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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 001-38943

 

Personalis, Inc.

(Exact Name of registrant as specified in its charter)

 

 

Delaware

27-5411038

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

1330 O’Brien Drive

Menlo Park, California 94025

94025

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (650) 752-1300

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001

 

PSNL

 

The Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

         ☒

  

Accelerated filer

 

Non-accelerated filer

 

         ☐

  

Smaller reporting company

 

 

Emerging growth company

 

          

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No   

The number of shares of registrant’s Common Stock outstanding as of April 28, 2022 was 45,446,930.

 


 

PERSONALIS, INC.

 

Form 10-Q

For the Quarterly Period Ended March 31, 2022

 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

Special Note Regarding Forward-Looking Statements

3

 

 

 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

4

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations

5

 

Condensed Consolidated Statements of Comprehensive Loss

6

 

Condensed Consolidated Statements of Stockholders’ Equity

7

 

Condensed Consolidated Statements of Cash Flows

8

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

 

 

 

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

68

Item 3.

Defaults Upon Senior Securities

68

Item 4.

Mine Safety Disclosures

68

Item 5.

Other Information

68

Item 6.

Exhibits

70

 

Signatures

71

 

2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “hope,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

 

the evolution of cancer therapies and market adoption of our services and products;

 

estimates of our total addressable market, future revenue, expenses, capital requirements, and our needs for additional financing;

 

our ability to enter into and compete in new markets;

 

the impact of the COVID-19 pandemic on our business, our customers’ and suppliers’ businesses and the general economy;

 

our ability to compete effectively with existing competitors and new market entrants;

 

our ability to scale our infrastructure;

 

our ability to manage and grow our business by expanding our sales to existing customers or introducing our services and products to new customers;

 

expectations regarding our relationship with the U.S. Department of Veterans Affairs’ Million Veteran Program;

 

our ability to establish and maintain intellectual property protection for our services and products or avoid claims of infringement;

 

potential effects of extensive government regulation;

 

our ability to hire and retain key personnel;

 

our ability to obtain financing in future offerings;

 

the volatility of the trading price of our common stock;

 

our belief that approval of personalized cancer therapies by the Food and Drug Administration may drive benefits to our business; and

 

our ability to maintain proper and effective internal controls.

Actual events or results may differ from those expressed in forward-looking statements. As such, you should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, prospects, strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a highly competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “company,” “Personalis,” “we,” “us” and “our” refer to Personalis, Inc.

 

 

 

3


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PERSONALIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

91,586

 

 

$

105,585

 

Short-term investments

 

 

174,954

 

 

 

181,479

 

Accounts receivable, net

 

 

13,519

 

 

 

18,468

 

Inventory and other deferred costs

 

 

8,065

 

 

 

5,610

 

Prepaid expenses and other current assets

 

 

5,904

 

 

 

7,089

 

Total current assets

 

 

294,028

 

 

 

318,231

 

Property and equipment, net

 

 

30,600

 

 

 

19,650

 

Operating lease right-of-use assets

 

 

51,727

 

 

 

53,822

 

Other long-term assets

 

 

4,292

 

 

 

4,825

 

Total assets

 

$

380,647

 

 

$

396,528

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

12,275

 

 

$

9,221

 

Accrued and other current liabilities

 

 

24,108

 

 

 

18,110

 

Contract liabilities

 

 

3,461

 

 

 

3,982

 

Total current liabilities

 

 

39,844

 

 

 

31,313

 

Long-term operating lease liabilities

 

 

52,364

 

 

 

52,797

 

Other long-term liabilities

 

 

1,724

 

 

 

2,117

 

Total liabilities

 

 

93,932

 

 

 

86,227

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value — 10,000,000 shares authorized; none issued

 

 

 

 

 

 

Common stock, $0.0001 par value — 200,000,000 shares authorized; 45,250,087 and 44,904,512 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

5

 

 

 

4

 

Additional paid-in capital

 

 

562,889

 

 

 

557,558

 

Accumulated other comprehensive loss

 

 

(875

)

 

 

(166

)

Accumulated deficit

 

 

(275,304

)

 

 

(247,095

)

Total stockholders’ equity

 

 

286,715

 

 

 

310,301

 

Total liabilities and stockholders’ equity

 

$

380,647

 

 

$

396,528

 

 

 

See notes to condensed consolidated financial statements.

