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Siemens & UTAK: Renewal of Pricing Agreement Pt. III - September 30 VIEW RECORDING: https://fathom.video/share/qnGiNkPRHpGy6h8qDKmYCyiqe8Mk9x8M Pricing increase request and contract review @ 0:00 Jim expressed concerns about UTAK's request for a 25% price increase, stating that Siemens has never seen a request this high. He reviewed the existing contract, noting that it includes a requirement for UTAK to achieve at least a 5% annual cost reduction, which Siemens has not seen implemented. Jim suggested updating the contract to be more balanced between the two parties, and asked UTAK to revisit the pricing increase request to find a more reasonable middle ground. Exploring cost-saving opportunities @ 8:00 Jim proposed that UTAK explore opportunities to offset cost increases, such as changing suppliers, materials, or design, or finding ways to streamline operations. He also offered to explore if UTAK could leverage Siemens' purchasing power and supplier relationships to potentially reduce costs in areas like packaging. Establishing regular business review meetings @ 16:01 Jim suggested implementing regular "Strategic Supply Review Meetings" between the two companies, occurring virtually 1-2 times per year. This would provide a forum to discuss growth plans, identify opportunities for collaboration, and address any issues or feedback on both sides. Potential new product opportunities @ 19:26 Jim mentioned Siemens' new SEVA and Telecohema programs, and asked if UTAK had any products that could be leveraged to support these initiatives, indicating an interest in expanding the partnership and minimizing Siemens' supplier base. Next steps and timeline @ 22:13 The group agreed to reconvene in the next 1-2 weeks to further discuss UTAK's pricing request and explore potential cost-saving opportunities. They also committed to establishing regular business review meetings going forward to maintain open communication and identify areas for collaboration. Siemens & UTAK: Renewal of Pricing Agreement Pt. III - September 30 VIEW RECORDING - 26 mins (No highlights): https://fathom.video/share/qnGiNkPRHpGy6h8qDKmYCyiqe8Mk9x8M --- 0:00 - Raleigh Gallina (UTAK Laboratories) Well, to be fair, I'm also currently messaging Kevin, was just on a call with him, and so he's getting me in surround sound. 0:10 - Nicole Miller Just hopped from one meeting to the next with him. Yeah. Oh, man. No, it's good. 0:17 - Raleigh Gallina (UTAK Laboratories) We actually just chatted with another Matt contact of ours. 0:23 - Nicole Miller interesting. I Yeah, I'm feeling like, like super Midwest lately. I chatted with another Matt contact yesterday, too. Hey, Kevin. Hello. All right, I want to let Jim in. 0:38 - Kevin Kopp All right. 0:42 - Raleigh Gallina (UTAK Laboratories) Hey, Jim, how you doing? I hope we're not interrupting lunch today. No, hi, Roy, you're fine. 0:54 - PIACENTINI, Jim (Siemens Healthineers) Sorry. Okay, it's good. Just trying to get a few things organized over here. No, that's all good. 0:59 - Raleigh Gallina (UTAK Laboratories) Hi. How doing? How you been? 1:01 - PIACENTINI, Jim (Siemens Healthineers) Yeah, not too bad. I'm just getting ready to go on a three-day vacation over at Cape Cod in Massachusetts. Oh, nice. Not sure if you've ever been out here, but Cape Cod, it's Martha's Vineyard, and it's where Obama and LinkedIn and all those guys go when they come out here. 1:20 - Raleigh Gallina (UTAK Laboratories) Yeah, so you're going to rub elbows with celebrities is what I'm hearing. Well, they're going to rub elbows with me. You're right. Oh, that's pretty funny. No, I've never been, but I do have a friend who's actually from Cape Cod, and I've seen photos, and it just looks gorgeous. I'm glad you're going to get some time off, especially because I know your fiscal year is resetting, so I can't imagine what a madhouse it's been for you. 1:49 - PIACENTINI, Jim (Siemens Healthineers) Is anybody else going to join? No, this is it. 1:54 - Raleigh Gallina (UTAK Laboratories) So we have Nicole and Kevin here, who I know you're familiar with and have met before. Thank Okay. 2:02 - PIACENTINI, Jim (Siemens Healthineers) That's what I meant. Kevin and Nicole are on the line. Yeah, they're here. Okay. 2:08 - Nicole Miller I just see blind icons. I promise. I promise they'll be alive. 2:17 - PIACENTINI, Jim (Siemens Healthineers) Yeah, they're hiding. 