Q3 2023 iSpecimen Inc Earnings Call
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Welcome to the Conferencing center, please hold for the next available operator.
Thank you for calling the conferencing Center would you call your joining.
Hello.
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I'd like to take this opportunity to discuss how our recent initiatives to rightsize, our business and enhance our operational structure and processes are paving the way for a new stage of future growth for our assessment.
I will then turn the call over to Eric language, our Chief revenue Officer, <unk> <unk>, our vice President of marketing and Benjamin Black Our Chief Information officer, each will detail activities related to their operational responsibilities within I expected.
Finally, I will review our financial performance for the three and nine months ended September 32023, and.
And open the call for questions.
Since the first of this year our team has advanced several new initiatives to allow us to operate more efficiently and effectively.
Can say with a high degree of certainty that I assessment is not the same company today than we were at the beginning of this year every facet of how the company is operating and engaging internally and externally with our customers and supplier of organizations.
Has it been reviewed and where needed improved upon.
Throughout the year and culminating with a reduction enforce the first week of September we have been driving towards right sizing. The company on September six we reduced our total workforce by approximately 20%.
As a result of this initiative, including employee turnover during the year. The monthly expenses related to head count are expected to decrease by approximately 29% for the remainder of the year.
Compared to the average monthly cost for the first nine months of the year.
We also made additional expenditure reductions after streamlining operations and rationalize the resources to focus on key market opportunities.
All other monthly operational costs are expected to decrease by approximately 52% for the remainder of the year compared to the average monthly cost for the first nine months of the year.
We completed the implementation of our next day quote program in the third quarter of 2023.
This solution has transformed the way, we interact with our customers and supplier networks and has significantly reduced the time between opportunity to quote and by extension the time between issuing the quote and receiving the purchase order.
After implementing this program, we recognize a conversion increase of 122% for the quote to purchase orders for the third quarter of 2023 compared to the blended quarterly average of the prior four quarters demonstrating the positive impact of this program.
Okay.
Moving to the supplier side of our business we have dedicated.
Significant resources to expanding our global provider network in a more purposeful and strategic manner.
We are especially focused on quality over quantity as it pertains to our supplier network with the goal of building and expanding our supplier relationships with our most active and reliable revenue generators.
At the beginning of the third quarter, we announced the addition of 13, new suppliers to our provider network, which collectively expanded <unk> ability to fulfill requests and high demand specimens within cancer and hematology cardiovascular autoimmune neurological endocrine.
Metabolic and infectious disease categories, among others. The expansion of our network also enables us to gain access to a new collection of bio specimens from diverse patient populations.
We further expanded our provider network in the third quarter to help advance women's health research, increasing the availability of high quality tissue and bio crudes investments for studies on cervical uterine and breast cancer reproductive health cardiovascular disease and sexually transmitted infections.
Expansion efforts have increased the strength of our supplier network. We are working behind the scenes reviewing our existing supplier network and in the fourth quarter of this year, we will be winding down relationships with certain suppliers that no longer meet our needs or the needs of our researchers.
This will sharply decrease our supplier network. We expect these efforts to meaningfully strengthen our assessment capabilities and drive both near and long term revenue opportunities.
Assessment and for our supplier partners.
In the third quarter of 2023, we rolled out two revenue enhancing projects with sequencing procurement program and our embedded coordinator program.
Eric will speak to both of these projects in more detail.
I would like to highlight the tremendous potential of our sequencing procurement program, which we launched at the end of August.
The launch of this program is extremely timely as we are seeing increased demand from cancer researchers for DNA RNA and biomarker sequence data from donor mutation characterized FSP he walks tumor tissue.
Persimmon has created what we believe is the industry's largest exclusive inventory of cancers sequence specimen to enable critical access to retention characterized tissue and adjacent assessments needed to help advanced cancer research. There is currently a shortage of mutation characterized ffbe tissue.
Available for researchers and we believe by specimen is strongly positioned to play an integral role in serving the high growth market.
As expected to reach $2 seven $5 billion by 2031, according to transparency market research.
I'd also like to touch briefly on the embedded coordinator project.
As we mentioned on our call last quarter. This project is intended to provide on site dedicated resources to our best and most potentially impactful sites, thus, enabling them to fulfill request at a significantly higher level and in the process. We expect this to result in additional revenue.
