Invitae Q3 Earnings Recap
What gives?
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DISCLAIMER: I am not an Investment Advisor. The information provided in this article is not investment advice and should not be taken as one. Only use for educational purposes. Please do your own DUE DILIGENCE before making any investment decision.
If you are new here, welcome. If you are not, welcome back :). Invitae Q3 earnings were reported on the 8th of November, after market close. Stock is down 20%. So what do we have here?
My View on Q3 Earnings
Starting with the negatives, revenue of $114.4M missed guidance of $126.56M, while EPS of -$0.81 also missed estimates of -$0.70. This is still a growth company, so it is not surprising EPS isn’t turning up yet. Bears and bulls (to be honest) will say cash burn is still high. And they would be right.
However, a huge portion of their expenses is in R&D and the other acquisition costs. Operating expense for Q3 2021 was $219M, of which $97M was towards R&D. High R&D spend has been the case for a long time, as seen below.
With cash of $1.25B in hand, management has about 9 quarters of cash left, if cash burn this quarter of $148M remains the average cash burn (excluding potential acquisition costs). I provide my thoughts about the cash position in the conclusion.
Now that we have the “negatives” out of the way, let us look at the business metrics.
Exhibit A: Platform revenues are not slowing down. In fact, there is growth in all aspects of the business.
Exhibit B: I also documented their numbers so far this year and it all looks impressive.
As we see here, the business metrics are also trending in the right direction. The step-down in FY 2021 revenue guide only returned to initial guidance of $450M+ that was provided in Q1. Hence, the revenue miss seems to be a function of higher street expectations, in part caused by Invitae itself, during their Q2 call.
Looking Ahead
Could Invitae become cash flow positive in the next 4 quarters and avoid diluting shareholders? To be honest, I could not answer this question. However, during the call last night, management stated high margin product introductions are coming online in 2022. The data platform revenue is also starting to ramp and this should contribute significantly to the top and more importantly, bottom line.
Regarding the business itself and fundamentals, it is important to note that Invitae has reduced testing costs from approx $1150 in 2016 to $296 today, while driving up volume.
Management admitted they are not where they want to be regarding margins but I believe this is not a long term issue. At $296 per test, I think this is cheap for the quality and life saving information the test provides. Hence, Invitae has pricing power, given the power of its platform. By continuing to reduce testing costs, management is staying true to its mission of bringing “genetics to mainstream medicine to improve healthcare for billions.”
Conclusion
With stellar business numbers, I don’t think anyone doubts the potential of Invitae to succeed and become a giant in the genomics sector. The main issue remains the high cash burn, unending acquisitions and a seemingly lack of desire from management towards reducing costs.
Having said all these, I am still long. In fact, I bough the dip at $21 after a 20% drop. The mission is still on track and key business metrics are trending in the right direction. I will be looking forward to how management reacts to some of the concerns raised in this short piece.
Thanks for reading.
I am long $NVTA