iSpecimen Inc.

Good day, everyone, and welcome to iSpecimens' full-year 2021 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow management's remarks. This conference call is being recorded. A replay of today's call will be available on the Investor Relations section of iSpecimens' website and will remain posted there for the next 30 days. I will now hand the call over to Allison Sauce, Investor Relations, for introductions and the reading of the Safe Harbor Statement. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to iSpecimen's full year 2021 results conference call. With us on today's call are Christopher Ionelli, iSpecimen's Chief Executive Officer and President, Tracy Curley, Chief Financial Officer, and Jill Mullen, Chief Operating Officer. Before we begin, I would like to remind you that today's call contains certain forward-looking statements from our management. made within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, including with respect to the company's recent IPO and the anticipated use of the net proceeds as well as concerning future events. Words such as may, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates, and variations of such words and similar expressions are intended to identify forward-looking statements. These statements are subject to numerous conditions, many of which are beyond the control of the company, including those set forth in the risk factor section of the company's registration statement and the final prospectus for the company's initial public offering filed with the SEC. Copies of these documents are available on the SEC's website at www.sec.gov, actual results may differ materially from those expressed or implied by such forward-looking statements. The company undertakes no obligation to update these statements for revision or changes after the date of this call, except as required by law. Now, it is my pleasure to introduce Christopher Ionelli, CEO and President, Vice President. Chris, please go ahead.

Thanks, Alison. Good morning, everyone, and thank you for joining us on today's conference call. We will begin by providing you with an overview of our operational and financial performance during the 12 months ended December 31st, 2021. Following that Tracy, Jill and I will open the line to take your questions. For iSpecimen 2021 represented one of the most significant periods in the history of the company. During the year we had several major investment related accomplishments. In June, we closed our initial public offering, raising just over $20 million, and began trading on the NASDAQ. Concurrent with the IPO, we converted $16.1 million of debt, including $2 million of accrued and unpaid interest, and $11.2 million of preferred stock into shares of common stock. In addition, we paid $2.8 million of accrued and unpaid interest. In August, we completed a four-year, $3.5 million debt financing at an annual rate of 4.25% interest with a financial institution and paid off the remaining $3 million of pre-IPO bridge notes. This additional capital significantly improved our balance sheet and has allowed us to start investing more aggressively in the growth of our business, specifically the expansion of our supply network and the further development of our marketplace technology. In September, we were added to the Russell Microcap Index. We also completed a $21 million private placement right after Thanksgiving, the proceeds of which have allowed us to further accelerate the development of our marketplace platform and pursue some inorganic growth opportunities, which I'll discuss later in my remarks. Collectively, these capital raises are helping ensure that the company is well positioned to advance the development of the iSpecimen marketplace platform and network and to execute on our strategy to address the fragmented biospecimen procurement challenge. Switching gears, allow me to provide highlights from our full year 2021 operational results. At the end of the year, we had 200 unique supplier organizations under agreement, an increase of 19 supplier organizations compared to the end of 2020. These new supplier relationships helped expand the capabilities of our biospecimen network by providing us access to specimens such as characterized and sequenced COVID-19 samples, a broader array of oncology biofluids and tissues, and both fresh and cryopreserved hematopoietic cell products, among others. We also grew our customer base as defined by the number of unique organizations that have ever procured specimens from us. We ended 2021 with 415 unique customer organizations, an increase of 26% from 330 at the end of 2020. These new organizations consisted primarily of commercial biotechnology, pharmaceutical, and diagnostic companies, but also included some universities, not-for-profit research centers, and a number of government agencies. As of December 31st, 2021, Our iSpecimen marketplace was comprised of more than 5,000 total registered customer-side and supplier-side users, representing an increase of 33% compared to 2020. We also added more than 2 million new patient records and 13 million new specimen records to the marketplace platform during this time. Both of these achievements represent significant milestones for iSpecimen. For the full year 2021, We reported revenue of approximately $11.1 million, an increase of 36% year over year compared to approximately $8.2 million for fiscal year 2020. Of note, the majority of this annual revenue growth came from non-COVID business areas, as opposed to 2020, where our growth was primarily driven by a spike in demand for COVID-19 specimens, which was the result of diagnostics and therapeutics developers responding to the pandemic by shifting to COVID-19 research. We believe the overall demand for non-COVID specimens from the diagnostics and therapeutics markets is nearly back to pre-pandemic levels, as evidenced by our growth in non-COVID specimens in the second half of this year. It should be noted that we do not view COVID as a business outlier, but rather as just another one of the many disease categories that we support. As with any disease category that we support, we will continue to assess and pursue accretive opportunities to improve our offerings in the category. A good example of this may be seen with the recent expansion of our supplier network to include a reference laboratory in New York, specifically to support commercial and government customers focused on COVID-19 research and needing sequenced biospecimens containing distinct coronavirus variants. While our non-COVID business is once again growing, the pandemic continues to pose business challenges. On the supply side, healthcare providers continue to face intermittent COVID-related constraints. Specifically, during periods of high infection prevalence, biospecimen collections tend to slow as patients avoid in-person appointments, as healthcare personnel are sick or working from home, and resources get focused on the delivery of healthcare services versus the delivery of research specimens. For example, during the most recent spike of the Omicron variant, nearly 60% of our supply chain was operating at less than full capacity, which we believe contributed to the slower biospecimen collections in the fourth quarter of 2021. As Omicron infection rates continue to decrease, we expect these supply-side challenges to abate. Turning to other recent business activity, in October, we expanded our biospecimen supplier network to offer increasingly comprehensive selections of whole blood, plasma, and other biofluids, to help accelerate the development of numerous liquid biopsy assays. In connection with the development of liquid biopsies, we added another US-based organization with numerous blood donation centers across the country and access to tens of thousands of donors registered to provide blood for research. In December, we expanded our global biospecimen provider network in support of research related to neurological disorders. To date, we have added more than a dozen sample providers to our network of suppliers that provide access to banked or custom collections of biospecimens, such as cerebrospinal fluid, other biofluids, or cells to help advance central nervous system or CNS research. This is particularly important for us to support, given the roughly 1 billion people worldwide that are afflicted with neurological disorders. Also in December, we announced growth of our global supplier network with 25% of our specimen suppliers added in 2021 coming from outside the United States. This expansion enhances the value of iSpecimens' federated network of human biospecimens suppliers for research across the United States and Europe, augmenting our existing network that also includes suppliers in Asia Pacific. Looking ahead, we are well positioned and prepared to pursue both organic and inorganic growth strategies. As mentioned earlier, in late 2021, we raised an additional $21 million in a private placement, and our plan is to invest this capital to position us for accelerated growth. To achieve organic growth, you'll see us continue to work alleviating supply constraints throughout supply expansion programs and technology development efforts. First, we'll continue to expand our supply network by both gaining access to more patients, samples, and data within our existing supply network, as well as adding new suppliers to the network. Second, we're continuing to invest more in the development of our marketplace platform to make it easier for researchers and specimen providers to connect. In 2022, we expect to support broader healthcare datasets and tools to accelerate the onboarding of suppliers and their data into our marketplace. We also plan on introducing new search capabilities that make it even easier to find patients, samples, and data for research. And finally, we're developing streamlined workflow tools to increase the efficiency of both our suppliers and our internal operations. All of these should help accelerate the growth of our existing biospecimen business. Turning to inorganic growth, we are assessing adjacent business opportunities that can help alleviate supply constraints while also adding to our overall revenue growth. We are in the early stages of this work. Now, I'll pass the call on to Tracy Curley, who will review our financial results. Tracy.

