This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk04: Good morning and welcome to i-SPECIMEN first quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, and then 2. Please note that this event is being recorded. I would now like to turn the conference over to Tracy Carley. Please go ahead.
spk05: Thank you, Operator.
spk01: Good morning, everyone, and welcome to IFRS MN's first quarter 2023 results conference call. With us on today's call is Tracy Curley, Chief Executive Officer, Benjamin Balak, Chief Information Officer, and Eric Langlois, 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, filed with the SEC. Copies of this document 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 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.
spk03: Tracy, please go ahead. Good morning, everyone, and thank you for joining today's call. I will begin with a review of current business and operational activities and then discuss our financial performance for the three months ended March 31st, 2023. We will then open the call for questions. Allow me to begin with a quick review of the Q1 2023 Highlights, a number of which were also touched upon during our year-end call in March. In January, I was appointed to the position of permanent CEO, and Eric Langlos was named chief revenue officer. Although we have new titles, Eric and I have been with iSpecimen since 2020 and 2016, respectively. Armed with our new titles, we have been working closely with the entire iSpecimen team to execute our strategic plans and key initiatives that were identified and communicated at the end of 2022. citing the stage for an exciting and challenging 2023. Eric is leading the efforts of our recently realigned commercial team to increase our customer base and improve the overall customer experience. His responsibilities also include addressing supplier constraints, as well as supporting innovation, collaboration, and productivity across our lines of business, all of which are required to drive scalable and profitable growth. I am pleased to report that a number of the initiatives we launched in Q4 2022 to resolve operational inefficiencies contributed positively to our Q1 outcome, resulting in revenue of approximately $3 million, a 17% increase year over year. These results were in line with internal expectations, which also reflect the seasonality of our business. Historically, Q1 revenue is lower than Q4 revenue, as researchers' new budget cycles typically do not kick in until the March-April timeframe. iSpecimen is committed to investing in and developing our technology. To support these efforts, we made a significant investment of approximately $1.9 million in technology during the first quarter of 2023. Our continued investment in technology will be heavily front-loaded in the first half of 2023. Our technology efforts to improve the iSpecimen Marketplace platform in 2023 include updating search functionality, improving the user interface, increasing automation, and enhancing matchmaking. I'm 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. First, we are improving our integration with our provider partners, specifically with our first patient data electronic medical record integration to achieve the same level of competence we have in locating specimens to locating patients and donors. This project, which will accelerate the prospective collections process and reduce costs, is expected to be completed in the first half of 2023. Second, our technology team is currently performing an overall of the marketplace search capabilities. We are consistently re-evaluating our marketplace search functionality because when a user wants to procure or buy our specimen, it all starts with their search. We are building more modern user interface standards, new levels of automation, which will help scale, and major enhancements to our matchmaking algorithm to ensure the best possible matches between researchers and our considerable provider-supplier network. This overall will help ensure the best results between researchers and life science providers. We also expect to release the first phase of this work in the first half of 2023. Third, we are not stopping at front-end development. We are also updating our back-end architecture to support growth and scale, enhance security, and prepare for our data as a service pilot. A set of back-end updates as well as our data as a service pilot are expected to be completed in the second half of 2023. The successful completion of the data as a service pilot will allow us to validate the first of many possible additional revenue streams for the company. Finally, we are using the insights provided by our supplier and researcher interactions to continue evolving our matchmaking algorithm, which is expected to result in better, faster matches and streamline the procurement process for our researchers and reducing supplier effort. This project is expected to be completed in the second half of 2023. As we focus on adjacent revenue opportunities, we are undertaking several revenue enhancement projects for sequencing and remnants. We are also embedding onsite iSpecimen project coordinators at select supplier sites to facilitate increased specimen feasibility, identification, coordination, utilization, and fulfillment. One of our revenue enhancing projects, sequencing, is progressing very well. We have launched our first pilot with approximately 300 samples and anticipate modest levels of revenue from the initial batch, starting at the end of Q2 2023. This is the first of several runs we anticipate performing throughout 2023 for this project. Another one of our revenue-enhancing projects, on-site ice specimen project coordinators, is also progressing very well. We have a pilot site online and are planning to ramp up to approximately 12 coordinators by the end of Q2 2023 and continue to add more sites where the business opportunities are substantial. We expect increased revenue related to this project starting in the second half of 2023. Our Remnant Revenue Enhancing Project is focused on improving internal operational processes and creating a line of business structure through significant integration with supplier sites. We are 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 the project starting in Q3 2023. Additionally, further technology build-out is planned in order to achieve market effects for remnants by the end of 2023. This will be an exciting and very critical milestone for us. We expect our revenue enhancement projects, combined with our efforts to improve the core business, will contribute meaningfully to revenue starting in the second half of 2023. This should allow us to accelerate our efforts towards becoming cash flow neutral by the end of 2023 and then cash flow positive by 2024. To be successful, we must ensure that our marketplace platform