23andMe Holding Co. (ME) disclosed a strategic review to enhance shareholder value and a potential acquisition offer from CEO Anne Wojcicki during its Fiscal Year 2024 Fourth Quarter and Full-Year Financial Results Conference Call. The company reported a revenue downturn due to the end of a key collaboration and lower consumer services sales but remains optimistic about its growth initiatives, including membership programs and telehealth services. Despite the revenue challenges, 23andMe is focused on leveraging its genetic database and AI technology for therapeutic discoveries and personalized health solutions.
Key Takeaways
- 23andMe's revenue decreased in both the quarter and full year, primarily due to the conclusion of their GSK (LON:GSK) collaboration and a drop in consumer services revenue.
- A special committee is evaluating strategic alternatives, including a proposal from CEO Anne Wojcicki to acquire outstanding shares.
- The company is prioritizing growth in membership services, telehealth, and research, with new genetic reports and a focus on Lemonaid Telehealth.
- Investments are being made in AI for personalized health recommendations and target discovery.
- No financial guidance was provided due to the strategic review, but the company ended the year with $216 million in cash and equivalents.
Company Outlook
- 23andMe plans to drive margin expansion through membership revenue growth.
- The rollout of the Total Health offering to existing customers is expected in the third quarter of the calendar year.
- Ongoing commitment to cost discipline and extending cash runway.
- Active pursuit of pharmaceutical partnerships to utilize data for therapeutic discoveries.
Bearish Highlights
- Decreased gross profit due to lower research services revenue.
- Increased operating expenses stemming from non-cash goodwill impairment charges, though partially offset by reduced personnel costs.
- The net loss widened primarily because of the goodwill impairment charge.
Bullish Highlights
- Subscription services continued to grow despite overall revenue decline.
- Completed enrollment in a Phase 2a study and advanced a second immuno-oncology asset into the clinic.
- Optimism about the potential of clinical assets and the consumer business.
Misses
- The company did not meet its revenue targets due to the end of the GSK collaboration and decreased consumer service sales.
- No financial guidance offered amid strategic review processes.
Q&A Highlights
- Anne Wojcicki emphasized the integration of Lemonaid to create a comprehensive wellness prevention service.
- Focus on leveraging the extensive genetic database for therapeutic and consumer applications, including LLM models.
- Plans to improve stock price organically and considerations for a reverse stock split if necessary to comply with NASDAQ regulations.
23andMe's fiscal year 2024 earnings call underscored the challenges faced due to declining revenues but also highlighted the strategic initiatives aimed at capitalizing on the company's genetic database and AI capabilities. As the company navigates through a period of strategic evaluation, it remains committed to innovating in the genomics space and improving the health outcomes of its customers.
InvestingPro Insights
23andMe Holding Co. (ME) is in a pivotal moment, as it looks to navigate through a period of strategic evaluation and capitalize on its rich genetic database and AI capabilities. The InvestingPro data and tips provide additional context for investors considering ME's current position and future prospects.
InvestingPro Data:
- Market Cap (Adjusted): $246.05M USD
- Revenue Growth (last twelve months as of Q3 2024): -19.4%
- 1 Year Price Total Return (as of 2024): -75.62%
InvestingPro Tips:
1. Analysts anticipate a sales decline in the current year, which aligns with the reported revenue downturn in the recent financial results.
2. The stock has taken a big hit over the last year, which is reflected in the 1 Year Price Total Return of -75.62%, underscoring the challenges the company faces in the market.
For investors looking for more detailed analysis and additional InvestingPro Tips for 23andMe, visit https://www.investing.com/pro/ME. There are more tips available that can provide further insights into the company's financial health, stock performance, and future outlook. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and gain access to exclusive data that can help in making more informed investment decisions.
Full transcript - VG Acquisition (ME) Q4 2024:
Operator: Hello, and welcome to 23andMe's Fiscal Year 2024 Fourth Quarter and Full-Year Financial Results Conference Call. As a reminder this call is being recorded. At this time, all participants are in a listen-only mode. After the prepared remarks there will be a question-and-answer session. I would now like to turn the call over to Ian Cooney, Senior Director of Investor Relations at 23andMe to lead off the call. Thank you. Please go ahead.
