# Guardant Health, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Guardant Health, Inc.](/companies/gh.md) (CIK 1576280)
- Form: 10-Q
- Filed: 2023-11-06
- Accepted by EDGAR: Nov 6, 2023, 16:58 ET
- Period: 2023-09-30
- Accession: 0001576280-23-000187
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1576280/000157628023000187/gh-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1576280/000157628023000187/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $143.0m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $408.9m | us-gaap:Revenues |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $93.9m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $277.3m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$113.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$367.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $644.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $1.9m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $490.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $1.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$86.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$292.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.73 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$2.66 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.73 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$2.66 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 117,736,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 109,791,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$246.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $16.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $457.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $1.35bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.80bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $226.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $1.57bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $228.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 60,406 characters.

*You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, beliefs, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2022 and in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.*

### Overview

We are a leading precision oncology company focused on helping conquer cancer globally through the use of our proprietary tests, vast data sets and advanced analytics. We believe our tests can transform cancer care by unlocking insights that will help patients at all stages of the disease, including at its earliest stages, when it’s most treatable. For patients with advanced-stage cancer, we have commercially launched Guardant360 LDT and Guardant360 CDx, the first comprehensive liquid biopsy test approved by the U.S. Food and Drug Administration, or the FDA, to provide tumor mutation profiling with solid tumors and to be used as a companion diagnostic in connection with non-small cell lung cancer, or NSCLC, and breast cancer. We have also launched the Guardant360 TissueNext tissue test for advanced-stage cancer, Guardant Reveal blood test to detect residual and recurring disease in early-stage colorectal, breast and lung cancer patients, and Guardant360 Response blood test to predict patient response to immunotherapy or targeted therapy eight weeks earlier than current standard-of-care imaging. In addition, we have developed Guardant Galaxy suite of advanced analytical technologies to enhance the performance and clinical utility of our portfolio of cancer tests, and to power the next generation of biomarker and drug discovery.

We also collaborate with biopharmaceutical companies in clinical studies by providing the above-mentioned tests, as well as the GuardantOMNI blood test for advanced-stage cancer, and the GuardantINFINITY blood test, a next-generation smart liquid biopsy that provides new, multi-dimensional insights into the complexities of tumor molecular profiles and immune response to advance cancer research and therapy development. Using data collected from our tests, we have also developed our GuardantINFORM platform to help biopharmaceutical companies accelerate precision oncology drug development through the use of this in-silico research platform to unlock further insights into tumor evolution and treatment resistance across various biomarker-driven cancers.

For early cancer detection, we have launched the Shield LDT test to address the needs of individuals eligible for colorectal cancer screening. From a simple blood draw, Shield uses a novel multimodal approach to detect colorectal cancer signals in the bloodstream, including DNA that is shed by tumors. In December 2022, we announced that the ECLIPSE study, an over 40,000 patient registrational study evaluating the performance of our Shield blood test for detecting colorectal cancer in average-risk adults, met co-primary endpoints. In addition, in March 2023, we submitted a premarket approval application for our Shield blood test to the FDA. We also expect to expand into lung and multi-cancer screening with our investigational, next-generation Shield assay.

We currently perform our tests in our laboratories located in Redwood City, California, and San Diego, California. Our Redwood City laboratory is certified pursuant to the Clinical Laboratory Improvement Amendments of 1988, or CLIA, accredited by the College of American Pathologists, or CAP, permitted by the New York State Department of Health, or NYSDOH, and licensed in California and four other states. Our San Diego laboratory is CAP-accredited, CLIA-certified and licensed in California. In addition, our Palo Alto, California laboratory is currently operated as a center for our research and technology development. We have also received CAP accreditation, and In Vitro Diagnostic, or IVD, sample processing approval from Japan's Ministry of Health, Labour and Welfare, or the MHLW, for our laboratory in Japan.

We generated total revenue of $143.0 million and $117.4 million for the three months ended September 30, 2023, and 2022, respectively, and $408.9 million and $322.6 million for the nine months ended September 30, 2023, and 2022, respectively. We also incurred net losses of $86.1 million and $162.0 million for the three months ended September 30, 2023, and 2022, respectively, and $292.4 million and $514.7 million for the nine months ended September 30, 2023, and 2022, respectively. We have funded our operations to date principally from the sale of our stock, convertible senior notes, and revenue from our precision oncology testing and development services and other. In May 2023, we completed a follow-on underwritten public offering, in which we issued and sold 14,375,000 shares of our common stock at a price of $28.00 per share and received net proceeds of $381.4 million after deducting underwriting discounts and commissions and other offering costs of $21.1 million. As of September 30, 2023, we had cash, cash equivalents and marketable debt securities of approximately $1.2 billion.

### Factors affecting our performance

We believe there are several important factors that have impacted and that we expect will impact our operating performance and results of operations, including:

