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spk07: 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.
spk03: 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.
spk02: 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.
spk07: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Matt Hewitt with Craig Hallam Capital Group. Please go ahead.
spk04: Good morning. Thank you for providing the update and for all of the details. Maybe first up, 2022 is a challenging year. You faced quite a bit from COVID headwinds as those revenues kind of subsided, as well as some of the internal changes. As you look at fiscal 23, given the strategic review that you guys underwent, do you envision 23 and going forward that you can get back to double-digit type growth? And if so, how should we be thinking about the cadence over the course of 23?
spk02: The answer is yes. And one of the reasons, by the way, hello, Matt. One of the reasons that I did specifically talk about the lumpiness of our core business is to sort of give some context on what to expect from a cadence perspective. Our core business is lumpy. Q1 is never as good as Q4. Q3 has never been as good as Q2. Having said that, we are committed to a growth strategy, and I believe layering on top these revenue enhancement projects is going to increase that growth so that we can get to cash flow neutral and then to a cash flow positive position in 2024.
spk04: That's great. And then kind of moving down the income statement, as far as gross margins are concerned, do you feel like with some of the changes that you have and are going to be implementing that we can start to see some gross margin lift over the course of 23? And where do you see those things or where do you see that line kind of getting to over the next call three to five years?
spk02: So I believe that you will start to see some relief on that. in Q2 and definitely in Q3 and beyond. And, you know, our intention is to continue to be a growth company for this company. And as we build our technology, be able to increase the number of revenue streams we have available to us that we aren't monetizing yet, like our data, you know, our marketplace as a service, those kinds of things over the next three to five years.
spk04: Got it. And then maybe one last one, I'll hop back into the queue. Obviously, this has been a pretty challenging environment over the past year from a funding perspective for small pharma, small biotech companies. It maybe got worse over the past weekend with the shuttering of Silicon Valley Bank. But as you've talked to customers, maybe even as recently as this weekend, given what happened, What are you hearing from them? Where are they prioritizing their investments? And, you know, how do they envision iSpecimen being helpful in these, you know, times when they're having to kind of pinch pennies a little bit? Thank you.
spk02: Thanks, Matt. I'm going to do a brief answer and then I'm going to actually turn this over to Eric to talk about, so he can talk about on the landscape what are we seeing from a customer perspective. On the supplier side, it's been really encouraging as we reengage with our suppliers at a much higher level in discussing with them business technology and compliance objectives that we want to achieve with them and creating key suppliers. Because of the environment we're in right now, they are really anxious to identify additional revenue streams for their organizations, much more than they have historically, which I think is going to assist us in relieving our supplier constraints. We have never had an issue on the customer side with opportunities. We've always had more opportunities than we can fulfill. We are seeing, however, that there is more compliance on the customer side. They're requiring us to go through to be a supplier for them. And, you know, I think that's just cautionary on their part. But I suspect Eric has a little bit more he can say about that. Eric?
spk01: Yes, thanks, Tracy. And hello, everyone. Yeah, I think I agree with Tracy's last statement. What we're really seeing is the reaction to this has been just an increased deliberate nature on the customer's end. So it's not just on the compliance and the vendor profile forms and all the things that the customers are making us jump through now, but I think they're just being more deliberate on their spend. So they're taking more time to evaluate the projects, they're reprioritizing which areas of research that they're going into, they're reevaluating all of their third-party partnerships, and those sort of things. So I think it has more to do with speed of decision making than it does necessarily with the drying up of spending. And we're certainly seeing that in Q1. We have a significant increase in the top of the funnel, both in terms of opportunities and quotes. We're just not yet seeing the pull through on purchase orders, but we typically expect that to happen in March. So I think it's just, you know, the customers are being a lot more deliberate and they're just being a lot more careful about about where they put their research dollars. And we just have to make sure that we're involved in enough conversations across the board, that we've developed enough of a pipeline, that we're in the right conversations, that we can land the projects that fit well with us. But I think what really dovetails into this is the work we're doing on the supplier front. Whereas you might see more deliberate nature on the customer side, we're seeing a larger willingness on the supplier side to get more involved and to monetize and commercialize their operations and their specimens. So some of the projects that maybe we were unable to do in the past, we're trying to be able to do now, and those are all revenue opportunities because anything that was a no before that we can turn into a yes now allows us to actually cover more ground for the customers and get more velocity through the funnel. So I think those are the things we're seeing. I do think that the SVB situation is something to monitor out in the Bay Area, where we do have a heavy concentration of customers. But we have not heard anything directly from customers yet that there's been a major effect. But certainly, you know, capital funds and everything else in the Bay Area, that's something for us to keep an eye on, and we certainly will.
spk05: That's all great, Collar. Thank you so much. The next question comes from Alan Klee with Maxim Group.
spk08: Please go ahead. Oh, good morning. So for your new programs of monetizing data and marketplace as a service, can you talk a little bit about explaining a little bit what you're going to be doing, what the opportunity is, and what you're hearing from the customers of what they're looking for and why they might be excited by these. Thank you.
spk02: Yes, I'm going to do a brief answer and then I'm going to turn this over to Ben because this is really a technology question. Our, you know, marketplace as a service is something that is not imminent in 2023. But we will be doing a pilot at the end of 2023 for data as a service, which we're really excited about. We have some build-out that we're working on right now to our platform to be able to achieve what we need to for our customers in that area. And so I'll turn it over to Ben to talk a little bit more about what that entails and the timing of that.