 

4


 

PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Revenue

 

$

15,227

 

 

$

20,881

 

Costs and expenses

 

 

 

 

 

 

 

 

Cost of revenue

 

 

10,949

 

 

 

13,454

 

Research and development

 

 

17,098

 

 

 

9,496

 

Selling, general and administrative

 

 

15,486

 

 

 

10,421

 

Total costs and expenses

 

 

43,533

 

 

 

33,371

 

Loss from operations

 

 

(28,306

)

 

 

(12,490

)

Interest income

 

 

144

 

 

 

95

 

Interest expense

 

 

(59

)

 

 

 

Other income (expense), net

 

 

19

 

 

 

(12

)

Loss before income taxes

 

 

(28,202

)

 

 

(12,407

)

Provision for (benefit from) income taxes

 

 

7

 

 

 

(3

)

Net loss

 

$

(28,209

)

 

$

(12,404

)

Net loss per share, basic and diluted

 

$

(0.63

)

 

$

(0.29

)

Weighted-average shares outstanding, basic and diluted

 

 

44,995,752

 

 

 

42,265,596

 

 

 

See notes to condensed consolidated financial statements.

5


PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(28,209

)

 

$

(12,404

)

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(8

)

 

 

2

 

Change in unrealized loss on available-for-sale debt securities

 

 

(701

)

 

 

(29

)

Comprehensive loss

 

$

(28,918

)

 

$

(12,431

)

 

 

See notes to condensed consolidated financial statements.

 

6


 

PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

For the Three Months Ended March 31, 2022 and 2021

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance—December 31, 2020

 

 

39,105,548

 

 

$

4

 

 

$

376,788

 

 

$

22

 

 

$

(181,869

)

 

$

194,945

 

Proceeds from follow-on equity offering, net of offering costs

 

 

4,542,500

 

 

 

 

 

 

161,916

 

 

 

 

 

 

 

 

 

161,916

 

Proceeds from exercise of stock options

 

 

114,026

 

 

 

 

 

 

933

 

 

 

 

 

 

 

 

 

933

 

Restricted stock units vested

 

 

36,587

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,057

 

 

 

 

 

 

 

 

 

3,057

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Unrealized loss on available-for-sale debt securities

 

 

 

 

 

 

 

 

 

 

 

(29

)

 

 

 

 

 

(29

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,404

)

 

 

(12,404

)

Balance—March 31, 2021

 

 

43,798,661

 

 

$

4

 

 

$

542,694

 

 

$

(5

)

 

$

(194,273

)

 

$

348,420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—December 31, 2021

 

 

44,904,512

 

 

$

4

 

 

$

557,558

 

 

$

(166

)

 

$

(247,095

)

 

$

310,301

 

Proceeds from exercise of stock options

 

 

279,205

 

 

 

1

 

 

 

515

 

 

 

 

 

 

 

 

 

516

 

Restricted stock units vested

 

 

66,370

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,816

 

 

 

 

 

 

 

 

 

4,816

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Unrealized loss on available-for-sale debt securities

 

 

 

 

 

 

 

 

 

 

 

(701

)

 

 

 

 

 

(701

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,209

)

 

 

(28,209

)

Balance—March 31, 2022

 

 

45,250,087

 

 

$

5

 

 

$

562,889

 

 

$

(875

)

 

$

(275,304

)

 

$

286,715

 

 

See notes to condensed consolidated financial statements.

