23andMe (US:ME)2025-06-11 20:53Part I Business The company operates direct-to-consumer genetic testing and telehealth, undergoing Chapter 11 bankruptcy and asset sale - On March 23, 2025, the company filed for Chapter 11 bankruptcy protection and is operating as a 'debtor-in-possession'22 - The company has entered into an Asset Purchase Agreement to sell substantially all of its assets for $256.0 million, with a competing bid of $305.0 million later submitted2526 - In November 2024, the company discontinued its Therapeutics operating segment and implemented a significant reduction in force to reduce operating costs21 PGS Customer and Membership Metrics | Metric | As of March 31, 2025 | As of March 31, 2024 | Change | | :--- | :--- | :--- | :--- | | PGS Customers | ~14.4 million | ~15.1 million | ~5% decrease | | 23andMe+ Members | ~564,000 | ~562,000 | ~0.4% increase | Revenue Contribution by Source (Fiscal Years) | Revenue Source | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | PGS Revenue | ~74% | ~76% | ~68% | | Membership Revenue | ~19% | ~9% | N/A | Products and Services The company offers Personal Genome Service (PGS), telehealth via Lemonaid Health, and research services leveraging its genetic database - PGS services are the main source of revenue, accounting for approximately 74% of total revenue in fiscal 202536 - The 23andMe+ Premium membership service grew to represent approximately 19% of total revenue in fiscal 2025, up from 9% in fiscal 202434 - The Lemonaid telehealth platform offers online medical care and pharmacy fulfillment, operating through affiliated Professional Medical Corporations (PMCs)3940 - The company entered a new non-exclusive data license agreement with GSK in October 2023, following the expiration of an exclusive agreement in July 202342 Business Strategy The strategy focuses on empowering customers and scaling research, despite declining PGS customers due to bankruptcy and cyber incidents - The number of PGS customers decreased by approximately 5% from 15.1 million at the end of fiscal 2024 to 14.4 million at the end of fiscal 2025, further declining to 14.0 million by May 31, 202546 - The 23andMe+ membership base was approximately 527,000 as of May 31, 2025, down from 564,000 at the end of fiscal 202551 - A core strategic pillar is scaling the research platform, leveraging a vast database to identify genetic pathways and disease risk predictors49 Competition The company faces intense competition in consumer genetics, telehealth, and research services, including emerging AI-driven solutions - The company is the only direct-to-consumer genetic testing company with eight FDA authorizations and clearances, viewed as a key competitive advantage57 - There is increasing competition in telehealth from new entrants and traditional healthcare providers expanding into virtual care58 - The company could face future competition from entities using AI and large language models (LLMs) for consumer product development and research services5961 Government Regulation The company is heavily regulated, with FDA oversight on genetic reports, CLIA compliance for labs, state laws for telehealth, and global data privacy regulations - The company's genetic health, carrier status, and pharmacogenetic reports are regulated by the FDA as medical devices, with multiple De Novo authorizations and 510(k) clearances obtained7380 - A recent court ruling on March 31, 2025, stated the FDA lacks authority to regulate laboratory-developed tests (LDTs), suspending the FDA's LDT Final Rule77 - The telehealth business operates through affiliated Professional Medical Corporations (PMCs) to comply with state laws prohibiting the corporate practice of medicine9596 - The company is subject to numerous data protection laws, such as CCPA and GDPR, which regulate personal and genetic information and impose significant fines for non-compliance100104 Risk Factors The company faces substantial risks from bankruptcy, declining market, cyber incidents, intense competition, regulatory burdens, and significant financial losses - The Chapter 11 bankruptcy proceedings pose significant risks, including the potential for the company's common stock to become worthless, delisting from Nasdaq, and high administrative costs122124128 - A criminal cyber incident in October 2023 led to unauthorized user data access, resulting in class action lawsuits and government inquiries206207208 - The company has a history of significant losses, with a net loss of $280.9 million in fiscal 2025 and an accumulated deficit of $2.5 billion, raising substantial doubt about its ability to continue as a going concern301306 - The market for personal genetics products has seen a recent decline, leading to decreased revenues, particularly in PGS revenue148149 - The company relies on sole suppliers for critical components like saliva collection kits and on a single laboratory for processing, creating significant supply chain risk160 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None318 Cybersecurity The company's cybersecurity program, led by a CSO and overseen by the audit committee, was enhanced after a 2023 cyber incident - The cybersecurity program is managed by a Chief Security Officer (CSO) and overseen by the board's audit committee, which receives regular updates321325 - In response to the October 2023 Cyber Incident, the company implemented enhanced security measures, including mandatory two-step verification for all customers and resetting passwords324 - The company maintains annual certifications for compliance with ISO/IEC 27001, ISO/IEC 27701, and ISO/IEC 27018 standards321 Properties The company abandoned its South San Francisco and Sunnyvale facilities due