Interpace Diagnostics Group, Inc.(US:IDXG)2024-08-08 20:10PART I - FINANCIAL INFORMATION Item 1. Unaudited Interim Condensed Consolidated Financial Statements The unaudited interim financial statements for June 30, 2024, reveal revenue growth, a substantial increase in net income, and positive operating cash flow, despite a net cash decrease driven by debt repayment and a persistent stockholders' deficit Condensed Consolidated Balance Sheets As of June 30, 2024, total assets slightly decreased to $13.0 million, while total liabilities reduced to $25.5 million, resulting in an improved yet significant stockholders' deficit of $59.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,019 | $3,498 | | Total current assets | $10,166 | $10,322 | | Total assets | $12,972 | $13,021 | | Total current liabilities | $19,030 | $17,474 | | Total liabilities | $25,462 | $28,157 | | Total stockholders' deficit | $(59,026) | $(61,672) | Condensed Consolidated Statements of Operations For the three and six months ended June 30, 2024, the company achieved significant year-over-year profitability growth, with substantial increases in net revenue and net income driven by higher sales and reduced general and administrative expenses Key Performance Indicators (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $12,042 | $11,026 | $22,314 | $20,853 | | Gross profit | $7,431 | $6,835 | $13,502 | $12,814 | | Operating income | $2,257 | $832 | $3,131 | $1,508 | | Net income | $2,062 | $175 | $2,530 | $526 | | Net income per diluted share | $0.47 | $0.04 | $0.58 | $0.12 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2024, the company generated $1.3 million in operating cash flow, but a $2.6 million outflow from financing activities, primarily debt repayment, led to a net cash decrease of $1.5 million Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,346 | $1,544 | | Net cash used in investing activities | $(225) | $(293) | | Net cash used in financing activities | $(2,600) | $(1,000) | | Net (decrease) increase in cash | $(1,479) | $251 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's liquidity, debt, and regulatory risks, including a proposed Medicare LCD impacting its PancraGEN test, while management asserts sufficient liquidity despite current liabilities exceeding assets, following a term loan amendment and credit facility termination - The company faces significant risk from a Proposed Local Coverage Determination (LCD) by Novitas, potentially leading to non-coverage for its PancraGEN test and impacting liquidity, with a final decision granted an undefined extension by CMS23 - As of June 30, 2024, the company held $2.0 million in cash, with current assets of $10.2 million and current liabilities of $19.0 million, yet management expects sufficient liquidity for the next twelve months2427 - In March 2024, the BroadOak Term Loan was amended, extending maturity to June 30, 2025, with monthly payments of $500,000 and an outstanding balance of $7.4 million as of June 30, 2024686974 - The company terminated its $7.5 million revolving credit facility with Comerica Bank in February 2024, with no outstanding balance at termination2284 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management highlights improved financial performance with increased revenue and operating income driven by higher test volumes and reduced G&A expenses, while acknowledging significant risks from potential Medicare non-coverage and new FDA LDT regulations, yet expressing confidence in future liquidity Results of Operations Revenue increased by 9% in Q2 2024 and 7% in H1 2024, reaching $12.0 million and $22.3 million respectively, with operating income significantly growing to $2.3 million and $3.1 million due to higher test volumes and reduced general and administrative expenses Comparison of Operations for the Three Months Ended June 30 (in thousands) | Metric | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue, net | $12,042 | $11,026 | 9.2% | | Gross profit | $7,431 | $6,835 | 8.7% | | General and administrative | $2,141 | $2,894 | (26.0%) | | Operating income | $2,257 | $832 | 171.3% | Comparison of Operations for the Six Months Ended June 30 (in thousands) | Metric | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue, net | $22,314 | $20,853 | 7.0% | | Gross profit | $13,502 | $12,814 | 5.4% | | General and administrative | $4,381 | $5,389 | (18.7%) | | Operating income | $3,131 | $1,508 | 107.6% | Non-GAAP Financial Measures The company utilizes Adjusted EBITDA as a non-GAAP measure, reporting $2.4 million for Q2 2024 and $3.4 million for H1 2024, reflecting improved operational cash flow compared to prior periods Reconciliation of Adjusted EBITDA (in thousands) | Period | 2024 | 2023 | | :--- | :--- | :--- | | Three Months Ended June 30 | | | | Income from continuing operations | $2,136 | $395 | | Adjusted EBITDA | $2,377 | $1,324 | | Six Months Ended June 30 | | | | Income from continuing operations | $2,708 | $825 | | Adjusted EBITDA | $3,382 | $2,544 | Liquidity and Capital Resources As of June 30, 2024, the company held $2.0 million in cash, with $1.3 million net cash from operations for H1 2024, but a $2.6 million use in financing activities, yet management projects sufficient liquidity for the next twelve months despite regulatory risks - Cash and cash equivalents were $2.0 million as of June 30, 2024, and approximately $1.8 million as of August 2, 2024136 - For the six months ended June 30, 2024, net cash provided by operating activities was $1.3 million, with $2.6 million primarily used for BroadOak Term Loan payments in financing activities137138 - The company faces significant liquidity risk from a proposed Medicare LCD that could unfavorably impact coverage for its PancraGEN test141 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company has elected scaled disclosure and is not required to provide information regarding market risk - The company is a smaller reporting company and is not required to provide the information requested by this item145 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2024, due to a material weakness in internal control over financial reporting related to revenue recognition timing, for which a remediation plan has been adopted - A material weakness in internal control over financial reporting was identified concerning the timing of revenue recognition147 - Consequently, disclosure controls and procedures were deemed not effective as of June 30, 2024147 - A remediation plan has been adopted to amend internal controls, including updating procedures for testing and reviewing revenue recognition148 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reports no pending legal proceedings at this time - There is no pending litigation involving the Company at this time51150 Item 1A. Risk Factors A significant updated risk factor is the FDA's final rule regulating Laboratory Developed Tests (LDTs), which will phase out enforcement discretion, potentially imposing substantial compliance costs, requiring pre-market clearance, and risking penalties or test withdrawal - A primary risk is the FDA's final rule, published April 29, 2024, phasing out enforcement discretion for many LDTs over a four-year period starting May 6, 2025153 - The new regulation may necessitate costly and time-consuming pre-market clearance or approval for tests, potentially leading to their withdrawal from the market156 - Non-compliance with new FDA regulations could result in enforcement actions such as warning letters, fines, injunctions, recalls, or a total shutdown of operations157 Other Items (2, 3, 4, 5) The company reported no unregistered sales of equity securities, no defaults upon senior securities, no mine safety disclosures, and no other information for the period - The company reported 'None' for Unregistered Sales of Equity Securities and Use of Proceeds, Defaults Upon Senior Securities, Mine Safety Disclosures, and Other Information158159160161 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents and officer certifications required by the Sarbanes-Oxley Act