Thank you, Chris, and good morning, everyone. Today, I'll review our financial results for the 12 months into December 31st, 2021, compared to the same period in 2020. For the 12-month period ended December 31, 2021, we reported a 36% increase in revenue, approximately $11.1 million, compared to approximately $8.2 million during the same period last year. The increase in revenue for 2021 was primarily attributable to the success of our maturing sales team. For the 12 months ended December 31, 2021, non-COVID-19 related revenue was approximately $8 million, or 72% of our revenue, compared to approximately $4.7 million, or 57% of our revenue for the comparable 2020 period. For the 12 months into December 31st, 2021, COVID-19 related revenue was approximately $3.1 million, or 28% of revenue, compared to approximately $3.5 million, for 43% of revenue for the comparable period in 2020. As a reminder, for the first quarter of 2020, we had no COVID-19 related revenue. Specimens accession in 2021 decreased 6% to approximately 20,800 specimens compared to approximately 22,100 specimens accession during the 12 months ended December 31st, 2020. However, change in the specimen mix resulted in an increase in the average selling price per specimen of approximately $165, or 45%, compared to the same prior year's period. Cost of revenue for the 12-month period ended December 31, 2021, was approximately $5.2 million, compared to approximately $3.6 million for the same period in 2020. which was attributable to a 56% increase in the average cost per specimen offset by a decrease in the number of specimens accessioned during the same current 12-month period over the same prior year period. The significant increase in the average cost per specimen for 2021 is a result of both a changing specimen mix and a significant project in 2020, which yielded lower than normal average cost per specimen in 2020. The 12-month period ended December 31, 2021. Technology expense was approximately $1.8 million compared to approximately $1.5 million during the same period last year. The increase in 2021 was primarily related to an increase in operating and maintenance expenses and in amortization, partially offset by a decrease in project expenses for development of the company's technology that we were not allowed to capitalize. As you may recall, a portion of the proceeds from our IPO are earmarked specifically through technology, and we do expect to spend more in this area moving forward. When the 12-month period ended December 31, 2021, sales and marketing expenses were approximately $2.4 million compared to approximately $1.8 million during the same period last year. The increases in expenses in 2021 are related to the hiring of additional staff during the second half of 2020 and the first half of 2021 and external marketing efforts. We also expect to continue to spend more in this area moving forward. For the 12-month period ended December 31, 2021, general and administrative expenses were approximately $5.6 million. compared to approximately $2.4 million during the same period last year. The increase in costs were primarily attributable to becoming a public company, including director and officer insurance, as well as increased costs in all other general administrative areas, such as human resources, outsourced information technology and software licenses, loss in the sale of accounts receivable, and the allowance for doubtful accounts. Additionally, the remaining increase of approximately $1 million is related to costs not expected to recur in the future, such as human resource costs of approximately $1 million for a special IPO bonus, which was provided to all employees in the form of cash and restricted stock units, and increased legal and accounting consulting expenses that did not qualify as offering costs. We do expect this classification expenses to continue to be higher than historical levels due to our projected growth and the cost of being a public company, which on an annual basis we are currently estimating will be approximately $2 million. As of December 31, 2021, our cash balance was approximately $27.7 million, compared to a cash balance of approximately $696,000 on December 31, 2020. This concludes our prepared remarks. Now I would like to open the call for questions. Operator, please go ahead.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions. Our first questions come from the line of Matt Hewitt with Craig Hallam. Please proceed with your questions.