 

 

7


 

PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(28,209

)

 

$

(12,404

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

4,816

 

 

 

3,057

 

Depreciation and amortization

 

 

1,774

 

 

 

1,523

 

Noncash operating lease cost

 

 

2,096

 

 

 

372

 

Amortization of premium on short-term investments

 

 

347

 

 

 

496

 

Other

 

 

43

 

 

 

7

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,949

 

 

 

(1,703

)

Inventory and other deferred costs

 

 

(2,455

)

 

 

61

 

Prepaid expenses and other assets

 

 

1,720

 

 

 

63

 

Accounts payable

 

 

1,132

 

 

 

(2,175

)

Accrued and other current liabilities

 

 

3,398

 

 

 

2,471

 

Contract liabilities

 

 

(522

)

 

 

(2,797

)

Operating lease liabilities

 

 

(24

)

 

 

(354

)

Other long-term liabilities

 

 

(422

)

 

 

(360

)

Net cash used in operating activities

 

 

(11,357

)

 

 

(11,743

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of available-for-sale debt securities

 

 

(59,702

)

 

 

(114,056

)

Proceeds from maturities of available-for-sale debt securities

 

 

65,175

 

 

 

26,892

 

Proceeds from sales of available-for-sale debt securities

 

 

 

 

 

5,059

 

Purchases of property and equipment

 

 

(8,634

)

 

 

(439

)

Net cash used in investing activities

 

 

(3,161

)

 

 

(82,544

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from public offerings, net of underwriting discounts and commissions

 

 

 

 

 

162,258

 

Payments of costs related to public offerings

 

 

 

 

 

(342

)

Proceeds from exercise of equity awards

 

 

515

 

 

 

933

 

Net cash provided by financing activities

 

 

515

 

 

 

162,849

 

Effect of exchange rates on cash, cash equivalents and restricted cash

 

 

4

 

 

 

2

 

Net change in cash, cash equivalents and restricted cash

 

 

(13,999

)

 

 

68,564

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

107,375

 

 

 

68,525

 

Cash, cash equivalents and restricted cash, end of period

 

$

93,376

 

 

$

137,089

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:

 

Cash and cash equivalents

 

$

91,586

 

 

$

137,089

 

Restricted cash, included in other long-term assets

 

 

1,790

 

 

 

 

Total cash, cash equivalents and restricted cash

 

$

93,376

 

 

$

137,089

 

 

 

See notes to condensed consolidated financial statements.

 

 

8


 

 

PERSONALIS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Company and Nature of Business

Personalis, Inc. (the “Company”) was incorporated in Delaware on February 21, 2011 and began operations in September 2011. The Company formed a wholly owned subsidiary, Personalis (UK) Ltd., in August 2013 and a wholly owned subsidiary, Shanghai Personalis Biotechnology Co., Ltd., which is referred to as “Personalis (Shanghai) Ltd” herein, in October 2020. The Company is a provider of advanced genetic tests for cancer. The Company also provides sequencing and data analysis services to support population sequencing initiatives. The Company’s genetic tests for cancer are sold primarily to pharmaceutical companies, biopharmaceutical companies, universities, non-profits, and government entities, while services for population sequencing initiatives are sold primarily to government entities. The principal markets for the Company’s services are in the United States and Europe. In June 2020, the Company began partnering with a clinical genomics and life sciences company headquartered in China to expand business operations into China. The Company operates and manages its business as one reportable operating segment, which is the sale of sequencing and data analysis services.

The Company has incurred losses to date and expects to incur additional losses for the foreseeable future. The Company continues to invest the majority of its resources in the development and growth of its business, including investments in service and product development and sales and marketing efforts. The Company’s activities have been financed to date primarily through the sale of its equity securities and cash from operations.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

The condensed consolidated financial statements include the accounts of Personalis, Inc. and its wholly owned subsidiaries, Personalis (UK) Ltd. and Personalis (Shanghai) Ltd. All intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year ending December 31, 2022.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The estimates include, but are not limited to, useful lives assigned to long-lived assets, discount rates for lease accounting, the valuation of stock options, the valuation of stock-based awards, and provisions for income taxes and contingencies. Actual results could differ from these estimates, and such differences could be material to the Company’s consolidated financial position and results of operations.