- ***Testing volume, pricing and customer mix.*** Our revenue and costs are affected by the volume of testing and mix of customers from period to period. We evaluate both the volume of tests that we perform for patients on behalf of clinicians and the number of tests we perform for biopharmaceutical companies. Our performance depends on our ability to retain and broaden adoption with existing customers, as well as attract new customers. We believe that the test volume we receive from clinicians and biopharmaceutical companies are indicators of growth in each of these customer verticals. Customer mix for our tests has the potential to significantly affect our results of operations, as the average selling price for biopharmaceutical sample testing is currently higher than our average reimbursement for clinical tests because we are not a contracted provider for, or our tests are not covered by clinical patients’ insurance for, the majority of the tests that we perform for patients on behalf of clinicians. Revenue from clinical tests for patients covered by Medicare represented approximately 45% and 46% of our precision oncology revenue from clinical customers during the three months ended September 30, 2023, and 2022, respectively, and approximately 44% and 45% of our precision oncology revenue from clinical customers for the nine months ended September 30, 2023, and 2022, respectively.
- ***Payer coverage and reimbursement.*** Our revenue depends on achieving broad coverage and reimbursement for our tests from third-party payers, including both commercial and government payers. Precision oncology revenue from tests for clinical customers is calculated based on our expected cash collections, using the estimated variable consideration. The variable consideration is estimated based on historical collection patterns as well as the potential for changes in future reimbursement behavior by one or more payers. Estimation of the impact of the potential for changes in reimbursement requires significant judgment and considers payers' past patterns of changes in reimbursement as well as any stated plans to implement changes. Any cash collections over the expected reimbursement period exceeding the estimated variable consideration are recorded in future periods based on actual cash received. Payment from commercial payers can vary depending on whether we have entered into a contract with the payers as a “participating provider” or do not have a contract and are considered a “non-participating provider”. Payers often reimburse non-participating providers, if at all, at a lower amount than participating providers. Because we are not contracted with these payers, they determine the amount that they are willing to reimburse us for any of our tests and they can prospectively and retrospectively adjust the amount of reimbursement, adding to the complexity in estimating the variable consideration. When we contract with a payer to serve as a participating provider, reimbursements by the payer are generally made pursuant to a negotiated fee schedule and are limited to only covered indications or where prior approval has been obtained. Becoming a participating provider can result in higher reimbursement amounts for covered uses of our tests and, potentially, no reimbursement for non-covered uses identified under the payer’s policies or the contract. As a result, the potential for more favorable reimbursement associated with becoming a participating provider may be offset by a potential loss of reimbursement for non-covered uses of our tests. Current Procedural Terminology, or CPT, coding plays a significant role in how our tests are reimbursed both from commercial and governmental payers. In addition, Z-Code Identifiers are used by certain payers, including under Medicare's Molecular Diagnostic Services Program, or MolDx, to supplement CPT codes for our molecular diagnostics tests. Changes to the codes used to report to payers may result in significant changes in its reimbursement. If their policies were to change in the future to cover additional cancer indications, we anticipate that our total reimbursement would increase. In January 2021, a proprietary laboratory analyses, or PLA code was issued for our Guardant360 CDx with an effective date in April 2021. Additionally, based on this new PLA code, we applied to the Centers for Medicare and Medicaid Services, or CMS, for our Guardant360 CDx test to become an advanced diagnostic laboratory test, or ADLT. In March 2021, CMS approved ADLT status to the Guardant360 CDx test, based on which Medicare paid us at the lowest available commercial rate per test, from April 1, 2021 to December 31, 2021. Effective January 1, 2022, Medicare has started to reimburse

Guardant360 CDx services at the median rate of claims paid by commercial payers and this rate will apply until December 2023. In March 2022, Palmetto GBA, the Medicare administrative contractor for MolDX, conveyed coverage for our Guardant360 TissueNext test under the existing local coverage determination. The policy covers our Guardant360 TissueNext test for Medicare fee-for-service patients with advanced solid tumor cancers. In July 2022, Palmetto GBA conveyed coverage for our Guardant Reveal test for fee-for-service Medicare patients in the United States with stage II or III colorectal cancer whose testing is initiated within three months following curative intent therapy, with an effective date of December 2021. In April 2023, Palmetto GBA conveyed coverage for our Guardant360 Response test for fee-for-service Medicare patients in the U.S. with metastatic or inoperable solid tumors who are on an immune checkpoint inhibitor therapy, tested four to ten weeks from therapy initiation. In July 2023, the MHLW granted national reimbursement approval for our Guardant360 CDx test for patients with advanced or metastatic solid tumor cancers in Japan. Due to the inherent variability and unpredictability of the reimbursement landscape, including related to the amount that payers reimburse us for any of our tests, we estimate the amount of revenue to be recognized at the time a test is provided and record revenue adjustments if and when the cash subsequently received differs from the revenue recorded. Due to this variability and unpredictability, previously recorded revenue adjustments are not indicative of future revenue adjustments from actual cash collections, which may fluctuate significantly. Additionally, if coding changes were to occur, payments for certain uses of our tests could be reduced, put on hold, or eliminated. This variability and unpredictability could increase the risk of future revenue reversal and result in our failing to meet any previously publicly stated guidance we may provide.

- ***Biopharmaceutical customers.*** Our revenue also depends on our ability to attract, maintain and expand relationships with biopharmaceutical customers. As we continue to develop these relationships, we expect to support a growing number of clinical studies globally and continue to have opportunities to offer our platform to such customers for development services, including companion diagnostic development, novel target discovery and validation, as well as clinical study enrollment. For example, our tests are being developed as companion diagnostics under collaborations with biopharmaceutical companies.
- ***Research and development.*** A significant aspect of our business is our investment in research and development, including the development of new products. In particular, we have invested heavily in clinical studies as we believe these studies are critical to gaining physician adoption and driving favorable coverage decisions by payers. With respect to Guardant Reveal, in October 2021, we initiated a 1,000-patient prospective, observational, multi-center study, which we refer to as the ORACLE study, designed to evaluate the performance of our Guardant Reveal liquid biopsy test to predict cancer recurrence after curative intent treatment, across 11 solid tumor types. In addition, with respect to Guardant Reveal, in December 2022, we entered into a partnership with Susan G. Komen®, the world’s leading breast cancer organization, to bring the patient perspective to the development of clinical studies that help identify early-stage breast cancer patients who are at high risk of disease recurrence and may benefit from additional monitoring or therapy. With respect to Shield, in December 2022, we announced that the ECLIPSE study, an over 40,000 patient registrational study evaluating the performance of our Shield blood test for detecting colorectal cancer in average-risk adults, met co-primary endpoints. The test demonstrated 83% sensitivity in detecting individuals with colorectal cancer. Specificity was 90% in both individuals without advanced neoplasia and in those who had a negative colonoscopy result. These results exceed the performance criteria set forth by the CMS for reimbursement. This test also demonstrated 13% sensitivity in detecting advanced adenomas. Based on these study results, in March 2023, we submitted a premarket approval application for our Shield blood test to the FDA. In addition, to evaluate the performance of our investigational, next-generation Shield assay in detecting lung cancer in high-risk individuals ages 50-80, in January 2022, we enrolled the first patient in a nearly 10,000-patient prospective, registrational study, which we refer to as the SHIELD LUNG study. The study is anticipated to run in approximately 100 centers in the United States and Europe. We have expended considerable resources, and expect to increase such expenditures over the next few years, to support our research and development programs with the goal of fueling further innovation.
- ***International expansion.*** A component of our long-term growth strategy is to expand our commercial footprint internationally, and we expect to increase our sales and marketing expense to execute on this strategy. We currently offer our tests in countries outside the United States primarily through distributor relationships, direct contracts with hospitals or partnerships with research organizations.

