iSpecimen Inc. — Form 10-Q Summary
Business Context and Reporting Period
iSpecimen operates a single-segment online marketplace connecting medical researchers with hospitals, laboratories and other organizations that provide human biospecimens and related data. This unaudited Form 10-Q covers the three months ended March 31, 2022, compared with the same period in 2021. The filing was signed May 10, 2022.
Financial Results and Position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $2.519 million | $2.964 million | Down 15% |
| Cost of revenue | $1.166 million | $1.624 million | Down 28% |
| Gross profit | $1.353 million | $1.340 million | Up 1% |
| Gross margin | 53.7% | 45.2% | Up 8.5 percentage points |
| Operating expenses | $4.877 million | $3.906 million | Up 25% |
| Loss from operations | $(2.358) million | $(0.943) million | Loss increased |
| Operating margin | (93.6%) | (31.8%) | Decreased |
| Net loss | $(2.384) million | $(3.963) million | Loss improved 40% |
| Adjusted EBITDA | $(1.891) million | $(0.678) million | Loss increased |
| Net loss per share | $(0.27) | $(4.23) | Improved |
Gross profit was approximately $1.353 million, producing a 53.7% gross margin. The improved gross margin reflected an approximately 11% reduction in average cost per specimen. However, operating expenses rose by $971,000, led by higher general and administrative, fulfillment, sales and marketing, technology and supply development costs.
Revenue from COVID-19 specimens was approximately $479,000, or 19% of revenue, compared with $682,000, or 23%, in Q1 2021. Specimens accessioned declined 20% to 4,924, partly offset by an approximately 2% increase in average selling price per specimen.
Cash used in operating activities was $1.376 million, compared with $126,000 in Q1 2021. Cash used in investing activities was $339,000, primarily for internally developed software, compared with $215,000. Stock-option exercises provided $75,000 of financing cash flow. Cash declined to $26.099 million from $27.739 million at December 31, 2021.
At March 31, 2022, working capital was $28.104 million, total assets were $33.287 million and stockholders’ equity was $27.667 million. The company had a $3.5 million term loan, presented net of $74,000 of unamortized debt issuance costs, and operating lease obligations totaling approximately $297,000. The term loan bears interest at 4.00% as of March 31, 2022, with principal payments beginning in March 2023 and maturity in August 2025.
Material Changes Versus the Prior Period
- Revenue decreased 15%, primarily because of lower COVID-19 demand and fulfillment delays following the shutdown of the company’s Ukrainian and Russian supply network.
- Cost of revenue decreased 28%, exceeding the revenue decline and improving gross margin.
- General and administrative expense increased 88% to $1.810 million, including higher compensation, share-based compensation, directors’ and officers’ insurance and operating costs.
- Fulfillment expense increased 65%, sales and marketing increased 41%, supply development increased 63% and technology expense increased 29%.
- Q1 2021 included significant nonrecurring financing-related items, including a $2.750 million loss on extinguishment of bridge notes, a $788,000 gain on extinguishment of a note payable and derivative fair-value losses. These items were absent in Q1 2022, reducing reported net loss despite substantially weaker operating performance.
- The company adopted the lease accounting standard effective January 1, 2022, recognizing approximately $333,000 of additional right-of-use assets and lease liabilities.
Guidance, Outlook, Risks and Unusual Items
- Management expects COVID-19 revenue to continue declining, although the financial impact cannot currently be determined.
- The Russia-Ukraine conflict disrupted approximately $1 million of purchase orders at the beginning of the quarter. Management stated that it had resourced the orders through other suppliers, but the disruption delayed fulfillment and may continue to affect supply availability, economics and results.
- The company plans to continue investing approximately $339,000 per quarter, or at a similar level for the remainder of 2022, in internally developed software and expects these investments to improve revenue opportunities and operating efficiency.
- Directors’ and officers’ insurance cost approximately $1.2 million annually, and management was renegotiating the policy because rising premiums could negatively affect liquidity and results.
- Management stated that existing cash, together with anticipated operating cash flow, should fund operations for at least the next 12 months. However, because of recurring losses, continued viability beyond May 2023 may depend on raising additional capital.
- The company was not in compliance with a term-loan financial covenant as of March 31, 2022. The lender declared an event of default, and on April 29, 2022 entered into a waiver. The waiver also included a release of claims by the company against the lender.
- COVID-19, supply-chain disruption, inflation affecting employee compensation, declining COVID-related demand and the need for additional financing remain material risks. The filing reports no material litigation and no material changes to previously disclosed risk factors.
- Disclosure controls and procedures were assessed as effective at a reasonable assurance level, with no material changes to internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Whether revenue stabilizes as COVID-19-related demand declines and whether non-COVID-19 revenue can offset the decline.
- Whether the company continues to meet the term-loan covenants after the April 2022 waiver and whether it draws the additional $1.5 million borrowing option.
- The pace of cash consumption relative to the $26.1 million cash balance and the timing or terms of any future equity or debt financing.
- Whether the Ukrainian and Russian supply disruption is fully mitigated and whether replacement suppliers preserve expected margins.
- Whether increased general and administrative, sales, fulfillment and technology spending produces the anticipated revenue growth and operating efficiencies.
- The effect of additional equity awards and outstanding warrants and options on future share dilution.