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DATE

Thursday, April 2, 2026, at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Ilan Danieli
• Operator

TAKEAWAYS

• Total Revenue -- $6.71 million, flat sequentially from Q4 and up over 30% year over year, reflecting continued top-line momentum.
• Pathology Revenue -- $6 million, rising from $5.9 million in the prior quarter and representing 36% growth from $4.4 million in the comparable period last year.
• Product Revenue -- $660,000, down $80,000 from $740,000 in Q4 due to a major customer order shifting recognition into the next quarter.
• Gross Margin -- 40%, down from 47% in Q4, attributed to reimbursement reductions, timing in product shipments, and recent commercial investments now largely completed.
• Adjusted EBITDA -- Negative $200,000, a swing from $960,000 positive in Q4, reflecting four main drivers: $125,000 in gross profit lost due to lower reimbursement rates, $250,000 increase in commercial team expenses, a $360,000 positive Q4 bonus accrual impact not repeated, and $280,000 reduction tied to lower Q1 product gross profit from shipment delays.
• CMS Reimbursement Impact -- Flow cytometry fee schedule update led to an 8% rate cut, triggering a $0.5 million revenue reduction and directly affecting net income and gross margins.
• Commercial Pipeline Expansion -- Approximately $3 million of annualized pipeline added in Q1, bringing the total to $10 million, through 10 new qualified customer opportunities and connections with 20 distributor representatives.
• Operational Cash Flow -- Positive $60,000, despite total cash flow for the period at negative $40,000, attributed to seasonal expense resets and insurance claims cycle timing.
• Laboratory Capacity -- Estimated $45 million to $50 million revenue capacity, compared to current $24 million annualized revenue, with expansion possible without significant capital or hiring outlays.

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RISKS

• CEO Danieli said, "the new 2026 CMS fee schedule was released and it included a reduction of 8% in the fee for one of our most frequently used tests, flow cytometry. Subsequently, we had to write down revenue this quarter to the tune of approximately $0.5 million creating a significant swing in net income from the prior quarter."
• CEO Danieli added, "Company gross margin for the quarter was 40% compared to 47% in Q4. As with EBITDA, we believe it's important to distinguish between structural margin pressure and temporary or investment-driven impacts. The margin compression this quarter was primarily associated with the same factors we just discussed. Revenue timing, reimbursement changes and investments in commercial capacity that are now largely in place."

SUMMARY

Precipio (PRPO 0.22%) management emphasized that recent sequential weakness in adjusted EBITDA and gross margin primarily results from temporary factors, including a one-off $0.5 million write-down driven by an 8% CMS reimbursement cut for flow cytometry tests and the deferral of a large product order into Q2. The newly established commercial team contributed to growth in the qualified sales pipeline, adding $3 million of annualized opportunity and broadening reach via new distributor partnerships, but with a $250,000 cost increase tied to team ramp-up. Despite current margin compression and EBITDA volatility, operational cash flow remained positive, and management expects commercial investments to support margin and revenue improvement in the year's second half.

• Management does not foresee the need for expanding laboratory facilities geographically, with current logistics enabling sample delivery nationwide and operational capacity estimated at more than double current throughput.
• Expansion into adjacent diagnostic segments remains a future strategic option; however, management's priority is scaling within its existing portfolio and markets to optimize recurring revenue and capital efficiency.
• Revenue predictability is viewed as likely to improve as the commercial pipeline matures and as new customers proceed through onboarding, with the conversion timing characterized as the main variable now limiting forecastability.

INDUSTRY GLOSSARY

• CPT code: Current Procedural Terminology code, a medical billing code maintained by the American Medical Association, used to identify health care services for reimbursement.
• CMS: Centers for Medicare & Medicaid Services, the U.S. federal agency administering the nation’s major healthcare programs and setting reimbursement rates for covered procedures.
• Flow cytometry: A laboratory technique for analyzing the physical and chemical characteristics of cells or particles, commonly used in blood cancer diagnostics.
• TAM: Total addressable market, the entire revenue opportunity available for a product or service within a defined market.

Full Conference Call Transcript

Ilan Danieli: Good afternoon, everyone, and thank you for joining us today for Precipio's Q1 2026 Shareholder Update Call. On today's call, we'll walk through our financial results, provide an update on our operations and commercial progress. And then for the first time and following requests from several of our shareholders, we're going to open it up for a live Q&A from the audience. At the end of my remarks, the operator is going to take over and provide instructions for those who want to ask a question. Before reviewing the quarterly financials for Q1, I'd like to take a moment to step back and discuss where we believe the company is in the execution of its strategy.

