AML testing internally and instead send the patient samples to external reference laboratories.

For AML testing, these reference labs typically deliver results to the clinician in 7-10 days, and this is despite the AML guidelines requiring results delivered within 5 days. With several targeted therapies tied to specific mutations tested, receiving immediate results is a critical life and death decision. The problem is there is a severe mismatch between the clinical situation facing the doctors and their patients and the diagnostic options available in to meet most of these situations. Therefore, we see an unmet need for testing workflows that can better support timely clinician’s decision-making. By using the combined strengths of our Pathology Services division and our BloodHound AML assay, we will be launching a service that combines rapid molecular testing. When I say rapid, I mean next day results, followed up by a comprehensive analysis 5 days later.

We believe this service could further differentiate our platform and expand both our services opportunity as well as introduce laboratories to the products we offer. This is just one example of the superior service our technology enables us to provide. Further details will be announced as we launch this offering. We see significant opportunities to expand the share of our Products Division within an estimated $500 million addressable market annually in the U.S. As we execute on our strategy over the next 3-5 years, we expect the company’s revenue mix to move from its current approximate 90/10 weighting towards Pathology Services to a more balanced revenue mix between Pathology Services and Products Division. In summary, while there is still work ahead, we believe the foundation we’ve built is strong and the opportunities ahead of us significant.

In 2026, our focus will be on growth execution, commercial momentum, increased market share, and ensuring that our progress is communicated clearly to the market. I’d like to thank our employees, customers, partners, and shareholders for their continued support and trust. We look forward to updating you again next quarter as we continue executing on our strategy and building long-term value for our shareholders. Thank you and have a great evening.

Unknown, Conference Moderator/Operator, Conference Services Provider: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.