Good day, everyone, and welcome to iSpecimen's Second Quarter 2023 Results Conference Call. At this time participants are in a listen-only mode. A question-and-answer session will follow managements’ 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 for the next 30 days. I will now hand the call over to Phil Carlson of KCSA for introduction and the reading of the safe harbor statement. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to iSpecimen's second quarter 2023 results conference call. With us on today's call is Tracy Curley, Chief Executive Officer and Chief Financial Officer; Benjamin Bielak, Chief Information Officer; Eric Langlois, Chief Revenue Officer; and Evan Cox, VP and Head of Product Management. Before we begin, I would like to remind you that today's call contains certain forward-looking statements 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 amendment number one to the annual report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 30, 2023, and the risk factors set forth in Part 2 Item 1A of our quarterly report on Form 10-Q for the quarterly period ended June 30, 2023, being filed with the SEC shortly after this call. Copies of the company's filings 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 and Chief Financial Officer of iSpecimen. Tracy, please go ahead.

Thank you, Phil. Good morning, everyone, and thank you for joining our call. Today, I will begin with an overview of the second quarter, including a brief update on the impact of the current economic environment on our business and the progress of our operational initiatives. I will then turn the call over to Eric Langlois, our Chief Revenue Officer, who will provide additional details on the implementation ramp-up of our new revenue-enhancing projects and then to Evan Cox, Vice President and Head of Product Management, to discuss the technology advancements being made to enrich the overall functionality and efficiency of the iSpecimen Marketplace. I will wrap up our call with a discussion of our financial performance for the three and six months ended June 30, 2023, and open the call for questions. In the second quarter of this year, we continue to advance several key operational initiatives to unlock our full potential advancing projects and more effectively connect researchers with suppliers and to integrate new technologies. But we recently have had initial success in expanding our capabilities streamlining processes to increase supply utilization and expediting specimen fulfillment. Our second quarter results came in below expectations. On our Q1 earnings call, we expect concern about what we perceive as a general economic uncertainty in our industry and an overall downturn in business. These concerns were realized as our business was negatively impacted in Q2. Despite the fact that we recognized record levels of opportunities in quotes, we experienced lower-than-expected conversion of quotes to purchase orders in Q1, which in turn left us with a much lower backlog of purchase orders at the beginning and early portion of Q2 compared to prior quarters. We also noted in our Q1 earnings call that we were experiencing slower-than-normal receivable payments from our customers…

Thank you, Tracy. For the four revenue-enhancing projects that we have for the year, sequencing, it remains one of the most important revenue-enhancing projects as we're seeing increased demand by researchers for donor Formalin-Fixed Paraffin-Embedded FFPE blocks to provide direct access to highly sought donor tumor tissue samples. iSpecimen is collaborating with supply and sequencing partners to identify very specific donor FFPE tissue from high-value cancer patients that more likely than not possess specific mutations of increased interest to researchers and further sequence the tissue to derive data. The genetic signatures of cancer tissues provide important information necessary to develop new treatments and diagnostics. Access to large inventories of these high-quality, valuable screen blocks has typically been difficult to obtain are not always available with high quality and can be costly. However, with our extensive supplier network in a compelling partnering business model, we believe iSpecimen has made significant strides in overcoming these obstacles. We're investing in active repetitive sequencing to create a virtual inventory available for our research customers in these areas of high value. Providing profiles for highly sought donor tumor tissue samples to supply sites will be an ongoing activity as the company seeks to source the necessary tissue for this project. This new program offers a potential for a measurable on-demand virtual access and the new opportunity to customize future FFPE tissue requests, all of which we believe can drastically change the entire cancer research paradigm. The power of the iSpecimen network makes ambitious initiatives like this possible. And when paired with the search functionality of our proprietary iSpecimen Marketplace, will provide, we believe, a simpler solution. We have successfully launched our first sequencing pilot with approximately 300 samples and anticipate a modest level of revenue from the initial batch starting at the end of Q3…