2:20 - Nicole Miller So, yeah. 2:21 - PIACENTINI, Jim (Siemens Healthineers) So, Raleigh, I actually went over this in a little bit more detail and the price change you're looking to request is actually a 25% increase, which is awfully huge, incredibly huge. We've never seen a price increase this high, a request for a price increase this high. And I did look at the last couple of years. There's not a lot of spend here, but in the last couple of years, we've increased our spend quite a bit. But when you do the Comparisons, again, not a lot of spend, but I think in 2024 we did just over $120,000, am I right? And this year we're about halfway there, and we still have about a few weeks left to go, so it's not as much as last year, but it'll be picking up once the SEVER program, as the program picks up. So we expect that the volumes will increase quite a bit once that gets going. And I went into your reasons why labor and a few other things. Packaging has gone down in the last four years, so I can't accept the packaging if that is part of the reasons why. We've actually had cost reductions and reductions from other suppliers on packaging because it has gone down. We actually did a study with commodity. They a measure for packaging, and they showed us the parade of paper and corrugated and all that stuff. And maybe not plastics, but at least in the corrugated and paper area, it's gone down quite a bit. So, yeah, and I'm looking at the, also looking at the agreement, and I don't know if you've studied this at all or reviewed this at all, but in here it says, oh, and this contract was signed in 2019, that's six years ago, not 10 years ago. So, that's another thing I'm looking at. So, I did get to look at this in a little bit more detail. If we look at pricing, so, and I apologize because when I got this from Scott, I don't have any notes or any meetings that he may have had or Pam may have had, annual meetings, and again, this is Ben wasn't really that much, so I'll make sure that that will be a, how do I say, a cadence between the two parties here, so that we are meeting regularly to see where there may be some type of opportunities for cost improvements, things like that, because it is noted in the contract that, you know, we are looking, you know, at 4.4 cost reduction initiatives, suppliers' yearly improvement in cost pursuant to its continuous improvement commitment described, and 6.11 shall be applied no less frequently than annually to reduce prices for products. Again, I have to apologize because I don't think that was done between the two teams. No one has really sat from both sides and said, hey, how can we save in costs, blah, blah, blah, that type of stuff. But if I look at 6.11, it says, with respect to each contract year, should Suppliers shall take all commercially reasonable steps to achieve at least a 5% reduction in cost of providing products to Siemens in areas of including but not limited to complaints, operational costs, etc. But then it goes and says a reduction of Siemens shall be entitled to a reduction price of 50%. I'm not going to apply to that. I think that's kind of like UTek coming after us saying we need a 25% increase. We're not going to go back to you and say we want a 50% increase. It just doesn't work that way. So a couple of things I need to do is probably update this contract a little bit so it's a little bit more to the favor of both sides. To me it looks more one-sided like Siemens has the upper hand on the contract. I don't want it to be that way. I don't want you to think that way. So in parallel to this discussion or these discussions going forward until we come up with an agreement, I'll try and see what I can do to change this contract and have whoever is in charge, whether it be you, Kevin, or someone from legal sign an amendment to the contract. But for the price request, 25% is way off. And I'm not even talking 50% of 25%. There hasn't been a 10% increase across the board from any supplier. 25% you'll get calls from the high ups in Germany. And it's, again, it's not a big spend, but they look at the percentage, they don't look at the spend. They see a large percentage like that and it will raise flags. So I have to go back. To you and ask you, are there any areas of improvements where we can change this so that it's more of a reasonable request than 25%? Yeah, I would. 8:14 - Raleigh Gallina (UTAK Laboratories) Oh, sorry, Kevin, if you wanted to jump in. I just wanted to ask a question, Jim. 8:18 - Kevin Kopp Like, how does the evolution of pricing get looked at from your guys' end from 2019 to now, right? So, like, we're not talking about a 2024 to 2025 to 2025 to 2026 jump of 25%. I understand that it looks like it's 25%, but that's 25% from 2019. So what would the price have been with a 5% increase over the last six years look like, right? And if that is more than 25%, right, then how would that be looked upon? So, I think... think... So, think... That is kind of where we're coming from, because the price isn't a 2025 jump to 2026. It's a price adjustment from the last six years. 9:13 - PIACENTINI, Jim (Siemens Healthineers) Yeah, no, I appreciate that, Kevin, but I also can look at the contract, and they'll ask me, well, where's the 5% reduction every year from UTAK? Because that's what they signed up for. Yeah, that's fair. I can also say, where's my 25% reduction? Yeah, and I would go back to, and would say that to your point, like, where is the middle ground? 