# Natera, Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Natera, Inc.](/companies/ntra.md) (CIK 1604821)
- Form: 10-Q
- Filed: 2024-05-10
- Accepted by EDGAR: May 9, 2024, 20:29 ET
- Period: 2024-03-31
- Accession: 0001558370-24-007686
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1604821/000155837024007686/ntra-20240331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1604821/000155837024007686/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $367.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $88.6m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-01-01 to 2024-03-31 | $194.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$74.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $3.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $428.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$67.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.56 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.56 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 120,814,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $27.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $20.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2024-03-31 | $1.26bn | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $1.47bn | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $305.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $674.1m | us-gaap:Liabilities |
| Short-term borrowings | at 2024-03-31 | $80.4m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-03-31 | $794.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,390 characters.

*You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this report. Our actual results 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 discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on February 29, 2024.*

### Overview

We are a diagnostics company with proprietary molecular and bioinformatics technology that we are applying to change the management of disease worldwide. Our cell-free DNA, or cfDNA, technology combines our novel molecular assays, which reliably measure many informative regions across the genome from samples as small as a single cell, with our statistical algorithms which incorporate data available from the broader scientific community to identify genetic variations covering a wide range of serious conditions with high accuracy and coverage. We aim to make personalized genetic testing and diagnostics part of the standard of care to protect health and inform earlier and more targeted interventions that help lead to longer, healthier lives.

We currently provide a comprehensive suite of products in women’s health, as well as our oncology and organ health products, and our Constellation cloud-based platform. We generate a majority of our revenues from the sale of Panorama, our non-invasive prenatal test, or NIPT, as well as Horizon, our Carrier Screening, test. In addition to Panorama and Horizon, our product offerings in women’s health include Spectrum Preimplantation Genetics, our Anora miscarriage test, and Vistara single-gene NIPT, as well as our Empower hereditary cancer screening test, which we also plan to offer to oncologists through our oncology sales channel. We also offer our Signatera molecular residual disease test for oncology applications, which we commercialize as a test run in our CLIA (as defined below) laboratory and offer on a research use only basis to research laboratories and pharmaceutical companies; and our Prospera organ transplant assessment tests.

We process tests in our laboratories certified under the Clinical Laboratory Improvement Amendments of 1988, or CLIA, in Austin, Texas and San Carlos, California. A portion of our testing is performed by third-party laboratories. Our customers include independent laboratories, national and regional reference laboratories, medical centers and physician practices for our screening tests, and research laboratories and pharmaceutical companies. We market and sell our tests through our direct sales force and, for our women’s health tests, through our laboratory distribution partners. We bill clinics, laboratory distribution partners, patients, pharmaceutical companies and insurance payers for the tests we perform. In cases where we bill laboratory distribution partners, our partners in turn bill clinics, patients and insurers. The majority of our revenue comes from insurers with whom we have in-network contracts. Such insurers reimburse us for our tests pursuant to our in-network contracts with them, based on positive coverage determinations, which means that the insurer has determined that the test in general is medically necessary for this category of patient.

In addition to offering tests to be performed at our laboratories, either directly or through our laboratory distribution partners, we also establish licensing arrangements with laboratories under Constellation, our cloud-based distribution model, whereby our laboratory licensees run the molecular workflows themselves and then access our bioinformatics algorithms through our cloud-based software. This cloud-based distribution model results in lower revenues and gross profit per test than cases in which we process a test ourselves; however, because we do not incur the costs of processing the tests, our costs per test under this model are also lower. We began entering into these licensing arrangements starting in the fourth quarter of 2015.

The principal focus of our commercial operations is to offer our tests through both our direct sales force and laboratory distribution partners, and our Constellation licensees under our cloud-based distribution model. The number of tests that we accession is a key indicator that we use to assess our business. A test is accessioned when we receive the test at our laboratory, the relevant information about the test is entered into our computer system, and the test sample is routed into the appropriate workflow. This number is a subset of the number of tests that we process, which includes tests distributed through our Constellation licensees. The number of tests that we process is a key metric as it tracks overall volume growth, particularly as our laboratory partners may transition from sending samples to our laboratory to our cloud-based distribution model, as a result of which our tests accessioned would decrease but our tests processed would remain unchanged.

