Precipio, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Precipio is a cancer-diagnostics company operating CLIA laboratories and developing diagnostic products, reagents, and services. Financial figures below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $2.359 | $2.344 | $4.806 | $4.168 |
| Gross profit | $0.773 | $0.751 | $1.476 | $1.219 |
| Gross margin | 33% | 32% | 31% | 29% |
| Operating expenses | $3.206 | $2.883 | $8.718 | $5.488 |
| Operating loss | $(2.433) | $(2.132) | $(7.242) | $(4.269) |
| Net loss attributable to common stockholders | $(2.144) | $(3.013) | $(6.734) | $(4.465) |
| Loss per share | $(0.09) | $(0.14) | $(0.30) | $(0.23) |
Revenue and margins: Q2 net sales were nearly flat year over year. Service revenue after doubtful-account adjustments was essentially unchanged at $2.139 million; other revenue rose 7% to $0.220 million. For the first half, net sales increased 15%, including a 7% increase in adjusted service revenue and a 99% increase in other revenue, primarily related to the HSRR program. Case volume declined 14% in Q2 (1,009 versus 1,168) and 11% for the first half (2,006 versus 2,251); management attributed higher service revenue despite fewer cases in part to improved reimbursement rates. Gross margin improved in both periods.
Profitability and unusual items: Operating expenses rose $0.3 million in Q2 and $3.2 million in the first half. First-half growth included $1.9 million more stock-based compensation, with $2.7 million total stock-based compensation expense versus $0.8 million a year earlier. This included $1.1 million from accelerated option vesting and $0.5 million from a modification related to a former employee’s retirement. Q2 net loss improved year over year, largely because warrant revaluation produced $0.3 million of income versus $0.9 million of expense in Q2 2021. First-half net loss increased; the 2021 comparison included a $0.8 million PPP-loan forgiveness gain.
Cash flow, liquidity, and debt
- Cash was $7.473 million at June 30, 2022, down $4.195 million from December 31, 2021. First-half operating cash use was $3.980 million, compared with $3.013 million a year earlier; investing cash use was $0.106 million and financing cash use was $0.109 million.
- Working capital was $5.212 million, down from $9.265 million at year-end. Current assets were $9.606 million and current liabilities $4.394 million.
- Long-term debt, net of current maturities and issuance costs, was $0.148 million; current debt was $0.026 million. Lease liabilities totaled $1.151 million, including current and long-term operating and finance lease obligations.
- Management stated that substantial doubt remains about the Company’s ability to continue as a going concern for the next 12 months from issuance of the financial statements. Continued operations depend on executing the business plan, generating revenue, and obtaining additional financing to meet obligations.
- The AGP at-the-market facility had up to approximately $6.5 million of gross proceeds remaining, according to the filing. No shares were sold under it in the first half of 2022; approximately $0.1 million of net proceeds came from sales after June 30 through the report’s issuance.
Outlook, risks, and contingencies
- Management expects case volume to increase during the remainder of 2022 and believes higher volume could improve laboratory economies of scale and costs per case. This is an expectation, not quantified formal guidance.
- The filing cites ongoing losses, cash consumption, the need for additional capital, possible dilution or unfavorable financing terms, and uncertainty in capital markets as key risks. COVID-19-related supply availability and operational disruption, inflationary costs, reimbursement estimates, and competition are also risks.
- The Company reported delinquent vendor and supplier payables, with some vendors having taken or threatened legal action. CPA Global previously asserted a claim of approximately $0.2 million; less than $0.1 million was accrued, and no claim had been filed.
- Management reported no material regulatory inquiries and stated that disclosure controls were effective at a reasonable-assurance level as of June 30, 2022.
Important facts for investors to verify
- Cash runway, financing needs, and the amount and timing of any additional ATM sales or other financing.
- Whether lower case volumes reverse, and whether reimbursement rates and HSRR revenues support sustained sales and margin growth.
- Whether operating expenses—particularly stock-based compensation, legal costs, and personnel costs—can be controlled relative to revenue.
- Accounts receivable collectability and allowance assumptions: net receivables were $1.127 million, against gross receivables of $3.240 million.
- Developments in overdue vendor balances, threatened collection actions, and other legal or regulatory contingencies.