CareDx, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. CareDx is a transplant diagnostics company offering testing services and transplant-matching products. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Total revenue | $26.0 million | $14.1 million; up 85% |
| Testing services revenue | $21.5 million | $10.6 million; up 103% |
| Product revenue | $4.4 million | $3.3 million; up 34% |
| Gross profit and margin | $16.2 million; approximately 62.5% | $7.7 million; approximately 54.6% |
| Operating loss | $5.4 million | $5.2 million loss |
| Net loss attributable to CareDx | $7.5 million; $0.18 per share | $9.0 million; $0.30 per share |
| Operating cash flow | $5.9 million used | $4.5 million used |
| Cash and cash equivalents | $57.4 million at March 31 | $64.6 million at December 31, 2018 |
| Debt | No debt outstanding |
Gross profit and margins above are calculated from reported revenue and direct testing and product costs. Current assets were $77.6 million versus current liabilities of $16.4 million. Total assets were $127.9 million and stockholders’ equity was $95.6 million. The company reported a $10.5 million common-stock warrant liability; this is not debt.
CareDx also highlighted adjusted net income of $2.2 million and adjusted EBITDA of $1.8 million. These are non-GAAP figures; the filing text provided here does not include their reconciliation.
Material changes and business developments
- AlloSure results rose to 5,710 from 1,051 in the prior-year quarter; AlloMap results increased to 4,280 from 3,847. The company cited test volume growth as the main driver of higher testing-services revenue.
- Product revenue growth reflected TruSight HLA and QTYPE sales, partly offset by lower Olerup SSP sales.
- Operating expenses increased 63% to $31.4 million. Research and development spending rose 67%, sales and marketing 70%, and general and administrative 72%; the company cited investment in NGS products, clinical studies, personnel, commercial activity, and higher stock-based compensation.
- Cash used in operations increased year over year. The company cited working-capital movements, including higher receivables and lower accrued compensation, as cash uses.
- On May 7, 2019, after quarter-end, CareDx completed its acquisition of OTTR Complete Transplant Management for $16 million in cash. OTTR provides transplant patient-management software used at more than 60 transplant centers.
Outlook, risks, and unusual items
- Management said existing cash and expected revenue should meet anticipated cash requirements for at least the next 12 months, while noting that additional financing may be needed and is not assured. The subsequent $16 million OTTR cash acquisition is relevant to assessing liquidity after quarter-end.
- No specific revenue or earnings guidance was provided in the filing text.
- AlloSure had Medicare reimbursement at $2,841, but had no positive private-payer coverage decisions. AlloSure-Heart and AlloSure-Lung had no positive payer coverage decisions, and applications for coverage had not yet been made. AlloMap Medicare reimbursement was $3,240 and the company reported coverage from major private payers.
- Medicare represented approximately 55% of Q1 revenue, up from 42% a year earlier. Changes in coverage, reimbursement, collections, and test volumes are significant business risks.
- A $3.0 million noncash expense from remeasurement and warrant exercises affected the quarter’s results. Stock-based compensation was $6.1 million, compared with $0.7 million in Q1 2018. The prior-year quarter included $2.8 million of debt-extinguishment expense and $2.7 million of net interest expense; CareDx reported no debt at March 31, 2019.
- The company adopted lease accounting guidance effective January 1, 2019, recording a $2.5 million operating-lease right-of-use asset at March 31. Management said adoption did not materially affect operating results or cash flows.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. The filing reported no material changes to the risk factors in the 2018 Form 10-K; ordinary-course legal matters were described as unpredictable, with no presently pending matter believed to have a material adverse effect.
Important facts for investors to verify
- Whether AlloSure’s rapid test-volume growth translates into sustainable collections and broader payer coverage.
- Medicare reimbursement exposure and the effect of any future changes to coverage or payment rates.
- Cash use and liquidity after the $16 million OTTR acquisition, including acquisition integration costs and results.
- The drivers and persistence of rising operating expenses, particularly stock-based compensation and commercial and R&D spending.
- Reconciliation and definitions of the company’s adjusted net income and adjusted EBITDA measures.