Moderna, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated results; amounts are in U.S. dollars. Moderna is a biotechnology company whose only commercial product at period-end was its COVID-19 vaccine, Spikevax.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $4.749B | $4.354B | $10.815B | $6.291B |
| Product sales | $4.531B | $4.197B | $10.456B | $5.930B |
| Operating income | $2.447B | $3.062B | $6.674B | $4.328B |
| Net income | $2.197B | $2.780B | $5.854B | $4.001B |
| Diluted EPS | $5.24 | $6.46 | $13.85 | $9.30 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $3.067B | $7.034B |
Q2 revenue rose 9% year over year, while net income fell 21%; for the first half, revenue rose 72% and net income 46%. Product sales were entirely from the COVID-19 vaccine. Q2 product sales increased 8%, which management attributed largely to higher average selling price and favorable customer mix. First-half growth reflected increased manufacturing capacity.
Q2 cost of sales was $1.381B, or 30% of product sales, versus 18% a year earlier. Approximate gross margin on product sales was 70% versus 82%; operating margin was approximately 52% versus 70%. For the first half, cost of sales was $2.398B, or 23% of product sales, versus 16%; approximate gross margin was 77% versus 84%. These margins are calculated from reported product sales and cost of sales.
Cash, liquidity and obligations
- At June 30, cash and cash equivalents were $2.873B and investments were $15.186B, for cash and investments of $18.059B, up $489M from December 31, 2021. Working capital was $6.751B, compared with $6.943B at year-end.
- First-half operating cash flow of $3.067B was down 56% year over year, mainly due to recognizing customer deposits as revenue faster than receiving new deposits and higher income tax payments. Investing cash outflow was $5.073B and financing cash outflow was $1.969B; cash, cash equivalents and restricted cash declined $3.975B.
- The filing reports financing lease liabilities of $762M in total present value; it does not disclose conventional borrowings in the presented balance sheet. Non-cancelable commitments included $3.4B for raw materials and manufacturing, $179M for clinical and other services, and approximately $1.1B of non-cancellable rent for the Moderna Science Center initial lease term.
- Management said available cash, investments and expected operating cash generation should fund projected operations, capital expenditures and repurchases for at least 12 months from issuance of the statements.
Material changes, outlook and risks
- Cost of sales increased sharply, including $499M of inventory write-downs and $184M of losses on firm purchase commitments in Q2; first-half amounts were $689M and $342M, respectively. A $342M accrual for future firm-purchase losses was recorded at June 30. Management expects 2022 cost of sales to be a higher percentage of product sales than in 2021 as the market shifts toward a seasonal environment.
- R&D expense increased 69% in Q2 to $710M and 54% in the first half to $1.264B. SG&A rose 74% in Q2 to $211M and 142% in the first half to $479M. Management expects both categories to increase in 2022, citing pipeline development and expansion of commercial infrastructure.
- Based on signed supply agreements, management expected COVID-19 vaccine sales in the second half of 2022 to be generally consistent with the first half, with Q4 sales higher than Q3, partly depending on potential authorizations of bivalent boosters. These expectations are forward-looking and subject to demand, regulatory, manufacturing and delivery uncertainties.
- At June 30, deferred revenue associated with customer deposits was $4.3B; approximately $4.0B was expected to be recognized within one year. Subsequent to quarter-end, Moderna signed a U.S. agreement for an initial 66M doses of its bivalent booster candidate, with options for additional doses; the government exercised an option for 4M pediatric doses on August 1.
- Moderna repurchased $1.921B of stock in the first half, including 13M shares; $1.2B remained under the then-current program at June 30. On August 1, the board authorized a further $3.0B repurchase program.
- Material business risks include reliance on COVID-19 vaccine sales, changing vaccine demand and product mix, inventory and manufacturing commitments, dependence on suppliers and manufacturing partners, clinical and regulatory uncertainty across the pipeline, and intellectual-property disputes. Arbutus/Genevant and Alnylam patent complaints seek monetary damages; the plaintiffs are not seeking to stop vaccine sales. The filing says loss likelihood or amount is uncertain/not reasonably estimable for the described proceedings.
- Management reported effective disclosure controls as of June 30 and no material change in internal control over financial reporting during the quarter. The filing states there were no material changes to previously disclosed risk factors beyond those identified in the prior-quarter filing.
Key investor verification points
- Check subsequent filings for actual second-half vaccine sales, bivalent booster authorizations, deliveries and customer demand against management’s outlook.
- Track inventory write-downs, firm-purchase commitment losses, manufacturing utilization and cost of sales as a share of product sales.
- Monitor operating cash conversion, deferred-revenue recognition, the investment portfolio and planned capital spending and repurchases.
- Review clinical and regulatory progress in major programs, particularly RSV, influenza, CMV and COVID-19 boosters, alongside rising R&D spending.
- Follow developments in the Arbutus/Genevant and Alnylam patent litigation and any potential financial exposure.