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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 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: 001-38683
_____________________
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.)
3000 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 FilerAccelerated 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 April 29, 2022, the registrant had 101,923,322 shares of common stock, $0.00001 par value per share, outstanding.



GUARDANT HEALTH, INC.
FORM 10-Q
TABLE OF CONTENTS
Page

FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including the section titled “Managements 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, 2021, 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. 


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)
March 31, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents
$573,604 $492,202 
Short-term marketable securities
388,662 440,546 
Accounts receivable, net
84,331 97,652 
Inventory
36,613 30,674 
Prepaid expenses and other current assets, net
30,070 53,052 
Total current assets
1,113,280 1,114,126 
Long-term marketable securities
588,453 698,034 
Property and equipment, net
151,322 124,461 
Right-of-use assets, net
188,607 189,443 
Intangible assets, net
13,727 14,207 
Goodwill
3,290 3,290 
Other assets, net
70,919 60,938 
Total Assets(1)
$2,129,598 $2,204,499 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$32,230 $17,580 
Accrued compensation
56,158 42,496 
Accrued expenses
51,851 45,285 
Noncontrolling interest liability
78,000 78,000 
Deferred revenue
10,570 11,326 
Total current liabilities
228,809 194,687 
Convertible senior notes, net1,135,463 1,134,821 
Long-term operating lease liabilities
225,377 226,053 
Other long-term liabilities
6,909 3,933 
Total Liabilities(1)
1,596,558 1,559,494 
Stockholders’ equity:
Preferred stock, par value of $0.00001 per share; 10,000,000 shares authorized, no shares issued and outstanding as of March 31, 2022 and December 31, 2021
  
Common stock, par value of $0.00001 per share; 350,000,000 shares authorized as of March 31, 2022, and December 31, 2021; 101,895,835 and 101,767,446 shares issued and outstanding as of March 31, 2022, and December 31, 2021, respectively
1 1 
Additional paid-in capital
1,682,406 1,657,593 
Accumulated other comprehensive loss
(18,314)(4,764)
Accumulated deficit
(1,131,053)(1,007,825)
Total Stockholders’ Equity
533,040 645,005 
Total Liabilities and Stockholders’ Equity
$2,129,598 $2,204,499 
(1) As of March 31, 2022 and December 31, 2021, this balance includes $16.9 million and $20.4 million of assets, respectively, that can be used only to settle obligations of the consolidated variable interest entity, or VIE and VIE’s subsidiaries, and $4.3 million and $4.3 million of liabilities of the consolidated VIE and VIE’s subsidiaries, respectively, for which their creditors do not have recourse to the general credit of the Company. See Note 3, Investment in Joint Venture.
The accompanying notes are an integral part of these condensed consolidated financial statements.


Guardant Health, Inc.
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
Three Months Ended
March 31,
20222021
Revenue:
Precision oncology testing
$84,136 $63,729 
Development services and other11,963 14,936 
Total revenue
96,099 78,665 
Costs and operating expenses:
Cost of precision oncology testing
30,684 23,590 
Cost of development services and other1,297 5,157 
Research and development expense
81,757 55,508 
Sales and marketing expense
64,432 34,338 
General and administrative expense
41,267 67,935 
Total costs and operating expenses
219,437 186,528 
Loss from operations
(123,338)(107,863)
Interest income778 1,551 
Interest expense(644)(646)
Other income (expense), net(48)(290)
Loss before provision for income taxes
(123,252)(107,248)
Provision for (benefit from) income taxes
(24)110 
Net loss
(123,228)(107,358)
Adjustment of redeemable noncontrolling interest
 (2,300)
Net loss attributable to Guardant Health, Inc. common stockholders
$(123,228)$(109,658)
Net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted
$(1.21)$(1.09)
Weighted-average shares used in computing net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted
101,853 100,955 
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
March 31,
20222021
Net loss
$(123,228)$(107,358)
Other comprehensive loss, net of tax impact:
Unrealized loss on available-for-sale securities
(12,758)(706)
Foreign currency translation adjustments
(792)(1,087)
Other comprehensive loss(13,550)(1,793)
Comprehensive loss
$(136,778)$(109,151)
Comprehensive loss attributable to redeemable noncontrolling interest
 (2,300)
Comprehensive loss attributable to Guardant Health, Inc.
