Veracyte, Inc. — Q1 2022 10-Q Summary
Business context and reporting period
Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Veracyte is a molecular diagnostics company offering tests across cancer and other diseases, including Afirma, Decipher, Prosigna and Immunoscore. Results include the effects of the Decipher Biosciences and HalioDx acquisitions, completed in March and August 2021, respectively.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $67.8 million | $36.7 million |
| Gross profit and gross margin | $44.1 million; approximately 65.0% | $24.3 million; approximately 66.2% |
| Operating loss | $15.2 million | $45.4 million |
| Net loss | $14.5 million | $41.9 million |
| Net loss per share, diluted | $0.20 | $0.66 |
| Cash used in operating activities | $8.9 million | $40.6 million |
Revenue comprised testing $56.0 million, product $3.0 million, and biopharmaceutical and other $8.8 million. Diagnostic test volume rose 71% to 21,039 tests; product tests sold increased 3% to 2,206. Cash and cash equivalents were $163.6 million at quarter-end, down from $173.2 million at December 31, 2021. Total assets were $1.174 billion and stockholders’ equity was $1.085 billion. Current assets of $238.5 million exceeded current liabilities of $62.5 million.
Debt principal outstanding was approximately $1; the balance sheet carried a $1.1 million end-of-term debt obligation, with approximately $1.2 million due in October 2022. The $10 million revolving credit line was undrawn. The company reported compliance with loan covenants.
Material changes versus Q1 2021
- Revenue increased 85%, primarily from 71% higher diagnostic test volume and growth in biopharmaceutical and other revenue. Decipher contributed $25.0 million of testing revenue; HalioDx contributed $7.2 million of biopharmaceutical and other revenue.
- Biopharmaceutical and other revenue rose from $0.6 million to $8.8 million, largely reflecting HalioDx operations. Product revenue was broadly unchanged.
- Gross margin declined approximately 1.2 percentage points, as cost of revenue grew faster than revenue.
- Net loss narrowed by $27.4 million. General and administrative expense fell $25.4 million, largely because Q1 2021 included Decipher acquisition-related stock compensation and transaction costs. Research and development and selling and marketing expenses increased, reflecting higher headcount and the acquired businesses.
- Operating cash use improved by $31.7 million. Investing cash use was $2.5 million versus $575.6 million in Q1 2021, which included the Decipher acquisition; financing cash provided was $2.0 million versus $591.0 million, which included a public offering in Q1 2021.
Outlook, commentary, risks and unusual items
Management said existing cash and expected revenue should fund anticipated needs for at least 12 months from the filing date. It expected additional losses for the remainder of 2022 and potentially future years, while continuing investment in research and development, commercial operations and integration of acquisitions. The filing provides no specific revenue or earnings guidance.
- COVID-19 and staffing constraints may affect patient volumes, provider capacity, procedures, supply availability and forecasting; pulmonology tests were described as particularly exposed to restrictions on hospital procedures.
- Revenue and collections depend on payer coverage and reimbursement estimates. Medicare represented 30% of Q1 revenue; the company noted risks from payer denials, prior authorization, rate changes and collection delays.
- Some reagents, equipment and other inputs come from single-source suppliers, creating potential disruption and cost risks.
- Integration of Decipher and HalioDx, and transition of nCounter test-kit manufacturing, may create execution, cost and impairment risks. Goodwill was $704.4 million and intangible assets were $196.2 million; no goodwill impairment had been recorded.
- European regulatory changes, including the EU IVDR, may require additional compliance work or affect commercialization. Other risks include competition, regulatory changes to laboratory-developed tests, foreign currency exposure and continued operating losses.
- Testing-revenue estimates were revised upward by $0.9 million for tests delivered in prior periods, increasing Q1 2022 revenue and reducing operating loss by the same amount. Q1 2021 included a $3.8 million income tax benefit related primarily to the Decipher acquisition; Q1 2022 tax benefit was immaterial.
Important facts for investors to verify
- Whether testing volume and revenue growth persist after separating acquisition contributions from organic growth.
- Whether payer reimbursement, collections and revenue-estimation adjustments support reported testing revenue and receivables.
- Whether gross margins improve as volumes scale and acquired operations are integrated.
- Cash-burn trends, the October 2022 debt-obligation payment, and the company’s stated 12-month liquidity outlook.
- Progress on HalioDx integration, nCounter manufacturing transition and applicable EU regulatory requirements.