In May 2018, we formed and capitalized Guardant Health AMEA, Inc., with SoftBank, relating to the sale, marketing and distribution of our tests generally outside the Americas and Europe, and to accelerate commercialization of our products in Asia, the Middle East and Africa. In June 2022, we purchased all of the shares held by SoftBank and its affiliates, and upon completion of the transaction, we obtained full control over operations of Guardant Health AMEA, Inc. throughout the Asia, Middle East and Africa region.

In December 2020, we signed our first public private partnership agreement with Vall D'Hebron Institute of Oncology, or VHIO, one of Europe’s leading cancer research institutions, and in May 2022, the first blood-based cancer testing services in Europe based on our digital sequencing platform became available at the VHIO testing facility in Spain. In October 2021, we signed a partnership agreement with The Royal Marsden NHS Foundation Trust, or Royal Marsden, a premier cancer center within the United Kingdom for patient care, research and teaching of all types of cancer, and in April 2023, the blood-based cancer testing services based on our digital sequencing platform became available at Royal Marsden testing facility in the United Kingdom.

In June 2022, we signed a strategic partnership agreement with Adicon Holdings Limited, a leading independent clinical laboratory company based in China, to offer our industry-leading comprehensive genomic profiling tests to biopharmaceutical companies conducting clinical studies in China. We expect the partnership to help biopharmaceutical companies bring the next generation of cancer therapies to patients in the region.

The success of our international expansion strategy depends on a number of factors, including the internal and external constraints placed on our international laboratory partners and biopharmaceutical companies in the context of broader global, regional and U.S. economic and geopolitical conditions. For example, deterioration in the bilateral relationship between the United States and China may impact international trade, government spending, regional stability and macroeconomic conditions. The impact of these potential developments, including any resulting sanctions, export controls or other restrictive actions that may be imposed against governmental or other entities in, for example, China, may contribute to disruption of our international partnerships and instability and volatility in the global markets, which in turn could adversely impact our operations and weaken our financial results.

- ***Sales and marketing expense.*** Our financial results have historically, and will likely continue to, fluctuate significantly based upon the impact of our sales and marketing expense, increase in headcount, and in particular, our various marketing programs around existing and new product introductions.
- ***General and administrative expense.*** Our financial results have historically, and will likely continue to, fluctuate significantly based upon the impact of our general and administrative expense, and in particular, our stock-based compensation expense. Our equity awards, including market-based and performance-based restricted stock units, are intended to retain and incentivize employees to lead us to sustained, long-term superior financial and operational performance.

While each of these areas presents significant opportunities for us, they also pose significant risks and challenges that we must address. See Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, and Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q, for more information.

### Components of results of operations

### Revenue

We derive our revenue from two sources: (i) precision oncology testing, and (ii) development services and other.

*Precision oncology testing.* Precision oncology testing revenue is generated from sales of our tests to clinical and biopharmaceutical customers. In the United States, through September 30, 2023, we generally performed tests as an out-of-network service provider without contracts with health insurance companies. We submit claims for payment for tests performed for patients covered by U.S. private payers. We also submit claims to Medicare for reimbursement for our Guardant360 CDx, Guardant360 LDT, Guardant360 TissueNext, Guardant Reveal and Guardant360 Response clinical testing performed for qualifying patients. Revenue from clinical tests for patients covered by Medicare represented approximately 45% and 46% of our precision oncology revenue from clinical customers during the three months ended September 30, 2023, and 2022, respectively, and 44% and 45% of our precision oncology revenue from clinical customers during the nine months ended September 30, 2023, and 2022, respectively.

*Development services and other*. Development services revenue primarily represents services that we provide to biopharmaceutical companies, large medical institutions and international laboratory partners. We collaborate with biopharmaceutical companies in the development and clinical studies of new drugs. As part of these collaborations, we provide services related to regulatory filings to support companion diagnostic device submissions for our test panels. Under these arrangements, we generate revenue from progression of our collaboration efforts, as well as from provision of on-going support. In addition to companion diagnostic development and regulatory approval services, we also provide other development services, including clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect and GuardantINFORM. Other revenue includes amounts derived from licensing our technologies, kit fulfillment and screening services.

### Costs and operating expenses

*Cost of precision oncology testing*. Cost of precision oncology testing generally consists of cost of materials, including inventory write-downs; cost of labor, including employee benefits, bonus, and stock-based compensation; equipment and infrastructure expenses associated with processing test samples, such as sample accessioning, library preparation, sequencing, and quality control analyses; freight; curation of test results for physicians; phlebotomy; and license fees due to third parties. Infrastructure expenses include depreciation of laboratory equipment, rent costs, depreciation of leasehold improvements and information technology costs. Costs associated with performing our tests are recorded as the tests are performed regardless of whether revenue was recognized with respect to the tests. While we do not believe the technologies underlying the third-party licenses are necessary to permit us to provide our tests, we do believe these technologies are potentially valuable and of possible strategic importance to us or our competitors.

