AquaBounty Technologies, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. AquaBounty develops and commercializes land-based aquaculture, with AquAdvantage salmon as its lead product. The company had regulatory approval to produce and sell the product in the U.S. and Canada and was in early commercial operations.
Financial results and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Product revenue | $74,372 | $6,753 |
| Operating loss | $4.09 million | $3.09 million |
| Net loss | $4.16 million | $3.11 million |
| Net loss per share | $0.06 | $0.11 |
| Operating cash used | $4.52 million | $2.93 million |
| Cash and cash equivalents at period end | $210.90 million | $95.75 million at Dec. 31, 2020 |
| Total debt | $9.08 million | $8.87 million at Dec. 31, 2020 |
| Total stockholders’ equity | $231.64 million | $114.88 million at Dec. 31, 2020 |
Q1 2021 product costs were $1.55 million, substantially above revenue; the filing does not present a separate gross margin. Total costs and expenses were $4.16 million. Cash used in investing was $1.22 million, principally for farm construction and renovations. Financing provided $120.86 million, mostly from a February public offering that generated $119.1 million net, plus $1.6 million from warrant exercises. Current assets were $213.48 million versus current liabilities of $2.00 million at March 31.
Material changes and business developments
- Revenue increased by $67,000 year over year, but remained very small; Q1 2021 sales comprised conventional salmon fry and eggs.
- Net loss grew by $1.05 million, or 34%. Product costs rose 85% to $1.55 million as fish biomass grew at the Indiana and Rollo Bay farms; sales and marketing expense increased and included a $174,000 charge related to donating conventional salmon.
- Cash and equity rose substantially following the February share offering. Common shares outstanding increased to 70.98 million at March 31 from 55.50 million at year-end; 14.95 million shares were issued in the offering.
- Construction in progress was $3.89 million, including work at Rollo Bay, Fortune Bay and Indiana and design work for a proposed 10,000-metric-ton farm. The company reported a further $1.2 million committed to these projects.
Outlook, risks and contingencies
Management expects revenue in 2021 to include AquAdvantage salmon, but to be modest and infrequent at least through the first half of the year, pending economic recovery and improved food-service demand. Management stated that cash on hand should fund requirements for at least 12 months from the filing date. The company has a history of losses and negative operating cash flow and may need additional financing before it achieves positive cash flow; future equity financing could dilute shareholders.
COVID-19 reduced food-service demand and salmon prices, weighed on revenue and inventory value, and could continue to affect results through at least the first half of 2021. The company donated substantially all conventional salmon to make room for growing AquAdvantage biomass; the program began in February and was expected to finish in May 2021. Supply-chain and equipment lead-time delays remain possible. Conventional salmon inventory was valued at zero at March 31, while AquAdvantage biomass was valued at $1.8 million.
Risks include consumer resistance to genetically engineered products, production and fish-quality challenges, uncertain market acceptance and profitability, regulatory or legal challenges, and the need to fund planned expansion. The company disclosed that a U.S. court remanded the FDA’s environmental assessment on NEPA and ESA grounds; the government’s appeal was withdrawn and the appeal deadline expired. AquaBounty reported no current business impact on its egg production, Indiana production or fish sales. Its $4.0 million First Farmers Bank and Trust loan has financial and non-financial covenants; a breach could trigger default. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether AquAdvantage sales begin and scale as expected, and the timing and volume of saleable fish.
- Actual cash burn, project spending and funding needs against management’s stated 12-month liquidity outlook.
- Farm capacity, construction timelines and costs, including the proposed 10,000-metric-ton facility and the reported $1.2 million project commitment.
- Market acceptance, realized selling prices and any future inventory write-downs or donation-related costs.
- Developments in the FDA-related litigation or regulatory process, and compliance with First Farmers loan covenants.
- Potential dilution from future capital raising; the quarter’s offering materially increased shares outstanding.