Veracyte(VCYT) - 2025 Q1 - Quarterly Report

PART I. — FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the quarter ended March 31, 2025, show a significant turnaround, with the company reporting a net income of $7.0 million compared to a net loss of $1.9 million in the prior-year period, driven by an 18% increase in total revenue, primarily from testing services, while total assets increased slightly to $1.315 billion and total liabilities decreased, strengthening the company's balance sheet Condensed Consolidated Balance Sheets As of March 31, 2025, total assets were $1.315 billion, a slight increase from $1.300 billion at year-end 2024, driven by an increase in short-term investments and goodwill, partially offset by a decrease in cash and cash equivalents, while total liabilities decreased to $120.5 million from $124.1 million, and stockholders' equity grew to $1.195 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $186,120 | $239,087 | | Short-term investments | $101,235 | $50,354 | | Total current assets | $383,152 | $372,267 | | Goodwill | $754,272 | $745,800 | | Total assets | $1,315,411 | $1,300,035 | | Liabilities & Equity | | | | Total current liabilities | $75,125 | $78,633 | | Total liabilities | $120,475 | $124,069 | | Total stockholders' equity | $1,194,936 | $1,175,966 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2025, Veracyte reported total revenue of $114.5 million, an 18% increase year-over-year, achieving income from operations of $2.9 million, a significant improvement from a loss of $4.7 million in Q1 2024, resulting in net income of $7.0 million, or $0.09 per diluted share, compared to a net loss of $1.9 million, or ($0.02) per share, in the prior-year period Q1 2025 vs. Q1 2024 Statement of Operations (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Testing revenue | $107,309 | $90,303 | | Total revenue | $114,473 | $96,844 | | Gross profit | $79,508 | $62,468 | | Income (loss) from operations | $2,904 | $(4,656) | | Net income (loss) | $7,047 | $(1,864) | | Diluted EPS | $0.09 | $(0.02) | Condensed Consolidated Statements of Cash Flows For the first three months of 2025, net cash provided by operating activities was $5.4 million, a reversal from the $9.0 million used in the same period of 2024, while net cash used in investing activities was $51.8 million, primarily for the purchase of short-term investments, and net cash used in financing activities was $6.5 million, mainly for tax payments on vested restricted stock units Cash Flow Summary for Three Months Ended March 31 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $5,362 | $(8,966) | | Net cash (used in) provided by investing activities | $(51,818) | $2,878 | | Net cash used in financing activities | $(6,484) | $(864) | | Net decrease in cash, cash equivalents and restricted cash | $(52,866) | $(7,060) | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the 18% year-over-year revenue growth to a 23% increase in diagnostic test volume, particularly for Decipher Prostate and Afirma tests, with gross profit improving by 27% to $79.5 million, leading to profitability with a net income of $7.0 million, while key strategic focuses include expanding the minimal residual disease (MRD) portfolio and transitioning more tests to IVD formats for global markets, maintaining a strong liquidity position with $287.4 million in cash, cash equivalents, and short-term investments Overview Veracyte is a global diagnostics company focused on providing tests for cancer diagnosis, prognosis, and treatment decisions, operating with a dual model of laboratory developed tests (LDTs) in the U.S. and in vitro diagnostics (IVDs) internationally, with a key strategic initiative being the expansion into minimal residual disease (MRD) testing to monitor post-treatment cancer recurrence - The company's current U.S. offerings include tests for prostate (Decipher Prostate), thyroid (Afirma), breast (Prosigna), and bladder (Decipher Bladder) cancer[103] - Veracyte serves global markets through two models: centralized CLIA labs in the U.S. and IVD test distribution primarily outside the U.S.