AquaBounty Technologies, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. AquaBounty develops and sells farm-raised Atlantic salmon, including genetically engineered (GE) salmon, produced at land-based aquaculture farms. Commercial sales began in 2021.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $397,846 | $962,881 | Down 59% |
| Operating loss | $6.48 million | $5.10 million | Loss increased 27% |
| Net loss | $6.49 million | $5.11 million | Loss increased 27% |
| Basic and diluted loss per share | $0.09 | $0.07 | Loss per share increased |
| Operating cash used | $6.14 million | $5.33 million | Use increased $0.82 million |
| Capital spending and other investing cash used | $22.94 million | $7.47 million | Use increased $15.47 million |
- GE salmon revenue was $392,428, versus $920,837 a year earlier. Harvest volume fell to 66 metric tons from 133 metric tons. The filing attributes lower sales primarily to Indiana processing-building repairs that limited harvesting and Rollo Bay’s shift from grow-out production to broodstock maintenance; conventional egg and fry sales also declined due to shipment timing.
- Product costs were $3.56 million, up 9%, while revenue fell. The filing does not report a gross margin; comparing product costs with revenue implies a gross loss of approximately $3.16 million before other operating expenses.
- Sales and marketing expense declined 20% to $198,285. Reported R&D expense declined 26% to $122,917, reflecting provincial grant support; gross R&D expense excluding grants was $219,000, compared with $178,000. General and administrative expense rose 26% to $3.00 million, mainly due to state excise tax liabilities, legal fees, and personnel costs.
- Cash, cash equivalents, and restricted cash totaled $73.78 million at March 31, 2023, including $72.78 million of unrestricted cash and $1.00 million restricted. Cash and cash equivalents had been $101.64 million at December 31, 2022. Total assets were $206.29 million and stockholders’ equity was $185.64 million.
- Total debt outstanding was $8.95 million before debt issuance costs, including $2.38 million current debt and $6.53 million long-term debt, net. Interest expense was $66,274. Interest-bearing debt was approximately $5.0 million; the company reported compliance with the Indiana subsidiary’s loan covenants.
Material changes, outlook, and liquidity
- Management expects revenue to grow modestly in 2023, with slow growth for the remainder of the year as Indiana repairs are completed. Results may also be affected by seasonal demand and changing market prices. No numerical revenue guidance was provided.
- The Ohio farm is designed for 10,000 metric tons of annual salmon production. Estimated total project cost is $375 million to $395 million; $99 million had been spent by March 31, 2023. Construction in progress was $100.23 million, including $95.6 million for Ohio, and a further $36.5 million was contractually committed for farm sites. Q1 investing cash use rose substantially, primarily reflecting farm construction and equipment spending.
- Management plans to fund remaining Ohio construction using cash on hand and debt financing, and stated that available cash is sufficient for requirements beyond the next 12 months from the filing date. The company also stated that it will need additional financing until it achieves profitability. Potential sources include equity, debt, government or third-party funding, and strategic arrangements; these could dilute shareholders or impose restrictive terms. Failure to obtain funding could force a reduction in planned operations.
- Inflation continues to raise farming, transportation, wage, and construction costs; supply-chain delays and equipment lead times also remain risks. Management expects inflation to negatively affect near-term results.
Risks, contingencies, and other notable items
- Customer concentration increased: the top three customers represented 93% of Q1 2023 revenue (54%, 24%, and 15%, respectively), versus 69% in Q1 2022. Loss of a major customer or pricing pressure could materially affect sales.
- Nasdaq had notified the company of a minimum-bid-price deficiency. On May 2, 2023, it granted an additional compliance period through October 30, 2023; the company said it may use a reverse stock split if necessary. Continued noncompliance could lead to delisting.
- The company disclosed that 96% of its cash and cash equivalents were deposited at Citizens Bank, significantly above federally insured limits, and warned that a bank failure or financial-sector disruption could impair access to funds or operations.
- The company reported no legal proceedings expected to have a material adverse effect. It forecast a 0% effective tax rate for 2023 due to anticipated losses and maintained a full valuation allowance against deferred tax assets.
Important facts for investors to verify
- Progress, remaining cost, committed funding, and financing terms for the Ohio farm relative to the $375 million–$395 million estimate.
- Completion of Indiana processing repairs and whether harvest volumes, revenue, and product costs improve as expected.
- Cash burn, financing needs, potential dilution, and the company’s stated liquidity outlook.
- Customer concentration, customer retention, and any changes in major-customer purchasing or pricing.
- Nasdaq bid-price compliance by October 30, 2023, and any reverse-stock-split decision.
- Exposure of cash deposits above insured limits and the effect of inflation and supply-chain constraints on operating and construction costs.