During the three months ended March 31, 2024, we processed approximately 735,800 tests, comprised of approximately 718,700 tests accessioned in our laboratory, compared to approximately 626,200 tests processed, comprised of approximately 607,700 tests accessioned in our laboratory, during the three months ended March 31, 2023. This increase in volume primarily represents continued commercial growth of Signatera, Panorama and Horizon, both as tests performed in our laboratory as well as through our Constellation software platform.

The percent of our revenues attributable to our U.S. direct sales force for the three months ended March 31, 2024 was 94%, an increase compared to 91% for the three months ended March 31, 2023. The percent of our revenues attributable to U.S. laboratory distribution partners for the three months ended March 31, 2024 was 4%, a decrease compared to 5% from the same period in the prior year. Our ability to increase our revenues and gross profit will depend on our ability to further penetrate the U.S. market with our direct sales force. The percent of our revenues attributable to international laboratory distribution partners and other international sales for the three months ended March 31, 2024 was 2%, a slight decrease from 4% in the three months ended March 31, 2023.

For the three months ended March 31, 2024, total revenues were $367.7 million compared to $241.8 million in the three months ended March 31, 2023. Product revenues accounted for $364.7 million, 99% of total revenues for the three months ended March 31, 2024 compared to $237.8 million representing 98% of total revenues for the three months ended March 31, 2023. For the three months ended March 31, 2024 and 2023, no customers exceeded 10% of the total revenues on an individual basis. Revenues from customers outside the United States were $8.3 million, representing approximately 2% of total revenues for the three months ended March 31, 2024. For the three months ended March 31, 2023, revenues from customers outside the United States were $8.5 million, representing approximately 4% total revenues. Most of our revenues have been denominated in U.S. dollars, though we generate some revenue in foreign currency, primarily denominated in Euros and Singapore Dollars.

Our net loss for the three months ended March 31, 2024 and 2023 was $67.6 million and $136.9 million, respectively. This included non-cash stock compensation expense of $64.4 million and $40.5 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $2.4 billion.

### Components of the Results of Operations

### Revenues

#### Product Revenues

We generate revenues from the sale of our tests, primarily from the sale of our Panorama and Horizon tests. Our two primary distribution channels are our direct sales force and our laboratory partners. In cases where we promote our tests through our direct sales force, we generally bill directly to a patient, clinic or insurance carrier, or a combination of the insurance carrier and patient, for the fees.

Sales of our clinical tests are recorded as product revenues. Revenues recognized from tests processed through our Constellation model, and from our strategic partnership agreements, are reported in licensing and other revenues.

In cases where we sell our tests through our laboratory partners, the majority of our laboratory partners bill the patient, clinic or insurance carrier for the performance of our tests, and we are entitled to either a fixed price per test or a percentage of their collections.

Our ability to increase our revenues will depend on our ability to further penetrate the domestic and international markets and, in particular, generate sales through our direct sales force, develop and commercialize additional tests, obtain reimbursement from additional third-party payers and increase our reimbursement rates for tests performed. For example, our financial performance depends on reimbursement for microdeletions testing. Many third-party payers do not currently reimburse for microdeletions screening in part because there has historically been limited published data on the performance of microdeletions screening tests, with our single nucleotide polymorphism-based Microdeletion and Aneuploidy RegisTry, or SMART study results only being published in early 2022.

Entering into in-network contracts continues to be an important part of our business strategy, as we believe that in-network coverage of our tests by third-party payers is crucial to our growth and long-term success, as in-network pricing is more predictable than out-of-network pricing, enables us to develop stable, long-term relationships with third-party payers, and provides access to a larger population of covered lives. However, the negotiated fees under our contracts with third-party payers are typically lower than the list price of our tests, and in some cases the third-party payers that we contract with have negative coverage determinations for some of our offerings, in particular Panorama for microdeletions screening. Therefore, being in-network with third-party payers has in the past had, and may in the future have, an adverse impact on our revenues and gross margins. We intend to mitigate any impact by driving more business from our most profitable accounts.

#### Licensing and Other Revenues

Revenues recognized from tests processed through our Constellation model, and from our strategic partnership agreements are reported in licensing and other revenues. We also recognize licensing revenues through the licensing and the provisioning of services to support the use of our proprietary technology by licensees under our cloud-based distribution model.

