iSpecimen Inc.

Good day, everyone, and welcome to iSpecimen's full year 2022 conference call. At this time, participants will be 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 iSpecimen's website and will remain posted there for the next 30 days. If you require operator assistance, please press star then zero. I will now hand the call over to Alison Sauce, Investor Relations, for introductions and the reading of the Safe Harbor Statements. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to iFestival's full year 2022 results conference call. With us on today's call is Tracy Curley, Chief Executive Officer Benjamin Baloch, Chief Information Officer, and Eric Zanglois, Chief Revenue 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 and Exchange Act of 1934 as amended 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 Form 10-K for the year ended December 31, 2022, yet to be filed with the SEC. Copies of the document will be 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 revisions or changes after the date of this call, except as required by law. Now, it is my pleasure to introduce Tracy Curley, Chief Executive Officer. Tracy, please go ahead.

Thanks, Alison. Good morning, everyone, and thank you for joining us today. I will begin with a review of current business and operational activities and then our financial performance for the 12 months ended December 31st, 2022. We will then open the call for questions. First, I'd like to extend my deepest gratitude and appreciation to the board for appointing me permanent CEO in January and to the entire iSpecimen team for their dedication, hard work, and believes in our collective vision for over the last several months. The team's continued support and effort inspire me as we make progress executing on our strategic plans and key initiatives for 2023. In January, we appointed Eric Langlos as Chief Revenue Officer. Eric joined iSpecimen in 2016 and has held several senior sales positions over the past seven years. In his elevated role, Eric is leading our recently realigned commercial team, which has been tasked with increasing our customer base and improving the customer experience, addressing supplier constraints, and supporting the innovation, collaboration, and productivity required to drive scalable and profitable results. Throughout his tenure at iSpecimen, Eric has contributed uniquely to our results and has been responsible for closing several of the company's largest multi-million dollar deals. I have tremendous confidence in his abilities and look forward to continued progress and success. I'm pleased to report that following our strategic corporate review and predictive revenue realignment in Q4 2022, we are beginning to make meaningful progress towards understanding and tapping into the full potential of our entire organization. I'm encouraged that some of our early efforts have already yielded results, as seen with our record-breaking revenue in Q4 2022 of $3.2 million. a 28% increase over Q4 2021. In addition to our core business, as part of a very deliberate strategic plan, we are undertaking several revenue enhancement projects for 2023 in areas such as sequencing, remnants, and normal blood, as well as the acceleration of on-site iSpecimen project coordinators at selected supplier sites to facilitate improved specimen feasibility, identification, coordination, utilization, and fulfillment. iSpecimen will continue to invest where necessary throughout 2023 to accelerate these revenue growth initiatives. One of our revenue-enhancing projects, sequencing, is progressing very well. We are currently launching our first pilot of 500 samples for sequencing, and we are projecting to generate revenue from the initial batch starting in Q2 2023. We will be performing several runs throughout 2023 in order to achieve our revenue goals for this project, and we have high level of confidence for this endeavor. Another one of our revenue enhancing projects, on-site i-SPECIMEN project coordinators, is also progressing very well. We are planning to ramp up to 12 coordinators by the end of Q2 2023 and continue to add more sites where business opportunities are meaningful and substantial. We expect increased revenue related to this project starting in Q3 2023. Our Remnant Revenue Enhancing Project is focused on creating a line of business structure and improving internal operational processes as well as significant technology build-out in order to be able to achieve market effects for remnants by the end of 2023. An exciting and very critical milestone for us. We're also going through a review process to ensure both suppliers and buyers are properly integrated and leveraging the platform as intended. We expect increased revenue related to this project starting in Q3 2023. Regarding revenues for 2023, while we are expecting growth in our core business, we generally have what I call lumpy results from quarter to quarter. What I mean by this is that Q1 is generally not as good as Q4. as our researchers are still completing their budgets for the new year. In other words, revenue in Q1 is lost until March, when researchers start to ramp up projects with their new budget cycles. Additionally, Q3 is generally not as good as Q2, as it is summer, and researchers, suppliers, donors, and patients are on vacation, and projects can take longer to fulfill. We expect our revenue-enhancing projects layered on top of our core business efforts, to increase revenue starting in the second half of 2023, which will allow us to accelerate our efforts to reach a cash flow neutral position and then a cash flow positive position in 2024. As you know, iSpecimen has historically provided updates on supplier network growth each quarter. And while that remains important, our emphasis has shifted to increased evaluations of the quality of our relationships with our suppliers and are specifically focused on business, technology, and compliance objectives. This is a result of identifying during our strategic corporate review process in Q4 2022 that we had a severe imbalance within our supplier network, specifically high levels of utilization across a small subsection of suppliers. Today, with several initiatives underway by our site development department, we are gaining a much better understanding of our suppliers and their capabilities. Armed with this information, I am confident that during 2023, we will be able to materially increase our supplier utilization rates, which will allow us to finally address in a meaningful manner our supplier constraints and ultimately increase revenue opportunities. Our continued investment in technology at a record level for 2023 will be heavily front-loaded for the first half of the year and demonstrates our continued commitment to our vision to be transformational in our industry with our online marketplace. Our technology efforts to improve the iSpecimen marketplace platform in 2023, which were discussed during our Q3 2022 earnings call, include updating search functionality, improving the user interface, increasing automation, and enhancing