AquaBounty Technologies, Inc. (NASDAQ:AQB) has weathered a tumultuous few years, navigating a rapidly evolving landscape in the land-based aquaculture industry. As a vertically integrated company with decades of experience in farming Atlantic salmon, AquaBounty has positioned itself as a distinctive brand, leveraging its operational expertise and advancements in fish breeding, genetics, and health and nutrition to deliver innovative solutions that address food insecurity and climate change concerns.
Company History and Milestones
AquaBounty's history can be traced back to 1991, when the company was incorporated in Delaware with the purpose of conducting research and development on the commercial viability of a group of proteins known as antifreeze proteins. In 1996, the company obtained the exclusive licensing rights for a gene construct, or transgene, used to create a breed of farm-raised Atlantic salmon that exhibit growth rates substantially faster than conventional Atlantic salmon. This genetic engineering breakthrough would go on to become a key driver of AquaBounty's business strategy.
After years of research and development, AquaBounty made a significant milestone in 2015 when it obtained regulatory approval from the U.S. Food and Drug Administration (FDA) for the production and sale of its genetically engineered AquAdvantage salmon product in the United States. This approval marked a historic moment, as AquaBounty's product became the first genetically engineered animal approved for sale for human consumption. The company's success in navigating the regulatory landscape continued with approvals from Health Canada in 2016 and the National Biosafety Technical Commission in Brazil in 2021, paving the way for the company to commence commercial activities in North America and South America.
Recent Developments and Challenges
AquaBounty began harvesting and selling its GE Atlantic salmon in the United States and Canada in 2021, marking the culmination of years of research, development, and regulatory efforts. However, the company's growth plans hit a significant roadblock with the challenges faced in the construction of its large-scale recirculating aquaculture system farm in Pioneer, Ohio. The construction costs for this project exceeded the company's ability to complete the proposed municipal bond financing, leading AquaBounty to make the difficult decision to pause construction activities on the farm in 2023.
Unfortunately, the past few years have not been without their challenges for AquaBounty. In 2024, the company made the difficult decision to sell its Indiana farm and pause construction activities at its Ohio farm due to significant cost overruns and its inability to secure the necessary financing to complete the project. This decision resulted in a series of non-cash impairment charges totaling $48.73 million against the long-lived assets of the Indiana farm and certain equipment from the Ohio farm.
Financials and Liquidity
As of September 30, 2024, AquaBounty had $500,000 in cash and cash equivalents, a significant decline from the $9.2 million it held at the end of 2023. The company's ability to continue as a going concern has been called into question, with management acknowledging that its future capital requirements will be substantial and that there can be no assurance that additional capital will be available in sufficient amounts, on a timely basis, or on terms acceptable to the company.
Despite these challenges, AquaBounty remains committed to its mission of delivering sustainable, nutritious salmon to consumers. The company has continued to generate product revenue, primarily through the sale of its GE Atlantic salmon, supplemented by sales of conventional Atlantic salmon, salmon eggs, fry, and byproducts. In the nine months ended September 30, 2024, AquaBounty reported product revenue of $705,000, a decline from the $1.92 million reported in the same period of the previous year.
AquaBounty's financial performance has been impacted by the operational challenges it has faced, with the company reporting a net loss of $65.08 million for the nine months ended September 30, 2024, compared to a net loss of $19.13 million in the same period of 2023. The company's cash flow from operations has also been negative, with a net cash use of $12.70 million in the first nine months of 2024.
To address its liquidity concerns, AquaBounty has been exploring a range of funding and strategic alternatives, including the completed sale of its Indiana farm and the ongoing sale process for its Rollo Bay farm in Canada. The company has also been marketing additional equipment assets from its Ohio farm for sale in an effort to generate much-needed cash.
For the fiscal year 2023, AquaBounty reported annual revenue of $2.47 million, with a net loss of $22.16 million. The company's annual operating cash flow was negative $21.01 million, while its annual free cash flow stood at negative $88.48 million. In the most recent quarter (Q3 2024), revenue decreased to $47,810, primarily due to the reduction in GE Atlantic salmon sales following the sale of the Indiana farm. The net loss for this quarter was $3.40 million.
The company's liquidity position remains precarious, with a debt-to-equity ratio of 0.0567 and both current and quick ratios at 0.003 as of September 30, 2024. In April 2024, AquaBounty entered into a $10 million secured term loan to fund working capital, of which $6.5 million was outstanding as of September 30, 2024. This loan was subsequently repaid in July 2024 using proceeds from the Indiana farm sale.
Business Overview A Storied Brand with a Refocused Strategy
AquaBounty operates in two main product segments: GE Atlantic Salmon and Conventional Atlantic Salmon. The company's GE Atlantic salmon, which received regulatory approval in the United States in 2015 and in Canada in 2016, has been its primary focus. However, due to recent developments, AquaBounty is not currently growing its GE Atlantic salmon for sale and consumption.
The company's conventional Atlantic salmon segment includes the sale of non-GE Atlantic salmon, salmon eggs, fry, and byproducts. With the sale of the Indiana farm, AquaBounty's product revenues will primarily consist of conventional Atlantic salmon eggs and salmon byproducts from its Rollo Bay farm on Prince Edward Island, Canada, for the near term.
In the first quarter of 2024, AquaBounty initiated a process to identify a potential buyer for its Indiana farm, resulting in a $4.3 million non-cash impairment charge against long-lived assets and a $1.0 million net realizable value adjustment of inventory. The Indiana farm was subsequently sold in July 2024 for net proceeds of $9.2 million.
During the second quarter of 2024, the company recorded an additional non-cash impairment charge of $18.2 million related to the Indiana farm and initiated a plan to sell additional equipment from its Ohio farm, resulting in a non-cash impairment charge of $26.3 million.
In the third quarter of 2024, AquaBounty began marketing its Rollo Bay farm in Canada for sale, reclassifying the $9.8 million net book value of those assets as "Assets Held for Sale." These strategic moves are part of the company's efforts to generate liquidity and streamline its operations in the face of significant financial challenges.
AquaBounty currently sells its products only in the United States and Canada, reflecting its focus on North American markets.
Future Outlook and Strategic Considerations
Looking ahead, AquaBounty's success will hinge on its ability to secure additional financing, whether through the sale of non-core assets, equity offerings, debt financings, or strategic partnerships. The company's future will also be shaped by its ability to navigate the regulatory landscape, adapt to changing consumer preferences, and continue innovating its aquaculture technology.
Despite the headwinds facing the company, AquaBounty's commitment to sustainable, technology-driven aquaculture remains a compelling proposition. As the world grapples with the challenges of food security and environmental stewardship, the company's focus on land-based farming and genetic engineering solutions could position it as a key player in the evolving aquaculture landscape.
Investors considering AquaBounty will need to carefully weigh the company's significant liquidity concerns, operational challenges, and regulatory risks against its potential to disrupt the traditional seafood industry. As the company navigates these choppy waters, its ability to secure the necessary financing and execute on its long-term strategy will be crucial in determining its future success.
The company faces substantial doubt about its ability to continue as a going concern, having incurred cumulative net losses and negative cash flows from operations since inception. With only $500,430 in cash and cash equivalents as of September 30, 2024, AquaBounty will require additional financing to fund its operations and execute its business plan. The outcome of these efforts will be critical in determining the company's ability to overcome its current challenges and capitalize on the potential of its innovative aquaculture technologies.