Thank you, Eric. Our product and 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 that we continue to make significant progress on these initiatives, which remain our highest priority technical investments in 2023. We are improving integrations with our provider partners, specifically with our first electronic medical record integration, where we're working to achieve the same level of confidence we have in locating specimens to locating patients and donors. This project has already been used to complete multiple customer requests, and we expect it to continue to accelerate the prospective collection process and reduce costs. Our technology team is currently performing a major upgrade to the iSpecimen Marketplace search and request capabilities. We are consistently reevaluating our iSpecimen Marketplace search functionality as this is our public face to researchers and the entry point for requests. These enhancements are keenly focused on upgrading to more modern user interface standards, new levels of automation, which will help us scale and major enhancements to our matchmaking algorithm to ensure the best possible matches between researchers and our vast supply network. We're happy to report that these changes have gone live or internal to the company's stakeholders, and we expect them to be available to external users before the end of the year. Further, we're updating our back-end architecture to support growth at scale, enhancing security and preparing for our Data as a Service pilot slated to take place in 2024. These back-end updates are expected to be completed in the second half of the year. The successful completion of our Data as a Service pilot, we believe, will allow us to validate one of many possible additional revenue streams for iSpecimen. Finally, we are using our deep insights provided by nearly 10 years of historical data and experience with customer requests, and supplier fulfillment to continue evolving our matchmaking algorithm, which is expected to result in better, faster matches and a streamlined procurement process for our researchers and reduce supplier efforts. As expected, we've already made significant progress on this initiative and are on track to complete it in the second half of the year. With that, I'll turn the call back to Tracy, who will provide more detailed discussion of our financial results for the second quarter of 2023 compared to the same period in 2022.

Thank you, Evan. In the second quarter of 2023, we reported approximately $1.6 million in revenue compared to approximately $2.3 million during the same period last year. The decrease in revenue was discussed earlier and was attributable to a decrease of 2,322 specimens or 33% in specimen count from 7,004 specimens in the three months ended June 30, 2022, to 4,682 specimens in the three months ended June 30, 2023. The decrease in specimen count was offset by a change in specimen mix that resulted in an increase in the average selling price per specimen approximately $13 or 4% compared to the same period in the prior year. During the six-month period ended June 30, 2023, we reported revenue of approximately $4.6 million compared to approximately $4.9 million during the same period last year. The decrease in revenue for the six-month period ended June 30, 2023, was attributable to a decrease in average selling price per specimen of $64 or 16% from approximately $407 in the six months ended June 30, 2022, to $343 in the six months ended June 30, 2023. The decrease in average selling price per specimen was offset by an increase of 1,383 specimens or 12% in specimen count from 11,928 specimens in the six months ended June 30, 2022, to 13,311 specimens in the six months ended June 30, 2023. Cost of revenue decreased by approximately $146,000 or 15% from approximately $1 million in the second quarter of 2022 to approximately $854,000 for the second quarter of 2023. A three-month period decrease was attributable to a 33% decrease in the number of specimens accessioned for the current period compared to the same period in the prior year, offset by a 28% increase in the average cost per specimen. Cost of revenue for the six-month period…

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Matt Hewitt of Craig-Hallum. Please go ahead.

Good morning. This is Jack on for Matt. Thank you for the update and for taking my question. My first one is more of a broader one. What impact are you seeing from your customers relating to the decline in funding for small pharma and biotech companies? And then are you experiencing any impact from this decline?

Thanks, Jack. Glad you're on the call today. I'm going to – so the answer is yes, we are seeing an impact, and there are a lot of things that we're working on internally to overcome that. I'll turn it over to Eric Langlois, our Chief Revenue Officer, to talk about the sales and marketing changes that we made in Q2 to assist us in driving through this downturn that we're seeing. Eric?

Yes. Thank you, Tracy, and thank you for the question. I think as some of the earnings stated that we really recognize kind of the change in landscape at the end of Q1. So we're kind of bracing for some of that. We found that a lot of customers were putting in a lot of requests, but really slow rolling a lot of different things, both on the purchase order conversion front, but also on the payment of past projects front. So it seemed like everyone was just going into a very conservative-based position. So as Tracy stated, we implemented a number of different changes. We've really changed around our marketing pushes and what we're pushing and how we're pushing it and the content and who it's going out to. We also readdressed all of our margins for quotations that need to really create an impact just because we were able to obtain more POs toward the end of Q2 and into Q3 than we had in the prior couple of months. So that seemed to have almost an immediate impact. But we also moved to another system where we're doing a more structured cadence follow-up to our quotations, so that are ADRs who assist our salespeople. They're really doing a specific schedule a follow-up on very specific days, making sure that we get feedback. And we also are engaging customers just to get information and feedback and talk to some other people throughout the industry to make sure that they were seeing and experiencing the same things that we were so that we'd be prepared to address it in some additional ways. So like I said, thankfully, a lot of these things have already beared fruit. We've seen some results from it. Our conversion rates have gone up relatively about 50%. So I think that we're on the right track here. And I think as an industry, we're coming out of it a bit. But I think this is just me speaking here from the data I've seen. I think the funding things that you mentioned are really impacting kind of the middle of the life science market. And I think pharma is still always okay, but they're being more conservative. And I think the funding that we are seeing is going into relatively new companies with new technologies and new entrants into the market. So I think it's the middle part that, that kind of got squeezed. But I think, like I said, the things that we've done is really kind of right to the ship, and I think will help us through the rest of the year.