matchmaking. I am pleased to report all these efforts remain on track. To complete these updates, we are leveraging our significant technology investments to date in our data processing and pipelines. The Unified Data Pipeline project is designed to improve data quality and processing speed by automating and standardizing supplier data processing for banked and remnant data. When completed, researchers will be able to view higher quality specimen data for completeness, conformity, accuracy, and timeliness through Marketplace via automated pipelines. The process on our platform starts with the search function. a click of a button. By enhancing the search functionality, our platform can more quickly identify samples of greater use to researchers. Understanding which specimens are of greater use to researchers also allows us to guide operational practices to optimize our supply chain for our specimens. Our ability to deliver relevant insights further increases customer engagement with our platform. We are on track to release improvements to our marketplace search interface, automation, and matchmaking in Q2023. For our electronic medical record project, as discussed previously, we have improved our patient data integration and our overall patient data access, which will allow us to accelerate our prospective collections and enable our data as a service pilot in the second half of 2023. As you have heard, we have a lot going on at iSpecimen for 2023. It is an exciting time to be associated with this company. However, I want to take a step back and re-emphasize how very important the strategic review process in Q4 2022 was for the company. It is critical heading into 2023 to develop a turnaround strategy strategic plan. You have just heard about many of those plans. Executing these plans is critical to the success of the company. We must execute iSpecimens' mission to accelerate life science research and development via a single global marketplace platform that connects researchers to subjects, specimens, and data. To do so, we must ensure that our marketplace platform provides a comprehensive solution with ease of use so that researchers are able to search for desired biospecimens, suppliers can fully utilize their biospecimens, and additional adjacent opportunities can be unlocked for us. As we move forward, all of our activities, initiatives, and projects in 2023 are focused on this mission. I'll now move on to discuss our financial results for the 12-month period into December 31, 2022, compared to the same periods in 2021. While we're not providing financial commentary regarding Q4 2022, I would like to acknowledge that our revenue for the fourth quarter was $3.2 million, an all-time record for the company. For the full year 2022, revenue was approximately $10.4 million, a decrease of 7% compared to $11.1 million for the full year 2021. However, our non-COVID revenue increased by $1.5 million, or 18.6%, to $9.5 million for the full year 2022 from approximately $8 million for the full year 2021. The $9.5 million of non-COVID revenue for 2022 was another all-time record for the company. Overall, our specimen succession during the current year increased by approximately 6,703 specimens or 32% to approximately 27,503 specimens compared to approximately 20,800 specimens of sessions during the year end of December 31st, 2021. However, change in specimen mix resulted in a decrease in average selling price per specimen of approximately $157 or 29% compared to the same prior year period. Cost of revenue was approximately $4.8 million for the full year 2022, a decrease of 9% from the full year 2021. Although there was a 32% increase in the number of specimens of session during the current year ended over the same period year, prior year period, the average cost per specimen decreased by 31% from $252 for the year ended December 31st, 2021 to $173 for the year ended December 31st, 2022. With a full year ended 2022, we increased our cash spend for technology to approximately $4.4 million from $3.8 million for the same prior year's period. This cash outlay was comprised of approximately $3 million of capitalized internally developed software and approximately $1.4 million of technology expenses that we were not able to capitalize and therefore are classified as technology expenses. The remainder of the technology expense for the 12-month period ended December 31st, 2022 was comprised of approximately $1.2 million of non-cash amortization related to internally developed software and approximately $131,000 of non-cash stock compensation expense. Total technology expenses for the 12-month period ended December 31st, 2022 was approximately $2.7 million compared to $1.8 million for the same prior year's period. The increase in technology spend for the 12-month period ended December 31, 2022 compared to the same prior year's period is related to our commitment to invest in our technology as evidenced by our multiple successful technology launches in 2022. Sales and marketing expenses were approximately $3.4 million for the full year 2022, up 42% from approximately $2.4 million for the full year 2021. During 2022, an entire sales operation team was added to the sales department, which explains the significant increase. But more specifically, the increase was primarily attributable to increases in payroll and related expenses, professional fees and general expenses, offset by decreases in website costs capitalized with fixed assets and internal marketing efforts. General administrative expenses were approximately $6.9 million for the full year 2022, at 24% from approximately $5.6 million for the full year of 2021. The increase was attributable to increases in executive severance costs, payroll and related expenses, taxes and insurance, software and subscriptions, utilities and facility expenses, marketing and advertising costs, and other general expenses, offset by decreases in bad debt expense and depreciation and amortization expenses. As of December 31st, 2022, our cash balance was approximately $15.3 million, compared to approximately $27.7 million as of December 31st, 2021. As a reminder, we paid off a $3.5 million loan in Q4 2022. Average cash burn per quarter for 2022 was approximately $2.2 million, excluding the loan repayment. We would like to assure our investors that we have no deposits with Silicon Valley Bank, and we have had no restrictions on accessing funds from our bank, Bridge Bank, a subsidiary of Western Alliance. We do have an established investment policy, and in light of the recent financial banking environment, We have already moved excess funds in order to invest in T-bills for more security. Additionally, we are working on with our current financial institution to increase the amount of funds held there that are insured by FDIC insurance. We are also in the process of adding risk factor language that will discuss the new risk in detail as related by specimen and will be included in our 10-K when filed. This concludes our prepared remarks. Now I would like to open the call for questions. Operator, please go ahead.