iSpecimen Inc. 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 filing covers the unaudited three and six months ended June 30, 2021, compared with the corresponding 2020 periods. The company operates as one reporting segment and is headquartered in Lexington, Massachusetts.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $2.904 million | $1.505 million | $5.868 million | $3.216 million |
| Gross profit | $1.415 million | $1.031 million | $2.755 million | $2.088 million |
| Gross margin | 48.7% | 68.5% | 47.0% | 64.9% |
| Loss from operations | $(1.529) million | $(0.305) million | $(2.471) million | $(0.749) million |
| Net loss | $(1.395) million | $(0.174) million | $(5.358) million | $(1.812) million |
| Adjusted EBITDA | $(1.249) million | $(0.048) million | $(1.927) million | $(0.242) million |
| Net loss per share | $(0.87) | $(0.19) | $(4.21) | $(1.94) |
- Revenue increased 93% in the quarter and 82% year to date. Q2 revenue growth reflected a more seasoned sales team, COVID-19 specimen demand, and increased non-COVID-19 research demand.
- Cost of revenue increased 214% in Q2 and 176% year to date, substantially exceeding revenue growth. Management attributed the increase to specimen mix and higher average cost per specimen.
- Operating expenses rose 145% in Q2 and 110% year to date. General and administrative expense increased substantially because of public-company costs, director and officer insurance, executive compensation, a $555,000 special IPO bonus, and other IPO-related legal, accounting, and consulting costs.
- Cash used in operating activities was $3.269 million for the six months ended June 30, 2021, compared with cash provided of $56,000 in the prior-year period. Investing cash use was $443,000, primarily for internally developed software.
- Financing activities provided $16.200 million, including $18.000 million of IPO proceeds, $500,000 of bridge-note proceeds, and $40,000 from stock-option exercises, partially offset by $2.340 million of offering costs.
- Cash was $13.184 million at June 30, 2021, versus $696,000 at December 31, 2020. Working capital was $10.993 million, and accumulated deficit was $34.416 million.
- At June 30, 2021, the company had $3.0 million of remaining bridge-note principal bearing interest at 15% and maturing December 16, 2022. Convertible notes, preferred stock, PPP debt, and the related derivative liabilities had been converted, extinguished, forgiven, or reclassified in connection with the IPO.
Material changes versus the prior comparable period
- Specimens accessioned in Q2 increased 8% to approximately 6,266, while the average selling price per specimen increased approximately 79%. For the six-month comparison, specimens accessioned decreased approximately 3% to 11,384, while average selling price increased approximately 88%.
- COVID-19 specimens represented approximately 31% of Q2 revenue in 2021 versus 42% in Q2 2020, and approximately 27% of six-month revenue versus 20% in the prior-year period. Management noted that COVID-19 specimen requests were declining through June 2021 while non-COVID-19 collections were increasing.
- The company completed its initial public offering during June 2021, selling 2.25 million shares at $8.00 per share for $18.0 million of gross proceeds and approximately $15.7 million of net proceeds. The filing also reports a July 1, 2021 sale of 337,500 additional shares for $2.7 million of gross proceeds and approximately $2.5 million net.
- In connection with the IPO, 1.291 million preferred shares converted into common stock, $6.757 million of convertible-note principal and accrued interest converted into 1.207 million common shares, and $4.718 million of bridge-note principal and accrued interest converted into 842,429 common shares.
- The company entered into an accounts-receivable factoring arrangement in January 2021, paying approximately $257,000 in factoring fees during the six months. The arrangement was terminated June 30, 2021, and the company paid $139,374 to settle its balance with the factor.
Outlook, risks, contingencies, and unusual items
- No formal revenue, earnings, or margin guidance is provided in the filing.
- Management expects existing cash to fund operations for at least 12 months from issuance of the financial statements, alleviating prior substantial doubt regarding going concern. However, continued viability beyond August 2022 may depend on raising additional capital because of recurring losses.
- COVID-19 continues to create risks to specimen supply, employee availability, researcher demand, healthcare-provider operations, liquidity, and financial results. The duration and financial effect cannot be reasonably estimated.
- The company recorded a $2.740 million loss on extinguishment of bridge notes, a $260,000 loss on extinguishment of convertible notes, a $788,000 gain from PPP-loan forgiveness, and a $1.583 million gain from the change in fair value of bridge-note derivative liabilities during the six months.
- Customer concentration remains material: two customers represented approximately 14% and 11% of six-month revenue. The company also maintains substantially all cash at one financial institution, potentially above federally insured limits.
- The company had no material litigation as of June 30, 2021. Operating lease commitments totaled approximately $437,000 through February 2024.
- The filing states that disclosure controls and procedures were effective at a reasonable assurance level and that there were no material changes in internal control over financial reporting during the quarter.
Investor verification points
- Verify the sustainability of revenue growth and whether higher specimen costs and changing COVID-19 mix continue to pressure gross margins.
- Assess cash burn, the $3.0 million bridge-note maturity, and the likelihood and terms of future capital raises.
- Review the use of IPO proceeds, including planned technology, supply-network, sales, and operating investments.
- Reconcile the filing’s differing references to IPO completion dates and reported receivables sold under the factoring agreement.
- Monitor customer concentration, accounts-receivable collections, factoring costs, and the company’s reliance on a limited number of customers and one cash-depository institution.
- Consider dilution from 224,914 outstanding stock options, 90,000 underwriter warrants, and other outstanding warrants.