Good day, everyone and welcome to iSpecimen Second Quarter 2022 Conference Call. [Operator Instructions] 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. I'll now hand the call over to Allison Soss, Investor Relations for introductions and the reading of the safe harbor statement. Please go ahead.

Thank you, operator. Good morning, everyone and welcome to iSpecimen's second quarter 2022 results conference call. With us on today's call are Christopher Ianelli, iSpecimen's Chief Executive Officer and President; Tracy Curley, Chief Financial Officer; and Jill Mullan, Chief Operating 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 Factors section of the company's Form 10-K for the year ended December 31, 2021, 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 Christopher Ianelli, Chief Executive Officer and President of iSpecimen. Chris, please go ahead.

Thank you, Allison. Good morning, everyone and thank you for joining us today on our second quarter 2022 earnings conference call. With me are Tracy Curley, our Chief Financial Officer; and Jill Mullan, our Chief Operating Officer. I'll begin by providing an overview of our operational performance, followed by a review by Tracy of our financial performance during the three and six months ended June 30, 2022. Following that, we will open the line to take your questions. The close of the second quarter marks a little over a full year of operations for iSpecimen as a public company. At this time last year, the world and our expectations of what was to come, certainly look drastically different. Yet in many respects today, the outlook remains remarkably similar. Geopolitical unrest, ongoing COVID concerns and a difficult economic environment have reduced near-term visibility for our business. Fortunately, demand for a centralized marketplace to address the inefficiencies of the fragmented biospecimen supply chain remains strong and validates our continued investment in the business. Against this backdrop, we remain intensely focused on fortifying and extending the iSpecimen marketplace platform. Specifically, we've been expanding its capabilities to better support our research clients' needs for sourcing critical biospecimens for medical research, along with making it easier for our growing network of health care providers and biospecimen suppliers to offer their samples and engage with the platform. As discussed during our previous earnings call, in the second quarter of 2022, we introduced the first of a series of updates to the iSpecimen marketplace, each aimed at delivering incremental yet foundational improvements to our software platform that'll align with our long-term strategy. We designed the marketplace search capabilities to make it even easier for researchers to seamlessly identify biospecimens that match their requirements. We also enhanced the…

Thank you, Chris. Good morning, everyone. Today, I'll review our financial results for the 3-month and 6-month period ended June 30, 2022, compared to the same period in 2021. We reported revenue of $2.3 million for the second quarter of 2022 compared to $2.9 million for the second quarter of 2021. The decreases in revenue for the three months period in 2022 were primarily attributable to the continuing decline in sales of COVID-19 specimens when compared to the same period in the prior year. During the 6-month period ended June 30, 2022, we reported revenue of approximately $4.9 million compared to approximately $5.9 million during the same period last year. The decreases in revenue for the 6-month period in 2022 were primarily attributable to the impact of the Russia and Ukraine war in the first quarter of 2022 which shut down our supply sites in those regions and impacted our ability to fulfill orders at the start of the war and a continued reduction in sales of COVID-19 specimens when compared to the same period in the prior year. We anticipate that our COVID-19 revenues will continue to decline but do not have specific guidance on the decline due to the uncertainty of the continued impact of COVID-19 that Chris just spoke about. For the three months ended June 30, 2022 and 2021, revenue derived from specimens related to COVID-19 accounted for approximately $170,000 and $896,000, or 7% [ph] and 31%, respectively, of our total revenue. For the three months ended June 30, 2022 and 2021, revenue derived from non-COVID-19-related specimens accounted for approximately $2.2 million and $2 million or 93% and 69%, respectively, of our total revenue, an 8% increase in non-COVID'19 revenue compared to the same prior year period. Specimens accessioned during the three months ended June 30,…

[Operator Instructions] Our first question comes from the line of Matt Hewitt with Craig-Hallum Capital Group.

Maybe first up, you mentioned that you continue to plan on incremental investment on the tech side. I'm just curious, as you look out over the next year or so, what are some of the areas that you expect to enhance on the platform?

Yes, this is Jill Mullan. I’ll take that. So we’re really looking at how do we integrate what we call unified search which is bringing the search for biospecimens as well as the search for patients together in one interface. So today, if you go to our marketplace, you can search for specimens that exist in biobanks or clinical labs. But if you want to do a prospective collection from a patient, you basically tell us what you’re looking for and we go out into our network to see if they have it. The unified search will allow users to go in and type in their criteria or use the checkbox and sliders to enter their criteria and get a view immediately into what’s available in our network in terms of patient encounters, more likely patient encounters. So that’s the big feature we’re working on. It requires doing some work on the database to integrate it all together and then to make those capabilities available to the researchers.

