iSpecimen Inc. 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual report, not a quarterly filing. iSpecimen operates a single online marketplace connecting life-science researchers with healthcare providers and other suppliers of human biospecimens and associated data.
Business Context
The iSpecimen Marketplace supports specimen search, matching, procurement, compliance, fulfillment, and reporting. Revenue is generated primarily from procuring and distributing biospecimens; the Company does not currently charge separate platform, marketing, contracting, or compliance fees.
- More than 6,703 registered external users and approximately 2,622 unique internet domains as of December 31, 2022.
- Supply network of approximately 200 healthcare organizations and biospecimen providers across 18 countries.
- Approximately 631 customers, with specimens distributed to 21 countries.
- More than 190,000 specimens delivered across nearly 2,670 projects since inception.
- Approximately 17 million patient records and 89 million clinical specimen records incorporated into the platform, along with banked specimen and laboratory data.
Financial Performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $10.402 million | $11.135 million | Down 7% |
| Cost of revenue | $4.757 million | $5.249 million | Down 9% |
| Gross profit | $5.645 million | $5.886 million | Down 4% |
| Gross margin | 54.3% | 52.9% | Up approximately 1.4 points |
| Total operating expenses | $20.588 million | $17.061 million | Up 21% |
| Loss from operations | $(10.186) million | $(5.925) million | Loss increased 72% |
| Net loss | $(10.246) million | $(8.962) million | Loss increased 14% |
| Adjusted EBITDA | $(7.522) million | $(4.332) million | Loss increased |
| Basic and diluted loss per share | $(1.16) | $(2.09) | Improved due primarily to higher share count |
Operating margin was approximately negative 97.9% in 2022 versus negative 53.2% in 2021. Net margin was approximately negative 98.5% versus negative 80.5%.
- Non-COVID-19 revenue increased 18.7% to approximately $9.535 million.
- COVID-19 revenue declined 72% to approximately $867,000 from $3.099 million.
- Specimens accessioned increased 32% to approximately 27,503, but average selling price per specimen decreased approximately 29% because of product mix.
- Technology expense increased 45% to $2.656 million; sales and marketing increased 42% to $3.445 million; supply development increased 40% to $801,000; fulfillment increased 46% to $1.996 million; and general and administrative expense increased 24% to $6.933 million.
- General and administrative expense included approximately $782,000 of severance costs related to former senior executives.
- Internally developed software costs of $2.976 million were capitalized, compared with $1.035 million in 2021.
Cash Flow, Liquidity and Debt
| Metric | December 31, 2022 | December 31, 2021 |
|---|---|---|
| Cash | $15.309 million | $27.739 million |
| Working capital | $15.395 million | $30.443 million |
| Total assets | $24.618 million | $35.720 million |
| Total liabilities | $4.308 million | $5.928 million |
| Stockholders’ equity | $20.309 million | $29.792 million |
| Accumulated deficit | $48.265 million | $38.019 million |
- Cash used in operating activities was $5.818 million, compared with $10.668 million in 2021.
- Cash used in investing activities was $3.191 million, including $2.976 million of capitalized software development.
- Cash used in financing activities was $3.421 million, primarily reflecting repayment of the $3.5 million term loan.
- The term loan was repaid in November 2022, and no debt was outstanding at year-end other than operating lease obligations.
- Management stated that existing cash and anticipated operating cash flow should fund requirements for at least the next 12 months. The filing states that continued viability beyond March 2024 may depend on raising additional capital.
- All cash was initially maintained at one financial institution and exceeded FDIC insurance limits. After the Silicon Valley Bank failure, the Company transferred approximately $7.2 million into short-term U.S. Treasury securities at another institution as of March 21, 2023 and was working to further diversify or insure its remaining cash.
Material Changes and Unusual Items
- Revenue declined despite higher specimen volume because COVID-19-related revenue fell substantially and average selling prices declined.
- The Russia-Ukraine war disrupted approximately $1 million of purchase orders during the first half of 2022, delayed fulfillment, increased operating demands, and reduced margins because alternate suppliers had less favorable economics.
- Former CEO and President Christopher Ianelli and former COO Jill Mullan departed in October 2022. Tracy Curley, previously CFO, became interim CEO in September 2022 and full-time CEO in January 2023 while continuing as CFO and Treasurer.
- The Company recorded approximately $701,000 of severance costs and accelerated certain restricted stock units for the departing executives.
- The Company’s customer base remains project-driven and non-recurring. Two customers represented approximately 14% and 12% of 2022 revenue; no customer represented more than 10% in 2021.
- Approximately 56% of 2022 revenue came from specimens obtained from existing supplier biobank inventories.
- One supplier accounted for approximately 12% of 2022 cost of revenue, and supplier concentration remained material.
- The Company reported no material litigation and no known data breach. Its independent auditor issued an unqualified opinion on the financial statements; no audit opinion on internal control effectiveness was required because of the Company’s emerging-growth-company status.
Guidance, Outlook and Risks
Management plans to continue investing in technology, supply development, sales and marketing, and operational capacity. Planned initiatives include improving marketplace matching, expanding sequencing and remnant offerings, increasing supplier utilization, strengthening the sales pipeline, and developing additional technology capabilities. Management also stated that it intends to pursue a cash-flow-positive position, but the filing does not provide quantitative revenue, margin, or profitability guidance.
- Management expects non-COVID-19 revenue to continue increasing and COVID-19 revenue to continue declining, although the financial impact is not determinable.
- Management expects significantly higher technology spending in 2023 and additional hiring in strategic areas.
- The Company has incurred losses since inception and expects losses to continue for the foreseeable future.
- Future capital needs could arise sooner than expected if revenue misses projections, the war or COVID-19 affects operations, inflation increases costs, or planned investments require additional cash.
- Key risks include customer and supplier concentration, non-recurring project-based revenue, supply constraints, order cancellations, regulatory and human-subject compliance, data privacy and cybersecurity, shipping and specimen quality, competition, international operations, inflation, Nasdaq listing compliance, and dependence on key personnel.
- The Company has no patents protecting its technology and relies primarily on copyrights, trademarks, trade secrets, confidentiality agreements, and contractual protections.
- Federal net operating loss carryforwards were approximately $40.8 million, but their future use may be limited under Section 382 and a full valuation allowance was recorded against deferred tax assets.
Important Facts for Investors to Verify
- Cash burn and available liquidity relative to the Company’s statement that additional capital may be required for operations beyond March 2024.
- Whether non-COVID-19 revenue growth can offset continued COVID-19 revenue declines and lower average selling prices.
- Progress toward cash-flow positivity, including the impact of planned technology spending and hiring.
- Customer and supplier concentration, order cancellation rates, fulfillment rates, and the ability to expand supply capacity.
- Execution under the new CEO, the search for a replacement CFO, and the effect of management changes on internal controls and operations.
- Exposure to additional disruptions from the Russia-Ukraine war, international sanctions, regulatory changes, and cross-border specimen shipment requirements.
- Cash diversification and protection following the Company’s disclosure that cash exceeded FDIC insurance limits at one institution.
- Potential dilution from approximately 297,559 outstanding stock options, 267,505 restricted stock units, and 1.415 million outstanding warrants as of December 31, 2022.