Veracyte, Inc.: Form 10-Q for the period ended Jun 30, 2025

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2024, or our Annual Report.

As discussed in the section titled “Special Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth herein under the heading “Special Note Regarding Forward-Looking Statements” and in the section titled “Risk Factors” under Part II, Item 1A of this report and under Part I, Item 1A of our Annual Report. Historical results are not necessarily indicative of future results.

When used in this report, all references to "Veracyte," the "company," "we," "our" and "us" refer to Veracyte, Inc., together with its consolidated subsidiaries, unless otherwise noted.

"Veracyte", "Afirma", "Percepta", "Envisia", "Prosigna", "Lymphmark", "Decipher", "GRID", "C2i", "C2i Genomics" and the Veracyte logo are registered trademarks of Veracyte, Inc. and its subsidiaries in the United States and selected countries. nCounter is the registered trademark of NanoString Technologies, Inc., or NanoString, now owned by Bruker Corporation as part of Bruker Corporation’s asset acquisition of NanoString, in the United States and selected countries and used by Veracyte under license. Immunoscore is the registered trademark of Institut National de la Santé et de la Recherche Médicale, or Inserm, in the United States and selected countries and used by Veracyte under license.

Overview

We are a global diagnostics company that empowers clinicians with the high-value insights they need to guide and assure patients at pivotal moments in the race to diagnose and treat cancer. Our high-performing tests enable clinicians to make more confident diagnostic, prognostic and treatment decisions. Insights from these tests help patients avoid unnecessary procedures and interventions and accelerate time to appropriate treatment, thereby improving outcomes for patients in our global markets.

In the United States, we currently offer tests in prostate cancer (Decipher Prostate), thyroid cancer (Afirma), breast cancer (Prosigna), and bladder cancer (Decipher Bladder). In addition, our Percepta Nasal Swab test is being run in our Clinical Laboratory Improvement Amendments of 1988, or CLIA, certified labs in support of clinical studies.

We serve global markets with two complementary models. In the United States, we offer laboratory developed tests through our centralized CLIA certified laboratories in South San Francisco and San Diego, California, supported by our cytopathology expertise in Austin, Texas. Additionally, primarily outside of the United States, we provide in vitro diagnostics, or IVD, tests to patients through distribution to laboratories and hospitals that can perform the tests locally. Our international distribution of IVDs is currently limited to our Prosigna test, however, in the future, we intend to offer Decipher Prostate and Percepta Nasal Swab as IVD tests. We believe our broad menu of advanced diagnostic tests, combined with our ability to deliver them globally, differentiates us in the diagnostics industry.

We are aiming to expand our role across the cancer continuum with the addition of minimal residual disease, or MRD assays. This will broaden our portfolio of tests to help monitor the success of a therapeutic or surgical intervention, and support the determination of the best course of action for each patient.

Macroeconomic Factors

Recent macroeconomic factors, such as interest rate fluctuations and inflation in the United States and other markets, evolving international trade policies and government actions relating to tariffs, as well as volatility in the global banking and finance systems, have resulted in volatility in the capital and credit markets globally. Moreover, the continued fluctuation and reduced valuation of the U.S. dollar compared to other currencies has impacted and may continue to impact our results of operations. We intend to continue to monitor macroeconomic conditions closely and may determine to take certain financial or operational actions in response to such conditions as appropriate. In addition, regional conflicts like those between Russia and Ukraine and in Israel may adversely impact our business and operating results. Finally, the ongoing conflict in the Middle East and related political, military and security conditions in and around Israel may disrupt our Israel business operations and employees that we acquired through the Company’s acquisition of 100% of the outstanding equity interests of C2i, or the C2i Acquisition.

The extent of the impact of macroeconomic factors on our future liquidity and operational performance will depend on future developments and their impact on our customers' operations and our sales and renewal cycles. We may also be adversely affected by further changes in central bank policies and fluctuations in interest rates, rates of inflation, and changes in foreign currency exchange rates. See "Risk Factors" for further discussion.

