Q2 2025 23andMe Holding Co Earnings Call
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Speaker Change: Good day and thank you for standing by welcome to the 23 and me fiscal year 2025 second quarter earnings call. At this time all participants are in a listen only mode. Please.
Speaker Change: Please be advised that this call is being recorded I would now like to turn the conference over to your speaker for today, Katie Watson Vice President of Communications. Please go ahead.
Speaker Change: Thank you before we begin I encourage everyone to go to investors Dot twenty-three me dot com to find the press release, we issued earlier today reporting our financial results for the second quarter of fiscal 2025.
Speaker Change: A replay of today's webcast will also be available on our website.
Speaker Change: 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.
Speaker Change: Statements are based solely on information that is now available to us.
Speaker Change: We encourage you to review the section entitled forward looking statements in our press release, which applies to this call.
Speaker Change: 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.
Speaker Change: We also discuss certain non-GAAP measures important information on our use of these measures and reconciliations to U S. GAAP, maybe found in our earnings release.
Speaker Change: US on our call today are Andrew <unk>, our Chief Executive Officer, and co founder and Joe sell Savage, our chief financial and accounting Officer.
Speaker Change: I'd now like to turn the call over to Ann.
Thanks Katy.
Ann: Hello, everyone I would like to start today's call by addressing recent developments at the company and then we'll get into the second quarter.
Ann: In late October 23, and me reconstituted our board of directors with the appointment of three new independent directors. We are pleased that these accomplished and experienced executives who are committed to our mission could jump in immediately.
Ann: We have fulfilled our obligations as a public company and regained compliance with the NASDAQ listing standards by reconstituting, our board and executing a reverse stock split.
Ann: In addition, yesterday, we announced that twenty-three me is undertaking a business restructuring to streamline operations reduce costs and position the company for long term success.
Ann: Under this restructuring we are discontinuing further development of all therapeutic programs and reducing our workforce by approximately 40%.
Ann: Joe will discuss the financial impact of the restructuring in his prepared remarks.
Ann: We continue to believe in the promise shown by our clinical stage oncology assets in our preclinical immunology pipeline.
Ann: As we can immediately start the wind down process for the Therapeutics Division, we will be actively exploring a range of strategic alternatives for our therapeutics pipeline that will enable their continued development outside of <unk> 23 and me.
Ann: We intend to continue supporting the collection of data and monitoring of patients in our clinical trials, while the strategic alternative process and wind down our completed.
Ann: These are difficult, but necessary actions that we believe begin putting 23 and me on a more sustainable path and positioning the company for the future.
Ann: We appreciate the dedication and contributions of our team to our mission and are committed to supporting the impacted employees through this transition.
Ann: We also remain deeply grateful to the patients investigators and study staff for their participation in our clinical trials and will work to ensure development efforts can continue for the benefit of patients.
Speaker Change: Now I'll turn to the second quarter of our fiscal year 2025.
Speaker Change: We made considerable strides in our key objective of becoming a sustainable cash flow positive company, while remaining committed to our goal of helping millions of people live longer healthier lives.
Speaker Change: The team continues to leverage the full spectrum of 23 and me platform to deliver integrated preventive health services and genetic insights.
Speaker Change: We made our total health membership service a comprehensive longevity platform, combining advanced exome sequencing lab test and guidance from clinicians specifically trained in genetics available.
Speaker Change: Available to our entire customer base.
Speaker Change: We believe the future of preventive health is understanding your complete health picture, including Genetics lab testing family Health history, and other data to help drive a truly personalized health plan.
Speaker Change: 23, <unk> made significant progress in Q2, bringing the power of our research genetic insight and telehealth platform to serve critical consumer needs.
Speaker Change: As part of our focus on prevention and longevity, we launched a number of weight management initiatives in Q2.
Speaker Change: Studies estimate that BMI is 40% to 70% influenced by genetics and that elevated BMI is associated with up to nine fewer years lived in good health.
Speaker Change: A few highlights we launched and enroll thousands of participants in a new study to understand how genetics can impact G. L. P. One efficacy side effects and length of treatment.
Speaker Change: We launched a new genetic report an emotional eating use it like utilizing twenty-three Amy's polygenic risk score technology for 23 million plus premium subscribers.
Speaker Change: Emotional eating impact up to 60% of people with a high BMI and knowing this can inform weight management approaches.
Speaker Change: We also launched a GOP one weight loss telehealth membership on the Lemonade health platform that enables members to be prescribed and receive brand name our compounded semi glu tied medications.
Speaker Change: These medications can be life, changing and an important tool for prevention and longevity and offering our customers access to them in a convenient cost effective manner is consistent with our mission.
Speaker Change: We continue to improve and add to 'twenty three of these market leading ancestry composition and historical not just features with new regions for dramatic Europe, Scandinavia, and Japan, and new historical matches, our subscription only feature with historical figures from the medieval Swahili coast medieval.
All of ours and oxy the Iceman.
Speaker Change: We also launched the first AI assistant available to 20, <unk> plus premium customers Dana.
Speaker Change: Help find and understand ancestry and health reports.
