Guardant Health, Inc. [GH] Filings

10-Q 1 gh-20230930.htm 10-Q gh-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_____________________

FORM 10-Q

_____________________

(Mark One)

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

For the quarterly period ended September 30, 2023

☐ 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: 001-38683

_____________________

GUARDANT HEALTH, INC.

(Exact Name of Registrant as Specified in its Charter)

_____________________


Delaware						45-4139254
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

3100 Hanover Street

Palo Alto, California, 94304

Registrant’s telephone number, including area code: (855) 698-8887

_______________

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, $0.00001 par value per share	GH	The Nasdaq Global Select 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, a 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 ☒

As of October 31, 2023, the registrant had 117,992,240 shares of common stock, $0.00001 par value per share, outstanding.

GUARDANT HEALTH, INC.

FORM 10-Q

TABLE OF CONTENTS


	PART I – FINANCIAL INFORMATION
		Page
Item 1.	Unaudited Condensed Consolidated 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	9
	Notes to the Unaudited Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	51

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53
	Signatures	54

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are based on our current expectations, estimates, forecasts and projections as well as the current beliefs and assumptions of our management, including about our business, our financial condition, our results of operations, our cash flows, and the industry and environment in which we operate. Statements that include words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “would,” “could,” “should,” “intend” and “expect,” variations of these words, and similar expressions, are intended to identify forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A,“Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2022, in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, and in other reports we file with the U.S. Securities and Exchange Commission, or the SEC. While forward-looking statements are based on the reasonable expectations of our management at the time that they are made, you should not rely on them. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, whether as a result of new information, future events or otherwise, except as may be required by law.

Each of the terms the “Company,” “we,” “our,” “us” and similar terms used herein refer collectively to Guardant Health, Inc., a Delaware corporation, and its consolidated subsidiaries, unless otherwise stated.

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PART I—FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

Guardant Health, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share and per share data)


	September 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	457,339	$	141,647
Short-term marketable debt securities	697,482		869,584
Accounts receivable, net	88,801		97,256
Inventory, net	77,036		51,598
Prepaid expenses and other current assets, net	26,239		31,509
Total current assets	1,346,897		1,191,594

Property and equipment, net	147,671		167,920
Right-of-use assets, net	161,668		174,001
Intangible assets, net	9,670		11,727
Goodwill	3,290		3,290

Other assets, net	128,035		61,453
Total Assets	$	1,797,231	$	1,609,985
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	205,266	$	175,817

Deferred revenue	21,485		17,403

Total current liabilities	226,751		193,220
Convertible senior notes, net	1,139,322		1,137,391
Long-term operating lease liabilities	192,677		210,015

Other long-term liabilities	10,182		9,179
Total Liabilities	1,568,932		1,549,805
Commitments and contingencies (Note 9)

Stockholders’ equity:
Preferred stock, par value of $0.00001 per share; 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2023 and December 31, 2022	—		—
Common stock, par value of $0.00001 per share; 350,000,000 shares authorized as of September 30, 2023, and December 31, 2022; 117,849,155 and 102,619,383 shares issued and outstanding as of September 30, 2023, and December 31, 2022, respectively	1		1
Additional paid-in capital	2,188,797		1,742,114
Accumulated other comprehensive loss	(5,680)		(19,522)
Accumulated deficit	(1,954,819)		(1,662,413)
Total Stockholders’ Equity	228,299		60,180
Total Liabilities and Stockholders’ Equity	$	1,797,231	$	1,609,985

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Guardant Health, Inc.

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Revenue:
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	53,648		39,434		148,111		104,493
Cost of development services and other	3,966		1,062		16,424		4,711
Research and development expense	93,851		100,017		277,338		267,229
Sales and marketing expense	68,934		80,370		216,100		218,405
General and administrative expense	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)
Net loss per share, basic and diluted	$	(0.73)	$	(1.58)	$	(2.66)	$	(5.04)
Weighted-average shares used in computing net loss per share, basic and diluted	117,736		102,289		109,791		102,065

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Guardant Health, Inc.

Condensed Consolidated Statements of Comprehensive Loss (unaudited)

(in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Net loss	$	(86,102)	$	(161,994)	$	(292,406)	$	(514,654)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities	3,315		(2,062)		15,783		(19,348)
Foreign currency translation adjustments	(526)		(529)		(1,941)		(2,740)
Other comprehensive income (loss)	2,789		(2,591)		13,842		(22,088)
Comprehensive loss	$	(83,313)	$	(164,585)	$	(278,564)	$	(536,742)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Guardant Health, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

(in thousands, except share data)


		Three Months Ended September 30, 2023
		Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares		Amount

Balance as of July 1, 2023		117,662,134		$	1	$	2,169,911	$	(8,469)	$	(1,868,717)	$	292,726

Issuance of common stock upon exercise of stock options		8,989		—		70		—		—		70
Vesting of restricted stock units		178,032		—		—		—		—		—


Taxes paid related to net share settlement of restricted stock units		—		—		(3,003)		—		—		(3,003)
Stock-based compensation		—		—		21,819		—		—		21,819


Other comprehensive income		—		—		—		2,789		—		2,789
Net loss		—		—		—		—		(86,102)		(86,102)
Balance as of September 30, 2023		117,849,155		$	1	$	2,188,797	$	(5,680)	$	(1,954,819)	$	228,299


		Three Months Ended September 30, 2022
		Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares		Amount

Balance as of July 1, 2022		102,186,856		$	1	$	1,703,832	$	(24,261)	$	(1,360,485)	$	319,087


Issuance of common stock upon exercise of stock options		51,338		—		347		—		—		347
Vesting of restricted stock units		175,444		—		—		—		—		—


Taxes paid related to net share settlement of restricted stock units		—		—		(4,340)		—		—		(4,340)
Stock-based compensation		—		—		20,639		—		—		20,639
Tender offer issued in connection with the Joint Venture Acquisition and acquisition related costs		—		—		(4,403)		—		—		(4,403)
Other comprehensive loss		—		—		—		(2,591)		—		(2,591)
Net loss		—		—		—		—		(161,994)		(161,994)
Balance as of September 30, 2022		102,413,638		$	1	$	1,716,075	$	(26,852)	$	(1,522,479)	$	166,745

The accompanying notes are an integral part of these condensed consolidated financial statements.