We expect the cost of precision oncology testing to generally increase in line with the increase in the number of tests we perform, but we expect the cost per test to decrease modestly over time due to the efficiencies we may gain as test volume increases, and from automation and other cost reductions.

*Cost of development services and other*. Cost of development services and other primarily includes costs incurred for the performance of development services requested by our biopharmaceutical customers, and costs associated with our partnership agreements and screening services, which comprise of labor and material costs including any inventory write-downs. For development of new products, costs incurred before technological feasibility has been achieved are reported as research and development expenses, while costs incurred thereafter are reported as cost of revenue. Cost of development services and other will vary depending on the nature, timing and scope of customer projects.

*Research and development expense*. Research and development expenses consist of costs incurred to develop technology and include salaries and benefits including stock-based compensation, reagents and supplies used in research and development laboratory work, infrastructure expenses, including facility occupancy and information technology costs, contract services, other outside costs and costs to develop our technology capabilities. Research and development expenses also include costs related to activities performed under contracts with biopharmaceutical companies before technological feasibility has been achieved. Research and development costs are expensed as incurred. Payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered. Costs to develop our technology capabilities are recorded as research and development unless they meet the criteria to be capitalized as internal-use software costs. We expect that our research and development expenses will continue to increase in absolute dollars as we continue to innovate and develop additional products, expand our genomic and medical data management resources and conduct our ongoing and new clinical studies.

*Sales and marketing expense*. Our sales and marketing expenses are expensed as incurred and include costs associated with our sales organization, including our direct sales force and sales management, client services, marketing and reimbursement, medical affairs, as well as business development personnel who are focused on our biopharmaceutical customers. These expenses consist primarily of salaries, commissions, bonuses, employee benefits, travel expenses and stock-based compensation, as well as marketing, sales incentives, and educational activities and overhead expenses. We expect our sales and marketing expenses to increase in absolute dollars as we expand our sales force, increase our presence within and outside of the United States, and increase our marketing activities to drive further awareness and adoption of our tests.

*General and administrative expense*. Our general and administrative expenses include costs for our executive, accounting and finance, information technology, legal and human resources functions. These expenses consist principally of salaries, bonuses, employee benefits, travel expenses and stock-based compensation, as well as professional services fees such as consulting, audit, tax and legal fees, and general corporate costs and overhead expenses. In addition, our general and administrative expenses also include severance costs related to workforce reduction. We expect that our general and administrative expenses will continue to increase as we incur additional costs to support the growth of our business. These expenses, though expected to increase in absolute dollars, are expected to decrease modestly as a percentage of revenue in the long term, though they may fluctuate as a percentage of revenue from period to period due to the timing and extent of these expenses being incurred.

### Interest income

Interest income consists of interest earned on our cash, cash equivalents and marketable debt securities.

### Interest expense

Interest expense consists primarily of charges relating to amortization of debt issuance costs.

### Other income (expense), net

Other income (expense), net consists of foreign currency exchange gains and losses, fair value adjustments of marketable equity securities, impairment of non-marketable equity securities and other related assets, and non-recurring payments due and received in relation to the settlement of license and patent disputes. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.

### Results of operations

The following tables set forth the significant components of our results of operations for the periods presented.

*(unaudited)*

*(in thousands)*

| Revenue: | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Precision oncology testing | $133,423 | $102,054 | $372,060 | $278,252 |
| Development services and other | 9,607 | 15,350 | 36,834 | 44,395 |
| Total revenue | 143,030 | 117,404 | 408,894 | 322,647 |
| Costs and operating expenses: |  |  |  |  |
| Cost of precision oncology testing(1) | 53,648 | 39,434 | 148,111 | 104,493 |
| Cost of development services and other(1) | 3,966 | 1,062 | 16,424 | 4,711 |
| Research and development expense(1) | 93,851 | 100,017 | 277,338 | 267,229 |
| Sales and marketing expense(1) | 68,934 | 80,370 | 216,100 | 218,405 |
| General and administrative expense(1) | 36,174 | 41,121 | 118,135 | 126,068 |
| Total costs and operating expenses | 256,573 | 262,004 | 776,108 | 720,906 |
| Loss from operations | (113,543) | (144,600) | (367,214) | (398,259) |
| Interest income | 11,690 | 1,754 | 21,477 | 3,919 |
| Interest expense | (644) | (644) | (1,933) | (1,933) |
| Other income (expense), net | 16,885 | (18,389) | 56,490 | (18,059) |
| Fair value adjustments of noncontrolling interest liability | — | — | — | (99,785) |
| Loss before provision for income taxes | (85,612) | (161,879) | (291,180) | (514,117) |
| Provision for income taxes | 490 | 115 | 1,226 | 537 |
| Net loss | $(86,102) | $(161,994) | $(292,406) | $(514,654) |

41

(1) Amounts include stock-based compensation expense as follows:

*(unaudited)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Cost of precision oncology testing | $1,092 | $1,316 | $3,470 | $3,695 |
| Cost of development services and other | 436 | — | 1,387 | — |
| Research and development expense | 8,491 | 7,044 | 25,390 | 18,503 |
| Sales and marketing expense | 5,061 | 6,466 | 18,387 | 17,978 |
| General and administrative expense | 6,739 | 5,813 | 17,805 | 30,806 |
| Total stock-based compensation expense | $21,819 | $20,639 | $66,439 | $70,982 |

In November 2020, we granted restricted stock units with certain performance metrics, or PSUs, consisting of a performance period of 4 years combined with an additional service period requirement of six months should the vesting criteria be met. As of September 30, 2023, these PSUs had a grant-date fair value of approximately $25.7 million, net of forfeitures, however no compensation expense for these PSUs has been recorded to-date since the achievement of the performance metrics was not determined to be probable as of September 30, 2023. At each reporting date, we will continue to assess the likelihood of the performance criteria being met and will record a cumulative catch-up adjustment should the achievement of the performance metrics be determined to be probable. For example, had the achievement of the performance metrics been determined to be probable as of September 30, 2023, we would have recorded a total charge of $16.6 million, of which $1.6 million would have been recorded to cost of development services and other, and $6.2 million, $5.3 million and $3.5 million would have been recorded as components of research and development expense, sales and marketing expense, and general and administrative expense, respectively, in the condensed consolidated statements of operations for the three months ended September 30, 2023. In addition, any of these PSUs that remain unvested at the end of the performance period would be forfeited.

