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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2022
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                        to
 Commission File No. 001-36847
 
nvta-20220331_g1.jpg
Invitae Corporation
(Exact name of the registrant as specified in its charter)
 
Delaware27-1701898
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
 1400 16th Street, San Francisco, California 94103
(Address of principal executive offices, Zip Code)
 (415374-7782
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of exchange on which registered
Common Stock, $0.0001 par value per share
NVTA
New York Stock Exchange
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
x
Accelerated filer
Non-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No  
The number of shares of the registrant’s common stock outstanding as of April 29, 2022 was 229,288,596.





TABLE OF CONTENTS
 






PART I — Financial Information
ITEM 1. Condensed Consolidated Financial Statements
INVITAE CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
 
March 31,
2022
December 31,
2021
Assets  
Current assets:  
Cash and cash equivalents$325,331 $923,250 
Marketable securities549,381 122,121 
Accounts receivable80,399 66,227 
Inventory43,457 33,516 
Prepaid expenses and other current assets32,037 33,691 
Total current assets1,030,605 1,178,805 
Property and equipment, net129,959 114,714 
Operating lease assets117,333 121,169 
Restricted cash10,275 10,275 
Intangible assets, net1,167,841 1,187,994 
Goodwill2,283,059 2,283,059 
Other assets28,693 23,551 
Total assets$4,767,765 $4,919,567 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$41,701 $21,127 
Accrued liabilities108,498 106,453 
Operating lease obligations12,301 12,359 
Finance lease obligations5,400 4,156 
Total current liabilities167,900 144,095 
Operating lease obligations, net of current portion121,849 124,369 
Finance lease obligations, net of current portion7,609 5,683 
Debt115,626 113,391 
Convertible senior notes, net1,465,786 1,464,138 
Deferred tax liability15,796 51,696 
Other long-term liabilities29,266 37,797 
Total liabilities1,923,832 1,941,169 
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock23 23 
Accumulated other comprehensive loss(785)(7)
Additional paid-in capital4,749,402 4,701,230 
Accumulated deficit(1,904,707)(1,722,848)
Total stockholders’ equity2,843,933 2,978,398 
Total liabilities and stockholders’ equity$4,767,765 $4,919,567 
See accompanying notes to unaudited condensed consolidated financial statements.
1




INVITAE CORPORATION
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 
 Three Months Ended March 31,
 20222021
Revenue:  
Test revenue$119,497 $99,276 
Other revenue4,194 4,345 
Total revenue123,691 103,621 
Cost of revenue97,116 75,491 
Research and development128,236 80,358 
Selling and marketing60,144 51,240 
General and administrative51,274 72,517 
Change in fair value of contingent consideration154 (63,621)
Total costs and operating expenses336,924 215,985 
Loss from operations(213,233)(112,364)
Other income, net10,439 4,465 
Interest expense(13,985)(8,393)
Net loss before taxes(216,779)(116,292)
Income tax benefit(34,920)(6,800)
Net loss$(181,859)$(109,492)
Net loss per share, basic and diluted$(0.80)$(0.56)
Shares used in computing net loss per share, basic and diluted228,470 194,000 

See accompanying notes to unaudited condensed consolidated financial statements. 
2




INVITAE CORPORATION
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
 
 Three Months Ended March 31,
 20222021
Net loss$(181,859)$(109,492)
Other comprehensive (loss) income:
Unrealized (loss) income on available-for-sale marketable securities, net of tax(778)49 
Comprehensive loss$(182,637)$(109,443)
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
3




INVITAE CORPORATION
Condensed Consolidated Statements of Stockholders' Equity
(in thousands)
(unaudited)

 Three Months Ended March 31,
 20222021
Common stock:
Balance, beginning of period
$23 $19 
Common stock issued
— 1 
Balance, end of period
23 20 
Accumulated other comprehensive (loss) income:
Balance, beginning of period(7)1 
Unrealized (loss) income on available-for-sale marketable securities, net of tax(778)49 
Balance, end of period(785)50 
Additional paid-in capital:
Balance, beginning of period
4,701,230 3,337,120 
Common stock issued in connection with public offering, net
— 434,263 
Common stock issued on exercise of stock options, net
425 1,760 
Common stock issued pursuant to exercises of warrants
— 1,242 
Common stock issued or issuable pursuant to acquisitions and equity awards issued in connection with such acquisitions1,660 74,822 
Stock-based compensation expense
46,087 55,834 
Reclassification of equity component of convertible senior notes— (75,488)
Balance, end of period
4,749,402 3,829,553 
Accumulated deficit:
Balance, beginning of period
(1,722,848)(1,360,847)
Cumulative effect of accounting change— 17,005 
Net loss(181,859)(109,492)
Balance, end of period
(1,904,707)(1,453,334)
Total stockholders' equity
$2,843,933 $2,376,289 
    