Ian Cooney: Thank you. Before we begin, I encourage everyone to go to investors.23andme.com to find the press release we issued earlier today reporting our financial results for the fourth and full year. A replay of today's webcast will also be available on our website. Please note that certain statements made during this call regarding matters that are not historical facts including, but not limited to, management's outlook or predictions for future periods are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the section entitled Forward-Looking Statements in our press release, which applies to this call. Also, please refer to our SEC filings, which can be found on our website and the SEC's website for a discussion of numerous factors that may impact our future performance. We also discuss certain non-GAAP measures. Important information on our use of these measures and reconciliation to U.S. GAAP may be found in our earnings release. Joining us on our call today are Anne Wojcicki, our Chief Executive Officer and Co-Founder; and Joe Selsavage, our Chief Financial and Accounting Officer; Jennifer Low, our Head of Therapeutics Development will join us for Q&A. I'd now like to turn the call over to Joe.
Joe Selsavage: Thank you, Ian. Hello, everyone. I'd like to start by addressing the topic that is likely top of mind for everyone on this call. On March 28, 2024, the Board of Directors of 23andMe formed a special committee comprised of independent directors to review strategic alternatives that may be available to 23andMe to maximize shareholder value. On April 19, 2024, the company announced it has been made aware that Anne Wojcicki, Chief Executive Officer, Co-Founder and Chair of the Board of Directors of 23andMe was considering making a proposal to acquire all of the outstanding shares of 23andMe that she does not currently own, as she stated in an amendment dated April 17, 2024, to our scheduled 13D filing with the Securities and Exchange Commission. Ms. Wojcicki also indicated in our Schedule 13D filing that she wishes to maintain control of 23andMe and therefore, will not be willing to support any alternative transaction. The special committee will carefully review Ms. Wojcicki's proposal when and if it is made available and evaluate it in light of other available strategic alternatives, including continuing to operate as a publicly traded company. The special committee is committed to acting in the best interest of 23andMe and its shareholders. There can be no assurances that the foregoing will result in any particular outcome and 23andMe does not intend to comment further on these matters until 23andMe determines that additional disclosure is appropriate or required by law. This call is focused solely on the company and its earnings release, and we will not be addressing or responding to any questions regarding the aforementioned matters on this call. I'd now like to turn the call over to Anne.
Anne Wojcicki: Thank you, Joe. Fiscal 2024 was a productive yet transitional year at 23andMe. The conclusion in July of the exclusive period of our discovery and development collaboration agreement with GSK, combined with a more constrained capital markets and fundraising environment, necessitated a significant change in the strategic direction of the company. We refocused our business on our highest value programs in therapeutic and prioritized higher-margin services and creating value for our membership programs in our consumer business. We also began to reimagine how to best leverage our data to create value for customers, partners and shareholders. The result is an operating model that will look different in the coming years, but is designed to reflect a company that remains committed to our vision of improving the health of millions of people worldwide. As a first priority, we are focusing on driving profitable growth in high-return uses of cash. This means prioritizing memberships in our PGS segment, driving growth in telehealth and leveraging our data assets to create a sustainably growing profitable research business. It also means that we are looking for ways to fund the continued development of our clinical assets while limiting the use of cash on our balance sheet. Starting with the PGS business. We are excited to announce that we have passed the 15 million customer milestone. This is a testament to the hard work of our employees into the power and value of genetic information. We continue to innovate in both our ancestry and health offerings to drive growth and add value to our platform, specifically in our membership services. We have a compelling pipeline of premium features planned for our ancestry platform and recently rolled out an exciting new feature called historical matches. Enabling Premium Plus members to learn about their genetic connections to hundreds of interesting figures from history. We also added a number of new regions to bring our industry-leading total to over 3,000. In Health, a major component of our vision is to build a scalable preventive health service. We think this is best achieved through driving membership growth on our platform as it enables us to help our customers improve their health and manage risk over time. The membership model also enables a scalable, sustainable business model that will allow us to create value for shareholders while reinvesting in innovation to continue to improve the value of our offerings for customers. We are focused on the delivery of ongoing