iSpecimen Inc. 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 nine months ended September 30, 2022, compared with the corresponding 2021 periods.
Financial Performance and Position
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $2.58 million | $2.72 million | $7.44 million | $8.59 million |
| Gross profit | $1.40 million | $1.80 million | $4.09 million | $4.56 million |
| Gross margin | 54.3% | 66.4% | 55.0% | 53.1% |
| Operating loss | $(3.10) million | $(1.46) million | $(8.04) million | $(3.93) million |
| Net loss | $(3.10) million | $(1.55) million | $(8.09) million | $(6.91) million |
| Net loss per share | $(0.35) | $(0.22) | $(0.92) | $(2.17) |
| Adjusted EBITDA | $(2.17) million | $(0.82) million | $(6.12) million | $(2.75) million |
- Q3 revenue declined 5%; nine-month revenue declined 13% year over year.
- Q3 operating margin was approximately negative 120.0%, compared with negative 53.7% in the prior-year quarter. Nine-month operating margin was approximately negative 108.1%, compared with negative 45.8% in 2021.
- Operating expenses increased 36% in Q3 and 24% for the nine-month period. Nine-month technology, sales and marketing, supply development, fulfillment and general and administrative expenses increased 46%, 50%, 54%, 55% and 36%, respectively.
- Cash was $20.66 million at September 30, 2022, down from $27.74 million at December 31, 2021. Working capital was $21.40 million, compared with $30.44 million at year-end 2021.
- Net cash used in operating activities was $5.61 million for the first nine months of 2022, compared with $9.35 million in 2021. Investing cash use was $1.55 million, principally for internally developed software, compared with $0.73 million in 2021.
- Financing activities provided $78,000 in 2022, primarily from stock-option exercises, compared with $19.18 million in 2021, when the company completed its IPO and other financing transactions.
- The term loan had $3.50 million of principal outstanding at September 30, 2022, with a 7% interest rate and scheduled principal payments beginning March 2023. The company disclosed that it repaid the principal and approximately $16,000 of accrued interest on November 3, 2022.
- Total liabilities were $5.52 million and stockholders’ equity was $22.42 million at September 30, 2022. The company had an accumulated deficit of $46.11 million.
Material Changes Versus the Prior Comparable Period
- COVID-19 specimen revenue fell to approximately $322,000 in Q3 2022 from $923,000, and to approximately $971,000 for the first nine months from $2.52 million. Non-COVID-19 revenue increased 6% for the nine-month period to approximately $6.47 million.
- Q3 specimens accessioned declined 11% to 4,740, while average selling price per specimen increased approximately 6%. For the first nine months, specimens accessioned declined 3% to approximately 16,668 and average selling price declined approximately 11%.
- Q3 cost of revenue increased 29%, driven by a 45% increase in average cost per specimen despite lower volume. For the nine-month period, cost of revenue declined 17%, reflecting lower average cost per specimen and lower volume.
- General and administrative expense included approximately $376,000 of severance expense related to former CEO Christopher Ianelli. Q3 and nine-month results also reflected increased technology, commercial and fulfillment investment.
- The company capitalized approximately $1.55 million of internally developed software costs during the first nine months, more than double the comparable 2021 amount.
- The company adopted lease accounting guidance effective January 1, 2022, recognizing approximately $333,000 of right-of-use assets and lease liabilities.
Outlook, Commentary, Risks and Unusual Items
- Management believes existing cash, including prior financing proceeds and the term loan, will fund operations for at least 12 months from issuance of the financial statements. Management also stated that continued viability beyond November 2023 may depend on raising additional capital.
- No quantitative revenue or earnings guidance was provided. Management expects non-COVID-19 revenue to continue increasing while COVID-19 revenue continues declining, but stated that the resulting impact on future results cannot currently be determined.
- The Russia-Ukraine war disrupted approximately $1 million of purchase orders during the first half of 2022. Ukrainian and certain Russian supply sites became unavailable, causing fulfillment delays; alternate suppliers may have less favorable economics and collection rates.
- COVID-19 disruptions, inflation, recessionary conditions and reduced research funding could reduce customer demand, specimen collections and operating performance.
- Management is pursuing initiatives to improve supplier-network utilization, reduce supplier concentration, improve match rates and time-to-match, reorganize sales processes and expand support for biospecimen providers.
- The CEO and COO departed effective October 24, 2022. The CFO, Tracy Curley, became interim CEO while retaining the CFO role. The company recognized CEO-related severance of $376,400 at September 30, 2022 and subsequently recognized $325,000 of COO severance after the separation-agreement revocation period expired.
- The company reported no material litigation, no defaults on senior securities and no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective at a reasonable assurance level.
Most Important Facts to Verify
- Whether declining COVID-19 revenue is offset by sustained growth in non-COVID-19 demand.
- The cash-burn rate and the period for which the remaining cash balance supports operations following repayment of the term loan.
- Whether additional capital will be required before or after management’s stated potential funding dependency beyond November 2023.
- The execution and financial effect of supplier-network, sales-reorganization and technology-investment initiatives.
- The impact of CEO and COO turnover, severance costs and the CFO’s dual interim CEO responsibilities.
- Future effects of the Russia-Ukraine conflict, COVID-19 conditions, inflation and recession on specimen availability, fulfillment costs and customer demand.