International Stem Cell CORP (ISCO)·Q1 2014 Earnings Summary

Executive Summary

• Q1 2014 revenue increased 28% year over year to $1.649M, with gross margin of 73.0% vs 74.0% in Q1 2013; subsidiaries Lifeline Cell Technology (LCT) and Lifeline Skin Care (LSC) grew 33% and 24%, respectively .
• Net loss improved to $(1.435)M with EPS of $(0.01) vs $(0.02) in Q1 2013, aided by a $0.623M non-cash gain from the change in fair value of warrant liability; operating loss widened to $(2.065)M on higher R&D, S&M, and G&A spend .
• Program momentum: FDA pre-IND feedback for Parkinson’s disease (PD) and positive 3‑month primate data reduce regulatory uncertainty and support an IND filing after completing studies in 2014, positioning PD as the principal catalyst path forward .
• Liquidity watch: Cash fell to $0.991M at 3/31/2014 (from $2.243M at 12/31/2013) despite $1.1M raised via equity line; management expects cash burn to increase in 2014 as IND-enabling work accelerates .

What Went Well and What Went Wrong

What Went Well

• Sustained commercial growth: Seven consecutive quarters of year-over-year top-line growth; Q1 revenue up 28% YoY to $1.649M, with LCT up 33% to $0.846M and LSC up 24% to $0.803M; gross margin remained robust at 73.0% .
• Regulatory clarity and data: Pre‑IND meeting for PD clarified IND pathway; 3‑month primate study showed majority of animals with significant improvement in parkinsonism and a return of many normal behaviors, de‑risking early clinical path .
• Management tone/commitment: “Obtaining clarity from the FDA on our Parkinson’s Disease program allows us to substantially lower the risk of unforeseen regulatory issues… prepare a stronger IND…” and “we see no reason why [revenue] growth should not continue” .

What Went Wrong

• Margin and spend pressure: Gross margin slipped 100 bps YoY to 73.0% (from 74.0%), while R&D (+33% YoY to $0.958M), S&M (+31% to $0.669M), and G&A (+15% to $1.648M) outpaced revenue growth, expanding operating loss to $(2.065)M .
• Liquidity tightened: Cash and equivalents decreased to $0.991M at 3/31/2014 from $2.243M at 12/31/2013 despite $1.1M raised via equity line, increasing reliance on external financing as IND work ramps .
• Limited visibility on guidance/estimates: No formal numerical guidance provided; Wall Street consensus not available via S&P Global in this session, limiting external benchmark comparisons .

Financial Results

Income Statement (YoY comparison)

Notes: Other income in Q1 2014 includes a $0.623M non-cash gain from change in fair value of warrant liability .

Segment Revenue

Balance Sheet Highlights

Capital Markets Activity (Q1 2014)

• Raised $1.1M via equity line with Lincoln Park Capital during Q1 2014 .

Sequential comparison vs Q4 2013 for income statement items is not available from the documents in this repository (Q4 2013 filing provides annual aggregates but not standalone quarterly P&L). Balance sheet changes are shown above .

Guidance Changes

No formal numerical guidance on revenue, margins, OpEx, tax, or segment targets was provided in Q1 documents .

Earnings Call Themes & Trends

(Transcript not available in repository; themes reflect disclosures across Q4 2013 and Q1 2014 press releases.)

Management Commentary

• “Obtaining clarity from the FDA on our Parkinson’s Disease program allows us to substantially lower the risk of unforeseen regulatory issues… prepare a stronger IND submission with an increased chance of a positive review.” — Dr. Andrey Semechkin, CEO .
• “On the commercial side… top-line revenues have grown for seven consecutive quarters… we see no reason why this growth should not continue; although we expect our cash burn to increase compared with last year as we push to complete our pre-clinical work and IND submission.” — Dr. Semechkin .
• Prior quarter perspective: “In 2013 ISCO made important progress in R&D, primarily in the Parkinson’s disease program… In 2014 we will be endeavoring to complete our IND-enabling studies in order to file our first IND for… PD.” — Dr. Semechkin .

Q&A Highlights

• Q1 2014 earnings call was scheduled for May 14, 2014 (details provided), but a transcript is not available in the repository; Q&A themes cannot be summarized from primary sources. Call logistics (date/time/dial-in/webcast) are disclosed in the press release .

Estimates Context

• Wall Street consensus (S&P Global) for Q1 2014 EPS and revenue was not retrieved due to access limits in this session; therefore, no estimate comparison is included. We attempted to pull “Primary EPS Consensus Mean” and “Revenue Consensus Mean” for Q1 2014 but were unable to obtain values (S&P Global rate limit exceeded) .

Key Takeaways for Investors

• Commercial engine continues to execute: 28% YoY revenue growth with strong contribution from both subsidiaries and resilient 73% gross margin provides a base to help fund R&D .
• PD program is the core value driver: FDA pre‑IND clarity and positive primate efficacy signal a credible path to IND submission post‑2014 studies, creating a tangible regulatory catalyst track .
• Operating leverage deferred: Elevated R&D/S&M/G&A to support IND and commercial growth widened operating loss; expect higher 2014 cash burn per management .
• Liquidity is the near-term watch item: Cash of $0.991M post-quarter and continuing IND work likely necessitate additional financing despite $1.1M raised via equity line in Q1 .
• Lack of formal guidance and unavailable consensus estimates reduce near-term visibility; focus on upcoming PD milestones and execution on subsidiary growth to drive narrative .
• Trading implication: Stock likely sensitive to PD program updates (FDA feedback, study completions, IND timing) and any financing developments given cash levels .

Sources: Q1 2014 8‑K and press release including condensed financials and call details ; Q4 2013 8‑K and year-end press release .