health value and accountability to customers and our product development for our consumer products is largely centered in this area. We started with the recent rollout of personalized health features like Health Action Plan and Health Tracks and have begun integrating telehealth into our offering with the rollout of Total Health. In Q4, we announced the availability of 3 new genetic reports for 23andMe+ members on breast, colorectal and prostate cancer. The reports are based on statistical models known as polygenic risk scores developed by 23andMe through our proprietary research database. Our new cancer PRS reports identify individuals with a higher likelihood of developing 3 of the most common cancers, the majority of whom are invisible to the healthcare system today. Those individuals are then matched to the appropriate next steps through Health Action Plan. By empowering more people with this knowledge, we can help make cancer screening, prevention, early detection and treatment more effective. We continue to work to make the membership platform even more engaging and useful for customers in tracking and impacting their personalized health journeys and I am pleased to report that our retention rates in Q4 improved from the previous 3 quarters, while membership revenue grew by 41% year-over-year to $20 million. We are also prioritizing growth in our Lemonaid Telehealth business and have begun to make meaningful strides while investing in the pipeline of future value drivers. Over the past few quarters, the telehealth business has generated positive gross margins while decreasing advertising spend at the same time, leading to improvements in our bottom line, and we expect this trend to continue. In Q4, we launched over-the-counter options and quarterly plans, which are contributing to a meaningfully improved LTV. We also just announced the launch of one of the industry's leading fast-acting ED medications STENDRA and expect to further add to our offerings in the coming year. Overall, I'm very optimistic about the future of our consumer business. I believe we have only scratched the surface in delivering value and engaging with customers on their health journey. Moving to the research business. Fiscal 2024 was a year of transition and learning for research. We were very pleased to announce GSK extended our agreement on a nonexclusive basis in October, showing the ongoing value in drug discovery and development of engaging with the world's largest recontractable DNA data engine. I'm extremely encouraged by the potential for this business and by the interest shown by potential partners throughout the drug discovery and development ecosystem and believe research will be a strong source of growth, profitability and innovation as market conditions improve. On the innovation front, we are excited by recent advances in deep learning that will eventually enable us to train DNA language models to study the grammar of the genome. We expect these methods to rapidly grow our ability to predict disease and provide compelling personalized health recommendations for customers. Using our database in AI, we are building features with the goal of becoming the world's best genetic health risk prediction to help customers understand the impact of their lifestyle and disease prevention. 23andMe is actively developing AI models to enhance both its consumer and data partnership businesses. In the short term, the company is utilizing existing large language models to potentially expand for clinicians. In the future, 23andMe hopes to launch various AI models aimed at improving services for both customers and biotech partners. In the consumer space, this includes new predictive models for delivering personalized health recommendations more effectively. For biotech use cases, we are developing AI models that better predict the impact of genetic variation on cellular function. These initiatives utilize the company's unique database to accelerate target discovery and improve the probability of success in the drug discovery business. With recent breakthroughs in AI, we believe, we are well placed to enable customers to explore potential health outcomes, understand how their lifestyle choices impact disease prevention, and surface new therapeutic opportunities for our partners. Moving to the Therapeutics business. We made significant progress in fiscal 2024. We are pleased to announce, we've completed enrollment in the Phase 2a study for 23ME-610 and also recently announced we've moved our second immuno-oncology asset, 23ME-1473 into the clinic and begun dosing patients in Phase 1. For 610, we will be presenting safety, efficacy and biomarker data from 2 of our Phase 2 cohorts at ASCO on June 1 and June 3. We expect to present additional data from the 610 Phase 2a at additional upcoming medical meetings and data from the 1473 Phase 1 in calendar year 2025. As I look towards the future, I'm excited about the opportunities for 23andMe to grow and impact our customers. We are a leader in genetic and databased health, and we continue to innovate and lead. The interest in data and AI combined with our world-leading genetic and phenotypic data engine portend amazing opportunities for our research business. And in therapeutics, we are incredibly excited by the potential of our clinical assets and future value they may bring to patients and to the company. And with that, I will turn the call over to Joe to review our financial results for the quarter.