		Nine Months Ended September 30, 2023
		Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares		Amount

Balance as of January 1, 2023		102,619,383		$	1	$	1,742,114	$	(19,522)	$	(1,662,413)	$	60,180


Issuance of common stock upon follow-on public offering, net of offering costs of $21,131		14,375,000		—		381,369		—		—		381,369
Issuance of common stock upon exercise of stock options		40,868		—		290		—		—		290
Vesting of restricted stock units		515,123		—		—		—		—		—

Common stock issued under employee stock purchase plan		298,781		—		6,697		—		—		6,697
Taxes paid related to net share settlement of restricted stock units		—		—		(8,112)		—		—		(8,112)
Stock-based compensation		—		—		66,439		—		—		66,439


Other comprehensive income		—		—		—		13,842		—		13,842
Net loss		—		—		—		—		(292,406)		(292,406)
Balance as of September 30, 2023		117,849,155		$	1	$	2,188,797	$	(5,680)	$	(1,954,819)	$	228,299


		Nine Months Ended September 30, 2022
		Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares		Amount

Balance as of January 1, 2022		101,767,446		$	1	$	1,657,593	$	(4,764)	$	(1,007,825)	$	645,005




Issuance of common stock upon exercise of stock options		207,353		—		2,504		—		—		2,504
Vesting of restricted stock units		250,729		—		—		—		—		—
Vesting of common stock exercised early		—		—		8		—		—		8
Common stock issued under employee stock purchase plan		188,110		—		5,742		—		—		5,742
Taxes paid related to net share settlement of restricted stock units		—		—		(6,519)		—		—		(6,519)
Stock-based compensation		—		—		70,982		—		—		70,982
Tender offer issued in connection with the Joint Venture Acquisition and acquisition related costs		—		—		(14,235)		—		—		(14,235)
Other comprehensive loss		—		—		—		(22,088)		—		(22,088)
Net loss		—		—		—		—		(514,654)		(514,654)
Balance as of September 30, 2022		102,413,638		$	1	$	1,716,075	$	(26,852)	$	(1,522,479)	$	166,745

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Guardant Health, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)


	Nine Months Ended September 30,
	2023		2022

OPERATING ACTIVITIES:
Net loss	$	(292,406)	$	(514,654)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	32,013		25,793
Operating lease costs	22,146		21,394


Contingent consideration	230		4,195
Stock-based compensation	66,439		70,982
Amortization of debt issuance costs	1,931		1,926
Amortization of (discount) premium on marketable debt securities	(10,913)		3,366
Unrealized (gains) losses on marketable equity securities	(84,513)		13,230
Impairment of non-marketable equity securities and other related assets	29,054		5,261
Fair value adjustments of noncontrolling interest liability	—		99,785
Other	104		23
Cash effect of changes in operating assets and liabilities:
Accounts receivable, net	8,360		11,431
Inventory, net	(25,435)		(32,375)
Prepaid expenses and other current assets, net	(2,558)		28,387
Other assets, net	2,280		4,770
Accounts payable and accrued liabilities	26,577		46,713
Operating lease liabilities	(22,724)		(12,993)
Deferred revenue	3,168		4,052
Net cash used in operating activities	(246,247)		(218,714)
INVESTING ACTIVITIES:
Purchase of marketable debt securities	(629,902)		(238,601)
Maturity of marketable debt securities	828,700		398,000
Purchase of non-marketable equity securities and other related assets	(5,593)		(12,750)
Purchase of property and equipment	(16,409)		(67,460)


Net cash provided by investing activities	176,796		79,189
FINANCING ACTIVITIES:

Proceeds from issuance of common stock upon exercise of stock options	290		2,505
Proceeds from issuances of common stock under employee stock purchase plan	6,697		5,742
Taxes paid related to net share settlement of restricted stock units	(8,112)		(6,519)
Proceeds from follow-on public offering	402,500		—
Payment of offering costs related to follow-on public offering	(20,478)		—
Joint Venture Acquisition	—		(177,785)
Tender offer issued in connection with the Joint Venture Acquisition and acquisition related costs	—		(14,236)

Other	5,910		(1,118)


Net cash provided by (used in) financing activities	386,807		(191,411)
Net effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(1,941)		(2,740)
Net increase (decrease) in cash, cash equivalents and restricted cash	315,415		(333,676)

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	Nine Months Ended September 30,
	2023		2022

Cash, cash equivalents and restricted cash—Beginning of period	141,948		492,288
Cash, cash equivalents and restricted cash—End of period	$	457,363	$	158,612

Supplemental Disclosures of Noncash Investing and Financing Activities:
Operating lease liabilities arising from obtaining right-of-use assets	$	3,716	$	4,073



Purchase of property and equipment included in accounts payable and accrued liabilities	$	1,805	$	8,914





Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	457,339	$	158,310

Restricted cash – included in other assets, net	24		302
Total cash, cash equivalents and restricted cash	$	457,363	$	158,612

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Guardant Health, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Description of Business

Guardant Health, Inc., or the Company, is a leading precision oncology company focused on helping conquer cancer globally through the use of its proprietary tests, vast data sets and advanced analytics. The Company believes its 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, the Company has 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. The Company has 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, the Company has developed Guardant Galaxy suite of advanced analytical technologies to enhance the performance and clinical utility of its portfolio of cancer tests, and to power the next generation of biomarker and drug discovery.

The Company also collaborates 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 its tests, the Company has also developed its 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, the Company has 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, the Company announced that the ECLIPSE study, an over 40,000 patient registrational study evaluating the performance of its Shield blood test for detecting colorectal cancer in average-risk adults, met co-primary endpoints. In addition, in March 2023, the Company submitted a premarket approval application for its Shield blood test to the FDA.

The Company was incorporated in Delaware in December 2011 and is headquartered in Palo Alto, California.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP. The accompanying condensed consolidated financial statements include the accounts of Guardant Health, Inc., its consolidated Joint Venture (see Note 3, Joint Venture), and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications of prior period amounts were made to conform with the current period presentation.

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Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the periods presented. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Estimates are used in several areas including, but not limited to, estimation of variable consideration, estimation of credit losses, standalone selling price allocation included in contracts with multiple performance obligations, goodwill and identifiable intangible assets, stock-based compensation, incremental borrowing rate for operating leases, contingencies, certain inputs into the provision for income taxes, including related reserves, valuation of non-marketable securities, among others. These estimates generally involve complex issues and require judgments, involve the analysis of historical results and prediction of future trends, can require extended periods of time to resolve and are subject to change from period to period. Actual results may differ materially from management’s estimates.

Unaudited Interim Condensed Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities Act of 1933, as amended, or the Securities Act. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring accruals that the Company believes are necessary to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with GAAP. Interim-period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period.