9:34 - Kevin Kopp So, you can absolutely go back, and I know, Raleigh, you were going there, so we could absolutely go back and take a look at it and see what's reasonable. And then moving forward, like you said, like, let's make something that's a little bit more equal to both sides, and that we both are actually going to execute off of, right? Like, if there's something in the contract that we're supposed to And we should do it, both sides, not just Siemens, not just UTAK. Right. No, I understand. 10:07 - PIACENTINI, Jim (Siemens Healthineers) So I could just compare other suppliers. won't say what's normal, what's not normal. Suppliers are very versatile, right? So the requests are very versatile. We have one supplier that won't increase more than 1.5% every year. And then we have another supplier that has been doing reductions year over year. We have never seen a supplier with this – and I'm talking over the years. I'm not talking – we do have other suppliers that are – the prices are concrete for five years. We have others that are concrete for two years, depending upon the supplier. Now, I know the pandemic was a problem with a few suppliers, and maybe you had impact back in 2000 – impacted in 2020, 2021. I don't know. I wasn't here for UTAK. So I didn't see any requests or anything like that. But I do know from 2021 or 2022, the prices have gone down in a lot of commodities since the floodgates opened up and everyone was back into the supply chain movement. But for other things, I mean, plastics, petroleum, that's always versatile. You never know what you're going to get year after year. And I know we all hedge to look for those price increases or try to keep something budgeted or flat. Corrugated is down. Chemicals, I know, that are up a little. If that's a problem, maybe that's part of the reasons why these increases. I don't know. And I do know, yeah, California, it's a high labor area. So if you're getting impacted by that, I totally understand. It's not a Massachusetts. It's as high, too. I get it. Massachusetts and California are, like, the two highest in the country, probably the world, you know, so I get that. But there's also areas that, well, in order to offset those labor costs, what is UTAK or are the suppliers looking at to try and offset that? Are they changing suppliers? Are they changing materials? Are they changing any type of design? That may be opportunities. I don't know. Is there any streamlined opportunities in their operating procedures? Just any opportunities that, you know, can try and help them. And I know you're the legal manufacturer. We're distributing for you, but we're also distributing to Siemens customers. And if our prices continue to go up, we won't have customers. So, I'm... I'm trying to be, I'm trying to meet in the middle here and say, there's no way I can accept even a 10% on these increases. So I have to ask you to go back and see where you can, where you can help us as well as helping yourself, without hurting yourself, as well as helping yourself. Now, some of those things may be, does Siemens have suppliers that you can use where maybe you get some purchasing power? Maybe we have packaging or any other commodity suppliers out your way that say, hey, you know, we can get Siemens pricing, not just for Siemens product, your product that we distribute, but for products across the board that you can take advantage of. I'm not looking for that cost. I'm just looking for our reduction. If you, if you benefit from that by using Siemens supplies for your other customers, God bless you, take it, you know, but. Those are some ideas. Maybe that can help. I don't know. I know you're probably not willing to share supplies, but if there's some supplier that may be standard across the board that isn't unique to UTAK, certainly we could look at it and ask them if there's a possibility that they can go with, if UTAK can go with that supplier and fall under the Siemens umbrella for pricing. Because believe me, we have a lot of purchasing power with packaging, plastics, or whatever supplies are out there. Yeah, that's awesome. 14:38 - Raleigh Gallina (UTAK Laboratories) And, you know, in just a moment, I'll defer to, you know, Kevin and Nicole in terms of that avenue. But, like, Jim, this is why we just so appreciate Siemens. It's like this kind of collaborative relationship, and we do want to come to the table. So, yeah, we appreciate you, you know, looking at what we have and sharing, hey, this isn't reasonable for us. You know, you're even offering on the back end moving forward. And so that's just such a productive path. So we truly appreciate that. You know, from the pricing side, too, I'll go back after this call and see what we can't do. But yeah, Kevin, Nicole, I don't know if, you know, maybe you have any thoughts on what Jim's offering in terms of packaging as well. Or maybe we need some, like, further, like, discussions, too. 15:26 - Kevin Kopp I think it's an interesting idea. I would think that we would need to kind of ID what information we would be willing to provide. mean, I wouldn't say that we aren't providing, I