Our strategy to offer access to our algorithm to laboratory licensees via our Constellation cloud-based software platform may also cause our revenues to decrease because we do not process the tests and perform the molecular biology analysis in our own laboratory under this model, and therefore are not able to charge as high an amount, and as a result realize lower revenues per test than when we perform the entire test ourselves.

#### Cost of Product Revenues

The components of our cost of product revenues are material and service costs, impairment charges associated with testing equipment, personnel costs, including stock-based compensation expense, equipment and infrastructure expenses associated with testing samples, electronic medical records, order and delivery systems, shipping charges to transport samples, costs incurred from third party test processing fees, and allocated overhead such as rent, information technology costs, equipment depreciation and utilities. Costs associated with Whole Exome Sequencing, are also included, as well as labor costs, relating to our Signatera CLIA and Signatera research use only offerings. Costs associated with performing tests are recorded when the test is accessioned. We expect cost of product revenues in absolute dollars to increase as the number of tests we perform increases.

As we continue to achieve scale, we have increased our focus on more efficient use of labor, automation, and DNA sequencing. For example, we updated the molecular and bioinformatics process for Panorama to further reduce the sequencing reagents, test steps and associated labor costs required to obtain a test result, while increasing the accuracy of the test to allow it to run with lower fetal fraction input. These improvements also reduced the frequency of the need to require blood redraws from the patient.

#### Cost of Licensing and Other Revenues

The components of our cost of licensing and other revenues are material costs associated with test kits sold to Constellation clients, development and support services relating to our strategic partnership agreements and other costs.

We consider our cost of licensing and other revenues for the Constellation software platform to be relatively low, and therefore we expect its associated gross margin is higher. We expect our cost of licensing will increase in relation to volume growth.

### Expenses

#### Research and Development

Research and development expenses include costs incurred to develop our technology, collect clinical samples and conduct clinical studies to develop and support our products. These costs consist of personnel costs, including stock-based compensation expense; prototype materials; laboratory supplies; consulting costs; regulatory costs; electronic medical record set up costs; and costs associated with setting up and conducting clinical studies at domestic and international sites and allocated overhead, including rent, information technology, equipment depreciation and utilities. We expense all research and development costs in the periods in which they are incurred. We expect our research and development expenses to increase in absolute dollars as we continue to invest in research and development activities related to developing enhanced and new products.

#### Selling, General and Administrative

Selling, general and administrative expenses include executive, selling and marketing, legal, finance and accounting, human resources, billing and client services. These expenses consist of personnel costs, including stock-based compensation expense; direct marketing expenses; audit and legal expenses; consulting costs; training and medical education activities; payer outreach programs and allocated overhead, including rent, information technology, equipment depreciation, and utilities.

#### Interest Expense

Interest expense is attributable to borrowing under our Convertible Senior Notes (the “Convertible Notes”) and credit line with UBS (the “Credit Line”), including the amortization of debt discounts.

#### Interest Income and Other (Expense) Income, Net

Interest income and other (expense) income, net is comprised of interest earned on our cash, realized gains and losses on investments and assets, sublease rental income, and foreign currency remeasurement gains and losses.

### Critical Accounting Policies

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the 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. We consider our critical accounting policies and estimates to be revenue recognition and stock-based compensation attributable to performance-based awards.

There have been no material changes to our other critical accounting policies and estimates as compared to the disclosures in our Annual Report on Form 10-K for the year ended December 31, 2023.

### Recent Accounting Pronouncements

We believe that the impact of accounting standards updates recently issued that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