The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Non-Marketable Securities

The Company acquires certain equity investments in private companies to promote business and strategic objectives. The Company's investments in non-marketable equity securities do not give the Company the ability to control or exercise significant influence over the investees. One of the investees is concluded to be a variable interest entity, or VIE, but the Company is deemed not to be the primary beneficiary as the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance. The Company's non-marketable equity and other related investments totaled $8.6 million and $25.0 million as of September 30, 2023, and December 31, 2022, respectively, and are included in other assets, net on the accompanying condensed consolidated balance sheets.

Non-marketable securities are recorded at cost, subject to periodic impairment reviews and adjustments for observable price changes from orderly transactions. The Company's evaluation of impairment of such non-marketable securities is based on adverse changes in market conditions and the regulatory or economic environment, qualitative and quantitative analysis of the operating performance and financial condition of the investee; changes in operating structure or management of the investee; and additional funding requirements of the investee. As a result of the evaluation, the Company recorded an impairment of $22.1 million for the nine months ended September 30, 2023 for one of its non-marketable equity security investments, included in other income (expense), net on the Company's condensed consolidated statement of operations. In addition, pursuant to one of the investments in non-marketable securities purchased by the Company, the Company acquired rights to purchase the investee at a pre-determined price subject to additional adjustments based on the performance of the investee, on or before December 31, 2022. In September 2022, the Company decided not to exercise such rights to purchase the investee and recorded an impairment of $5.3 million based on an independent third-party valuation. Pursuant to another investment in non-marketable securities purchased by the Company, the Company acquired rights to purchase the investee at a pre-determined price subject to additional adjustments based on the performance of the Company, on or before October 1, 2023, and acquired rights to obtain the exclusive license of the investee's certain technologies. In June 2023, the Company decided not to exercise such rights and recorded an impairment of $7.0 million, included in other income (expense), net on the Company's condensed consolidated statement of operations for the nine months ended September 30, 2023. No other impairment or downward adjustments to the carrying value of non-marketable securities have been otherwise recorded.

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Concentration of Risk

The Company is subject to credit risk from its portfolio of cash equivalents held at one commercial bank and investments in marketable debt securities. The Company limits its exposure to credit losses by investing in money market funds through a U.S. bank with high credit ratings. The Company’s cash may consist of deposits held with banks that may at times exceed federally insured limits, however, its exposure to credit risk in the event of default by the financial institution is limited to the extent of amounts recorded on the condensed consolidated balance sheets. The Company performs evaluations of the relative credit standing of these financial institutions to limit the amount of credit exposure.

The Company also invests in investment-grade 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, in order of priority, are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and a competitive after-tax rate of return. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, investment type and issuer, as a result, the Company is not exposed to any significant concentrations of credit risk from these financial instruments.

The Company is subject to credit risk from its accounts receivable. The majority of the Company’s accounts receivable arises from the provision of precision oncology services, and development services and other, primarily with biopharmaceutical companies and international laboratory partners, all of which have high credit ratings. The Company has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company does not require collateral. Accounts receivable are recorded net of allowance for credit losses, if any.

A significant customer is any biopharmaceutical customer, clinical testing payer, or international laboratory partner that represents 10% or more of the Company’s total revenue or accounts receivable balance. Revenue attributable to each significant customer, including its affiliated entities, as a percentage of the Company’s total revenue, for the respective period, and accounts receivable balance attributable to each significant customers, including its affiliated entities, as a percentage of the Company’s total accounts receivable balance, at the respective condensed consolidated balance sheet date, are as follows:


	Revenue								Accounts Receivable, Net
	Three Months Ended September 30,				Nine Months Ended September 30,				September 30, 2023		December 31, 2022
	2023		2022		2023		2022

	(unaudited)								(unaudited)
Customer A	*		*		*		*		*		12	%
Customer B	33	%	30	%	32	%	30	%	12	%	11	%



Customer C	*		*		*		*		12	%	*

* less than 10%

The Company is also subject to credit risk from its other receivables and other assets. The Company's other receivables and other assets include payments due from a third-party in relation to the settlement of a patent dispute reached in August 2020 for $8.0 million payable over a period of 6 years. In December 2020, 2021 and 2022, the Company received the first, second and third installment payments of $1.0 million, $1.1 million and $1.1 million, respectively. The Company has evaluated and recorded a credit loss for the remaining $4.8 million considering the third-party's credit worthiness and lack of financial history.

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The following table presents the receivable and the related credit loss amounts:


	September 30, 2023		December 31, 2022

	(unaudited)
	(in thousands)
Prepaid expenses and other current assets:
Gross Amount	$	1,100	$	—
Allowance for Credit Losses	(1,100)		—
Net Amount	$	—	$	—
Other assets:
Gross Amount	$	3,700	$	4,800
Allowance for Credit Losses	(3,700)		(4,800)
Net Amount	$	—	$	—

There were no activities for the allowance for credit losses during the three months ended September 30, 2023 and 2022. The following table summarizes the allowance for credit losses activities for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
	2023		2022

	(unaudited)
	(in thousands)
Prepaid expenses and other current assets:
Allowance for credit losses—Beginning of period	$	—	$	—

Reclassification	1,100		1,100
Allowance for credit losses—End of period	$	1,100	$	1,100
Other assets:
Allowance for credit losses—Beginning of period	$	4,800	$	5,900

Reclassification	(1,100)		(1,100)
Allowance for credit losses—End of period	$	3,700	$	4,800

Accounts Receivable, Net

Accounts receivable represent valid claims against commercial and governmental payers, biopharmaceutical companies, research institutes, international laboratory partners and distributors, including unbilled receivables, and royalty payments due from third parties for licensing the Company’s technologies. Unbilled receivables include balances due from biopharmaceutical customers related to development services and other revenues that are recognized upon the achievement of performance-based milestones but prior to the achievement of contractual billing rights. As of September 30, 2023, and December 31, 2022, the Company had unbilled receivables of $5.6 million and $5.4 million, respectively.

The Company evaluates the collectability of its accounts receivable based on historical collection trends, the financial condition of payment partners, and external market factors and provides for an allowance for potential credit losses based on management’s best estimate of the amount of probable credit losses. As of September 30, 2023, and December 31, 2022, the Company had an immaterial allowance for credit losses related to its accounts receivable.

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Goodwill and Intangible Assets, net

Intangible assets related to in-process research and development costs, or IPR&D, acquired in a business combination are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. If and when development is complete, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time. Prior to completion of the research and development efforts, the assets are considered indefinite-lived. During this period, the assets will not be amortized but will be tested for impairment on an annual basis and between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts. In connection with the launch of Shield LDT in May 2022, the Company's IPR&D of $1.6 million was reclassified as an intangible asset with a useful life of 2 years.

Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities. Goodwill is not amortized but is tested for impairment at least annually during the fourth fiscal quarter, or if circumstances indicate its value may no longer be recoverable. The Company continues to operate in one segment, which is considered to be the sole reporting unit and, therefore, goodwill is tested for impairment at the enterprise level. As of September 30, 2023, there has been no impairment of goodwill.

Intangible assets are carried at cost, net of accumulated amortization. The Company does not have intangible assets with indefinite useful lives other than goodwill. Amortization is recorded on a straight-line basis over the intangible asset's useful life, which is approximately 2—12 years.

Post-acquisition Contingent Consideration

Post-acquisition contingent consideration is recognized over the service period, subject to meeting the respective service requirements and performance metrics. The Company recorded post-acquisition contingent consideration expense of $0.5 million and $0.4 million, for the three months ended September 30, 2023, and 2022, respectively, and $1.6 million and $2.7 million for the nine months ended September 30, 2023, and 2022, respectively, in research and development expenses on the Company's condensed consolidated statement of operations.

Leases

The Company determines if an arrangement contains a lease at inception. Operating lease right-of-use, or ROU, assets and operating leases liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received or receivable. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities, as the Company's leases generally do not provide an implicit rate. Lease terms may include options to extend or terminate when the Company is reasonably certain the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company also has lease arrangements with lease and non-lease components. The Company elected the practical expedient not to separate non-lease components from lease components for the Company’s facility leases. The Company also elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease liabilities are not recognized for leases with terms of 12 months or less.

Convertible Senior Notes

Convertible senior notes are accounted for as a liability and measured at their amortized cost. Transaction costs related to the issuance of the notes are netted with the liability and are amortized to interest expense over the term of the notes, using an effective interest rate method.

Revenue Recognition

The Company derives revenue from the provision of precision oncology testing services, as well as from development services and other. Precision oncology testing services include genomic profiling and the delivery of other genomic information derived from the Company’s platform. Development services include companion diagnostic development and regulatory approval, clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect and GuardantINFORM. Other revenue includes amounts derived from licensing the Company's technologies, kit fulfillment and screening services. The Company currently receives payments from third-party commercial and governmental payers, certain hospitals and oncology centers and individual patients, as well as biopharmaceutical companies, research institutes, international laboratory partners and distributors.

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Revenues are recognized when control of services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. FASB ASC Topic 606, Revenue from Contracts with Customers, provides for a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

Precision oncology testing

The Company recognizes revenue from the sale of its precision oncology tests for clinical customers, including certain hospitals, cancer centers, other institutions and patients, at the time results of the test are reported to physicians. Most precision oncology tests requested by clinical customers are sold without a written agreement; however, the Company determines an implied contract exists with its clinical customers. The Company identifies each sale of its test to a clinical customer as a single performance obligation. With the exception of certain limited contracted arrangements with insurance carriers and other institutions where the transaction price is fixed, a stated contract price does not exist and the transaction price for each implied contract with clinical customers represents variable consideration. The Company estimates the variable consideration under the portfolio approach and considers the historical reimbursement data from third-party commercial and governmental payers and patients, as well as known or anticipated reimbursement trends not reflected in the historical data. The Company monitors the estimated amount to be collected in the portfolio at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required. Both the estimate and any subsequent revision contain uncertainty and require the use of significant judgment in the estimation of the variable consideration and application of the constraint for such variable consideration. The Company analyzes its actual cash collections over the expected reimbursement period and compares it with the estimated variable consideration for each portfolio and any difference is recognized as an adjustment to estimated revenue after the expected reimbursement period, subject to assessment of the risk of future revenue reversal.

Revenue from sales of precision oncology tests to biopharmaceutical customers are based on a negotiated price per test or on the basis of an agreement to provide certain testing volume over a defined period. The Company identifies its promise to transfer a series of distinct tests to biopharmaceutical customers as a single performance obligation. Precision oncology tests to biopharmaceutical customers are generally billed at a fixed price for each test performed. For agreements involving testing volume to be satisfied over a defined period, revenue is recognized over time based on the number of tests performed as the performance obligation is satisfied over time. Results of the Company’s precision oncology services are delivered electronically, and as such there are no shipping or handling fees incurred by the Company or billed to customers.

Development services and other

The Company performs development services for its biopharmaceutical customers utilizing its precision oncology information platform. Development services typically represent a single performance obligation as the Company performs a significant integration service, such as analytical validation and regulatory submissions. The individual promises are not separately identifiable from other promises in the contracts and, therefore, are not distinct. However, under certain contracts, a biopharmaceutical customer may engage the Company for multiple distinct development services which are both capable of being distinct and separately identifiable from other promises in the contracts and, therefore, distinct performance obligations.

The Company collaborates with biopharmaceutical companies in the development of new drugs. As part of these collaborations, the Company provides services related to regulatory filings to support companion diagnostic device submissions for the Company’s testing panels. Under these collaborations, the Company generates revenue from achievement of milestones, as well as provision of on-going support. For the companion diagnostic development and regulatory approval services performed, the Company is compensated through a combination of an upfront fee and performance-based, non-refundable regulatory and other developmental milestone payments. The transaction price of these contracts typically represents variable consideration. Application of the constraint for variable consideration to milestone payments is an area that requires significant judgment. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be managed to achieve the respective milestone and the level of effort and investment required to achieve the respective milestone. In making this assessment, the Company considers its historical experience with similar milestones, the degree of complexity and uncertainty associated with each milestone, and whether achievement of the milestone is dependent on parties other than the Company. The constraint for variable consideration is applied such that it is probable a significant reversal of revenue will not occur when the uncertainty associated with the contingency is resolved. Application of the constraint for variable consideration is assessed and updated at each reporting period as a revision to the estimated transaction price.

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The Company recognizes companion diagnostic development and regulatory approval services revenue over the period in which biopharmaceutical research and development services are provided. Specifically, the Company recognizes revenue using an input method to measure progress, utilizing costs incurred to-date relative to total expected costs as its measure of progress. The Company assesses the changes to the total expected cost estimates as well as any incremental fees negotiated resulting from changes to the scope of the original contract in determining the revenue recognition at each reporting period. For development of new products or services under these arrangements, costs incurred before technological feasibility is reached are included as research and development expenses in the Company’s condensed consolidated statements of operations, while costs incurred thereafter are recorded as cost of development services and other.

