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OVERVIEW
We are a fully integrated commercial company that provides molecular diagnostics, bioinformatics and pathology services for evaluation of risk of cancer by leveraging the latest technology in personalized medicine for improved patient diagnosis and management. We develop and commercialize genomic tests and related first line assays principally focused on early detection of patients with indeterminate biopsies and at high risk of cancer using the latest technology.
Impact of Our Reliance on CMS and Novitas
Along with many laboratories, we will be negatively impacted by LCD DL39365, which was finalized on April 24, 2025 by our local Medicare Administrative Contractor, Novitas. This LCD, which governs “Genetic Testing for Oncology,” resulted in the loss of existing Medicare coverage for one of our molecular tests, PancraGEN®. On January 9, 2025, we announced that the new LCD established non-coverage for the Company’s PancraGEN® test, and that we would stop offering the test and would not accept specimens for first-line fluid chemistry and PancraGEN® testing after February 7, 2025. As a result of the established non-coverage for PancraGEN®, we announced that our board of directors had approved a Restructuring Plan to reduce operating costs and better align our workforce with the loss of PancraGEN®.
Restructuring
On January 14, 2025, our board of directors approved a Restructuring Plan and cost-savings to reduce and better align our workforce with the anticipated loss of PancraGEN® coverage by CMS. Under the Restructuring Plan, we would reduce our workforce and impacted employees would be eligible to receive severance benefits. We expect to incur severance costs in the range of $0.5 million to $0.6 million to be recorded primarily in the second quarter of 2025 which is in addition to the $0.2 million recorded in the first quarter of 2025.
Clinical Services
Our clinical services business commercializes clinically useful molecular diagnostic tests and molecular pathology services. We commercialize genomic tests and related first-line assays principally focused on risk-stratification of cancer using the latest technology to help personalize medicine and improve patient diagnosis and management. Our tests and services provide mutational analysis of genomic material contained in suspicious cysts, nodules, and lesions with the goal of better informing surgery or surveillance treatment decisions in patients suspected of thyroid, pancreatic, and other cancers.
Revenue Recognition
Clinical services derive revenues from the performance of proprietary assays or tests. Our performance obligation is fulfilled upon completion, review and release of test results to the customer, at which time we bill third-party payers or direct-bill payers for the tests performed. Revenue is recognized based upon the estimated transaction price or NRV, which is determined based on historical collection rates by each payer category for each proprietary test offered.
Cost of Revenue
Cost of revenue consists primarily of the costs associated with operating our laboratory and other costs directly related to our tests. Personnel costs, which constitute the largest portion of cost of services, include all labor-related costs, such as salaries, bonuses, fringe benefits and payroll taxes for laboratory personnel. Other direct costs include, but are not limited to, laboratory supplies, certain consulting expenses, royalty expenses, and facility expenses.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
Consolidated Results of Continuing Operations for the Quarter Ended March 31, 2025 Compared to the Quarter Ended March 31, 2024 (in thousands)
| Metric | Q1 2025 | % to Revenue | Q1 2024 | % to Revenue |
|---|---|---|---|---|
| Revenue, net | $11,515 | 100.0% | $10,178 | 100.0% |
| Cost of revenue | $4,145 | 36.0% | $3,867 | 38.0% |
| Gross profit | $7,370 | 64.0% | $6,311 | 62.0% |
| Sales and marketing | $2,814 | 24.4% | $2,821 | 27.7% |
| Research and development | $177 | 1.5% | $137 | 1.3% |
| General and administrative | $2,550 | 22.1% | $2,239 | 22.0% |
| Total operating expenses | $5,541 | 48.1% | $5,197 | 51.1% |
| Operating income | $1,829 | 15.9% | $1,114 | 10.9% |
| Interest accretion expense | $0 | 0.0% | $(19) | -0.2% |
| Note payable interest | $(78) | -0.7% | $(197) | -1.9% |
| Other income (expense), net | $21 | 0.2% | $(82) | -0.8% |
| Income from continuing operations before tax | $1,772 | 15.4% | $816 | 8.0% |
| Provision for income taxes | $18 | 0.2% | $4 | 0.0% |
| Income from continuing operations | $1,754 | 15.2% | $812 | 8.0% |
| Loss from discontinued operations, net of tax | $(107) | -0.9% | $(104) | -1.0% |
| Net income | $1,647 | 14.3% | $708 | 7.0% |
Revenue, net Revenue, net for the three months ended March 31, 2025 increased by $1.3 million, or 13%, to $11.5 million, compared to $10.2 million for the three months ended March 31, 2024. The increase was driven by increased test volumes as compared to the prior year.
