Myriad Genetics, Inc. Form 10-Q Summary
Business context and reporting period
Myriad Genetics is a precision medicine company providing molecular diagnostic testing, pharmaceutical and clinical services, and related research and development. This filing covers the fiscal quarter and nine months ended March 31, 2020, with comparable periods ended March 31, 2019. Results were materially affected by the COVID-19 pandemic, particularly during the final weeks of the quarter.
Key financial metrics
| Metric | Three months ended March 31, 2020 | Three months ended March 31, 2019 | Nine months ended March 31, 2020 | Nine months ended March 31, 2019 |
|---|
| Total revenue | $164.0 million | $216.6 million | $545.4 million | $635.7 million |
| Operating income (loss) | $(133.7) million | $5.9 million | $(163.4) million | $13.2 million |
| Net income (loss) | $(115.2) million | $6.9 million | $(144.1) million | $8.7 million |
| Diluted EPS | $(1.55) | $0.09 | $(1.94) | $0.12 |
| Cash flow from operations | Not separately provided | Not separately provided | $30.7 million | $52.2 million |
- Quarterly revenue declined 24.3%; nine-month revenue declined 14.2%.
- Quarterly gross margin was approximately 69.5%, compared with 77.6% in the prior-year quarter. Cost of sales was $50.1 million, or 30.5% of revenue, versus 22.4% previously.
- Quarterly operating margin was approximately negative 81.5%, compared with 2.7% in the prior-year quarter. The result included $98.4 million of goodwill and intangible asset impairment charges.
- Nine-month operating cash flow declined to $30.7 million from $52.2 million, despite $99.7 million of impairment charges and other noncash adjustments.
- Cash and cash equivalents were $121.0 million at March 31, 2020, compared with $93.2 million at June 30, 2019. Total cash, cash equivalents, and marketable securities were $224.3 million versus $191.8 million.
- Net long-term debt was $225.2 million, compared with $233.5 million at June 30, 2019. The debt facility matures July 31, 2023 and had no scheduled principal payments before maturity as of March 31, 2020.
- Operating lease right-of-use assets were $64.5 million and operating lease liabilities totaled $68.8 million at quarter-end, following adoption of the new lease accounting standard.
Revenue mix and material changes
| Revenue category | Q3 FY2020 | Q3 FY2019 | Change |
|---|
| Hereditary Cancer Testing | $85.2 million | $117.6 million | $(32.4) million |
| GeneSight | $20.4 million | $29.6 million | $(9.2) million |
| Prenatal | $20.3 million | $30.6 million | $(10.3) million |
| Vectra | $10.5 million | $11.3 million | $(0.8) million |
| Prolaris | $6.8 million | $6.9 million | $(0.1) million |
| EndoPredict | $3.5 million | $2.8 million | $0.7 million |
| Pharmaceutical and clinical services | $13.5 million | $16.1 million | $(2.6) million |
- Management attributed the quarterly revenue decline primarily to lower testing volumes and reimbursement, including a $5.5 million reduction for prior-period tests arising from updated contractual adjustments, payor information, and settlements.
- During the final weeks of March and into April, predominantly elective test volumes declined approximately 70% to 75%; cancer tests declined approximately 40% to 45%; and prenatal test volumes declined approximately 20% to 25%.
- Quarterly SG&A expense declined to $132.9 million from $140.6 million as the company implemented cost reductions and realized Counsyl integration synergies. R&D expense declined to $19.7 million from $21.5 million.
- The company recorded an $80.7 million goodwill impairment for the Crescendo reporting unit, a $17.7 million charge for abandoning an in-process R&D intangible asset, and a $1.3 million goodwill impairment related to the Clinic during the nine-month period.
- The Clinic was sold in February 2020, generating $21.3 million of net investing cash proceeds and a $1.0 million pretax gain. The transaction also removed the Clinic’s pension liability and related assets and goodwill from consolidation.
Guidance, outlook, risks, contingencies, and unusual items
- The company did not provide a quantitative revenue or earnings outlook. Management stated that the full effect of COVID-19 on future financial condition, liquidity, and operations could not be estimated.
- Cost responses included suspending in-office sales visits, shifting to virtual marketing, temporary employee furloughs, reductions in senior executive and Board compensation, and expected reductions in commissions, marketing, travel, and mileage expenses.
- On May 1, 2020, lenders waived the company’s noncompliance with its leverage covenant for the March 31, 2020 period through Amendment No. 2 to the credit facility. The amendment increased borrowing costs, added minimum liquidity and EBITDA covenants, imposed mandatory prepayments under specified conditions, and waived leverage and interest coverage covenants through March 31, 2021.
- The company received approximately $8.0 million of nonrepayable CARES Act health-care funding and approximately $29.7 million in advance Medicare payments after quarter-end.
- Management stated that existing resources and expected operating cash flow should fund foreseeable requirements, but warned that capital could be consumed faster than expected and additional financing might be required on uncertain terms.
- Outstanding legal matters include a False Claims Act-related qui tam action involving Crescendo, securities class action litigation, and an Illinois insurance claims fraud action. The company stated that potential losses cannot presently be estimated.
- Additional risks include reimbursement reductions, declining testing volumes, regulatory and intellectual property challenges, competition, laboratory and supply-chain disruptions, and compliance with debt covenants.
Most important facts for investors to verify
- Whether diagnostic volumes and reimbursement levels recover after the COVID-19 disruption, particularly for hereditary cancer, GeneSight, prenatal, and Vectra testing.
- Compliance with the amended credit facility’s minimum liquidity and EBITDA covenants and the company’s ability to satisfy mandatory prepayment requirements.
- The pace of cash consumption, operating cash flow, and use of the $224.3 million of cash, cash equivalents, and marketable securities reported at quarter-end.
- Whether additional goodwill or intangible impairments are required if market capitalization, forecast cash flows, or reporting-unit valuations remain depressed.
- The financial impact and resolution status of the disclosed legal proceedings and tax audits.
- The accounting and liquidity implications of the approximately $29.7 million in advance Medicare payments and $8.0 million in CARES Act funding.