Factors Affecting Our Performance

Reported Total Test Volume

Our performance currently depends on the number of tests that we perform and report as completed in our CLIA-certified laboratories and the number of tests purchased by our customers, which we refer to as our reported total test volume. Factors impacting our reported total test volume include, but are not limited to:

• the number of samples that we receive that meet the medical indication for each test performed;
• the quantity and quality of the sample received;
• receipt of the necessary documentation, such as physician order and patient consent, required to perform, bill and collect for our tests;
• the patient's ability to pay or provide necessary insurance coverage for the tests performed;
• the time it takes us or our customers to perform our tests and report the results, including as a result of supply chain challenges (including quality of single-source reagents);
• the seasonality inherent in our business, such as the impact of workdays per period, timing of industry conferences and timing of when patient deductibles are exceeded, which also impacts the reimbursement we receive from insurers;
• fluctuations in demand for our product test kits, including as a result of higher average selling prices and overall spending constraints across our industry; and
• our ability to obtain prior authorization or meet other requirements instituted by payers, benefit managers, or regulators necessary to be paid for our tests.

Continued Adoption of and Reimbursement for our Products

Revenue growth depends on our ability to secure coverage decisions, achieve broader reimbursement from third-party payers, obtain prior authorization, expand our base of prescribing physicians and increase our penetration in existing accounts. Because some payers consider our products experimental and investigational, we may not receive payment for tests and payments we receive may not be at acceptable levels. We expect our revenue growth to increase if more payers make a positive coverage decision and as payers enter into contracts with us, which should enhance our revenue and cash collections.

Our sales teams are aligned under our general manager-based structure to focus on specific products and global markets. If we are unable to expand the base of prescribing physicians and penetration within these accounts at an acceptable rate, or if we are not able to execute our strategy for increasing reimbursement and associated collections, we may not be able to effectively increase our revenue. We expect to continue to see pressure from payers to limit the utilization of tests, generally, and we believe more payers are deploying cost containment tactics, such as requiring prior authorization, reduction of the payer portion of reimbursement and employing laboratory benefit managers to reduce utilization rates. Revenue growth also depends on our ability to secure reimbursement from government payers at a reimbursement rate that is consistent with past reimbursement rates. Changes or implementation of government regulations or reimbursement policies, including under the Protecting Access to Medicare Act of 2014, or PAMA, could result in lower reimbursement rates for our tests. Any such reductions could negatively affect our revenues and margins.

Integrating Acquisitions

Revenue growth, operational results and advances to our test offering strategy depend on our ability to integrate any acquisitions into our existing business and effectively scale their operations. The integration of acquired assets and other strategic transactions that we may pursue may impact our revenue growth, increase the cost of operations or may require management resources that otherwise would be available for ongoing development of our existing business.

New Product Development

A significant aspect of our business is our investment in development activities, including activities related to the development of new tests and modifications and enhancements to our current tests, including the ongoing development of our IVD and MRD strategies. In addition to these development activities, we also perform clinical evidence studies which are critical to gaining clinician adoption of our tests, driving favorable coverage decisions by payers, as well as gaining guideline inclusion for such tests.

How We Recognize Revenue

We recognize revenue in accordance with the provisions of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers, or ASC 606. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied.

Testing Revenue

We generally bill for testing services at the time of test completion, upon delivery of a patient report to the prescribing physician. We recognize revenue based on estimates of the cash amount that will ultimately be collected. In determining the amount to accrue for a delivered test, we consider factors such as payment history, payer coverage, whether there is a reimbursement contract between the payer and us, payment as a percentage of agreed upon rate (if applicable), amount paid per test and any current developments or changes that could impact reimbursement. These estimates require significant judgment by management. Actual results could differ from those estimates and assumptions. Upon ultimate collection, the amount received is compared to previous estimates and the amount accrued is adjusted accordingly.

Generally, cash we receive is collected within 12 months of the date the test is billed. We cannot provide any assurance as to when, if ever, or to what extent, any of these amounts will be collected. Notwithstanding our efforts to obtain payment for these tests, payers may deny our claims, in whole or in part, and we may never receive payment for these tests. Our ability to increase our testing revenue will depend on our ability to penetrate the market, obtain positive coverage policies from additional third-party payers, obtain reimbursement and/or enter into contracts with additional third-party payers for our current and new tests, and increase reimbursement rates for tests performed. Finally, should the judgments underlying our estimated reimbursement change, our accrued revenue and financial results could be negatively impacted in future periods.