The Company also recognizes revenue from other development services, in addition to companion diagnostic development and regulatory approval services noted above, such as clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect and GuardantINFORM. These revenues are generally recognized over time based on an input method to measure progress in the period when the associated services have been performed.

In addition, other revenue includes amounts derived from licensing the Company's digital sequencing technologies to its domestic customers and international laboratory partners, kit fulfillment and screening services. For the licensed technology, the Company is compensated through royalty-based payments, non-refundable upfront payments, guaranteed minimum payments, and/or sample milestone payments. Depending on the nature of the technology licensing arrangements, and considering factors including but not limited to enforceable right to payment and payment terms, and if an asset with alternative use is created, these revenues are recognized in the period when royalty-bearing sales occur, when the technology transfer is complete, or over the technology transfer period. Kit fulfillment related revenues are recognized when such products are delivered.

Contracts with multiple performance obligations

Contracts with biopharmaceutical customers and international laboratory partners may include multiple distinct performance obligations, such as provision of precision oncology testing, the above-mentioned development services, and digital sequencing technology licensing, among others. The Company evaluates the terms and conditions included within its contracts with biopharmaceutical customers and international laboratory partners to ensure appropriate revenue recognition, including whether services are considered distinct performance obligations that should be accounted for separately versus together. The Company first identifies material promises, in contrast to immaterial promises or administrative tasks, under the contract, and then evaluates whether these promises are both capable of being distinct and distinct within the context of the contract. In assessing whether a promised service is capable of being distinct, the Company considers whether the customer could benefit from the service either on its own or together with other resources that are readily available to the customer, including factors such as the research, development, and commercialization capabilities of a third party as well as the availability of the associated expertise in the general marketplace. In assessing whether a promised service is distinct within the context of the contract, the Company considers whether it provides a significant integration of the services, whether the services significantly modify or customize one another, or whether the services are highly interdependent or interrelated.

For contracts with multiple performance obligations, the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines standalone selling price by considering the historical selling price of these performance obligations in similar transactions as well as other factors, including, but not limited to, the price that customers in the market would be willing to pay, competitive pricing of other vendors, industry publications and current pricing practices, and expected costs of satisfying each performance obligation plus appropriate margin; or by using the residual approach if standalone selling price is not observable, by reference to the total transaction price less the sum of the observable standalone selling prices of other performance obligations promised in the contract.

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Deferred revenue

Deferred revenue, which is a contract liability, consists primarily of payments received in advance of revenue recognition from contracts with customers. For example, development services and other contracts with biopharmaceutical customers often contain upfront payments which results in the recording of deferred revenue to the extent cash is received prior to the Company's performance of the related services. Contract liabilities are relieved as the Company performs its obligations under the contract and revenue is consequently recognized. As of September 30, 2023 and December 31, 2022, the deferred revenue balance was $24.4 million and $21.2 million, respectively, of which $2.9 million and $3.8 million is considered long-term and was recorded within other long-term liabilities on the accompanying condensed consolidated balance sheets. Revenue recognized in the nine months ended September 30, 2023 that was included in the deferred revenue balance as of December 31, 2022 was $12.7 million, and revenue recognized in the nine months ended September 30, 2022 that was included in the deferred revenue balance as of December 31, 2021 was $7.7 million, respectively.

Transaction price allocated to the remaining performance obligations

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenues in future periods. The Company expects to recognize substantially all of the remaining transaction price in the next 1-2 years.

Costs of Precision Oncology Testing

Cost of precision oncology testing generally consists of cost of materials, cost of labor, including bonus, benefit and stock-based compensation, equipment and infrastructure expenses associated with processing test samples (including 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, lease costs, amortization of leasehold improvements, and information technology costs. Costs associated with performing the Company’s tests are recorded as the tests are performed regardless of whether revenue was recognized with respect to that test.

Cost of Development Services and Other

Cost of development services and other primarily includes costs incurred for the performance of development services requested by the Company’s biopharmaceutical customers, and costs associated with the Company's partnership agreements and screening services. 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 development services and other.

Research and Development Expenses

Research and development expenses are comprised of costs incurred to develop technology and include compensation and benefits, reagents and supplies used in research and development laboratory work, infrastructure expenses, including facility occupancy and information technology costs, contract services and other outside costs. 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 the Company’s technology capabilities are recorded as research and development unless they meet the criteria to be capitalized as internal-use software costs.

Stock-Based Compensation

Stock-based compensation related to stock options granted to the Company’s employees, directors and nonemployees is measured at the grant date based on the fair value of the award. The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective awards. Compensation expense for stock options with performance metrics is calculated based upon expected achievement of the metrics specified in the grant.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted under the 2012 Stock Plan (as amended and restated), or the 2012 Plan, and the 2018 Incentive Award Plan, or the 2018 Plan, and stock purchase rights granted under the 2018 Employee Stock Purchase Plan. The Black-Scholes option-pricing model requires assumptions to be made related to the expected term of an award, expected volatility, risk-free rate and expected dividend yield.

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The Company measures the grant date fair value of its service-based and performance-based restricted stock units issued to employees and non-employees based on the closing market price of the common stock on the date of grant. For restricted stock units with only service-based vesting conditions, compensation expense is recognized in the Company’s condensed consolidated statement of operations on a straight-line basis over the requisite service period. Compensation expense for restricted stock units with performance metrics, or PSUs, is calculated based upon expected achievement of the metrics specified in the grant, and is recognized in the Company’s condensed consolidated statement of operations using an accelerated attribution model over the requisite service period for each separately vesting portion of the award. No stock-based compensation expense is recorded for PSUs, unless it is determined to be probable that the related performance metrics will be met. Any PSUs that remain unvested at the end of the performance period will be forfeited. Forfeitures are accounted for as they occur.

Net Loss Per Share

The Company calculates basic net loss per share by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period determined using the treasury stock method or the as-if converted method, as appropriate. For purposes of this calculation, stock options, restricted stock units, shares issuable pursuant to the employee stock purchase plan, and contingently issuable shares under the convertible senior notes are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive.

3. Joint Venture

In May 2018, the Company and an affiliate of SoftBank formed and capitalized Guardant Health AMEA, Inc., the Joint Venture, for the sale, marketing and distribution of the Company’s tests generally outside the Americas and Europe, and to accelerate commercialization of its products in Asia, the Middle East and Africa. Under the terms of the joint venture agreement, each party held an approximately 50% ownership interest in the Joint Venture and two seats on the board of the Joint Venture.