$(136,778)$(111,451)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Guardant Health, Inc.

Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity (unaudited)
(in thousands, except share data)
Three Months Ended March 31, 2022
Common Stock Additional
Paid-in
Capital
Accumulated Other
Comprehensive Income (Loss)
Accumulated
Deficit
Total Stockholders’ Equity
SharesAmount
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
105,218 — 963 — — 963 
Vesting of restricted stock units
23,171 — — — — — 
Vesting of common stock exercised early
— — 8 — — 8 
Taxes paid related to net share settlement of restricted stock units— — (957)— — (957)
Stock-based compensation— — 24,799 — — 24,799 
Other comprehensive loss— — — (13,550)— (13,550)
Net loss— — — — (123,228)(123,228)
Balance as of March 31, 2022
101,895,835 $1 $1,682,406 $(18,314)$(1,131,053)$533,040 

Three Months Ended March 31, 2021
Redeemable Noncontrolling InterestCommon StockAdditional
Paid-in
Capital
Accumulated Other
Comprehensive Income (Loss)
Accumulated
Deficit
Total Stockholders’ Equity
SharesAmount
Balance as of January 1, 2021
$57,100 100,213,985 $1 $1,902,389 $2,697 $(606,592)$1,298,495 
Cumulative effect adjustment for ASU 2020-06 adoption— — — (330,403)— 4,437 (325,966)
Issuance of common stock upon exercise of stock options
— 282,879 — 4,462 — — 4,462 
Vesting of restricted stock units
— 588,789 — — — — — 
Vesting of common stock exercised early
— — — 13 — — 13 
Taxes paid related to net share settlement of restricted stock units— — — (73,576)— — (73,576)
Stock-based compensation— — — 55,069 — — 55,069 
Adjustment of redeemable noncontrolling interest
2,300 — — — — (2,300)(2,300)
Other comprehensive loss, net of tax impact— — — — (1,793)— (1,793)
Net loss— — — — — (107,358)(107,358)
Balance as of March 31, 2021
$59,400 101,085,653 $1 $1,557,954 $904 $(711,813)$847,046 
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)
Three Months Ended March 31,
20222021
OPERATING ACTIVITIES:
Net loss
$(123,228)$(107,358)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
7,201 5,010 
Non-cash operating lease costs
6,949 3,932 
Re-valuation of contingent consideration
2,390  
Non-cash stock-based compensation
24,799 55,069 
Amortization of debt issuance costs642 641 
Amortization of premium (discount) on marketable securities
2,449 3,259 
Other21  
Changes in operating assets and liabilities:
Accounts receivable, net13,299 5,260 
Inventory(5,937)(6,160)
Prepaid expenses and other current assets, net21,882 521 
Other assets, net3,846 1,202 
Accounts payable(753)11,986 
Accrued compensation13,662 8,900 
Accrued expenses and other liabilities8,022 4,399 
Operating lease liabilities
(3,106)(2,762)
Deferred revenue(757)(190)
Net cash used in operating activities(28,619)(16,291)
INVESTING ACTIVITIES:
Purchase of marketable securities(163,742)(70,654)
Maturity of marketable securities
310,000 204,110 
Purchase of non-marketable equity and other related investments(12,750) 
Purchase of property and equipment (22,700)(9,586)
Net cash provided by investing activities110,808 123,870 
FINANCING ACTIVITIES:
Payments made on finance lease obligations
(18)(55)
Proceeds from issuance of common stock upon exercise of stock options
963 4,462 
Taxes paid related to net share settlement of restricted stock units(957)(73,576)
Payment of offering costs related to borrowings on convertible senior notes (784)
Net cash used in financing activities(12)(69,953)
Net effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
(792)(1,087)
Net increase in cash, cash equivalents and restricted cash
81,385 36,539 
Cash, cash equivalents and restricted cash—Beginning of period
492,288 832,977 
Cash, cash equivalents and restricted cash—End of period
$573,673 $869,516 
Supplemental Disclosures of Cash Flow Information:
Operating lease liabilities arising from obtaining right-of-use assets
$3,940 $170,847 
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Three Months Ended March 31,
20222021
Supplemental Disclosures of Noncash Investing and Financing Activities:
Purchase of property and equipment included in accounts payable and accrued expenses
$19,751 $5,881 
Property and equipment acquired under finance leases$ $238 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents
$573,604 $869,372 
Restricted cash – included in other assets, net69 144 
Total cash, cash equivalents and restricted cash$573,673 $869,516 