wouldn't, sorry, I wouldn't be, I would not be against it. It just depends on what it is. So yeah, I think that's the short answer. But the longer answer is it's going to take too long for me to think through. So I'll just sit on that one. 16:01 - PIACENTINI, Jim (Siemens Healthineers) And also, Kevin and Raleigh, is that, you know, it can't happen on October 1st, it's tomorrow. So I'm just going to ask you for your original recluse that if there's any change at all, it would happen January 1st. And then going forward, not only will we just stay with the fiscal year of October 1 to September 30th, but going forward, we will have, we call them SSRMs, like business reviews, but they call them strategic supply review meetings. And I think with our spend, it's just something that we can do virtually. If you were a $22 million company, I'd be out there twice a year, or you'd be out here, or whatever. So I'm hoping that we can do a virtual with our stakeholders, both here and there, and just go over some of the areas where, not only opportunities, but if there's any issues you are having with us, issues we're having with you, any order processing, can it be done better? Or, blah. Those types of things, those will be brought up. And it's usually like, with a small screen like this, it's probably like a 20-slide presentation, 10 from each side. We usually take our, we provide our overall Siemens, where we're going, where we are to, where we're going in the next five years, what our revenues are. And also, you've got your MFEs, your ordering processes, your quality folks, they'll come up with a slide, your SCARs, things like that, whatever. If they, if they even exist. And then some of our R&D folks and service folks will be on the call. So, it would be a real quick, maybe two, two and a half hour call with UTek, and probably once or twice a year. So that we're all aligned and, you know, you know, who's this gym guy? You know, I've seen his name, but I haven't even met him, and it's been a year and a half. I want to make sure that we know each other, and I know your faces, and every time I see the face on the call, I know exactly. exactly. We won't talk until. Yeah, totally. Yeah. Yeah. 18:04 - Raleigh Gallina (UTAK Laboratories) And to your point, like October is tomorrow. So that's not the expectation, but I just think it's quite productive, as you mentioned, just to have these touch points, these like to touch base, like throughout the year too. And like you mentioned, hey, if you're having any issue or if you have an idea even of like, wow, UTAK would actually add more value if we did X or, you know, just kind of giving that feedback, we're definitely, you know, in partnership there. 18:31 - PIACENTINI, Jim (Siemens Healthineers) Sure. So if you go back and with your team and find out, you know, sharpen your pencil a bit sharper or whatever, and find out what, you know, what can, if there is a new request or any, any possibility of new request, when do you think this meeting can happen in two weeks or? 18:51 - Raleigh Gallina (UTAK Laboratories) I would say that we'd be able to have it in two weeks. We may even be able to have it as early as next week. Is that something that would work for you? Sure. Sure. 19:01 - PIACENTINI, Jim (Siemens Healthineers) Once you find out, Raleigh, what's a good day for Raleigh, send a couple of, you know what, you go ahead and send the meeting, invite, and if I can't make it on that particular day and time, I'll send you a proposed time, or I'll just reply back with an email with a few options sometimes. Next week is going to be a busy week. It's the start of our fiscal year, and we're up and running. We have two projects running right now, which is SEVA, which you guys belong to, and then we have a telecohema, which is on the hematology side and instrument side as well, and they're looking to go with launching a telecohema at the beginning of next year in the U.S., so that will start bringing in a lot more business. So that's another thing. So if there are any products that we could use on the telecohema side that UTEC offers, that may also be another opportunity. I mean, again, I'm looking at the growth in the last couple of years. It was high last year, and I don't know why, but then this year kind of slowed down, but the years before was really nothing. So I see a lot of growth potential coming in for Siva, but there's more growth for italicohemia or if there's any products that UTAK offers that can be used in the italicohemia as well. I'm not sure if you manufacture stains or anything like that, but it would be nice to know what your portfolio exists of. Yeah, I can send makes any sense. It does, absolutely. 