Precipio, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; financial statements are unaudited. Precipio is a healthcare biotechnology company focused on cancer diagnostics, including laboratory testing and diagnostic products.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Net sales | $3.432 million | $2.817 million |
| Gross profit / margin | $0.920 million / 27% | $0.749 million / 27% |
| Operating expenses | $2.994 million | $3.775 million |
| Operating loss | $2.074 million | $3.026 million |
| Net loss | $2.079 million | $3.030 million |
| Loss per share, basic and diluted | $1.46 | $2.61 |
| Cash used in operating activities | $0.667 million | $1.575 million |
| Cash at period end | $0.776 million | $1.502 million at Dec. 31, 2023 |
| Working capital | $(0.732) million | $0.541 million at Dec. 31, 2023 |
At March 31, current assets were $2.595 million and current liabilities were $3.327 million. Long-term debt, net of issuance costs, was $0.232 million in total ($0.133 million current and $0.099 million long-term). Lease liabilities totaled $0.701 million. Total liabilities were $3.850 million; stockholders’ equity was $12.774 million. The accumulated deficit was $100.229 million.
Material changes versus the prior comparable period
- Net sales rose 22% year over year. Net service revenue after credit-loss allowance increased 35% to $2.775 million, while other revenue declined 14% to $0.657 million.
- Diagnostic case volume increased 72%, to 2,062 from 1,196. Management attributed higher service revenue to more cases, partly offset by a lower average price per case due to product mix.
- Gross profit increased with volume, but gross margin remained 27%. Cost of sales rose approximately $0.4 million.
- Operating expenses declined approximately $0.8 million, primarily from lower sales and marketing personnel costs, as well as lower stock compensation and R&D expenses. Net loss improved by approximately $0.951 million.
- Operating cash use improved by $0.908 million year over year. Cash nevertheless declined $0.726 million during Q1 2024.
- Accounts receivable, net, decreased to $0.906 million from $1.301 million at year-end; the allowance for credit losses increased to $2.655 million from $2.572 million.
Outlook, risks and unusual items
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern for the 12 months following issuance. The company has recurring losses, a working capital deficit, and continuing cash needs; its ability to meet obligations depends on executing its business plan and obtaining additional financing. The filing gives no assurance that financing or other initiatives will be sufficient.
- Financing and dilution: The company reported approximately $3.7 million of remaining availability under its 2023 ATM agreement and approximately $1.0 million under a prospectus supplement. ATM sales may dilute shareholders. At March 31, 459,535 warrant shares and 230,140 option shares were reserved for issuance.
- Subsequent borrowing: On May 1, 2024, the company obtained a $250,000 secured loan at 20% interest, with a CEO personal guaranty. It requires 52 weekly payments of approximately $6,000, for total repayment of $300,000 before fees. The company may request an additional loan of up to $250,000 subject to stated conditions.
- Change Healthcare disruption: The February 2024 cyberattack temporarily delayed billing and reimbursement. The company received less than $0.1 million in temporary, interest-free assistance through March 31 and approximately $0.6 million more after quarter-end. Management said the incident had not materially adversely affected results as of the filing, but the disruption and repayment obligations are relevant liquidity risks.
- Vendor and legal matters: The company disclosed delinquent accounts payable and vendors or suppliers that have taken or threatened legal action to collect. It also has approximately $1.6 million in future minimum purchase commitments, mainly for reagents, and disclosed legal and regulatory risks associated with healthcare reimbursement and compliance.
- The filing expects losses to continue at least through 2024 and identifies additional capital needs, reimbursement and payer exposure, cybersecurity, competition, Nasdaq listing compliance, and broader economic and geopolitical conditions as risks. It provides no specific revenue or earnings guidance.
Important facts for investors to verify
- Whether cash generation, case growth, and collections can improve sufficiently to address the going-concern uncertainty and working capital deficit.
- The company’s actual access to ATM proceeds and other financing, including the impact of further share issuance and outstanding warrants and options.
- The repayment schedule, effective cost, collateral terms, and any subsequent borrowing under the May 2024 secured loan.
- The effects of Change Healthcare claim-processing delays and the timing and terms of repayment of assistance received.
- Whether vendor delinquencies, threatened collections, purchase commitments, reimbursement estimates, or regulatory matters produce material cash or operating consequences.