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 use of its proprietary tests, vast data sets and advanced analytics. Today the Company's proprietary tests are helping to realize the full potential of precision oncology by providing patients and their doctors critical insights that can inform decisions at all stages of the disease, from detecting early signs of cancer, to monitoring cancer recurrence, to guiding treatment decisions. By looking at the unique dimensions of cancer found in blood, including genomic alterations, methylation, and fragmentomics, the Company is unlocking insights that can increasingly help patients across all stages of cancer, including at its earliest, when it’s most treatable. The Company provides its Guardant360 LDT, Guardant360 CDx and GuardantOMNI blood-based tests and Guardant360 TissueNext tissue-based tests for advanced stage cancer, Guardant Reveal blood-based tests to detect residual and recurring disease in Stage II-III colorectal cancer patients, and Guardant360 Response blood-based tests to predict patient response to immunotherapy or targeted therapy 8 weeks earlier than current standard-of-care imaging. In April 2022, the Company presented new data from its broad portfolio of blood tests at the American Association for Cancer Research Annual Meeting which demonstrated the ability of the Company’s investigational next-generation Guardant SHIELD multi-cancer assay to accurately detect early-stage cancers and identify the tumor tissue of origin with high accuracy. To help identify cancer at the earliest stages, in May 2022, the Company launched Shield LDT, a blood-based test to detect early signs of colorectal cancer in average-risk adults age 45 or older who show no symptoms and are not up to date with recommended screening guidelines. From a simple blood draw, the test uses a novel multimodal approach to detect colorectal cancer signals in the bloodstream, including DNA that is shed by tumors. Using data collected from the Company's tests, the Company has also developed the GuardantINFORM platform to further accelerate precision oncology drug development by biopharmaceutical companies by offering them an in-silico research platform to further unlock insights into tumor evolution and treatment resistance across various biomarker-driven cancers.
The Company was incorporated in Delaware in December 2011 and is headquartered in Palo Alto, California. In May 2018, the Company formed and capitalized Guardant Health AMEA, Inc., or the Joint Venture, in the United States with an affiliate of SoftBank Vision Fund (AIV M1) L.P., or SoftBank. Under the terms of the joint venture agreement, the Company holds a 50% ownership interest in the Joint Venture. In November 2021, the Company exercised its call right contained in the Joint Venture agreement with SoftBank to purchase all of the shares held by SoftBank and its affiliates (see Note 3, Investment in Joint Venture).
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 and majority owned subsidiaries. Other stockholders’ interests in the Joint Venture are shown in the condensed consolidated financial statements as noncontrolling interest liability. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company believes that its existing cash and cash equivalents and marketable securities as of March 31, 2022, will be sufficient to allow the Company to fund its current operating plan through at least a period of one year after the date the accompanying condensed consolidated financial statements are issued. As the Company continues to incur losses, its transition to profitability is dependent upon a level of revenues adequate to support the Company’s cost structure. If the Company’s transition to profitability is not consistent with its current operating plan, the Company may have to seek additional capital.
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,
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goodwill and identifiable intangible assets, stock-based compensation, incremental borrowing rate for operating leases, contingencies, certain inputs into the provision for (benefit from) income taxes, including related reserves, valuation of non-marketable securities, valuation of redeemable noncontrolling interest and noncontrolling interest liability, 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.
The severity of the impact on the Company's business for the remainder of calendar year 2022 and beyond will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, and the impact of any variants of the virus, the extent and severity of the impact on the Company's customers and suppliers, the continued disruption to demand for the Company's products and services, and the impact of the global business and economic environment on liquidity and the availability of capital, all of which are uncertain and cannot be predicted.