20:38 - Raleigh Gallina (UTAK Laboratories) Yeah, I can send you a product catalog of ours, Consolidated. You can browse it and see if there would be any opportunity, but we definitely appreciate you keeping us in mind. And, you know, if we're not able to support, then we might be able to give a recommendation of who we're able to guide you to as well. 20:54 - PIACENTINI, Jim (Siemens Healthineers) Yeah, that would be great. I mean, one of our goals here is to try and minimize the supply base. So if you tech – As some products or even partners or whatever, then we try to minimize what we can. It's not just minimizing, it's using the right suppliers. It's a better way of saying it. Some suppliers on the ACCEP program because they don't want to work with, I mean, they want to be a partner, but they don't want to, how do I say, collaborate in a way we don't want to collaborate as a partner. So, we're hoping that, you know, obviously UTek is part of our strategy, so we want to make sure if there are any other products that you can offer that you're hopping on board with more opportunities and building scope. Yeah, absolutely. 21:48 - Raleigh Gallina (UTAK Laboratories) Yeah, so after our call, I'll go ahead and I'll send over the product catalog. You can take a look. Meanwhile, what I'll do is I'll work with our internal team to see how we can, you know, further get that cost. Three. We have a more acceptable level on your end, and then the team internally will also meet and discuss that, hey, if we are able to lean on you all as a partner to, you know, in terms of packaging, what you mentioned, et cetera. Sure. 22:13 - PIACENTINI, Jim (Siemens Healthineers) And if you can't do it now, packaging, I mean, using our Siemens suppliers as a, you know, proposal, we can do it further into the year or within the next six or seven months if it can't happen right away. So, yeah, that's true. Beautiful. If, you know, being a partner, you know, we'll help you and you help us not only by the product you offer, but, you know, other customers from each side. So, us customers and suppliers, I just say from each side. So, you never know. You never know where someone asks us who's a good supplier for the products that UTek offers. We'll say, you know, there's a great company out in California called UTek. Here's my contact. Yeah. Yeah. No, for sure. 23:00 - Raleigh Gallina (UTAK Laboratories) And, you know, part of what, you know, what our touch points, like, throughout the year are going to help us, you know, be that. So, you know, we're adding that value to you. I did actually have a separate question, if you're okay with it, or it's more a question for you to connect with your team on. And, Nicole, please opine if I'm misrepresenting our question here. We're taking a look at a lot of our labeling, and we're considering shifting our blank matrices to RUO, so we were just curious what kind of impact that would have, you know, how important that is to you. 23:37 - PIACENTINI, Jim (Siemens Healthineers) So, that would be a question for, so next time we have the call, unless you need the answer immediately, that would be a question to ask on that call that we have once a month, because the right team is on that call, being Oh, perfect. And also the quality person, because they would give you a much better answer than I would, as far as any labeling, any of that. Pam, when she was details. Let's see On this team, she was great because she knew the product. She started with the product and worked her way into commodity management. She can tell you right off, for me, I couldn't even, unless you're asking me, hey, are we going into IVDR class B and C? Then I have to say, yes, we are. I'll bet that's on the supplier. For sure, yeah. No, you're understandable. You have enough on your plate. 24:29 - Raleigh Gallina (UTAK Laboratories) So once we have our next validity to control discussion, I'll go ahead and raise that question there. Yeah, sure. 24:35 - PIACENTINI, Jim (Siemens Healthineers) And if you want a meeting answer, I can always send that over to Jin Kang and see if we need to get the team here to agree on something. Because as far as the labeling goes, it's your labeling with a distributor, so you may change the labeling, but we have to know before you change the label, correct? Correct. Okay, yeah. Yeah, if you want to try and send it. If If you want an immediate answer, send something. If not, we can wait till the next call. 25:08 - Raleigh Gallina (UTAK Laboratories) Yeah. Did you have anything else that you wanted to chat through? No, I have about three more hours, and then I'm off to the Cape. 25:16 - PIACENTINI, Jim (Siemens Healthineers) Okay, all right. Well, the end is near. 25:18 - Raleigh Gallina (UTAK Laboratories) There's either, like, there's two modes where it's like, okay, I'm ready, or it's like, oh my gosh, I have way more work than three hours, and I can't even, like, look forward. 25:26 - PIACENTINI, Jim (Siemens Healthineers) I three hours. It's the latter. Fair, okay. All right. Well, we'll give you some time back. 25:33 - Raleigh Gallina (UTAK Laboratories) Jim, we'll be in touch shortly. Always appreciate your time, and yeah, enjoy your PTO. Yeah, thank you so much. Take care, and appreciate you making the call. Of course. All right. Bye-bye, people. Bye. Bye, Jim.