Guardant Health(GH) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Provides a comprehensive overview of the company's financial performance, condition, and management's analysis for the reporting period Unaudited Condensed Consolidated Financial Statements Guardant Health reported $265.9 million revenue for the six months ended June 30, 2023, a 30% increase, with a net loss of $206.3 million and total assets growing to $1.84 billion from a public offering Condensed Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of June 30, 2023 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $271,073 | $141,647 | | Short-term marketable debt securities | $953,776 | $869,584 | | Total current assets | $1,397,655 | $1,191,594 | | Total Assets | $1,840,017 | $1,609,985 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $200,933 | $193,220 | | Convertible senior notes, net | $1,138,678 | $1,137,391 | | Total Liabilities | $1,547,291 | $1,549,805 | | Total Stockholders' Equity | $292,726 | $60,180 | Condensed Consolidated Statements of Operations Outlines the company's revenues, expenses, and net loss for the three and six months ended June 30, 2023 Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $137,150 | $109,144 | $265,864 | $205,243 | | Loss from operations | $(119,616) | $(130,321) | $(253,671) | $(253,659) | | Net loss | $(72,771) | $(229,432) | $(206,304) | $(352,660) | | Net loss per share, basic and diluted | $(0.67) | $(2.25) | $(1.95) | $(3.46) | Condensed Consolidated Statements of Cash Flows Reports the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(168,456) | $(140,554) | | Net cash (used in) provided by investing activities | $(83,903) | $37,915 | | Net cash provided by (used in) financing activities | $383,000 | $(172,099) | | Net increase (decrease) in cash | $129,226 | $(276,949) | - Financing activities in the first six months of 2023 were primarily driven by $402.5 million in proceeds from a follow-on public offering, which significantly increased the company's cash position[28] Notes to the Unaudited Condensed Consolidated Financial Statements Provides detailed explanations and additional information regarding the company's accounting policies, business operations, and significant events - The company's business is focused on precision oncology through proprietary tests like Guardant360, Guardant Reveal, and the Shield LDT test for colorectal cancer screening. A premarket approval application for the Shield blood test was submitted to the FDA in March 2023[32][34] - Customer B accounted for 32% of total revenue for the six months ended June 30, 2023, representing a significant customer concentration[48] - The company holds $1.15 billion in 0% Convertible Senior Notes due 2027, with an initial conversion price of approximately $139.82 per share[105][108] - In May 2023, the company completed a follow-on public offering, selling 14,375,000 shares at $28.00 per share and receiving net proceeds of $381.4 million[130] - The company is involved in several legal proceedings, including a patent infringement suit with TwinStrand Biosciences and a false advertising dispute with Natera, Inc. It is also cooperating with a Civil Investigative Demand from the U.S. Attorney's office regarding billing practices[124][126][127] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported $137.2 million revenue for Q2 2023, a 26% increase driven by precision oncology, with operating loss narrowing and liquidity reaching $1.2 billion after a public offering Overview Introduces the company's core business in precision oncology and highlights key strategic developments and financial position - The company is a leading precision oncology firm focused on cancer care through proprietary tests, data sets, and advanced analytics[165] - Key recent developments include the submission of a premarket approval (PMA) application to the FDA for the Shield blood test for colorectal cancer screening in March 2023, following the successful ECLIPSE study[167] - As of June 30, 2023, the company held approximately $1.2 billion in cash, cash equivalents, and marketable debt securities, bolstered by a recent follow-on public offering that raised net proceeds of $381.4 million[169] Factors affecting our performance Discusses key drivers and challenges influencing the company's financial results, including testing volume, reimbursement, and R&D investments - Performance is heavily influenced by testing volume, pricing, and customer mix, with biopharmaceutical sample testing currently having a higher average selling price than clinical tests[170] - Revenue depends on achieving broad coverage and reimbursement from third-party payers. Medicare revenue represented approximately 43% of clinical precision oncology revenue in Q2 2023[170][179] - Significant investment in research and development, including clinical studies for Guardant Reveal (ORACLE study) and Shield (ECLIPSE and SHIELD LUNG studies), is critical for physician adoption and payer coverage[174] - International expansion is a key long-term growth strategy, pursued through distributor relationships, direct contracts, and partnerships[174] Results of operations Analyzes the company's revenue and operating expenses, detailing changes and their underlying causes for the reporting period Revenue Comparison (in thousands) | Revenue Source | Q2 2023 | Q2 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Precision oncology testing | $125,244 | $92,062 | $33,182 | 36% | | Development services and other | $11,906 | $17,082 | $(5,176) | (30)% | | Total revenue | $137,150 | $109,144 | $28,006 | 26% | - The 36% increase in Q2 2023 precision oncology revenue was driven by higher sample volume. Clinical test volume grew to ~43,500 from ~29,300 YoY, and biopharmaceutical test volume grew to ~6,700 from ~6,000 YoY[197][198] Operating Expenses Comparison - Q2 (in thousands) | Expense Category | Q2 2023 | Q2 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Cost of revenue | $53,848 | $36,727 | $17,121 | 47% | | Research and development | $90,359 | $85,455 | $4,904 | 6% | | Sales and marketing | $71,043 | $73,603 | $(2,560) | (3)% | | General and administrative | $41,516 | $43,680 | $(2,164) | (5)% | - General and administrative expenses decreased by 5% in Q2 2023, primarily due to a $5.6 million decrease in stock-based compensation as market-based RSUs for Co-CEOs were fully expensed by June 30, 2022[205] Liquidity and capital resources Assesses the company's ability to meet its short-term and long-term financial obligations, including cash position and financing activities - As of June 30, 2023, the company had $271.1 million in cash and cash equivalents and $953.8 million in marketable debt securities[228] - The company believes its current cash, marketable securities, and anticipated cash flows from operations will be sufficient to meet cash requirements for more than 12 months[229] - Net cash used in operating activities for the six months ended June 30, 2023, was $168.5 million, compared to $140.6 million in the prior-year period[231][232] - Net cash provided by financing activities was $383.0 million for the first six months of 2023, mainly from a follow-on public offering, a significant reversal from the $172.1 million used in the same period of 2022 which included a $177.8 million payment for the Joint Venture Acquisition[231][236][237] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on its $1.2 billion cash and marketable securities, with a 100 basis point rate change impacting fair value by $3.0 million, while foreign currency risk remains immaterial - The primary market risk is interest rate sensitivity on cash, cash equivalents, and marketable debt securities totaling approximately $1.2 billion[242] - A hypothetical 100 basis point increase in interest rates would result in an approximate $3.0 million decline in the fair value of the company's available-for-sale securities[242] - Foreign currency risk is currently considered insignificant as the majority of revenue is generated in the U.S., but this exposure is expected to increase with international expansion[243] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - The Co-CEOs and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[245] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[246] PART II – OTHER INFORMATION Contains supplementary information not covered in the financial statements, including legal matters and risk factors Legal Proceedings This section incorporates by reference the detailed legal proceedings information from Note 9 of the financial statements - This section incorporates by reference the legal proceedings information from Note 9 to the unaudited condensed consolidated financial statements[249] Risk Factors No material changes occurred to the company's previously disclosed risk factors from its 2022 Form 10-K during the second quarter of fiscal 2023 - During the second quarter of fiscal 2023, there were no material changes to the company's previously disclosed risk factors from its 2022 Form 10-K[250] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[252] Exhibits This section lists the exhibits filed with the Form 10-Q, including Sarbanes-Oxley Act certifications from the Co-CEOs and CFO - The exhibits filed with this report include Sarbanes-Oxley Act certifications from the Co-Chief Executive Officers and the Chief Financial Officer[257]