Unaudited Interim Condensed Financial Statements
The accompanying condensed consolidated balance sheet as of March 31, 2022, the condensed consolidated statements of operations for the three months ended March 31, 2022, and 2021, the condensed consolidated statements of comprehensive loss for the three months ended March 31, 2022, and 2021, the condensed consolidated statements of redeemable noncontrolling interest and stockholders’ equity for the three months ended March 31, 2022, and 2021, and cash flows for the three months ended March 31, 2022, and 2021, and the related interim condensed consolidated disclosures are unaudited. 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, 2021.
Foreign Currency
The functional currency of the subsidiaries of the consolidated Joint Venture is the local currency. The assets and liabilities of the subsidiaries are translated into U.S. dollars at exchange rates in effect at each balance sheet date, with the resulting translation adjustments recorded to a separate component of accumulated other comprehensive loss within stockholders’ equity. Income and expense accounts are translated at average exchange rates during the period. Foreign currency transaction gains and losses resulting from transactions denominated in a currency other than the functional currency are recognized in the condensed consolidated statements of operations. For the three months ended March 31, 2022, and 2021, foreign currency transaction gains and losses were immaterial.
Restricted Cash
Restricted cash consists of payroll withholding related to the Company's enrollment in certain voluntary disability insurance plan. Restricted cash balance was $0.1 million and $0.1 million as of March 31, 2022, and December 31, 2021, respectively, which was included in other assets in the accompanying condensed consolidated balance sheets.
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 investee. The Company's non-marketable equity and other related investments totaled $52.2 million and $39.4 million as of March 31, 2022, and December 31, 2021, respectively, and are included in other assets, net on the accompanying condensed consolidated balance sheets. Non-marketable securities are 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 of the investee; changes in operating structure or management of the investee; additional funding requirements; and the investee’s ability to remain in business. Pursuant to one of the investments in non-marketable
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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. As of March 31, 2022, no impairment or downward adjustments to the carrying value of non-marketable securities have been recorded. The Company’s assessment of these factors in determining whether an impairment exists could change in the future due to new developments or changes in applied assumptions.
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 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 in the United States and are primarily with biopharmaceutical companies with 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 at net amount.
A significant customer is a biopharmaceutical customer or a clinical testing payer 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:
RevenueAccounts Receivable, Net
Three Months Ended March 31,March 31, 2022December 31, 2021
20222021
(unaudited)(unaudited)
Customer A
30 %25 %10 %13 %
Customer B
**11 %10 %
Customer C
***13 %
Customer D
**16 %*
*    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, the Company received the first installment payment of $1.0 million, and in December 2021, the Company received the second installment payment of $1.1 million. The Company has evaluated and recorded a credit loss for the remaining $5.9 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:
March 31, 2022
December 31, 2021
(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
$4,800 $5,900 
Allowance for Credit Losses
(4,800)(5,900)
Net Amount
$ $ 
The following table summarizes the allowance for credit losses activities:
Three Months Ended March 31,
20222021
(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
$5,900 $7,000 
Reclassification
(1,100)(1,100)
Allowance for credit losses—End of period
$4,800 $5,900 
Accounts Receivable, Net
Accounts receivable represent valid claims against commercial and governmental payers, biopharmaceutical companies, research institutes and international 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 March 31, 2022, and December 31, 2021, the Company had unbilled receivables of $3.1 million and $5.7 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 March 31, 2022, and December 31, 2021, the Company had immaterial allowance for credit losses related to its accounts receivable.
Asset Acquisition
If an acquisition of an asset or group of assets does not meet the definition of a business, the transaction is accounted for as an asset acquisition rather than a business combination. An asset acquisition does not result in the recognition of goodwill and transaction costs are capitalized as part of the cost of the asset or group of assets acquired. Transaction costs allocated to in-process research and development technology with no future alternate use is expensed as incurred. The total consideration is allocated to the various intangible assets acquired on a relative fair value basis. Cash paid in connection of purchase of in-process research and development technology in an asset acquisition is presented within the investing section of the condensed consolidated statement of cash flows.
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
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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.
Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities. Goodwill and IPR&D are not amortized but are tested for impairment at least annually during the fourth fiscal quarter, or if circumstances indicate their 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 was tested for impairment at the enterprise level. As of March 31, 2022, there has been no impairment of goodwill or IPR&D.
