Company Quick10K Filing
Quick10K
Personalis
10-Q 2019-06-30 Quarter: 2019-06-30
S-1 2019-05-23 Public Filing
8-K 2019-09-25 Other Events
8-K 2019-09-09 Officers
8-K 2019-08-13 Earnings, Exhibits
8-K 2019-06-24 Amend Bylaw, Exhibits
PGTK Pacific Green Technologies 88
VYST VyStar 31
BRTX Biorestorative Therapies 5
CDTI CDTI Advanced Materials 2
KML Kinder Morgan Canada 0
REBL Rebel Group 0
IAMXU I-Am Capital Acquisition 0
GLYE Glyeco 0
SFRX Seafarer Exploration 0
WWIN Wewin Group 0
PSNL 2019-06-30
Part I-Financial Information
Item 1. Financial Statements
Note 1. Company and Nature of Business
Note 2. Summary of Significant Accounting Policies
Note 3. Revenues
Note 4. Balance Sheet Details
Note 5. Fair Value Measurements
Note 6. Borrowings
Note 7. Leases
Note 8. Redeemable Convertible Preferred Stock
Note 9. Stock-Based Compensation
Note 10. Redeemable Convertible Preferred Stock Warrants
Note 11. Common Stock Warrants
Note 12. Commitments and Contingencies
Note 13. Net Loss per Share Attributable To Common Stockholders
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part Ii-Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 psnl-ex311_8.htm
EX-31.2 psnl-ex312_9.htm
EX-32.1 psnl-ex321_7.htm
EX-32.2 psnl-ex322_6.htm

Personalis Earnings 2019-06-30

PSNL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 psnl-10q_20190630.htm 10-Q psnl-10q_20190630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 001-38943

 

Personalis, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

27-5411038

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

1330 O’Brien Drive

Menlo Park, California 94025

94025

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (650) 752-1300

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001

 

PSNL

 

The Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No   

As of August 9, 2019, the registrant had 31,128,674 shares of common stock, $0.0001 par value per share, outstanding.

 

 


 

Table of Contents

 

 

 

Page

 

Special Note Regarding Forward-Looking Statements

3

PART I.

FINANCIAL INFORMATION

5

Item 1.

Financial Statements (Unaudited)

5

 

Condensed Consolidated Balance Sheets

5

 

Condensed Consolidated Statements of Operations

6

 

Condensed Consolidated Statements of Comprehensive Loss

7

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

8

 

Condensed Consolidated Statements of Cash Flows

9

 

Notes to Unaudited Condensed Consolidated Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II.

OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

69

Item 3.

Defaults Upon Senior Securities

69

Item 4.

Mine Safety Disclosures

69

Item 5.

Other Information

69

Item 6.

Exhibits

70

Signatures

72

 

2


 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “hope,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

 

the evolution of cancer therapies and market adoption of our services;

 

estimates of our total addressable market, future revenue, expenses, capital requirements, and our needs for additional financing;

 

our ability to compete effectively with existing competitors and new market entrants;

 

our ability to scale our infrastructure;

 

our ability to manage and grow our business by expanding our sales to existing customers or introducing our products to new customers;

 

expectations regarding our relationship with the U.S. Department of Veterans Affairs’ Million Veteran Program;

 

our ability to establish and maintain intellectual property protection for our products or avoid claims of infringement;

 

potential effects of extensive government regulation;

 

our ability to hire and retain key personnel;

 

our ability to obtain financing in future offerings;

 

the volatility of the trading price of our common stock;

 

our belief that approval of personalized cancer therapies by the Food and Drug Administration may drive benefits to our business; and

 

our expectation regarding the time during which we will be an emerging growth company under the JOBS Act.

 

Actual events or results may differ from those expressed in forward-looking statements. As such, you should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, prospects, strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a highly competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

 

3


 

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.

 

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “company,” “Personalis,” “we,” “us” and “our” refer to Personalis, Inc.