### Comparison of the Three Months Ended September 30, 2023 and 2022

### Revenue

*(unaudited)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Precision oncology testing | $133,423 | $102,054 | $31,369 | 31% |
| Development services and other | 9,607 | 15,350 | (5,743) | (37)% |
| Total revenue | $143,030 | $117,404 | $25,626 | 22% |

Total revenue was $143.0 million for the three months ended September 30, 2023, compared to $117.4 million for the three months ended September 30, 2022, an increase of $25.6 million, or 22%.

Precision oncology testing revenue increased to $133.4 million for the three months ended September 30, 2023, from $102.1 million for the three months ended September 30, 2022, an increase of $31.4 million, or 31%.

Precision oncology revenue from tests for clinical customers was $103.9 million for the three months ended September 30, 2023, up 34% from $77.8 million for the three months ended September 30, 2022. This increase in clinical testing revenue was driven primarily by an increase in sample volume. Total tests for clinical customers increased to approximately 43,900 for the three months ended September 30, 2023, from approximately 32,400 for the three months ended September 30, 2022. In addition, our clinical testing revenue for the three months ended September 30, 2023 includes a payment of $3.6 million from Medicare related to a successful appeal for claims dated between 2018 and 2020.

Precision oncology revenue from tests for biopharmaceutical customers was $29.5 million for the three months ended September 30, 2023, up 22% from $24.2 million for the three months ended September 30, 2022. This increase in revenue was due to an increase in sample volume and an increase in average selling price which was primarily resulted from the change in product mix. Total tests for biopharmaceutical customers increased to approximately 7,500 for the three months ended September 30, 2023, from approximately 6,750 for the three months ended September 30, 2022.

Development services and other revenue decreased to $9.6 million for the three months ended September 30, 2023, from $15.4 million for the three months ended September 30, 2022, a decrease of $5.7 million. This decrease in development services and other revenue was primarily due to the timing and amount of milestones related to our partnership agreements and companion diagnostics collaboration projects with biopharmaceutical customers, as well as a reduction in royalty revenue during the three months ended September 30, 2023.

### Cost of Revenue

*(unaudited)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Cost of precision oncology testing | $53,648 | $39,434 | $14,214 | 36% |
| Cost of development services and other | 3,966 | 1,062 | 2,904 | 273% |
| Total cost of revenue | $57,614 | $40,496 | $17,118 | 42% |

Total cost of revenue was $57.6 million for the three months ended September 30, 2023, compared to $40.5 million for the three months ended September 30, 2022, an increase of $17.1 million, or 42%.

Cost of precision oncology testing was $53.6 million for the three months ended September 30, 2023, compared to $39.4 million for the three months ended September 30, 2022, an increase of $14.2 million, or 36%. This increase in cost of precision oncology testing was primarily attributable to an increase in sample volume, resulting in a $7.4 million increase in material costs, and a $5.2 million increase in production labor and overhead costs.

Cost of development services and other was $4.0 million for the three months ended September 30, 2023, compared to $1.1 million for the three months ended September 30, 2022, an increase of $2.9 million. This increase in cost of development services and other was primarily due to costs associated with providing screening testing services during the three months ended September 30, 2023.

### Operating Expenses

#### Research and development expense

*(unaudited)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $93,851 | $100,017 | $(6,166) | (6)% |

Research and development expenses were $93.9 million for the three months ended September 30, 2023, compared to $100.0 million for the three months ended September 30, 2022, a decrease of $6.2 million, or 6%. This decrease was primarily due to a decrease of $6.1 million in facility and information technology infrastructure costs, a decrease of $2.0 million in material costs, and a decrease of $1.3 million in personnel costs, partially offset by an increase of $2.1 million in office and administrative costs.

#### Sales and marketing expense

*(unaudited)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Sales and marketing | $68,934 | $80,370 | $(11,436) | (14)% |

43

Selling and marketing expenses were $68.9 million for the three months ended September 30, 2023, compared to $80.4 million for the three months ended September 30, 2022, a decrease of $11.4 million, or 14%. This decrease was primarily due to a decrease of $2.7 million in personnel costs, a decrease of $2.2 million in marketing activity related costs, and a decrease of $2.0 million in facility and information technology infrastructure costs.

#### General and administrative expense

*(unaudited)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| General and administrative | $36,174 | $41,121 | $(4,947) | (12)% |

General and administrative expenses were $36.2 million for the three months ended September 30, 2023, compared to $41.1 million for the three months ended September 30, 2022, a decrease of $4.9 million, or 12%. This decrease was primarily due to a decrease of $4.4 million in professional service expenses related to outside legal, accounting, consulting and IT services.

#### Interest income

*(unaudited)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $11,690 | $1,754 | $9,936 | 566% |

Interest income was $11.7 million for the three months ended September 30, 2023, compared to $1.8 million for the three months ended September 30, 2022, an increase of $9.9 million, primarily attributable to higher interest rates.

#### Interest expense

*(unaudited)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $(644) | $(644) | $— | —% |

Interest expense was primarily attributable to the amortization of debt issuance costs related to our convertible senior notes issued in November 2020, for the three months ended September 30, 2023, and 2022.