Intangible assets are carried at cost, net of accumulated amortization. The Company does not have intangible assets with indefinite useful lives other than goodwill and the acquired IPR&D. Amortization is recorded on a straight-line basis over the intangible asset's useful life, which is approximately 612 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. For the three months ended March 31, 2022, and 2021, the Company recorded post-acquisition contingent consideration expense of $2.1 million and zero, 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
Upon early adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity on January 1, 2021, the Company reclassified the carrying amount of the equity component of the cash conversion feature including the allocated debt issuance costs from additional paid-in capital to convertible senior notes, net. 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 provided to its ordering physicians and biopharmaceutical customers, as well as from biopharmaceutical research and development services provided to its biopharmaceutical customers. Precision oncology testing services include genomic profiling and the delivery of other genomic information derived from the Company’s platform. Development services and other include companion diagnostic development, clinical study setup, monitoring and maintenance, information solutions and laboratory services, and other miscellaneous revenue streams. 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 and international distributors.
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. ASC 606 provides for a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract,
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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. For the three months ended March 31, 2022, and 2021, the Company recorded $2.0 million and $5.1 million as revenue, respectively, resulting from cash collections exceeding the estimated variable consideration related to samples processed in previous periods, including revenue received from successful appeals of reimbursement denials, net of recoupments.
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 pharmaceutical 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 development 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 the Company's development services 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 development 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 has other miscellaneous revenue streams that are recognized in addition to development services noted above such as clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect, GuardantINFORM, and kits fulfillment related revenues. Revenues related to clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect, and GuardantINFORM are generally recognized over time based on an input method to measure progress in the period when the associated services have been performed. Kits fulfillment related revenues are recognized when such products are delivered. In addition, the Company derives sales-based royalty revenues from licensing its technologies. Royalty revenues are recognized in the period when royalty-bearing sales occur.
Contracts with multiple performance obligations
Contracts with biopharmaceutical customers may include multiple distinct performance obligations, such as provision of precision oncology testing, biopharmaceutical research and development services, and clinical study enrollment assistance, among others. The Company evaluates the terms and conditions included within its contracts with biopharmaceutical customers 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.
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 March 31, 2022, and December 31, 2021, the deferred revenue balance was $10.6 million and $11.3 million, respectively. Revenue recognized in the three months ended March 31, 2022 that was included in the deferred revenue balance as of December 31, 2021 was $3.5 million, and revenue recognized in the three months ended March 31, 2021 that was included in the deferred revenue balance as of December 31, 2020 was $5.0 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 12 months.
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Costs of Precision Oncology Testing
Cost of precision oncology testing generally consists of cost of materials, direct labor including bonus, benefit and stock-based compensation, equipment and infrastructure expenses associated with processing test samples (including sample accessioning, library preparation, sequencing, quality control analyses and shipping charges to transport blood samples), freight, curation of test results for physicians and license fees due to third parties. Infrastructure expenses include depreciation of laboratory equipment, rent 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. Royalties for licensed technology calculated as a percentage of revenues generated using the associated technology are recorded as expense at the time the related revenues are recognized. One-time royalty payments related to signing of license agreements or other milestones, such as issuance of new patents, are amortized to expense over the expected useful life of the applicable patent rights.
Cost of Development Services and Other
Cost of development service and other primarily includes costs incurred for the performance of development services requested by the Company’s biopharmaceutical customers and other revenues included as noted above. 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 allocated 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 and the Joint Venture'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, the 2018 Incentive Award Plan, and the Joint Venture's 2020 Equity Incentive 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. The board of directors of the Joint Venture has determined the fair value of common stock of the Joint Venture. Forfeitures are accounted for as they occur.
For market-based restricted stock units, the Company derives the requisite service period using the Monte Carlo simulation model and the related compensation expense is recognized over the derived service period using an accelerated attribution model commencing on the grant date. Stock-based compensation expense will be recorded regardless of whether the market conditions are achieved or not. If the related market condition is achieved earlier than its estimated derived service period, the stock-based compensation expense will be accelerated, and a cumulative catch-up expense will be recorded during the period in which the market condition is met.