 

 

 

4


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PERSONALIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share and per share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

163,269

 

 

$

19,744

 

Accounts receivable

 

 

7,465

 

 

 

4,457

 

Inventory and other deferred costs

 

 

3,538

 

 

 

3,432

 

Prepaid expenses and other current assets

 

 

1,897

 

 

 

1,926

 

Total current assets

 

 

176,169

 

 

 

29,559

 

Property and equipment, net

 

 

13,409

 

 

 

11,452

 

Operating lease right-of-use assets

 

 

1,320

 

 

 

 

Other long-term assets

 

 

947

 

 

 

659

 

Total assets

 

$

191,845

 

 

$

41,670

 

Liabilities, Redeemable Convertible Preferred Stock, and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,781

 

 

$

6,565

 

Accrued and other current liabilities

 

 

4,676

 

 

 

3,392

 

Contract liabilities

 

 

41,866

 

 

 

42,897

 

Short-term debt

 

 

1,020

 

 

 

4,996

 

Total current liabilities

 

 

56,343

 

 

 

57,850

 

Redeemable convertible preferred stock warrant liability

 

 

 

 

 

683

 

Long-term debt

 

 

18,016

 

 

 

 

Other long-term liabilities

 

 

468

 

 

 

121

 

Total liabilities

 

 

74,827

 

 

 

58,654

 

Commitments and Contingencies (Note 12)

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock

 

 

 

 

 

89,404

 

Stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value — 200,000,000 shares authorized and 31,121,605 shares issued and outstanding as of June 30, 2019; 102,700,000 shares authorized and 3,085,307 shares issued and outstanding as of December 31, 2018

 

 

3

 

 

 

1

 

Additional paid-in-capital

 

 

244,089

 

 

 

9,131

 

Accumulated other comprehensive loss

 

 

(15

)

 

 

(15

)

Accumulated deficit

 

 

(127,059

)

 

 

(115,505

)

Total stockholders’ equity (deficit)

 

 

117,018

 

 

 

(106,388

)

Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)

 

$

191,845

 

 

$

41,670

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

$

15,825

 

 

$

8,799

 

 

$

29,900

 

 

$

12,963

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of revenues

 

 

9,923

 

 

 

6,403

 

 

 

20,014

 

 

 

10,468

 

Research and development

 

 

4,497

 

 

 

3,500

 

 

 

9,742

 

 

 

6,449

 

Selling, general and administrative

 

 

5,466

 

 

 

2,604

 

 

 

9,636

 

 

 

4,917

 

Total costs and expenses

 

 

19,886

 

 

 

12,507

 

 

 

39,392

 

 

 

21,834

 

Loss from operations

 

 

(4,061

)

 

 

(3,708

)

 

 

(9,492

)

 

 

(8,871

)

Interest income

 

 

200

 

 

 

71

 

 

 

284

 

 

 

132

 

Interest expense

 

 

(745

)

 

 

(573

)

 

 

(929

)

 

 

(1,195

)

Loss on debt extinguishment

 

 

 

 

 

(3,322

)

 

 

 

 

 

(3,322

)

Other (expense) income, net

 

 

(1,261

)

 

 

218

 

 

 

(1,413

)

 

 

569

 

Loss before income taxes

 

 

(5,867

)

 

 

(7,314

)

 

 

(11,550

)

 

 

(12,687

)

Provision for income taxes

 

 

(2

)

 

 

(1

)

 

 

(4

)

 

 

(3

)

Net loss

 

$

(5,869

)

 

$

(7,315

)

 

$

(11,554

)

 

$

(12,690

)

Net loss per share, basic and diluted

 

$

(0.89

)

 

$

(2.39

)

 

$

(2.38

)

 

$

(4.15

)

Weighted-average shares outstanding, basic and diluted

 

 

6,597,007

 

 

 

3,063,126

 

 

 

4,853,325

 

 

 

3,061,069

 

 

See accompanying notes to condensed consolidated financial statements.

6


 

PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(5,869

)

 

$

(7,315

)

 

$

(11,554

)

 

$

(12,690

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(15

)

 

 

(5

)

 

 

 

 

 

(2

)

Comprehensive loss

 

$

(5,884

)

 

$

(7,320

)

 

$

(11,554

)

 

$

(12,692

)

 

See accompanying notes to condensed consolidated financial statements.