And I also think that this highlighted for us that we need to focus slightly differently on our customer base. As Eric mentioned, we're sort of in the middle market, early-stage life science companies and the funding is still coming through for companies that are going through, say, a Series A. There is that going on and big pharma still has money. And so part of – another strategy that we deployed in Q2 is new customer acquisition with new, new campaigns in those areas for us to tap into these life science companies that actually still do have cash and are still spending on R&D.

Okay. That's helpful. I appreciate the color. And then in your prepared remarks, you said that you're able to pivot to several new initiatives. What were those and will you be able to replicate the success going forward into any other areas?

Yes. So we actually looked at four different growth drivers and Eric has talked to a bit of them, the competitive pricing, new customer acquisition, our middle [indiscernible] conversion drivers and then remnant and bank focused. And some of the things we did for competitive pricing is we did look at, are we competitive and if we felt that we could be more competitive. We went back to those quotes and became more competitive sharpen their pencil. For new customer acquisition, I just talked a little bit about that about new lead campaigns really focused on Series A and big pharma, also joined some very mirrored product pushes for marketing efforts. And then for our conversion drivers, especially from quote PO, which is where it really, really impacted us or the next-day quote effort was already underway. We've accelerated that, and we've created if we will, internal term greenlight for site product pushes and quoting where we know based upon really understanding our supplier capabilities that those requests and opportunities could be fulfilled. And again, we'll be fully operational with our next-day quoting and it's underway so we were starting to see benefits from that. And then for remnant and bank focus because we can convert and fulfill faster in the remnant and bank area as opposed to perspective, which is our bespoke area. We're really focused on sales and marketing fully immersed in remnants and bank areas for us, product pushes. We make sure that we're on a cadence of 2x a week and again, just making sure that we understand our supplier capabilities and inventory so that we can expedite those opportunities to quote and [indiscernible] POs. Eric, is there anything else you want to add to that?

No, not really. Yes, I mean I think you've addressed all the drivers that we looked at and the actions that we're taking. And it's just comforting to know that they all provided some immediate results and we've seen the trends in the data analytics that show that. But yes, I'll just highlight what you said. The next-day quoting piece is the big thing. I think what we've really kind of dealt with now for a number of years is that a lot of these custom bespoke collections, they take a lot of operational lift to check out. The feasibility process can be very long. It can be 15 to as many as 60 days just to evaluate a project. And if all of your opportunities are concentrated in those custom collections, that can be very, very difficult. So going back with the next-day quote project initiative and really lining out sites going to them and saying, hey, we want to market specific types of collections, specific standards. We want to be able to have a locked-in go-to-market pricing arrangements so that when we can go out and highlight those types of projects, we can actually fill more of our funnel with those things that are preloaded and some of those collections will still take a long time to execute depending on the criteria and the specificity of what the customer is looking for. But at least we'll be able to get to the purchase order and contracting portion of it within a couple of days instead of a couple of weeks. And that allows us to reach a lot better revenue conversion velocity because we're starting the project a lot sooner. We're doing the training, the kit building in the donor recruitment phase of those projects a lot sooner. So I think having a number of sites take part in that initiative, understand what we're trying to do. Be very excited about the possibilities that they no longer – for at least certain things, they no longer ever have to engage in the feasibility process. The customers are the ones that will end up benefiting the most from that. I mean, clearly, we were on the site well, but we're really trying to do something to address a bit of a time crunch there for our customers.

Thanks for taking my questions.

Thank you.

[Operator Instructions] I show no further questions in the queue. So at this time, I'd like to turn the call over to Ms. Tracy Curley, CEO and CFO, for closing remarks.

Thank you. I'd like to thank everyone again for joining us on today's call and for your continued interest in iSpecimen. We look forward to having follow-up conversations with many of you and to see many of you at the upcoming events that we will be attending this quarter. So again, thank you very much. Have a great day.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Have a good day.