Natera, Inc. — Q1 2024 Form 10-Q Summary
Reporting period: Three months ended March 31, 2024; filed May 9, 2024. Amounts are in U.S. dollars. Natera is a molecular diagnostics company focused on women’s health, oncology, and organ health, with major products including Panorama, Horizon, Signatera, and Prospera.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $367.7 million | $241.8 million |
| Product revenue | $364.7 million | $237.8 million |
| Gross profit | $208.6 million | $93.6 million |
| Approx. gross margin | 56.7% | 38.7% |
| Operating loss | $74.3 million | $138.3 million |
| Net loss | $67.6 million | $136.9 million |
| Operating cash flow | $27.0 million provided | $81.1 million used |
Revenue increased 52.1%, principally from higher testing volumes and average selling prices. Natera processed approximately 735,800 tests, versus 626,200 a year earlier; reported units were approximately 679,400 versus 583,400, including oncology units of 114,800 versus 71,000. Product revenues represented 99% of total revenue. Interest and other income rose to $10.3 million from $4.6 million, largely due to higher cash and investment balances.
Cost of product revenue rose 7.5%, slower than product revenue growth. Research and development expense increased 7.7% to $88.6 million; selling, general and administrative expense increased 29.8% to $194.3 million. Stock-based compensation was $64.4 million, up from $40.5 million. Basic and diluted loss per share was $0.56, compared with $1.23.
Financial position, liquidity, and debt
- At March 31, 2024, cash, cash equivalents and restricted cash were $813.8 million, and short-term investments were $69.1 million. Accounts receivable was $288.7 million.
- Current assets were $1.261 billion and current liabilities $305.9 million. Total liabilities were $674.1 million; stockholders’ equity was $794.1 million. Accumulated deficit was $2.445 billion.
- Debt included $80.4 million outstanding on the UBS credit line, including accrued interest, and $287.5 million principal on 2.25% convertible notes due 2027. The credit line had $20.0 million available; UBS may demand repayment and requires at least $150.0 million in UBS accounts as collateral.
- Operating cash flow improved year over year to $27.0 million. Investing activities provided $138.3 million, largely from $169.1 million of investment maturities, offset by $20.3 million of property and equipment purchases and a $10.5 million asset acquisition. Financing activities provided $6.5 million from option exercises.
Material changes, outlook, and risks
- Management says existing cash and marketable securities should be sufficient for anticipated cash needs for at least 12 months after May 9, 2024. Natera remains loss-making and expects future losses; additional financing may be needed to achieve profitability, and may not be available on acceptable terms. The filing provides no specific revenue or earnings guidance.
- Revenue included a net $33.7 million increase from collections relating to tests delivered in prior periods, increasing revenue and reducing loss per share by $0.28. In Q1 2023, a $9.2 million reduction in expected prior-period collections reduced revenue. Q1 2024 revenue also benefited from $4.4 million of insurance-refund reserve releases. These estimates and adjustments are important when assessing the underlying trend.
- The company reported $54.3 million of cash receipts not yet applied to specific receivables, primarily due to the February 2024 Change Healthcare network disruption. It estimated about $4.0 million of those receipts related to prior-period tests fully collected. The disruption also led to $7.1 million of short-term advances, payable within ten days of demand.
- In January 2024, Natera acquired certain Invitae prenatal screening and carrier screening assets for $10.5 million. An additional payment of up to $42.5 million may be due if specified customer-volume retention targets are achieved.
- Legal proceedings include a January 2024 jury award of $96.3 million to Natera in its patent case against CareDx; a $57 million jury damages verdict against Natera in the Ravgen patent case, which Natera intends to appeal; and ongoing appeals, investigations, payer audits, and other litigation. The company states it cannot assure outcomes and that some matters may have material adverse effects.
- Key business risks include payer coverage and reimbursement, particularly for microdeletion screening; competition and test adoption; scaling laboratory capacity and supply availability; regulatory changes, including the FDA rule that could classify tests as medical devices; and litigation and intellectual-property outcomes. Management reported disclosure controls were effective at the reasonable-assurance level.
Most important facts for investors to verify
- How much of revenue growth and improved loss reflects sustainable volume, pricing, and cost performance versus prior-period collection and refund-reserve adjustments.
- Whether the $54.3 million of unapplied receipts is applied and collected as expected, and how the Change Healthcare disruption affects billing and cash conversion.
- Cash availability after accounting for credit-line collateral requirements, debt service, ongoing losses, and the potential Invitae contingent payment.
- Progress toward payer coverage and reimbursement, especially for microdeletions testing, and the economics of product growth and Constellation licensing.
- Developments in material litigation, investigations, and payer audits, including the Ravgen appeal and CareDx award proceedings.
- The level and continuing impact of stock-based compensation and potential shareholder dilution, including the convertible notes and outstanding equity awards.