7


 

PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Redeemable convertible preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total redeemable convertible preferred stock, beginning balances

 

$

89,404

 

 

$

75,995

 

 

$

89,404

 

 

$

75,995

 

Conversion of redeemable convertible preferred stock to common stock

 

 

(89,404

)

 

 

 

 

 

(89,404

)

 

 

 

Total redeemable convertible preferred stock, ending balances

 

$

 

 

$

75,995

 

 

$

 

 

$

75,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity (deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock and additional paid-in capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balances

 

$

10,667

 

 

$

3,219

 

 

$

9,132

 

 

$

3,026

 

Equity component credited to additional paid-in capital upon Convertible Notes modification on May 31, 2018

 

 

 

 

 

3,890

 

 

 

 

 

 

3,890

 

Conversion of Series A, B and C redeemable convertible preferred stock to common stock

 

 

89,404

 

 

 

 

 

 

89,404

 

 

 

 

Proceeds from initial public offering, net of expenses

 

 

140,024

 

 

 

 

 

 

140,024

 

 

 

 

Conversion of redeemable convertible preferred stock warrants to common stock warrants

 

 

2,086

 

 

 

 

 

 

2,086

 

 

 

 

 

Proceeds from exercise of common stock warrant

 

 

8

 

 

 

 

 

 

8

 

 

 

 

Issuance of common stock warrants

 

 

 

 

 

 

 

 

572

 

 

 

 

Proceeds from exercise of stock options

 

 

257

 

 

 

 

 

 

611

 

 

 

24

 

Stock-based compensation

 

 

1,646

 

 

 

414

 

 

 

2,255

 

 

 

583

 

Ending balances

 

 

244,092

 

 

 

7,523

 

 

 

244,092

 

 

 

7,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balances

 

 

 

 

 

(7

)

 

 

(15

)

 

 

(10

)

Foreign currency translation adjustment

 

 

(15

)

 

 

(5

)

 

 

 

 

 

(2

)

Ending balances

 

 

(15

)

 

 

(12

)

 

 

(15

)

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balances

 

 

(121,190

)

 

 

(100,994

)

 

 

(115,505

)

 

 

(95,619

)

Net loss

 

 

(5,869

)

 

 

(7,315

)

 

 

(11,554

)

 

 

(12,690

)

Ending balances

 

 

(127,059

)

 

 

(108,309

)

 

 

(127,059

)

 

 

(108,309

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity (deficit), ending balances

 

$

117,018

 

 

$

(100,798

)

 

$

117,018

 

 

$

(100,798

)

 

See accompanying notes to condensed consolidated financial statements.

 

8


 

PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(11,554

)

 

$

(12,690

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,192

 

 

 

1,200

 

Noncash lease expense

 

 

429

 

 

 

 

Stock-based compensation expense

 

 

2,255

 

 

 

583

 

Loss on debt extinguishment

 

 

 

 

 

3,322

 

Change in fair value of convertible preferred stock warrant liability

 

 

1,403

 

 

 

 

Change in fair value of compound derivative instrument

 

 

 

 

 

(574

)

Accretion of noncash interest and debt reduction

 

 

103

 

 

 

900

 

Other

 

 

(2

)

 

 

3

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,009

)

 

 

(2,240

)

Inventories and other deferred costs

 

 

(106

)

 

 

(1,675

)

Prepaid expenses and other current assets

 

 

(257

)

 

 

(250

)

Accounts payable

 

 

(163

)

 

 

634

 

Accrued and other current liabilities

 

 

(567

)

 

 

(49

)

Contract liabilities

 

 

(1,030

)

 

 

13,679

 

Other long-term liabilities

 

 

(530

)

 

 

(43

)

Net cash (used in) provided by operating activities

 

 

(10,836

)

 

 

2,800

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(2,801

)

 

 

(5,237

)

Net cash used in investing activities

 

 

(2,801

)

 

 

(5,237

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from initial public offering, net of underwriting discounts and commissions

 

 

144,025

 

 

 

 

Payment of costs related to initial public offering

 

 

(1,991

)

 

 

 

Proceeds from borrowings

 

 

20,000

 

 

 

 

Payments of borrowing costs

 

 

(490

)

 

 

 

Repayments under borrowing arrangements

 

 

(5,000

)

 

 

(427

)

Proceeds from exercise of common stock warrants

 

 

8

 

 

 

 

Proceeds from exercise of stock options

 

 

611

 

 

 

24

 

Net cash provided by (used in) financing activities

 

 

157,163

 

 

 

(403

)

Effect of exchange rates on cash flows and cash equivalents

 

 

(1

)

 

 

1

 

Net increase (decrease) in cash and cash equivalents

 

 