Hi guys, this is Lucas on for Matt Hewitt. I guess starting with the results that you put out, it looks like revenue kind of took a step down in the fourth quarter. Is it fair to say that was really due to the spike in the Omicron variant or were there, you know, some other factors we should be aware of?

Hi, Lucas. How are you? This is Chris. Thanks for the question. So I think it is fair to say that, but we were prepared for that question because it was slightly down compared to where we thought it was going to end up. And How I was going to answer the question was maybe in the spirit of the Olympics, I was going to say it's our COVID dismount. We find ourselves emerging from COVID and seeing a decline in the COVID requests and the COVID order flow, while at the same time we see resumption of non-COVID order flow. So I think we're trapped somewhere in between the declining COVID and the picking up of non-COVID orders is the best that we can do to explain why there's that relatively – diminished revenue in Q4 relative to what we thought it would be. So, yes, I think it is a COVID effect.

And I would say Chris just was talking about the demand side. This is Jill. There's also the supply side, and on the supply side, which are predominantly the healthcare providers, we know that Omicron impacted their ability to collect specimens. We ran a recent survey beginning of January of all of our supply sites, and about 60% of them at that time said they were either, well, they were partially shut down, so partially or fully shut down, so not operating at full capacity. So we know that has impacted their ability to deliver specimens to us. And this is Tracy.

I'd just like to throw out some numbers so you can sort of get a perspective on the COVID versus non-COVID for Q4. Almost 80% of our revenue in Q4 was non-COVID revenue. The remaining was COVID revenue. And when we look, Q4 2020, 2021 to Q4 2020, our non-COVID revenue was up 55% compared in 2021 compared to 2020, but our COVID revenue is down 61%. So it definitely is a crossroad for us and a flipping, if you will, of the mix we've been seeing between COVID and non-COVID over the last year or so.

Okay, thank you. That's all really helpful. And then I guess, you know, moving beyond the results, you know, last quarter I believe you had around six site development reps on staff. How many do you have now, and are you planning to add any over the rest of the year?

So we are currently at that same six number, and, yes, we are looking to add more site development people. Because clearly, as we've talked many times, we are supply constrained. We are supply constrained in terms of we need more quantity of supply. We're supply constrained in that we want to gain access to more parts of the organization within our existing supplier network. We're supply constrained because we want to access or need to access more data within those healthcare providers. streamline the entire workflow from feasibility assessment all the way to the delivery assessment. So clearly adding suppliers, expanding within the suppliers and gaining access to more data are key targets for the site dev team and we need more people to help with that.

Okay, great. And then just one last one here. You know, back in December you announced the addition of some international suppliers to the platform. Will those specimens be used to meet international demand, or are you able to import those to the U.S. if a customer wants them?

Yeah, so we actually do both. So they will help provide specimens to international sites much more quickly, especially when things need to be delivered overnight or fresh. But we can also import specimens here in the U.S. for our domestic customers, typically things that can be delivered on dry ice or ambient temperature.

Okay. Thank you very much. I think that's all I had.

Thank you.

Thank you. I show no further questions in the queue at this time. I'd like to turn the call back over to Mr. Christopher Ionelli, CEO and President, for closing remarks.

All right. Thank you, Operator. I'd like to thank everyone again for joining us on today's call and for continuing your interest in iSpecimen. We look forward to having follow-up conversations with many of you and to seeing many of you at the upcoming events for which we're registered. As a reminder, we're scheduled to participate in the AGES virtual conference on Thursday, February 24th. And with that, thank you and have a great day.

Thanks, everyone.

Ladies and gentlemen, thank you. This does conclude today's conference call. We appreciate your participation. You may disconnect your lines at this time. Have a good day.