iSpecimen Inc. 2023 Q2 Form 10-Q Summary
Business Context and Reporting Period
iSpecimen operates a proprietary online marketplace connecting medical researchers with hospitals, laboratories and other organizations that provide human biospecimens and related data. The company operates as one reporting segment. This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods, and was filed August 2, 2023.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 |
|---|---|---|---|---|
| Revenue | $1.625 million | $2.339 million | $4.575 million | $4.857 million |
| Cost of revenue | $0.854 million | $1.000 million | $2.001 million | $2.166 million |
| Gross margin | 47.5% | 57.3% | 56.3% | 55.4% |
| Loss from operations | $(3.562) million | $(2.585) million | $(6.104) million | $(4.943) million |
| Operating margin | (219.2%) | (110.5%) | (133.4%) | (101.8%) |
| Net loss | $(3.484) million | $(2.607) million | $(5.915) million | $(4.991) million |
| Net loss per share | $(0.39) | $(0.30) | $(0.66) | $(0.57) |
| Adjusted EBITDA | $(2.817) million | $(2.064) million | $(4.653) million | $(3.954) million |
Six-month operating expenses increased 9% to $10.680 million. The largest increases were in technology, up 44% to $1.678 million; supply development, up 45% to $0.615 million; and sales and marketing, up 19% to $2.025 million. Technology expense included $0.935 million of internally developed software amortization, while the company capitalized $2.732 million of additional software development costs during the six-month period.
Net cash used in operating activities was $4.519 million for the six months ended June 30, 2023, compared with $3.354 million in the prior-year period. Net cash used in investing activities was $8.856 million, including $7.643 million used to purchase U.S. Treasury bills and $2.732 million for internally developed software, partially offset by $1.532 million of securities sales and maturities.
At June 30, 2023, cash and cash equivalents were $2.005 million and available-for-sale U.S. Treasury bills were $6.209 million, for combined immediately available financial resources of approximately $8.214 million. Working capital was $8.112 million. The company reported no outstanding debt after repaying its $3.5 million term loan in November 2022. Total liabilities were $2.860 million, and stockholders’ equity was $14.711 million.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue declined 31% to $1.625 million, primarily because specimens accessioned fell 33% to 4,682. Average selling price per specimen increased 4% to approximately $347.
- Six-month revenue declined 6% despite a 12% increase in specimen volume to 13,311, because average selling price per specimen decreased 16% to approximately $343.
- Second-quarter gross margin fell to 47.5% from 57.3%, as average cost per specimen increased 28%, partly reflecting specimen mix and supply economics.
- Second-quarter net loss increased 34% to $3.484 million, and six-month net loss increased 19% to $5.915 million.
- Cash and cash equivalents declined $13.304 million from year-end 2022, while the company shifted a portion of its cash into short-term U.S. Treasury bills at a different financial institution.
- The allowance for doubtful accounts increased by $261,610 during the first six months because several boutique life sciences customers filed for bankruptcy. Net accounts receivable were $1.459 million at June 30, 2023, with an allowance of $492,609.
- The stockholders approved an increase in the 2021 Stock Incentive Plan authorization from 608,000 to 1,869,500 shares. Potential dilution also includes 1.313 million PIPE warrant shares, 345,987 outstanding option shares, 168,641 unvested RSU shares, and other warrants.
Guidance, Outlook, Risks, Contingencies and Unusual Items
The filing does not provide formal quantitative revenue or earnings guidance. Management expects revenue enhancement initiatives to support improved results in the second half of 2023 and believes the second-quarter downturn was temporary. Management reported that backlog increased by the end of the quarter and expects better third-quarter and subsequent performance, but these expectations are subject to execution and market risks.
- Management plans to expand sequencing initiatives involving cancer patients and FFPE blocks, with modest revenue from the initial pilot anticipated beginning at the end of the third quarter of 2023.
- The company plans to invest at lower levels in internally developed software during the remainder of 2023, while continuing initiatives to improve supplier matching, reduce supplier concentration, increase network utilization and accelerate sales cycles.
- Management believes cash, Treasury bills and anticipated operating cash flows are sufficient for at least the next 12 months. However, continued losses may require additional capital to finance operations beyond August 2024. Future financing could be difficult or dilutive.
- The company identified a material weakness in internal control over financial reporting involving documentation of customer tax-exempt status and the calculation, collection and remittance of sales taxes. External tax advisors and a sales-tax software solution are being implemented, but the timing and cost of remediation are uncertain.
- Management believes a sales-tax obligation likely existed for certain historical sales, but the company has not yet been able to estimate the minimum or maximum liability. No accrual for sales taxes, interest or penalties had been recorded as of June 30, 2023.
- A $30,000 accrued liability was recorded for a supplier’s 20% revenue share on sequenced FFPE block sales after a $150,000 revenue threshold.
- The ongoing Russia-Ukraine war continues to create supply, logistics, sanction and margin risks. Ukrainian and Russian suppliers may again become inaccessible, and transportation from Ukraine remains challenging.
- The company’s office lease expires February 28, 2024, with a remaining operating lease liability of $107,975 at June 30, 2023. The filing reports no material litigation.
Most Important Facts to Verify
- Whether purchase orders, backlog and revenue recover during the second half of 2023 as management expects.
- The company’s ability to reduce cash burn while funding software development, sales expansion and supplier-network initiatives.
- The estimated historical sales-tax liability, including possible interest and penalties, and the progress of remediation of the material weakness.
- Receivable collections and the potential for additional customer bankruptcies or bad-debt expense.
- Gross-margin recovery, particularly the cost and availability of specimens sourced through international suppliers.
- Whether the company will need to raise additional capital beyond the stated 12-month liquidity horizon and the potential dilution or financing costs.