143,525

 

 

 

(2,839

)

Cash and cash equivalents, beginning of period

 

 

19,744

 

 

 

22,617

 

Cash and cash equivalents, end of period

 

$

163,269

 

 

$

19,778

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

9


 

PERSONALIS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Company and Nature of Business

Description of Business

Personalis, Inc. (the “Company”) was incorporated in Delaware on February 21, 2011, and began operations in September 2011. The Company formed a wholly owned subsidiary, Personalis (UK) Ltd., in August 2013. The Company is a growing cancer genomics company transforming the development of next-generation therapies by providing more comprehensive molecular data about each patient’s cancer and immune response. The Company operates and manages its business as one reportable operating segment, which is the sale of sequencing and data analysis services.

Significant Risks and Uncertainties

The Company has incurred net operating losses and negative cash flows from operations every year. As of June 30, 2019, the Company had an accumulated deficit of $127.1 million.

In June 2019, the Company completed an initial public offering (“IPO”) of its common stock and raised proceeds of $140.0 million, after deducting underwriting discounts, commissions and offering expenses. Management believes that these proceeds combined with existing sources of liquidity will be sufficient to fund operations for at least one year from the issuance of these unaudited condensed consolidated financial statements. However, there can be no assurance that additional financing will not be required or that the Company will be successful in raising additional capital on terms which are acceptable to the Company.

If the Company requires but is unable to obtain additional funding, the Company could be required to modify, delay, or abandon some of its planned future expansion or expenditures or reduce some of its ongoing operating costs, which could harm its business, operating results, financial condition, and ability to achieve its intended business objectives.

Approval of Amended and Restated Certificate of Incorporation

An amended and restated certificate of incorporation, which authorized 200,000,000 shares of common stock and 10,000,000 shares of preferred stock became effective in June 2019 in connection with the closing of the Company’s IPO. As of June 30, 2019 no shares of preferred stock are outstanding.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on June 20, 2019 (the “Prospectus”).

The condensed consolidated balance sheet as of December 31, 2018 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by U.S. GAAP.

The condensed consolidated financial statements include the accounts of Personalis, Inc. and its wholly owned subsidiary, Personalis (UK) Ltd. All intercompany balances and transactions have been eliminated.

The accompanying condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year ending December 31, 2019.

10


 

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the condensed consolidated financial statements and the reported amounts of revenues and expense during the reporting period. The estimates include, but are not limited to, useful lives assigned to long-lived assets, the valuation of common and convertible redeemable preferred stock and related warrants and options, the valuation of the compound derivative instrument, the valuation of stock-based awards, and provisions for income taxes and contingencies. Actual results could differ from these estimates, and such differences could be material to the Company’s condensed consolidated financial position and results of operations.

Reverse Stock Split

On June 4, 2019, the Company filed an amendment to the Company’s amended and restated certificate of incorporation to effect a reverse split of shares of the Company’s common stock and redeemable convertible preferred stock on a four-for-one basis (the “Reverse Stock Split”). The par value of the common stock and redeemable convertible preferred stock was not adjusted as a result of the Reverse Stock Split. All references to common stock, options to purchase common stock, share data, per share data, redeemable convertible preferred stock and related information contained in these consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.

Initial Public Offering

On June 20, 2019, the Company completed an IPO in which it issued and sold 9,109,725 shares of its common stock at a public offering price of $17.00 per share. The Company received net proceeds of $140.0 million after deducting underwriting discounts, commissions and offering expenses. A warrant to purchase 188,643 shares of our common stock was exercised prior to completion of the IPO. In addition, in connection with the IPO, all shares of the Company’s then-outstanding redeemable convertible preferred stock were automatically converted into 18,474,703 shares of the Company’s common stock, and all then-outstanding warrants to purchase the Company’s convertible preferred stock were automatically converted into warrants to purchase 84,585 shares of the Company’s common stock.

Deferred Offering Costs

Deferred offering costs consist of fees and expenses incurred in connection with the anticipated sale of the Company’s common stock in the IPO, including legal, accounting, printing and other IPO-related costs. In June 2019, upon completion of the IPO, the Company reclassified deferred offering costs of $4.0 million into additional paid-in capital as a reduction of the net proceeds received from the IPO. During the six months ended June 30, 2019, $2.0 million of the deferred offering costs were paid.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that subject the Company to concentration of credit risk consist of cash and cash equivalents. The Company’s cash and cash equivalents are deposited with a high-quality financial institution. Deposits at this institution may, at times, exceed federally insured limits. Management believes that this financial institution is financially sound and, accordingly, that minimal credit risk exists. The Company has not experienced any losses on its deposits of cash and cash equivalents.

