Personalis(US:PSNL)2022-11-01 16:00PART I—FINANCIAL INFORMATION Financial Statements The company's nine-month revenue fell 25% to $48.3 million, driving a net loss of $82.2 million and a significant cash decrease Condensed Consolidated Balance Sheets Total assets decreased to $317.9 million, driven by a reduction in cash and investments, leading to lower stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $83,522 | $105,585 | | Short-term investments | $109,234 | $181,479 | | Total current assets | $221,908 | $318,231 | | Total assets | $317,861 | $396,528 | | Total current liabilities | $33,739 | $31,313 | | Total liabilities | $75,462 | $86,227 | | Total stockholders' equity | $242,399 | $310,301 | Condensed Consolidated Statements of Operations Nine-month revenue fell 25% to $48.3 million, and net loss nearly doubled to $82.2 million due to higher operating expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $14,858 | $22,261 | $48,325 | $64,812 | | Cost of revenue | $12,379 | $14,195 | $37,287 | $41,151 | | Research and development | $14,957 | $13,617 | $48,343 | $34,800 | | Selling, general and administrative | $14,781 | $12,140 | $46,141 | $33,989 | | Loss from operations | $(27,259) | $(17,691) | $(83,446) | $(45,128) | | Net loss | $(26,492) | $(17,670) | $(82,247) | $(45,027) | | Net loss per share | $(0.58) | $(0.40) | $(1.81) | $(1.03) | Condensed Consolidated Statements of Cash Flows Net cash used in operations was $53.5 million, with a net cash decrease of $22.1 million for the nine-month period Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(53,471) | $(55,554) | | Net cash provided by (used in) investing activities | $30,686 | $(99,980) | | Net cash provided by financing activities | $855 | $168,353 | - The significant difference in financing activities between 2022 and 2021 is due to the $162.3 million net proceeds from a follow-on equity offering in January 202128158 Notes to Unaudited Condensed Consolidated Financial Statements Notes highlight significant customer concentration shifts, a patent infringement lawsuit, and stock-based compensation expenses - The company operates as a single reportable segment: the sale of sequencing and data analysis services31 Revenue Concentration by Major Customer (Nine Months Ended Sep 30) | Customer | 2022 Revenue % | 2021 Revenue % | | :--- | :--- | :--- | | Natera, Inc. | 38% | <10% | | VA MVP | 16% | 62% | | Merck & Co., Inc. | 12% | <10% | - On August 2, 2022, the company filed a complaint for patent infringement against Foresight Diagnostics Inc, who has filed counterclaims alleging non-infringement and invalidity of the patents9697 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Q3 revenue decline due to the VA MVP contract completion, offset by growth from other customers - The company is strategically shifting towards the clinical diagnostic market with its NeXT Dx and NeXT Personal tests, anticipating initial revenue from NeXT Dx in Q4 2022109110 - In September 2022, Personalis secured a new contract with the VA MVP, but it is currently under protest by a competitor, leading to an immediate work stoppage115 Revenue by Customer Type (Q3, in thousands) | Customer Type | Q3 2022 | Q3 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | VA MVP | $0 | $13,650 | $(13,650) | (100%) | | All other customers | $14,858 | $8,611 | $6,247 | 73% | | Total revenue | $14,858 | $22,261 | $(7,403) | (33%) | - The company is relocating its headquarters to a new 100,000 sq ft facility in Fremont, CA, with expected capital expenditures of $40-$43 million in 2022 for the expansion118161 Quantitative and Qualitative Disclosures About Market Risk The company is exempt from this disclosure as a "smaller reporting company" - As a "smaller reporting company," Personalis is exempt from providing quantitative and qualitative disclosures about market risk170 Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that as of September 30, 2022, the company's disclosure controls and procedures were effective171 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls172 PART II—OTHER INFORMATION Legal Proceedings The company is engaged in a patent infringement lawsuit with Foresight Diagnostics Inc - The company is involved in a patent infringement lawsuit with Foresight Diagnostics Inc, as detailed in Note 9 of the financial statements17596 Risk Factors Key risks include a history of losses, customer concentration, supplier reliance, and regulatory uncertainty - Operational Risk: The company has a history of losses and expects to incur significant future losses, with substantial customer concentration in the VA MVP and Natera185199 - VA MVP Contract Risk: The new contract with the VA MVP is under protest, requiring an immediate work stoppage, and may be terminated if the protest is not resolved favorably202 - Supplier Risk: The company relies on Illumina as the sole supplier for its sequencers and associated reagents, posing a significant operational risk211 - Regulatory Risk: The company's tests are marketed as Laboratory Developed Tests (LDTs), which could be subject to more onerous FDA oversight under future legislative changes like the VALID Act252254 - Litigation Risk: The company is involved in expensive and time-consuming patent infringement litigation with Foresight Diagnostics, with an uncertain outcome345 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period - None399 Other Information The company amended its bylaws to align with new SEC universal proxy rules - The company amended its bylaws on October 26, 2022, to align with the SEC's new universal proxy rules (Rule 14a-19)402 Exhibits This section lists all exhibits filed with the Form 10-Q