### Results of Operations

### Comparison of the three months ended March 31, 2024 and 2023

*(in thousands except percentage)*

| ​ ​ ​ ​ ​ Revenues | ​ ​ Three Months Ended March 31, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ Change Amount ​ ​ | ​ ​ | ​ ​ ​ Percent ​ ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | ---: |
| Product revenues | $364,672 | ​ | $237,797 | ​ | $126,875 | ​ | 53.4% |
| Licensing and other revenues | ​ 3,069 | ​ | ​ 3,959 | ​ | ​ (890) | ​ | (22.5) ​ |
| Total revenues | ​ 367,741 | ​ | ​ 241,756 | ​ | ​ 125,985 | ​ | 52.1 ​ |
| **Cost and expenses** | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Cost of product revenues | ​ 158,833 | ​ | ​ 147,754 | ​ | ​ 11,079 | ​ | 7.5 ​ |
| Cost of licensing and other revenues | ​ 307 | ​ | ​ 370 | ​ | ​ (63) | ​ | (17.0) ​ |
| Research and development | ​ 88,637 | ​ | ​ 82,306 | ​ | ​ 6,331 | ​ | 7.7 ​ |
| Selling, general and administrative | ​ 194,278 | ​ | ​ 149,627 | ​ | ​ 44,651 | ​ | 29.8 ​ |
| Total cost and expenses | ​ 442,055 | ​ | ​ 380,057 | ​ | ​ 61,998 | ​ | 16.3 ​ |
| **Loss from operations** | ​ (74,314) | ​ | ​ (138,301) | ​ | ​ 63,987 | ​ | 46.3 ​ |
| Interest expense | ​ (3,124) | ​ | ​ (3,061) | ​ | ​ (63) | ​ | (2.1) ​ |
| Interest and other income, net | ​ 10,267 | ​ | ​ 4,585 | ​ | ​ 5,682 | ​ | 123.9 ​ |
| Loss before income taxes | ​ (67,171) | ​ | ​ (136,777) | ​ | ​ 69,606 | ​ | 50.9 ​ |
| Income tax expense | ​ (428) | ​ | ​ (160) | ​ | ​ (268) | ​ | (167.5) ​ |
| Net loss | $(67,599) | ​ | $(136,937) | ​ | $69,338 | ​ | 50.6% |

### Revenues

Total revenues are comprised of product revenues, which are primarily driven by sales of our Panorama and Horizon tests, oncology testing, and licensing and other revenues, which primarily includes development licensing revenue and licensing of our Constellation software. Total revenues increased by $126.0 million, or 52.1%, when compared to the three months ended March 31, 2023.

We derive our revenues from tests based on units reported to customers—tests delivered with a result. All reported units are either accessioned in our laboratory or processed outside of our laboratory. As noted in the section titled “Overview” above, the number of tests that we process is a key metric as it tracks our overall volume growth. During the three months ended March 31, 2024, total reported units were approximately 679,400, comprised of approximately 663,500 tests reported in our laboratory. Comparatively, during the three months ended March 31, 2023, total reported units were approximately 583,400, comprising of approximately 566,000 tests reported in our laboratory. During the three months ended March 31, 2024 and 2023, total oncology units processed were approximately 114,800 and 71,000, respectively.

#### Product Revenues

During the three months ended March 31, 2024, product revenues increased by $126.9 million, or 53.4% compared to the three months ended March 31, 2023, primarily as a result of the continued revenue growth from increased test volumes as well as average selling price improvements.

#### Licensing and Other Revenues

Licensing and other revenues decreased by $0.9 million, or 22.5%, during the three months ended March 31, 2024 when compared to the three months ended March 31, 2023. The decrease was primarily due to a decrease in revenue from our collaborative agreements.

#### Cost of Product Revenues

During the three months ended March 31, 2024, cost of product revenues increased compared to the three months ended March 31, 2023 by approximately $11.1 million, or 7.5%, primarily due to higher costs related to inventory consumption of $3.8 million driven by an increase in accessioned cases, a $1.7 million increase in third-party fees, and a $5.6 million increase in labor, overhead, and other related costs driven by headcount growth and product support.

#### Cost of Licensing and Other Revenues

Cost of licensing and other revenues for the three months ended March 31, 2024, when compared to the three months ended March 31, 2023, decreased by $0.1 million, or 17.0%, primarily due to a net decrease in costs to support our collaborative agreements.

### Expenses

#### Research and Development

Research and development expenses during the three months ended March 31, 2024, increased by $6.3 million, or 7.7%, when compared to the three months ended March 31, 2023. The increase was attributable to a $8.0 million increase in salary and related compensation expenditures, which includes a $6.3 million increase in stock-based compensation expense, and a $1.6 million increase primarily due to consulting, travel, office, facilities, and other expenses. This was offset by a $3.3 million net decrease in lab and clinical trial related expenses primarily related to the decrease in identified in-process research and development asset expense compared to prior period.

