10-QPeriod: Q3 FY2019

Guardant Health, Inc. Quarterly Report for Q3 Ended Sep 30, 2019

Filed November 7, 2019For Securities:GH

Summary

Guardant Health, Inc. (GH) reported its financial results for the quarter ending September 30, 2019. The company demonstrated significant revenue growth, driven by an increase in precision oncology testing volume. Revenue for the third quarter of 2019 surged by 181% year-over-year to $60.8 million, primarily fueled by a 185% increase in precision oncology testing revenue, reaching $52.1 million. This growth was attributed to higher test volumes from both clinical customers and biopharmaceutical partners, coupled with improved reimbursement from Medicare and favorable commercial payer interactions. Development services also saw substantial growth, increasing by 156% to $8.7 million. Despite strong revenue performance, the company continues to invest heavily in research and development (R&D) and sales and marketing, leading to an increased net loss. For the third quarter of 2019, the net loss was $13.1 million, an improvement from $23.5 million in the prior year's quarter, largely due to increased interest income from a larger cash balance following public offerings. The company ended the quarter with a robust cash position of $825.6 million, providing ample liquidity for ongoing operations and strategic investments, including advancements in its LUNAR early detection program.

Financial Highlights

51 data points
Beta

Revenue

$60.85M

Net Income

-$12.79M

-21.0% Net Margin

EPS (Diluted)

$-0.14

Total Assets

$948.33M

Cash & Equivalents

$147.19M

Free Cash Flow

-$4.53M

Financial Statements
Beta
Revenue$60.85M
R&D Expenses$24.57M
Operating Expenses$78.33M
Operating Income-$17.48M
Interest Expense$280K
Net Income-$12.79M
EPS (Basic)$-0.14
Shares Outstanding (Basic)93.30M

Key Highlights

  • 1Total revenue increased by 181% to $60.8 million for the third quarter of 2019 compared to $21.7 million in the prior year period.
  • 2Precision oncology testing revenue grew by 185% to $52.1 million, driven by a significant increase in test volumes from clinical and biopharmaceutical customers.
  • 3Development services revenue more than doubled, increasing by 156% to $8.7 million.
  • 4Net loss for the quarter narrowed to $13.1 million from $23.5 million in the same period last year.
  • 5The company's cash, cash equivalents, and marketable securities stood at $825.6 million as of September 30, 2019, indicating strong liquidity.
  • 6Significant investments continue in R&D and Sales & Marketing, with R&D expenses up 72% and Sales & Marketing expenses up 40% year-over-year for the quarter.
  • 7The adoption of ASC 606 for revenue recognition has positively impacted the timing of revenue recognition for clinical customers, shifting to an accrual basis.

Frequently Asked Questions

The primary driver of Guardant Health's substantial revenue growth is the increased volume of precision oncology tests performed. This growth is seen in both clinical settings (more physicians ordering tests like Guardant360) and with biopharmaceutical clients. Additionally, improved reimbursement from Medicare and commercial payers, along with the adoption of new revenue recognition standards (ASC 606) that allow for earlier revenue recognition, have contributed positively.

Guardant Health is aggressively investing in its future growth. Significant increases in Research & Development (R&D) expenses are funding new product development (like the LUNAR early detection program) and clinical studies. Similarly, Sales & Marketing expenses are rising to expand commercial reach and drive adoption. These strategic investments, while crucial for long-term success, lead to higher operating expenses that currently outweigh the revenue gains, resulting in a net loss.

The adoption of ASC 606, a new revenue recognition standard, has impacted how Guardant Health recognizes revenue, particularly for clinical customers. Previously, under a cash basis, revenue was recognized upon cash receipt. Under ASC 606, revenue is recognized when control of the service is transferred to the customer, often upon test result delivery, and when the transaction price is probable. This change generally leads to earlier revenue recognition for clinical tests, positively affecting reported revenue, especially from tests reimbursed by Medicare and commercial payers.

The joint venture, Guardant Health AMEA, Inc., is consolidated into Guardant Health's financial statements as it is considered a Variable Interest Entity (VIE) where Guardant Health is the primary beneficiary. While the JV aims to accelerate commercialization in specific international markets, its financial performance is reported within Guardant Health's consolidated results. The JV agreement also includes put-call arrangements with SoftBank, which could lead to future purchase obligations or opportunities, impacting future financial positions. The fair value of the redeemable noncontrolling interest held by SoftBank was approximately $46.5 million as of September 30, 2019.