provides a comprehensive solution with ease of use so that researchers are able to search for desired bioassessments suppliers can fully utilize their biospecimens, and additional adjacent opportunities can be unlocked. While we work towards this vision, we are focused on doing everything we can to prepare ourselves operationally for the market effects that our technology investments will yield. We are very excited to be on the path forward to achieving this as the iSpecimen can diligently execute on the initiatives we've outlined for you today. Now I'll move on to discuss our financial results for the first quarter of 2023 compared to the same period in 2022. For the first quarter of 2023, we reported approximately $3 million in revenue, an increase of 17% compared to approximately $2.5 million during the same period last year. The increase in revenue was primarily attributable to a 75% increase in specimens accessioned from 4,924 specimens for the first quarter of 2022 to 8,629 specimens for the first quarter of 2023. The increase in specimen count was offset by a decrease of $146 or 30% in the average selling price per specimen from approximately $489 for the three months ending March 31st, 2022 to approximately $342 for the three months ended March 31, 2023. Cost of revenue was approximately $1.1 million for the first quarter of 2023, a decrease of 2% from the first quarter of 2022. Although there was a 75% increase in the number of specimens assessed during the quarter over the same period in the prior year, the average cost per specimen decreased by 43% compared to the same period in the prior year. For the first quarter of 2023, we increased our revenue spend for technology to approximately $1.9 million from approximately $600,000 for the same period in the prior year. The increase in spend is directly related to the record level technology investment plan for 2023, which will enable the continued advancement of our online marketplace to be transformational in our industry. This cash outlay was comprised of approximately $1.5 million of capitalized internally developed software and approximately $401,000 of technology expenses that were not able to be capitalized and therefore classified as technology expenses. The remainder of the technology expense for the first quarter of 2023 was comprised of approximately $433,000 of non-cash amortization related to internally developed software. Total technology expenses for the first quarter of 2023 were approximately $834,000 compared to approximately $528,000 for the same period in the prior year. Sales and marketing expenses were approximately $962,000 for the first quarter of 2023, up 29% from approximately $747,000 for the first quarter of 2022. The increase was primarily attributable to increases in payroll and related expenses as a result of hiring more sales professionals for our newly developed sales operations team. Professional fees and general expenses offset by decreases in external marketing, utilities, and facilities expenses. General and administrative expenses were approximately $1.8 million for the first quarter of 2023. which is comparable to approximately $1.8 million for the first quarter of 2022. During the quarter ended March 31, 2023, to reduce the risk associated with maintaining all of our cash at a single bank, we diversified into investments in T-bills by purchasing approximately $7.2 million of available for sale securities with maturities ranging from one to six months. The combination of cash and cash equivalents of approximately $3.8 million and available for sale securities of approximately $7.2 million totaled approximately $11 million as of March 31, 2023, compared to our cash balance of approximately $15.3 million as of December 31, 2022. The cash firm was approximately $4.3 million for the first quarter of 2023. This was higher than our usual quarterly burn due to the increased cash spend for technology of approximately $1.9 million, and it's lower than planned conversion of accounts receivable to cash of approximately $817,000. We believe our cash and cash equivalents together with the anticipated cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. This concludes our prepared remarks Now I'd like to open the call for questions.
spk05: Operator, please go ahead.
spk04: 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. To withdraw your question, please press star and then 2. At this time, I will now pause momentarily to assemble our roster. The first question comes from the line of Matt Hewitt with Craig Halem Capital Group. Please go ahead.
spk00: Good morning, Tracy. Thank you for the update and for taking our questions. Maybe first up, a broader question. What, if any, impact are you seeing from your customers relating to the decline in biotech funding for small pharma and biotech companies? Are you seeing any impact from that? If so, what kind of a headwind is that creating?
spk02: Yes, and nice to speak with you, Matt. We are, and it is concerning to us. I'm actually at a conference in Seattle, so it's like 5.30 for me. And in talking with a lot of the companies here, they're seeing the same thing. We don't know how long this is going to last, so it is a concern to us. We're seeing slower time to get from quote to PO. We're seeing slower payments on accounts receivable. We also have several of our customers that were smaller boutique life-size companies that we got notification in Q1 that they were filing for bankruptcy. And so we had to increase our allowance for doubtful accounts. So we are seeing that there are a lot of things that we are doing internally to see if we can overcome specifically the conversion from quote to PO a little bit faster. I can turn it over to Eric, and he can talk a little bit more about that. Our Chief Revenue Officer, Eric Langrose, is also on the line.
spk06: Yes, good morning, everyone. Thank you, Tracy. Yeah, I just echo what Tracy was saying. I mean, I think what we've been seeing is companies kind of slow rolling their larger projects. Right now, which was a bit of a surprise to me in the norm at the beginning of the year, We're seeing an increase in the number of bank requests, so people that are looking for specimens that are kind of ready off the shelf and available immediately. That seems to be the biggest adjustment. It's just in the past, a lot of times, companies would be starting off their projects at the very early part of the year, the prospective ones, so they would have the longest possible collection run time. We just see that kind of being pushed out, hearing that certain projects are getting canceled altogether, and these larger multi-cohort type projects are just getting slow-rolled and pushed into the future and into a future quarter. So I'd say just on the ground, that's probably the most significant thing we're seeing.
