Personalis, Inc. 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021; filed November 4, 2021. Financial statements are unaudited. Personalis provides cancer genomics sequencing and data-analysis services to biopharmaceutical, academic, nonprofit and government customers, with population sequencing representing the majority of revenue.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $22.3 million | $19.8 million | $64.8 million | $58.5 million |
| Gross profit | $8.1 million | $5.3 million | $23.7 million | $14.0 million |
| Gross margin | 36.2% | 26.9% | 36.5% | 24.0% |
| Loss from operations | $(17.7) million | $(9.7) million | $(45.1) million | $(28.8) million |
| Net loss | $(17.7) million | $(9.5) million | $(45.0) million | $(27.9) million |
| Basic and diluted loss per share | $(0.40) | $(0.27) | $(1.03) | $(0.85) |
- Q3 revenue increased 12%; nine-month revenue increased 11% year over year.
- Cost of revenue declined 2% in Q3 and 7% for the first nine months despite higher revenue, reflecting favorable customer mix and laboratory efficiencies.
- Research and development expense increased 89% in Q3 and 74% year to date, primarily from product development, automation, increased headcount and laboratory activity.
- Selling, general and administrative expense increased 56% in Q3 and 49% year to date, driven largely by headcount, professional services and expansion-related costs.
- Operating losses widened materially; operating margin was approximately negative 79.5% in Q3 and negative 69.6% for the first nine months, compared with negative 48.7% and negative 49.2%, respectively, in the comparable periods.
- Net cash used in operating activities was $55.6 million for the first nine months, compared with $40.1 million in 2020. Net cash used in investing activities was $100.0 million, including $92.5 million invested in short-term securities and $7.5 million of property and equipment purchases.
- Net cash provided by financing activities was $168.4 million, primarily from the January 2021 follow-on equity offering, which generated $162.3 million of net proceeds.
- At September 30, 2021, cash and cash equivalents were $79.6 million and short-term investments were $225.7 million, totaling $305.2 million. Working capital was $302.5 million.
- Total liabilities were $81.4 million, including $54.9 million of long-term operating lease liabilities and $3.4 million carrying value of equipment and software financing obligations. The filing does not report conventional interest-bearing debt beyond these financing arrangements.
- Accumulated deficit was $226.9 million and stockholders’ equity was $325.3 million.
Material changes versus the prior comparable period
- Revenue from the VA Million Veteran Program declined 3% in Q3 and 7% for the first nine months, while revenue from all other customers increased 50% and 64%, respectively.
- VA MVP represented 61% of Q3 revenue and 62% of nine-month revenue, down from 71% and 75% in the prior-year periods. Natera represented 10% of Q3 revenue.
- NeXT Platform revenue, including Natera, increased to $5.5 million in Q3 from $2.8 million and to $14.8 million for the first nine months from $5.9 million.
- Stock-based compensation increased to $3.7 million in Q3 and $10.3 million year to date, compared with $1.7 million and $4.8 million, respectively.
- The company entered into a 13.5-year lease for an approximately 100,000-square-foot Fremont headquarters and laboratory facility. The related lease liability and right-of-use asset were approximately $44.7 million at inception; total future operating lease payments were $85.5 million at September 30, 2021.
- In September 2021, the company received a VA MVP task order with a value of up to approximately $9.7 million, substantially below the approximately $31 million task order received in September 2020.
- Shares outstanding increased to 44.7 million at September 30, 2021 from 39.1 million at December 31, 2020, primarily reflecting the January equity offering and equity award activity.
Guidance, outlook, commentary and risks
- Management stated that existing cash, cash equivalents and short-term investments, together with expected operating cash flows, should fund near-term capital and operating needs for at least the next 12 months, although actual cash usage may exceed expectations.
- Contracted but unrecognized revenue was $12.9 million at September 30, 2021, with the substantial majority expected to be recognized in the following two quarters.
- Management expected all-other-customer revenue to constitute the majority of fiscal 2022 revenue based on orders received during 2021.
- VA MVP backlog was approximately $12.9 million, expected to convert to revenue in Q4 2021 and Q1 2022. Management warned that VA MVP revenue could decline significantly after Q1 2022 absent additional task orders or a new services agreement. A potential 2022 competitive bidding process and its outcome were uncertain.
- Capital expenditures are expected to increase substantially in 2022, with fiscal 2022 capital expenditures expected to more than double fiscal 2021 levels, primarily because of the Fremont facility.
- The company expects continued losses and increased research and development, selling, general and administrative and infrastructure spending.
- COVID-19, including the Delta variant, continued to pose risks to laboratory access, customer sample collection, supplier availability and demand. The company also relies on limited or sole-source suppliers for certain sequencing instruments and materials.
- Other principal risks include substantial customer concentration, dependence on the VA MVP and customer clinical programs, competitive pressure, regulatory uncertainty for laboratory-developed tests and international diagnostics, data privacy and cybersecurity exposure, intellectual-property claims, hiring and retention challenges, and the need for future financing if cash resources prove insufficient.
- No material legal proceedings were reported. Management concluded that disclosure controls and procedures were effective as of September 30, 2021, and reported no changes in internal control.
Important facts for investors to verify
- Timing, amount and competitiveness of any 2022 VA MVP bidding process, including replacement revenue after the current backlog is processed.
- Conversion of the $12.9 million contracted-not-recognized revenue into revenue and cash collections.
- Growth, retention and margins of non-VA MVP customers, particularly Natera and pharmaceutical customers using the NeXT Platform.
- Cash burn relative to the $305.2 million investment portfolio and the funding required for the Fremont facility and expected 2022 capital expenditures.
- Execution, construction, laboratory certification and operating costs associated with the new Fremont headquarters and laboratory.
- Exposure to dilution from equity compensation and the company’s continuing losses.
- Potential effects of COVID-19, supplier concentration, regulatory changes, data-security incidents and intellectual-property disputes.