Veracyte, Inc. (NASDAQ: VCYT) — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results; the company operates as a global diagnostics business, with genomic testing, diagnostic products and biopharmaceutical services. The filing cautions that interim results are not necessarily indicative of full-year results.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $72.9M | $55.1M | $140.6M | $91.8M |
| Net loss | $9.5M | $9.0M | $24.0M | $50.9M |
| Net loss per share, diluted | $0.13 | $0.13 | $0.34 | $0.78 |
| Operating cash flow | — | — | $(9.2)M | $(38.7)M |
Revenue mix: Q2 testing revenue was $59.7M, product revenue $3.1M and biopharmaceutical and other revenue $10.0M. For the first half, the respective amounts were $115.7M, $6.1M and $18.9M. Diagnostic tests reported rose 19% in Q2 and 40% for the first half year over year; total test volume increased 19% and 36%, respectively.
Margins and expenses: Calculated gross margin was approximately 65.6% in Q2 versus 68.3% a year earlier, and 65.3% for the first half versus 67.5%. Q2 operating loss was $10.7M, compared with $7.5M; first-half operating loss improved to $26.0M from $52.9M. The first-half comparison includes $25.1M of Decipher acquisition-related stock compensation and $10.6M of acquisition fees and other costs in the 2021 period. Q2 operating expenses increased 34%, including higher R&D, sales and marketing, and G&A.
Cash, liquidity and debt: At June 30, cash and cash equivalents were $153.4M and short-term investments were $10.6M, or $164.0M combined. Cash, cash equivalents and restricted cash declined $19.8M from year-end. First-half investing cash outflow was $11.8M, primarily for investments and capital expenditures; financing cash inflow was $1.9M. Debt principal outstanding was reported as $1, with a $1.2M final payment due at the October 1, 2022 maturity. The company had not drawn its $10M revolving credit line and reported compliance with loan covenants.
Material changes and unusual items
- Q2 revenue grew 32%; management attributed the increase chiefly to higher testing volume and an $8.4M increase in biopharmaceutical and other revenue, primarily from the HalioDx acquisition. First-half revenue rose 53%, with Decipher contributing $30.7M of the increase in testing revenue and HalioDx contributing to biopharmaceutical revenue growth.
- In Q2, Veracyte recorded a $3.3M impairment of HalioDx Immunoscore Colon Dx developed technology after deciding to cease commercialization of the stand-alone offering.
- Foreign currency translation reduced first-half comprehensive income by $23.0M; the balance sheet also reflects a $23.0M increase in accumulated other comprehensive loss from year-end. The stronger U.S. dollar and foreign currency exposure may affect reported results.
- Goodwill was $690.0M and intangible assets were $184.4M at June 30. Goodwill declined from year-end primarily due to currency translation and measurement-period adjustments; no goodwill impairment was recorded.
- Medicare represented 30% of first-half revenue and UnitedHealthcare 10%. The company recognizes testing revenue using estimates of amounts ultimately collectible, which may be revised as cash is collected.
Outlook, commentary and principal risks
Management stated that existing cash, cash equivalents and short-term investments, together with expected revenue, should fund anticipated requirements for at least 12 months from the filing date. Veracyte expected further losses for the remainder of 2022 and potentially future years; it provided no specific revenue or earnings guidance in the supplied filing text. Management expects continued investment in laboratories, R&D, commercial operations, working capital and capital expenditures.
Key risks include continued operating losses; dependence on Afirma and Decipher testing and on a limited number of payers; reimbursement, claim-collection and coverage uncertainty; COVID-19 impacts on care delivery and test volumes; single-source supplies and other supply-chain constraints; execution and integration of Decipher and HalioDx; regulatory changes affecting laboratory-developed and international tests; and inflation, foreign exchange and market volatility. The filing also notes a planned Marseille facility lease expected to commence in Q4 2023, with an initial 12-year term and approximately $1.4M annual rent, subject to final construction. Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Investor verification checklist
- Track testing volume, revenue per test, payer mix, reimbursement rates, denials, collections and receivables as growth converts to cash.
- Assess whether biopharmaceutical revenue growth is repeatable and how its associated costs affect margins.
- Monitor operating cash burn, liquidity and the October 2022 final debt payment and maturity.
- Review the integration and economics of Decipher and HalioDx, including the Immunoscore impairment and progress on nCounter kit manufacturing transition.
- Check for changes in payer coverage, Medicare payment policies, supply availability, COVID-19 impacts, foreign exchange exposure and regulatory requirements.