Our mission at Precipio is centered around advancing cancer diagnostics and delivering faster, more accessible and more actionable testing solutions to laboratories and clinicians. What makes our model unique is that we're not only developing products in isolation. By operating our own clinical laboratory, we identify real-world diagnostic challenges firsthand, validate solutions rapidly in a clinical environment. And then once our products have demonstrated their clinical, operational and financial value, we commercialize them to the broader market. Over the past several quarters, we've continued to strengthen both sides of that model. Our pathology business continues to provide a stable and growing operational foundation while generating cash flow to the company.

And our products business and expanding commercial infrastructure are positioning the company for scalable, long-term growth, margin increase and cash generation. Before we get to the numbers, I'd like to take a moment to discuss a topic that several people have raised, and that is the variability and predictability of the company's revenues. Let's break it down by division, starting with pathology services. Generally speaking, the pathology services business is relatively predictable. Once we win a customer, they usually have a consistent number of patients coming in. There's a relatively consistent percentage of the patients that will require some sort of biopsy, which is sent to our lab. Testing modalities are pretty standard.

We control costs extremely well, so there isn't much variance there. The same goes for revenue build, reimbursement and cash collected all quite predictable. There are 2 elements that are outside of our control and can cause fluctuations in the division performance. The first is customer transition. For example, a physician may retire or the practice may get acquired by a large hospital network that internalizes testing. In those situations, the patient's sample flow from that customer will stop. The second element, which we experienced this quarter is a change to reimbursement. Each year, usually in January, CMS comes out with its new fee schedule. As a government organization, there's no negotiations.

So the new fee schedule basically becomes our new pricing. As you can imagine, there are very few rate increases. And usually, it goes the other way. In early Q1 of this year, the new 2026 CMS fee schedule was released and it included a reduction of 8% in the fee for one of our most frequently used tests, flow cytometry. Subsequently, we had to write down revenue this quarter to the tune of approximately $0.5 million creating a significant swing in net income from the prior quarter. So while there was no change to our customer base or patient sample volume, the new fee schedule introduced by CMS impacted our revenue, net income and gross margins.

We've been working on several projects to reduce our operating costs and bring back up that margin, essentially reversing the impact of the fee schedule. And as you saw, our cash flow from operations was still positive. So that essentially covers drivers of variability in the pathology services business. On the product side, generally speaking, once the customer is live and operating, revenues are quite stable and predictable. This quarter, we saw an $80,000 decline in revenue from the prior quarter, and this was due to one of our main customers shifting the date of their order from the end of March to early April.

So while nothing changed from a customer perspective, following the principles of revenue recognition, of course, this order will be part of Q2 revenue. This is one relatively small factor that can cause fluctuations within the products business. The second and more challenging variable is the onboarding process for customers. We've discussed this in the past and shift -- stories ranging from IT roadblocks to machine downtime during validations. I know many of you have inquired about guidance and forecasting, and I do think that as we grow the customer base and gain more experience, we will be able to better predict our future growth.

Also, with a new commercial team building a broader pipeline that will help us gain better insight into future growth as well. I'll add more on the pipeline later in this call. Even within the products business, those fluctuations are mostly related to initial setup of the customer. And once the customer is live, there are far few fluctuations and revenue is more predictable. So as we grow our customer base and get more experience under our belt. I do think we will eventually reach the point where we can get -- begin to become more comfortable in predicting revenue growth.

In summary, as with any business, which deals with fluctuations both internal, but in our situation, more from external factors that are largely outside of our control. However, they are more prevalent in the pathology business -- pathology services business in the products business, which is yet another reason why the products business is our growth focus. With that, let's turn to a review of our financial results for the quarter. Total revenue for Q1 remained flat quarter-over-quarter at $6.71 million and up over 30% from the same quarter last year. Pathology revenue increased a little over $6 million this quarter from $5.9 million in the previous quarter and up 36% from $4.4 million in Q1 of last year.

Product revenue decreased by $80,000 from $740,000 to $660,000 this quarter, impacted by the timing of our customer shipment originally expected later in the quarter that moved into Q2. From an accounting standpoint, that revenue shifts quarter from a business standpoint, nothing really has changed. More importantly, the quarter reflects continued progress in areas we believe are the strongest indicators of future growth particularly commercial expansion, distributor engagement and pipeline development, marking a foundational quarter for our expanded commercial strategy, I'd like to take a few moments to discuss those results. As we mentioned, we recently invested in hiring a dedicated commercial team focused on accelerating adoption of our proprietary product portfolio through distributor relationships and direct customer engagement.