#### Selling, General and Administrative

Selling, general and administrative expenses increased by $44.7 million, or 29.8%, during the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was primarily due to a $25.9 million increase in salary and related compensation expenditures, which includes a $16.7 million increase in stock-based compensation expense, and a $16.2 million increase in consulting and legal expenses, a $2.6 million in marketing, travel, facilities, office, other and other costs.

#### Interest Expense

Interest expense increased by $0.1 million in the three months ended March 31, 2024 compared to the same period in the prior year due to an increase in interest rate.

#### Interest and Other Income

Interest and other income for the three months ended March 31, 2024 increased $5.7 million compared to the same period in the prior year, primarily due to greater cash and investment balances driving higher interest income.

### Liquidity and Capital Resources

We have incurred net losses each year since our inception. For the three months ended March 31, 2024, we had a net loss of $67.6 million, and we expect to continue to incur losses in future periods as we continue to devote a substantial portion of our resources to our research and development and commercialization efforts for our existing and new products. As of March 31, 2024, we had an accumulated deficit of $2.4 billion. As of March 31, 2024, we had $813.8 million in cash and cash equivalents and restricted cash, $69.1 million in marketable securities, $80.4 million of outstanding balance under the Credit Line including accrued interest, and $287.5 million outstanding principal balance on the Convertible Notes. As of March 31, 2024, we had $20.0 million remaining and available on the Credit Line.

While we have introduced multiple products that are generating revenues, these revenues have not been sufficient to fund all operations. Accordingly, we have funded the portion of operating costs that exceeds revenues through a combination of equity issuances and debt and other financings. We expect to develop and commercialize future products and continue to invest in the growth of our business and, consequently, we will need to generate additional revenues to achieve future profitability and may need to raise additional equity or incur additional debt. If we raise additional funds by issuing equity securities, our stockholders would experience dilution. Additional debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any additional debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders and requires significant debt service payments, which diverts resources from other activities. Additional financing may not be available at all, or in amounts or on terms acceptable to us. If we are unable to obtain additional financing, we may be required to delay the development and commercialization of our products and significantly scale back our business and operations.

In September 2023, we completed an underwritten equity offering and sold 4,550,000 shares of our common stock at a price of $55 per share to the public. Before offering expenses of approximately $0.4 million, we received proceeds of approximately $235.8 million net of the underwriting discount. Our contractual obligations and other commitments have been satisfied by the equity offering described above, our convertible note financing conducted in April 2020 described below, the Credit Line described below, and our product, licensing, and other sales. For our commitments, refer to the “Contractual Obligations and Other Commitments” section below.

Refer to additional disclosures associated with risks and our ability to generate and obtain adequate amounts of cash to meet capital requirements for both short-term and long-term obligations.

Based on our current business plan, we believe that our existing cash and marketable securities will be sufficient to meet our anticipated cash requirements for at least 12 months after May 9, 2024.

### Credit Line Agreement

In September 2015, we entered into a Credit Line with UBS, or the Credit Line, providing for a $50.0 million revolving line of credit which could be drawn in increments at any time. The Credit Line was amended in July 2017 and bears interest at 30-day LIBOR plus 1.10%, and it is secured by a first priority lien and security interest in our money market and marketable securities held in our managed investment account with UBS. UBS has the right to demand full or partial payment of the Credit Line obligations and terminate it, in its discretion and without cause, at any time. The interest rate was subsequently changed to the 30-day Secured Overnight Financing Rate, or SOFR, average, plus 1.21%. The SOFR rate is variable. The Credit Line was subsequently increased from $50.0 million to $150.0 million. In June 2023, the Credit Line decreased to $100.0 million. In October 2023, the interest rate for the Credit Line was subsequently changed to the 30-day SOFR average, plus 0.5%. As of March 31, 2024, the total principal amount outstanding with accrued interest was $80.4 million and $20.0 million is remaining as available under the Credit Line.

### Convertible Notes

In April 2020, we issued $287.5 million aggregate principal amount of Convertible Notes in a private placement offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

The Convertible Notes are senior, unsecured obligations of the Company and bear interest at a rate of 2.25% per year, payable in cash semi-annually in arrears in May and November of each year, beginning in November 2020. The Convertible Notes mature in May 2027, unless earlier converted, repurchased or redeemed in accordance with their terms. Upon conversion, the Convertible Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

We received net proceeds from the Convertible Notes of $278.3 million, after deducting the initial purchasers’ discounts and debt issuance costs. We used approximately $79.2 million of the net proceeds from the Convertible Notes offering to repay our obligations under our credit agreement with OrbiMed Royalty Opportunities II, LP.