The Company purchases various reagents and sequencing materials from sole source suppliers. Any extended interruption in the supply of these materials could result in the Company’s inability to secure sufficient materials to conduct business and meet customer demand.

The Company routinely assesses the creditworthiness of its customers. The Company has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company does not require collateral. Due to these factors, no additional credit risk is believed by management to be probable in the Company’s accounts receivable.

11


 

Significant customers are those which represent more than 10% of the Company’s total revenue or accounts receivable balance at each respective condensed consolidated balance sheet date. For each significant customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows:

 

 

 

Revenue (unaudited)

 

 

Revenue (unaudited)

 

 

Accounts Receivable

 

 

 

Three Months Ended June 30

 

 

Six Months Ended June 30

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(unaudited)

 

 

 

 

 

VA MVP

 

 

54

%

 

 

45

%

 

 

56

%

 

 

46

%

 

 

30

%

 

*

 

Merck & Co., Inc.

 

*

 

 

 

16

%

 

*

 

 

 

14

%

 

*

 

 

 

10

%

Pfizer Inc.

 

 

23

%

 

*

 

 

 

20

%

 

*

 

 

 

38

%

 

 

33

%

Customer D

 

 

12

%

 

*

 

 

*

 

 

*

 

 

 

18

%

 

*

 

Customer E

 

*

 

 

 

10

%

 

*

 

 

*

 

 

*

 

 

*

 

Customer F

 

*

 

 

*

 

 

*

 

 

*

 

 

*

 

 

 

17

%

Customer G

 

*

 

 

*

 

 

*

 

 

*

 

 

*

 

 

 

10

%

*

Less than 10% of revenue or accounts receivable

Revenue Recognition

The Company applies the revenue recognition guidance in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”).

Revenue Recognition

The revenue guidance provides a five-step framework through which revenue is recognized when control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that the Company concludes are within the scope of the new revenue recognition standard, management performs the following five steps: (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract(s); (iii) determines the transaction price, including whether there are any constraints on variable consideration; (iv) allocates the transaction price to the performance obligations; and (v) recognizes revenue when (or as) the Company satisfies a performance obligation. At contract inception, once a contract is determined to be within the scope of the new revenue standard, the Company assesses whether individual goods or services promised within each contract are distinct and, therefore, represent separate performance obligation.

The Company derives revenues from sequencing and data analysis services to support the development of personalized cancer vaccines and other next-generation cancer immunotherapies. The Company’s contracts are in the form of a combination of signed agreements, statements of work, and/or purchase orders. Under ASC Topic 606, the Company accounts for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and it is probable that the Company will collect substantially all of the consideration to which it will be entitled.

The sequencing and data analysis services are the only distinct services that meet the definition of a performance obligation and are accounted for as one performance obligation under ASC Topic 606. The Company recognizes revenue from such services at the point in time when control of the test results is transferred to the customer. The Company has elected to exclude all sales and value added taxes from the measurement of the transaction price. Sequencing and data analysis services are based on a fixed price per test.

Payment terms and conditions vary by contract and customer. The Company’s standard payment terms are less than 90 days from the invoice date. In instances where the timing of the Company’s revenue recognition differs from the timing of its invoicing, the Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised services to the customer will be one year or less. The Company assessed each of its revenue-generating arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of its arrangements. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s services and provides payment protection for the Company.

Practical Expedients and Exemptions

As a practical expedient, the Company recognizes the incremental costs of obtaining contracts, such as sales commissions, as an expense when incurred since the amortization period of the asset the Company otherwise would have recognized is one year or less. Sales commissions are recorded within selling, general, and administrative expenses in the consolidated statements of operations.

12


 

Cost of Revenues

The Company’s costs of revenues primarily consist of production materials, personnel costs (e.g., salaries, bonuses, benefit, and stock-based compensation), cost of expensed equipment, consumables and laboratory supplies, information technology (“IT”) and facility costs, and depreciation and service maintenance contracts on capitalized equipment.