We bill list price regardless of contract rate, but only recognize revenue from amounts that we estimate are collectible and meet our revenue recognition criteria. Revenue may not be equal to the billed amount due to a number of factors that we consider when determining revenue accrual rates, including differences in reimbursement rates, the amounts of patient co-payments and co-insurance, the existence of secondary payers, claims denials and the amount we expect to ultimately collect. Finally, when we increase our list price, it will increase the cumulative amounts billed but not positively impact accrued revenue. In addition, payer contracts generally include the right of offset and payers may offset payments prior to resolving disputes over tests performed.

Generally, we determine accrual rates by calculating an average of reimbursement from all payers for tests performed over a four-quarter period as it reduces the effects of temporary volatility and seasonality. The periods selected to determine accrual rates typically are at least six months old because it takes a significant period of time to collect from some payers. We may also determine accrual rates based on other factors such as coverage decisions, contracts, or more recent reimbursement data as appropriate.

The average test reimbursement rates will change over time due to a number of factors, including medical coverage decisions by payers, the effects of contracts signed with payers, changes in allowed amounts by payers, our ability to successfully win appeals for payment, and our ability to collect cash payments from third-party payers and individual patients. Historical average reimbursement is not necessarily indicative of future average reimbursement.

We incur expense for tests in the period in which the test is conducted and recognize revenue for tests in the period in which our revenue recognition criteria are met.

Product Revenue

Our product revenue consists primarily of sales of the Prosigna breast cancer IVD and related diagnostic kits, and services. We recognize product revenue when control of the promised goods is transferred to our customers, in an amount that reflects the consideration expected to be received in exchange for those products. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer, either on its own or together with other resources that are readily available to the customer, and is separately identified in the contract. Performance obligations are considered satisfied once we have transferred control of a product to the customer, meaning the customer has the ability to use and obtain the benefit of the product. We recognize product revenue for satisfied performance obligations only when there are no uncertainties regarding payment terms or transfer of control. Shipping and handling costs incurred for product shipments are charged to our customers and included in product revenue. Revenue is presented net of the taxes that are collected from customers and remitted to governmental authorities.

Biopharmaceutical and Other Revenue

We enter into arrangements to license or provide access to our assets or services to third parties, including clinical and testing services, research and development, contract manufacturing and development, as well as other services. Such arrangements may require us to deliver various rights, data, services, manufactured diagnostic test kits, access and/or testing services to partner biopharmaceutical and other companies. The underlying terms of these arrangements generally provide for consideration paid to us in the form of nonrefundable fees; payments on delivery of data, test results or manufactured products; costs of service plus margin; performance milestone payments; expense reimbursements and possibly royalty and/or other payments. Net sales of data or other services to our customers are recognized in accordance with ASC 606 and are classified under biopharmaceutical and other revenue. Payments received that are not related to sales or services to a customer are recorded as offsets against research and development expense or cost of biopharmaceutical and other revenue in our consolidated statements of operations.

In arrangements involving more than one good or service delivered to a customer, each good or service is evaluated to determine whether it qualifies as a distinct performance obligation based on whether (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available and (ii) the good or service is separately identifiable from other promises in the contract. The consideration under the arrangement is then allocated to each separate distinct performance obligation based on its respective relative stand-alone selling price. The estimated selling price of each deliverable reflects our best estimate of what the selling price would be if the deliverable was regularly sold by us on a stand-alone basis or using an adjusted market assessment approach if the selling price on a stand-alone basis is not available.

The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred which may be at a point in time or over time. Consideration associated with at-risk substantive performance milestones is recognized as revenue when it is probable that a significant reversal of the cumulative revenue recognized will not occur. Should there be royalties, we utilize the sales and usage-based royalty exception in arrangements that resulted from the license of intellectual property, recognizing revenue generated from royalties or profit sharing as the underlying sales occur.

Timing of Our Research and Development Expenses

We deploy state-of-the-art and costly genomic technologies in our discovery and development experiments. Further, we conduct clinical studies to validate our new products, as well as on-going clinical studies to further the published evidence to support our commercialized tests. The timing of these research and development activities is difficult to predict, as is the timing of clinical trial enrollments and sample acquisitions. Therefore, spending on research and development may vary significantly by quarter depending on the timing of these various expenses.

