GeneDx Holdings Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial statements are unaudited. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless stated otherwise. The company completed its 1-for-33 reverse stock split on May 4, 2023; share and per-share amounts in the filing are adjusted for the split.
Business context
GeneDx focuses on genomic diagnostic testing, particularly pediatric and rare-disease testing, alongside genomic data services. Its strategy prioritizes exome and whole-genome sequencing and the Centrellis data platform. The company completed its acquisition of Legacy GeneDx in April 2022, so Q1 2023 includes Legacy GeneDx while Q1 2022 largely reflects Legacy Sema4; year-over-year comparisons are therefore affected by the acquisition and business exits.
GeneDx completed its exit from reproductive and women’s health testing in Q1 2023, after exiting somatic tumor testing in 2022. It eliminated approximately 500 positions in connection with the reproductive-health exit; combined workforce reductions in 2022 eliminated approximately 32.5% of the workforce as of March 31, 2023. Go-forward testing was consolidated in Gaithersburg, Maryland.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $43.1 million | $53.9 million; down 20% |
| Diagnostic test revenue | $41.9 million | $52.5 million; down 20% |
| Gross profit / margin | $15.2 million / 35% | $5.6 million / 10% |
| Adjusted gross profit / margin (non-GAAP) | $14.2 million / 33% | $9.9 million / 18% |
| Operating loss | $60.4 million | $89.3 million |
| Net loss / loss per share | $61.0 million / $3.04 | $76.9 million / $10.38 |
| Adjusted EBITDA (non-GAAP) | $(48.9) million | $(58.9) million |
| Cash used in operating activities | $55.6 million | $81.5 million |
| Cash, cash equivalents and restricted cash | $214.9 million at March 31 | $138.3 million at December 31, 2022 |
Revenue decline primarily reflected the discontinued Legacy Sema4 reproductive-health and somatic-oncology testing activities, partly offset by Legacy GeneDx revenue. Resulted tests were 52,778 in Q1 2023, all processed by the Legacy GeneDx laboratory, versus approximately 151,264 in Legacy Sema4 laboratories in Q1 2022; the company attributes the lower volume mainly to the exited businesses.
Cash and cash equivalents were $201.9 million at quarter-end; restricted cash was $13.0 million, including $12.1 million held in acquisition-related escrow. Total assets were $545.3 million and total liabilities were $216.8 million. The balance sheet reported $6.3 million of long-term debt and no current debt portion. The $125 million revolving credit facility was undrawn at quarter-end. Lease liabilities totaled $69.1 million; disclosed future minimum lease payments were $107.3 million before imputed interest.
Financing provided $132.7 million of net cash, principally from $135.4 million in net proceeds from a public and concurrent registered direct offering. The company reported $0.5 million of investing cash outflow. Q1 cash burn was partly offset by this equity financing.
Material changes, outlook and notable items
- Cost of services fell 42% to $27.9 million, and gross margin improved to 35%, reflecting the business exits and lower stock-based compensation, partly offset by costs from the acquired GeneDx business. R&D and selling and marketing expenses also declined year over year. The periods are not fully comparable because of the acquisition and strategic exits.
- Management stated that cash and cash equivalents were expected to fund operations for at least 12 months from the filing date. The filing provides no specific revenue, earnings, or profitability guidance. The company expects continuing operating losses and may seek additional capital; approximately $150 million of securities remained available under its shelf registration after the described offerings.
- Q1 included $2.8 million of income from DECD loan forgiveness and a $2.1 million impairment charge associated with a lease modification. The lease arrangement contemplates an $8.4 million early-termination fee if the option is exercised; the filing describes the company as intending to request exercise, not as having completed it.
- Under the Legacy GeneDx acquisition agreement, the first revenue milestone was met and 701,460 shares were issued to OPKO on April 14, 2023. A further payment of up to $37.5 million is contingent on 2023 revenue targets, with partial payment possible at 90% of the target. This contingent payment could be settled in cash and/or shares.
- The company had a $42.0 million settlement with a third-party payor, payable in installments over four years. The first $15.0 million installment was paid in December 2022; the next $5.0 million is due in December 2023. Related liabilities for this matter and other potential payor recoupments totaled $37.9 million at March 31, 2023. Management’s estimates remain subject to change.
- Two shareholder-related lawsuits are disclosed: a securities class action against the company and certain current and former officers, and a Delaware action concerning the prior business combination in which the company is not named as a defendant. The company says it believes the claims are without merit.
- Disclosure controls and procedures were deemed ineffective at March 31, 2023 because previously identified material weaknesses in internal control over financial reporting had not been fully remediated. Management said the financial statements were fairly stated in all material respects.
- Nasdaq had notified the company of a minimum-bid-price deficiency, with a June 26, 2023 deadline to regain compliance. The company effected the reverse stock split on May 4, 2023; it gave no assurance that it would regain or maintain compliance.
Important facts for investors to verify
- Whether revenue, test volumes, reimbursement and collections in the core GeneDx business can offset the revenue lost from exited businesses, and whether the reported margin improvement is sustainable.
- Cash burn, financing needs and the assumptions supporting management’s stated 12-month liquidity expectation, including planned lease and other contractual payments.
- Payor recoupment exposure, the $42.0 million settlement payment schedule, and the basis and adequacy of the recorded $37.9 million liabilities.
- Progress toward the 2023 acquisition milestone, its potential cash or share settlement, and the related dilution and contingent-liability estimates.
- Remediation of material weaknesses, developments in the disclosed litigation, and continued Nasdaq listing compliance after the reverse stock split.