Follow-On and At-the-Market Equity Offerings

On August 14, 2020, the Company completed a follow-on equity offering in which it issued and sold 6,578,947 shares of its common stock at a public offering price of $19.00 per share. The Company received net proceeds of $117.5 million after deducting underwriting discounts and commissions. The Company also incurred $0.4 million of offering costs, including legal, accounting, printing and other offering-related costs.

On January 29, 2021, the Company completed a follow-on equity offering in which it issued and sold 3,950,000 shares of its common stock at a public offering price of $38.00 per share. The Company received net proceeds of $141.1 million after deducting underwriting discounts and commissions. The underwriters of the offering exercised their option to purchase an additional 592,500 shares shortly thereafter, resulting in additional net proceeds of $21.2 million after deducting underwriting discounts and commissions. The Company also incurred $0.3 million of offering costs, including legal, accounting, printing and other offering-related costs.

On December 30, 2021, the Company entered into an At-the-Market Sales Agreement (the “Sales Agreement”) with BTIG, LLC (“BTIG”) under which it may offer and sell its common stock having aggregate sales proceeds of up to $100.0 million from time to time through BTIG as its sales agent. BTIG will use commercially reasonable efforts to sell the Company’s common stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company will pay BTIG a commission of up to 3% of the gross sales proceeds of any common stock

9


 

sold through BTIG under the Sales Agreement. The Company is not obligated to make any sales of common stock under the Sales Agreement. No shares of the Company’s common stock have been offered or sold under the Sales Agreement.

Concentration of Credit Risk and Other Risks and Uncertainties

The Company is subject to credit risk from its portfolio of cash and cash equivalents. The Company’s cash and cash equivalents are deposited with high-quality financial institutions. Deposits at these institutions may, at times, exceed federally insured limits. Management believes these financial institutions are financially sound and, accordingly, that minimal credit risk exists.

The Company also invests in investmentgrade debt instruments and has policy limits for the amount it can invest in any one type of security, except for securities issued or guaranteed by the U.S. government. The goals of the Company’s investment policy are as follows: preservation of principal; liquidity of investments sufficient to meet cash flow requirements; avoidance of inappropriate concentration and credit risk; competitive aftertax rate of returns; and fiduciary control of cash and investments. Under its investment policy, the Company limits the amounts invested in such securities by credit rating, maturity, investment type, and issuer. As a result, management believes that these financial instruments do not expose the Company to any significant concentrations of credit risk.

The Company purchases various reagents and sequencing materials from sole source suppliers. Any extended interruption in the supply of these materials could result in the Company’s inability to secure sufficient materials to conduct business and meet customer demand.

The Company routinely assesses the creditworthiness of its customers and does not require collateral. The Company has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company maintains an allowance for doubtful accounts, which was $0.1 million as of March 31, 2022 and December 31, 2021. The Company had no bad debt expense for the periods presented.

Significant customers are those that represent more than 10% of the Company’s total revenue in each period or accounts receivable balance at each respective balance sheet date. For each significant customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows:

 

 

 

Revenue

 

 

Accounts Receivable

 

 

 

Three Months Ended March 31,

 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

Natera, Inc.

 

27%

 

 

*

 

 

17%

 

 

39%

 

U.S. Department of Veterans Affairs Million Veteran Program (the “VA MVP”)

 

23%

 

 

63%

 

 

*

 

 

*

 

Pfizer Inc.

 

11%

 

 

12%

 

 

18%

 

 

*

 

AbbVie Inc.

 

*

 

 

*

 

 

18%

 

 

18%

 

Merck & Co., Inc.

 

*

 

 

*

 

 

14%

 

 

15%

 

* Less than 10% of revenue or accounts receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue Recognition

The Company applies the revenue recognition guidance in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”).

