Psychemedics(PMD) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (unaudited) The unaudited financial statements for the period ended June 30, 2021, reflect a return to profitability with increased assets and positive operating cash flow, driven by revenue recovery and CARES Act benefits Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash | $2.7M | $2.8M | | Total Current Assets | $11.7M | $9.6M | | Total Assets | $24.6M | $24.0M | | Liabilities & Equity | | | | Total Current Liabilities | $4.6M | $3.9M | | Total Liabilities | $11.5M | $11.5M | | Total Shareholders' Equity | $13.1M | $12.5M | | Total Liabilities and Shareholders' Equity | $24.6M | $24.0M | Condensed Consolidated Statements of Operations and Comprehensive Income /(Loss) Statement of Operations Highlights (in millions, except per share data) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $6.1M | $3.3M | $11.8M | $10.9M | | Gross profit (loss) | $2.4M | $(0.3M) | $5.0M | $2.5M | | Operating income (loss) | $0.2M | $(3.3M) | $0.3M | $(3.5M) | | Net income (loss) | $0.1M | $(2.1M) | $0.2M | $(2.2M) | | Diluted net income (loss) per share | $0.02 | $(0.37) | $0.04 | $(0.40) | Condensed Consolidated Statements of Shareholders' Equity - Total Shareholders' Equity increased from $12.5 million at the end of 2020 to $13.1 million as of June 30, 2021, primarily driven by $0.2 million net income and $0.4 million stock-based compensation expense for the six-month period[10] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $0.2M | $(3.7M) | | Net cash used in investing activities | $(0.1M) | $(0.7M) | | Net cash (used in) provided by financing activities | $(0.3M) | $0.8M | | Net decrease in cash | $(0.2M) | $(3.6M) | | Cash, end of period | $2.7M | $3.7M | Notes to Condensed Consolidated Financial Statements The notes detail the significant impacts of COVID-19, including volume effects and CARES Act relief, revenue sources, and debt arrangements including PPP loan forgiveness - The COVID-19 pandemic has had a significant impact on operations, adversely affecting hiring and thus testing volume both domestically and internationally[20] - The company recognized an employee retention credit under the CARES Act, which reduced cost of revenues and operating expenses by $0.8 million for Q2 2021 and $1.6 million for H1 2021[22] - In July 2021, the company's Paycheck Protection Program (PPP) loan of approximately $2.2 million, including principal and accrued interest, was forgiven in full by the SBA[47][70] Revenue by Source (in millions) | Source | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Testing | $10.4M | $9.8M | | Shipping/Collection (hair) | $1.3M | $1.0M | | Other | $0.1M | $0.1M | | Total Revenue | $11.8M | $10.9M | Revenue by Geographic Region (in millions) | Region | H1 2021 | H1 2020 | | :--- | :--- | :--- | | United States | $11.0M | $9.5M | | Brazil | $0.5M | $1.1M | | Other | $0.3M | $0.2M | | Total Revenue | $11.8M | $10.9M | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2021 performance improvement to increased sales volume and tax credits, with strong domestic revenue growth, reduced operating expenses, and adequate liquidity for the next 12 months Overview Q2 and H1 2021 Financial Highlights vs. 2020 | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $6.1M | $3.3M | $11.8M | $10.9M | | Net Income (Loss) | $0.1M | ($2.1M) | $0.2M | ($2.2M) | | Diluted EPS | $0.02 | ($0.37) | $0.04 | ($0.40) | - The increase in revenue and earnings for Q2 2021 was primarily due to higher domestic and international sales volume and a refundable employee retention tax credit of $0.8 million[54] - No cash dividends were paid in the first six months of 2021, compared to $0.18 per share paid in the same period of 2020[54] Results of Operations - Q2 2021 revenue increased 84% YoY, driven by a 95% increase in total volume as 2020 was heavily impacted by COVID-19, with domestic revenues rising 80% and international revenues rising 153% in the quarter[56] - For the first six months of 2021, domestic revenues increased 16% due to stronger job creation, while international revenues decreased 42%, primarily from lower Brazil testing volume[56] - Gross profit margin for H1 2021 was 42%, up from 23% in H1 2020, positively impacted by higher sales volume and the employee retention tax credit[57] - G&A expenses for Q2 2021 decreased 31% YoY, mainly due to the absence of non-recurring legal fees from 2020 and salary reductions in 2021[58] - Marketing and selling expenses for Q2 2021 decreased 23% YoY, primarily from reduced personnel and travel costs[60] Liquidity and Capital Resources - As of June 30, 2021, the company had $2.7 million in cash and $7.1 million in working capital[64] - For the first six months of 2021, operating activities provided $0.2 million of cash, investing activities used $0.1 million, and financing activities used $0.3 million[64] - In July 2021, the SBA approved the forgiveness of the full $2.2 million PPP loan, including principal and interest[70] - Management believes existing funds and cash flow are adequate to fund the business for at least the next 12 months, but notes that economic conditions related to COVID-19 are expected to continue to adversely affect results[71] Controls and Procedures Management, including the CEO and Controller, concluded that the company's disclosure controls and procedures were effective as of June 30, 2021, with no significant changes to internal controls - Management, including the CEO and Controller, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[72] - No significant changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[73] PART II - OTHER INFORMATION Risk Factors There have been no material changes to the company's risk factors from its Form 10-K, except for the resolved PPP loan risk due to its full forgiveness - There have been no material changes in the risk factors from the Form 10-K, except for the risk related to the PPP Loan, which was 100% forgiven by the SBA in July 2021[76] Unregistered Sales of Equity Securities and Use of Proceeds The company did not engage in any purchases of its own equity securities during the first six months of 2021 - There were no purchases of treasury stock in the first six months of 2021[77] Other Information The company entered into a five-year change in control severance agreement with its Vice President and Controller, providing for twelve months of termination pay under specific conditions - The company entered into a five-year change in control severance agreement with Andrew Limbek, Vice President, Controller, effective September 1, 2021[78] - The agreement provides for twelve months of termination pay if Mr. Limbek's employment is terminated without Cause or he resigns for Good Reason within twelve months following a Change in Control[78] Exhibits This section lists the exhibits filed with the Form 10-Q, including required certifications by officers and Inline XBRL documents