to restructuring and bankruptcy, retaining its San Francisco headquarters and St. Louis operations - The company abandoned its South San Francisco lab facility in December 2024 and its Sunnyvale facility in March 2025 as part of its restructuring and bankruptcy329 - The leases for the abandoned facilities are being rejected through the Chapter 11 process329 Legal Proceedings The company is in Chapter 11 bankruptcy, which has stayed substantially all other legal proceedings against it - Substantially all legal proceedings against the company have been stayed due to the Chapter 11 Cases333 Mine Safety Disclosures This item is not applicable to the company - Not Applicable334 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock was delisted from Nasdaq post-Chapter 11 and now trades on the OTC Pink Market, with no dividends paid - The company's Class A common stock was delisted from Nasdaq and now trades on the OTC Pink Market under the symbol 'MEHCQ' as of March 31, 2025335 - The company has not paid any cash dividends and does not plan to in the foreseeable future338 Stock Performance Comparison (June 17, 2021 - March 31, 2025) | Index | Initial Investment ($100) | Value at 3/31/2025 | | :--- | :--- | :--- | | 23andMe Holding Co. | $100.00 | $0.28 | | S&P 500 Health Care Sector | $100.00 | $117.00 | | S&P 500 Index | $100.00 | $132.92 | | Russell 2000 Index | $100.00 | $87.95 | Management's Discussion and Analysis of Financial Condition and Results of Operations The company's financial condition deteriorated, leading to Chapter 11 bankruptcy, a 14% revenue decrease in FY2025, and a major restructuring - The company has substantial doubt about its ability to continue as a going concern due to significant operating losses, its Chapter 11 filing, and an accumulated deficit of $2.5 billion as of March 31, 2025306396 - The company secured a Debtor-in-Possession (DIP) credit facility, initially for $35.0 million and later increased to $60.0 million, to fund operations during the bankruptcy360363 - The Therapeutics operating segment was discontinued in November 2024 as part of a major restructuring that included a 40% workforce reduction350373374 Fiscal 2025 vs. 2024 Financial Highlights (Continuing Operations) | Metric | FY 2025 | FY 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $189.9M | $219.6M | (14%) | | Gross Profit | $100.0M | $97.9M | 2% | | Gross Margin | 52% | 45% | +7 p.p. | | Loss from Operations | ($240.6M) | ($581.7M) | (59%) | | Net Loss from Continuing Ops | ($235.2M) | ($566.9M) | (59%) | Results of Operations FY2025 revenue from continuing operations decreased 14% to $189.9 million, while net loss narrowed to $235.2 million due to lower operating expenses - FY2025 revenue decreased by 14% YoY, driven by lower PGS kit sales, partially offset by a $16.7 million increase in membership revenue and a $19.3 million non-recurring revenue recognition from the GSK data license426 - FY2025 gross margin increased to 52% from 45% in FY2024, largely due to the high-margin, non-recurring GSK revenue430 - Sales and marketing expenses in FY2025 decreased 26% to $64.3 million, primarily from a $17.6 million reduction in advertising and brand spending433 - Restructuring charges surged to $61.4 million in FY2025 from $4.6 million in FY2024, mainly due to a $50.5 million charge for abandoning the Sunnyvale facility lease435 - A goodwill impairment charge of $351.7 million was recorded in FY2024, with no corresponding charge in FY2025436 Adjusted EBITDA from Continuing Operations Adjusted EBITDA from continuing operations worsened slightly in FY2025 to a loss of $93.3 million, primarily due to decreased revenue Reconciliation of Net Loss to Adjusted EBITDA (Continuing Operations) | (in thousands) | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net loss from continuing operations | $(235,196) | $(566,941) | | Adjustments (selected) | | | | Depreciation, amortization and impairment | $31,422 | $14,898 | | ROU asset impairment | $33,403 | $— | | Stock-based compensation expense | $53,985 | $108,499 | | Goodwill impairment | $— | $351,744 | | Cyber Incident expenses, net | $21,386 | $1,765 | | Reorganization items | $2,215 | $— | | Adjusted EBITDA from continuing operations | $(93,341) | $(90,878) | - Adjusted EBITDA from continuing operations decreased by $2.5 million (a 3% larger loss) in fiscal 2025 compared to fiscal 2024467 Liquidity, Capital Resources and Going Concern The company faces severe liquidity constraints and substantial doubt about its going concern ability, with $38.2 million cash and a $2.5 billion accumulated deficit - As of March 31, 2025, the company had unrestricted cash of $38.2 million and an accumulated deficit of $2.5 billion476 - Substantial doubt exists about the company's ability to continue as a going concern for one year from the financial statement issuance date477 - On May 5, 2025, the company received $10.0 million in borrowings under its DIP Facility to fund working capital and reorganization costs476 Cash Flow Summary (Fiscal Years) | (in thousands) | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(169,585) | $(164,319) | | Net cash used in investing activities | $(3,703) | $(9,626) | | Net cash (used in) provided by financing activities | $(279) | $3,584 | Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure to interest rates and foreign currency is minimal, as most operations are USD-denominated - The company does not believe it has no material exposure to interest rate risk, as its cash equivalents were liquidated post-bankruptcy filing and its cash balance is held in bank deposits502 - Foreign currency risk is minimal as substantially all revenues and expenses are denominated in