Revenue Recognition

The revenue guidance provides a five-step framework through which revenue is recognized when control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that the Company concludes are within the scope of Topic 606, management performs the following five steps: (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract(s); (iii) determines the transaction price, including whether there are any constraints on variable consideration; (iv) allocates the transaction price to the performance obligations; and (v) recognizes revenue when (or as) the Company satisfies a performance obligation. At contract inception, once a contract is determined to be within the scope of the new revenue standard, the Company assesses whether individual goods or services promised within each contract are distinct and, therefore, represent separate performance obligations.

The Company derives revenue from sequencing and data analysis services to support the development of next-generation cancer therapies and to support large-scale genetic research programs. The Company’s contracts are in the form of a combination of signed agreements, statements of work, and/or purchase orders. Under Topic 606, the Company accounts for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and it is probable that the Company will collect substantially all of the consideration to which it will be entitled.

10


 

The sequencing and data analysis services are accounted for as one performance obligation under Topic 606. The Company recognizes revenue from such services at the point in time when control of the test results is transferred to the customer. The Company has elected to exclude all sales and value added taxes from the measurement of the transaction price. Sequencing and data analysis services are based on a fixed price per test.

Payment terms and conditions vary by contract and customer. The Company’s standard payment terms are less than 90 days from the invoice date. In instances where the timing of the Company’s revenue recognition differs from the timing of its invoicing, the Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised services to the customer will be one year or less. After assessing each of its revenue-generating arrangements to determine whether a significant financing component exists, the Company concluded that a significant financing component does not exist in any of its arrangements. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s services and to provide payment protection for the Company.

Practical Expedients and Exemptions

As a practical expedient, the Company recognizes the incremental costs of obtaining contracts, such as sales commissions, as an expense when incurred since the amortization period of the asset the Company otherwise would have recognized is one year or less. Sales commissions are recorded within selling, general and administrative expenses in the condensed consolidated statements of operations.

Cost of Revenue

Cost of revenue consists of raw materials costs, personnel costs (salaries, bonuses, benefits, payroll taxes, and stock-based compensation), laboratory supplies and consumables, depreciation and maintenance on equipment, and allocated facilities and information technology (“IT”) costs.

Research and Development Expenses

The Company charges research and development costs to expenses as incurred, including lab and automation development costs. The expenses primarily consist of personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), laboratory supplies and consumables, costs of processing samples for research purposes, depreciation and maintenance on equipment, and allocated facilities and IT costs.

Stock-Based Compensation

For options granted to employees, non-employees, and directors, stock-based compensation is measured at grant date based on the fair value of the award. The Company determines the grant-date fair value of options using the Black-Scholes option-pricing model, except for certain performance-based awards for which an alternative valuation method may be used. The Company determines the fair value of restricted stock unit awards using the closing market price of the Company’s common stock on the date of grant. The grant-date fair value of awards is amortized over the employees’ requisite service period on a straight-line basis, or the non-employees’ vesting period as the goods are received or services rendered. Forfeitures are accounted for as they occur. Additionally, the Company’s 2019 Employee Stock Purchase Plan (the “ESPP”) is deemed to be a compensatory plan and therefore is included in stock-based compensation expense.

Inputs used in Black-Scholes option-pricing models to measure fair value of options are summarized as follows:

Expected Term. The expected term is calculated using the simplified method, which is available if there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting tranche for awards with graded vesting. The midpoint of the vesting date and the contractual expiration date is used as the expected term under this method. For awards with multiple vesting tranches, the assumed period for each tranche is computed separately and then averaged together to determine the expected term for the award.

Expected Volatility. The Company used an average historical stock price volatility of a peer group of publicly traded companies to be representative of its expected future stock price volatility, as the Company did not have sufficient trading history for its common stock. For purposes of identifying these peer companies, the Company considered the industry, stage of development, size, and financial leverage of potential comparable companies. For each grant, the Company measured historical volatility over a period equivalent to the expected term.