See accompanying notes to unaudited condensed consolidated financial statements.
4




INVITAE CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 Three Months Ended March 31,
 20222021
Cash flows from operating activities:  
Net loss$(181,859)$(109,492)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization27,100 16,574 
Stock-based compensation46,822 58,775 
Amortization of debt discount and issuance costs3,883 2,735 
Remeasurements of liabilities associated with business combinations(9,849)(66,999)
Benefit from income taxes(34,920)(6,800)
Post-combination expense for acceleration of unvested equity and deferred stock compensation1,660 2,959 
Amortization of premiums and discounts on investment securities570 1,549 
Other1,806 2,241 
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable(14,172)2,814 
Inventory(9,941)1,374 
Prepaid expenses and other current assets1,654 (11,237)
Other assets(1,984)811 
Accounts payable22,863 10,232 
Accrued expenses and other long-term liabilities(1,176)4,944 
Net cash used in operating activities(147,543)(89,520)
Cash flows from investing activities:
Purchases of marketable securities(550,541)(325,956)
Proceeds from maturities of marketable securities121,933 74,763 
Acquisition of businesses, net of cash acquired (14,954)
Purchases of property and equipment(20,848)(6,431)
Other (980)
Net cash used in investing activities(449,456)(273,558)
Cash flows from financing activities:
Proceeds from public offerings of common stock, net 434,263 
Proceeds from issuance of common stock425 2,551 
Finance lease principal payments(1,330)(723)
Other(15) 
Net cash (used in) provided by financing activities(920)436,091 
Net (decrease) increase in cash, cash equivalents and restricted cash(597,919)73,013 
Cash, cash equivalents and restricted cash at beginning of period933,525 131,480 
Cash, cash equivalents and restricted cash at end of period$335,606 $204,493 
Supplemental cash flow information of non-cash investing and financing activities:
Equipment acquired through finance leases$4,472 $1,740 
Purchases of property and equipment in accounts payable and accrued liabilities$11,675 $6,341 
Common stock issued for acquisition of businesses$ $74,822 
Operating lease assets obtained in exchange for lease obligations, net$ $32,279 

See accompanying notes to unaudited condensed consolidated financial statements.
5




