AquaBounty Technologies, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. AquaBounty develops and sells land-raised Atlantic salmon, including genetically engineered AquAdvantage salmon, and operates farms in the United States and Canada.
Financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Product revenue | $477,000 | $398,000 |
| Product costs | $4.476 million | $3.559 million |
| Operating loss | $10.948 million | $6.483 million |
| Net loss | $11.158 million | $6.486 million |
| Net loss per share | $2.90 | $1.69 |
| Cash used in operating activities | $4.373 million | $6.142 million |
| Cash used in investing activities | $1.169 million | $22.935 million |
- Revenue rose 20%, mainly on higher sales of conventional salmon, fry, and eggs from Rollo Bay. GE salmon revenue was nearly flat at $395,000 versus $392,000.
- Product costs exceeded revenue by approximately $4.0 million. Costs included a $900,000 biomass inventory adjustment and a $100,000 feed reserve associated with the planned Indiana farm sale.
- Results included a $4.265 million non-cash impairment charge on Indiana farm assets. Net loss increased 72% year over year.
- Cash, cash equivalents, and restricted cash totaled $3.592 million at quarter-end, including $1.0 million of restricted cash. Current assets were $4.327 million and current liabilities $16.794 million. Total debt was $8.359 million before debt issuance costs.
Material changes and business developments
- Management began seeking a buyer for its Indiana farm in February 2024. The farm was not yet available for immediate sale at quarter-end; shutdown work remained necessary. The sale process led to the asset impairment and inventory adjustments.
- GE salmon harvest volume rose to 415 metric tons from 66 metric tons. Management said accelerated Indiana harvesting included predominantly below-market-sized fish, affecting average selling prices.
- Construction of the Pioneer, Ohio farm was approximately 30% complete but paused. Management said costs had risen substantially and exceeded the proposed municipal bond financing capacity. Construction in progress included $142.7 million for Ohio; $16.3 million was contractually committed to farm sites at quarter-end.
- Capital spending fell sharply year over year, to $1.169 million from $22.935 million, primarily reflecting reduced farm construction activity.
Liquidity, outlook, and risks
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the financial statements. AquaBounty has a history of losses and expects further losses and negative operating cash flows; continued operations depend on raising additional capital.
- On April 18, 2024, the company entered a secured loan agreement for up to $10 million from JMB Capital Partners Lending. It received $5 million initially; the additional $5 million is conditional. The loan matures July 31, 2024, bears 15% interest, and includes a 5% commitment fee and an 8% exit fee. Approximately $2.8 million of the initial advance repaid the First Farmers Bank & Trust loan; the $1.0 million previously restricted cash was then no longer restricted.
- Management is pursuing financing and strategic alternatives, including the Indiana farm sale, debt financing, joint ventures, and other transactions. No specific revenue or earnings guidance is provided. Management expects inflation to continue increasing operating and capital costs in the near term.
- Other material risks include customer concentration (three customers accounted for 67% of Q1 revenue), production and disease risks, consumer acceptance and regulatory uncertainty for genetically engineered products, and the ability to complete and finance the Ohio farm.
Important facts for investors to verify
- Whether the conditional second $5 million loan advance is funded, and the company’s ability to repay or refinance the short-term, high-cost loan.
- Progress, timing, and proceeds from the Indiana farm sale, including any further shutdown costs or asset and inventory write-downs.
- Whether AquaBounty secures sufficient financing to resume and complete Ohio construction, and the implications of the $16.3 million of committed spending.
- Cash runway and liquidity needs, given the going-concern warning, operating losses, and current-liability position.
- Whether sales volumes and pricing improve after the accelerated, below-market-sized Indiana harvest and transition toward conventional eggs and fry revenue.