iSpecimen Inc. 2023 Q3 Form 10-Q Summary
Business context and reporting period
iSpecimen operates a proprietary online marketplace connecting medical researchers with hospitals, laboratories and other biospecimen suppliers. The company reported unaudited results for the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods. It operates as one reporting segment and is headquartered in Lexington, Massachusetts.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $2.778 million | $2.583 million | $7.353 million | $7.441 million |
| Cost of revenue | $1.393 million | $1.182 million | $3.393 million | $3.347 million |
| Gross margin | 49.9% | 54.3% | 53.9% | 55.0% |
| Operating loss | $2.194 million | $3.101 million | $8.298 million | $8.044 million |
| Net loss | $2.111 million | $3.096 million | $8.027 million | $8.086 million |
| Net loss per share | $0.23 | $0.35 | $0.89 | $0.92 |
| Adjusted EBITDA | $(1.461) million | $(2.173) million | $(6.114) million | $(6.124) million |
Q3 revenue increased 8%, while nine-month revenue declined 1%. Q3 revenue reflected 5,367 specimens accessioned versus 4,840 in the prior-year quarter; the average selling price declined approximately 3% to $518 per specimen. For the nine-month period, specimen volume increased 11% to 18,678, but average selling price declined 11% to approximately $394.
Cash and cash equivalents were $2.722 million at September 30, 2023, compared with $15.309 million at December 31, 2022. Available-for-sale U.S. Treasury securities totaled $2.941 million, producing cash and short-term investments of $5.663 million. Working capital was $5.609 million, down from $15.395 million. Total liabilities were $3.589 million, consisting primarily of accounts payable, accrued expenses and operating lease obligations; the filing does not report outstanding term-loan debt at September 30, 2023.
Net cash used in operating activities was $6.153 million for the first nine months of 2023, versus $5.610 million in 2022. Investing cash use was $6.505 million, including $3.693 million for internally developed software and net purchases of available-for-sale securities. Financing cash inflow was $70,889 from stock-option exercises.
Material changes versus the prior comparable period
- Q3 operating loss improved by $907,000, primarily because general and administrative expense declined 51% to $1.102 million.
- Q3 total operating expenses declined 13%, although cost of revenue increased 18% and technology expense increased 22% due in part to higher software amortization.
- Q3 gross margin decreased to 49.9% from 54.3%, reflecting a higher average cost per specimen and changes in specimen mix.
- Nine-month operating loss increased 3%, despite a 20% reduction in general and administrative expense, because technology, sales and marketing, and supply development costs increased.
- Internally developed software increased to $6.576 million net from $4.504 million at year-end 2022; the company capitalized approximately $3.501 million of software costs during the nine-month period.
- The company reduced its workforce, primarily on September 6, 2023, targeting a 29% reduction in monthly compensation costs and more than 50% additional reductions in monthly expenditures for the remainder of the year.
Guidance, outlook, risks and unusual items
Management is targeting cash-flow positivity in 2024 through cost containment, revenue enhancement initiatives and improved quote-to-order conversion. The company launched a sequenced high-value cancer FFPE-block initiative late in Q3 and expects most related opportunities and purchase orders to be fulfilled in Q4 2023. It also implemented a next-day quote system and an onsite supplier-support program.
Management states that substantial doubt exists regarding the company’s ability to continue as a going concern for one year from issuance of the financial statements. The company has recurring losses, an accumulated deficit of $56.292 million and no identified specific source of additional financing. Management’s mitigation plans include increasing revenue, deferring projects and capital expenditures, and reducing operating expenses, but those plans are not considered probable and do not alleviate the going-concern uncertainty.
The company identified a material weakness in internal control over financial reporting related to documenting customer sales-tax exemptions, calculating and collecting sales tax, and timely reporting and remitting obligations. It collected approximately $246,000 from customers for known sales taxes and accrued that amount, but stated that the total potential liability, including interest and penalties, was not yet reasonably estimable.
Additional risks include customer liquidity and bankruptcies, lower research funding, inflation, specimen supply constraints, and continuing disruption or sanctions affecting suppliers and logistics in Russia and Ukraine. The allowance for doubtful accounts increased by $243,053 during the nine months ended September 30, 2023.
Important facts for investors to verify
- Whether Q4 revenue enhancement initiatives and the next-day quote process convert the reported Q3 sequential rebound into sustained growth.
- The company’s actual cash runway, expected quarterly cash burn and ability to obtain additional capital on acceptable terms.
- The ultimate sales-tax liability, including potential historical assessments, interest, penalties and voluntary disclosure obligations.
- Progress in remediating the material weakness in internal controls over financial reporting.
- Whether software capitalization and related amortization materially affect future operating expenses and cash requirements.
- Changes in specimen volumes, average selling prices and gross margins, particularly as the company pursues higher-value specimen programs.