Speaker Change: These developments continue to result in an increased growth and improved retention rates for the 20 <unk> subscription services in.
Speaker Change: In line with our focus on shifting to higher margin recurring revenue streams, we were able to more than double the percentage of revenue that is recurring with more than 21% of total revenue in Q2 versus only 9% in the prior year quarter.
Speaker Change: On the research front, we presented a new study using 23 and me research data that builds on previous research and indicates that drug targets supported by human genetics are two to three times more likely to succeed.
Speaker Change: With the scale of our data and using proprietary gene mapping algorithms, we not only find many novel insights, but can also increase the relative rate of success even further.
We also published one of the largest and most diverse genetic studies of sickle cell trait in collaboration with the National Institute of Health and John Hopkins University School of Medicine.
Speaker Change: Important research such as these and the caliber of research organizations. We are working with demonstrate the value of 23, new database to continue discovering new insights into disease that benefit the entire population.
Speaker Change: Turning to therapeutics.
Speaker Change: In Q2, we presented data on our 20, <unk> 610, and 23 and me 14, 73 clinical stage immuno oncology programs at the European Society for medical oncology annual meeting.
Speaker Change: The data show that 23, <unk> <unk> monotherapy demonstrated preliminary evidence of clinical benefit in clear cell renal cell carcinoma with one confirmed partial patient response.
Speaker Change: Further the data show higher tumor expression of <unk> 200, and human genetics correlated with increased clinical benefit, indicating C. D 200 could be a promising biomarker.
Speaker Change: We also saw 23 and me $14 73 inhibits tumor growth in a patient derived mouse model of non small cell lung cancer.
Speaker Change: While we are winding down this part of our business. We will continue to leverage twenty-three <unk> unmatched genetic community with over 15 million customers to pursue collaborations with pharmaceutical and biotech companies as part of our mission to help people benefit from the human genome.
Speaker Change: These collaborations run across several areas, including drug target discovery and validation clinical trial recruitment efforts and disease awareness among others.
Speaker Change: 23, <unk> therapeutics was established to improve People's health by harnessing the power of human Germline genetic data at scale.
Speaker Change: Over the last nine years, we have taken a major step forward leveraging the twenty-three mean database to identify a large number of potential therapeutic targets and to develop unique and valuable insights.
Speaker Change: We have engaged in a highly productive six year collaboration with a major pharmaceutical collaborator GSK and have advanced to in house immuno oncology assets into the clinic with positive results. We are proud of the work we've done and we look forward to advancing it further with collaborative efforts.
Speaker Change: And with that I will turn it over to Joe to walk through the numbers.
Joe Savage: Thank you ran during the quarter, we continued to make strides towards our goal of operating a cash flow positive consumer business, improving our GAAP net loss of 21% and adjusted EBITDA by 26% for the same period in the prior year.
Joe Savage: Revenue for the quarter was $44 million a decrease of approximately 12% over the same period in the prior year.
Joe Savage: This is due to lower consumer services revenue driven mainly by lower PGS kit sales volume and Tele op orders as well as lower research services revenue as the GSK collaboration exclusive discovery term concluded in July 2023.
Joe Savage: These decreases were partially mitigated by growth in membership services revenue driven by increased upgrades from other tiers of PGS tests and sustained growth in our customer renewal rates.
Joe Savage: Revenue from consumer services, which includes PGS telehealth and membership services represented approximately 99% of total revenue for fiscal year 'twenty five to two.
Joe Savage: Research services revenue accounted for approximately 1% of total revenue for fiscal year 'twenty five Q2.
Joe Savage: As a reminder, we expect to begin recognizing revenue in the second half of the fiscal year 125 from the GSK data license announced last October.
Joe Savage: Our gross profit for the quarter was $22 million.
Joe Savage: Representing a 3% increase over the same periods in the prior year.
Joe Savage: The increase was driven primarily by growth in our high margin and membership services, which more than offset the lower consumer and research services revenue mentioned previously.
Joe Savage: Operating expenses for fiscal 'twenty, five Q2 were $84 million compared to $101 million for the same period in the prior year.
Joe Savage: The decrease in operating expenses for the quarter was driven by lower personnel related expenses.
Joe Savage: Excluding noncash stock based compensation expenses.
Joe Savage: Following the workforce reductions in the current and prior quarters.
Joe Savage: And the disposition of Lemonade help limited in the UK in August 2023.
Joe Savage: The improvement also reflects lower therapeutics related R&D spend as we offer core royalty on several GSK partnered programs, resulting in a significant reduction of GSK collaboration expenses compared to the prior year quarter, while retaining upside in those programs.
Joe Savage: Looking at the bottom line net loss for the quarter was $59 million compared to a net loss of $75 million for the same period in the prior year.
Joe Savage: The improvement in second quarter net loss was driven mainly by savings in operating expenses as just discussed.
Joe Savage: Next our adjusted EBITDA or.
Joe Savage: More details on how we define adjusted EBITDA as well as the corresponding reconciliations to GAAP. Please see our earnings press release.
Joe Savage: Total adjusted EBITDA deficit for the second quarter was a loss of $33 million compared to a loss of $45 million for the same period in the prior year.