#### Other income (expense), net

*(unaudited)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | --- |
| Other income (expense), net | $16,885 | $(18,389) | $35,274 | \* |

\* Not meaningful

Other income (expense), net was a $16.9 million income for the three months ended September 30, 2023, primarily attributable to $16.6 million of unrealized gains recorded for our marketable equity security investment in Lunit, Inc. during the period. Other income (expense), net was a $18.4 million expense for the three months ended September 30, 2022, primarily due to $13.2 million of unrealized losses recorded for our marketable equity security investment in Lunit, Inc., and $5.3 million of impairment recorded for our non-marketable security investments during the period.

#### Provision for income taxes

*(unaudited)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Provision for income taxes | $490 | $115 | $375 | 326% |

\* Not meaningful

Provision for income taxes was immaterial for the three months ended September 30, 2023, and 2022.

### Comparison of the Nine Months Ended September 30, 2023 and 2022

### Revenue

*(unaudited)*

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Precision oncology testing | $372,060 | $278,252 | $93,808 | 34% |
| Development services and other | 36,834 | 44,395 | (7,561) | (17)% |
| Total revenue | $408,894 | $322,647 | $86,247 | 27% |

Total revenue was $408.9 million for the nine months ended September 30, 2023, compared to $322.6 million for the nine months ended September 30, 2022, an increase of $86.2 million, or 27%.

Precision oncology testing revenue increased to $372.1 million for the nine months ended September 30, 2023, from $278.3 million for the nine months ended September 30, 2022, an increase of $93.8 million, or 34%.

Precision oncology revenue from tests for clinical customers was $295.7 million for the nine months ended September 30, 2023, up 38% from $214.3 million for the nine months ended September 30, 2022. This increase in clinical testing revenue was driven primarily by an increase in sample volume. Total tests for clinical customers increased to approximately 126,500 for the nine months ended September 30, 2023, from approximately 88,800 for the nine months ended September 30, 2022. In addition, our clinical testing revenue for the nine months ended September 30, 2023 includes a payment of $3.6 million from Medicare related to a successful appeal for claims dated between 2018 and 2020.

Precision oncology revenue from tests for biopharmaceutical customers was $76.4 million for the nine months ended September 30, 2023, up 20% from $63.9 million for the nine months ended September 30, 2022. This increase in revenue was primarily due to an increase in sample volume. Total tests for biopharmaceutical customers increased to approximately 20,350 for the nine months ended September 30, 2023, from approximately 17,850 for the nine months ended September 30, 2022.

Development services and other revenue decreased to $36.8 million for the nine months ended September 30, 2023, from $44.4 million for the nine months ended September 30, 2022, a decrease of $7.6 million. This decrease in development services and other revenue was primarily due to the timing and amount of milestones related to our companion diagnostics collaboration projects and other service agreements with biopharmaceutical customers and a reduction in royalty revenue, partially offset by revenue increase from our partnership agreements during the nine months ended September 30, 2023.

### Cost of Revenue

*(unaudited)*

*(dollars in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Cost of precision oncology testing | $148,111 | $104,493 | $43,618 | 42% |
| Cost of development services and other | 16,424 | 4,711 | 11,713 | 249% |
| Total cost of revenue | $164,535 | $109,204 | $55,331 | 51% |

45

Total cost of revenue was $164.5 million for the nine months ended September 30, 2023, compared to $109.2 million for the nine months ended September 30, 2022, an increase of $55.3 million, or 51%.

Cost of precision oncology testing was $148.1 million for the nine months ended September 30, 2023, compared to $104.5 million for the nine months ended September 30, 2022, an increase of $43.6 million, or 42%. This increase in cost of precision oncology testing was primarily attributable to an increase in sample volume, resulting in a $24.0 million increase in material costs, a $15.2 million increase in production labor and overhead costs, and a $3.8 million increase in other costs, including costs related to collection kits, freight and professional services.

Cost of development services and other was $16.4 million for the nine months ended September 30, 2023, compared to $4.7 million for the nine months ended September 30, 2022, an increase of $11.7 million. This increase in cost of development services and other was primarily due to costs associated with providing screening testing services and our partnership agreements, partially offset by costs associated with our companion diagnostics collaboration projects with biopharmaceutical customers during the nine months ended September 30, 2023.

### Operating Expenses

#### Research and development expense

*(unaudited)*

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $277,338 | $267,229 | $10,109 | 4% |

Research and development expenses were $277.3 million for the nine months ended September 30, 2023, compared to $267.2 million for the nine months ended September 30, 2022, an increase of $10.1 million, or 4%. This increase in research and development expense was primarily related to continued investment in the development of our technologies and products, and our clinical studies, resulting in an increase of $14.0 million in outside service fees, an increase of $6.9 million in stock-based compensation, an increase of $5.0 million in office and administrative costs, and an increase of $2.4 million in depreciation and amortization, partially offset by a decrease of $9.0 million in facility and information technology infrastructure costs, and a decrease of $8.6 million in material costs.

#### Sales and marketing expense

*(unaudited)*

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Sales and marketing | $216,100 | $218,405 | $(2,305) | (1)% |

Selling and marketing expenses were $216.1 million for the nine months ended September 30, 2023, compared to $218.4 million for the nine months ended September 30, 2022, a decrease of $2.3 million, or 1%. This decrease was primarily due to a decrease of $3.7 million in marketing activity related costs, and a decrease of $2.2 million in facility and information technology infrastructure costs, partially offset by an increase of $3.2 million in travel and accommodation costs.