Financial Overview

Revenue

Through June 30, 2025, we derived the majority of our revenue as testing revenue from the sale of Decipher Prostate and Afirma tests, delivered primarily to physicians in the United States. We generally invoice third-party payers upon delivery of a patient report to the prescribing physician. As such, we take the assignment of benefits and the risk of cash collection from the third-party payer and individual patients. Third-party payers and other customers in excess of 10% of total revenue and their related revenue as a percentage of total revenue were as follows for the periods presented:

Cost of Testing Revenue

The components of our cost of testing revenue are sample collection kit costs, reagent expenses, compensation expense, license fees and royalties, depreciation, other expenses such as equipment and laboratory supplies, and allocations of facility and information technology expenses. We expect cost of testing revenue in absolute dollars to increase as the number of tests we perform increases. However, we expect that the cost per test will decrease over time due to leveraging fixed costs, efficiencies we may gain as test volume increases and process enhancements such as automation, and other cost reductions. As we introduce new tests, initially our cost of testing revenue will be high as we expect to run suboptimal batch sizes, run quality control batches, test batches, registry samples, and generally incur costs that may suppress or reduce gross margins. This will disproportionately increase our aggregate cost of testing revenue until we achieve processing efficiencies.

Cost of Product Revenue

Our cost of product revenue consists primarily of costs of purchasing diagnostic kit components, labor, installation, service and packaging and delivery costs. In addition, cost of product revenue includes royalty costs for licensed technologies included in our products. As our Prosigna test kits are sold in various configurations with different numbers of tests, our product cost per test will continue to vary based on the specific kit configuration purchased by customers.

Cost of Biopharmaceutical and Other Revenue

Our cost of biopharmaceutical and other revenue are the costs of performing activities under arrangements that require us to perform research and development, contract testing services, commercialization, and contract manufacturing and development. This expense is mainly composed of compensation, manufacturing and laboratory supplies, and pass-through costs.

Intangible Asset Amortization - Cost of Revenue

Our finite-lived intangible assets, acquired in business combinations, are being amortized over 10 to 15 years, using the straight-line method. Intangible asset amortization - cost of revenue includes amortization of finite-lived intangible assets related to developed and product technology utilized in our current product and service offerings and customer backlog.

Research and Development

Research and development expenses include expenses incurred to collect clinical samples and conduct clinical studies to develop and support our products and pipeline, as well as develop future technology. These expenses consist of compensation expenses, direct research and development expenses such as laboratory supplies and costs associated with setting up and conducting clinical studies at domestic and international sites, professional fees, depreciation and amortization, other miscellaneous expenses and allocation of facility and information technology expenses. We expense all research and development costs in the periods in which they are incurred. We incurred a majority of our research and development expenses in the six months ended June 30, 2025 and the year ended December 31, 2024 in support of our early-stage products, including Percepta Nasal Swab, support for the development and validation of our MRD tests, and the development of new IVD products and discovery. Going forward, we expect to incur significant expense as we invest in the continued development of our innovation engine, early-stage products including our MRD tests, required clinical studies and the development of current IVD tests.

Selling and Marketing

Selling and marketing expenses consist of compensation expenses, direct marketing expenses, professional fees, other expenses such as travel and communications costs, as well as allocation of facility and information technology expenses. Our sales team of approximately 110 representatives is organized by business unit in the U.S., with separate teams calling on thyroid cancer and urologic cancer physicians. The business units have dedicated marketing support, as well as a marketing operations team that serves the commercial organization broadly. Prosigna sales outside of the U.S. are led by country managers and sales teams that call on laboratories and breast cancer oncologists.

General and Administrative

General and administrative expenses include compensation expenses for executive officers and administrative, billing and client service personnel, professional fees for legal and audit services, occupancy costs, depreciation and amortization, and other expenses such as information technology, acquisition related costs and miscellaneous expenses, offset by allocation of facility and information technology expenses to other functions. We expect general and administrative expenses to continue to increase as we build our infrastructure to scale revenue growth, and to decline as a percentage of revenue thereafter.

Intangible Asset Amortization - Operating Expenses

Our finite-lived intangible assets, acquired in business combinations, are being amortized over 5 to 15 years, using the straight-line method. Intangible asset amortization - operating expenses includes amortization of finite-lived intangible assets related to developed technology utilized in the development of future product and service offerings, trade names and customer relationships.