U.S. dollars503 Financial Statements and Supplementary Data This section presents audited financial statements and KPMG's report, which includes a going concern emphasis and identifies PGS revenue recognition as a critical audit matter Report of Independent Registered Public Accounting Firm KPMG's audit report expresses a fair presentation opinion but highlights going concern doubt and identifies PGS revenue recognition as a critical audit matter - The auditor's report includes a 'Going Concern' paragraph, indicating substantial doubt about the company's ability to continue operating509 - A critical audit matter was identified concerning the sufficiency of audit evidence for the Personal Genome Service (PGS) revenue recognition, due to its reliance on complex IT systems518 Consolidated Financial Statements The consolidated financial statements show a significant decline in assets, a shift to a stockholders' deficit, and a net loss of $280.9 million for FY2025 Consolidated Balance Sheet Highlights (as of March 31) | (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Total Assets | $159,894 | $395,167 | | Total Liabilities | $186,636 | $206,647 | | Liabilities subject to compromise | $113,504 | $— | | Total Stockholders' (Deficit) Equity | $(26,742) | $188,520 | Consolidated Statement of Operations Highlights (Year Ended March 31) | (in thousands) | 2025 | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Total Revenue | $189,896 | $219,638 | $299,489 | | Net loss from continuing operations | $(235,196) | $(566,941) | $(210,694) | | Net loss from discontinued operations | $(45,689) | $(99,763) | $(100,962) | | Net Loss | $(280,885) | $(666,704) | $(311,656) | Notes to Consolidated Financial Statements The notes detail Chapter 11 proceedings, discontinued operations, going concern uncertainty, DIP financing, and significant charges including cyber incident settlements - The company is applying ASC 852 bankruptcy accounting, resulting in the reclassification of $113.5 million of pre-petition liabilities to 'Liabilities subject to compromise' as of March 31, 2025542641 - The Therapeutics segment is accounted for as a discontinued operation, with general corporate overhead of $2.4 million in FY2025 and $8.2 million in FY2024 reallocated to continuing operations644 - The company recognized $17.8 million in breakage revenue from unreturned PGS kits in fiscal 2025, down from $22.1 million in fiscal 2024653 - The company has agreed to an aggregate of $37.5 million to settle U.S. claims related to the October 2023 Cyber Incident, with $39.1 million accrued for loss contingencies and $18.1 million in probable insurance recoveries714716 - A one-for-twenty reverse stock split was effected on October 16, 2024, with all share and per-share data retroactively adjusted543719 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None776 Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2025, remediating a prior material weakness related to Audit Committee independence - Management concluded that disclosure controls and procedures were effective as of March 31, 2025779 - A material weakness identified in Q2 and Q3 of fiscal 2025 related to the lack of an independent Audit Committee was fully remediated by March 31, 2025784785786 - The remediation was achieved by appointing three new independent directors to the Board and Audit Committee on October 29, 2024786 Other Information The company amended its DIP credit facility on June 5, 2025, increasing the total facility size to $60.0 million - The DIP credit facility was increased to $60.0 million via an amendment on June 5, 2025788 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable - Not applicable790 Part III Part III incorporates information by reference from the 2025 Proxy Statement, covering directors, executive compensation, security ownership, and accounting fees Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement - Information for this item is incorporated by reference from the 2025 Proxy Statement792 Executive Compensation Executive and director compensation details are incorporated by reference from the 2025 Proxy Statement, including a compensation recoupment policy - The company has adopted a compensation recoupment policy to recover erroneously awarded incentive-based compensation following a financial restatement793 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership and equity compensation plan details are incorporated by reference from the 2025 Proxy Statement - Information for this item is incorporated by reference from the 2025 Proxy Statement795 Certain Relationships and Related Transactions, and Director Independence Information on related person transactions and director independence is incorporated by reference from the 2025 Proxy Statement - Information for this item is incorporated by reference from the 2025 Proxy Statement796 Principal Accounting Fees and Services KPMG LLP is the independent auditor, with fee details incorporated by reference from the 2025 Proxy Statement - The company's independent auditor is KPMG LLP796797 Part IV Part IV lists exhibits filed with the Form 10-K, including key agreements like asset purchase, DIP financing, and corporate governance documents Exhibits, Financial Statement Schedules This section indexes all exhibits filed with the Form 10-K, including key agreements like the Asset Purchase and DIP Loan agreements - The Asset Purchase Agreement with Regeneron Pharmaceuticals, dated May 17, 2025, is filed as Exhibit 2.5800 - The Senior Secured, Super-Priority Debtor-in-Possession Loan and Security Agreement and its amendments are filed as Exhibits 10.29, 10.30, and 10.31802 Form 10-K Summary This item is not applicable - None803