Joe Selsavage: Thank you, Anne. I'd like to reiterate Anne's excitement about the future of precision healthcare 23andMe, and I'm proud of our ability to execute, while maintaining cost discipline amid our shift toward a more sustainable operating profile. Revenue for the quarter ended the year was $64 million and $220 million, respectively, representing a 31% decrease and a 27% decrease, respectively, over the same periods in the prior year. Similar to the last few quarters, the year-over-year decrease in revenue was primarily due to the conclusion of the exclusive discovery term under our GSK collaboration in July, as well as lower consumer services revenue and our PGS kit and telehealth businesses. The decrease in consumer revenue was driven by our focus on marketing efficiency and membership sales, both of which have resulted in improved unit economics and customer lifetime value, but lower sales across the consumer offering. We expect that these decisions will continue providing benefits to our margins over the short and longer term. These decreases were partially offset by continued growth in our subscription services. Looking at the composition of our revenue. Consumer services revenue represented 99% and 92% of total revenue for the quarter and the year, respectively. And research services revenue, which was primarily derived from our other research partners accounted for approximately 1% and 8% of total revenue, respectively, for those same periods. As a reminder, the new GSK data license announced in Q3 is expected to have minimal impact on this year's results with the majority landing in fiscal year '25, given the terms of the agreement. Our gross profit for the fourth quarter and the year was $27 million and $99 million, respectively, representing a 32% decrease and 26% decrease, respectively, over the same periods in the prior year. The decreases were driven primarily by the decrease in research services revenue, while subscription revenue, higher ASPs on our PGS kit and improved telehealth margins following the August 23 disposition of Lemonaid Health Limited in the U.K. Turning to our expenses. Total operating expenses for the quarter and the year were $239 million and $781 million, respectively, compared to $109 million and $459 million for the same period in the prior year. The increase in operating expenses for the quarter and the year was primarily due to $153 million and $352 million in non-cash goodwill impairment charges taken in the quarter and the year, respectively, and was partially offset by lower personnel-related expenses following workforce reductions in the prior quarters and the disposition of the U.K. entity, along with lower therapeutics related R&D spend due to a significant reduction in the GSK collaboration programs. Looking at the bottom line. Net loss for the quarter and the year were $209 million and $667 million, respectively, compared to net losses for the same period in the prior year of $64 million and $312 million. The increase in fourth quarter and full year net loss was driven mainly by the goodwill impairment charge mentioned previously. I would also like to point out that the full year fiscal '24 results are preliminary. We are still completing our assessment of our impairment review of goodwill and long-lived assets and our impairment expense is undergoing further evaluation. This could result in an adjustment to the impairment recorded in our operating expenses and impact our net loss. However, it is important to point out that any adjustment would be a noncash item and reflected in our annual report on Form 10-K for the year ended March 31, 2024. Next, our adjusted EBITDA. For details on how we define adjusted EBITDA as well as the corresponding reconciliations to GAAP, please see our earnings release. Total adjusted EBITDA deficit for the fourth quarter was $33 million compared to a $39 million deficit for the same period in the prior year. Total adjusted EBITDA deficit for the year was $176 million compared to a $161 million deficit for the same period in the prior year. Despite the decline in revenue, we made meaningful progress in managing our expenses. And we ended the year with $216 million in cash and cash equivalents compared to $387 million as of March 31, 2023. We continue to be judicious with our cash usage and believe that the current level of cash supports 23andMe's plan for targeted investments and high ROI growth initiatives. We also announced on May 9 that the company received a notification letter from NASDAQ notifying the company that had to be granted an additional 180 days or until November 4, 2024, to regain compliance with the minimum bid requirement for continued listing on the NASDAQ Capital Market. Turning to guidance. In light of the previously mentioned special committee review of strategic alternatives, the company is not providing financial guidance at this time. Wrapping up, we are pleased with the company's strategic progress and are looking forward to an exciting year ahead. We remain focused on realizing our vision while maintaining operating discipline and a focus on high-return investments. I'm incredibly optimistic about the future of the company and our ability to help people access, understand and benefit from the human genome. With that, let's open up to questions.