Other Income (Loss), Net

Other income (loss), net consists primarily of interest income from our cash held in interest bearing accounts, realized and unrealized gains and losses on foreign currency transactions, and French research tax credits.

Results of Operations

Comparison of the three and six months ended June 30, 2025 and 2024 (in thousands of dollars, except percentages and test volume):

Revenue

Revenue increased $15.7 million for the three months ended June 30, 2025 compared to the same period in 2024. This was primarily due to a $15.3 million increase in testing revenue and a $0.8 million increase in our biopharmaceutical and other revenue, partially offset by a $0.3 million decrease in our product revenue. The 14% growth in testing revenue was primarily driven by an 18% volume increase, partially offset by lower prior period collections compared to the prior year period.

Revenue increased $33.4 million for the six months ended June 30, 2025 compared to the same period in 2024. This was primarily due to a $32.3 million increase in testing revenue and a $1.3 million increase in our biopharmaceutical and other revenue, partially offset by a $0.3 million decrease in our product revenue. The 16% growth in testing revenue was primarily driven by a 20% volume increase, partially offset by lower prior period collections compared to the prior year period.

Product revenue decreased $0.3 million for the three and six months ended June 30, 2025 compared to the same periods in 2024.

Biopharmaceutical and other revenue increased by $0.8 million for the three months ended June 30, 2025 and increased by $1.3 million for the six months ended June 30, 2025, compared to the same periods in 2024, driven primarily by an increase of customer projects related to our U.S. CLIA test offering.

Cost of revenue

Comparison of the three and six months ended June 30, 2025 and 2024 is as follows (in thousands of dollars, except percentages):

Cost of testing revenue increased $4.5 million, or 16%, for the three months ended June 30, 2025 compared to the same period in 2024. The increase in cost of testing revenue was due to increased volume in testing, higher staffing to support testing performance and the build out of infrastructure related to current and future growth expectations, primarily related to Decipher Prostate and Afirma tests, partially offset by lab efficiencies.

Cost of testing revenue increased $6.8 million, or 13%, for the six months ended June 30, 2025 compared to the same period in 2024. The increase in cost of testing revenue was due to increased volume in testing, higher staffing to support testing performance and the build out of infrastructure related to current and future growth expectations, primarily related to Decipher Prostate and Afirma tests, partially offset by lab efficiencies.

Cost of product revenue decreased $0.1 million, or 7%, for the three months ended June 30, 2025 and decreased $1.3 million, or 30%, for the six months ended June 30, 2025 compared to the same periods in 2024, driven primarily by lower volume of kit sales.

Cost of biopharmaceutical and other revenue includes labor costs, laboratory supplies and pass-through expenses incurred. Cost of biopharmaceutical and other revenue for the three and six months ended June 30, 2025 decreased by $0.2 million and $0.4 million, respectively, compared to the same periods in 2024, driven by reductions of staffing and variable expenses related to projects.

Research and development

Comparison of the three and six months ended June 30, 2025 and 2024 is as follows (in thousands of dollars, except percentages):

Research and development expense decreased $0.2 million, or 1%, for the three months ended June 30, 2025 compared to the same period in 2024. The decrease was primarily due to the timing of direct research and product development expense related to our on-going development costs for our IVD and MRD strategies, as well as projects to enhance laboratory efficiencies that were offset by increased headcount expenses. In addition to these costs, there was an increase in our allocated costs from general and administrative expenses.

Research and development expense increased $1.6 million, or 5%, for the six months ended June 30, 2025 compared to the same period in 2024. The increase was primarily driven by annual compensation expense increases and partially offset by timing of spend related to direct research and product development expense related to our on-going development costs for our U.S. CLIA, IVD and MRD strategies. In addition to these costs, there was an increase in our allocated costs from general and administrative expenses.

Selling and marketing

Comparison of the three and six months ended June 30, 2025 and 2024 is as follows (in thousands of dollars, except percentages):

Selling and marketing expense increased $1.1 million, or 5%, for the three months ended June 30, 2025 compared to the same period in 2024. The increase in compensation expense was primarily related to annual merit increases. Direct marketing expense decreased primarily due to timing of trade shows and market research. Further, there was an increase in allocated costs from general and administrative expenses.

