Interpace Diagnostics Group, Inc.(IDXG) - 2024 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section covers the unaudited interim financial statements, management's analysis, market risk, and internal controls Item 1. Unaudited Interim Condensed Consolidated Financial Statements Unaudited interim financial statements show improved performance and a strategic preferred stock exchange Condensed Consolidated Balance Sheets Balance sheet reflects increased assets, decreased liabilities, and an improved stockholders' deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2024 (unaudited) | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $2,113 | $3,498 | | Total current assets | $11,110 | $10,322 | | Total assets | $14,039 | $13,021 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $18,769 | $17,474 | | Total liabilities | $25,185 | $28,157 | | Total stockholders' deficit | $(57,682) | $(61,672) | Condensed Consolidated Statements of Operations Statements of operations show significant revenue growth and a shift to net income Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $12,295 | $9,078 | $34,610 | $29,931 | | Gross profit | $7,506 | $4,954 | $21,008 | $17,768 | | Operating income (loss) | $1,905 | $(16) | $5,036 | $1,491 | | Net income (loss) | $1,280 | $(614) | $3,810 | $(88) | | Diluted EPS | $0.29 | $(0.14) | $0.87 | $(0.02) | Condensed Consolidated Statements of Cash Flows Cash flow statements indicate positive operating cash flow, offset by financing activities Cash Flow Summary for the Nine Months Ended Sep 30 (in thousands) | Cash Flow Category | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,462 | $2,649 | | Net cash (used in) provided by investing activities | $(747) | $55 | | Net cash used in financing activities | $(4,100) | $(2,500) | | Net (decrease) increase in cash | $(1,385) | $204 | | Cash and cash equivalents – ending | $2,113 | $5,032 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail liquidity concerns, Medicare coverage risks, and a strategic preferred stock exchange - The company faces a potential negative impact on liquidity if the Proposed Local Coverage Determination (LCD) by Novitas restricts Medicare coverage for its PancraGEN test. A final decision has been granted an undefined extension by CMS as of July 29, 2024[21] - As of September 30, 2024, the company had $2.1 million in cash and cash equivalents, with current liabilities of $18.8 million exceeding current assets of $11.1 million. Management believes current cash and forecasted receipts are sufficient for the next twelve months[22][26] - On October 10, 2024, the company exchanged all 47,000 shares of its Series B Preferred Stock for 47,000 shares of newly created Series C Preferred Stock. The new series has a lower conversion price ($2.02 vs. $6.00) and fewer restrictive provisions, which is considered a significant step towards a potential Nasdaq uplisting[88][89] - The BroadOak term loan maturity was extended to June 30, 2025, with monthly payments of $500,000 beginning April 1, 2024. The outstanding balance was $5.9 million as of September 30, 2024[68][69][74] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong financial performance driven by increased test volumes, alongside key regulatory risks Results of Operations Operational results show significant revenue growth and improved profitability Q3 2024 vs Q3 2023 Performance (in thousands) | Metric | Q3 2024 | Q3 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue, net | $12,295 | $9,078 | 35% | | Gross profit | $7,506 | $4,954 | 51.5% | | Gross Margin | 61.0% | 54.6% | +6.4 p.p. | | Operating income (loss) | $1,905 | $(16) | N/A | Nine Months 2024 vs 2023 Performance (in thousands) | Metric | Nine Months 2024 | Nine Months 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue, net | $34,610 | $29,931 | 16% | | Gross profit | $21,008 | $17,768 | 18.2% | | Gross Margin | 60.7% | 59.4% | +1.3 p.p. | | Operating income | $5,036 | $1,491 | 237.8% | - Adjusted EBITDA, a non-GAAP measure, increased to $2.1 million in Q3 2024 from $0.4 million in Q3 2023. For the nine-month period, it rose to $5.5 million from $2.9 million year-over-year[137] Liquidity and Capital Resources Liquidity strategy focuses on operational cash flow and a preferred stock exchange for Nasdaq uplisting - Cash provided by operating activities was $3.5 million for the first nine months of 2024, compared to $2.6 million in the prior year period[142] - Cash used in financing activities was $4.1 million for the nine months ended September 30, 2024, due to payments on the BroadOak Term Loan[144] - The company is pursuing an uplisting of its common stock to Nasdaq, believing it will assist in raising additional capital. The exchange of preferred stock in October 2024 is described as the 'first significant step' in this process[147] Regulatory and Market Risks Key risks include Medicare coverage restrictions and new FDA regulations impacting LDTs - The company's liquidity could be negatively impacted if Novitas, its Medicare administrative contractor, ultimately restricts coverage for the PancraGEN test following its ongoing review of the relevant LCD[98][149] - The FDA published a final rule on April 29, 2024, to phase out enforcement discretion for many LDTs over a four-year period. This will require compliance with medical device reporting, quality systems, and potentially premarket review, which could be expensive and time-consuming[101][103] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide market risk disclosures - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[156] Item 4. Controls and Procedures Disclosure controls were ineffective due to a material weakness in revenue recognition, with remediation underway - A material weakness in internal control over financial reporting related to the timing of revenue recognition was identified in Q1 2024[158] - Due to this material weakness, the principal executive officer and principal financial officer concluded that disclosure controls and procedures were not effective as of September 30, 2024[158] - The company has adopted a remediation plan to amend its internal controls, including updating procedures for testing revenue recognition[159] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered equity sales, and a list of exhibits Item 1. Legal Proceedings The company reports no pending legal proceedings as of the filing date - There are no legal proceedings to report[161] Item 1A. Risk Factors This section is not applicable as the company is a smaller reporting company - Not applicable as the company is a smaller reporting company[162] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds during the period - None reported[163] Item 6. Exhibits Exhibits filed with the Form 10-Q include documents related to the Series C Preferred Stock exchange - Key exhibits filed include documents related to the Series C Preferred Stock exchange, such as the Exchange Agreement (10.1) and the Certificate of Designation (part of 3.1)[167]