INVITAE CORPORATION
Notes to Condensed Consolidated Financial Statements

1. Organization and description of business
Invitae Corporation ("Invitae," “the Company," "we," "us," and "our") was incorporated in the State of Delaware on January 13, 2010, as Locus Development, Inc. and we changed our name to Invitae Corporation in 2012. We offer high-quality, comprehensive, affordable genetic testing across multiple clinical areas, including hereditary cancer, cardiology, neurology, pediatrics, personalized oncology, metabolic conditions and rare diseases. To augment our offering and realize our mission, we have acquired multiple assets and businesses that further expanded our test menu and suite of genome management offerings and accelerated our entry into key genomics markets. Invitae operates in one segment.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of the results expected for the full fiscal year or any other periods.  
2. Summary of significant accounting policies
Principles of consolidation
Our unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base these estimates on current facts, historical and anticipated results, trends and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. Actual results could differ materially from those judgments, estimates and assumptions. We evaluate our estimates on an ongoing basis.
Prior period reclassifications
We have reclassified certain amounts in prior periods to conform with current presentation. During the current period, we have disclosed the change in fair value of our contingent consideration separately in our statements of operations. These amounts were disclosed in general and administrative expense in previous periods.
Concentrations of credit risk and other risks and uncertainties
Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, restricted cash, marketable securities and accounts receivable. Our cash and cash equivalents are primarily held by financial institutions in the United States. Such deposits may exceed federally insured limits.
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Cash, cash equivalents and restricted cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statements of cash flows (in thousands):
March 31, 2022December 31, 2021
Cash and cash equivalents$325,331 $923,250 
Restricted cash10,275 10,275 
Total cash, cash equivalents and restricted cash$335,606 $933,525 
Restricted cash serves as the security deposit for the Company's leases.
Fair value of financial instruments
Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities, finance leases and liabilities associated with business combinations. The carrying amounts of certain of these financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued and other current liabilities approximate their current fair value due to the relatively short-term nature of these accounts. Based on borrowing rates available to us, the carrying value of our finance leases approximates their fair values. Liabilities associated with business combinations are recorded at their estimated fair value.
Recent accounting pronouncements
We evaluate all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board ("FASB") for consideration of their applicability. ASUs not included in the disclosures in this report were assessed and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements.
Recently issued accounting pronouncements not yet adopted
In October 2021, the FASB issued ASU 2021-08, Business Combinations ("Topic 805"): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments of this ASU require entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC Topic 606 as if it had originated the contracts. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to all business combinations occurring after the date of adoption. Early adoption is permitted by us at any time. We are currently evaluating the impact this guidance will have on our consolidated financial statements and the timing of adoption.
Recently adopted accounting pronouncements
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share calculations as a result of these changes. This new standard is effective for our interim and annual periods beginning January 1, 2022, with early adoption permitted. We elected to adopt the amendments on a modified retrospective basis effective January 1, 2021, which required a cumulative-effect adjustment to retained earnings. The cumulative-effect adjustment resulted in a decrease in accumulated deficit of $17.0 million related to the reversal of the equity component and associated issuance costs as well as adjustment of the related amortization costs of our convertible senior notes due 2024. Reporting periods beginning on or after January 1, 2021 are presented under this new guidance while prior periods have not been adjusted and continue to be reported in accordance with our historic accounting under U.S. GAAP. See further information about our convertible senior notes in Note 8, “Commitments and contingencies.”
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Income Taxes
During the three month period ended March 31, 2022, we recorded a $34.6 million release of federal and state valuation allowances as a result of the reclassification of ArcherDX's STRATAFIDE and Personalized Cancer Monitoring ("PCM") in-process research and development intangibles from indefinite-lived intangibles to developed technology, which enabled the associated deferred tax liability to serve as a source of income to existing finite-lived deferred tax assets for which a valuation allowance had previously been established. There was no similar income tax benefit in the prior year period. The income tax benefit of $6.8 million for the three months ended March 31, 2021 was primarily due to the net deferred tax liabilities assumed in connection with our acquisition of One Codex during February 2021.
3. Revenue, accounts receivable and deferred revenue
Test revenue is generated from sales of diagnostic tests and precision oncology products to four groups of customers: biopharmaceutical partners, patients who pay directly, patients' insurance carriers, and other business-to-business customers (e.g., hospitals, clinics, medical centers). Test revenue is generated in two ways: through a centralized lab and decentralized through the shipment of reactions to biopharmaceutical partners and other business-to-business customers. We refer to the set of reagents needed to perform a next-generation sequencing test as a "reaction." Amounts billed and collected, and the timing of collections, vary based on the type of payer. Other revenue consists principally of revenue recognized under contracts for biopharmaceutical development services and other collaboration and genome network agreements and is accounted for under the provisions provided in ASC Topic 606.