#### General and administrative expense

*(unaudited)*

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| General and administrative | $118,135 | $126,068 | $(7,933) | (6)% |

General and administrative expenses were $118.1 million for the nine months ended September 30, 2023, compared to $126.1 million for the nine months ended September 30, 2022, a decrease of $7.9 million, or 6%. This decrease was primarily due to a decrease of $13.0 million in stock-based compensation, of which $16.1 million decrease was related to the market-based restricted stock units issued to our Co-Chief Executive Officers which were fully expensed as of June 30, 2022, and $2.3 million decrease was related to forfeitures, respectively, a decrease of $4.0 million in acquisition related contingent consideration, and a decrease of $2.1 million in facility and information technology infrastructure costs, partially offset by an increase of $7.5 million in severance costs related to a workforce reduction incurred in the first quarter of 2023, an increase of $3.4 million in personnel cost in line with our business expansion, and an increase of $3.0 million in other legal expenses.

#### Interest income

*(unaudited)*

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $21,477 | $3,919 | $17,558 | 448% |

Interest income was $21.5 million for the nine months ended September 30, 2023, compared to $3.9 million for the nine months ended September 30, 2022, an increase of $17.6 million, primarily attributable to higher interest rates.

#### Interest expense

*(unaudited)*

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $(1,933) | $(1,933) | $— | —% |

Interest expense was primarily attributable to the amortization of debt issuance costs related to our convertible senior notes issued in November 2020, for the nine months ended September 30, 2023, and 2022.

#### Other income (expense), net

*(unaudited)*

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | --- |
| Other income (expense), net | $56,490 | $(18,059) | $74,549 | \* |

\* Not meaningful

Other income (expense), net was a $56.5 million income for the nine months ended September 30, 2023, primarily attributable to $84.5 million of unrealized gains recorded for our marketable equity security investment in Lunit, Inc., partially offset by $29.1 million of impairment recorded for our non-marketable equity security investments and other related assets during the period. Other income (expense), net was a $18.1 million expense for the nine months ended September 30, 2022, primarily due to $13.2 million of unrealized losses recorded for our marketable equity security investment in Lunit, Inc., and $5.3 million of impairment recorded for our non-marketable security investments during the period.

#### Fair value adjustments of noncontrolling interest liability

*(unaudited)*

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Fair value adjustments of noncontrolling interest liability | $— | $(99,785) | $99,785 | (100)% |

Fair value adjustments of noncontrolling interest liability for the nine months ended September 30, 2022 was made as a result of the Joint Venture Acquisition completed in June 2022.

#### Provision for income taxes

*(unaudited)*

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Provision for income taxes | $1,226 | $537 | $689 | 128% |

Provision for income taxes was immaterial for the nine months ended September 30, 2023, and 2022.

### Liquidity and capital resources

We have incurred losses and negative cash flows from operations since our inception, and as of September 30, 2023, we had an accumulated deficit of $2.0 billion. We expect to incur additional operating losses in the near future and our operating expenses will increase as we continue to invest in clinical studies and develop new products, expand our sales organization, and increase our marketing efforts to drive market adoption of our tests. As demand for our tests are expected to continue to increase from physicians and biopharmaceutical companies, we anticipate that our capital expenditure requirements could also increase if we require additional laboratory capacity.

We have funded our operations to date principally from the sale of stock, convertible debt and through revenue from precision oncology testing and development services and other. As of September 30, 2023, we had cash and cash equivalents of $457.3 million and marketable debt securities of $697.5 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to provide liquidity while ensuring capital preservation. Additionally, we have investments held in marketable debt securities consisting of United States treasury securities and commercial paper that can be immediately liquid.

Based on our current business plan, we believe our current cash, cash equivalents and marketable debt securities and anticipated cash flows from operations, will be sufficient to meet our anticipated cash requirements for more than 12 months from the date of this Quarterly Report on Form 10-Q. We may consider raising additional capital to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons. As revenue from precision oncology testing and development services and other is expected to grow long-term, we expect our accounts receivable and inventory balances to increase. Any increase in accounts receivable and inventory may not be completely offset by increases in accounts payable and accrued liabilities, which could impact our working capital balances.

If our available cash, cash equivalents and marketable debt securities and anticipated cash flows from operations are insufficient to satisfy our liquidity requirements because of lower demand for our products as a result of lower than currently expected rates of reimbursement from our customers or other risks described in this Quarterly Report on Form 10-Q and in our Form 10-K for the year ended December 31, 2022, we may seek to sell additional common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our platform technologies or products or grant licenses on terms that are not favorable to us. Additional capital may not be available to us on reasonable terms, or at all.

### Cash flows

The following table summarizes our cash flows for the periods presented:

*(unaudited)*

*(in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(246,247) | $(218,714) |
| Net cash provided by investing activities | $176,796 | $79,189 |
| Net cash provided by (used in) financing activities | $386,807 | $(191,411) |

### Operating activities

Cash used in operating activities during the nine months ended September 30, 2023, was $246.2 million, which resulted from a net loss of $292.4 million, and cash effect of net change in our operating assets and liabilities of $10.3 million, partially offset by non-cash charges of $56.5 million. Non-cash charges primarily consisted of $66.4 million of stock-based compensation, $32.0 million of depreciation and amortization, $29.1 million of impairment on non-marketable equity security investments and other related assets, and $22.1 million of operating lease costs, partially offset by $84.5 million of unrealized gains on marketable equity security investment in Lunit, inc., and $10.9 million of amortization of discount on marketable debt securities. The cash effect of net change in our operating assets and liabilities was primarily the result of a $25.4 million increase in inventory, net, due to forecasted higher testing volumes, and a $22.7 million payment of operating lease liabilities net of receipt of tenant improvement allowance, partially offset by a $26.6 million increase in accounts payable and accrued liabilities, primarily due to increased purchases of goods and services, a $8.4 million decrease in accounts receivable, net, and a $3.2 million increase in deferred revenue.