### Cash Flows

The following table summarizes our condensed consolidated cash flows for the periods indicated:

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 | ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: |
| Cash provided by (used in) operating activities | ​ | $27,001 | ​ | $(81,108) |
| Cash provided by investing activities | ​ | 138,255 | ​ | 15,870 |
| Cash provided by financing activities | ​ | 6,466 | ​ | 2,301 |
| Net change in cash, cash equivalents and restricted cash | ​ | 171,722 | ​ | (62,937) |
| Cash, cash equivalents and restricted cash, beginning of period | ​ | 642,095 | ​ | 466,091 |
| Cash, cash equivalents and restricted cash, end of period | ​ | $813,817 | ​ | $403,154 |

#### Cash Provided by (Used in) Operating Activities

Cash provided by operating activities during the three months ended March 31, 2024 was $27.0 million. The net loss of $67.6 million includes $75.3 million in non-cash charges resulting from $7.1 million of depreciation and amortization, $64.4 million of stock-based compensation expense, $3.6 million of non-cash lease expense, $0.3 million for amortization of debt discount and issuance cost, $0.4 million for foreign exchange adjustment, offset by $0.5 million premium amortization and discount accretion on investment securities. Operating assets had cash inflows of $1.7 million resulting from a $14.4 million decrease in prepaid expenses and other assets, offset by a $10.5 million increase in accounts receivable, a $2.2 million increase in inventory. Operating liabilities resulted in cash inflows of $17.6 million resulting from a $10.7 million increase in accounts payable, a $17.8 million increase in accrued compensation, and a $0.8 million increase in deferred revenue, offset by a $4.1 million decrease in lease liabilities and a $7.6 million decrease in other accrued liabilities.

Cash used in operating activities during the three months ended March 31, 2023 was $81.1 million. The net loss of $136.9 million includes $53.5 million in non-cash charges resulting from $5.1 million of depreciation and amortization, $2.7 million in-process research and development, $0.8 million premium amortization and discount accretion on investment securities, $40.5 million of stock-based compensation expense, $3.8 million of non-cash lease expense, $0.3 million for amortization of debt discount and issuance cost, and $0.3 million for foreign exchange adjustment. Operating assets had cash outflows of $5.4 million resulting from a $2.4 million increase in accounts receivable, a $5.3 million increase in inventory, offset by a $2.3 million decrease in prepaid expenses and other assets. Operating liabilities resulted in cash inflows of $7.7 million resulting from a $15.0 million increase in accrued compensation, a $7.3 million increase in deferred revenue and a $5.8 million increase in accounts payable offset by a $18.2 million decrease in other accrued liabilities and a $2.2 million decrease in lease liabilities.

#### Cash Provided by Investing Activities

Cash provided by investing activities for the three months ended March 31, 2024 totaled $138.3 million, which was comprised of $169.1 million from proceeds of investments maturities, offset by $20.3 million in acquisitions of property and equipment and $10.5 million in asset acquisition.

Cash provided by investing activities for the three months ended March 31, 2023 totaled $15.9 million, which was comprised of $27.3 million from proceeds of investments maturities, offset by a $11.4 million in acquisitions of property and equipment.

#### Cash Provided by Financing Activities

Cash provided by financing activities for the three months ended March 31, 2024, totaled $6.5 million which was comprised of $6.5 million from proceeds from the exercise of stock options.

Cash provided by financing activities for the three months ended March 31, 2023, totaled $2.3 million which was comprised of proceeds from the exercise of stock options.

### Contractual Obligations and Other Commitments

We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods. Such arrangements include those related to our lease commitments, Credit Line, Convertible Notes, commercial supply agreements and other agreements.