Our original plan was at 12 embedded coordinators in place and supplier sites by the end of the second quarter. However, as these projects got underway, we learned a great deal about the unique needs of our supplier organization.
Made a conscious decision to slow the pace for embedding coordinators create.
Creating a pilot program instead in order to take the time to ensure the success of this program to date or large supplier sites have been chosen. These supplier sites are working on fulfilling orders and other projects exclusively for our assessments. The program will be evaluated quarterly with plans to expand as we see expected revenue growth.
From these embedded coordinators sites.
I will now like to turn the call over to Eric languages, Chief revenue officer to provide an update on the key adjacent revenue opportunities introduced earlier this year.
Eric.
Thank you Tracy and good morning, everyone.
I'd first like to touch on me a better coordinated project.
As Tracy mentioned this project is intended to provide resources to what we believe are our best and most potentially impactful site and enable them to generate additional revenue.
Of these clinical site blocky bandwidth manage the day to day operations much less before I specimens customer orders, which have historically received reduced priority.
As already mentioned.
For large supply sites have been chosen to be part of our pilot program.
Embedded coordinators will be employed by the supplier, but when we receive training and support for my specimen.
<unk> growth plans have been established for all participating sites.
Resources have already proven useful to our next day core program as well as to increase the assortment for a remnant bank and prospective product lines.
We look forward to continued improvements increase the efficiency and revenue growth from the initial and future plans embedded coordinator sites.
For sequencing, we placed a significant emphasis on launching our sequencing procurement program. This year with much of the progress occurring in the most recent quarter.
<unk> will not be possible without the breadth depth and great support of partners from our supplier network.
It's truly been a collaborative effort aimed at helping solve a major bottleneck in cancer research.
Cancer based genomic biomarkers have become an integral part of therapeutic research for immuno oncology drugs as well as in the area of precision medicine in the form of companion diagnostic tests.
You've characterized tissues also serve a major role for a general life science customers, making various athletes test techniques and capital equipment aimed at addressing the same market.
This is now public knowledge I want to extend a special thanks to our advantage and with our current commercial sequencing partner Who's processing run all of our tumor samples to date.
We now believe we've amassed the world's largest commercially available single access collection of fully next generation sequence.
Cancer cases, using alumina is ample seed comprehensive cancer panel version three.
We're approaching 1500 exclusive cases on the program across various tumor types, such as colon cancer lung cancer breast cancer ovarian cancer pancreatic cancer head and neck cancer prostate cancer bladder cancer renal cancer brain cancer and melanoma.
These samples have been analyzed for both DNA and RNA sequencing.
Embarked on a massive multi pronged marketing and sales campaign currently one X will speak to shortly to generate demand for all of these characterized cases.
Assessment is already processed and shipped several orders and has built out a pipeline of 20% to 30 projects.
In the process of reaching out to tens of thousands of contacts in the world of cancer research not quite bullish of the program will be a success.
There's more to come as we get deeper into the program and the marketing effort throughout the fourth quarter.
Now I will turn the call over to Charlie to provide a more detailed discussion of our multipronged marketing strategy.
Yeah.
Thank you, Eric and good morning, everyone.
Marketing launch of our sequence sample offerings is focused on a multichannel multi pronged approach that includes targeted outreach to a growing volume of new and existing accounts in the cancer research in cancer genomics space.
We have also implemented a cost effective digital strategy.
And that is working 24, seven to drive awareness demand and inbound lead generation from an expanded global target audience.
To accelerate the creation of new connections in this new market segment.
Also attending key conferences, beginning with the American Society of human genomics, which is underway as we speak.
We are confident that integrating database marketing co prospecting.
Digital inbound strategy and face to face conference activities will broaden our reach and increase impact in the shortest period of time.
I would now like to turn the call over to <unk>, who will speak regarding our ice specimen marketplace platforms, and how greater efficiencies are supporting new opportunities to scale the platform.
<unk>.
Thank you Carlos and good morning, everyone.
Our product and technology efforts to improve the our specimen marketplace platform in 2023.
Updating search functionality.
Improving the user interface, increasing automation and enhancing matchmaking.
While we continue to move the product roadmap forward, we made the difficult decision earlier this quarter.
