Veracyte, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparative periods ended June 30, 2022. Unaudited results. Veracyte is a diagnostics company offering tests including Afirma, Decipher, Prosigna, Envisia and Decipher Bladder.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Total revenue | $90.3M | $72.9M | $172.7M | $140.6M |
| Testing revenue | $81.7M | $59.7M | $154.1M | $115.7M |
| Net loss | $(8.4)M | $(9.5)M | $(16.5)M | $(24.0)M |
| Loss from operations | $(8.1)M | $(10.7)M | $(18.5)M | $(26.0)M |
| Operating cash flow | Not separately presented | $14.5M | $(9.2)M |
Q2 testing revenue rose 37% year over year; diagnostic tests reported increased 28% to 29,061. Total test volume, including product tests sold, increased 28% to 31,809. First-half total test volume rose 26% to 60,597.
Calculated gross margin was approximately 67.1% in Q2 2023 versus 65.6% in Q2 2022, and 67.6% for the first half versus 65.3%. These figures are calculated from reported revenue less the three reported cost-of-revenue categories.
Liquidity, debt and balance sheet
- At June 30, 2023, cash and cash equivalents were $191.1M; restricted cash was $0.9M. The company held no short-term investments, compared with $24.6M at year-end 2022.
- Cash, cash equivalents and restricted cash increased $37.0M in the first half. Operating cash flow was $14.5M; investing cash flow was $20.4M, including proceeds from investment sales and maturities; financing cash flow was $2.1M.
- Total liabilities were $78.4M and stockholders’ equity was $1,082.7M. The balance sheet reports no borrowings; liabilities include $14.9M of operating lease obligations and $8.2M of acquisition-related contingent consideration.
- Accumulated deficit was $410.2M. The company had 72.6M common shares outstanding at June 30, 2023.
Changes versus prior comparable periods
- Revenue growth was led by Afirma and Decipher Prostate testing. Testing revenue increased $22.0M in Q2 and $38.4M in the first half.
- Biopharmaceutical and other revenue declined 55% in Q2 to $4.6M and 43% in the first half to $10.7M, primarily because customer projects were reduced amid industry spending constraints.
- Operating losses narrowed year over year, although operating expenses increased 18% in Q2 and 15% in the first half. R&D and G&A were notable contributors to expense growth.
- First-half operating cash flow improved from a $9.2M use in 2022 to $14.5M provided in 2023.
Outlook, commentary and risks
- No numerical revenue, volume, earnings or margin guidance is provided. Management expects additional losses for the remainder of 2023 and potentially future years, but believes existing cash and expected cash flows will cover anticipated needs for at least 12 months from the filing date.
- Management expects continued investment in R&D, clinical studies, new tests, IVD development and Marseille manufacturing capabilities. It also expects G&A expense to rise as infrastructure is built to support growth.
- Unusual items included $1.4M of impairment charges related to the Richmond facility exit in the first half and $1.4M of stock-based compensation related to the former executive chair’s departure in June. The company also recorded reserves and estimate revisions for French research tax credits, which reduced Q2 other income.
- Principal risks include dependence on Afirma and Decipher and on a small number of payers (Medicare contributed 32% of first-half revenue; UnitedHealthcare 10%); reimbursement, coverage and collections uncertainty; reliance on some single-source suppliers; regulatory and clinical-development uncertainty; and macroeconomic, currency and European energy-supply risks.
- The company said the SVB closure did not impair access to its funds and reported diversifying deposits, while noting deposits may exceed insured limits. A new Marseille facility lease is expected to commence after construction, then anticipated in the second half of 2023; stated annual rent is approximately $1.3M, subject to final construction.
- Management concluded disclosure controls were effective; no material change in internal control over financial reporting was reported for the quarter. The company reported no litigation pending that it believes would materially affect its financial statements.
Key facts for investors to verify
- Whether Afirma and Decipher volume growth continues and converts into collections at estimated reimbursement levels.
- Whether the decline in biopharmaceutical revenue persists and how it affects revenue mix and margins.
- Cash generation and the pace of operating expense growth, including stock-based compensation and R&D investment.
- Changes in payer coverage, reimbursement rates, prior-authorization requirements and concentration exposure.
- Progress and costs of Marseille manufacturing and the new facility lease, alongside supplier and energy-continuity risks.
- Potential dilution: the filing lists approximately 7.0M anti-dilutive common-stock equivalents for Q2 2023.