spk02: And, Craig, it's a little bit interesting because for Q1, we had record opportunities come in, and we did record quotes. but they're stopping right before they get to the PO. Last earnings call, I talked about the fact that a lot of companies are adding additional layers of review before they move forward with projects. I think that's part of the slow rolling as well that we're seeing.
spk06: Yeah, thank you. That's the other part I meant to mention. Yeah, the top of the funnel is up an aggregated proximate amount of almost 100%. So it's not that these customers aren't making the requests or asking for them. It's, as Tracy said, the decision process, vendor qualification, and all of those things are just moving slower than they are.
spk00: Got it. That's really helpful. Thank you. And then maybe a question on the new embedded project coordinator. I realize it's early days. First one in, what has been the initial feedback that you're getting from your partners You know, what kind of opportunities are you seeing even in that first site?
spk02: So this site has, when we first talked to them, they were like, sign us up immediately. We need this desperately. We want to increase, you know, a revenue stream with you. And so it's been really exciting working with them. Matt, and I think Eric can talk more into the details of what we're learning from that experience.
spk06: Yes, absolutely, Tracy. Yeah, so the main thing we're seeing is that when we go into these supply conversations with a much more commercial bent, with a much more commercial focus, and bringing to them growth plans in a sense that we haven't in the past, they're really interested in these resources. What we found, once Tracy and I have gotten involved in these meetings from a much higher executive level, we found that these sites are dying for resources coming out of COVID. Unless it's a major nationalized hospital system, they need resources just to be able to operate day to day, and they're looking for alternative revenue streams. So in the case of our first site that we lined up, they've been a site for a very, very long time, but they had struggled with resources to help with picking remnants And they also had this massive FFPE pathology archive that, again, they lacked resources to even put these samples into a limb system in any kind of searchable format. So, you know, and then we come to find out through the conversation they were actually very interested in doing prospective collections. They'd just never really been asked. So, you know, when you look at a pilot site like that, you know, there's three different pathways to materially affect the amount of revenue that they can generate for themselves and also for us. And by having that resource, it unlocks all of that. So we're pushing this forward and looking at additional sites. We're looking at them through the lens of, you know, what have they been doing so far? How much revenue have they been generating for us? How much is their turnaround time on feasibility assessments, just reviewing projects that we've been doing? And then what other opportunities are there? What else are they willing to do? So that's the driving force behind these conversations. But what we're finding is bar none, they're all receptive to it. And you think of things like surgical sites that see patients, you know, you really kind of need an on-site coordinator to be able to do fresh tissue or some much more complex logistical projects. So they're pretty much all open to it, and you just have to really do a diligent job of picking the right profiles and picking the right ones to get the resources. Some of them are going to be a leap of faith, but other ones are based purely in the facts of what they have available, what they haven't been able to do, and what they could do now.
spk00: Got it. Oh, go ahead.
spk02: And Matt, I would also say that every coordinator at every site is going to be slightly doing different things. It's not, you know, a prescribed approach. We're going to give you somebody and this is what they're going to do. There's a lot of conversations with these sites about what do you actually need so that you can be successful with our programs. and then the job description and the activities that the embedded coordinator will be doing or tailored to what their needs are.
spk00: Got it. All right, thank you. And then maybe last one here, obviously a really nice quarter from a gross margin perspective. Was there anything, you know, kind of that hit this quarter that may not recur in Q2 or the rest of the year, or... should we anticipate gross margins kind of sticking up north of 60% for the year? Thank you.
spk02: Yeah, I was just going to say that. I don't think one of our strategies for unlocking quotes to POs is we are looking hard at the margins and seeing if we can get a little bit on those to get those quotes to convert to POs. So you might see that our margin goes down a bit, our cost of revenue goes up because of that. Anything, Eric, else you want to say?
spk06: No, actually, I was just going to chime in and say the same thing. I've actually already authorized our commercial teams to accept that and begin doing that just because when you have tens of millions of dollars of unexpired quotes, there's obviously something going on there when we need to push them a little bit. you know, we have gotten feedback on pricing, so as the whole market's tightening up, so are their wallets, you know, and so we're probably going to have to give a little on the margin, but mostly only on the bank side. So if we unlock the prospective collections, say mid-year, and we start seeing a lot more movement, that'll boost the margins right back up. So to Jake's point, she's absolutely correct. I would think of it more as a temporary effect that might last a quarter or two, and then you know, come back around and fix itself.
spk00: Got it.
spk05: All right. Thank you very much. Thank you. Again, if you have a question, please press star and then one.
spk04: This concludes our Q&A session. I would like to turn the conference back to Tracy Carley for any closing remarks.
spk02: Thank you, operator. I'd just like to thank everybody that was on the phone today, and especially Matt for all of his really great questions. Have a great day, everybody.
spk04: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer