10-Q 1 ntra-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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, 2024

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: 001-37478

NATERA, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

01-0894487

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

13011 McCallen Pass

Building A Suite 100
Austin, TX

78753

(Address of Principal Executive Offices)

(Zip Code)

(650) 980-9190

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

NTRA

The Nasdaq Stock Market LLC (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 May 3, 2024, the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 122,802,694.

Natera, Inc.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2024

TABLE OF CONTENTS

    

Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Part I — Financial Information

 

Item 1. Financial Statements (unaudited)

5

Condensed Consolidated Balance Sheets at March 31, 2024 and December 31, 2023

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023

6

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023

7

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

8

Notes to Unaudited Interim Condensed Consolidated Financial Statements

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

35

Item 3. Quantitative and Qualitative Disclosures About Market Risk

44

Item 4. Controls and Procedures

44

Part II — Other Information

Item 1. Legal Proceedings

45

Item 1A. Risk Factors

46

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 3. Defaults Upon Senior Securities

46

Item 4. Mine Safety Disclosures

46

Item 5. Other Information

46

Item 6. Exhibits

47

Signatures

49

2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. The forward-looking statements are contained principally in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this report. Forward-looking statements include information concerning our future results of operations and financial position, strategy and plans, and our expectations for future operations. Forward-looking statements include all statements that are not historical facts and, in some cases, can be identified by terms such as "believe," "may," "will," "estimate," "continue," "anticipate," "design," "intend," "expect," "could," "plan," "potential," "predict," "seek," "should," "would" or the negative version of these words and similar expressions.

These forward-looking statements include, but are not limited to, statements concerning the following:

our expectations regarding revenue, expenses and other operating results;
our expectation that, for the foreseeable future, a significant portion of our revenues will be derived from sales of Panorama, Horizon, and Signatera;
our ability to increase demand and reimbursement for our tests;
our expectation that Panorama will be adopted for the screening of microdeletions and that third-party payer reimbursement will be available for this testing, including our expectations that the results from our single nucleotide polymorphism-based Microdeletion and Aneuploidy RegisTry, or SMART, Study may support broader use of and reimbursement for the use of Panorama for microdeletions;
our expectations of the reliability, accuracy, and performance of our tests, as well as expectations of the benefits of our tests to patients, providers, and payers;
our ability to successfully develop additional revenue opportunities, expand our product offerings to include new tests, and expand adoption of our current and future technologies through Constellation, our cloud-based distribution model;
our efforts to successfully develop and commercialize, or enhance, our products;
our ability to comply with federal, state, and foreign regulatory requirements, programs and policies, including a recently enacted rule from the FDA that would classify our tests as medical devices, and to successfully operate our business in response to changes in such requirements, programs and policies;
our ability to respond to, defend, or otherwise favorably resolve litigation or other proceedings, including investigations, subpoenas, demands, disputes, requests for information, and other regulatory or administrative actions or proceedings;
the effect of improvements in our cost of goods sold;
our estimates of the total addressable markets for our current and potential product offerings;
our ability and expectations regarding obtaining, maintaining and expanding third-party payer coverage of, and reimbursement for, our tests;
the effect of changes in the way we account for our revenue;
the scope of protection we establish and maintain for, and developments or disputes concerning, our intellectual property or other proprietary rights, including associated litigation costs we may incur and our assumptions regarding any potential liabilities associated with our existing litigation matters;
our ability to successfully compete in the markets we serve;
our reliance on collaborators such as medical institutions, contract laboratories, laboratory partners, and other third parties;
our ability to operate our laboratory facilities and meet expected demand, and to successfully scale our operations;
our reliance on a limited number of suppliers, including sole source suppliers, which may impact our ability to maintain a continued supply of laboratory instruments and materials and to run our tests;
our expectations of the rate of adoption of our current or future tests by laboratories, clinics, clinicians, payers, and patients;
our ability to complete clinical studies and publish compelling clinical data in peer-reviewed medical publications regarding our current and future tests, and the effect of such data or publications on professional society or practice guidelines or coverage and reimbursement determinations from third-party payers, including our SMART and CIRCULATE-Japan studies and our ongoing and planned trials in oncology and organ health;
our reliance on our partners to market and offer our tests in the United States and in international markets;

3

our expectations regarding acquisitions, dispositions and other strategic transactions;
our expectations regarding the conversion of our outstanding 2.25% convertible senior notes due 2027, or the Convertible Notes, in the aggregate principal amount of $287.5 million and our ability to make debt service payments under the Convertible Notes if such Convertible Notes are not converted;
our ability to control our operating expenses and fund our working capital requirements;
the factors that may impact our financial results, including our revenue recognition assumptions and estimates; and
anticipated trends and challenges in our business and the markets in which we operate.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those discussed in Part II, Item 1A, “Risk Factors” in this report and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on February 29, 2024. Given these uncertainties, you should not place undue reliance on these forward-looking statements. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. You should read this report completely and with the understanding that our actual future results may be materially different from what we expect.

Also, forward-looking statements represent our beliefs and assumptions only as of the date of this report. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

As used in this Quarterly Report on Form 10-Q, the terms “Natera,” “Registrant,” “Company,” “we,” “us,” and “our” mean Natera, Inc. and its subsidiaries unless the context indicates otherwise.

4

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Natera, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands except par value)

March 31, 

    

December 31, 

 

    

2024

    

2023

 

Assets

Current assets:

Cash, cash equivalents and restricted cash

$

813,817

$

642,095

Short-term investments

69,121

236,882

Accounts receivable, net of allowance of $7,252 and $6,481 at March 31, 2024 and December 31, 2023, respectively

 

288,748

278,289

Inventory

 

43,024

40,759

Prepaid expenses and other current assets, net

 

46,734

60,524

Total current assets

 

1,261,444

 

1,258,549

Property and equipment, net

 

125,791

111,210

Operating lease right-of-use assets

54,553

56,537

Other assets

 

26,417

15,403

Total assets

$

1,468,205

$

1,441,699

Liabilities and Stockholders’ Equity

 

 

Current liabilities:

 

 

 

 

Accounts payable

$

26,038

$

14,998

Accrued compensation

 

39,577

45,857

Other accrued liabilities

 

142,228

149,405

Deferred revenue, current portion

 

17,705

16,612

Short-term debt financing

80,401

80,402

Total current liabilities

 

305,949

 

307,274

Long-term debt financing

 

283,273

282,945

Deferred revenue, long-term portion and other liabilities

20,712

19,128

Operating lease liabilities, long-term portion

64,160

67,025

Total liabilities

 

674,094

 

676,372

Commitments and contingencies (Note 8)

 

 

Stockholders’ equity:

 

Common stock, $0.0001 par value: 750,000 shares authorized at both March 31, 2024 and December 31, 2023; 122,234 and 119,581 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

12

11

Additional paid-in capital

 

3,241,326

3,145,837

Accumulated deficit

 

(2,445,035)

(2,377,436)

Accumulated other comprehensive loss

(2,192)

(3,085)

Total stockholders’ equity

 

794,111

 

765,327

Total liabilities and stockholders’ equity

$

1,468,205

$

1,441,699

See accompanying notes to the unaudited interim condensed consolidated financial statements.

5

Natera, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except per share data)

Three months ended

March 31, 

    

2024

2023

 

Revenues

Product revenues

$

364,672

$

237,797

Licensing and other revenues

3,069

3,959

Total revenues

367,741

241,756

Cost and expenses

Cost of product revenues

158,833

147,754

Cost of licensing and other revenues

307

370

Research and development

88,637

82,306

Selling, general and administrative

194,278

149,627

Total cost and expenses

442,055

380,057

Loss from operations

(74,314)

(138,301)

Interest expense

(3,124)

(3,061)

Interest and other income, net

10,267

4,585

Loss before income taxes

(67,171)

(136,777)

Income tax expense

(428)

(160)

Net loss

$

(67,599)

$

(136,937)

Unrealized gain on available-for-sale securities, net of tax

893

4,564

Comprehensive loss

$

(66,706)

$

(132,373)

Net loss per share (Note 12):

Basic and diluted

$

(0.56)

$

(1.23)

Weighted-average number of shares used in computing basic and diluted net loss per share:

Basic and diluted

120,814

111,767

See accompanying notes to the unaudited interim condensed consolidated financial statements.

6

Natera, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands)

Three months ended March 31, 2023

Common Stock

Additional
Paid-in

Accumulated Other Comprehensive

Accumulated

Total
Stockholders'

    

  

Shares

    

Amount

    

Capital

    

Loss

Deficit

    

Equity

Balance as of December 31, 2022

111,255

$

11

$

2,664,730

$

(16,362)

$

(1,942,635)

$

705,744

Issuance of common stock upon exercise of stock options

169

2,301

2,301

Issuance of common stock for IPR&D acquisition

336

14,435

 —

 —

14,435

Vesting of restricted stock units

1,250

 —

 —

 —

 —

 —

Stock-based compensation

40,695

40,695

Issuance of common stock for bonus

349

19,771

19,771

Unrealized gain on available-for sale securities

 —

 —

 —

4,564

 —

4,564

Net loss

(136,937)

(136,937)

Balance as of March 31, 2023

113,359

$

11

$

2,741,932

$

(11,798)

$

(2,079,572)

$

650,573

Three months ended March 31, 2024

Common Stock

Additional
Paid-in

Accumulated Other Comprehensive

Accumulated

Total
Stockholders'

Shares

    

Amount

    

Capital

    

Loss

Deficit

    

Equity

Balance as of December 31, 2023

119,581

$

11

$

3,145,837

$

(3,085)

$

(2,377,436)

$

765,327

Issuance of common stock upon exercise of stock options

792

6,466

6,466

Vesting of restricted stock units

1,591

1

 —

 —

 —

1

Stock-based compensation

64,952

64,952

Issuance of common stock for bonus

270

 —

24,071

 —

 —

24,071

Unrealized gain on available-for sale securities

 —

 —

 —

893

 —

893

Net loss

(67,599)

(67,599)

Balance as of March 31, 2024

122,234

$

12

$

3,241,326

$

(2,192)

$

(2,445,035)

$

794,111

See accompanying notes to the unaudited interim condensed consolidated financial statements.

7

Natera, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended

March 31, 

    

2024

    

2023

(in thousands)

Operating activities

 

 

Net loss

 

$

(67,599)

$

(136,937)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

 

7,063

5,077

Expensed in-process research and development

2,679

Premium amortization and discount accretion on investment securities

(460)

787

Stock-based compensation

 

64,447

40,477

Non-cash lease expense

3,593

3,806

Amortization of debt discount and issuance cost

328

320

Foreign exchange adjustment

359

265

Non-cash interest expense

(1)

48

Changes in operating assets and liabilities:

Accounts receivable

 

(10,459)

(2,400)

Inventory

 

(2,265)

(5,277)

Prepaid expenses and other assets

 

14,428

2,338

Accounts payable

 

10,732

5,762

Accrued compensation

 

17,789

14,993

Operating lease liabilities

(4,122)

(2,177)

Other accrued liabilities

 

(7,625)

(18,181)

Deferred revenue

 

793

7,312

Cash provided by (used in) operating activities

 

27,001

 

(81,108)

Investing activities

Proceeds from maturity of investments

169,065

27,250

Purchases of property and equipment, net

 

(20,315)

(11,380)

Cash paid for acquisition of an asset

(10,495)

Cash provided by investing activities

 

138,255

 

15,870

Financing activities

 

 

 

Proceeds from exercise of stock options

6,466

2,301

Cash provided by financing activities

 

6,466

 

2,301

Net change in cash, cash equivalents and restricted cash

 

171,722

 

(62,937)

Cash, cash equivalents and restricted cash, beginning of period

 

642,095

 

466,091

Cash, cash equivalents and restricted cash, end of period

 

$

813,817

 

$

403,154

Supplemental disclosure of cash flow information:

Cash paid for interest

$

1,179

$

1,124

Non-cash investing and financing activities:

Purchases of property and equipment in accounts payable and accruals

$

112

$

1,613

Acquisition of warrants

$

1,884

$

Issuance of common stock for IPR&D acquisition

$

$

14,435

Issuance of common stock for bonuses

$

24,071

$

19,771

Stock-based compensation included in capitalized software development costs

$

505

$

218

See accompanying notes to the unaudited interim condensed consolidated financial statements.

8

Natera, Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

1. Description of Business

Natera, Inc. (the “Company”) was formed in the state of California as Gene Security Network, LLC in November 2003 and incorporated in the state of Delaware in January 2007. The Company is a diagnostics company with proprietary molecular and bioinformatics technology that it is applying to change the management of disease worldwide. The Company’s cell-free DNA (“cfDNA”) technology combines its novel molecular assays, which reliably measure many informative regions across the genome from samples as small as a single cell, with its statistical algorithms which incorporate data available from the broader scientific community to identify genetic variations covering a wide range of serious conditions with high accuracy and coverage. The Company focuses on applying its technology to three main areas of healthcare – women’s health, oncology and organ health. In the women’s health space, the Company develops and commercializes non- or minimally- invasive tests to evaluate risk for, and thereby enable early detection of, a wide range of genetic conditions, such as Down syndrome. In oncology, the Company commercializes, among others, a personalized blood-based DNA test to detect molecular residual disease and monitor for disease recurrence across a broad range of cancer types. The Company’s third area of focus is organ health, with tests to assess kidney, heart, and lung transplant rejection as well as genetic testing for chronic kidney disease. The Company operates laboratories in Austin, Texas and San Carlos, California certified under the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) providing a host of cell-free DNA-based molecular testing services. The Company determines its operating segments based on the way it organizes its business to make operating decisions and assess performance. The Company operates one segment, the development and commercialization of molecular testing services, applying its proprietary technology in the fields of women’s health, oncology and organ health.

The Company’s key product offerings include its Panorama Non-Invasive Prenatal Test (“Panorama”) that screens for chromosomal abnormalities of a fetus as well as in twin pregnancies, typically with a blood draw from the mother; Horizon Carrier Screening (“Horizon”) to determine carrier status for a large number of severe genetic diseases that could be passed on to the carrier’s children; its Signatera molecular residual disease test (“Signatera”) to detect circulating tumor DNA in patients previously diagnosed with cancer to assess molecular residual disease, monitor for recurrence, and evaluate treatment response; and its Prospera test, to assess organ transplant rejection in patients who have undergone kidney, heart, or lung transplantation. All testing is available principally in the United States. The Company also offers its Panorama test to customers outside of the United States, primarily in Europe. The Company also offers Constellation, a cloud-based software platform that enables laboratory customers to gain access through the cloud to the Company’s algorithms and bioinformatics in order to validate and launch their own tests based on the Company’s technology.

2. Summary of Significant Accounting Policies

During the three months ended March 31, 2024, there were no material changes to the Company’s significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (filed on February 29, 2024).

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. The unaudited interim condensed consolidated financial information includes only adjustments of a normal recurring nature necessary for a fair presentation of the Company’s results of operations, financial position, changes in stockholders’ equity, and cash flows. The results of operations for the three months ended March 31, 2024, are not necessarily indicative of the results for the full year or the results for any future periods. The condensed consolidated balance sheet as of December 31, 2023 has been derived from audited financial statements at that date. These financial statements should be read in conjunction with the audited financial statements, and related notes for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 29, 2024.

9

Some items in the prior period financial statements were reclassified to conform to the current presentation.

Liquidity Matters

The Company has incurred net losses since its inception and anticipates net losses for the near future. The Company had a net loss of $67.6 million for the three months ended March 31, 2024 and an accumulated deficit of $2.4 billion as of March 31, 2024. As of March 31, 2024, the Company had $813.8 million in cash, cash equivalents, and restricted cash, $69.1 million in marketable securities, an $80.4 million outstanding balance on its Credit Line (as defined in Note 10, Debt) including accrued interest and $287.5 million of outstanding principal on its 2.25% Convertible Senior Notes (the “Convertible Notes”). The Company is required to maintain a minimum of at least $150.0 million in its UBS accounts as collateral for its Credit Line. As of March 31, 2024, the Company had $20.0 million remaining and available on its Credit Line.

While the Company has introduced multiple products that are generating revenues, these revenues have not been sufficient to fund all operations and business plans. Accordingly, the Company has funded the portion of operating costs that exceeds revenues through a combination of equity issuances, debt issuances, and other financings.

The Company continues to invest in the development and commercialization of its existing and future products and, consequently, it will need to generate additional revenues to achieve future profitability and may need to raise additional equity or debt financing. If the Company raises additional funds by issuing equity securities, its stockholders will experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and requires significant debt service payments, which diverts resources from other activities. Additional financing may not be available when necessary, or in amounts or on terms acceptable to the Company. If the Company is unable to obtain additional financing, it may be required to delay the development and commercialization of its products and significantly scale back its business and operations.

In September 2023, the Company completed an underwritten equity offering and sold 4,550,000 shares of its common stock at a price of $55 per share to the public. Before estimated offering expenses of $0.4 million, the Company received proceeds of approximately $235.8 million net of the underwriting discount.

On September 10, 2021, the Company entered into an agreement with a third party for an asset acquisition where the acquired asset was in-process research and development primarily in exchange for an equity consideration payment. In addition, pursuant to the agreement, certain employees of the third party became employees of the Company. The third party was a biotechnology company focused on oncology. The total upfront acquisition consideration amounts to $35.6 million composed of the issuance of 276,346 shares of the Company's common stock with a fair value of $30.9 million, approximately $3.9 million of cash consideration, assumed net liabilities of $0.2 million, as well as $0.6 million of acquisition related legal and accounting costs directly attributable to the acquisition of the asset. The Company accounted for the transaction as an asset acquisition as substantially all of the estimated fair value of the gross assets acquired was concentrated in a single identified in-process research and development asset (“IPR&D”) thus satisfying the requirements of the screen test in Accounting Standards Update (“ASU”) 2017-01 Business Combinations (Topic 805): Clarifying the Definition of Business. The estimated fair value of the acquired workforce was not significant. The Company concluded the acquired IPR&D has no alternative-future use and accordingly expensed approximately $35.6 million, on the day the transaction closed as research and development expense, which is reflected in its consolidated statement of operations.

Further, additional consideration aggregating up to approximately $35.0 million was estimated to be paid via issuance of an estimated 269,547 additional Natera common shares, consistent with the registration statement filed with the SEC on September 10, 2021, upon achievement of defined milestones relating to product development, commercial launch and continued employment of certain selling shareholders, each of which was revalued at each reporting date and amount of compensation expense was adjusted accordingly and reported in research and development expenses. In November 2022, the terms of the payment for any remaining consideration were modified, resulting in $10.0 million of consideration paid in December 2022 and $15.0 million of consideration paid in March 2023, with such consideration primarily consisting of Natera common stock.

10

Based on the Company’s current business plan, the Company believes that its existing cash and marketable securities will be sufficient to meet its anticipated cash requirements for at least 12 months after May 9, 2024.

Principles of Consolidation

The accompanying condensed consolidated financial statements include all the accounts of the Company and its subsidiaries. The Company established a subsidiary that operates in the state of Texas to support the Company’s laboratory and operational functions. The Company established a subsidiary that operates in Canada following the acquisition of the IPR&D asset. All intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles (GAAP) in the United States requires management to make estimates and assumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Significant items subject to such estimates include the allowance for doubtful accounts, the operating right-of-use assets and the associated lease liabilities, the average useful life for property and equipment including impairment estimates, deferred revenues associated with unsatisfied performance obligations, accrued liability for potential refund requests, stock-based compensation, the fair value of options, income tax uncertainties, and the expected consideration to be received from contracts with customers, insurance payors, and patients. These estimates and assumptions are based on management's best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors, including contractual terms and statutory limits; however, actual results could differ from these estimates and could have an adverse effect on the Company's financial statements.

Investments

Investments consist primarily of debt securities such as U.S. Treasuries, U.S. agency and municipal bonds. Management determines the appropriate classification of securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company generally classifies its entire investment portfolio as available-for-sale. The Company views its available-for-sale portfolio as available for use in current operations. Accordingly, the Company classifies all investments as short-term, irrespective of maturity date. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity.

The Company classifies its investments as Level 1 or 2 within the fair value hierarchy. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets that the Company has the ability to access. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. The Company holds Level 2 securities which are initially valued at the transaction price and subsequently valued by a third-party service provider using inputs other than quoted prices that are observable either directly or indirectly, such as yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures. The Company performs certain procedures to corroborate the fair value of these holdings.  

Available-for-sale debt securities. The amended guidance from ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, requires the measurement of expected credit losses for available-for-sale debt securities held at the reporting date over the remaining life based on historical experience, current conditions, and reasonable and supportable forecasts. The Company evaluated its investment portfolio under the available-for-sale debt securities impairment model guidance and determined the Company’s investment portfolio is composed of low-risk, investment grade securities and thus has not recorded an expected credit loss for its investment portfolio. Further, gross unrealized losses on available for sale securities were not material at March 31, 2024.

11

Accounts Receivable

Trade accounts receivable and other receivables. The allowance for doubtful accounts for trade accounts receivable is based on the Company’s assessment of the collectability of accounts related to its clinics and laboratory partner customers. The Company regularly reviews the allowance by considering factors such as historical experience, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. See Note 6, Balance Sheet Components, for a roll-forward of the allowance for doubtful accounts related to trade accounts receivable for three months ended March 31, 2024 and 2023. The Company recognizes revenue under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) and applies a constraint to the estimated variable consideration such that it is not probable that a significant reversal will occur. When assessing the total consideration expected to be received from insurance carriers and patients, a certain percentage of revenues is further constrained for estimated refunds. After applying the ASC 606 constraint, the Company assessed for credit losses and determined an incremental credit loss was not needed given the payors from whom such receivables are expected to be collectible and the relatively short duration over which the majority of receivables are collected. Accordingly, the Company currently does not have an incremental credit loss reserve nor allowance for doubtful accounts against accounts receivable for insurance and patient payors due to the average selling price calculations which incorporate these risks as net receivables are recorded.

Inventory

Inventory is recorded at the lower of cost or net realizable value, determined on a first-in, first-out basis. Inventory consists entirely of supplies, which the Company consumes when providing its test reports, and therefore, the Company does not maintain any finished goods inventory. The Company enters into inventory purchases commitments so that it can meet future delivery schedules based on forecasted demand for its tests.

The Company uses judgment to analyze and determine if the composition of its inventory is obsolete, slow-moving or unsalable and frequently reviews such determinations. A write down of specifically identified unusable, obsolete, slow-moving or known unsalable inventory in the period is first recognized by using a number of factors including product expiration dates and scrapped inventory. Any write-down of inventory to net realizable value establishes a new cost basis and will be maintained even if certain circumstances suggest the inventory is recoverable in subsequent periods. Costs associated with the write-down of inventory are recorded to cost of revenue on our consolidated statements of operations. The Company makes assumptions about future demand, market conditions and the release of new products that may supersede older products. However, if actual market conditions are less favorable than anticipated, additional inventory write-downs may be required.

Other Assets

In January 2024, the Company acquired from Invitae Corp. (“Invitae”) certain assets relating to Invitae’s non-invasive prenatal screening and carrier screening business. The transaction price of $10.5 million consisted of $10.0 million in upfront payment costs and approximately $0.5 million of other transaction costs which were capitalized as intangible assets over an estimated useful life of ten years. An additional payment of $42.5 million may be made should the Company achieve certain customer volume retention targets. The Company has 120 days from the date of acquisition to assess the actual pay out liability and 150 days to issue payment.

12

Accumulated Other Comprehensive Income (Loss)

Comprehensive loss and its components encompass all changes in equity other than those with stockholders, and include net loss, unrealized gains and losses on available-for-sale marketable securities and foreign currency translation adjustments.

Three months ended

March 31, 

2024

2023

(in thousands)

Beginning balance

$

(3,085)

$

(16,362)

Net unrealized gain on available-for-sale securities, net of tax and foreign currency translation adjustment

893

4,564

Ending balance

$

(2,192)

$

(11,798)

The change in net unrealized loss on available-for-sale securities is due to increased market volatility. The Company has assessed the unrealized loss position for available-for-sale securities and determined that an allowance for credit loss was not necessary.

Revenue Recognition

The Company recognizes revenue under, ASC 606, using the following five step process:

Identification of a contract, or contracts, with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Revenue recognition when, or as, the performance obligations are satisfied

The Company uses the most likely amount method of estimating variable consideration. The total consideration which the Company expects to collect in exchange for the Company’s products is an estimate and may be fixed or variable, and is primarily based on historical cash collections for tests delivered, as adjusted for current expectations. Current expectations of cash collections factor in changes in reimbursement rate trends, past events not expected to recur, and future known changes such as anticipated contractual pricing changes or changes to insurance coverage.  For insurance carriers and product types with similar reimbursement characteristics, the Company uses a portfolio approach to estimate variable consideration. The Company also applies a constraint to the estimated variable consideration when it assesses whether it is probable that a significant reversal in the amount of cumulative revenue may occur in future periods.

When assessing the total consideration expected to be received from insurance carriers and patients, a certain percentage of revenues is further constrained for estimated refunds.

See Note 3, Revenue Recognition, for detailed discussions of product revenues, licensing and other revenues, and how the five steps described above are applied.

Fair Value

The Company discloses the fair value of financial instruments for financial assets and liabilities for which the value is practicable to estimate. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

13

Related Party

On December 6, 2021, the Company participated along with certain other investors in the series B financing of MyOme, Inc. (“MyOme”), and purchased preferred shares and warrants in exchange for a cash payment of approximately $4.0 million. The Company does not hold a seat on MyOme’s board of directors. The Company’s investment in MyOme is recorded at cost and no impairment was identified as of March 31, 2024. The following are the Company’s related persons and the basis of each such related person’s relationship with MyOme:

Matthew Rabinowitz, the Company’s executive chairman and co-founder, is the chairman of the board and founder of MyOme, and a beneficial holder of approximately 26.5% of the outstanding shares of MyOme on a fully dilutive basis;

Jonathan Sheena, the Company’s co-founder and a member of the Company’s board of directors, is a stockholder and a member of the board of directors of MyOme;

Daniel Rabinowitz, the Company’s Secretary and Chief Legal Officer, is a stockholder of MyOme; and

Roelof Botha, the Lead Independent Director of the Company’s board of directors, is a managing member of Sequoia Capital. Certain funds affiliated with Sequoia Capital also participated in MyOme’s series B financing.

None of the related party investments in MyOme by our executives and directors noted above were at the behest of the Company nor funded by the Company.

In February 2024, the Company entered into a collaboration and commercialization agreement (the “Collaboration Agreement”) with MyOme pursuant to which the parties will partner to offer certain genetic testing services to be developed and funded solely by MyOme and overseen by a joint steering committee. The Company will assist MyOme with commercial activities. In connection with the Collaboration Agreement, the Company received a 10-year warrant to purchase 3,058,485 shares of MyOme's common stock at an exercise price of $0.25 per share, which will vest upon a MyOme liquidity event (as such terms are defined in MyOme's certificate of incorporation). The warrants were valued using the Black-Scholes valuation model on the date of acquisition and are accounted for using the measurement alternative. No impairment was identified as of March 31, 2024. The warrants have been included within other assets and deferred revenue, long-term portion and other liabilities, which will be recognized as a reduction of selling and marketing expense upon commercialization and sale of the products contemplated under the Collaboration Agreement. Subject to the Company's achievement of certain commercialization milestones, the Company may receive additional warrants to purchase MyOme’s Series B Preferred Stock. To the extent the genetic testing services are successfully commercialized, the Company will owe certain royalty payments to MyOme. Should the Company exercise all its MyOme common stock warrants, the Company would hold an accumulated 12.4% of MyOme on a fully diluted basis.

Risk and Uncertainties

Financial instruments that potentially subject the Company to credit risk consist of cash, cash equivalents, and restricted cash, accounts receivable and investments. The Company limits its exposure to loss by placing its cash in financial institutions with high credit ratings. The Company's cash may consist of deposits held with banks that may at times exceed federally insured limits of $250,000 per customer. The Company performs evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any one institution.

For the three months ended March 31, 2024, and 2023, there were no customers exceeding 10% of total revenues on an individual basis. As of March 31, 2024 and December 31, 2023, there were no customers with an outstanding balance exceeding 10% of net accounts receivable. 

For the three months ended March 31, 2024 and 2023, approximately 11.6% and 14.1%, respectively, of total revenue were paid by Medicare on behalf of multiple customers. As of March 31, 2024 and December 31, 2023,

14

approximately 11.9% and 10.2%, respectively, of accounts receivable are expected to be paid by Medicare on behalf of multiple customers.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) under its accounting standard codifications or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed below, the Company believes that the impact of accounting standards updates recently issued that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

New Accounting Pronouncements Not Yet Adopted

In March 2020, ASU 2020-04, Reference Rate Reform (Topic 848) was issued which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. ASU 2022-06, or Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company does not expect adoption of this standard to have a material impact on its consolidated financial statements.

In November 2023, ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, was issued which requires disclosure of incremental segment information on an interim and annual basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal periods beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact of the guidance on its consolidated financial statements.

In December 2023, ASU 2023-09, Income Taxes - Improvements to Income Tax Disclosures, was issued, which requires enhanced disclosures in connection with an entity's effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. The standard will be effective for annual periods beginning after December 15, 2024. The Company does not expect the adoption of this standard to have a significant impact on its consolidated financial statements.

3. Revenue Recognition

The Company recognizes revenues when, or as, performance obligations in the contracts are satisfied, in the amount reflecting the expected consideration to be received from the goods or services transferred to the customers.

Product Revenues

Product revenues are derived by performing genetic testing services and the Company’s performance obligation is complete when test results are delivered to a clinic or patient, who are considered the customer for such services as further discussed below.

Additionally, the Company enters into agreements with pharmaceutical companies to utilize the Company’s Signatera tests typically to study new cancer treatments or to validate the outcomes of clinical trials for which the pharmaceutical companies are identified as customers. Such arrangements generally involve performing whole exome sequencing services and the testing of patient samples to detect cancer mutations using its Signatera test. In addition to performing Signatera tests, these agreements typically include certain activities to fulfill the contract, such as customer data setup and management and ongoing reporting. Each test result is billable to customers upon delivery and the personalized cancer profile also makes each test distinct within the context of the contract as customers can exercise control over the test results upon delivery. Accordingly, the Company recognizes test processing revenue as individual test results are delivered to customers.

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For certain contracts with pharmaceutical companies where the Company is developing a companion diagnostic test in addition to performing regular testing services, revenue is primarily recognized proportionally as services are performed and/or tests are delivered.

A performance obligation represents a promise in a contract to transfer a distinct good or service to a customer, which represents a unit of accounting in accordance with ASC 606. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once the Company has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. A portion of the consideration should be allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company evaluates its contracts with laboratory partners and patients and identifies the performance obligations in those contracts, which are the delivery of the test results.

The total consideration which the Company expects to collect in exchange for the Company’s products is an estimate and may be fixed or variable. Consideration includes reimbursement from both patients and insurance carriers, adjusted for variable consideration related to disallowed cases, percent of patient responsibility collected, refunds and doubtful accounts, and is estimated using the most likely method. For insurance carriers and product types with similar reimbursement characteristics, the Company uses a portfolio of relevant historical data to estimate variable consideration and total collections for the Company’s products. The Company constrains the estimated variable consideration when it assesses it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods. The consideration expected from laboratory partners usually includes a fixed amount, but it can be variable depending on the volume of tests performed, and the Company determines the variable consideration using the expected value approach. For laboratory partners and patients, the Company allocates the total consideration to a single performance obligation, which is the delivery of the test results to the customers.

When assessing the total consideration expected to be received from insurance carriers and patients, a certain percentage of revenues is further constrained for estimated refunds.

The Company enters into contracts with insurance carriers with primarily payment terms related to tests provided to patients who have health insurance coverage. Insurance carriers are considered as third-party payers on behalf of the patients, and the patients are considered as the customers who receive genetic test services. Tests may be billed to insurance carriers, patients, or a combination of insurance carriers and patients. Further, the Company sells tests to a number of domestic and international laboratory partners and identifies the laboratory partners as customers provided that there is a test services agreement between the two parties.

The Company generally bills an insurance carrier, a laboratory partner or a patient upon delivery of test results. The Company also bills patients directly for out-of-pocket costs involving co-pays and deductibles that they are responsible for. The Company may or may not get reimbursed for the full amount billed. Further, the Company may not get reimbursed at all for tests performed if such tests are not covered under the insurance carrier’s reimbursement policies or the Company is not a qualified provider to the insurance carrier, or if the tests were not previously authorized.

Product revenue is recognized in an amount equal to the total consideration (as described above) expected to be received at a point in time when the test results are delivered. Approximately 90% of cash collections attributable to such product revenue occurs within nine months with the remaining collections generally taking an additional six months. During this time, management routinely reassesses its estimates of actual to expected cash collections, which are based on historical collection rates and adjusted for current information and trends. To the extent cash collections for tests delivered in prior periods are trending higher than expectations, the Company will increase revenue recognized when sufficient evidence is obtained to conclude the additional revenue will not result in a reversal of revenue in a future period. If cash collections for tests delivered in prior periods are trending below expectations, the Company will reduce revenue to the amount expected to be collected based on the latest information and expectations. Increases or decreases to the amount of cash expected to be collected for tests delivered in prior periods are recognized in product revenue with a corresponding impact to accounts receivable during the period such determination is made. During the three months ended March 31,

16

2024, the Company increased revenue by a net of $33.7 million for collections related to tests delivered in prior periods that were fully collected (including an estimate of unapplied receipts), which increased revenue and decreased net loss by a corresponding amount and decreased loss per share by $0.28. During the three months ended March 31, 2023, the Company reduced revenue by a net of $9.2 million for a reduction in expected collections related to tests delivered in prior periods, which decreased revenue and increased net loss by a corresponding amount and increased loss per share by $0.08.

As of March 31, 2024, the Company had $54.3 million in cash receipts which had not yet been applied to specific accounts receivables primarily due to the disruption to Change Healthcare’s network that occurred in February 2024. The Company reviewed the historical unapplied payment trends. Based on the historical estimation, within the unapplied cash receipt of $54.3 million, the Company estimated approximately $4.0 million was related to tests delivered in prior periods that were fully collected.  Additionally, as overpayments were not material in prior periods, the Company accounted for temporary unapplied balances as of March 31, 2024, as contra accounts receivable on the Balance Sheet. As of December 31, 2023, the unapplied accounts receivable balance was $1.3 million.

Product revenue is constrained via refunds estimated to be paid to insurance carriers. Certain refunds are recognized in accrued liabilities until they are either paid to the respective insurance carrier or it is determined the refund will not ultimately be paid, at which time the related accrual is reduced with a corresponding increase to revenue. During the three months ended March 31, 2024 and 2023, the reserves for refunds to insurance carriers were reduced and product revenue increased by $2.1 million and $5.7 million, respectively, for amounts the Company determined would not be refunded to insurance carriers. The increased revenue and corresponding decreased net loss resulted in a decreased loss per share by $0.02 and $0.05 for the three months ended March 31, 2024 and 2023, respectively.

In addition, certain other refunds are recognized as a reduction to accounts receivable until they are either paid to the respective insurance carrier or it is determined the refund will not ultimately be paid, at which time the related reserve is reduced with a corresponding increase to revenue. During the three months ended March 31, 2024, the reserves for refunds to insurance carriers were reduced and product revenue increased by $2.3 million for amounts the Company determined would not be refunded to insurance carriers. The increased revenue and corresponding decreased net loss resulted in a decreased loss per share by $0.02 for the three months ended March 31, 2024. There was no such adjustment in the three months ended March 31, 2023.

Licensing and Other Revenues

The Company recognizes licensing revenues from its cloud-based distribution service offering, Constellation, by granting licenses to its licensees to use certain of the Company’s proprietary intellectual properties and cloud-based software and in vitro diagnostic (“IVD”) kits. The Company also recognizes revenues from its strategic collaboration agreements, such as those with BGI Genomics Co., Ltd. (“BGI Genomics”) and Foundation Medicine, Inc. (“Foundation Medicine”). The Company recognizes licensing and other revenues through agreements with pharmaceutical companies in support of potential clinical trials managed by the pharmaceutical companies.

Constellation

The laboratory partners with whom the Company enters into a licensing arrangement represent the licensees and are identified as customers. The licensees do not have the right to possess the Company’s software, but rather receive services through the cloud software. These arrangements often include: (i) the delivery of the services through the cloud software, (ii) the necessary support and training, and (iii) the IVD kits to be consumed as tests are processed. The Company does not consider the software as a service, the support or the training as being distinct in the context of such arrangements, and therefore they are combined as a single performance obligation. The software, support and training are delivered simultaneously to the licensees over the term of the arrangement.

The Company bills the majority of licensees, who process the tests in their laboratories, a fixed price for each test processed. Licensing revenues are recognized as the performance obligations are satisfied (i.e., upon the delivery of each test) and reported in licensing and other revenues in the Company’s statements of operations and comprehensive loss.

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BGI Genomics

In February 2019, the Company entered into a License Agreement (the “BGI Genomics Agreement”) with BGI Genomics to develop, manufacture, and commercialize next generation sequencing-based genetic testing assays for clinical and commercial use. The BGI Genomics Agreement has a term of ten years and expires in February 2029. Pursuant to the BGI Genomics Agreement, the Company licensed its intellectual property to and provided development services for BGI Genomics. Following completion of development services, the Company began providing assay interpretation services over the term of the agreement.

According to the BGI Genomics Agreement, the Company is entitled to a total of $50.0 million, comprised of upfront technology license fees, prepaid royalties relating to future sales of licensed products and performance of assay interpretation services, and milestone payments. Due to uncertainties in achieving certain milestones, $6.0 million of the $50.0 million was constrained. A net of $44.0 million has been collected by the Company in cash, which includes $20.0 million in prepaid royalties.

The Company concluded that the license is not a distinct performance obligation as it does not have a stand-alone value to BGI Genomics apart from the related development services. Therefore, license and related development services, for each of the non-invasive prenatal tests (“NIPTs”) and Oncology products, representing two separate performance obligations, to which $24.0 million of transaction consideration was allocated. This performance obligation was fully satisfied in March 2023 and no further related amounts will be recognized as revenue.

As of December 31, 2023, the Company's performance obligation to provide ongoing NIPT assay interpretation services was removed. Therefore, the Company now has a single remaining performance obligation related to Oncology assay interpretation services, to which $20.0 million of transaction consideration was allocated and prepaid by BGI Genomics. During the three months ended March 31, 2023, the Company recognized $0.7 million related to oncology assay interpretation services, of which $0.6 million was recognized against deferred royalties. During the three months ended March 31, 2024, the Company recognized an additional $0.3 million related to oncology assay interpretation services, of which all was recognized against deferred royalties. The Company currently has $18.5 million in deferred revenue as of March 31, 2024.

As required by the BGI Genomics Agreement, in June 2019 the Company prepaid $6.0 million to BGI Genomics for future sequencing services and $4.0 million for future sequencing equipment. These advance payments are for equipment and services to be received in future periods, which was assessed as a standalone transaction that did not reduce revenue, aggregated to $10.0 million and was originally recorded in long-term advances on the Company’s Consolidated Balance Sheet and will be periodically assessed for impairment. During the three months ended March 31, 2024, $20 thousand in equipment and services was received, which brought the remaining advanced payments to $4.8 million, with $3.0 million recorded in prepaid expenses and other current assets and $1.8 million recorded in other assets.

Foundation Medicine, Inc.

In August 2019, the Company entered into a License and Collaboration Agreement (the “Foundation Medicine Agreement”) with Foundation Medicine to develop and commercialize personalized circulating tumor DNA monitoring assays, for use by biopharmaceutical and clinical customers who order Foundation Medicine’s FoundationOne CDx. The Foundation Medicine Agreement has an initial term of five years, expiring in August 2024, with automatic renewals thereafter for successive one-year terms, unless the Foundation Medicine Agreement is earlier terminated in accordance with its terms. The Company and Foundation Medicine will share the revenues generated from both biopharmaceutical and clinical customers in accordance with the terms of the Foundation Medicine Agreement.

Pursuant to the Foundation Medicine Agreement, the Company will provide development services that are required to customize its proprietary Signatera test to work with Foundation Medicine’s FoundationOne CDx in conjunction with granting the use of the Company’s intellectual property. Following completion of those development services, the Company is currently providing assay testing services over the term of the agreement. The intellectual property has been licensed to Foundation Medicine for the customized test. In addition, the Company is responsible for

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delivering clinical study plans in order to demonstrate efficacy of the customized test which commenced in the second quarter of 2021.

The Company is entitled to a total of $32.0 million, comprised of upfront technology license fees, prepaid royalties relating to future sales of licensed products and performance of assay interpretation services, and milestone payments. $7.7 million is constrained due to uncertainties in achieving certain milestones. A net of $24.3 million has been collected by the Company in cash, which includes $5.0 million of prepaid royalties.

The Company concluded that the license is not a distinct performance obligation as it does not have a stand-alone value to Foundation Medicine apart from the related development services. Therefore, license and related development services, for Oncology products, represent a single performance obligation, to which $19.3 million of transaction consideration was allocated. Of this amount, $0.2 million was recognized in the three months ended March 31, 2023. This performance obligation was fully satisfied in March 2023 and no further related amounts will be recognized as revenue.

Royalties related to assay interpretation services represent separate performance obligations for Oncology products, to which $5.0 million of transaction consideration was allocated and prepaid by Foundation Medicine. During the three months ended March 31, 2023, the Company recognized $0.2 million related to oncology assay interpretation services. During the three months ended March 31, 2024, the Company recognized an additional $0.1 million related to oncology assay interpretation services. The Company currently has $3.2 million in deferred revenue related to this agreement as of March 31, 2024.

Disaggregation of Revenues

The Company measures its performance results primarily based on revenues recognized from the three categories described below. The following table shows disaggregation of revenues by payer types:

Three months ended

March 31, 

2024

2023

(in thousands)

Insurance carriers

$

341,028

$

210,378

Laboratory and other partners

20,276

22,805

Patients

6,437

8,573

Total revenues

$

367,741

$

241,756

The following table presents total revenues by geographic area based on the location of the Company’s payers:

Three months ended

March 31, 

    

2024

    

2023

(in thousands)

United States

 

$

359,413

$

233,254

Americas, excluding U.S.

 

1,481

1,158

Europe, Middle East, India, Africa

 

5,178

5,196

Asia Pacific and Other

 

1,669

2,148

Total revenues

 

$

367,741

$

241,756

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The following table summarizes the Company’s beginning and ending balances of accounts receivable and deferred revenues:

Balance at

March 31, 

December 31,

2024

2023

(in thousands)

Assets:

Accounts receivable, net

$

288,748

$

278,289

Liabilities:

Deferred revenue, current portion

$

17,705

$

16,612

Deferred revenue, long-term portion

18,828

19,128

Total deferred revenues

$

36,533

$

35,740

The following table summarizes the changes in the balance of deferred revenues during the three months ended March 31, 2024 and 2023:

March 31, 

2024

2023

(in thousands)

Beginning balance

$

35,740

$

30,778

Increase in deferred revenues

7,941

12,100

Revenue recognized during the period that was included in deferred revenues at the beginning of the period

(7,048)

(3,988)

Revenue recognized from performance obligations satisfied within the same period

(100)

(800)

Ending balance

$

36,533

$

38,090

During the three months ended March 31, 2024, revenue recognized that was included in the deferred revenue balance at the beginning of the period totaled $7.0 million. This balance consisted of approximately a net $0.4 million related to BGI Genomics and Foundation Medicine and $6.6 million related to genetic testing services. The current portion of deferred revenue includes $14.9 million from genetic testing services and $1.2 million from BGI Genomics and $1.6 million from Foundation Medicine Agreement as of March 31, 2024. The non-current portion of deferred revenue includes $17.3 million from the BGI Genomics Agreement and $1.6 million from the Foundation Medicine Agreement as of March 31, 2024.

4. Fair Value Measurements

The Company's financial assets and liabilities carried at fair value are comprised of investment assets that include money market and investments.

The fair value accounting guidance requires that assets and liabilities be carried at fair value and classified in one of the following three categories:

Level I: Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access.

Level II: Observable market-based inputs or unobservable inputs that are corroborated by market data, such as quoted prices, interest rates, and yield curves; and

Level III: Inputs that are unobservable data points that are not corroborated by market data.

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

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

The following table represents the fair value hierarchy for the Company’s financial assets and financial liabilities measured at fair value on a recurring basis:

March 31, 2024

December 31, 2023

    

Level I

Level II

Level III

    

Total

    

Level I

Level II

Level III

    

Total

(in thousands)

Financial Assets:

Cash, cash equivalents and restricted cash (1)

$

813,817

$

$

$

813,817

$

642,095

$

$

$

642,095

U.S. Treasury securities

34,465

34,465

200,418

200,418

Municipal securities

34,656

34,656

36,464

36,464

Total financial assets

$

848,282

$

34,656

$

$

882,938

$

842,513

$

36,464

$

$

878,977

(1)Cash equivalents includes money market deposits and liquid demand deposits, and other liquid investments with original maturity dates less than three months.

Fair Value of Short-Term and Long-Term Debt:

As of March 31, 2024 and December 31, 2023, the estimated fair value of the total principal outstanding and accrued interest of the Credit Line was $80.4 million, and were based upon observable Level 2 inputs, including the interest rate based on the 30-day Secured Overnight Financing Rate (“SOFR”) average, plus 0.5%. The estimated fair value approximates the carrying value due to the short term duration and variable interest rate.

As of March 31, 2024 and December 31, 2023, the estimated fair value of the Convertible Notes was $696.5 million and $491.8 million, respectively, based upon observable, Level 2 inputs, including pricing information from recent trades of the Convertible Notes. See Note 10, Debt, for additional details and carrying value.

5. Financial Instruments

The Company elected to invest a portion of its cash assets in conservative, income earning, and liquid investments. Cash, cash equivalents, restricted cash and investments, which are classified as available-for-sale securities, consisted of the following:

March 31, 2024

December 31, 2023

    

Amortized
Cost

    

Gross
Unrealized
Gain

    

Gross
Unrealized
(Loss)

    

Estimated Fair Value

    

Amortized
Cost

    

Gross
Unrealized
Gain

    

Gross
Unrealized
(Loss)

 

Estimated Fair Value

(in thousands)

 

Cash, cash equivalents and restricted cash (2)

$

813,817

$

$

$

813,817

$

642,095

$

$

$

642,095

U.S. Treasury securities (1)

 

34,996

 

(531)

 

34,465

 

201,522