In June 2022, the Company purchased all of the shares of the Joint Venture, or the Joint Venture Acquisition, held by SoftBank and its affiliates in consideration for a cash payment of the aggregate purchase price of $177.8 million, which resulted in $99.8 million of fair value adjustments to the noncontrolling interest liability. In connection with the Joint Venture Acquisition, the Company also issued a tender offer to purchase the Joint Venture's Class B common stock issued and issuable upon exercise of vested Joint Venture's stock options held by the Joint Venture's employees.

Prior to the completion of the Joint Venture Acquisition, the Joint Venture was deemed to be a VIE, and the Company had been identified as the VIE’s primary beneficiary. As the primary beneficiary, the Company had consolidated the financial position, results of operations and cash flows of the Joint Venture in its financial statements and all intercompany balances had been eliminated in consolidation. Upon completion of the Joint Venture Acquisition and the tender offer, Guardant Health AMEA, Inc. became the Company's wholly owned subsidiary.

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4. Condensed Consolidated Balance Sheet Components

Property and Equipment, Net

Property and equipment, net consist of the following:


	September 30, 2023		December 31, 2022
	(unaudited)
	(in thousands)
Machinery and equipment	$	113,777	$	95,764
Leasehold improvements	102,957		99,781
Computer hardware	32,606		29,744
Construction in progress	4,958		20,598
Furniture and fixtures	8,719		8,367
Computer software	2,308		1,797
Property and equipment, gross	$	265,325	$	256,051
Less: accumulated depreciation	(117,654)		(88,131)
Property and equipment, net	$	147,671	$	167,920

Depreciation expense related to property and equipment was $10.3 million and $9.1 million for the three months ended September 30, 2023, and 2022, respectively, and $29.9 million and $23.9 million for the nine months ended September 30, 2023, and 2022, respectively.

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following:


	September 30, 2023		December 31, 2022
	(unaudited)
	(in thousands)
Accounts payable	$	77,828	$	68,911
Accrued compensation	62,676		55,788
Operating lease liabilities	26,356		21,878
Others	38,406		29,240
Total accounts payable and accrued liabilities	$	205,266	$	175,817

5. Fair Value Measurements, Cash Equivalents and Marketable Securities

Financial instruments consist of cash equivalents, marketable securities, accounts receivable, net, prepaid expenses and other current assets, net, and accounts payable and accrued liabilities. Cash equivalents and marketable securities are stated at fair value. Prepaid expenses and other current assets, net, and accounts payable and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date.

Fair value is defined as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

A fair value hierarchy has been established which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritized the inputs into three broad levels as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

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Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements were as follows:


	September 30, 2023
	Fair Value		Level 1		Level 2		Level 3

	(unaudited)
	(in thousands)
Financial Assets:
Money market funds	$	375,756	$	375,756	$	—	$	—


Total cash equivalents	$	375,756	$	375,756	$	—	$	—

Commercial paper	$	124,469	$	—	$	124,469	$	—

U.S. government debt securities	573,013		—		573,013		—
Total short-term marketable debt securities	$	697,482	$	—	$	697,482	$	—




Long-term marketable equity securities	$	102,804	$	102,804	$	—	$	—
Total	$	1,176,042	$	478,560	$	697,482	$	—

Financial Liabilities:
Contingent consideration	$	6,660	$	—	$	—	$	6,660
Total	$	6,660	$	—	$	—	$	6,660


	December 31, 2022
	Fair Value		Level 1		Level 2		Level 3

	(in thousands)
Financial Assets:
Money market funds	$	3,104	$	3,104	$	—	$	—
U.S. government debt securities	14,987		—		14,987		—
Total cash equivalents	$	18,091	$	3,104	$	14,987	$	—


U.S. government debt securities	$	869,584	$	—	$	869,584	$	—
Total short-term marketable debt securities	$	869,584	$	—	$	869,584	$	—




Long-term marketable equity securities	$	18,291	$	18,291	$	—	$	—
Total	$	905,966	$	21,395	$	884,571	$	—

Financial Liabilities:
Contingent consideration	$	6,430	$	—	$	—	$	6,430
Total	$	6,430	$	—	$	—	$	6,430

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The Company measures the fair value of money market funds based on quoted prices in active markets for identical securities. Commercial paper and U.S. government debt securities are valued taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads; benchmark securities; prepayment/default projections based on historical data and other observable inputs.

In July 2022, one of the Company's equity investees, Lunit Inc., or Lunit, completed its initial public offering, or IPO, subsequent to which, the Company started to account for the investment in Lunit at fair value on a recurring basis, and classified the investment as marketable equity securities within Level 1 of the fair value hierarchy as the investment is valued using the quoted market price. The Company is subject to a 2-year lock-up period from Lunit's IPO date, during which the Company shall not transfer Lunit's shares between accounts, establish or cancel pledges, sell, or withdraw such shares, without approval from the Korea Exchange. As of September 30, 2023 and December 31, 2022, the balance of the investment in Lunit was $102.8 million and $18.3 million, respectively, included in other assets, net on the Company's condensed consolidated balance sheets. In addition, the Company recorded $16.6 million and $84.5 million unrealized gains on the investment in Lunit for the three and nine months ended September 30, 2023, respectively, and recorded $13.2 million unrealized losses on the investment in Lunit for the three and nine months ended September 30, 2022, respectively, included in other income (expense), net on the Company's condensed consolidated statement of operations.

There were no transfers between Level 1, Level 2 and Level 3 during the periods presented.

Acquisition-related contingent consideration is measured at fair value on a quarterly basis and change in estimated contingent consideration to be paid are included in operating expenses in the condensed consolidated statements of operations. The fair value of acquisition-related contingent consideration is estimated using a multiple-outcome discounted cash flow valuation technique. Contingent consideration is classified within Level 3 of the fair value hierarchy, as it is based on a probability that includes significant unobservable inputs. The significant unobservable inputs include a probability-weighted estimate of achievement of certain commercialization milestones, and discount rate to present value the expected payments. A significant change in any of these input factors in isolation could have a material impact to fair value measurement. As of September 30, 2023 and December 31, 2022, the Company's contingent consideration liability was $6.7 million and $6.4 million, respectively, of which $5.2 million and $4.9 million is considered long-term and was recorded within other long-term liabilities on the accompanying condensed consolidated balance sheets.

Prior to the completion of the Joint Venture Acquisition in June 2022, the fair value of the noncontrolling interest liability was considered to be a Level 3 measurement and was determined based on an annual internal rate of return of 20% on the initial amount of $41.0 million invested by SoftBank in May 2018, to the date of Company's exercising the call right in November 2021. The noncontrolling interest liability was fully paid by June 30, 2022 (see Note 3, Joint Venture).

