ProPhase Labs(PRPH) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section details the company's financial statements, management's analysis, market risks, and internal controls Financial Statements The unaudited condensed consolidated financial statements for Q1 2022 reflect significant growth in assets, revenues, and net income, primarily driven by diagnostic services Condensed Consolidated Balance Sheets Total assets increased to $99.7 million by March 31, 2022, primarily due to a substantial rise in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $25,807 | $8,408 | | Accounts receivable, net | $36,694 | $37,708 | | Total current assets | $72,555 | $61,317 | | TOTAL ASSETS | $99,665 | $89,295 | | Liabilities & Equity | | | | Total current liabilities | $19,770 | $15,524 | | Total liabilities | $33,220 | $30,667 | | Total stockholders' equity | $66,445 | $58,628 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $99,665 | $89,295 | Condensed Consolidated Statements of Operations and Other Comprehensive Loss Net revenues surged to $47.5 million in Q1 2022, leading to a net income of $12.5 million, a significant increase year-over-year Q1 2022 vs. Q1 2021 Statement of Operations (in thousands, except per share amounts) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Revenues, net | $47,531 | $15,271 | | Gross profit | $28,677 | $8,927 | | Income from operations | $16,146 | $1,221 | | Net income | $12,494 | $1,057 | | Basic EPS | $0.81 | $0.07 | | Diluted EPS | $0.68 | $0.06 | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $66.4 million by March 31, 2022, driven by net income, partially offset by dividends and share repurchases - Key activities affecting stockholders' equity in Q1 2022 included a net income of $12.5 million, payment of $4.6 million in cash dividends, and repurchases of common shares for $1.15 million[13] Condensed Consolidated Statements of Cash Flows Operating activities generated $20.3 million in cash in Q1 2022, contributing to a $17.1 million increase in cash and cash equivalents Q1 2022 vs. Q1 2021 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $20,287 | $(7,892) | | Net cash provided by (used in) investing activities | $4,084 | $(6,832) | | Net cash (used in) provided by financing activities | $(7,222) | $40,635 | | Increase in cash, cash equivalents and restricted cash | $17,149 | $25,911 | Notes to Condensed Consolidated Financial Statements Detailed notes disclose the company's operating segments, the significant impact of COVID-19 testing, risks from the HRSA program suspension, and segment-level financial performance - The company operates through two segments: diagnostic services (COVID-19 testing, genomics) and consumer products (OTC products, contract manufacturing)[18][27] - A significant business risk is the suspension of the HRSA program for uninsured COVID-19 testing, which accounted for 69% of diagnostic services revenue in Q1 2022. The program stopped accepting claims on March 22, 2022[30] - On August 10, 2021, the company acquired Nebula Genomics for approximately $14.3 million to expand into personal genomics testing[20][106] Revenue by Source (in thousands) | Revenue by Customer Type | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Diagnostic services | $44,913 | $12,738 | | Contract manufacturing | $1,154 | $1,908 | | Retail and others | $546 | $625 | | Genomic products and services | $918 | - | | Total revenue, net | $47,531 | $15,271 | Segment Income from Operations (before tax, in thousands) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Diagnostic services | $20,026 | $2,839 | | Consumer products | $(1,863) | $(35) | | Unallocated corporate | $(2,253) | $(1,747) | | Total | $15,910 | $1,057 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant revenue and profit growth driven by COVID-19 testing, improved liquidity, and the critical impact of the HRSA uninsured program suspension - Net revenue for Q1 2022 was $47.5 million, a significant increase from $15.3 million in Q1 2021, primarily due to a $32.2 million increase in diagnostic services revenue[203] - Diagnostic testing volume increased from 113,000 tests in Q1 2021 to 377,000 tests in Q1 2022, driven by the Omicron variant[203] - The HRSA uninsured program, which accounted for 69% of diagnostic services revenue in Q1 2022, stopped accepting claims on March 22, 2022, resulting in $4.3 million of unrecognized revenue for tests performed between March 23 and March 31, 2022[223] Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | GAAP net income | $12,494 | $1,057 | | Interest, net | $160 | $164 | | Depreciation and amortization | $1,250 | $457 | | EBITDA | $13,904 | $1,678 | | Share-based compensation expense | $482 | $428 | | Non-cash rent expense | $10 | $186 | | Bad debt expense | $250 | - | | Adjusted EBITDA | $14,646 | $2,292 | Quantitative and Qualitative Disclosures about Market Risk The company faces no material foreign currency or interest rate risk, but general economic conditions could adversely affect its business operations - The company does not have material exposure to foreign currency fluctuations or interest rate risk[244] - General economic conditions pose a risk to the business, potentially affecting accounts receivable collections, inventory realization, and asset recoverability[245] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to a material weakness in diagnostic billing and revenue processes, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2022[248] - A material weakness was identified related to the diagnostic billing and revenue process, including a lack of appropriate standard operating procedures, billing system controls, and proper assessment of reimbursement receivables[251] - Management is committed to remediating the material weakness and has begun implementing changes to internal controls, with plans to continue assessment throughout 2022[252][253] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, and other required disclosures Legal Proceedings The company is not currently a party to any material litigation, though ordinary course legal proceedings may arise - As of the report date, the company is not a party to any material litigation[256] Risk Factors A key risk factor is the company's ability to collect payment for COVID-19 tests, especially after the suspension of the HRSA uninsured program - A primary risk is the company's ability to collect payment for tests, especially after the suspension of the HRSA uninsured program on March 22, 2022[260] - The HRSA program for the uninsured accounted for approximately 60% of diagnostic services revenue for the three months ended March 31, 2022[260] - As a result of the HRSA program suspension, the company did not recognize $4.3 million of revenues for testing performed for uninsured individuals from March 23 to March 31, 2022[260] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[262] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[263] Other Information The company reported no other information required to be disclosed - None[263] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906[263]