Given the results from Q2 to moderate our development and exploration.
Decision does not reflect any change in direction.
If anything these.
Changes have enhanced our exploration of options like buy versus build strategies.
The team continues to work to support immediate business needs and realizing additional value from the investments over the last year.
A spokesman continues to focus on innovative ways to strengthen the ice platform for our network of.
Researchers and providers.
We are delivering on areas such as supporting our newly announced cancer sequencing procurement program improve.
Improving the integration with our provider partners.
Having improved data quality, and matchmaking, including leveraging external content providers and increasing operational efficiency.
Further we are continuing to update our back end architecture to support growth and scale.
And security.
Fair for our data service pilot, which is slated to take place in 2024.
The current phase of these back and updates is expected to be completed by the end of 2023.
We believe the successful completion of the date of the service pilot will allow us to validate one of many possible additional revenue streams for the company.
I'll now turn the call back to Tracy provide a more detailed discussion of our financial results for the third quarter of 2023 compared to the same period of 2022.
Great. Thanks.
The expense turning to our results for.
For the third quarter of 2023, we reported $2 $8 million in revenue compared to $2 $6 million in the third quarter of 2022.
And $1 $6 million in the second quarter of 2023, respectively.
The current three month period compared to the same period last year and the second quarter of 2023 increased by $195000 or 8% and $1 2 million or <unk>, 75% respectively.
The increase in revenue in the third quarter of 2023 compared to the same period last year was primarily attributable to an increase of 527 assessments or 11%.
Persimmon account from 4840 specimens in the three months ended September 32022 to 5367 investments in the three months ended September 32023, the effect of the increase in specimen count was partially offset by a change in the specimen next which caused the average selling price per segment.
<unk> decreased by $16 perspective, or 3% from $534 per specimen and the three months ended September 32022.
<unk> $518 per specimen and the three months ended September 32023.
During the nine month period ended September 32023, we reported revenue of <unk>.
Seven $3 million to $5 million compared to $744 million. During the same period last year. The slight decrease in revenue for the nine months period ended September 32023 was primarily attributable to a decrease in average selling price per specimen at $50 or 11%.
$444 per segment in the nine months ended September 30 of 2022 to $394 per assessment in the nine months ended September 32023.
The decrease in average selling price per assessment was offset by an increase of 1910 specimens or 11% and specimen count from 16768 investments and the nine months ended September 32022 to 18678 assessments and the.
Nine months ended September 32023.
Cost of revenue increased by $211000 or 18% from $1 $2 million for the three months ended September 32022.
$214 million for the three months ended September 32023, which was attributable to a $15 per specimen or 6% increase in the average cost per specimen and an 11% increase in the number of assessments of session.
Current period compared to the same period in the prior year.
Cost of revenue for the nine month period ended September 32021.
<unk> three <unk>, three 9 million compared to 335 million for the same period in 2020 to nissim.
This increase was attributable to an 11% increase in the number of investments a session. During the nine months ended September 32023 over the same period in the prior year, which was offset by an $18 per specimen grew 9% decrease in the average cost per assessment impacted by the spectrum next during the <unk>.
Nine months period ended September 32023 over the same period in 2022.
For the third quarter of 2023, we reduced our cash spend protect knowledge to one $1 9 million from $1 million to $3 million for the same period in the prior year.
The cash outlay was comprised of $770000 of capitalized internally developed software and $427000 of technology expenses that we were not able to capitalize and therefore classified as technology expenses.
The remainder of the technology expense for the third quarter of 2023 was comprised of $494000 of noncash amortization related to internally developed software.
Technology expenses for the third quarter of 2023, $922000 compared to $753000 for the same period in the prior year.
For the nine month period ended September 32023, we increased our cash spend protect <unk> to $4 $7 million from $2 $6 million for the same period in the prior year. This cash outlay was comprised of $3 $5 million of capitalized internally developed software.
<unk> and $1 $2 million of technology expenses that we were not able to capitalize and therefore reclassify. This technology expenses the remainder of the technology expense for the first nine months of 2023.
Was comprised of $1 $4 million of noncash amortization related to internally developed software total technology expenses for the first nine months of 2023, one or $2 6 million compared to $1 9 million the same period in the prior year.
