GeneDx (US:WGS)2024-04-29 20:13Part I. Financial Information This section details the company's unaudited condensed consolidated financial statements and management's analysis of financial condition Item 1. Condensed Consolidated Financial Statements (Unaudited) GeneDx Holdings Corp. reported significant Q1 2024 financial improvement with 45% revenue growth, reduced net loss, and improved cash flow Condensed Consolidated Balance Sheets As of March 31, 2024, the company's balance sheet showed total assets of $394.5 million, a decrease from $418.8 million at year-end 2023 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $83,673 | $99,681 | | Total current assets | $163,424 | $182,339 | | Total assets | $394,528 | $418,756 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $50,734 | $58,818 | | Total liabilities | $187,311 | $190,739 | | Total stockholders' equity | $207,217 | $228,017 | | Total liabilities and stockholders' equity | $394,528 | $418,756 | Condensed Consolidated Statements of Operations and Comprehensive Loss The company achieved strong Q1 2024 revenue growth and significant reduction in operating and net losses Q1 2024 vs Q1 2023 Statement of Operations (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total revenue | $62,422 | $43,139 | | Gross profit | $37,411 | $15,236 | | Loss from operations | ($13,660) | ($60,364) | | Net loss | ($20,239) | ($60,989) | | Basic and diluted net loss per share | ($0.78) | ($3.04) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly decreased in Q1 2024, reflecting improved operational efficiency Cash Flow Summary (in thousands) | Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($16,413) | ($55,560) | | Net cash provided by (used in) investing activities | $843 | ($462) | | Net cash (used in) provided by financing activities | ($438) | $132,658 | | Net (decrease) increase in cash | ($16,008) | $76,636 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail accounting policies, revenue concentration, warrant liability, and segment reporting, including the Legacy Sema4 shutdown - Two major payors, Payor A and Payor B, accounted for 19% and 30% of total revenues, respectively, for the three months ended March 31, 2024, indicating a significant concentration of credit risk31 - The company recorded a $5.0 million loss for the three months ended March 31, 2024, due to the change in fair value of the Perceptive Warrants, primarily driven by an increase in the company's stock price53 - The company's operations are divided into two reportable segments: GeneDx (pediatric and rare disease diagnostics) and Legacy Sema4 diagnostics (reproductive/women's health and somatic oncology), with the latter being completely shut down94 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 revenue growth driven by test volumes, improved gross profit, reduced operating expenses, and liquidity Q1 2024 vs Q1 2023 Results of Operations (in thousands) | Line Item | Q1 2024 | Q1 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $62,422 | $43,139 | $19,283 | 45% | | Gross profit | $37,411 | $15,236 | $22,175 | 146% | | Research and development | $11,567 | $14,592 | ($3,025) | (21)% | | General and administrative | $22,445 | $43,689 | ($21,244) | (49)% | | Loss from operations | ($13,660) | ($60,364) | $46,704 | (77)% | | Net loss | ($20,239) | ($60,989) | $40,750 | (67)% | - The increase in diagnostic test revenue was primarily driven by a $21.6 million (96%) increase in whole exome and genome sequencing revenues, resulting from a 91% increase in test volumes129 - The company resulted 55,223 tests in Q1 2024, an increase from 52,778 tests in Q1 2023114 Reconciliation of Net Loss to Adjusted Net Loss (Non-GAAP, in thousands) | | Three months ended March 31, | | :--- | :--- | :--- | | | 2024 | 2023 | | Net loss | $(20,239) | $(60,989) | | Depreciation and amortization expense | 5,248 | 8,636 | | Stock-based compensation expense | (451) | 48 | | Impairment loss | — | 2,120 | | Restructuring costs | 843 | 702 | | Change in fair value of financial liabilities | 6,101 | 3,453 | | Gain on debt forgiveness | — | (2,750) | | Adjusted net loss | $(8,498) | $(48,780) | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rates, affecting its cash, marketable securities, and variable rate debt - The company is exposed to interest rate risk on its cash, cash equivalents, and marketable securities, which totaled $113.9 million at March 31, 2024163 - The company is also exposed to interest rate risk on its variable rate debt associated with the Perceptive term loan facility, which can impact future interest payments164 Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to an un-remediated material weakness in IT general controls as of March 31, 2024 - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2024166 - The ineffectiveness is due to a material weakness in internal control over financial reporting related to IT general controls (ITGCs) over access and program change management, which has not been fully remediated166169 - Despite the material weakness, management concluded that the condensed consolidated financial statements are fairly stated in all material respects in accordance with U.S. GAAP167 Part II. Other Information This section provides additional information including legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings The company is subject to various legal actions, including shareholder class actions and a derivative suit, which it believes are without merit - A shareholder class action lawsuit filed in September 2022 alleges false and misleading statements between March and August 2022. A motion to dismiss is pending79 - A stockholder lawsuit filed in February 2023 in Delaware alleges false and misleading statements in the proxy statement for the 2021 Business Combination80 - A derivative suit was filed in November 2023 on behalf of the company against certain former and current officers and directors, based on similar allegations as the securities class action81 Item 1A. Risk Factors The company updates risk factors regarding potential FDA regulation of LDTs and increasing compliance costs for privacy laws - The FDA has published a proposed rule to end its enforcement discretion for Laboratory Developed Tests (LDTs) in five stages over four years, which could subject the company's tests to extensive FDA requirements, including premarket review178 - Compliance with HIPAA and other privacy laws, including recent updates from the Office for Civil Rights (OCR) regarding online tracking technologies, may increase costs and expose the company to significant fines and penalties for non-compliance or data breaches180182183 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities During the period covered by this report, the company did not have any unregistered sales or issuer purchases of its equity securities - There were no unregistered sales of equity securities during the quarter187 - There were no issuer purchases of equity securities during the quarter188 Item 5. Other Information This section updates disclosures on government regulations, including PAMA, state privacy laws, and the 21st Century Cures Act - The company provides a supplemental disclosure updating its discussion of the Protecting Access to Medicare Act (PAMA), noting that the next private payor rate reporting period is in 2025 to establish rates for 2026-2028190192 - An update on the California Consumer Privacy Act (CCPA) and other new state privacy laws is provided, noting the increasing compliance obligations for businesses197200 - The company updated its disclosure on the 21st Century Cures Act's information blocking prohibition, noting a final rule from HHS Office of Inspector General regarding civil monetary penalties became effective in September 2023201 Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL data files - The report includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act203 - Inline XBRL Instance, Taxonomy, and other related documents are filed as exhibits203