AquaBounty Technologies, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. AquaBounty develops and commercializes genetically engineered (GE) Atlantic salmon and other salmon products. Its GE salmon had U.S. and Canadian approvals; Brazil approved sale in 2021. The company began harvesting and selling GE salmon from its Indiana and Rollo Bay farms during the period.
Financial performance
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 |
|---|---|---|
| Product revenue | $227,000 | $302,000 |
| Product costs | $1.848 million | $3.402 million |
| Operating loss | $5.179 million | $9.264 million |
| Net loss | $5.231 million | $9.390 million |
| Net loss per share | $0.07 | $0.14 |
Product costs substantially exceeded product revenue. The filing does not provide a reported gross-margin percentage. Q2 sales and marketing expense was $549,000, including a $335,000 conventional-salmon donation-program charge; six-month expense was $868,000, including $509,000 for the program.
- Cash and liquidity: At June 30, cash and cash equivalents were $132.3 million and marketable securities were $71.7 million, totaling about $204.0 million. Current assets were $208.0 million and current liabilities $2.5 million.
- Cash flow: For the six months, operating activities used $10.5 million; investing activities used $74.2 million, including $71.7 million spent on marketable securities; financing activities provided $121.2 million. The company reported $132.8 million of cash, cash equivalents and restricted cash at period-end.
- Debt: Total debt before issuance costs was $9.35 million, including $6.0 million of interest-bearing debt. Most interest-bearing debt was fixed-rate; the First Farmers Bank and Trust loan has a rate reset in July 2025.
- Capital spending: Property, plant and equipment, net, was $29.2 million. Construction in progress included work at Rollo Bay, Fortune Bay, Indiana and design for a planned 10,000-metric-ton farm; an additional $1.4 million was committed to these projects.
Changes versus the prior comparable period
Q2 revenue rose from $3,000 to $227,000; six-month revenue rose from $10,000 to $302,000, reflecting the start of GE salmon sales as well as conventional eggs and fry. Losses also increased: Q2 net loss rose from $3.5 million to $5.2 million, and six-month net loss from $6.6 million to $9.4 million. Higher production costs accompanied increased fish biomass and sales activity; sales and marketing and general and administrative expenses also increased. Research and development expense declined in both comparisons.
Cash and marketable securities increased substantially following a February public offering that generated approximately $119.1 million net. The company issued 14.95 million shares in the offering; shares outstanding rose to 71.0 million at June 30 from 55.5 million at December 31, 2020.
Outlook, risks and other notable items
- Management expected revenue to grow slowly in the second half of 2021 as harvesting capability increased at Indiana and Rollo Bay. The company cautioned that revenue would remain modest and infrequent for the remainder of 2021, and that revenue timing and eventual profitability were uncertain.
- Management believed available cash and securities would fund requirements for at least 12 months from the filing date, but stated that additional financing may be needed before positive operating cash flow is achieved. Future equity financing could dilute shareholders.
- Key risks include commercial acceptance and the ability to produce and sell profitably, regulatory decisions in additional markets, supply-chain and equipment delays, and potential fish mortality events that could reduce production, revenue and investor confidence.
- COVID-19 had not materially affected farm operations to date, but delays and extended equipment lead times continued; pandemic-related weakness in food-service demand had pressured salmon prices, demand, revenue and inventory value.
- Subsequent events included a July agreement for up to C$250,000 in zero-interest funding, a conditional July agreement to purchase about 85 acres in Ohio for $2.1 million, and a related-party agreement requiring registration of a major shareholder’s shares for resale. The filing reported no legal proceedings believed likely to have a material adverse effect.
Important facts for investors to verify
- Whether harvesting and sales at Indiana and Rollo Bay expand as expected, and whether product revenue can grow enough to cover production costs.
- Actual cash burn, project spending and financing needs relative to management’s stated liquidity runway.
- Farm output, capacity utilization, fish health and mortality, including any effects on inventory valuation.
- Progress, cost and timing of farm construction and renovations, including the proposed Ohio site and larger-scale facility.
- Market acceptance, pricing, regulatory approvals and supply-chain conditions affecting commercialization.