Given the onboarding and sales cycle associated with molecular diagnostic products, the team's initial focus has been on building relationships and educating our distribution partners, identifying qualified target accounts and developing a scalable pipeline. This takes place via a process that begins primarily with our distributors. As we've described in the past, our team has to first form relationships with the distributor reps and familiarize them with our company, with our value proposition and with our product offering. Once that occurs, they can begin to review with each rep their territory and identify qualified potential leads. The way we qualify leads is through a pretty straightforward process.

First, we ensure that the customer has existing cancer diagnostic operations and is either running some of the test, our products can replace in-house or most likely sending them to an outside lab. This establishes the customer as an appropriate target lab. Once we've established that, we learn which products they're interested in, and their annual volumes to assess and assign an estimated annual dollar revenue potential based on their existing testing volume for our panels. The annual revenue potential number, this account now becomes a qualified lead and we begin to work together with the distributor rep of arranging an introductory meeting to start the sales process.

That work started with the hire of the commercial team at the start of the year and is already beginning to produce measurable results. During Q1, the commercial team established relationships with approximately 20 new distributor reps identified 2 -- sorry, 10 new qualified customer opportunities. and added approximately $3 million of annualized revenue potential to the pipeline. Combined with existing opportunities, our current commercial pipeline now represents approximately $10 million in annualized revenue potential. Now as a reminder, this does not translate into a forecast of $10 million for this year because the x factor, we don't know is when each customer will go live.

But we do feel this represents a thorough and responsible process for targeting customers and generating a sales funnel and future pipeline. We believe this is particularly encouraging given that the sales team only joined at the start of the year and initially underwent extensive training on our technology, product portfolio, market dynamics and competitive positioning. Many of these early results validate both the market opportunity as well as our commercial strategy. As the team continues expanding distributor relationships and converting qualified opportunities into active customers, we expect the pipeline to continue to grow as well as also increase converting into recurring revenue. Now let's turn to profitability and margins.

Adjusted EBITDA for the quarter was negative $200,000 compared with positive $960,000 in Q4 of 2025, a relatively large swing, I'd like to take a few moments to discuss. Importantly, the majority of that sequential change was driven by a combination of timing-related items, nonrecurring accounting impacts and investments we're making to support future growth. There were 4 primary factors impacting Q-over-Q EBITDA change. First, as discussed, this quarter, we experienced reimbursement-related impact tied to the change in certain CMS pathology billing codes which reduced our gross profit -- our gross profit by approximately $125,000. Second, the hiring of our commercial team resulted in an increase of approximately $250,000 for the quarter.

This includes payroll, travel and business development expenses as well as marketing activities. As we shared, we're already -- we've already seen commercial benefits from this hiring in terms of the pipeline growth. Importantly, we view this not only as incremental overhead, but as a strategic investment in building the commercial platform necessary to scale our products business over the coming years. In other words, once this team begins to generate increased revenue of, let's say, $1 million per quarter, the investment of $0.25 million per quarter will certainly have paid off.

Third, in Q4 2025, we benefited from a onetime nonrecurring accounting adjustment related to previously accrued bonus compensation, which created an approximately $360,000 positive swing in adjusted EBITDA compared to the current quarter. And lastly, we saw a $280,000 reduction in product gross profit related to the delivery timing shift from late Q1 to early Q2 and reduced production volumes. From a business activity perspective, this revenue was not lost. It simply moved across reporting periods. The combination of these factors caused a $1 million swing in EBITDA. But as you can see, a significant dollar amount to these are onetime changes that are unrelated to the company operations. Moving now to discuss gross margins.

Company gross margin for the quarter was 40% compared to 47% in Q4. As with EBITDA, we believe it's important to distinguish between structural margin pressure and temporary or investment-driven impacts. The margin compression this quarter was primarily associated with the same factors we just discussed. Revenue timing, reimbursement changes and investments in commercial capacity that are now largely in place. Also, Q4 margins were somewhat inflated due to overproduction of products in Q4 relative to Q1 due to the expected equipment downtime for maintenance as we stated previously. Resumption of regular production volume and continued growth will bring a return to higher margins, which are inherent in the underlying economics of this business.

