Precipio, Inc. — Q1 2022 Form 10-Q
Business context and period: Precipio develops cancer diagnostic products, reagents and services and operates CLIA laboratories in Connecticut and Nebraska. This unaudited filing covers the three months ended March 31, 2022; comparisons are with Q1 2021. Financial figures below are in millions of dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 or comparison |
|---|---|---|
| Net sales | $2.447 | $1.824; up 34% |
| Gross profit / margin | $0.703 / 29% | $0.468 / 26% |
| Operating expenses | $5.512 | $2.605 |
| Operating loss | $(4.809) | $(2.137) |
| Net loss | $(4.584) | $(1.451) |
| Net loss attributable to common stockholders | $(4.590); $(0.20) per share | $(1.452); $(0.08) per share |
| Cash used in operating activities | $(2.334) | $(1.260) |
| Cash and working capital at period end | $9.261 cash; $6.992 working capital | Cash was $11.668 and working capital $9.265 at Dec. 31, 2021 |
Cash declined $2.407 million during the quarter. Total liabilities were $5.719 million, including $0.180 million of net long-term debt and $1.143 million of lease liabilities. Current liabilities were $4.395 million. The company reported an accumulated deficit of $84.684 million. It had 22,708,708 common shares outstanding at March 31, 2022.
Material changes versus Q1 2021
- Net sales rose $0.623 million. Service revenue after doubtful-account allowance increased 16% to $1.925 million; other revenue increased to $0.522 million, primarily from the HSRR program.
- Diagnostic case volume fell 8%, to 997 from 1,083. Management attributed higher reported patient diagnostic service revenue partly to a lower doubtful-account allowance, rather than higher case volume.
- Cost of sales rose about $0.4 million. Gross margin improved to 29% from 26%.
- Operating expenses increased $2.907 million. Stock-based compensation was $2.232 million versus $0.437 million, including $1.1 million from accelerated option vesting and $0.5 million from an option modification related to an employee retirement.
- Q1 2021 other income included a $0.794 million gain from forgiveness of a Paycheck Protection Program loan; no comparable gain occurred in Q1 2022. Q1 2022 included a $0.222 million noncash gain from warrant revaluation.
- Weighted-average common shares increased to 22.709 million from 17.864 million; reported loss per share increased to $0.20 from $0.08.
Outlook, risks and unusual items
- Going concern: Management stated that substantial doubt remains about the company’s ability to continue as a going concern for the 12 months following issuance of the statements. Continued operations depend on executing the business plan, generating additional revenue and obtaining financing to meet obligations. The filing does not provide a specific cash-runway estimate.
- Potential financing: The company’s ATM agreement permits up to $22 million of aggregate sales. By the statements’ issuance date, it reported approximately $15.4 million in gross proceeds and $6.6 million available for future sales; elsewhere it reported $14.9 million in net proceeds to date. No ATM shares were sold in Q1 2022. Future sales are subject to market and offering limitations and may dilute shareholders.
- Management outlook: The company anticipates case volume to increase during the remainder of 2022 and cost per case to improve as volume provides economies of scale. This is not quantified guidance, and the filing cautions that interim results may not indicate full-year results.
- Risks: The filing highlights recurring losses and financing needs, COVID-19-related operating and supply-chain uncertainty, inflation and healthcare reimbursement and regulatory risks. Management said laboratory operations had resumed to near-normal capacity but supply availability could remain challenging.
- Contingencies: The company disclosed overdue vendor and supplier payables, with some creditors taking or threatening legal action. CPA Global claimed approximately $0.2 million for patent-maintenance services; less than $0.1 million was recorded as a liability, and no claim had been filed. Management reported no material regulatory inquiries.
- Controls: Management concluded disclosure controls were effective at a reasonable assurance level as of March 31, 2022; no material change in internal control over financial reporting was reported.
Investor facts to verify
- Whether the company can raise additional capital and manage obligations without substantial dilution, given the explicit going-concern uncertainty.
- Whether revenue growth can be sustained through higher underlying testing volume, considering Q1 case volume declined and lower bad-debt allowances lifted reported service revenue.
- Whether operating costs, including stock-based compensation and legal expenses, can be controlled as the business scales.
- The collectability and timing of accounts receivable, including reimbursement assumptions and payer concentration.
- The status and potential impact of overdue vendor balances, threatened creditor actions and other legal or regulatory contingencies.