Our revenue as disaggregated by payer category and revenue subtype is as follows (in thousands):
Three Months Ended March 31, 2022
 PatientBiopharma partnerOther business-to-businessTotal
 InsuranceDirect
Test revenue:
Centralized$71,904 $12,157 $12,963 $12,665 $109,689 
Decentralized  1,343 8,465 9,808 
 Total test revenue71,904 12,157 14,306 21,130 119,497 
Other revenue  2,954 1,240 4,194 
Total revenue$71,904 $12,157 $17,260 $22,370 $123,691 
Three Months Ended March 31, 2021
 PatientBiopharma partnerOther business-to-businessTotal
 InsuranceDirect
Test revenue:
Centralized$60,891 $8,949 $10,274 $10,472 $90,586 
Decentralized  383 8,307 8,690 
 Total test revenue60,891 8,949 10,657 18,779 99,276 
Other revenue  3,062 1,283 4,345 
Total revenue$60,891 $8,949 $13,719 $20,062 $103,621 
We recognize revenue related to billings based on estimates of the amount that will ultimately be realized. Cash collections for certain tests delivered may differ from rates originally estimated. In subsequent periods, we update our estimate of the amounts recognized for previously delivered tests which resulted in the following increases to revenue and decreases to our net loss from operations and basic and diluted net loss per share (in millions, except per share data):
 Three Months Ended March 31,
 20222021
Revenue$1.1 $4.3 
Loss from operations$(1.1)$(4.3)
Net loss per share, basic and diluted$(0.00)$(0.02)
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Impact of COVID-19
While we expect the COVID-19 pandemic may continue to impact our business, we experienced limited disruption during 2022 and 2021. We have reviewed and adjusted, when necessary, for the impact of COVID-19 on our estimates related to revenue recognition and expected credit losses.
Accounts receivable
The majority of our accounts receivable represents amounts billed to biopharmaceutical partners and other business-to-business customers for test and other revenue recognized, and estimated amounts to be collected from third-party insurance payers for genetic testing revenue recognized. Also included are amounts due under the terms of collaboration and genome network agreements for diagnostic testing and data aggregation reporting services provided and proprietary platform access rights transferred.
We also record unbilled revenue for revenue recognized but yet to be billed for services provided to biopharmaceutical companies related to companion diagnostic development. This contract receivable was $5.1 million and $4.3 million as of March 31, 2022 and December 31, 2021, respectively, and was included in prepaid expenses and other current assets on the consolidated balance sheets.
Deferred revenue
We record a contract liability when cash payments are received or due in advance of our performance related to one or more performance obligations. The deferred revenue balance primarily consists of advanced billings for biopharmaceutical development services, including billings at the initiation of performance-based milestones, and recognized as revenue in the applicable future period when the revenue is earned. Also included are prepayments related to our consumer direct channel. The Company has applied the practical expedient in relation to information about our remaining performance obligations, as we have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date. Most performance obligations are generally satisfied over one to six months. During the three months ended March 31, 2022, we recognized revenue of $2.4 million from deferred revenue recorded in prior periods. The current contract liability was $7.0 million and $9.4 million as of March 31, 2022 and December 31, 2021, respectively, and was included in accrued liabilities on the consolidated balance sheets. The long-term contract liability was $2.5 million and $0.7 million as of March 31, 2022 and December 31, 2021, respectively, and was included in other long-term liabilities on the consolidated balance sheets.
4. Business combinations
Genelex and YouScript
In April 2020, we acquired 100% of the equity interest of Genelex Solutions, LLC ("Genelex") and YouScript Incorporated ("YouScript") to bring pharmacogenetic testing and integrated clinical decision support to Invitae.
We may be required to pay contingent consideration in the form of additional shares of our common stock in connection with the acquisition of Genelex if, within a specified period following the closing, we achieve a certain product milestone, in which case we would issue shares of our common stock with a value equal to a portion of the gross revenue actually received by us for a pharmacogenetic product reimbursed through certain payers during an earn-out period of up to four years. The material factors that may impact the fair value of the contingent consideration, and therefore, this liability, are the probabilities and timing of achieving the related milestone, the estimated revenue achieved for a pharmacogenetic product and the discount rate used to estimate the fair value. Significant changes in any of the probabilities of success would result in a significant change in the fair value, which is estimated at each reporting date. As of March 31, 2022, the fair value of this contingent consideration was $2.0 million. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement.
ArcherDX
In October 2020, we acquired ArcherDX, Inc. ("ArcherDX"), a genomics analysis company democratizing precision oncology. Under the terms of the agreement, we acquired ArcherDX for upfront consideration consisting of 30.0 million shares of our common stock and $325.0 million in cash, plus up to an additional 27.0 million shares of our common stock payable in connection with the achievement of certain milestones. During the three months ended March 31, 2021, Invitae and the sellers of ArcherDX reached an agreement to reduce the purchase price by
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$1.2 million based on the final acquired net working capital. This adjustment was recorded during the three months ended March 31, 2021 and reduced the contingent consideration liability and goodwill by approximately $1.2 million.