What gives us confidence going forward is that many of these costs are relatively fixed in nature. So as revenue grows, particularly in the product segment, we believe the business has the potential to generate meaningful operational leverage. Overall for the business, we would expect company margins to not only recover as product revenue scales, but over time, potentially improve beyond historical levels as the revenue mix increasingly shifts to our proprietary products and product-driven services. Turning briefly to cash flow. Total cash flow for the quarter was negative approximately $40,000, while cash flow from operations remained positive at approximately $60,000.

This pattern is generally consistent with what we historically seen in the first quarter of the year, driven primarily by a combination of start of the year annual expense resets along with slower collections associated with patient insurance deductible cycles. Importantly, we don't view the quarter's cash flow performance as an indicative of any structural change in the business, but rather normal seasonality that we expect to normalize as the year progresses. So looking ahead, a couple of points I want -- I'd like to make. First, we expect continued expansion of our commercial pipeline and increased conversion of that pipeline into revenue during the second half of the year.

Second, we expect margins to improve as recent commercial investments begin contributing more meaningfully to revenue growth and we scale up production. And finally, overall, we expect stronger operational performance as we move through the balance of 2026. While quarterly results may fluctuate at times due to reimbursement dynamics, shipment timing or seasonality, we do believe the broader trajectory of the business remains very positive. We're continuing to grow our commercial reach, expand our pipeline, strengthen our product platform and invest in the infrastructure we believe necessary to build a substantially larger and more scalable business over time. And with that, I'm going to hand it over to the operator to open up the call for questions.

Operator, please go ahead. Thank you.

Operator: [Operator Instructions].

Ilan Danieli: Thank you, Chloe. Meanwhile, as we build this roster, there's a couple of questions that were sent in, in advance of the call. So I'm going to go through those and then we can go to the live Q&A. So the first question was, can you elaborate on the utilization rate of your labs? Or in other words, how much more revenue can your current laboratories generate without significant CapEx? We're currently operating pathology services business at approximately $24 million on an annualized basis. We believe that, and this depends on the case mix. We have between $45 million to $50 million in laboratory capacity before we need to make any changes that involve any significant CapEx or hiring.

Second question, in your recent corporate deck, there's a slide that mentions the expansion potential of your technology into broader multimillion dollar markets. Is there a specific road map for these expansion plans? And if yes, how much additional CapEx and R&D expenses is foreseen with which kind of financing? So that's a really important question, and it really gets to the core of how we think about the long-term evolution of Precipio. Today, our primary focus remains execution within our existing product portfolio and the markets we already serve. Even within our current addressable market, we're still at the very early stages of market penetration.

So to put that in perspective, our products business generated just under $3 million in revenue last year. And this is within an annual TAM of about $0.5 billion in the U.S. So we see a very significant runway for growth with the products we already have in place. That said, one of the reasons we referenced broad market opportunities in our corporate materials is because we believe the underlying platform would be built has applications well beyond our current hematology-focused offerings. What's unique about Precipio is not any single product, it's the model itself, the combination of a real-world clinical laboratory environment for diagnostic workflows, operational validation capabilities and commercial distribution infrastructure.

We believe that over time, this model can be applied to additional areas diagnostics. Having said that, we intend to approach expansion in a disciplined manner. Our philosophy is to continue scaling the existing product business, expand recurring revenue, strengthening cash flow generation and leverage the commercial infrastructure we're building today. As the company grows and becomes increasingly well capitalized, we believe we'll be in a strong position to selectively expand into adjacent markets without necessarily requiring the kind of large-scale R&D spending and associated capital typically associated with traditional diagnostic companies.

And I think that's a really important distinction because our development model is tightly integrated with our clinical operations, and we think we've potentially enter new markets with a lower development risk, shorter validation cycles and significantly more capital efficiency than many traditional life sciences. So in summary, while we're not announcing any specific expansion initiatives today, we do believe the long-term opportunity for the platform extends meaningfully before the markets we currently serve. All right. With that, Chloe, let's go to our first question.

Operator: We have a question from Adam Hutt from Leviticus Partners.

Adam Hutt: It's really just a continuation of what you've been -- the questions you've kind of already answered, but would you be likely in at all to open up, for instance, a facility in the Midwest or the West. Would the logistics preclude that? Or is transportation so efficient that you'll never need another facility elsewhere?

Ilan Danieli: Thanks, Adam, good to hear for you. Good question. I don't think so. Logistics are, for the most part, quite good. And there really isn't a significant need to spend that kind of money to duplicate the facility. I can tell you, for example, as you know, our lab is in Connecticut. Even from New Jersey, samples get picked up by FedEx and they fly through Memphis and arrive next morning at 9 or 10 in the morning. So there really isn't much advantage even from an adjacent state. There isn't much logistic advantage to having something on the West Coast.