#### Credit Line

The short-term debt obligations consist of the $80.4 million principal amount drawn from the Credit Line with UBS and applicable interest. The Credit Line was amended in July 2017 and bears interest at 30-day LIBOR plus 1.10%, and it is secured by a first priority lien and security interest in our money market and marketable securities held in our managed investment account with UBS. The interest rate was subsequently changed to the 30-day SOFR average, plus 1.21%. The SOFR rate is variable. UBS has the right to demand full or partial payment of the Credit Line obligations and terminate it, in its discretion and without cause, at any time. In October 2023, the interest rate was subsequently changed to the 30-day SOFR average, plus 0.5%. Please refer to Note 10, *Debt*, for further details.

#### Convertible Notes

The long-term debt obligations consist of the $287.5 million principal amount from a private placement offering to qualified institutional buyers and applicable interest. The Convertible Notes are senior, unsecured obligations of the Company and bear interest at a rate of 2.25% per year, payable in cash semi-annually in arrears in May and November of each year, beginning in November 2020. The Convertible Notes mature in May 2027, unless earlier converted, repurchased or redeemed in accordance with their terms. Upon conversion, the Convertible Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. Please refer to Note 10, *Debt*, for further details.

#### Inventory purchase and other contractual obligations

We enter into contracts in the normal course of business with various third parties for clinical trials, preclinical research studies, testing, manufacturing, and other services for operational purposes. Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. These payments have not been included separately within these contractual and other obligations disclosures. Please refer to Note 8, *Commitments and Contingencies* in the Notes to Unaudited Interim Condensed Consolidated Financial Statements for further details.

#### Operating leases

Our lease commitments consist of $0.3 million of payments, which will be paid over the terms of the leases. The leases have not commenced under Accounting Standards Codification, or ASC, Topic 842, *Leases* (ASC 842), as of March 31, 2024. As a result, these leases are not reflected within the consolidated balance sheets.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements during the periods presented.

## Market risk

As filed, 2,604 characters.

### Interest Rate Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rates. Our Credit Line had an interest rate of 30-day LIBOR plus 1.10%. The interest rate was subsequently changed to the 30-day SOFR average, plus 1.21%. The SOFR rate is variable. In October 2023, the interest rate for the Credit Line was subsequently changed to the 30-day SOFR average, plus 0.5%. An incremental change in the borrowing rate of 100 basis points would increase our annual interest expense by $0.8 million based on our $80.4 million gross debt outstanding on our Credit Line, including principal and accrued interest as of March 31, 2024. The interest rate for our Convertible Notes is fixed at 2.25% and not exposed market risk related to interest rates. Our investment portfolio is exposed to market risk from changes in interest rates. This risk is mitigated as we have maintained a relatively short average maturity for our investment portfolio. An incremental change in the investment yield of 100 basis points would increase our annual interest income by approximately $0.7 million annually in relation to amounts we would expect to earn, based on our short-term investments as of March 31, 2024.

### Foreign Currency Exchange Rate Fluctuations

Our operations are currently conducted primarily in the United States. As we expand internationally, our results of operations and cash flows may become subject to fluctuations due to changes in foreign currency exchange rates. In periods when the U.S. dollar declines in value as compared to the foreign currencies in which we incur expenses, our foreign currency-based expenses will increase when translated into U.S. dollars. In addition, future fluctuations in the value of the U.S. dollar may affect the price at which we sell our tests outside the United States. To date, our foreign currency risk has been minimal, and we have not historically hedged our foreign currency risk; however, we may consider doing so in the future.

### Inflation Risk

As of the date of filing of this Quarterly Report on Form 10-Q, we do not believe that inflation has had a material effect on our business, financial condition, or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through increases in revenue as increases in core inflation rates may also negatively affect demand for our product offerings. Our inability or failure to do so could harm our business, financial condition, and results of operations.

## Controls and procedures

As filed, 3,398 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2024. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Based on the evaluation of our disclosure controls and procedures as of March 31, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

### Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

## Risk factors

As filed, 1,104 characters.

Investing in our common stock involves a high degree of risk. In addition to the information set forth in this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, you should consider carefully the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on February 29, 2024. The occurrence of any of the risks and uncertainties described in such Annual Report could materially and adversely affect our business, financial condition, results of operations and prospects. In that event, the price of our common stock could decline and you could lose part or all of your investment. Furthermore, such risks are not the only ones we face; additional risks and uncertainties not currently known or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations.

Filed May 10, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-007686. Last ingested by Listed: Nov 2, 2026, 17:18 ET. No prices; not investment advice.