Cash used in operating activities during the nine months ended September 30, 2022 was $218.7 million, which resulted from a net loss of $514.7 million, partially offset by non-cash charges of $246.0 million and cash effect of net change in our operating assets and liabilities of $50.0 million. Non-cash charges primarily consisted of $99.8 million of fair value adjustments of noncontrolling interest liability in connection with the Joint Venture Acquisition, $71.0 million of stock-based compensation, $25.8 million of depreciation and amortization, $21.4 million of operating lease costs, $13.2 million of unrealized losses on marketable equity security investment in Lunit, inc., $5.3 million of impairment on non-marketable equity security investments, $4.2 million of revaluation adjustments to acquisition related contingent consideration, and $3.4 million of amortization of premium on marketable debt securities. The cash effect of net change in our operating assets and liabilities was primarily the result of a $46.7 million increase in accounts payable and accrued liabilities, primarily due to increased purchases of goods and services and increased personnel, a $28.4 million decrease in prepaid expenses and other current assets, net, primarily driven by a $25.0 million one-time payment pursuant to a settlement and license agreement entered into in December 2021, a $11.4 million decrease in accounts receivable, a $4.8 million decrease in other assets, net, and a $4.1 million increase in deferred revenue, partially offset by a $32.4 million increase in inventory, net, due to forecasted higher testing volumes, and increased inventory level to offset potential disruption in supply chain, and a $13.0 million payment of operating lease liabilities net of receipt of tenant improvement allowance.

### Investing activities

Cash provided by investing activities during the nine months ended September 30, 2023, was $176.8 million, which resulted primarily from maturities of marketable debt securities of $828.7 million, partially offset by purchases of marketable debt securities of $629.9 million, purchases of property and equipment of $16.4 million, and purchases of non-marketable equity securities and other related assets of $5.6 million.

Cash provided by investing activities during the nine months ended September 30, 2022, was $79.2 million, which resulted primarily from maturities of marketable debt securities of $398.0 million, partially offset by purchases of marketable debt securities of $238.6 million, purchases of property and equipment of $67.5 million, and purchases of non-marketable equity securities and other related assets of $12.8 million.

### Financing activities

Cash provided by financing activities during the nine months ended September 30, 2023, was $386.8 million, which was primarily attributable to gross proceeds from the follow-on public offering of $402.5 million, and proceeds from issuances of common stock under our employee stock purchase plan of $6.7 million, partially offset by payment of offering costs related to the follow-on public offering of $20.5 million, and taxes paid related to net share settlement of restricted stock units of $8.1 million.

Cash used in financing activities during the nine months ended September 30, 2022, was $191.4 million, which was primarily attributable to consideration payment for the Joint Venture Acquisition of $177.8 million, payment for the tender offer in connection with the Joint Venture Acquisition and acquisition related costs of $14.2 million, and taxes paid related to net share settlement of restricted stock units of $6.5 million, partially offset by proceeds from issuances of common stock under our employee stock purchase plan of $5.7 million.

### Critical accounting policies and estimates

We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP. Our preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures at the date of the consolidated financial statements, as well as revenue and expenses recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on 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 could therefore differ materially from these estimates under different assumptions or conditions.

Our significant accounting policies are described in more detail in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and in Item 7, “*Management's Discussion and Analysis of Financial Condition and Results of Operations”*, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. During the three and nine months ended September 30, 2023, there were no material changes to our critical accounting policies from those discussed previously.

### Recent accounting pronouncements

Not applicable.

## Market risk

As filed, 2,281 characters.

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.

### Interest rate risk

We are exposed to market risk for changes in interest rates related primarily to our cash and cash equivalents, marketable debt securities and our indebtedness. As of September 30, 2023, we had cash and cash equivalents of $457.3 million held primarily in cash deposits and money market funds. Our marketable debt securities are held in U.S. government debt securities and commercial paper. As of September 30, 2023, we had short-term marketable debt securities of $697.5 million. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of the interest rates in the United States. As of September 30, 2023, a hypothetical 100 basis point increase in interest rates would have resulted in an approximate $0.9 million decline of the fair value of our available-for-sale securities and a hypothetical 100 basis point decrease in interest rates would have resulted in an approximate $0.9 million increase of the fair value of our available-for-sale securities. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur.

### Foreign currency risk

The majority of our revenue is generated in the United States. Through September 30, 2023, we have generated an insignificant amount of revenues denominated in foreign currencies. As we expand our presence in the international market, our results of operations and cash flows are expected to increasingly be subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. As of September 30, 2023, the effect of a hypothetical 10% change in foreign currency exchange rates would not be material to our financial condition or results of operations. To date, we have not entered into any hedging arrangements with respect to foreign currency risk. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates.

## Controls and procedures

As filed, 2,971 characters.

### Evaluation of disclosure controls and procedures

Our Co-Chief Executive Officers, or Co-CEOs, and our Chief Financial Officer, or CFO with the participation of other members of our management, have evaluated the effectiveness of our “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act) as of September 30, 2023, and our Co-CEOs and our CFO have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

### Changes in internal control

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on effectiveness of controls and procedures

Our management, including our Co-CEOs and our CFO, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived 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 also is 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, 1,562 characters.

Our business, financial condition and operating results are affected by a number of factors, whether currently known or unknown, including risks specific to us or the healthcare industry as well as risks that affect businesses in general. In addition to the information set forth in this Quarterly Report on Form 10-Q, you should consider carefully the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 23, 2023. The risks and uncertainties disclosed in such Annual Report and in this Quarterly Report could materially adversely affect our business, financial condition, cash flows or results of operations and thus our stock price. During the third quarter of fiscal 2023, there were no material changes to our previously disclosed risk factors.

These risk factors may be important to understanding other statements in this Quarterly Report and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes in Part I, Item 1, “*Financial Statements”* and Part I, Item 2, “*Management’s Discussion and Analysis of Financial Condition and Results of Operations”* of this Quarterly Report. Because of such risk factors, as well as other factors affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Filed Nov 6, 2023.
Source: SEC EDGAR, the filing index for accession 0001576280-23-000187. Last ingested by Listed: Nov 5, 2026, 20:28 ET. No prices; not investment advice.