Operator: [Operator Instructions] Our first question will come from the line of David Lebowitz with Citi.
David Lebowitz: Thank you very much for taking my question. Would you be able to help frame expectations for the Phase II update that's coming into ASCO?
Anne Wojcicki: Yes. Let me hand it over to Jennifer.
Jennifer Low: Yes. We're excited to be able to present the first efficacy, safety and biomarker data on 2 of our cohorts, the neuroendocrine and ovarian cohorts, which enrolled more quickly last year. That data is embargoed until the presentation of the abstracts just before the study starts. But -- just before the conference starts. But we have released the titles and the times, and we will present the posters on our investor website and the therapeutics website when they become available on the day of presentation.
David Lebowitz: Anne, thank you for that. And in terms of product mix at present and going forward, what do you see as the biggest drivers of margin expansion as the year proceeds.
Anne Wojcicki: Joe, do you want to take that?
Joe Selsavage: Sure. For us, it is a really focus on membership revenue. We've really seen improvements in our subscription revenue this year as we increase the price from $29 to $59, I know on our 23andMe+ memberships, we've continued to see great retention rates and people really -- and we're continuing to add value in that subscription as well. So that recurring revenue will help us in its high-margin dollars adds to our bottom line.
David Lebowitz: At what point do you think you'll have a fair degree of, I guess, visibility on the extent that the customer base is proceeding post the price increases.
Anne Wojcicki: Sorry, say again, can you explain a little more?
David Lebowitz: I'm just asking about at what point do you think you'll have a fair degree of visibility on retention of customers post price increases?
Joe Selsavage: Basically, we increased prices in mid-2024. So we're seeing people renew at basically coming up in -- basically from May forward. So I think we'll start to see these retention rates going forward in the next quarter and even beyond.
David Lebowitz: Got it. And I guess a final question here, and then I'll pass it on. How the rollout of Total Health going at this point?
Anne Wojcicki: The rollout on Total Health is when we haven't disclosed details on, but I think the thing to look for is really about when we launch this to existing customers, which we will launch sort of in that third quarter time frame -- just last quarter -- I should be clear about.
David Lebowitz: Excellent. Thank you.
Operator: Thank you. Our next question will come from the line of Steven Mah with TD (TSX:TD) Cowen.
Steven Mah: Great. Thanks for taking the questions. Maybe a follow-up question on Total Health. The launch of visiting customers, you said it's going to be in the third quarter -- you're talking about calendar year quarter, right?
Anne Wojcicki: Yes. Sorry, I was talking about calendar year.
Steven Mah: Yes. And then maybe can you outline what still needs to be done before you roll out to existing customers? I'm just kind of curious, I think before you had disclosed it was going to be rolled out to existing customers in spring?
Anne Wojcicki: Yes. It's really -- it's an engineering issue. It's just about building it out and enabling that upgrade path. So we've just had our hands full with other priorities. So it will be prioritized starting now through summer with that kind -- with the rollout to customers in the third quarter.
Steven Mah: Okay, thanks for that. And last one for me. I appreciate your comments around managing the cash burn. But how should we think about the cash burn going forward, especially when your funding on the high-value therapeutics business -- I mean, just how should we think about those two things, given the funding clinical trials is somewhat costly? Thank you.
Joe Selsavage: Sure. So as mentioned, we've continued to reduce expenses in our Consumer & Research segment through reductions in force and better cost management, which we announced last year. And we're committed to ME-610 to funding the Phase 2a portion of the study and for 1473 to the Phase 1 portion of the clinical trial. For us, it is really having cost discipline in the company and really making sure that we reduce our cash burn and extend our cash runway to the extent possible.