Selling and marketing expense increased $1.8 million, or 4%, for the six months ended June 30, 2025 compared to the same period in 2024. The increase was primarily due to annual merit increases, headcount additions and the impact of stock-based compensation related to employee exits in the prior year period, offset in part by the reduction of Envisia sales support.

Direct marketing expense decreased primarily due to the timing of trade show events. Further, there was an increase in allocated costs from general and administrative expenses.

General and administrative

Comparison of the three and six months ended June 30, 2025 and 2024 is as follows (in thousands of dollars, except percentages):

General and administrative expense increased by $0.6 million for the three months ended June 30, 2025, compared to the same period in 2024. The results were impacted primarily by an increase of $4.2 million in professional fees mainly related to the Veracyte SAS collective proceedings petition filing, as well as information technology expense increases related to our cloud infrastructure and software development investments. These increases were offset by reductions in the revaluation of contingent consideration related to the acquisitions of C2i and nCounter diagnostic rights, and compensation expense given the prior year expense related to the voluntary Veracyte SAS employee exits. General and administrative expenses related to occupancy costs and information technology costs are allocated to general and administrative expense, selling and marketing expense, research and development expense, and cost of revenue based on the number of employees by location.

General and administrative expense increased by $8.2 million for the six months ended June 30, 2025, compared to the same period in 2024. The results were impacted primarily by an increase of $7.9 million in professional fees mainly related to the Veracyte SAS collective proceedings petition filing, as well as information technology expense increases related to our cloud infrastructure and software development investments. Compensation expense increased primarily due to annual merit increases, additional headcount and higher stock-based compensation and was partially offset by the prior year expense related to the voluntary exits related to our Veracyte SAS employees. These increases were offset by reductions in the revaluation of contingent consideration related to the acquisitions of C2i and nCounter diagnostic rights. General and administrative expenses related to occupancy costs and information technology costs are allocated to general and administrative expense, selling and marketing expense, research and development expense, and cost of revenue based on the headcount and employee location.

Impairment of assets

On July 16, 2025, the Marseille Commercial Court published a decision approving the divestiture of certain portions of our French subsidiary, Veracyte SAS, to Helio Diagnostics SAS, effective August 1, 2025. The remaining assets will be managed by the judicial administrator until such time that the Marseille Commercial Court appoints a judicial liquidator to solely initiate and manage liquidation proceedings. Effective August 1, 2025, the Company no longer has the power to control the financial and operating policies of Veracyte SAS. We assessed the associated assets as of June 30, 2025 for impairment and determined that the value of the remaining assets of Veracyte SAS including accounts receivable; supplies and inventory; right-of-use assets; property, plant, and equipment; and other receivables were not recoverable. As a result, we recorded a $20.5 million non-cash impairment charge during the three months ended June 30, 2025.

Other income, net

Other income, net, increased $3.8 million for the three months ended June 30, 2025 compared to the same period in 2024, primarily due to increased gain of $3.5 million due to unrealized foreign currency gain(loss) and an increase of $0.2 million from interest income.

Other income, net, increased $5.5 million for the six months ended June 30, 2025 compared to the same period in 2024, primarily due to an increased gain of $5.6 million due to unrealized foreign currency gain(loss).

Income tax expense

We recorded income tax expense of $2.2 million and $1.6 million for the three months ended June 30, 2025 and 2024, respectively, and recorded income tax expense of $2.6 million and $1.6 million for the six months ended June 30, 2025 and 2024, respectively.

Given our current earnings, we believe that, within the next two years, sufficient positive evidence may become available to allow us to reach a conclusion that a portion of the valuation allowance recorded against the deferred tax assets held may be reversed. A reversal would result in an income tax benefit for the quarterly and annual period in which we determine to release the valuation allowance. However, the exact timing and amount of a valuation allowance release are subject to change on the basis of the level of profitability that we actually achieve.

On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act, or the OBBBA, which includes numerous changes to existing tax law including extending or making permanent certain business and international tax measures initially established under the 2017 Tax Cuts and Jobs Act, which were set to expire. The OBBBA permanently eliminates the requirement to capitalize and amortize U.S.-based research and experimental expenditures over five years, making these expenditures fully deductible in the period incurred. The OBBBA also permanently extends the full expensing of qualifying assets through accelerated bonus depreciation in the period acquired. The OBBBA has multiple effective dates, with certain provisions effective in 2025 and others to be implemented through 2027. We will continue to analyze the OBBBA and its impact on our financial statements and will reflect any impact in the period of enactment.

