Personalis, Inc. — Form 10-Q Summary
Business context and reporting period
Personalis is a cancer genomics company providing sequencing and data-analysis services to biopharmaceutical, academic, nonprofit and government customers. Population sequencing, principally the U.S. Department of Veterans Affairs Million Veteran Program (VA MVP), represented the majority of revenue. The filing covers the quarter and six months ended June 30, 2021, compared with the corresponding 2020 periods.
- VA MVP cumulative task-order value since inception was approximately $176 million; approximately $159.2 million had been recognized as revenue through June 30, 2021.
- The company delivered its 125,000th whole-human-genome dataset to VA MVP in June 2021.
- NeXT Platform revenue exceeded $4.5 million in the second quarter and $9.0 million in the first six months, versus approximately $2.6 million and $3.0 million, respectively, in the comparable 2020 periods.
Financial metrics
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $21.7 million | $19.5 million | $42.6 million | $38.7 million |
| Gross profit | $8.2 million | $4.7 million | $15.6 million | $8.7 million |
| Gross margin | 37.7% | 24.0% | 36.7% | 22.5% |
| Loss from operations | $(14.9) million | $(9.5) million | $(27.4) million | $(19.1) million |
| Operating margin | (69.0%) | (48.7%) | (64.5%) | (49.5%) |
| Net loss | $(15.0) million | $(9.3) million | $(27.4) million | $(18.4) million |
| Basic and diluted loss per share | $(0.34) | $(0.29) | $(0.63) | $(0.58) |
- Revenue increased 11% in the quarter and 10% year to date. VA MVP revenue declined 8% and 9%, respectively, while revenue from all other customers increased 72% and 73%.
- Research and development expense increased 81% in the quarter and 65% year to date, primarily from product development, lab automation and higher personnel costs.
- Selling, general and administrative expense increased 48% in the quarter and 46% year to date, reflecting higher headcount, professional services and a $0.6 million second-quarter charge for modifying nonemployee director stock options.
- Stock-based compensation was $3.6 million in the quarter and $6.7 million year to date, compared with $1.8 million and $3.1 million in the prior-year periods.
Cash flow, liquidity and debt
- Cash used in operating activities was $37.7 million for the first six months of 2021, compared with $24.0 million in the prior-year period.
- Cash used in investing activities was $129.6 million, primarily reflecting a $125.1 million net investment in short-term securities and $4.5 million of capital expenditures.
- Cash provided by financing activities was $168.9 million, including $162.3 million of net proceeds from the January 2021 follow-on equity offering.
- At June 30, 2021, cash and cash equivalents were $70.1 million, short-term investments were $258.8 million, and total liquidity was $328.9 million. Working capital was $320.2 million.
- Total liabilities were $44.6 million and stockholders’ equity was $338.7 million. The company had no traditional interest-bearing debt disclosed, but carried $4.4 million of financing obligations for software and hardware, including $2.8 million classified as current.
- Noncancelable operating lease payments totaled $15.9 million, with operating lease liabilities of $11.9 million at June 30, 2021.
- Management stated that existing cash, short-term investments and expected operating cash flows should fund near-term capital and operating needs for at least the next 12 months, while noting that additional financing may be required if conditions deteriorate.
Material changes versus the prior comparable period
- Growth shifted toward pharmaceutical and other non-VA MVP customers, partially offsetting lower VA MVP sample volumes.
- Gross margin improved materially because of favorable customer mix, lower raw-material costs and improved laboratory processing efficiency.
- Despite revenue growth and better gross margin, operating and net losses widened because investment in research and development, commercial infrastructure and corporate personnel outpaced gross-profit growth.
- The January 2021 equity offering increased liquidity and common shares outstanding. Shares outstanding rose to 44.2 million at June 30, 2021 from 39.1 million at December 31, 2020.
- Contract liabilities declined to $11.5 million from $21.0 million at year-end 2020 as customer prepayments were recognized as revenue. Contracted but unrecognized revenue was $16.8 million, with the substantial majority expected to be recognized in the following quarter.
Guidance, outlook, risks and unusual items
- No formal revenue, earnings or margin guidance is provided in the filing.
- Management expects continued losses and increased research and development, selling, general and administrative spending and capital expenditures as the company scales its platform, laboratory capacity and international operations.
- VA MVP revenue concentration remains material: 62% of second-quarter revenue and 63% of six-month revenue. The existing VA MVP contract was scheduled to expire in August 2021, and no additional task order or replacement agreement had been received as of the filing date.
- The company expects most of the $16.8 million VA MVP backlog to convert to revenue in the next quarter, but sample timing and customer funding remain outside the company’s control.
- COVID-19 continued to pose risks to laboratory operations, sample collection, supplier availability, customer activity and sales efforts, including potential disruption from renewed restrictions or employee illness.
- The company relies on limited or sole-source suppliers, including Illumina for sequencers and related reagents and services. Its Illumina master subcontractor agreement was scheduled to expire in August 2021.
- Other significant risks include regulatory changes affecting laboratory-developed tests, CLIA and foreign licensing, data privacy and cybersecurity, intellectual property disputes, international expansion into China, customer concentration, competition and the need for future financing.
- There were no material legal proceedings reported. Management concluded that disclosure controls and procedures were effective as of June 30, 2021 and reported no changes in internal control.
Important facts for investors to verify
- Whether VA MVP awarded a new contract or task order after the existing agreement expired, and the resulting revenue volume and pricing.
- Whether the $16.8 million contracted backlog converted as expected and whether customer prepayments declined further or required refunds.
- The pace of NeXT Platform adoption among pharmaceutical customers and whether non-VA MVP growth can offset population-sequencing variability.
- Operating cash burn, capital expenditures and the period for which the $328.9 million liquidity balance can support planned expansion.
- Future gross-margin performance as laboratory utilization, automation and customer mix change.
- Renewal or replacement of key Illumina supply and service arrangements and the effect of any supply interruption.
- Potential regulatory developments affecting laboratory-developed tests, the EU In Vitro Diagnostic Regulation and the company’s planned international operations.