And just to add, Matt, to what Jill just said, the unified part of Unified search is that over the years of us evolving our technology here inside the company. It's evolved in silos where we have had one set of technology illuminating access to clinical remnant specimens, for example, in clinical laboratories and another technology, another silo that would look at inventories of biobanks. It's -- we think it's time for us to now put that onto a single platform so that we can allow a customer to search in all those environments with the same sort of uniform experience.

Including the patient.

Including patients.

That’s great. Maybe regarding your commentary regarding, obviously, the geopolitical headwinds, that was – it sounds like it was more first quarter versus second quarter but I’m assuming they’re still there. And then regarding the economic impact. Thank you for the details that you’re seeing on the smaller customer side but I’m wondering if there’s a way to kind of elaborate on to, I guess, one, what – is there a way to quantify maybe what those headwinds are from a dollar perspective or from an order size perspective? And then secondly, as you look out at the back half of the year into next year, do you – how do you see those headwinds may be subsiding? Or could they, at some point, create this backlog of orders that you would expect to see?

We're not giving guidance on that. We dealt swiftly in Q1 when the war started with existing purchase orders that we had anticipated being filled by our supplier sites in the Ukraine or Russia. We are -- even though our Ukraine sites are coming back online, we are very cautious because, as you know, the war is still going on. So we don't have any hard numbers and we certainly are not sole sourcing APO in the Ukraine like we did in the past. So there are things that we're doing that are more addressing the risk associated with that. Jill, do you want to add any more to that?

Yes. I think we said in the first quarter that we had about $1 million worth of purchase orders that were affected at that time. And that doesn't mean it was all revenue that was expected in the first quarter because some of those purchase orders collected over multiple periods. As we entered 2Q with the Ukrainian sites still either slow down or not operational. What that did is it impacts feasibility assessment and the ability to send orders their way. So that's why we say there's some lingering effect there. But at the same time, we've been looking to, like how quickly can we augment it with other sites that have equally good economics and are over in those areas of Europe to be able to support the same sort of project. And we've added sites in, let's say, Turkey, Armenia, Estonia. So we're looking to augment those sites so that we can continue to like I said, get the same economics in the same region.

That’s very helpful. And then maybe one last one for me and I’ll hop back in the queue. But obviously, a strong performance in the quarter on the gross margin side. You went through some of the details there. Just how should we be thinking about that over the back half of the year, is that 57% sustainable? Or is it completely dependent upon mix? And so it’s hard to kind of point to a range even.

So we generally are shooting for margins that are in the 50% to 60% range. This quarter came in better than that in large part because of specific projects and their mixes. So I think going forward, you'll see it's pretty consistent with how it's been. It may be lumpiness based upon projects.

I would like to say, you might remember last Q3, we did discuss the fact that we had modified the way we were calculating our cost of revenue because our reporting have gotten more precise internally and we were able to get more accurate with that. And so part of that lower percentage for cost of revenue to revenue ratio is a direct result of that. And so you’ll continue to see that as well.

Our next question comes from the line of Constantine Davides with EF Hutton.

Chris, the large purchase order you called out. I was wondering if you could just expand a bit on that. What type of company was it? Was it a new or existing customer? And I guess, what enabled you to identify and ultimately capture an opportunity like that?

I'll let Jill give some of the details but I'll answer part of that, Constantine, that it was a little bit of both. It's a new customer for us in terms of it being a new entity buying from us. But as you and all the others on the call already know that there's -- people rotate through different life science companies and it's an audience that you may serve them in one company and they may reappear in another company. So we've done a good job of maintaining those relationships. So I say that they're somewhat of an old customer because we've worked with these folks before and have done well in their prior companies and they have followed us with this new company in this new project. I'll let Jill speak more to the details of what it is to the extent she can.

Yes. So I can say that it’s a prospective collection. And it’s oncology related which is pretty typical for those prospective collections. It’s a long-term project. So it will be collecting over the course of the next year plus and I think one of the big reasons that we want it is that it’s very data intensive and it’s a hard project to do. But because of our technology and our data team and the data capabilities that we have, we’re able to handle it.

And it does exemplify, Constantine, what we're trying to harvest more of with the pod structure that we're going to, to free up the senior salespeople, to be able to engage in a more consultative fashion with teams to be able to get these larger longer-standing projects. So we're hopeful that this is the first of many more to come.