The Company measures the grant date fair value of its service-based and performance-based restricted stock units issued to 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 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.
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Net Loss Per Share Attributable to Common Stockholders
The Company calculates basic net loss per share attributable to common stockholders by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common stockholders 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, shares subject to repurchase from early exercised options 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 attributable to common stockholders as their effect is anti-dilutive.
3.    Investment in Joint Venture
Variable Interest Entity, or VIE
In May 2018, the Company and an affiliate of SoftBank formed and capitalized the Joint Venture for the sale, marketing and distribution of the Company’s tests in all areas worldwide, outside of North America, Central America, South America, the United Kingdom, all other member states of the European Union as of May 9, 2017, Iceland, Norway, Switzerland and Turkey. The Company expects to rely on the Joint Venture to accelerate commercialization of its products in Asia, the Middle East and Africa.
Under the terms of the joint venture agreement, the Company paid $9.0 million for 40,000 shares of common stock, or 50% ownership interest, of the Joint Venture, and the affiliate of SoftBank contributed $41.0 million for 40,000 shares of common stock, or the other 50% ownership interest, of the Joint Venture. In June 2020, an amended and restated certificate of incorporation of the Joint Venture, as approved by the board of directors of the Joint Venture, was filed with the Secretary of State of the State of Delaware. The amended and restated certificate of incorporation, among other things, increased the number of authorized shares of common stock to 89,000,000 shares consisting of 80,000,000 shares of Class A common stock and 9,000,000 shares of Class B (non-voting) common stock; and authorized 80,000,000 shares of Series A preferred stock. Pursuant to the amended and restated certificate of incorporation, each share of common stock held by the Company and the affiliate of SoftBank was reclassified and exchanged for 1,000 shares of Series A preferred stock. As a result, each of the Company and the affiliate of SoftBank held 40,000,000 shares of Series A preferred stock. The holders of Series A preferred stock are entitled to receive dividends at the rate of $0.05 per share if and when declared by the board of directors of the Joint Venture. In June 2020, the board of directors of the Joint Venture authorized the adoption of the Joint Venture’s 2020 Equity Incentive Plan pursuant to which 4,595,555 shares of Class B common stock have been reserved for issuance. As of March 31, 2022, and December 31, 2021, 1,184,428 and 602,408 shares of Class B common stock have been issued and outstanding, respectively, and no shares of Class A common stock have been issued and outstanding. As of March 31, 2022, and December 31, 2021, 80,000,000 shares of Series A preferred stock have been issued and outstanding.
Under the terms of the joint venture agreement, neither party is obligated to make any further capital contribution, in cash or otherwise, to the Joint Venture. The Joint Venture is deemed to be a VIE and the Company has been identified as the VIE’s primary beneficiary. As the primary beneficiary, the Company has consolidated the financial position, results of operations and cash flows of the Joint Venture in its financial statements and all intercompany balances have been eliminated in consolidation.
As of March 31, 2022, and December 31, 2021, the Joint Venture had total assets of approximately $16.9 million and $20.4 million, respectively, which were primarily comprised of cash, property and equipment and right-of-use assets. Although the Company consolidates the Joint Venture, the legal structure of the Joint Venture limits the recourse that its creditors will have over the Company’s general credit or assets. Similarly, the assets held in the Joint Venture can be used only to settle obligations of the Joint Venture. As of March 31, 2022, and December 31, 2021, the Company has not provided financial or other support to the Joint Venture that was not previously contracted or required.
Put-call arrangements
The joint venture agreement includes a put-call arrangement with respect to the shares of the Joint Venture held by SoftBank and its affiliates. Under certain specified circumstances and on terms specified in the joint venture agreement, including timely written notice, SoftBank has the right to cause the Company to purchase all shares of the Joint Venture held by SoftBank and its affiliates, or the put right, and the Company has a right to purchase all such shares, or the call right.