Net Loss per Share Attributable to Common Stockholders

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, the redeemable convertible preferred stock, convertible preferred stock warrants, common stock warrants, common stock subject to repurchase, and stock options are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the redeemable convertible preferred stock is considered a participating security. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. As such, the net loss is attributed entirely to common stockholders. Because the Company has reported a net loss for the reporting periods presented, the diluted net loss per common share is the same as basic net loss per common share for those periods.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). Subsequently, the FASB also issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which adjusted the effective date of ASU No. 2014-09; ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amends the principal-versus-agent implementation guidance and illustrations in ASU No. 2014-09; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies identifying performance obligation and licensing implementation guidance and illustrations in ASU No. 2014-09; and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which addresses implementation issues and is intended to reduce the cost and complexity of applying the new revenue standard in ASU No. 2014-09 (collectively, the “Revenue ASUs”).

The Revenue ASUs provide an accounting standard for a single comprehensive model for use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The accounting standard is effective for interim and annual periods beginning after December 15, 2017. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (the full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company performed a detailed review of its revenue agreements and assessed the differences in accounting for such contracts under this guidance compared with previous revenue accounting standards. On January 1, 2017, the Company early adopted ASU No. 2014-09 using the full retrospective method. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. Results for all periods presented are under ASC Topic 606.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU No. 2018-07”). ASU No. 2018-07 simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. For all entities, the amendments are effective for annual periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Early adoption is permitted for any entity in any interim or annual period for which consolidated financial statements have not been issued or made available for issuance, but not before an entity adopts ASC Topic 606. The Company early adopted this guidance on January 1, 2017, which did not result in a material impact on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which provides clarification to ASU 2016-02. These ASUs (collectively, the “new lease standard”) require an entity to recognize a lease liability and a right-of-use (“ROU”) asset on the balance sheet for leases with lease terms of more than twelve months. Lessor accounting is largely unchanged, while lessees will no longer be provided with a source of off-balance sheet financing. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842)—Targeted Improvements, which allows entities to elect a modified retrospective transition method where entities may continue to apply the existing lease guidance during the comparative periods and apply the new lease requirements through a cumulative effect adjustment in the period of adoptions rather than in the earliest period presented.

13


 

On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), and its associated amendments using the modified retrospective transition method by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. There was no cumulative-effect adjustment recorded to retained earnings upon adoption. Under the standard, a lessee is required to recognize a lease liability and ROU asset for all leases. The new guidance also modified the classification criteria and requires additional disclosures to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. Consistent with current guidance, a lessee’s recognition, measurement, and presentation of expenses and cash flows arising from a lease continues to depend primarily on its classification. The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward its historical lease classification, its assessment on whether a contract was or contains a lease, and its initial direct costs for any leases that existed prior to January 1, 2019. In addition, the Company elected the short-term lease exception as a practical expedient.

At the date of adoption, the Company derecognized a deferred rent liability in the amount of $0.3 million, and recognized a ROU asset and respective lease liability in the amount of $1.7 million and $2.0 million, respectively. As of June 30, 2019, lease liabilities in the amount of $1.0 million and $0.5 million are included in “Accrued and other current liabilities” and “Other long-term liabilities,” respectively.

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. The guidance is effective for the Company beginning in the first quarter of 2020. Early adoption beginning January 1, 2019 is permitted. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements and related disclosures.

JOBS Act Accounting Election

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has irrevocably elected not to avail itself of this exemption from new or revised accounting standards, and therefore, the Company will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Note 3. Revenues

The following table presents the Company’s revenues disaggregated by customer type (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

VA MVP

 

$

8,536

 

 

$

3,976

 

 

$

16,879

 

 

$

5,952

 

All other customers

 

 

7,289

 

 

 

4,823

 

 

 

13,021

 

 

 

7,011

 

Total

 

$

15,825

 

 

$

8,799

 

 

$

29,900

 

 

$

12,963

 

 

Countries outside of the United States, based on the billing addresses of customers, represented less than 1% and 4% of the Company’s revenues for the three months ended June 30, 2019 and 2018, respectively, and less than 2% and 4% for the six months ended June 30, 2019 and 2018, respectively.

Contract Assets and Liabilities

The Company had no contract assets as of June 30, 2019 and December 31, 2018, respectively.

