AquaBounty Technologies, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. AquaBounty develops land-based aquaculture and sells genetically engineered (GE) Atlantic salmon, conventional salmon eggs and fry, and byproducts. Its GE salmon has U.S. and Canadian approvals; Brazil approved sales in 2021.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $455,000 | $68,000 | $757,000 | $77,000 |
| Product costs | $4.31 million | $1.36 million | $7.71 million | $3.24 million |
| Operating loss | $6.81 million | $3.61 million | $16.08 million | $10.21 million |
| Net loss | $6.86 million | $3.65 million | $16.25 million | $10.28 million |
| Net loss per share | $0.10 | $0.09 | $0.24 | $0.31 |
| Operating cash used | Not separately presented | Not separately presented | $15.11 million | $10.59 million |
Product costs exceeded revenue in both reported periods; Q3 gross loss was approximately $3.86 million, with a negative gross margin of about 847%. For the first nine months, gross loss was approximately $6.96 million, or a negative gross margin of about 919%.
At September 30, cash and cash equivalents were $118.18 million and marketable securities were $79.63 million, totaling about $197.81 million. Total assets were $231.35 million; total liabilities were $11.56 million, including $9.37 million of debt. Stockholders’ equity was $219.80 million. The company raised $119.1 million net in a February public offering. Shares outstanding were 71.03 million at September 30.
Cash used in investing was $83.82 million, primarily reflecting $79.65 million of marketable securities purchases and $4.16 million of capital expenditures. Financing provided $121.33 million. Management said available cash and securities should fund requirements for at least 12 months from the filing date, while noting additional financing may be needed before reaching positive operating cash flow.
Changes, outlook, and material items
- Revenue increased substantially from a low base as the company began harvesting and selling GE salmon from its Indiana and Rollo Bay farms. Year-to-date revenue rose 883%; net loss increased 58% versus the prior-year period.
- Q3 product costs included a $1.5 million inventory write-down to net realizable value, reflecting lower-than-expected harvest yields and higher transportation costs. Labor shortages at Indiana and increased processing and transportation costs also impaired results.
- Management expected revenue to grow slowly through the remainder of 2021 as harvesting capability increased. It stated the company did not expect to reach Indiana’s 1,200-metric-ton annual harvest level in the next 12 months.
- The planned Ohio farm was estimated to cost $290 million–$320 million, including a $30 million contingency reserve. Construction had not begun; the company said it lacked the resources to commence and expected to fund the project through cash on hand and debt. Cost, timing, site, permitting, and financing remain uncertain.
- COVID-19-related labor, vendor, equipment, and transportation constraints have delayed projects, raised costs, and affected harvest capacity and salmon demand. The company said these pressures were expected to continue.
- On October 12, 2021, the company modified its $4.0 million First Farmers Bank & Trust loan: certain negative covenants were delayed until the quarter beginning October 1, 2022, and required restricted cash increased from $500,000 to $1.0 million.
Risks and contingencies
The company has incurred cumulative losses of approximately $165 million and may not achieve profitability. Key risks include obtaining financing and permits for new farms; construction delays and cost overruns; ongoing production, labor, and supply-chain constraints; market acceptance of genetically engineered foods; regulatory or legislative changes; and inventory valuation exposure. The filing identifies HR 273, a proposed bill that could impose additional restrictions on the business. Management reported no legal proceedings expected to have a material adverse effect and no material changes to previously disclosed commitments and contingencies.
Investor facts to verify
- Whether harvest yields, processing and transportation costs, and inventory net realizable value improve after the $1.5 million write-down.
- Actual commercial revenue growth and harvest volumes at Indiana and Rollo Bay compared with management’s expectations.
- Ohio farm site, permitting, final project cost, construction schedule, and committed financing.
- Liquidity runway and financing needs, including the restricted-cash requirement under the amended bank loan.
- Effects of COVID-19-related staffing and supply-chain constraints, salmon demand, and regulatory or legislative developments affecting GE products.