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In November 2021, the Company exercised its call right contained in the joint venture agreement with SoftBank to purchase all of the shares held by SoftBank and its affiliates in consideration for the payment of the aggregate purchase price to be determined based on an independent third-party valuation. Upon the Company's exercise of the call right in November 2021, SoftBank no longer has the option to exercise its put right. The Company and SoftBank have initiated a process to determine the independent valuation of the Joint Venture, which includes the appointment of independent appraisers by both SoftBank and the Company. As of March 31, 2022, the estimated aggregate purchase price was $78.0 million, which represented the minimum contractual purchase price and was recorded in current liabilities in the Company’s condensed consolidated balance sheet. The minimum aggregate purchase price has been calculated based on a 20% annual internal rate of return on the $41.0 million of capital invested by SoftBank in May 2018 as stipulated in the joint venture agreement up through the date the Company exercised the call right. The Company expects to complete this transaction before the end of the second quarter of 2022.
The Company may pay the purchase price for the shares of the Joint Venture in cash, in shares of its capital stock (which may be a non-voting security with senior preferences to all other classes of its equity or, if its common stock is publicly traded on a national exchange, its common stock), or in a combination thereof, based on SoftBank’s election.
Prior to November 2021, the noncontrolling interest held by SoftBank contained embedded put-call redemption features that were not solely within the Company’s control and had been classified outside of permanent equity in the consolidated balance sheets. The put-call feature embedded in the redeemable noncontrolling interest did not require bifurcation as it did not meet the definition of a derivative and was considered to be clearly and closely related to the redeemable noncontrolling interest. The Company elected to recognize the changes in redemption value immediately as they occur as if the put-call redemption feature were exercisable at the end of the reporting period. The carrying value of the redeemable noncontrolling interest was first adjusted for the earnings or losses attributable to the redeemable noncontrolling interest based on the percentage of the economic or ownership interest retained in the consolidated VIE by the noncontrolling parties, and then adjusted to equal to its redemption amount, or the fair value of the noncontrolling interest held by SoftBank, as if the redemption occurred at the end of the reporting date. The adjustment of redeemable noncontrolling interest was recorded as an adjustment to net loss attributable to Guardant Health, Inc. common stockholders in the Company's condensed consolidated statement of operations.
4.     Condensed Consolidated Balance Sheet Components
Property and Equipment, Net
Property and equipment, net consist of the following:
March 31, 2022December 31, 2021
(unaudited)
(in thousands)
Machinery and equipment
$69,583 $63,022 
Leasehold improvements
75,295 38,702 
Computer hardware
21,787 16,685 
Construction in progress(1)
37,104 55,873 
Furniture and fixtures
7,596 3,683 
Computer software
1,439 1,320 
Property and equipment, gross
$212,804 $179,285 
Less: accumulated depreciation
(61,482)(54,824)
Property and equipment, net
$151,322 $124,461 
(1)    As of March 31, 2022, and December 31, 2021, $16.2 million and $45.8 million of construction in progress was related to leasehold improvements, furniture and equipment for the office in Palo Alto, California, respectively. In February 2022, part of the Palo Alto office was put in service and related construction in progress was transferred to fixed assets.
Depreciation expense related to property and equipment was $6.7 million and $4.5 million for the three months ended March 31, 2022, and 2021, respectively.
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Accrued Expenses
Accrued expenses consist of the following:
March 31, 2022December 31, 2021
(unaudited)
(in thousands)
Operating lease liabilities
$16,556 $12,856 
Accrued tax liabilities
4,401 4,223 
Accrued professional services
8,410 6,994 
Accrued clinical studies5,151 3,332 
Accrued legal expenses
6,429 4,166 
Purchases of property and equipment included in accrued expenses
1,349 5,893 
Others
9,555 7,821 
Total accrued expenses
$51,851 $45,285 
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, accounts payable and accrued expenses. Cash equivalents and marketable securities are stated at fair value. Prepaid expenses and other current assets, net, accounts payable and accrued expenses 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.
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.