Cost of revenue Cost of revenue for the three months ended March 31, 2025 was $4.1 million, as compared to $3.9 million for the three months ended March 31, 2024. The increase was primarily due to an increase in lab supplies related to test volume increases. As a percentage of revenue, cost of revenue was approximately 36% for the three months ended March 31, 2025 and 38% for the three months ended March 31, 2024.
Gross profit Gross profit was approximately $7.4 million for the three months ended March 31, 2025 and $6.3 million for the three months ended March 31, 2024. The gross profit percentage was approximately 64% for the three months ended March 31, 2025 and 62% for the three months ended March 31, 2024.
Sales and marketing expense Sales and marketing expense was approximately $2.8 million for both the three months ended March 31, 2025 and March 31, 2024.
Research and development Research and development expense was approximately $0.2 million for the three months ended March 31, 2025 and $0.1 million for the three months ended March 31, 2024.
General and administrative General and administrative expense was approximately $2.6 million for the three months ended March 31, 2025 and $2.2 million for the three months ended March 31, 2024. The increase can be primarily attributed to an increase in employee costs in the first quarter of 2025.
Operating income Operating income from continuing operations was $1.8 million for the three months ended March 31, 2025 and $1.1 million for the three months ended March 31, 2024. The increase in operating income for the three months ended March 31, 2025 can be primarily attributed to the increase in revenue and gross profit discussed above.
Note payable interest expense Note payable interest expense was $0.1 million for the three months ended March 31, 2025 and $0.2 million for the three months ended March 31, 2024. The interest expense was from the Term Loan.
Provision for income taxes Income tax expense was approximately $18,000 for the three months ended March 31, 2025 and $4,000 for the three months ended March 31, 2024.
Loss from discontinued operations, net of tax We had a loss from discontinued operations of approximately $0.1 million for both the three months ended March 31, 2025 and March 31, 2024.
Non-GAAP Financial Measures
In addition to the GAAP results, we have provided certain non-GAAP financial measures to help evaluate the results of our performance. One such measure is Adjusted EBITDA, which is defined as income or loss from continuing operations, plus depreciation and amortization, non-cash stock-based compensation, severance expense, interest and taxes, and other non-cash expenses including change in fair value of notes payable.
Reconciliation of Adjusted EBITDA (Unaudited) ($ in thousands)
| Metric | Q1 2025 | Q1 2024 |
|---|---|---|
| Income from continuing operations (GAAP Basis) | $1,754 | $812 |
| Depreciation and amortization | $95 | $52 |
| Stock-based compensation | $15 | $79 |
| Severance expense | $168 | $0 |
| Taxes expense | $18 | $4 |
| Interest accretion expense | $0 | $19 |
| Note payable interest | $78 | $197 |
| Interest income | $(7) | $(16) |
| Change in fair value of note payable | $(25) | $98 |
| Adjusted EBITDA | $2,096 | $1,245 |
LIQUIDITY AND CAPITAL RESOURCES
In October 2021, the Company entered into a Term Loan with BroadOak, providing for a term loan in the aggregate principal amount of $8,000,000. The Term Loan has been amended several times, most recently in January 2025 to extend the maturity date to December 31, 2025.
For the three months ended March 31, 2025, we had operating income from continuing operations of $1.8 million. As of March 31, 2025, we had cash and cash equivalents of $1.2 million, total current assets of $11.7 million and current liabilities of $8.7 million. As of May 2, 2025, we had approximately $1.6 million of cash and cash equivalents.
During the three months ended March 31, 2025, net cash provided by operating activities was $1.2 million. The main component of cash provided by operating activities was our net income of $1.6 million.
We generated positive cash flows from operations for the three months ending March 31, 2025. We intend to meet our ongoing capital needs by using our available cash as well as through targeted margin improvement; collection of accounts receivable; containment of costs; and the potential use of other financing options and other strategic alternatives.
However, the loss of reimbursement coverage for our PancraGEN® test will negatively impact our business. We announced the implementation of a Restructuring Plan in January 2025 to reduce operating costs and better align our workforce with the loss of PancraGEN®. We expect to incur restructuring and related costs in the range of $0.5 million to $0.6 million to be recorded primarily in the second quarter of 2025.
With the Company’s continued improvement in operating performance, as of the date of this filing, even with the loss of reimbursement coverage of PancraGEN®, the Company anticipates that current cash and cash equivalents and forecasted cash receipts will be sufficient to meet its anticipated cash requirements through the next twelve months from the date of the filing of this report.
