iSpecimen Inc. 2021 Q3 10-Q Summary
Business context and reporting period
iSpecimen operates an online marketplace connecting medical researchers with hospitals, laboratories, and other organizations that provide human biospecimens and related data. The company reports one operating segment. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $2.719 million | $2.250 million | $8.586 million | $5.466 million |
| Cost of revenue | $0.914 million | $0.904 million | $4.027 million | $2.032 million |
| Gross profit | $1.805 million | $1.346 million | $4.560 million | $3.434 million |
| Gross margin | 66.4% | 59.8% | 53.1% | 62.8% |
| Loss from operations | $(1.459) million | $(0.723) million | $(3.930) million | $(1.472) million |
| Net loss | $(1.553) million | $(1.246) million | $(6.911) million | $(3.059) million |
| Adjusted EBITDA | $(0.823) million | $(0.510) million | $(2.750) million | $(0.751) million |
- Q3 revenue increased 21%; nine-month revenue increased 57%. Management attributed growth to a more experienced sales team, continued COVID-19-related demand, and increasing non-COVID-19 research demand.
- Specimens accessioned declined approximately 12% in Q3 and 1% for the nine-month period, while average selling price per specimen increased approximately 37% and 56%, respectively.
- Q3 operating expenses rose 41%, led by general and administrative expense, which increased 111%. Nine-month operating expenses rose 80%, including a 190% increase in general and administrative expense.
- Q3 operating margin was approximately negative 53.7%; nine-month operating margin was approximately negative 45.8%.
- Cash was $9.791 million at September 30, 2021, compared with $0.696 million at December 31, 2020. Working capital was $12.796 million, and accumulated deficit was $35.969 million.
- Net cash used in operating activities was $9.349 million for the first nine months, compared with $0.264 million in the prior-year period. Investing cash use was $0.734 million, primarily for internally developed software.
- Financing activities provided $19.177 million, primarily from the IPO and overallotment proceeds, the $3.5 million term loan, and other equity and debt issuances.
Material changes versus the prior comparable period
- The company completed its IPO in June 2021, issuing 2.25 million shares at $8.00 per share for $18.0 million of gross proceeds. The underwriters’ overallotment in July added 337,500 shares and $2.7 million of gross proceeds. Aggregate net IPO proceeds were approximately $18.2 million.
- All outstanding convertible preferred stock converted into 1.291 million common shares. Convertible notes and a portion of bridge notes also converted into common stock in connection with the IPO.
- All convertible notes and bridge notes were eliminated by September 30, 2021. The company paid the remaining $3.0 million of bridge-note principal and $64,110 of accrued interest during the third quarter.
- In August 2021, the company borrowed $3.5 million under a secured term loan bearing interest at Prime plus 0.75%; the reported rate was 4.00% at September 30. An additional $1.5 million may be available subject to conditions.
- General and administrative expense increased substantially due to public-company costs, legal and accounting fees, directors’ and officers’ insurance, executive compensation, stock-based compensation, and a special IPO bonus. Management identified some of these costs as nonrecurring.
- The company terminated its accounts-receivable factoring agreement on June 30, 2021. Factoring fees totaled approximately $471,396 for the nine months, and the company paid Versant $214,497 during the third quarter for an additional amount related to previously factored receivables.
Guidance, outlook, risks, contingencies, and unusual items
- No formal revenue or earnings guidance is provided in the filing.
- Management stated that available cash, including IPO and term-loan proceeds, should fund operations for at least the next 12 months from issuance of the financial statements. The filing also states that continued viability beyond a future date may require additional capital; the notes reference November 2022, while MD&A references August 2022, so the precise date should be verified.
- COVID-19 continued to affect specimen supply, demand, and liquidity. COVID-19-related specimens represented approximately 24% of Q3 purchase orders and 34% of nine-month purchase orders, compared with 48% and 35%, respectively, in the prior-year periods. Management reported declining COVID-19 specimen requests and increasing non-COVID-19 collections.
- Customer concentration remains material: one customer represented approximately 16% of Q3 revenue and one represented approximately 10% of nine-month revenue. Three customers represented 23%, 17%, and 13% of unbilled receivables at September 30.
- Unusual nine-month items included a $2.740 million loss on bridge-note extinguishment, a $0.260 million loss on convertible-note extinguishment, a $0.788 million gain from PPP loan forgiveness, and a $1.583 million gain from the change in fair value of bridge-note derivative liabilities.
- The company had $3.428 million of term-loan debt at September 30, secured by substantially all assets. Principal payments begin in March 2023 and mature in August 2025. Management reported compliance with the loan covenants.
- The company reported no material litigation, no defaults upon senior securities, and effective disclosure controls at a reasonable assurance level.
Important facts for investors to verify
- Whether revenue growth and higher average selling prices can continue despite lower specimen volumes and declining COVID-19 demand.
- The expected cash runway given $9.349 million of operating cash burn during the first nine months and continuing operating losses.
- The filing’s inconsistent references to August 2022 versus November 2022 regarding the period after which additional capital may be required.
- The effect of public-company expenses, stock-based compensation, and any nonrecurring IPO-related costs on future operating margins.
- Terms, covenants, collateral, interest-rate exposure, and availability conditions for the remaining $1.5 million term-loan advance.
- Customer concentration, collection of billed and unbilled receivables, and the impact of terminating the factoring arrangement.