spk00: Ben. Thanks, Tracy. I appreciate the question, Alan. Yeah, certainly an exciting opportunity. You know, as Tracy mentioned, the adjacencies that we have with the platform we've developed, we have a number of things in the pipeline. These are two of them. I'll speak more specifically around the data as a service because we've announced the pilot for the end of the year. You know, iSpecimen's in an interesting place in the overall market, and the mix of data that we have with our partners, especially on the lab side, is somewhat unique from an asset perspective and a depth perspective and an access perspective. You know, the ability for our customers to understand this, even some customers in new spaces to be able to see the value. And obviously, the ability to get specimens after the fact for a lot of this data is also of interest. And so, your ability to package both what we do as a specimen provider today and be able to extend that into leveraging the data we have both for our customers and obviously for our suppliers as well, I'm certainly of value and the interest is certainly there.
spk05: Thank you.
spk00: The marketplace is a direct extension of the marketplace and ability to, similar to what Amazon did, provide listings first and then be able to provide game suppliers as the marketplace continues to mature.
spk08: That's great. Thank you. One other question. Could you talk about your competitive position versus some of the alternatives out there and to what degree existing customers could be spending more with you?
spk02: Sure. I'm going to do a brief answer and I'm going to turn that over to Eric as my chief revenue officer to answer that further. You know, we're the only company out there with a marketplace platform. And we're going to use technology in order to be successful in our industry. Our position is not to hold inventory. We get our inventory directly from our supplier network. And that's unique to this industry. It provides challenges but also benefits to us from, you know, capital investment, if you will. Our competitors have done various things in order to get closer to the supplier and the source, which Eric can talk a little bit more about compared to us. Eric, do you want to continue?
spk01: Sure, yeah. Our market is pretty unique. There is a wide range of competitors, a lot of companies that are involved in it that do little pieces of different things. Some might do only inventory. Some might do only perspective. Some only do direct to patients. Some do direct to clinical sites. So there's a lot of variability in all of this. I think our major competitors, what they've really done over the last several years is a kind of cord in the market consolidation type approach. They're really going after existing inventory and systems. That's one way to do it, and they're certainly taking risk because they're outlaying cash and operational assets to bring those things in-house to be able to deliver quickly. I think our approach is very different. It's very unique. We're trying to aggregate, as Tracy said, aggregate access to a lot of different types of supply and a lot of different types of relationships that involve that, both bank, inventory, and remnant. I think still our claim to fame is really in the network effect. We're able to do things in a much more bespoke manner than most of our competition. I think COVID evidenced that. Most of our competition could not really manage that. They couldn't go through that. They couldn't make the pivot that our customers required, yet we could. You know, that makes it hard in the interim until we get the marketplace effect that we're aiming for and that Ben and his team are working on just because we end up getting a lot of hard requests. But, you know, our teams do very well with that, and we generally have sites that are able to support that effort. So I think, you know, as we start to drive toward improving our supplier network and getting the marketplace going, it's a very different angle just because a lot of other companies are just trying to pop up a storefront. A storefront's great, but that only gives you a window into an existing inventory. You know, by approaching this as a marketplace and a two-sided one, we're really trying to be that pivot in between to be able to give customers the easy, trustworthy, repeatable access to the specimens across a much wider net. So I think that really is our advantage, and that's certainly what we'll be angling into as we go forward.
spk08: Thank you. Oh, maybe one last question. Since you're in a nice position of demand being greater than supply, Can you just review the actions you're doing to improve the supply chain and what the potential benefits you can get from that? Thank you so much.
spk02: Sure. One of the things that we're doing is our embedded coordinator project. We also are creating across the organization a line of business structure Prior to our predictive revenue realignment, we were more department-oriented, and now we're going to be more business-oriented by what we call internally segments, remnants, perspective, bank. We also are reassessing our existing suppliers for business, technology, and compliance objectives. and re-engaging with them to understand more fully what their capabilities are. We are learning that some of our suppliers, because they're sort of re-evaluating where they are in the market, have expanded what they offer, and so they have more capabilities than what we thought, and we're having conversations with them how to leverage those capabilities to both of our benefits. All of our revenue-enhancing projects We are having meaningful conversations with our suppliers about engaging and being with us on partners. We are creating what we call key supplier sites, and we will be working with those key supplier sites for a business plan for growth for them as well as for us in light of whatever their capabilities might be. And there are a lot of other conversations we're having with suppliers for things that will expand our revenue but aren't necessarily things that we currently consider part of our core business, which is really exciting to have those kinds of conversations. Eric, is there anything else you want to add to that?
spk01: Yeah, I think, you know, I mean, obviously the supplier work that we're really doing is really going to be, you know, the leverage that we need to be able to, expand our opportunities, as Tracy said. But I think the other interesting effect that's happening recently is we're starting to see some commercial companies out there that would traditionally be maybe customers or companies that we work with on different projects that they are now having these unique inventories and access to samples that they've had kicking around for a while and had plans for, and now they need to figure out ways to commercialize and monetize these specimens. So we have a a few of those opportunities going on now. And I think that's an interesting tell in the environment just because it shows that there's a lot of different types of collections out there and a lot of different types of samples that people have. And they may have had plans for certain things, but those plans change. And so the forces in the market are making them explore those things. And we become an attractive partner for those companies just because You know, we can easily ingest their data. We can easily put it on the marketplace and get more traction. And that demand at the top of the funnel, you know, we can already prove to these organizations, whether they be, you know, commercial or clinical, that we have the access to that demand that can easily turn their samples into revenue for them. So I think, you know, these opportunities are certainly interesting, and we'll continue to explore every single one of them that comes up.
spk05: Thank you so much.
spk07: This concludes our question and answer session. I would like to turn the conference back over to Tracy Curley for any closing remarks.
spk02: I'd like to thank everyone again for joining us on today's call and for your continued interest in iSpecimen. As I mentioned earlier, this is an exciting time to be involved with iSpecimen. We look forward to having follow-up conversations with many of you and to seeing many of you at upcoming events. With that, thank you and have a great day.
spk07: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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