Precipio, Inc. — Q2 2023 Form 10-Q
Business context and period. Precipio is a cancer-diagnostics company operating CLIA laboratories and selling diagnostic services, reagents and products. This unaudited report covers the quarter and six months ended June 30, 2023; financial amounts below are in millions unless noted.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $3.533 | $2.359 | $6.350 | $4.806 |
| Gross profit / margin | $1.371 / 39% | $0.773 / 33% | $2.120 / 33% | $1.476 / 31% |
| Operating loss | $(2.292) | $(2.433) | $(5.318) | $(7.242) |
| Net loss attributable to common stockholders | $(2.293) | $(2.144) | $(5.323) | $(6.734) |
| Basic and diluted loss per share | $(0.09) | $(0.09) | $(0.22) | $(0.30) |
- Revenue and margins: Q2 net sales rose 50% year over year; six-month sales rose 32%. Service revenue benefited from higher case volumes, while other revenue growth was mainly attributed to HemeScreen reagent sales. Cases processed increased 60% in Q2 and 40% for the six-month period. Management noted lower revenue per case partly offset Q2 volume growth.
- Costs and earnings: Q2 operating expenses increased $0.5 million, including higher legal/professional and sales and marketing costs. Six-month operating expenses fell $1.3 million, largely because stock-based compensation declined $1.9 million, partly offset by higher sales and marketing costs. Prior-year warrant revaluation income ($0.3 million in Q2; $0.5 million for six months) did not recur, contributing to the Q2 net-loss comparison.
- Cash flow: Six-month operating cash use was $2.777 million, versus $3.980 million in 2022. Investing cash use was $0.054 million. Financing provided $1.959 million, mainly from equity issuance. Cash declined $0.872 million to $2.573 million.
- Balance sheet and debt: At June 30, cash was $2.573 million, current assets $4.348 million and current liabilities $4.721 million, producing negative working capital of $0.373 million. Long-term debt, net of issuance costs, totaled $0.147 million ($0.027 million current and $0.120 million noncurrent); lease liabilities totaled $0.920 million. Accounts payable were $2.402 million and accrued expenses $1.895 million.
- Equity: Common shares outstanding rose from 22.82 million at December 31, 2022 to 27.56 million at June 30, 2023. The June registered direct offering raised about $2.0 million gross and $1.8 million net, issuing 4.125 million shares and warrants. The company reported 8.889 million common warrants exercisable at $0.63, plus 0.319 million pre-funded warrants.
Outlook, risks and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern for the next 12 months. It cited recurring losses, $2.8 million of operating cash use in the first half, $97.6 million accumulated deficit and negative working capital. Continued operations depend on executing the business plan, generating additional revenue and obtaining financing. No quantified revenue or earnings guidance is provided.
- Financing and dilution: The company has an at-the-market agreement with up to approximately $3.8 million available for future sales as of the filing. Further equity issuance or warrant exercises could dilute existing holders. The company also faces risk that financing may not be available on acceptable terms.
- Nasdaq listing: The company reported it was not in compliance with Nasdaq’s $1.00 minimum bid-price rule and had until October 23, 2023 to demonstrate compliance for at least ten consecutive business days, subject to other listing requirements. Delisting could impair liquidity and access to capital.
- Other risks and contingencies: Certain vendors had taken or threatened legal action over overdue payables. Reagent purchase commitments were approximately $0.8 million. Healthcare reimbursement and fraud-and-abuse regulation, payer estimates, competition, operating costs and the macroeconomic environment are also risks. The company was working to dissolve its Poplar joint venture, expected in Q4 2023.
- Controls: Management concluded disclosure controls were effective at a reasonable assurance level as of June 30, 2023 and reported no material change in internal control during the quarter.
Important facts for investors to verify
- Whether Precipio can obtain sufficient financing and manage cash use given the stated going-concern uncertainty and negative working capital.
- Whether diagnostic case growth and HemeScreen sales continue, and whether revenue per case and gross margins hold up.
- Nasdaq bid-price compliance status and any consequences for continued listing.
- Actual dilution from the June offering, outstanding warrants and any future ATM sales.
- Collection of receivables, including the reported $2.478 million allowance against $3.362 million of gross receivables, and settlement of overdue vendor balances.