Exagen(XGN) - 2020 Q1 - Quarterly Report

Part I. Financial Information Condensed Financial Statements (unaudited) The company's Q1 2020 financials show slightly increased revenue to $9.6 million, a widened net loss to $5.6 million, a strong cash position, and the initial negative impacts of the COVID-19 pandemic Condensed Balance Sheets As of March 31, 2020, total assets decreased to $84.6 million while total liabilities increased, reflecting the quarter's net loss and an accumulated deficit of $170.2 million Condensed Balance Sheet Data (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $68,648 | $72,084 | | Total current assets | $77,575 | $81,250 | | Total assets | $84,644 | $88,310 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $7,329 | $5,895 | | Total liabilities | $34,107 | $32,651 | | Accumulated deficit | $(170,165) | $(164,602) | | Total stockholders' equity | $50,537 | $55,659 | Condensed Statements of Operations For Q1 2020, revenue grew 3.5% to $9.6 million, but a 55.8% surge in SG&A expenses drove a net loss of $5.6 million Condensed Statements of Operations (in thousands, except per share data) | Account | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Revenue | $9,584 | $9,260 | | Costs of revenue | $4,545 | $4,442 | | Selling, general and administrative expenses | $9,626 | $6,179 | | Loss from operations | $(5,221) | $(1,874) | | Net loss | $(5,563) | $(2,704) | | Net loss per share, basic and diluted | $(0.44) | $(76.46) | Condensed Statements of Cash Flows Net cash used in operating activities increased to $3.3 million in Q1 2020 due to a larger net loss, resulting in a total net cash decrease of $3.4 million for the quarter Condensed Statements of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,301) | $(1,950) | | Net cash used in investing activities | $(84) | $(363) | | Net cash (used in) provided by financing activities | $(51) | $3,476 | | Net change in cash, cash equivalents and restricted cash | $(3,436) | $1,163 | Notes to Unaudited Condensed Financial Statements Key notes highlight the company's liquidity, revenue concentration, debt covenant risks, and the significant emerging impact of the COVID-19 pandemic - The company has suffered recurring losses and negative cash flows since inception, with an accumulated deficit of $170.2 million as of March 31, 2020; however, management believes its existing cash of $68.6 million is sufficient for at least the next twelve months[24] - The AVISE® CTD test is the primary revenue driver, accounting for approximately 83% of revenue for the three months ended March 31, 2020[32] - The company's term loan with Innovatus has a revenue covenant, and the company believes it is reasonably possible it may fail to meet this covenant in Q2 or Q3 2020 due to the COVID-19 pandemic[71] - The COVID-19 pandemic caused a significant decrease in AVISE® CTD test volumes, with a 12% decrease from March 15-31 and a 56% decrease in April compared to the same periods in the prior year[96] - In response to the pandemic, the company terminated some employees, resulting in a $0.3 million restructuring charge, and received benefits from the CARES Act[97][98][99] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the adverse COVID-19 impact on test volumes, a Q1 revenue increase offset by higher SG&A costs, and liquidity risks related to debt covenants Overview and COVID-19 Impact The company's business, centered on the AVISE® CTD test, was materially impacted by COVID-19 in late Q1 2020, prompting cost-saving measures - The company's lead testing product, AVISE® CTD, comprised 83% of revenue for the three months ended March 31, 2020[103] - The COVID-19 pandemic led to a significant reduction in test volumes, with AVISE® CTD tests decreasing by 12% from March 15-31 and 56% in April, compared to the same periods in the prior year[110] - In response to the pandemic, the company terminated temporary and six full-time employees, increased use of virtual sales tools, halted travel, and instituted a hiring freeze[112] Results of Operations Q1 2020 revenue rose 3.5% to $9.6 million, but a 55.8% increase in SG&A expenses from sales force expansion widened the net loss to $5.6 million Comparison of Operations (in thousands) | Account | Q1 2020 | Q1 2019 | Change ($) | | :--- | :--- | :--- | :--- | | Revenue | $9,584 | $9,260 | $324 | | Costs of revenue | $4,545 | $4,442 | $103 | | Selling, general and administrative | $9,626 | $6,179 | $3,447 | | Loss from operations | $(5,221) | $(1,874) | $(3,347) | | Net loss | $(5,563) | $(2,704) | $(2,859) | - Revenue increased due to a rise in AVISE® CTD tests delivered (27,126 in Q1 2020 vs 24,085 in Q1 2019), but was offset by lower average reimbursement and a decrease in volume in late March due to COVID-19[134] - SG&A expenses increased by $3.4 million, primarily due to a $1.9 million increase in employee-related expenses from expanding the sales force from 41 to 62 representatives[136] Liquidity and Capital Resources The company holds $68.6 million in cash post-IPO but faces a 'reasonably possible' risk of breaching its loan's revenue covenant due to COVID-19 impacts - As of March 31, 2020, the company had $68.6 million in cash and cash equivalents and an accumulated deficit of $170.2 million[141][142] - The company's Amended Loan Agreement with Innovatus requires maintaining minimum liquidity of $2.0 million and achieving certain minimum revenue amounts[144] - The company believes it is reasonably possible that it may fail to meet its financial performance covenant under the loan agreement in Q2 or Q3 2020 due to the COVID-19 pandemic's impact[144] Summary of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,301) | $(1,950) | | Net cash used in investing activities | $(84) | $(363) | | Net cash (used in) provided by financing activities | $(51) | $3,476 | Quantitative and Qualitative Disclosures About Market Risk The company indicates that this disclosure is not applicable for the period - Not applicable[163] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal controls - Based on an evaluation as of the end of the reporting period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[167] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[168] Part II. Other Information Legal Proceedings The company reports it is not currently involved in any material legal proceedings - The company is not currently a party to any material legal proceedings[170] Risk Factors The company's primary risks stem from the COVID-19 pandemic's impact on test volumes and the potential to breach its term loan's revenue covenants - The COVID-19 pandemic poses a significant risk, having already caused AVISE® CTD test volumes to decrease by 12% in late March and 56% in April 2020 compared to the prior year[172] - The pandemic could disrupt laboratory operations, supply chains, and commercialization activities, and may lead to decreased gross margins[173] - The company's term loan contains a financial covenant requiring a specified level of revenue, and it is 'reasonably possible' the company may fail to meet this covenant in Q2 or Q3 2020[176][177] - Failure to comply with loan covenants could result in an event of default, allowing the lender to declare all indebtedness immediately due and payable[178] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered equity sales and details the use of $5.6 million from its $50.4 million IPO proceeds as of March 31, 2020 - The September 2019 IPO generated net proceeds of approximately $50.4 million[181] - As of March 31, 2020, approximately $5.6 million of the IPO proceeds have been used, primarily for selling and marketing activities[182] Defaults Upon Senior Securities The company indicates that this disclosure is not applicable - Not applicable[184] Mine Safety Disclosures The company indicates that this disclosure is not applicable - Not applicable[185] Other Information The company reports no other material information for this item - None[186] Exhibits This section lists all exhibits filed with the Form 10-Q, including required certifications and XBRL data files