Liquidity and Capital Resources

As of June 30, 2025, we had cash and cash equivalents and short-term investments of $320.7 million. During the six months ended June 30, 2025, our cash and cash equivalents and short-term investments increased by $31.3 million. Historically, we have obtained financing primarily through sales of our equity securities. Beginning in 2023, our operations have been financed primarily by cash flows generated by our revenue. For the six months ended June 30, 2025, we had net income of $6.1 million, but we may not sustain profitability in the future. As of June 30, 2025, we had an accumulated deficit of $437.9 million.

We believe our existing cash and cash equivalents and short-term investments as of June 30, 2025, and cash flows generated by our revenue during the next 12 months will be sufficient to meet our anticipated cash requirements for at least the next 12 months from the filing date of this report. We expect that our near- and longer-term liquidity requirements will continue to consist of costs to run our laboratories, research and development expenses, selling and marketing expenses, general and administrative expenses, working capital, capital expenditures, lease obligations, potential milestones associated with the C2i Acquisition, and general corporate expenses associated with the growth of our business. However, we may also use cash to acquire or invest in complementary businesses, technologies, services or products that would change our cash requirements. If we are not able to generate cash flows from our revenue to finance our cash requirements, we will need to finance future cash needs primarily through public or private equity offerings, debt financings, borrowings or strategic collaborations or licensing arrangements. If we are not able to secure additional financing when needed, or on terms that are favorable to us, we may have to delay, reduce the scope of or eliminate one or more research and development programs or selling and marketing initiatives, or forgo potential acquisitions or investments. In addition, we may have to work with a partner on one or more of our products or development programs, which could lower the economic value of those programs to us. Moreover, any instability in the global credit markets or the banking system may impact our liquidity both in the short term and long term.

Our material cash requirements include the following obligations:

Operating Leases

We lease office and laboratory facilities in the U.S., including in South San Francisco and San Diego, California and Austin, Texas, and prior to the liquidation of Veracyte SAS assets, in Marseille, France, and lease certain equipment under various non-cancelable lease agreements. The lease terms extend to March 2040 and contain extension of lease term and expansion options. As of June 30, 2025, the leases have a weighted average remaining lease term of 11.3 years and total future minimum lease payments of $92.5 million.

Acquisition-Related Contingent Consideration

C2i Acquisition Contingent Consideration

Pursuant to the Agreement and Plan of Merger, dated as of January 5, 2024, by and among the Company, C2i, Canary Merger Sub I, Inc., a Delaware corporation and wholly owned subsidiary of the Company, Veracyte Diagnostics, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company, and Fortis Advisors LLC, as the C2i securityholders’ agent, or the Merger Agreement, we may be required to pay to certain noteholders of C2i up to an additional $16.0 million in cash or shares of our common stock, at our election, upon the achievement of certain milestones. During the six months ended June 30, 2025, one of the milestones was achieved resulting in the payment of $0.7 million. As of June 30, 2025, we expect to achieve a portion or all of the remaining milestones contained in the Merger Agreement within the next 12 months, requiring payments totaling up to $16.0 million.

nCounter Analysis System Acquisition Contingent Consideration

As part of our agreement to acquire the exclusive global diagnostic license to the nCounter Analysis System, we may be required to pay up to an additional $10.0 million in cash, contingent upon first achievement or occurrence, by us or on our behalf, of the commercial launch of the first, second and third diagnostic tests for use on the nCounter multiplex analysis system. As of June 30, 2025, the achievement of one of the milestones is forecasted to occur within the next 12 months, requiring payments totaling $3.5 million.