The following table summarizes the activities for the Level 3 financial instruments:


	Noncontrolling Interest Liability		Contingent Consideration
	Nine Months Ended September 30,		Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2023		2022		2023		2022

	(unaudited)
	(in thousands)
Fair value — beginning of period	$	78,000	$	6,440	$	7,430	$	6,430	$	3,625

Increase in fair value	99,785		220		390		230		4,195

Settlement	(177,785)		—		(1,500)		—		(1,500)
Fair value — end of period	$	—	$	6,660	$	6,320	$	6,660	$	6,320

The Company considers the fair value of the Convertible Notes as of September 30, 2023, and December 31, 2022, to be a Level 2 measurement. The fair value of the Convertible Notes is primarily affected by the trading price of the Company's common stock and market interest rates. As such, the carrying value of the Convertible Notes does not reflect the market rate. See Note 7, Debt, for additional information related to the fair value of the Convertible Notes.

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The following tables summarize the Company’s cash equivalents and marketable debt securities’ amortized costs, gross unrealized gains, gross unrealized losses and estimated fair values by significant investment category:


	September 30, 2023
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value

	(unaudited)
	(in thousands)
Money market fund	$	375,756	$	—	$	—	$	375,756
Commercial paper	124,469		—		—		124,469

U.S. government debt securities	574,001		31		(1,019)		573,013
Total	$	1,074,226	$	31	$	(1,019)	$	1,073,238


	December 31, 2022
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value

	(in thousands)
Money market fund	$	3,104	$	—	$	—	$	3,104


U.S. government debt securities	901,342		8		(16,779)		884,571
Total	$	904,446	$	8	$	(16,779)	$	887,675

The following tables present the estimated fair values and gross unrealized losses of the Company's marketable debt securities that have been in a continuous unrealized loss position as of September 30, 2023 and December 31, 2022.


	September 30, 2023
	Less Than 12 Months				12 Months or Greater				Total
	Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss

	(unaudited)
	(in thousands)



U.S. government debt securities	$	96,885	$	(92)	$	161,618	$	(927)	$	258,503	$	(1,019)

Total	$	96,885	$	(92)	$	161,618	$	(927)	$	258,503	$	(1,019)


	December 31, 2022
	Less Than 12 Months				12 Months or Greater				Total
	Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss

	(in thousands)



U.S. government debt securities	$	170,975	$	(2,958)	$	685,754	$	(13,821)	$	856,729	$	(16,779)

Total	$	170,975	$	(2,958)	$	685,754	$	(13,821)	$	856,729	$	(16,779)

There have been no material realized gains or losses on marketable debt securities for the periods presented. The Company determined that it did have the ability and intent to hold all marketable debt securities that have been in a continuous loss position until maturity or recovery and the loss position was temporary due to market volatility, thus there has been no recognition of credit losses for the three and nine months ended September 30, 2023, and 2022, respectively.

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6. Intangible Assets, Net and Goodwill

The following table presents details of purchased intangible assets as of September 30, 2023, and December 31, 2022:


	September 30, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Remaining Weighted-Average Useful Life

	(unaudited)
	(in thousands)						(in years)
Intangible assets subject to amortization:
Acquired license	$	11,886	$	(4,407)	$	7,479	7.0
Non-compete agreements and other covenant rights	5,100		(3,376)		1,724		2.2
Acquired technology	1,600		(1,133)		467		0.6
Total intangible assets subject to amortization	18,586		(8,916)		9,670
Intangible assets not subject to amortization:

Goodwill	3,290		—		3,290
Total purchased intangible assets	$	21,876	$	(8,916)	$	12,960


	December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Remaining Weighted-Average Useful Life

	(in thousands)						(in years)
Intangible assets subject to amortization:
Acquired license	$	11,886	$	(3,579)	$	8,307	7.8
Non-compete agreements and other covenant rights	5,100		(2,747)		2,353		2.9
Acquired technology	1,600		(533)		1,067		1.4
Total intangible assets subject to amortization	18,586		(6,859)		11,727
Intangible assets not subject to amortization:

Goodwill	3,290		—		3,290
Total purchased intangible assets	$	21,876	$	(6,859)	$	15,017

Amortization of finite-lived intangible assets was $0.7 million and $0.7 million for the three months ended September 30, 2023, and 2022, respectively, and $2.1 million and $1.8 million for the nine months ended September 30, 2023, and 2022, respectively.

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The following table summarizes estimated future amortization expense of finite-lived intangible assets, net:


Year Ending December 31,
	(unaudited)
	(in thousands)
Remainder of 2023	$	690
2024	2,219
2025	1,670
2026	1,212
2027	1,107
2028 and thereafter	2,772
Total	$	9,670

7. Debt

Convertible Senior Notes

In November 2020, the Company issued $1.15 billion principal amount of its 0% Convertible Senior Notes due 2027, or the 2027 Notes. The 2027 Notes do not bear interest, and the principal amount of the Notes will not accrete. However, special interest and additional interest may accrue on the 2027 Notes at a rate per annum not exceeding 0.50% (subject to certain exceptions) upon the occurrence of certain events such as the failure to file certain reports to the Securities and Exchange Commission, or to remove certain restrictive legends from the Notes. The Notes will mature on November 15, 2027, unless repurchased, redeemed or converted earlier.

Before August 15, 2027, holders of the 2027 Notes will have the right to convert their 2027 Notes only under the following circumstances:

•during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on March 31, 2021, if the last reported sale price of the Company's common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter, or the sale price condition;

•during the five consecutive business days immediately after any ten consecutive trading day period, or the measurement period, if the trading price per $1,000 principal amount of the Notes for each trading day of the measurement period is less than 98% of the product of the last reported sale price of the Company's common stock on such trading day and the conversion rate on such trading day; or

•upon the occurrence of specified corporate events

From and after August 15, 2027, holders of the 2027 Notes may convert their 2027 Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date.

The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election.

The initial conversion rate is 7.1523 shares of common stock per $1,000 principal amount of 2027 Notes, which represents an initial conversion price of approximately $139.82 per share of common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

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The Company may not redeem the 2027 Notes at its option at any time before November 20, 2024. The Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after November 20, 2024 and on or before the 25th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid special interest and additional interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. In addition, calling any Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.

If certain corporate events that constitute a “Fundamental Change” occur, then, subject to a limited exception for certain cash mergers, holders of Notes may require the Company to repurchase their 2027 Notes at a cash repurchase price equal to the principal amount of the 2027 Notes to be repurchased, plus accrued and unpaid special interest and additional interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock.

