iSpecimen Inc. Q4 FY2022 earnings call

• Appointed Tracy Curley as permanent CEO in January 2023 and Eric Langlois as Chief Revenue Officer in January. - Q4 2022 revenue was $3.2 million, a 28% increase from Q4 2021. - Revenue enhancement projects in 2023: Sequencing pilot of 500 samples, projecting Q2 2023 revenue; on-site project coordinators ramping to 12 by end of Q2 2023, expecting Q3 2023 revenue; remnant project focused on business structure and tech build-out, expecting Q3 2023 revenue. - Technology investments front-loaded in H1 2023, including updates to search, UI, automation, matchmaking, and electronic medical record project. - Supplier network focus shifted to quality of relationships, aiming to increase supplier utilization rate.

For the full year ended December 31, 2022, revenue was approximately $10.4 million, a 7% decrease from $11.1 million in 2021. Non-COVID revenue increased by $1.5 million or 18.6% to $9.5 million in 2022. Specimens of session increased by approximately 6,703 specimens or 32% to approximately 27,503 specimens. Average selling price per specimen decreased by 29% to approximately $157. Cost of revenue was $4.8 million in 2022, a 9% decrease from 2021. Average cost per specimen decreased by 31% to $173. Technology spend was $4.4 million in 2022, up from $3.8 million in 2021. Sales and marketing expenses were $3.4 million in 2022, up 42% from 2021. General and administrative expenses were $6.9 million in 2022, up 24% from 2021. Cash balance was $15.3 million as of December 31, 2022, down from $27.7 million in 2021.

• Expect revenue growth in core business but with quarterly lumpiness due to budget cycles and summer vacations. - Revenue-enhancing projects to increase revenue starting in H2 2023, aiming for cash flow neutral in 2024 and cash flow positive in 2024. - Intention to continue as a growth company, leveraging technology to increase revenue streams like data and marketplace-as-a-service over 3-5 years.

• Financial banking environment risks, including exposure to Silicon Valley Bank and need to manage FDIC insurance and investment in T-bills. - Compliance requirements from customers for supplier partnerships. - Supplier constraints and need to address them through reengagement and understanding supplier capabilities.

Q: Good morning. Thank you for providing the update and for all 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 2023 given the strategic review that you guys underwent, do you envision 2023 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 2023?

A: The answer is, yes. And one of the reasons by the way although Matt -- one of the reasons is 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 businesses on Q1 is never as good as Q4. Q3 has never been as good as Q2. Having said that, we are committed to our 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.

Q: 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 2023? And where do you see those things, or where do you see that line kind of getting to over the next call it three to five years?

A: So I believe that you will start to see some relief on that in Q2 and definitely in Q3 and beyond. And our intention is to continue to be a growth company for this company. And as we build out 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, our marketplace as-a-service those kinds of things over the next three to five years.

Q: 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 how do they envision iSpecimen being helpful in these times when they're having to kind of pinch pennies a little bit?

A: 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 the organization much more than they have historically which I think is going to assist us in leading 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 that they're requiring us to go through to be a supplier for them. And I think that's just cautionary on that part. But I suspect, Eric has a little bit more he can say about that. Eric?

Q: 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?

A: Yes, I'm going to do a brief answer and I'm going to turn this over to Ben because this is really a technology question. Our 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 amount. Ben?

Q: 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?

A: 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. We're the only company out there with the 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 -- 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?

Q: 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?

A: 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 predicted revenue realignment and we were more department-oriented and now we're going to be business-oriented by what we call internally segments remnant's prospective bank. We also are reassessing our existing suppliers for business, technology and compliance objectives, and we'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 reevaluating 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 the 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 Eric, is there anything else you want to add to that?