The Company’s contract liabilities consist of customer deposits in excess of revenues recognized and are presented as current liabilities in the condensed consolidated balance sheets.

The balance of contract liabilities was $41.9 million and $42.9 million as of June 30, 2019 and December 31, 2018, respectively. Contract liabilities of $8.4 million and $0.5 million were recognized in revenues during the three months ended June 30, 2019 and 2018, respectively. Contract liabilities of $16.1 million and $2.0 million were recognized in revenues during the six months ended June 30, 2019 and 2018, respectively.

14


 

As of December 31, 2018, the remaining performance obligations under contracts for which revenues are expected to be recognized over a period of more than one year is $73.0 million. Management expects to recognize such revenues over a three-year period.

As of June 30, 2019, the remaining performance obligations under contracts for which revenues are expected to be recognized over a period of more than one year is $57.4 million. Management expects to recognize such revenues over a two-year period.

The Company does not disclose remaining performance obligations under its other contracts since contract terms are less than one year and are recognized over a term of less than 12 months.

Note 4. Balance Sheet Details

Inventory and other deferred costs consist of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Raw materials

 

$

1,625

 

 

$

2,134

 

Other deferred costs

 

 

1,913

 

 

 

1,298

 

Total inventory and other deferred costs

 

$

3,538

 

 

$

3,432

 

 

Property and equipment. Depreciation and amortization expense for the three months ended June 30, 2019 and 2018 was $1.1 million and $0.7 million, respectively, and for the six months ended June 30, 2019 and 2018 was $2.2 million and $1.2 million, respectively.

Accrued and other current liabilities consist of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Accrued compensation

 

$

2,457

 

 

$

2,843

 

Operating lease right-of-use liabilities

 

 

1,030

 

 

 

 

Accrued taxes

 

 

354

 

 

 

181

 

Accrued interest

 

 

280

 

 

 

207

 

Deferred rent

 

 

 

 

 

99

 

Accrued liabilities

 

 

547

 

 

 

59

 

Deferred revenues

 

 

8

 

 

 

3

 

Total accrued and other current liabilities

 

$

4,676

 

 

$

3,392

 

 

Note 5. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The authoritative guidance establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity.

The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1 — Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets and liabilities.

Level 2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

 

Quoted prices for similar assets and liabilities in active markets

 

Quoted prices for identical or similar assets or liabilities in markets that are not active

15


 

 

Observable inputs other than quoted prices that are used in the valuation of the asset or liabilities (e.g., interest rate and yield curve quotes at commonly quoted intervals)

 

Inputs that are derived principally from or corroborated by observable market data by correlation or other means

Level 3 — Unobservable inputs for the assets or liabilities (i.e., supported by little or no market activity). Level 3 inputs include management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The following table represents the fair value hierarchy for the Company’s financial assets and financial liabilities measured at fair value on a recurring basis (in thousands):

 

 

 

As of June 30, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

160,352

 

 

$

 

 

$

 

 

$

160,352

 

Total assets measured at fair value

 

$

160,352

 

 

$

 

 

$

 

 

$

160,352

 

 

 

 

As of December 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

18,142

 

 

$

 

 

$

 

 

$

18,142

 

Total assets measured at fair value

 

$

18,142

 

 

$

 

 

$

 

 

$

18,142

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred stock warrants liability

 

$

 

 

$

 

 

$

683

 

 

$

683

 

Total liabilities measured at fair value

 

$

 

 

$

 

 

$

683

 

 

$

683

 

 

The Black-Scholes option-pricing model was used to estimate the fair value of the convertible preferred stock warrants at the date of issuance and at each subsequent consolidated balance sheet date. The fair value of the convertible preferred stock warrants was also estimated at the time of conversion to common stock warrants (see Note 10). Under this option-pricing model, convertible preferred stock warrants were valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the redeemable convertible preferred stock and common stock are inferred by analyzing these options.

The fair value of each convertible preferred stock warrant was estimated using the Black-Scholes option-pricing model with the assumptions described below. For the periods indicated the Company has limited historical volatility information available, and the expected volatility was based on actual volatility for comparable public companies projected over the expected terms of the warrants. The Company did not apply a forfeiture rate to the warrants as there is not enough historical information available to estimate such a rate. The risk-free interest rate was based on the U.S. Treasury yield curve over the expected term of the warrants.