CareDx(US:CDNA)2020-10-29 21:11PART I. FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for Q3 2020 reflect significant asset growth, increased revenue primarily from testing services, and improved cash flow from operations despite a net loss Condensed Consolidated Balance Sheets As of September 30, 2020, total assets significantly increased to $353.6 million, primarily driven by a substantial rise in cash and cash equivalents, alongside growth in liabilities and stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $213,798 | $38,223 | | Accounts receivable | $30,610 | $24,057 | | Total current assets | $258,659 | $71,922 | | Total assets | $353,552 | $151,736 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $62,423 | $34,828 | | Deferred revenue - CMS advance payment | $20,496 | $0 | | Total liabilities | $84,908 | $52,736 | | Total stockholders' equity | $268,644 | $99,000 | | Total liabilities and stockholders' equity | $353,552 | $151,736 | Condensed Consolidated Statements of Operations For Q3 2020, total revenue increased 58% to $53.4 million, primarily from testing services, though operating expenses also rose, resulting in a net loss of $2.8 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $53,369 | $33,811 | $133,550 | $91,247 | | Testing services revenue | $45,529 | $28,226 | $113,264 | $75,421 | | Product revenue | $5,383 | $4,200 | $13,369 | $13,226 | | Total operating expenses | $56,276 | $40,558 | $153,011 | $110,234 | | Loss from operations | ($2,907) | ($6,747) | ($19,461) | ($18,987) | | Net Loss | ($2,818) | ($1,813) | ($15,199) | ($17,191) | | Net loss per share (basic & diluted) | ($0.06) | ($0.04) | ($0.33) | ($0.41) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2020, net cash from operations significantly improved to $26.3 million, primarily due to a CMS advance payment and equity offerings, leading to a substantial increase in cash and cash equivalents Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $26,250 | ($1,686) | | Net cash used in investing activities | ($9,920) | ($21,237) | | Net cash provided by (used in) financing activities | $159,185 | ($214) | | Net increase (decrease) in cash | $175,579 | ($23,630) | | Cash, cash equivalents, and restricted cash at end of period | $214,058 | $41,178 | Notes to Unaudited Condensed Consolidated Financial Statements The notes provide details on the company's precision medicine business, the impact of COVID-19 and mitigation efforts, significant financing activities, and ongoing litigation - CareDx is a precision medicine company focused on diagnostic solutions for transplant patients, with commercial services including AlloSure Kidney and AlloMap Heart31 - The COVID-19 pandemic caused an initial slowdown in testing volumes, but the company launched RemoTraC, a remote home-based blood draw solution, which helped volumes recover and exceed pre-pandemic levels from May 2020 onwards37 - In April 2020, the company received a $20.5 million advance payment from CMS under the CARES Act, recorded as deferred revenue; repayment is set to begin one year after issuance through recoupment of future Medicare payments4078 - The company is involved in litigation with Natera Inc., which includes a false advertising suit and a patent infringement suit; CareDx intends to defend these matters vigorously87 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q3 2020 revenue growth driven by testing services and the impact of COVID-19 mitigation, alongside significant improvements in liquidity from various financing activities despite a net loss - Q3 2020 total revenue was $53.4 million, a 58% increase YoY, with over 21,800 AlloSure Kidney and AlloMap Heart patient results provided112 - The company launched RemoTraC, a remote home-based blood draw solution, in response to the COVID-19 pandemic, which helped testing volumes recover to pre-pandemic levels by May 2020126 Q3 2020 vs Q3 2019 Results of Operations (in thousands) | Item | Q3 2020 | Q3 2019 | Change | | :--- | :--- | :--- | :--- | | Total revenue | $53,369 | $33,811 | $19,558 | | Testing services revenue | $45,529 | $28,226 | $17,303 | | Total operating expenses | $56,276 | $40,558 | $15,718 | | Loss from operations | ($2,907) | ($6,747) | $3,840 | | Net loss | ($2,818) | ($1,813) | ($1,005) | - The company's cash position was significantly enhanced through multiple financing activities in 2020, including a $134.6 million public offering, a $23.5 million at-the-market offering, and $25.3 million in funds from the CARES Act164168169170 Quantitative and Qualitative Disclosures About Market Risk The company faces minimal interest rate risk and manages foreign currency exchange risk from international operations, with a 10% adverse change impacting financial results by less than $0.1 million - Interest rate risk is considered low; a 50 basis point change in interest rates would have an approximate impact of $0.8 million on the financial statements186 - The company is subject to foreign currency exchange risk due to operations in Sweden, Austria, and Australia; an unfavorable 10% change in exchange rates would have negatively impacted financial results by less than $0.1 million and product revenue by $0.7 million for the nine months ended September 30, 2020187189 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during Q3 2020 - Management concluded that as of September 30, 2020, the company's disclosure controls and procedures were effective at a reasonable assurance level190 - No material changes to the company's internal control over financial reporting occurred during the third quarter of 2020191 PART II. OTHER INFORMATION Legal Proceedings The company is engaged in ongoing litigation with Natera Inc., involving counterclaims of false advertising and patent infringement allegations related to AlloSure - CareDx is engaged in legal disputes with Natera Inc., which include counterclaims of false advertising by Natera and a separate lawsuit from Natera alleging patent infringement by AlloSure87193 Risk Factors The company identifies key business risks, including the impact of the COVID-19 pandemic, reliance on a single laboratory, cybersecurity threats, and stock price volatility - The COVID-19 pandemic poses a material risk, potentially affecting financial condition, liquidity, supply chain, and clinical trial operations195 - The company relies on a single laboratory in Brisbane, California, which is located near earthquake fault lines and lacks redundancy, making it vulnerable to natural disasters or other disruptions199 - The business is highly dependent on information technology and faces cybersecurity risks, including data breaches and unauthorized disclosure of confidential information, which are heightened by remote work arrangements203 - The company's stock price has been and is expected to remain volatile due to factors such as fluctuating operating results, reimbursement decisions, and general market conditions206207 Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2020, the company repurchased 16,146 shares of common stock to cover employee tax withholding obligations from restricted stock unit vesting Issuer Purchases of Equity Securities (Q3 2020) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 1 - July 31, 2020 | 1,309 | $6.19 | | August 1 - August 31, 2020 | 11,429 | $7.10 | | September 1 - September 30, 2020 | 3,408 | $6.66 | | Total | 16,146 | — | Defaults Upon Senior Securities No defaults upon senior securities were reported Mine Safety Disclosures This section is not applicable to the company's operations Other Information No other material information is reported in this section Exhibits This section provides a comprehensive list of exhibits filed with the Form 10-Q, including corporate governance documents and officer certifications