The increase in expense for the nine month period ended September 32023, compared to the same prior year's period directly related to our plan of increasing our investment in technology in the first half of 2023, which is mainly due to continued advancement of our transformational online specimen marketplace.
Sales and marketing expenses were.
$898000 for the third quarter of 2023 compared to $833000 for the third quarter of 2022. The increase was attributable to increases in professional fees of $123000 in payroll and related expenses of $112000 due to hiring more sales personnel.
Which were partially offset by decreases in external marketing expenses of $169000 for the nine months period ended September 32023 sales and marketing expenses were $2 $97 million compared to $253 million during the same period in the <unk>.
One of your peers.
Period over period increase was primarily attributable to increases in payroll and related expenses of $535000 external marketing expenses of $271000 in general operating expenses related to sales and marketing of $17000, which were partially offset by a decrease in advertising and promotion expense of 300.
$81000.
General and administrative expenses for the three months ended September 32023 decreased by $1 $3 million or 51% to $1, one $1 million compared to $2 million to $4 million for the same period last year.
For the nine months period general and administrative expenses decreased by $1 1 million or 20% from $5 6 million for the nine months ended September 32022 to $4 5 million for the nine months ended September 32023.
During the nine months of 2023, the company had a cash burn of $9 7 million.
<unk> comprised of $6 2 million for operating expenses, and a $3 $5 million of capitalization to further develop the ice specimen marketplace technology with plans to invest at a lower level for the remainder of the year.
As of September 32023, my assessment, and had $2 $7 million of cash and cash equivalents and $2 $9 million of available for sale securities with maturities ranging from one to six months for a combined total of $5 6 million.
Compared to a cash balance of $15 3 million as of December 31, 2022.
This concludes our prepared remarks now I'd like to open the call for questions. Operator. Please go ahead.
Thank you we will now begin the question and answer session should you have a question. Please press star followed by one more when you touched on Sun.
A free time prompt technology in your question and your question will be pulled in the order they are received.
If you wish to decline from the cone and <unk>. Please press Star and then two if you were using a speaker phone please lift the handset.
Any keys.
Our first question comes from the line of Matt Hewitt.
Craig Hallum. Please go ahead your line is open.
Good morning, and congratulations on the strong quarter and thank you for taking the questions maybe first off.
What has been the feedback from customers I realize it's very early days on the sequencing.
Service, but what has been the early feedback.
What has you most excited about that program as you start to look into not only this quarter Q4, but into fiscal 'twenty four.
Thanks, Matt for the question. It's a good question I'm actually going into them.
Her to Eric Who's on the front lines talking with our customers about this but it's been pretty exciting Eric would you like to answer the question. Please.
Sure Yeah. Thanks for the question Matt.
It allows us the most excited is that.
One of the major initiatives, we've done over the last couple of weeks is look back over the last year to 18 months of requests that came in for mutation characterized the material.
Yeah.
Kind of reach back out to those people to get awareness that we've done this and show that we actually matched up specific cases that we had case results that match their original request.
And we have received an overwhelming response rate from those customers I mean, it's nearing about 75% to 100% response rates.
You already have those customers still have those needs they have been able to actually fill those needs. So that was one of the most recent signals.
But what we're seeing is that <unk>.
People are definitely not.
Finding avenues to fulfill these projects I think where we are in the calendar year.
People have been at this for a while so theyre filling some specific niche buckets, but the response rates the open rate.
The interest in the program and then the consistent reach out to us by the sequencing companies and companies that are offering these kind of services, telling us that it's.
Great program to do that they'd like to be a part of it they might want to offer up a sequencing services.
It has all been really interesting so.
To your point it is early days.
In the beginning we were really hunting for preorders and trying to get things lined up.
Once we started the ones, but now that we have the ones that we have case data everything has been overwhelmingly positive about what we're doing in the direction we're going.
The cancers that we've selected the profiles that we selected.
All of that's been really positive so right now it's just all about the blocking and tackling of trying to match up to the actual open requests that are that people are looking for right now.
That's helpful sorry.
Okay.
Is it a program.
The program that we started January 1st after some significant research on where there was a deficit in the market to fill this need and so.
Taylor this program to that deficit.
Our research indicated and our margin for our current marketing efforts are reaffirming that for us.
Excited to see that.
