Personalis(PSNL) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited financial statements for the period ended September 30, 2019, reflect significant asset and equity growth post-IPO, despite increased revenues and a wider net loss Condensed Consolidated Balance Sheets As of September 30, 2019, the balance sheet reflects substantial increases in cash and total assets, driven by IPO proceeds, alongside decreased liabilities and a significant shift to stockholders' equity surplus Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $87,013 | $19,744 | +$67,269 | | Total current assets | $140,298 | $29,559 | +$110,739 | | Total assets | $159,691 | $41,670 | +$118,021 | | Liabilities & Equity | | | | | Total liabilities | $48,299 | $58,654 | -$10,355 | | Redeemable convertible preferred stock | $0 | $89,404 | -$89,404 | | Total stockholders' equity (deficit) | $111,392 | $(106,388) | +$217,780 | - In June 2019, the company completed its IPO, raising net proceeds of $139.8 million after deducting underwriting discounts, commissions, and offering expenses[33][41] Condensed Consolidated Statements of Operations For the three and nine months ended September 30, 2019, revenues significantly increased, but a substantial rise in operating expenses led to a wider net loss for both periods Condensed Consolidated Statements of Operations (in thousands) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $17,153 | $11,654 | $47,053 | $24,617 | | Loss from operations | $(5,730) | $(1,751) | $(15,222) | $(10,622) | | Net loss | $(6,885) | $(3,641) | $(18,439) | $(16,331) | | Net loss per share | $(0.22) | $(1.19) | $(1.35) | $(5.33) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2019, operating cash flow shifted to a significant use, investing activities increased, and substantial IPO proceeds from financing led to a net increase in cash Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(20,474) | $2,369 | | Net cash used in investing activities | $(46,731) | $(7,181) | | Net cash provided by (used in) financing activities | $134,477 | $(629) | | Net increase (decrease) in cash | $67,269 | $(5,442) | - Financing activities were dominated by $144.0 million in proceeds from the IPO, net of underwriting discounts, and $20.0 million from borrowings, offset by $25.0 million in debt repayments and $3.95 million in IPO-related costs[29] Notes to Unaudited Condensed Consolidated Financial Statements The notes detail key accounting policies, single segment operations, significant customer concentration, the June 2019 IPO, preferred stock conversion, and the repayment of a $20.0 million loan resulting in a $1.7 million loss on debt extinguishment - The company operates as one reportable segment: the sale of sequencing and data analysis services[31] Significant Customer Revenue Concentration (as % of Total Revenues) | Customer | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | VA MVP | 75% | 56% | 63% | 51% | | Pfizer Inc. | 11% | 10% | 17% | * | - On August 14, 2019, the company repaid its Growth Capital Loan in its entirety, recognizing a $1.7 million loss on debt extinguishment[98] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 91% year-over-year revenue growth to increased VA MVP volume, noting significant increases in operating expenses, while liquidity was substantially strengthened by $144.0 million in net IPO proceeds Revenue Comparison (in millions) | Period | 2019 | 2018 | Increase | % Change | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | $17.2 | $11.7 | $5.5 | 47% | | Nine Months Ended Sep 30 | $47.0 | $24.6 | $22.5 | 91% | - The increase in revenues from the VA MVP was driven by a higher volume of samples tested, partially offset by lower prices per sample[147][148] - Selling, general, and administrative expenses for the nine months ended Sep 30, 2019 increased by $8.1 million (107%) year-over-year, primarily due to a $5.0 million increase in personnel-related expenses and a $2.4 million increase in professional services related to public company costs[154] - The company closed its IPO on June 24, 2019, receiving net proceeds of $144.0 million. As of September 30, 2019, cash, cash equivalents, and marketable securities totaled $127.3 million[159] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity on its $127.3 million in cash and marketable securities, with a 100 basis point rate increase potentially causing a $0.3 million fair value decline, while foreign currency risk is minimal - The company's primary market risk is interest income sensitivity related to its cash, cash equivalents, and short-term marketable debt securities[189] - A hypothetical 100 basis point increase in interest rates would lead to an estimated $0.3 million decline in the fair value of the company's marketable debt securities as of September 30, 2019[189] - Foreign currency risk is minimal as the majority of revenues are generated in the U.S., with an insignificant amount denominated in foreign currencies[190] Controls and Procedures As of September 30, 2019, management concluded disclosure controls were not effective due to an un-remediated material weakness in internal control over financial reporting, stemming from insufficient accounting staff and lack of proper segregation of duties, despite ongoing remediation efforts - Management identified a material weakness in internal controls due to a lack of sufficient full-time accounting staff with the requisite experience and technical knowledge for complex accounting and proper segregation of duties[191][338] - As of September 30, 2019, the material weakness was not fully remediated, leading to the conclusion that disclosure controls and procedures were not effective[192] - Remediation efforts include hiring a new Chief Financial Officer in March 2019 and four additional accounting resources in Q2 and Q3 2019[193] PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any legal proceedings that would have a material adverse effect on its business, financial condition, or operating results - As of the report date, the company is not involved in any material legal proceedings[198] Risk Factors The company faces significant risks including a history of net losses, high customer concentration, potential regulatory changes for LDTs, and an identified material weakness in internal controls - The company has a history of net losses, with an accumulated deficit of $133.9 million as of September 30, 2019, and expects to incur significant losses for the foreseeable future[200] - There is substantial customer concentration, with the VA MVP accounting for 75% of revenues in Q3 2019. The loss of this customer would have a material adverse effect[214] - The company's tests are marketed as Laboratory Developed Tests (LDTs), which are currently subject to FDA enforcement discretion. A change in this policy could subject the tests to more onerous regulation, increasing costs and time to market[261] - A material weakness in internal controls over financial reporting was identified due to a lack of sufficient experienced accounting staff, which could result in a material misstatement of financial statements[337][338] Unregistered Sales of Equity Securities and Use of Proceeds The company details the use of $139.8 million net proceeds from its June 2019 IPO, confirming no material change from the planned use described in its final prospectus - The company's IPO closed on June 24, 2019, yielding net proceeds of approximately $139.8 million after discounts and expenses[366] - There has been no material change in the planned use of IPO proceeds as described in the final prospectus[367] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None Mine Safety Disclosures This item is not applicable to the company - None Other Information The company reports no other information for this item - None Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - Lists exhibits filed with the report, including officer certifications (31.1, 31.2, 32.1, 32.2) and XBRL instance documents[372]