iSpecimen Inc. Form 10-Q Summary
Reporting period: Quarterly and year-to-date periods ended June 30, 2022, compared with the three and six months ended June 30, 2021. iSpecimen operates an online marketplace connecting medical researchers with hospitals, laboratories, and other organizations supplying biospecimens and related data. The company reports one operating segment.
Financial Performance and Position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $2.34 million | $2.90 million | $4.86 million | $5.87 million |
| Gross profit | $1.34 million | $1.41 million | $2.69 million | $2.75 million |
| Gross margin | 57.2% | 48.7% | 55.4% | 46.9% |
| Loss from operations | $(2.59) million | $(1.53) million | $(4.94) million | $(2.47) million |
| Operating margin | (110.5%) | (52.6%) | (101.8%) | (42.1%) |
| Net loss | $(2.61) million | $(1.39) million | $(4.99) million | $(5.36) million |
| Net loss per share | $(0.30) | $(0.87) | $(0.57) | $(4.21) |
| Adjusted EBITDA | $(2.06) million | $(1.25) million | $(3.95) million | $(1.93) million |
Cash flow and liquidity: Net cash used in operating activities was $3.35 million for the six months ended June 30, 2022, compared with $3.27 million in the prior-year period. Investing cash use was $0.78 million, primarily for internally developed software, versus $0.44 million previously. Financing provided $0.08 million, principally from stock-option exercises, versus $16.20 million in 2021, which benefited from the IPO. Cash declined to $23.69 million from $27.74 million at December 31, 2021. Working capital was $25.10 million.
Debt and liabilities: The term loan had an outstanding principal balance of $3.50 million, or $3.43 million net of debt issuance costs, at June 30, 2022. The loan bore interest at 5.50%, is secured by substantially all company assets, and principal repayments begin in March 2023. The company had not drawn the additional $1.50 million available under the facility. Lease liabilities totaled approximately $0.26 million on a present-value basis.
Balance sheet: Total assets were $30.40 million, total liabilities were $5.10 million, and stockholders’ equity was $25.30 million. The accumulated deficit was $43.01 million. The company had 8,873,711 common shares outstanding at June 30, 2022 and 8,880,598 shares outstanding as of August 3, 2022.
Material Changes Versus the Prior Comparable Period
- Q2 revenue declined 19% and first-half revenue declined 17%, primarily because of lower COVID-19 specimen demand and disruptions in the Russian and Ukrainian supply network.
- COVID-19 revenue was approximately $0.17 million in Q2 2022 versus $0.90 million in Q2 2021, and approximately $0.61 million for the first half versus $1.60 million previously.
- Specimens accessioned increased 12% in Q2 and 5% in the first half, but lower-value specimen mix reduced average selling price per specimen by approximately 28% in Q2 and 26% in the first half.
- Cost of revenue fell faster than revenue, increasing gross margin to 57.2% in Q2 and 55.4% for the first half, primarily due to lower average cost per specimen and mix.
- Operating expenses increased 11% in Q2 and 18% in the first half. First-half technology, sales and marketing, supply development, fulfillment, and general and administrative expenses increased 51%, 44%, 100%, 73%, and 35%, respectively.
- Operating losses widened substantially, while the first-half net loss improved modestly because the prior-year period included significant nonrecurring debt extinguishment and derivative-related charges.
- Stock-based compensation increased to $0.41 million for the first half of 2022 from $0.05 million, including new restricted stock unit grants.
- The company adopted lease accounting guidance effective January 1, 2022, recognizing approximately $0.33 million of right-of-use assets and lease liabilities.
Outlook, Risks, and Unusual Items
Management stated that existing cash, together with anticipated operating cash flow and available financing resources, is expected to support operations for at least the next 12 months from issuance of the financial statements. However, continued viability beyond August 2023 may depend on raising additional capital. Lower-than-expected revenue, COVID-19 effects, the Russia-Ukraine war, inflation, or increased spending could require earlier financing. Additional debt could increase interest and repayment burdens, while equity financing could dilute shareholders.
The Russia-Ukraine war disrupted approximately $1 million of purchase orders at the beginning of 2022. Russian supply sites remained inaccessible due to sanctions, and Ukrainian sites operated at limited capacity. Replacement suppliers may have less favorable economics or collection rates.
Management expects COVID-19 revenue to continue declining, although the magnitude and duration are uncertain. The pandemic may continue to affect specimen collections, supplier operations, customer demand, liquidity, and results of operations.
The company capitalized approximately $0.78 million of internally developed software costs in the first half of 2022 and planned to continue investing at a similar level for the remainder of the year. Management expects these investments to create revenue opportunities and operating efficiencies, but the filing provides no assurance that the expected returns will be achieved.
There were no material legal proceedings, no material changes to previously disclosed risk factors, and no defaults upon senior securities. Management concluded that disclosure controls and procedures were effective at a reasonable assurance level.
Key Facts for Investors to Verify
- Whether revenue stabilizes as COVID-19 demand declines and whether non-COVID-19 revenue offsets that decline.
- The effect of continued Russia-Ukraine supply disruptions on fulfillment, specimen availability, pricing, and gross margin.
- Cash burn, available liquidity, and the timing and terms of any future equity or debt financing.
- The company’s ability to reduce operating losses while continuing technology, sales, supply development, and fulfillment investments.
- Future term-loan amortization beginning in March 2023 and compliance with related covenants.
- Dilution from 367,118 unvested RSUs, 171,154 outstanding options, and warrants covering up to approximately 1.42 million shares.
- Whether internally developed software investments generate the anticipated revenue growth and operating efficiencies.