Since the 2027 Notes were not convertible as of September 30, 2023 and December 31, 2022, the net carrying amount of the 2027 Notes was classified as a long-term liability.

The following table sets forth the net carrying amounts of the 2027 Notes as of September 30, 2023, and December 31, 2022:


	September 30, 2023		December 31, 2022
	(unaudited)
	(in thousands)
Liability component:
Principal	$	1,150,000	$	1,150,000

Less: debt issuance costs, net of amortization	(10,678)		(12,609)
Net carrying amount	$	1,139,322	$	1,137,391

The total estimated fair value of the 2027 Notes was $794.3 million and $717.5 million as of September 30, 2023, and December 31, 2022, respectively. The fair value was determined based on the closing trading price per $100 of the 2027 Notes as of the last day of trading for the period.

The interest expense recognized in relation to amortization of debt issuance costs was $0.6 million and $1.9 million for the three and nine months ended September 30, 2023 and 2022, respectively, which represented an effective interest rate of 0.2% and 0.2% for the three and nine months ended September 30, 2023, and 2022, respectively.

Note Hedges

To minimize the impact of potential economic dilution upon conversion of the 2027 Notes, the Company entered into convertible note hedge transactions, or the 2027 Note Hedges, with respect to its common stock concurrent with the issuance of the Notes. The 2027 Note Hedges cover, subject to customary adjustments, the number of shares of common stock initially underlying the Notes. The strike price of the 2027 Note Hedges will initially be approximately $182.60 per share, which represents a premium of 75% over the last reported sale price of the Company’s common stock of $104.34 per share on November 16, 2020, and is subject to certain adjustments under the terms of the 2027 Note Hedges.

The 2027 Note Hedges will expire upon maturity of the 2027 Notes. The 2027 Note Hedges are separate transactions and are not part of the terms of the 2027 Notes. Holders of the 2027 Notes will not have any rights with respect to the 2027 Note Hedges. The shares receivable related to the 2027 Note Hedges are excluded from the calculation of diluted earnings per share as they are anti-dilutive.

As these transactions meet certain accounting criteria, the 2027 Note Hedges are recorded in stockholders’ equity and are not accounted for as derivatives. The Company paid an aggregate amount of $90.0 million for the 2027 Note Hedges, which has been recorded as a reduction to additional paid-in capital and will not be remeasured.

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8. Leases

The Company has entered into various operating lease agreements for office space, data center, lab and warehouse use, with remaining terms of up to 10 years, some of which include one or more options to renew. As leases approach maturity, the Company considers various factors such as market conditions and the terms of any renewal options that may exist to determine whether it will renew the lease, as such, the Company does not include renewal options in its lease terms for calculating its lease liability, as the renewal options allow it to maintain operational flexibility and the Company is not reasonably certain it will exercise these renewal options at the time of the lease commencement.

Operating lease expense was $7.4 million and $7.2 million for the three months ended September 30, 2023, and 2022, respectively, and $22.1 million and $21.4 million for the nine months ended September 30, 2023, and 2022, respectively, which includes both lease and non-lease components (primarily common area maintenance charges and property taxes).


	September 30, 2023		December 31, 2022
	(unaudited)
Weighted-average remaining lease term (in years)	8.5		9.1
Weighted-average discount rate	3.89	%	3.93	%

The following table summarizes the Company's future principal contractual obligations for operating lease commitments as of September 30, 2023:


Year Ending December 31,
	(unaudited)
	(in thousands)
Remainder of 2023	$	8,632
2024	34,158
2025	33,195
2026	28,148
2027	24,479
2028 and thereafter	125,157
Total operating lease payments	$	253,769
Less: imputed interest	(34,736)

Total operating lease liabilities	$	219,033

Finance leases are not material to the Company's condensed consolidated financial statements.

9. Commitments and Contingencies

Legal Proceedings

In addition to commitments and obligations incurred in the ordinary course of business, from time to time the Company may be subject to a variety of claims and legal proceedings, including claims from customers and vendors, pending and potential legal actions for damages, governmental investigations and other matters. For example, the Company has received, and may in the future continue to receive letters, claims or complaints from others alleging false advertising, patent infringement, violation of employment practices and trademark infringement. The Company has also instituted, and may in the future institute, additional legal proceedings to enforce its rights and seek remedies, such as monetary damages, injunctive relief and declaratory relief. The Company cannot predict the results of any such disputes, and despite the potential outcomes, the existence thereof may have an adverse material impact on the Company because of diversion of management time and attention as well as the financial costs related to resolving such disputes.

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The Company and its affiliates are parties to the legal claims and proceedings described below. The Company is vigorously defending itself against those claims and in those proceedings. Significant developments in those matters are described below. If the Company is unsuccessful in defending, or if it determines to settle, any of these matters, it may be required to pay substantial sums, be subject to injunction and/or be forced to change how it operates its business, which could have a material adverse impact on its financial position or results of operations.

Unless otherwise stated, the Company is unable to reasonably estimate the loss or a range of possible loss for the matters described below. Often, it is not reasonably possible for the Company to determine that a loss is probable for a claim, or to reasonably estimate the amount of loss or a range of loss, because of the limited information available and the potential effects of future events and decisions by third parties, such as courts and regulators, that will determine the ultimate resolution of the claim. Many of the matters described are at preliminary stages, raise novel theories of liability or seek an indeterminate amount of damages. It is not uncommon for claims to be resolved over a number of years. The Company reviews loss contingencies at least quarterly to determine whether the loss probability has changed and whether it can make a reasonable estimate of the possible loss or range of loss. When the Company determines that a loss from a claim is probable and reasonably estimable, it records a liability in the amount of its estimate for the ultimate loss. The Company also provides disclosure when it is reasonably possible that a loss may be incurred or when it is reasonably possible that the amount of

Guardant Health, Inc. [GH] Filings
10-Q	[2023-11-06]
10-Q	[2023-08-03]
10-Q	[2023-05-09]
10-K	[2023-02-23]
10-Q	[2022-11-03]
10-Q	[2022-08-04]
10-Q	[2022-05-05]
10-K	[2022-02-24]
10-Q	[2021-11-04]
10-Q	[2021-08-05]
10-Q	[2021-05-06]
10-K	[2021-02-25]
10-Q	[2020-11-05]
10-Q	[2020-08-06]
10-Q	[2020-05-07]
10-K	[2020-03-02]
10-Q	[2019-11-07]
10-Q	[2019-08-07]
S-1	[2019-05-20]
10-Q	[2019-05-10]
10-K	[2019-03-19]
10-Q	[2018-11-19]
S-1	[2018-09-06]