Cash Flows

The following table summarizes our cash flows for the six months ended June 30, 2025 and 2024 (in thousands of dollars):

Cash Flows from Operating Activities

Cash provided by operating activities for the six months ended June 30, 2025 was $39.0 million. Our net income of $6.1 million includes non-cash charges of $21.9 million of stock-based compensation expense, $10.9 million of depreciation and amortization, of which $6.5 million was related to intangible asset amortization, $20.5 million tied to the impairment of assets, non-cash lease expense of $1.6 million, non-cash gains of $2.9 million from the revaluation of contingent consideration and $5.1 million from the effect of foreign currency changes on operations. Cash used as a result of changes in operating assets and liabilities was $14.2 million, primarily composed of an increase in prepaid expenses and other current assets of $5.5 million, an increase in accounts receivable of $4.3 million, a decrease in accrued liabilities and deferred revenue of $2.1 million, and an increase in supplies and inventory of $2.9 million partially offset by an increase in accounts payable of $3.1 million.

Cash provided by operating activities for the six months ended June 30, 2024 was $20.6 million. Our net income of $3.9 million includes non-cash charges of $17.9 million of stock-based compensation expense, $11.3 million of depreciation and amortization, of which $7.4 million was related to intangible asset amortization, and the remainder was due to a non-cash lease expense of $2.3 million. Cash used as a result of changes in operating assets and liabilities was $17.0 million, primarily composed of an increase in accounts receivable of $10.1 million, an increase in supplies and inventory of $3.3 million, a decrease in operating lease liability of $2.4 million, an increase in prepaids and other current assets of $2.2 million, a decrease in accounts payable of $1.7 million, and an increase in other assets of $1.2 million. Cash used as a result of changes in operating assets and liabilities was partially offset by cash provided by an increase in accrued liabilities and deferred revenue of $3.9 million.

Cash Flows from Investing Activities

Cash used in investing activities for the six months ended June 30, 2025 was $52.0 million, consisting of $48.9 million from the purchase and maturity of short-term investments and $3.1 million used in the purchase of property, plant and equipment.

Cash provided by investing activities for the six months ended June 30, 2024 was $0.1 million, consisting of $5.0 million net cash acquired from C2i excluding post-close transactions costs, partially offset by $4.9 million used in the purchase of property, plant and equipment

Cash Flows from Financing Activities

Cash used in financing activities for the six months ended June 30, 2025 was $7.1 million, consisting of $11.8 million in tax payments during the period related to the vesting of restricted stock units granted to employees, partially offset by $4.8 million in proceeds from the exercise of options to purchase our common stock and the purchase of stock under our Employee Stock Purchase Plan, or ESPP.

Cash used in financing activities for the six months ended June 30, 2024 was $0.9 million, consisting of $5.1 million in tax payments during the period related to the vesting of restricted stock units granted to employees, partially offset by $4.3 million in proceeds from the exercise of options to purchase our common stock and the purchase of stock under our ESPP.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 1, Organization, Description of Business and Summary of Significant Accounting Policies, in the notes to our condensed consolidated financial statements included elsewhere in this report.

Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of the condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed in our Annual Report are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report.

Interest Rate Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rates. We had cash and cash equivalents and short-term investments of $320.7 million as of June 30, 2025 which consisted of bank deposits, money market funds and United States treasury securities. Such interest-bearing instruments carry a degree of risk; however, a hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our condensed consolidated financial statements. This analysis is based on a sensitivity model that measures market value changes when changes in interest rates occur. Any realized gains or losses resulting from such interest rate changes and from the current unrealized gains or losses would only occur if we sold the investments prior to maturity. We do not enter into investments for trading purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

Foreign Currency Risk

As of June 30, 2025 we held $3.6 million of bank deposits denominated in Euros. Such Euro denominated deposits carry a degree of risk from changes in currency exchange rates as the gains or losses from changes in exchange rates are included in our net income and comprehensive income (loss). As of June 30, 2025 a hypothetical 10% appreciation or depreciation of the U.S. dollar relative to the Euro would not have had a material impact on our condensed consolidated financial statements. At this time, we have not entered into, but in the future we may enter into, derivatives or other financial instruments in an attempt to hedge our foreign currency risk.

Inflation Risk

We are facing inflation headwinds in compensation, travel, supply and inventory costs. However, we do not believe that inflation has had a material effect on our business, financial condition, or operating results to date.

(a) Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act, which are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognized that disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, our disclosure controls and procedures were effective as of June 30, 2025 at the reasonable assurance level.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Summary of Risk Factors

In addition to the information set forth in this report, you should consider carefully the factors and other cautionary statements discussed in the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K. There have been no material changes in our risk factors from those described in our Annual Report.