Great. And then just I think you said in your comments, Chris, 25% of the revenue was prospective in the quarter. How does that compare sort of year-over-year? And second and I understand there’s different projects that may hit in a given quarter. But just on average, how much of a pricing and maybe margin differential is there between prospective and, I guess, more sort of classically remnant oriented volumes?

Yes. So let me start with the pricing question first. So prospective collections typically are priced at $1,000 on up and it can be a couple of thousand depending upon how complicated the project is and the amount of data that's required.

For specimen.

For specimen or per collection. On the remnant side which the clinical remnant is in the tens of dollars per sample, so $50-ish on up. And then you have in between tissue blocks and archived samples that are typically coming out of pathology or a biobank and those specimens are in the mid- to upper hundreds. So prospective collections tend to be much more valuable than the clinical remnants, obviously. I think the second part of your question was around the mix of prospective versus other projects. And in a typical quarter, or if you look at the average across a whole bunch of quarters, we're typically 10% plus or minus 5% on remnant, so between 5% and 15%. And the rest is typically split fairly evenly between prospective collections and bank's projects which means we're typically somewhere around 40% to 45%, up to 50% prospective as well as banks. So depending upon how much we have in terms of remnants. This quarter, the 25% was low. So that, I think, has impacted the ASPs. And I think Tracy went through them and they were a little bit lower than they typically are. And it's because we lost that high-value part of our mix or at least we didn't have as much of a high-value part of our mix. This big purchase order we just took, as I mentioned, was all prospective and we expect to see that mix shift back to something that is more typical.

So is there much of a margin differential? Or does it really just depend on the project?

So it depends upon the project. There's not typically a margin differential across our various segments that we look at. They all tend to be in the same ballpark.

Our next question comes from the line of James Lieberman with Revere Securities.

Great. It’s terrific to see the progress you’re making in your biosearch [ph] platform and then the increase in customer organizations purchasing from your 21% and the registered research and user grew up 32%. So it sounds like your reach is expanding. I was also impressed by the $1.9 million order. That’s a very good sign. And I wonder whether you can comment, you see this reaching some sort of a tipping point where suddenly it’s an aha moment out there. Obviously, it’s not a magical thing. You’ve got to do a lot of contact. But is that something that could happen where you see like multiple multimillion-dollar type agreements like you’ve just signed?

I'll -- thank you for the comments on the question, Jim. So we're probably all going to chip into the answer here. I'm going to say we do envision a tipping point. The image that's in my mind is we have all of these efforts underway from restructuring and fine-tuning, the processes of our sales and marketing teams, investing heavily in Evan Cox's leading product management, platform product management for us and the tech team as well, there's going to be a convergence of capabilities that come out, hopefully, in sync with recovery in the life science markets and some more buying activity. So I do think that we do get to that tipping point. And that's really what's driving what we're doing all these things for us to drive it towards that convergence where we can be more consultative and demonstrate to potential customers, we have the ability to do these large projects far better than any of our competitors given the tech platform and the way that we go about sourcing from our network. I'll let Jill and Tracy add to that as well.

I think you covered it pretty well.

I don't want to be any down here but obviously, all of these initiatives do cost money. And so you've probably noticed that our expenses are a little bit up in Q2 this year compared to Q2 last year. We are managing our expenses very closely and carefully as we are progressing in these initiatives that do increase costs.

I feel that the way in which you’ve structured and prepared and – your company and the kind of outreach that you’re doing and the resources that you have, certainly, it’s been a very strong competitive position and I’m excited about the upcoming goals that you’re going to be having.

Thank you, Jim. We're all confident. We never anticipated this to be a fast build. It's a difficult market and a difficult business model that we've embarked on to do what we do in the absence of creating large inventories like the commercial biobanks with which we compete. But we're all confident that there is a market there and that we have a solution we hear from our customers all the time that resonates with them and that -- we'll get to that tipping point. So thank you.

Ladies and gentlemen, there are no further questions in the queue. At this time, I'll turn the call over to Mr. Christopher Ianelli, CEO and President, for closing remarks.

All right. Thank you, operator. I’d like to thank everybody again for joining us on today’s call and for your continued interest in iSpecimen and the good questions that we got at the end of our remarks. We look forward to having follow-up conversations with many of you and seeing you at upcoming events. So please do reach out to any of us or to the team at KCSA that represents us for Investor Relations. And with that, we’ll wrap it up. Everyone, have a great day. Thank you.

Thank you.

Thank you.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.