That's great and maybe and I realize.
Maybe not specific but how should we be thinking about the asp's on on the sequencing and maybe the margin profile of those I would imagine that there.
Especially once you start to scale up but I would imagine those could be some of the best margins in your portfolio.
Portfolio, but any color there would be helpful.
Yeah go back.
Yes.
Margins are better than our core business.
Yes.
The structure of the program has been the most interesting part and that's kind of part of the value proposition that we've really been communicating to our customer base that it's truly a collaborative effort right I mean, our suppliers.
Agreeing to us.
The access with material with little to no cost upfront.
We're able to share with them on the back end so it's really.
Collaboration on that front, and then certainly with the sequencing partners with we feel like we are getting.
Certainly commercial quality and because we are using a commercial partner but.
We're getting.
Pretty good value there.
So overall when we.
Sell in market and samples to the market that's.
That's what you said the margins are some of the best that we have and they're only going to improve over time.
Excellent and then last quarter on the conference call you mentioned that with some of the new initiatives that you've implemented this year, both on the cost reduction side as well as some of the new <unk>.
Program that you have and services that you've implemented you expected to get to cash flow neutral by the end of this year or is that still the plan is that still on drug.
Yes.
Good question now that I, probably should have been more explicit in my my comments earlier about that but yes.
We just finished October we're looking you know we're doing the accounting for that and.
Really pleased.
We are exactly where we need to be.
From a position ourselves to do that through the end of October. So the answer is that I believe we are positioned well.
To get.
Two cash flow neutral or obviously revenue goals, we need to be met him when we don't give guidance right.
We're working very hard to judge revenue goals, but on the expense side, we would cut the expenses down and we're seeing those results coming through for October.
Hi.
That's great and then maybe one last one and I'll hop back into queue.
This year, obviously has required a lot of I don't know if heavy lifting is the way to characterize it but a lot of work both on.
The streamlining of the organization.
And on the cost side as well as the new product launches.
Some of Thats been more back half weighted with the next quote service in all of the sequencing.
As we start to look to fiscal 'twenty four how should we be thinking about your focus next year is next year more about driving growth and.
Delivering on some of these new.
Services or is there still some fine tuning of the organization that is going to be required. In addition to some new product launches. Thank you.
Yeah.
I believe that an organization should always be growing and assessing them their core competencies and efficiencies and effectiveness. So there are there's still going to be some tweaking to be had to fine tune things because we did do a lot of stuff.
And now.
We've got to sort of.
Let.
Let the dust settle a little bit and then we will again and see okay, where else do we need to improve but definitely next year is all about.
Revenue growth, especially now that we've got operations, where they need to be.
And and also some of the.
Technology build out.
That will mean for investment purposes in the first half of this year.
Even though were lower.
And that work now the second half is still going on and say, we're going to see some improvements.
Improvements on our marketplace platform in 2024 as well.
It's really.
All the way around I believe for the company.
In all areas of operations.
And our ability to.
Generate value for our shareholders.
Yeah.
That's great well congratulations on the progress so far thank you.
Yeah.
Thank you once again, if there are any further questions. Please style stall and then one on your telephone keypad now.
And we have a further question coming fruit ups from the line of James Lieberman.
Securities. Please go ahead your line is open.
Well. Thank you very much I'm really impressed by the incredible momentum we've been building and by the investments and the focus that you brought to bear.
And to see such good results coming in so quickly. So I want to congratulate you on your efforts and I am extremely confident on the progress you've made I just wanted to add that to your overall narrative. Thank you.
Thanks, John really appreciate that.
Okay.
Thank you <unk> any further questions. Please dial star one on your telephone keypad now.
That seems to be no further questions coming through at this time, so small box while speakers for closing comments.
I would like to thank everyone again for joining us on today's call and for your continued interest in Isis SMN and.
Also my apologies for the weight that we all encountered including myself getting into the call. This moment so really.
Sorry about that.
As you can see we are making strong progress executing our growth strategy, our operational efficiency strategy.
It is really successful in maximizing the value for us in the marketplace. We believe that we will see continued growth from our new business opportunities and we look forward to updating you with our progress with that thank you and have a great day.
Thank you. This now concludes the conference. Thank you all very much for attending you may now disconnect your lines.