Precipio, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. Precipio is a cancer diagnostics and reagent technology company operating diagnostic laboratories and developing products including HemeScreen.
Financial performance and position
Amounts are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $2.344 | $1.308 | $4.168 | $2.524 |
| Gross profit / margin | $0.751 / 32% | $0.171 / 13% | $1.219 / 29% | $0.296 / 12% |
| Operating loss | $(2.132) | $(2.259) | $(4.269) | $(4.462) |
| Net loss | $(3.010) | $(2.232) | $(4.461) | $(5.437) |
| Basic and diluted loss per share | $(0.14) | $(0.20) | $(0.23) | $(0.89) |
- Q2 service revenue was $2.038 million and other revenue was $0.206 million. Net sales increased 79% year over year in Q2 and 65% for the first half. Management attributed growth principally to higher diagnostic case volume: 1,168 cases in Q2, up 49%, and 2,251 in the first half, up 56%.
- Operating expenses were $2.883 million in Q2 and $5.488 million in the first half. Despite improved operating results, Q2 net loss increased year over year, primarily reflecting $0.894 million of warrant revaluation expense. First-half net loss improved in part due to $0.794 million of PPP loan forgiveness income.
- Cash was $15.701 million at June 30, versus $2.656 million at year-end 2020. Working capital was $13.342 million, compared with a deficit of $0.452 million at year-end. First-half operating cash use was $3.048 million; investing cash use was $0.321 million; financing provided $16.414 million.
- First-half financing included $16.207 million net proceeds from common-stock issuance and $0.400 million from warrant exercises. Common shares outstanding rose to 22.707 million from 17.577 million at year-end.
- Balance-sheet debt, net of issuance costs, was $0.199 million, down from $1.010 million at year-end, following PPP loan forgiveness. Lease liabilities totaled $0.654 million. Common-stock warrant liabilities were $2.207 million, up from $1.325 million.
Changes, outlook, and risks
- Gross margin improved substantially as higher case volume helped leverage laboratory fixed costs. Management said it expected case volume to increase during 2021 and costs per case to improve as further economies of scale became possible; this is not quantified formal financial guidance.
- The HemeScreen Reagent Rental program began generating recurring revenue from its first few accounts in the first half. Precipio also expanded distribution of its rapid COVID-19 antibody test through Amazon’s healthcare platform in May 2021.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern for the next 12 months, despite the higher cash balance. Continued operations depend on executing the business plan, generating revenue, managing COVID-19 disruption, and obtaining financing as needed. The company stated that $6.6 million remained available for future sales under its ATM agreement as of the financial-statement issuance date, subject to offering limitations.
- COVID-19 effects remained uncertain. The filing reported business interruptions in certain urban markets ranging from 30% to 85% and cautioned that effects on operations, customers, vendors, revenue, expenses, and liquidity could be material.
- Other risks include continuing operating losses, the need for additional capital and potential further dilution, payer reimbursement and collections, healthcare regulatory requirements, and vendor payment delinquencies. Certain vendors had taken or threatened legal action over unpaid amounts. Management reported no material regulatory inquiries and stated that disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- Whether cash and remaining financing capacity are sufficient to fund operations and obligations, given the going-concern warning and recurring operating cash burn.
- Whether diagnostic case growth and HemeScreen recurring revenue continue, and whether gross-margin gains persist as volume and product mix change.
- The extent of future equity issuance, dilution, and ATM availability under public-float and authorized-share restrictions.
- Collections, payer allowances, and reimbursement assumptions: gross receivables were $1.852 million, offset by a $1.409 million doubtful-account allowance at June 30.
- Potential impact of warrant revaluations, healthcare regulation, COVID-19 disruption, and threatened vendor claims on reported results and liquidity.