Risk-Free Interest Rate. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of a stock award.

Expected Dividend Rate. The Company has not paid and does not anticipate paying any dividends in the near future. Accordingly, the Company has estimated the dividend yield to be zero.

11


 

Cash and Cash Equivalents

 

Cash equivalents consist of highly liquid investments with maturities at the time of purchase of three months or less. Cash equivalents include bank demand deposits and money market accounts that invest primarily in cash, U.S. Treasury bills, notes, and other obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, and repurchase agreements secured by such obligations or cash. Cash equivalents also include commercial paper, which are marketable debt securities recorded at fair value and accounted for in the same manner as other marketable debt securities described below.

 

Short-term Investments

 

The Company’s investments in marketable debt securities are classified as available-for-sale and recorded at fair value. Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. Short-term investments primarily consist of U.S. agency bonds, commercial paper, corporate bonds, asset-backed securities, U.S. treasuries, and non-U.S. Government notes.

 

Unrealized gains and losses are included in accumulated other comprehensive income (loss) in stockholders’ equity. Any discount or premium arising at purchase is accreted or amortized to interest income or expense. Realized gains and losses and declines in fair value, if any, judged to be other than temporary are reported in other income (expense), net. When securities are sold, any associated unrealized gain or loss initially recorded as a separate component of stockholders’ equity is reclassified out of stockholders’ equity on a specific-identification basis and recorded in earnings for the period.

 

The Company periodically evaluates whether declines in fair values of its investments below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs. Factors considered include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of the marketable security, duration and severity of the decline in value, and management’s strategy and intentions for holding the marketable security. To date, the Company has not recorded any impairment charges on its marketable securities related to other-than-temporary declines in market value.

 

Fair Value Measurements

Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. Observable inputs reflect market data obtained from independent sources while unobservable inputs reflect market assumptions made by the reporting entity.

The three-level hierarchy for the inputs to valuation techniques used to measure fair value is briefly summarized as follows:

Level 1 — Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets and liabilities.

Level 2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

 

Quoted prices for similar assets and liabilities in active markets.

 

Quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Observable inputs other than quoted prices that are used in the valuation of the asset or liability (e.g., interest rate and yield curve quotes at commonly quoted intervals).

 

Inputs that are derived principally from or are corroborated by observable market data by correlation or other means.

Level 3 — Unobservable inputs for the assets or liabilities (i.e., supported by little or no market activity). Level 3 inputs include management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

12


 

Inventory and Other Deferred Costs

Inventory, consisting of supplies used in the Company’s genomic analysis contracts, are valued at the lower of cost or net realizable value. Cost is determined using actual costs, on a first-in, first-out basis.

Other deferred costs relate to work in process for costs incurred on genomic analysis contracts that have not been completed or recognized as revenue. Other deferred costs represent materials used in sequencing services, labor, and overhead allocations.

Leases

The Company categorizes leases with contractual terms longer than 12 months as either operating or finance leases. Finance leases are generally those leases that allow the Company to substantially utilize or pay for the entire asset over its estimated life. All other leases are categorized as operating leases. As of March 31, 2022, the Company had no finance leases.

Certain lease contracts include obligations to pay for other services, such as maintenance. The Company elected to account for these other services as a component of the lease (i.e., the Company elected the practical expedient not to separate lease and non-lease components).

Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on the Company’s current borrowing rate at the lease commencement date, adjusted for various factors including level of collateralization and term (the “incremental borrowing rate”), unless the rate implicit in the lease is readily determinable. The current portion of lease liabilities is included in “Accrued and other current liabilities.” Lease assets are recognized based on the initial present value of the fixed lease payments plus any direct costs from executing the leases or lease prepayments reclassified from “Other long-term assets” upon lease commencement. Lease assets are presented as “Operating lease right-of-use assets” as a long-term asset. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.

