23andMe (US:ME)2024-02-06 16:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for December 31, 2023, reveal significant asset and cash declines, and a wider net loss, largely due to goodwill impairment Condensed Consolidated Balance Sheets The balance sheet as of December 31, 2023, shows significant reductions in total assets, cash, goodwill, and stockholders' equity Key Balance Sheet Figures | Balance Sheet Item | Dec 31, 2023 ($ thousands) | Mar 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | 242,418 | 386,849 | | Goodwill | 152,944 | 351,744 | | Total assets | 608,211 | 942,598 | | Total liabilities | 231,023 | 228,659 | | Total stockholders' equity | 377,188 | 713,939 | Condensed Consolidated Statements of Operations and Comprehensive Loss The statements of operations for Q4 2023 show a 33% revenue decrease and a significantly wider net loss, driven by a goodwill impairment Key Operating Results (Three Months Ended Dec 31) | Metric ($ thousands, except EPS) | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Revenue | 44,747 | 66,940 | | Gross Profit | 19,936 | 30,751 | | Goodwill Impairment | 198,800 | — | | Loss from Operations | (281,210) | (97,100) | | Net Loss | (277,976) | (91,961) | | Basic and Diluted EPS | ($0.58) | ($0.20) | Key Operating Results (Nine Months Ended Dec 31) | Metric ($ thousands, except EPS) | Nine Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Revenue | 155,610 | 207,112 | | Gross Profit | 72,345 | 94,514 | | Goodwill Impairment | 198,800 | — | | Loss from Operations | (469,605) | (254,737) | | Net Loss | (457,870) | (247,558) | | Basic and Diluted EPS | ($0.97) | ($0.55) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity significantly decreased from $713.9 million to $377.2 million, primarily due to the cumulative net loss - The accumulated deficit grew significantly, increasing from $(1,506.4) million at March 31, 2023, to $(1,964.3) million at December 31, 2023, reflecting ongoing net losses17 Condensed Consolidated Statements of Cash Flows For the nine months ended December 31, 2023, net cash used in operating activities increased, leading to a $144.4 million decrease in total cash Key Cash Flow Activities | Cash Flow Activity ($ thousands) | Nine Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | (138,535) | (120,429) | | Net cash used in investing activities | (7,480) | (8,017) | | Net cash provided by financing activities | 1,584 | 7,171 | | Net decrease in cash | (144,431) | (120,581) | Notes to the Condensed Consolidated Financial Statements The notes detail accounting policies and key disclosures, including reporting segments, a significant goodwill impairment, restructuring charges, and recent cybersecurity and Nasdaq listing issues - The company operates in two reporting segments: Consumer and Research Services and Therapeutics28 - On November 10, 2023, the company received a deficiency letter from Nasdaq for failing to maintain a minimum bid price of at least $1 per share45 - A non-cash, pre-tax goodwill impairment charge of $198.8 million was recognized during the three months ended December 31, 202389 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, noting a 33% revenue decline, increased net loss due to goodwill impairment, and recent operational challenges, while affirming sufficient liquidity Results of Operations Revenue for Q3 2023 decreased 33% to $44.7 million, with operating expenses surging due to a $198.8 million goodwill impairment, leading to a significantly widened net loss - Total revenue decreased by 33% for the three months ended December 31, 2023, driven by a $11.5 million decrease in research services revenue and a $10.7 million decrease in consumer services revenue198 - A goodwill impairment charge of $198.8 million was the primary driver of the significant increase in operating loss and net loss for the three and nine months ended December 31, 2023218 - The company undertook reductions in force in June and August 2023, resulting in restructuring charges of $8.4 million for the nine-month period216 Adjusted EBITDA Total Adjusted EBITDA loss increased to $47.7 million, with Consumer and Research Services widening its loss, while Therapeutics improved its loss due to cost reductions Segment Adjusted EBITDA | Segment Adjusted EBITDA ($ thousands) | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Consumer and Research Services | (20,620) | (8,313) | | Therapeutics | (16,528) | (21,471) | | Unallocated Corporate | (10,587) | (13,488) | | Total Adjusted EBITDA | (47,735) | (43,272) | Liquidity and Capital Resources As of December 31, 2023, the company's cash and cash equivalents totaled $242.4 million, which management believes is sufficient for at least the next 12 months, supplemented by an available ATM stock offering program - The company's cash and cash equivalents balance was $242.4 million as of December 31, 2023235 - Management believes current cash is sufficient to fund operations for at least 12 months from the filing date235 - An at-the-market (ATM) offering program allows the company to sell up to $150.0 million of its Class A common stock, though no sales had been made as of the report date236237 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company assesses its exposure to market risks, including interest rate and foreign currency risks, as not material, with hypothetical changes having no significant financial impact - The company does not believe it has any material exposure to changes in interest rates due to the short-term nature of its cash equivalents265 - Foreign currency risk is currently not material as substantially all revenue and expenses are denominated in U.S. dollars266 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2023269 - No material changes to the company's internal control over financial reporting occurred during the quarter ended December 31, 2023271 PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 11, disclosing multiple class-action claims filed against the company following the October 2023 cybersecurity incident - The company is subject to multiple class-action lawsuits filed in response to the October 2023 cybersecurity incident273277 Item 1A. Risk Factors This section updates key risk factors, including ongoing litigation from the October 2023 cyberattack, Nasdaq listing non-compliance, and potential future goodwill impairments - The company faces ongoing risks from the October 2023 cyberattack, including litigation costs and potential reputational damage275278 - The company is not in compliance with the Nasdaq minimum bid price requirement, which could lead to the delisting of its Class A common stock279281 - A goodwill impairment charge of $198.8 million was recorded as of December 31, 2023, with future declines potentially leading to further impairments282283 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The company reported no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities during the period - None284 Item 5. Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended December 31, 2023 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the quarter287