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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:
March 31, 2022
Fair ValueLevel 1Level 2Level 3
(unaudited)
(in thousands)
Financial Assets:
Money market funds
$447,032 $447,032 $ $ 
Total cash equivalents
$447,032 $447,032 $ $ 
U.S. government debt securities
$388,662 $ $388,662 $ 
Total short-term marketable securities
$388,662 $ $388,662 $ 
U.S. government debt securities
$588,453 $ $588,453 $ 
Total long-term marketable securities
$588,453 $ $588,453 $ 
Total
$1,424,147 $447,032 $977,115 $ 
Financial Liabilities:
Contingent consideration
$6,015 $ $ $6,015 
Total
$6,015 $ $ $6,015 
December 31, 2021
Fair ValueLevel 1Level 2Level 3
(in thousands)
Financial Assets:
Money market funds
$357,785 $357,785 $ $ 
Total cash equivalents
$357,785 $357,785 $ $ 
U.S. government debt securities
$440,546 $ $440,546 $ 
Total short-term marketable securities
$440,546 $ $440,546 $ 
U.S. government debt securities
$698,034 $ $698,034 $ 
Total long-term marketable securities
$698,034 $ $698,034 $ 
Total
$1,496,365 $357,785 $1,138,580 $ 
Financial Liabilities:
Contingent consideration
$3,625 $ $ $3,625 
Total
$3,625 $ $ $3,625 
The Company measures the fair value of money market funds based on quoted prices in active markets for identical securities. 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.
There were no transfers between Level 1, Level 2 and Level 3 during the periods presented.
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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 March 31, 2022, the Company recorded contingent consideration liability of $6.0 million, of which $4.5 million is considered long-term and was recorded within other long-term liabilities on the accompanying condensed consolidated balance sheets. As of December 31, 2021, the Company recorded contingent consideration liability of $3.6 million within other long-term liabilities on the accompanying condensed consolidated balance sheets.
As of March 31, 2022, and December 31, 2021, the fair value of the noncontrolling interest liability is 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 following table summarizes the activities for the Level 3 financial instruments:
Noncontrolling Interest Liability
Redeemable Noncontrolling Interest
Contingent Consideration
Three Months Ended March 31,Three Months Ended March 31,Three Months Ended March 31,
2022202120222021
(unaudited)
(in thousands)
Fair value — beginning of period
$78,000 $57,100 $3,625 $1,245 
Increase in fair value  4,287 2,390  
Net loss for the period (1,987)  
Fair value — end of period
$78,000 $59,400 $6,015 $1,245 
The Company considers the fair value of the Convertible Notes as of March 31, 2022, and December 31, 2021, 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.
Cash Equivalents and Marketable Securities
The following tables summarizes the Company’s cash equivalents and marketable securities’ amortized costs, gross unrealized gains, gross unrealized losses and estimated fair values by significant investment category:
March 31, 2022
Amortized CostGross Unrealized GainGross Unrealized LossEstimated Fair Value
(unaudited)
(in thousands)
Money market fund
$447,032 $ $ $447,032 
U.S. government debt securities
993,465  (16,350)977,115 
Total
$1,440,497 $ $(16,350)$1,424,147 
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December 31, 2021
Amortized CostGross Unrealized GainGross Unrealized LossEstimated Fair Value
(in thousands)
Money market fund
$357,785 $ $ $357,785 
U.S. government debt securities
1,142,172 2 (3,594)1,138,580 
Total
$1,499,957 $2 $(3,594)$1,496,365 
There have been no material realized gains or losses on marketable securities for the periods presented. None of the Company’s investments in marketable securities has been in an unrealized loss position for more than one year. The Company determined that it did have the ability and intent to hold all marketable 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 in the three months ended March 31, 2022, and 2021, respectively. The maturities of the Company’s long-term marketable securities range from 1.0 to 1.8 years as of March 31, 2022.
6.    Intangible Assets, Net and Goodwill
The following table presents details of purchased intangible assets as of March 31, 2022, and December 31, 2021:
March 31, 2022
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountRemaining Weighted-Average Useful Life
(unaudited)
(in thousands)(in years)
Intangible assets subject to amortization:
Acquired license$11,886 $(2,746)$9,140 8.5
Non-compete agreements and other covenant rights
5,100 (2,113)2,987 3.7
Total intangible assets subject to amortization
16,986 (4,859)12,127 
Intangible assets not subject to amortization:
IPR&D1,600 — 1,600 
Goodwill3,290 — 3,290 
Total purchased intangible assets
$21,876 $(4,859)$17,017 
December 31, 2021
Gross Carrying AmountAccumulated AmortizationNet Carrying Amount