Guardant Health(GH) - 2020 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements Unaudited financial statements for the period ended September 30, 2020, show total assets at $1.26 billion, total revenues at $208.4 million (up 38%), and a net loss of $153.2 million, primarily due to increased operating expenses | | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total current assets | $1,087,288 | $597,358 | | Total Assets | $1,262,109 | $962,535 | | Total current liabilities | $71,967 | $72,734 | | Total Liabilities | $113,505 | $114,542 | | Total Stockholders' Equity | $1,092,204 | $798,393 | | (in thousands) | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $74,569 | $60,848 | $208,414 | $151,478 | | Loss from operations | ($74,252) | ($17,477) | ($163,784) | ($56,409) | | Net loss | ($71,670) | ($13,090) | ($153,238) | ($45,741) | | Net loss per share, basic and diluted | ($0.78) | ($0.14) | ($1.66) | ($0.56) | | (in thousands) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($44,704) | ($16,792) | | Net cash used in investing activities | ($319,401) | ($340,928) | | Net cash provided by financing activities | $363,583 | $364,227 | | Net increase (decrease) in cash | ($283) | $6,644 | Notes to the Unaudited Condensed Consolidated Financial Statements This section details accounting policies, including revenue recognition, consolidation of a SoftBank joint venture (VIE), significant stock-based compensation from executive MSUs, and ongoing patent litigation - The company estimates variable consideration for clinical precision oncology tests using a portfolio approach based on historical reimbursement data, recognizing $21.9 million in revenue from cash collections that exceeded previous estimates for the nine months ended Sep 30, 2020[54] - The company consolidates its joint venture with SoftBank (Guardant Health AMEA, Inc.) as a Variable Interest Entity (VIE), with SoftBank holding a redeemable noncontrolling interest that impacts financial statements due to a put-call arrangement[85][88][93] - In May 2020, the company granted 1,695,574 market-based restricted stock units (MSUs) to its CEO and President/COO, resulting in stock-based compensation expense of $46.8 million for the three months and $65.1 million for the nine months ended Sep 30, 2020, recorded in G&A expenses[134][136] - The company is involved in an ongoing patent infringement lawsuit filed against Foundation Medicine, Inc. in November 2017, while a separate patent lawsuit against Personal Genome Diagnostics, Inc. was settled in August 2020[122][124] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 38% revenue increase for the first nine months of 2020, driven by testing volume and reimbursement, alongside a 190% rise in G&A expenses due to stock-based compensation, while maintaining strong liquidity despite COVID-19 impacts - Key factors affecting performance include testing volume, payer coverage and reimbursement, relationships with biopharmaceutical customers, investment in R&D (especially the LUNAR program), international expansion, and the impact of the COVID-19 pandemic, which has reduced sample volumes[174][179] - The company completed a follow-on public offering in June 2020, raising net proceeds of $354.6 million, which significantly bolstered its liquidity position[126][247] Results of Operations This section details financial results, showing total revenue growth of 38% to $208.4 million, driven by precision oncology testing, alongside significant increases in R&D (81%) and G&A (190%) expenses, leading to a widened operating loss of $163.8 million | Revenue (in thousands) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Change % | | :--- | :--- | :--- | :--- | | Precision oncology testing | $171,621 | $123,048 | 39% | | Development services and other | $36,793 | $28,430 | 29% | | Total revenue | $208,414 | $151,478 | 38% | - The increase in precision oncology revenue was driven by a rise in clinical test volume (45,901 vs 34,655) and an increased average selling price due to expanded Medicare reimbursement[222] - General and administrative expenses for the nine months ended Sep 30, 2020, increased by $80.7 million (190%) year-over-year, primarily due to a $68.9 million increase in stock-based compensation related to market-based restricted stock units for executives[232] Liquidity and Capital Resources As of September 30, 2020, the company maintained a strong liquidity position with $1.06 billion in cash and marketable securities, primarily funded by stock sales, and believes current capital is sufficient for over 12 months of operations - The company had cash, cash equivalents, and marketable securities totaling approximately $1.06 billion as of September 30, 2020[238] | Cash Flow Summary (in thousands) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($44,704) | ($16,792) | | Net cash used in investing activities | ($319,401) | ($340,928) | | Net cash provided by financing activities | $363,583 | $364,227 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate risk on its $1.06 billion cash and marketable securities portfolio, with a hypothetical 100 basis point increase impacting fair value by $4.8 million, and foreign currency risk, which is currently immaterial but expected to grow with international expansion - The company is exposed to interest rate risk on its $1.06 billion portfolio of cash and marketable securities, where a hypothetical 100 basis point change in interest rates could impact the fair value of its available-for-sale securities by approximately $4.8 million[293] - Foreign currency risk is currently insignificant as most revenue is U.S.-based, but this is expected to change as international operations grow[294] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting, while monitoring COVID-19 impacts - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[295] - No material changes to internal control over financial reporting occurred during the quarter, and the company is monitoring the effects of remote work due to COVID-19 on its control environment[296][297] PART II – OTHER INFORMATION Item 1. Legal Proceedings This section incorporates by reference legal proceedings from Note 9, primarily detailing ongoing patent disputes, including a lawsuit against Foundation Medicine, Inc - The company refers to Note 9 for details on legal proceedings, which primarily concern patent disputes, and the outcome of these proceedings is uncertain and could have a material adverse effect on financial results[300] Item 1A. Risk Factors This section refers to previously disclosed risk factors in the FY2019 10-K and Q1 2020 10-Q, indicating no new material updates to the company's risk profile in this filing - This section refers to previously filed risk factors in the FY2019 10-K and Q1 2020 10-Q, indicating no material updates to the company's risk profile in this filing[301] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[303] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including a sublease agreement, CEO and CFO certifications, and XBRL data files - Exhibits filed include certifications from the CEO and CFO as required by the Sarbanes-Oxley Act of 2002[307]