Joe Savage: The improvement in adjusted EBITDA was primarily due to lower R&D and personnel related expenses.
Joe Savage: And improvements in our consumer services gross profit, partially offset by lower research services gross profit.
Joe Savage: We ended the quarter with cash and cash equivalents of $127 million compared to $216 million as of March 31 2024.
Joe Savage: Our financial statements for this quarter include a going concern disclosure.
Joe Savage: The company will need additional liquidity to fund its necessary expenditures and financial commitments for the 12 months. After the date, our 10-Q was filed resulting in the going concern disclosure.
Joe Savage: To improve our financial condition and liquidity position.
Joe Savage: The company is working to execute its business plan managing ongoing operational expenses.
Joe Savage: Implementing cost cutting measures as well as considering raising additional capital.
The business restructuring, we announced yesterday is expected to substantially reduce our operating expenses.
Joe Savage: We expect annualized cost savings of at least $35 million per year.
Joe Savage: And we expect to incur approximately $12 million in cost and expenses, primarily related to one time severance transition and termination related cost.
Joe Savage: We believe these efforts will help improve our financial condition and liquidity position to extend our cash runway.
Joe Savage: Before I conclude I also want to mention that we recently regained NASDAQ listing compliance with the minimum closing bid price and a majority independent board and various board committee requirements.
Joe Savage: Looking ahead, we are focused on getting 23 and me on a more sustainable path.
Joe Savage: Towards positioning the company for the future.
Speaker Change: We will now turn the call to Q&A.
Joe Savage: Thank you Joe.
Speaker Change: We have a few questions from investors and shareholders that came in through our Q&A platform that we use through say technology.
Speaker Change: The first question is for and what is the plan for recovery.
Speaker Change: Thanks Katie.
Speaker Change: Good question.
Speaker Change: So a number of different areas I want to chat about so first what Joe referenced regaining compliance was a top priority for us. So we did that with the new board the share price.
Speaker Change: Reverse stock split so regaining compliance was a high priority for us.
On a becoming a becoming more sustainable has been a top priority and that was really achieved with now de prioritizing therapeutics and committing to we are going to either shut down or out license those assets as.
Speaker Change: As well as cutting expenses, so dramatically, reducing all of our costs.
Speaker Change: Third was as I mentioned was.
Speaker Change: You know out licensing our therapeutics programs and focusing there.
Speaker Change: And fourth is now on growing our business in the areas that we're focused on growing the business or really on subscriptions and continuing to really encourage our customers to take advantage of all the value that we are putting into the subscription products like the additional health reports. The additional fund features like historical matches getting more and more customers recognizing the value.
Speaker Change: That are in the subscription product as well as now really focusing on the database opportunities and we see an increasing intra.
Speaker Change: Interest from the Therapeutics worlds on using genetics in discovery and in clinical trials and we are focused on making sure that we are front and center there and are the leading opportunity for the.
Speaker Change: The pharmaceutical industry and clinical trials that they are leveraging 23 and me in those opportunities.
Speaker Change: Great. Thanks, and the second question.
Speaker Change: Is for you Joe why was the 120 reverse stock split necessary.
Joe Savage: Thank you Katie.
Joe Savage: Completed the reverse stock split transaction in October of this year to regain compliance with the NASDAQ listing requirement that 'twenty three I mean, you have a bid price of at least $1 per share.
Joe Savage: No its the reverse stock split.
Joe Savage: It was approved by our stockholders at our most recent annual meeting of stockholders and the good news is we have subsequently received notification from NASDAQ after the reverse stock split that we are now in compliance with this listing requirement.
Joe Savage: Great. Thank you Joe.
Speaker Change: The third question due to the nature of the industry in your current business model, what steps are being taken to make it profitable I'll hand that to you Joe.
Joe Savage: Thank you Katie.
Joe Savage: We are continuing to prioritize our subscription products with recurring revenue to reflect the ongoing value that we provide our customers.
Joe Savage: Growing our research partnerships and collaborations.
Joe Savage: Also continuing to look at reducing our cost base and as we announced a restructuring yesterday of head count and pausing on our therapeutic assets.
Joe Savage: Having clinical trials all of which will result in significant annual cost savings.
Speaker Change: Great and the last question I'll direct to and what goals are you looking to complete in 2025.
Speaker Change: Well after getting through today and some of the restructuring plans that we have announced with therapeutics as well as with cutting costs.
Speaker Change: Three areas that we're really focused on is as I mentioned growing subscriptions and really continuing to provide value for our customers and the subscription product and more and more in enabling customers to recognize the value that's there and encouraging them to be part of the subscription.
Speaker Change: Second is the database business and as I said, there's increasing evidence showing that genetic utilization in the clinical trial in the drug discovery process is going to increase outcomes or increase the likelihood of success. So focusing on developing those products. So that we can serve the industry and last as outlined.
Speaker Change: And thing our therapeutic program. So that they can continue to be developed and eventually really the great products that could benefit customers.
Speaker Change: Great. Thank you that completes the tough questions, we'll be answering I'm going to hand, it back to the operator now.
Speaker Change: Thank you all for joining today's conference you may all disconnect.
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