The Company has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from leases with a term of 12 months or less. Lease payments are recognized as an expense on a straight-line basis over the lease term. The Company has also elected to include expenses related to leases with a term of one month or less in the short-term lease cost disclosure.

Recent Accounting Pronouncements

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The accounting update also made minor changes to the impairment model for available-for-sale debt securities. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures. The Company will adopt the new guidance in the first quarter of 2023 by means of a cumulative-effect adjustment to opening retained earnings.

Note 3. Revenue

The following table presents revenue disaggregated by customer type (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

VA MVP

 

$

3,501

 

 

$

13,210

 

All other customers

 

 

11,726

 

 

 

7,671

 

Total revenue

 

$

15,227

 

 

$

20,881

 

 

Revenue from countries outside of the United States, based on the billing addresses of customers, represented approximately 18% and 8% of the Company’s revenue for the three months ended March 31, 2022 and 2021.

Contract Assets and Liabilities

Contract assets as of March 31, 2022 and December 31, 2021 were immaterial.

The Company’s contract liabilities consist of customer deposits in excess of revenue recognized and are presented as current liabilities in the condensed consolidated balance sheets.

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The balance of contract liabilities was $3.5 million and $4.0 million as of March 31, 2022 and December 31, 2021, respectively. Revenue recognized for the three months ended March 31, 2022 and 2021 that were included in the contract liability balance at the beginning of each reporting period were $2.5 million and $9.5 million, respectively.

Revenue allocated to remaining performance obligations represent contracted revenue that has not yet been recognized (“contracted not recognized revenue”), which include VA MVP contract liabilities and amounts that will be invoiced and recognized as revenue in future periods. Contracted not recognized revenue was $4.1 million as of March 31, 2022, which the Company expects to recognize as revenue within the next three months. The Company has elected the optional exemption that allows for the exclusion of contracts with an original expected duration of one year or less.

Note 4. Balance Sheet Details

Inventory and other deferred costs consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Raw materials

 

$

4,818

 

 

$

4,081

 

Other deferred costs

 

 

3,247

 

 

 

1,529

 

Total inventory and other deferred costs

 

$

8,065

 

 

$

5,610

 

Property and equipment. Depreciation and amortization expense for the three months ended March 31, 2022 and 2021 was $1.8 million and $1.5 million, respectively. Accumulated depreciation and amortization was $20.8 million and $19.0 million as of March 31, 2022 and December 31, 2021, respectively.

Restricted cash. The Company’s restricted cash is pledged as collateral for a standby letter of credit related to a property lease. The balance of restricted cash was $1.8 million as of March 31, 2022 and December 31, 2021, respectively, and is included in other long-term assets.

Accrued and other current liabilities consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Accrued compensation

 

$

13,141

 

 

$

10,673

 

Operating lease liabilities

 

 

4,137

 

 

 

3,728

 

Accrued liabilities

 

 

3,212

 

 

 

883

 

Loans—current portion (Note 6)

 

 

1,836

 

 

 

1,806

 

Employee ESPP contributions

 

 

1,217

 

 

 

517

 

Accrued taxes

 

 

535

 

 

 

121

 

Customer deposits

 

 

30

 

 

 

382

 

Total accrued and other current liabilities

 

$

24,108

 

 

$

18,110

 

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Note 5. Fair Value Measurements

The following tables show the Company’s financial assets measured at fair value on a recurring basis and the level of inputs used in such measurements as of March 31, 2022 and December 31, 2021 (in thousands):

 

 

 

March 31, 2022

 

 

Adjusted Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

 

Fair Value Level

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

2,829

 

 

$

 

 

$

 

 

$

2,829

 

 

 

Money market funds

 

 

20,048

 

 

 

 

 

 

 

 

 

20,048

 

 

Level 1

Commercial paper

 

 

55,198

 

 

 

2

 

 

 

(3

)

 

 

55,197

 

 

Level 2

Corporate debt securities

 

 

8,511

 

 

 

3