So I think if anything, if we get to that point, we'll expand capacity, which for a large part is mostly on the CapEx kind of equipment side and at those revenue levels, it's a very efficient process.

Adam Hutt: So New Haven would expand, no Los Angeles facility, okay.

Ilan Danieli: No, no. No, there's no need for that.

Adam Hutt: Thank you.

Ilan Danieli: All right. Chloe, it seems like that's the only question.

Operator: As there are no questions at this time. Thank you for attending today's presentation -- oh, we have one from [ Thomas Duxbury ].

Unknown Analyst: Ilan, congrats on the continued ramping and cash flow management of the company. I guess could you give us a little bit more color on the ramp, especially on the product side from Q2 onward through the rest of the year? I assume with that order shifting into Q2 into April that Q2 will obviously be up from Q1. And hopefully, with the commercial team that you have now in place, that we will see even better loaded back half of the year?

Ilan Danieli: Yes. Tom, good to hear for you. And yes, I hope so too. I think -- the commercial team has probably had already a better-than-expected impact in Q1, as I mentioned, keep in mind, the only those 4 months and I would say at least half of that time has been for training. So to add about $3 million of pipeline is great, and I think that, that's only increase over time. Of course, the X factor is how long does it take to translate that $3 million of pipeline into $3 millions of revenue. And this is where it gets really difficult because a lot of those factors are out of our control.

So as an example, we had a customer -- I just spoke with a customer this morning, who has completed the validation and is ready to go live from a technical standpoint, what they're now waiting for is to set up a meeting with all the physicians to teach them how to order the new test of the system. It sounds mind-numbingly ridiculous, quite frankly, but those are things they face. And this is a huge organization, so they have these meetings once a quarter, and that hasn't been scheduled yet. So this meeting could happen next week, and the customer goes live. This meeting could happen in July and then the customer goes live.

So it's really hard to kind of figure out what is the time line for these customers to transition from readiness to go live and when that translates into revenue. I think the best thing I can offer -- efficient. So if the customer says, hey, we want to order $100,000 of products next week, we can deliver that. Unfortunately, things we can only control what we can control. So I hope that helps.

Operator: We have a question from Adam Hutt from Leviticus Partners.

Adam Hutt: One for the road, boys. I'm familiar with the company called Interpace that had a pancreatic cancer test. They pretty much got knocked out by the insurance companies. Stock has been a big, big wealth destructor. Obviously, the blood cancers, I think, are probably -- you're able to show much more efficacy and return of the dollar, I think, than a particular pancreas test. Should any of us be losing sleep over the insurance monster that's a bit of a bugaboo this quarter?

Ilan Danieli: Thank you, Adam. Yes. So I don't know if losing sleep, but it's always a concern because they are the payers, and they are the ones who ultimately decide. It's not a usual kind of supply and demand model. It's really the payers kind of determine what the revenue or where payments are going to be. Having said that, all of our products and certainly all of our services use established CPT codes. I'm not familiar with Interpace, but if there's a company that doesn't have an established CPT code or it's a new code that was just assigned, there's a lot of uncertainty around that. And I don't really think that exists.

Our test and the codes we used are long ago established codes and they're not going anywhere. They're supported by thousands of pages of clinical validated data. So I think in that sense, are there going to be rate fluctuations like we saw? Sure. And we, as a company, have to respond by being more efficient to keep that margin, and we're doing exactly that. But I don't think it's going to be a situation where they're going to say, yes, you know what, we're not testing for acute leukemia and we're not paying for that anymore. We're not paying for that anymore. I don't think that's going to happen. So I think relatively speaking, we're okay.

Adam Hutt: Can you fight -- do you have any restitution against the rate at which they try and -- you do. What can you do besides just margin from within? You can't really see the insurance companies, can you?

Ilan Danieli: No, you can't. No, you can't. So that's pretty much it. And for the most part, we haven't really seen anything egregious just when there's clinically supported data. It's usually relatively stable. And this is kind of the first drop that we've seen in 15 years of operating. It's an 8% drop on one of our tests. It's a frequently run test, but it's an 8% drop. So I think, in general, this is a pretty stable field.

Adam Hutt: Thank you.

Operator: Okay. There are no questions at this time. This concludes today's conference. Thank you for attending. You may now disconnect.