Steven Mah: Okay, thank you.
Operator: Thank you. Now I'll turn it over to Ian for any further questions.
Ian Cooney: Yes. Thank you, Liz. I'll read a few of the top shareholder questions from our, Say Technology's Q&A platform. I would just like to acknowledge that the top up voted question was, will the company be going private. And as Joe mentioned at the beginning of the call, we can't comment any further beyond what we've already said. So I just wanted to acknowledge that. But we don't have any further comments. The next question would be for Anne. Are there any plans to team up further with pharmaceutical companies to utilize the data you've collected to treat -- to create any products or use the data in any other ways to create value?
Anne Wojcicki: Absolutely. That is definitely a priority for the company to do partnerships with the therapeutics development industry to make sure that we're leveraging this data to help accelerate the development of therapeutical discoveries and development. So you should definitely see we will continue to engage in those conversations. We'll hope to have deals. We have been sort of understanding and analyzing what's that best use for us to do these types of partnerships. I just want to also highlight, it's definitely been an environment where the entire industry has been cutting costs, but we are quite happy with the interest that we've had, and we're optimistic about the ability for us to do deals.
Ian Cooney: Great. Another one for Anne. Kind of more of a general one. How -- what are the things that investors can look toward that are sort of the most exciting about the future of where the company is going?
Anne Wojcicki: Great question. So three areas, I think, that people should really be thinking about, one, this opportunity for us to be integrating Lemonaid and really develop that consumer-focused wellness prevention service that is founded on your genomics is really exciting. And this is an opportunity for people to learn about their genome, get blood, get access to advisers, health care professionals who are trained on genomics, to look at all the various data sources and understand what are the things they can do to be as healthy as possible. I think we've seen a real enthusiasm in the wellness space in general. And I think that we have this opportunity to create a really affordable, impactful service for customers. Total Health is a fabulous product. I encourage everybody to try it. If you have not. It really gives you access to the 23andMe premium plus the entire exome plus access to blood, care providers, it really, I think, shows you sort of the future of where health care can go. Second, obviously, we've talked about the database and the opportunities with the database. It's an exciting world right now also because it's the world of LLM and the opportunity for us to leverage all this data in LLM models. It's really the first time where we've seen these tools are able to manage the amount of data that we have. So we see a lot of opportunity there, both on the therapeutic side as well as on the consumer side. And last, obviously, most importantly, not most importantly, but one of our favorites is therapeutics, with our therapeutic programs. And it is a real privilege for us to be able to develop therapeutics. And be impacting lives the way we are. So I am excited to see the data that comes out at ASCO and look forward to more data that's going to come out after, but developing therapies from all of this data and really impacting human lives is incredibly exciting for us.
Ian Cooney: Thank you. Next one is for Joe. Now that you've received 180-day extension from NASDAQ, what are the plans to comply with the [share and acquire] (ph)?
Joe Selsavage: We're pretty focused on improving the stock price organically through continued execution and operating momentum. And we also mentioned that we would consider a reverse stock split under the right circumstances later in the year if we were able to get the stock price over $1 per share, noting that any reverse stocks would require Board and shareholder approval.
Ian Cooney: Great. Thank you. Last one. And what plans beyond or maybe you can just reiterate a little bit what plans are to leverage our data with artificial intelligence model?
Anne Wojcicki: Yes. I think it's a little bit of what I talked about before. I think that there is a really exciting opportunity for building out models and risk prediction. And by understanding -- by collecting all this data, understanding it all, looking at events, helping consumers understand what their risks are and predicting what that next highest risk event is for them is one really exciting opportunity as well as in therapeutics helping pick what is the right target, how is the right way to develop a drug. Knowing that you can convert all of this data into either a consumer application or a therapeutic's application and very exciting for us. And those are the types of partnerships that we are focused on.
Operator: Thanks for joining us. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
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