Business Context and Reporting Period
This Form 8-K filing by CareDx, Inc. (a Delaware corporation) is dated April 10, 2018, with the report signed on April 16, 2018. The filing primarily addresses a change in the company's independent registered public accounting firm and updates on a pending term loan agreement.
Key Financial Metrics
This filing does not contain specific revenue, profit, cash flow, margin, or liquidity metrics for the current period. It references historical financial statements for fiscal years ended December 31, 2017, and 2016, noting that the 2016 report included an explanatory paragraph regarding substantial doubt about the company's ability to continue as a going concern.
Regarding debt and liquidity, the company is finalizing a term loan with Perceptive Credit Holdings II, LP. The agreement provides for an initial tranche of $15.0 million, with an optional second tranche of $10.0 million available subject to customary conditions.
Material Changes
- Accounting Firm Change: On April 10, 2018, the Audit Committee dismissed Ernst & Young LLP (EY) as the independent registered public accounting firm and immediately engaged Deloitte & Touche LLP (Deloitte).
- Internal Control Remediation: The company identified four material weaknesses in internal controls over financial reporting as of December 31, 2016. These related to the financial statement close process, consolidation of acquired entities, revenue recognition, and inventory overhead absorption. The company states that all four weaknesses were remediated as of December 31, 2017.
- Disagreements: The company reported no disagreements with EY regarding accounting principles, practices, or audit scope during the fiscal years 2016 and 2017 or the interim period through April 10, 2018.
Guidance, Outlook, and Risks
Outlook and Events: The company expects to close the initial $15.0 million tranche of the term loan by April 18, 2018. The loan terms are expected to be substantially similar to those disclosed in a prior Form 8-K filed on March 1, 2018.
Risks and Contingencies: The filing highlights past material weaknesses in internal controls, specifically concerning the Allenex acquisition, bonus accruals, foreign exchange rates, debt agreement terms, and revenue recognition. While remediated, these represent historical risks that previously raised substantial doubt about the company's going concern status in 2016.
Investor Verification Checklist
- Verify the closing date and final terms of the $15.0 million term loan with Perceptive Credit Holdings II, LP.
- Review the letter from Ernst & Young LLP (Exhibit 16.1) to confirm their stance on the company's statements regarding the dismissal.
- Confirm the status of the optional $10.0 million second tranche of the loan and the specific conditions required to access it.
- Examine the most recent audited financial statements to ensure the remediation of the four material weaknesses is reflected in the current internal control assessment.