[104] - The company is expanding its portfolio to include minimal residual disease (MRD) assays to monitor therapeutic success and patient outcomes[105] Results of Operations Total revenue for Q1 2025 increased by 18% to $114.5 million, driven by a 19% rise in testing revenue from higher volumes, with gross profit growing 27% to $79.5 million, while operating expenses increased 14% to $76.6 million, largely due to higher general and administrative costs, including one-time expenses related to a subsidiary's bankruptcy proceeding and an acquisition, despite which the company shifted from an operating loss of $4.7 million in Q1 2024 to an operating income of $2.9 million in Q1 2025 Q1 2025 vs. Q1 2024 Results of Operations (in thousands) | Line Item | Q1 2025 | Q1 2024 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $114,473 | $96,844 | $17,629 | 18% | | Gross profit | $79,508 | $62,468 | $17,040 | 27% | | Total operating expenses | $76,604 | $67,124 | $9,480 | 14% | | Income (loss) from operations | $2,904 | $(4,656) | $7,560 | (162)% | | Net income (loss) | $7,047 | $(1,864) | $8,911 | (478)% | - Testing revenue increased by $17.0 million (19%) due to a 23% increase in test volume, primarily from Decipher Prostate and Afirma tests[138] - General and administrative expenses rose by $7.6 million (29%), driven by a $7.3 million increase in professional fees, which included $3.8 million for a subsidiary's bankruptcy proceeding and a $3.3 million payment for the C2i Acquisition[146] Liquidity and Capital Resources As of March 31, 2025, Veracyte had a strong liquidity position with $287.4 million in cash, cash equivalents, and short-term investments, having generated $5.4 million in cash from operations in Q1 2025, and management believes existing cash and future cash flows from revenue will be sufficient to meet anticipated requirements for at least the next 12 months, with material future cash requirements including operating lease payments totaling $93.2 million and potential acquisition-related contingent consideration payments up to $26.0 million - The company held $287.4 million in cash, cash equivalents, and short-term investments as of March 31, 2025[150] - Management believes current liquidity is sufficient for at least the next 12 months[152] - Material cash requirements include $93.2 million in future minimum lease payments and up to $26.0 million in contingent consideration for the C2i and nCounter acquisitions[153][154][155] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates, foreign currency fluctuations, and inflation, however, management does not believe these risks have had a material effect on the company's financial condition or operating results to date, and a hypothetical 10% change in interest rates or the U.S. dollar-to-Euro exchange rate would not have a material impact - Interest Rate Risk: Exposure exists through $287.4 million in cash and investments, but a hypothetical 10% change in rates is not considered material[165] - Foreign Currency Risk: Exposure from $3.4 million in Euro-denominated deposits is not considered material[166] - Inflation Risk: The company is facing inflation headwinds in costs but does not believe it has had a material effect on results[167] Controls and Procedures Based on an evaluation as of March 31, 2025, the company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective at a reasonable assurance level, and there were no material changes to the company's internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2025[170] - No changes in internal control over financial reporting occurred in Q1 2025 that have materially affected, or are reasonably likely to materially affect, internal controls[171] PART II. — OTHER INFORMATION Legal Proceedings On May 1, 2025, Veracyte initiated legal action by filing a complaint in federal court against Sonic Healthcare USA, Inc., alleging infringement of three of Veracyte's patents concerning molecular testing of thyroid nodules and seeking damages and injunctive relief - On May 1, 2025, Veracyte filed a patent infringement complaint against Sonic Healthcare USA, Inc. related to thyroid nodule testing technology[90] - The company is seeking treble damages, attorneys' fees, costs, and an injunction against Sonic Healthcare[90] Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024 - There have been no material changes in the company's risk factors from those described in the most recent Annual Report on Form 10-K[174] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the quarter - None[175] Other Information During the first quarter of 2025, director Robert Epstein adopted a new Rule 10b5-1 trading plan to sell an aggregate of 21,473 shares of common stock, with no other Section 16 officers adopting, modifying, or terminating such plans - Director Robert Epstein adopted a new Rule 10b5-1 trading plan on March 6, 2025, to sell 21,473 shares, with the first trade scheduled for around June 5, 2025[178]