We were required to pay contingent consideration based on achievement of post-closing development and revenue milestones. The material factors that may impact the fair value of the contingent consideration, and therefore the liability, are (i) the estimated number of shares to be issued, (ii) the volatility of our common stock, (iii) the probabilities of achievement of milestones within the timeframes prescribed in the acquisition agreement and (iv) discount rates, all of which are Level 3 inputs not supported by market activity with the exception of the volatility of our common stock. Significant changes in any of these inputs may result in a significant change in fair value, which is estimated at each reporting date. Of the five milestones, one milestone was achieved in November 2020, which resulted in the issuance of 5.0 million shares of our common stock and a cash payment of $1.9 million, and three milestones were achieved or deemed to be achieved during the three months ended June 30, 2021, which resulted in the issuance of 13.8 million shares of our common stock and a cash payment of $3.3 million in July 2021. The remaining milestone is based upon receiving U.S. Food and Drug Administration ("FDA") clearance or approval of a therapy selection in vitro diagnostic ("IVD") product, which per the terms of the acquisition agreement, must be completed by March 31, 2022, subject to certain extensions (the "ArcherDX Final Milestone"). With respect to the ArcherDX Final Milestone, the liability was reduced to nil as of June 30, 2021 from $262.5 million as of March 31, 2021 and $287.7 million as of December 31, 2020, with the offsetting change recorded as changes in fair value of contingent consideration in our consolidated statements of operations. The removal of the liability balance and the associated change in fair value of contingent consideration was a result of our reassessment of the steps necessary to achieve clearance or approval based on FDA feedback received principally in the three months ended June 30, 2021. Subsequent to March 31, 2022, an agreement was entered into with the previous ArcherDX stockholders to extend the date for achievement of the ArcherDX Final Milestone to March 31, 2023. We do not believe achievement of the conditions prescribed in the acquisition agreement will occur within this timeframe. We expect FDA clearance or approval of a therapy selection IVD at a later date subject to resolution of the necessary steps. As such, no liability was recorded as of March 31, 2022.
In connection with the acquisition, we granted awards of common stock to new employees who joined Invitae in connection with our acquisition of ArcherDX that vested upon the achievement of the contingent consideration milestones discussed above and were subject to the employees' continued service with us, unless terminated without cause in which case vesting was only dependent on milestone achievement. As the number of shares that were expected to be issued are fixed, the awards are equity-classified. During the three months ended March 31, 2022, we recorded stock-based compensation expense of nil related to the ArcherDX milestones. During the three months ended March 31, 2021, we recorded $40.6 million in stock-based compensation expense related to the ArcherDX milestones, of which $30.4 million was due to an accounting modification of certain awards whereby the employee's continued substantive services were no longer required. During the three months ended June 30, 2021 we recorded a reversal of $29.7 million recognized in prior periods related to the determination that the ArcherDX Final Milestone would not be achieved within the specified timeframe prescribed in the acquisition agreement.
One Codex
In February 2021, we acquired 100% of the equity interest of Reference Genomics, Inc. d/b/a One Codex ("One Codex"), a company developing and commercializing products and services relating to microbiome sequencing, analysis and reporting, for upfront consideration consisting of $17.3 million in cash and 1.4 million shares of our common stock, of which approximately 0.2 million shares are subject to a hold-back to satisfy indemnification obligations that may arise following the closing. These shares subject to a hold-back were issued to a third-party at the closing date to hold in escrow until the escrow period is complete, and as such were classified as equity.
Genosity
In April 2021, we acquired 100% of the fully diluted equity of Genosity Inc. ("Genosity"), a company providing genomic laboratory services, for approximately $196.0 million, consisting of approximately $120.0 million in cash and 1.9 million shares of our common stock. In connection with this transaction, we granted restricted stock units ("RSUs") having a value of up to $5.0 million to certain continuing employees and recognized $0.4 million in stock-based compensation expense for the three months ended March 31, 2022.
Pursuant to the terms of the acquisition, we agreed to provide additional shares in the event that our common stock share price decreased after the acquisition, but prior to filing a resale registration statement. At the time of the acquisition, we estimated this provision to be $7.0 million. On filing the resale registration statement
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during the period ended June 30, 2021, the fair value was $3.2 million and the difference of $3.8 million was recorded in general and administrative expense.
Our purchase price allocation for the acquisition is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to our deferred tax liability assumed in connection with the acquisition. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
Ciitizen
In September 2021, we acquired 100% of the equity of Ciitizen Corporation ("Ciitizen"), a patient-centric health technology company, for approximately $308.3 million, consisting of approximately $87.4 million in cash and 6.3 million shares of our common stock, of which approximately $10.4 million in cash and 0.8 million shares are subject to a hold-back to satisfy indemnification obligations that may arise following the closing. As of March 31, 2022, the value of the stock payable liability was $6.3 million with the $5.8 million quarterly fair value change recorded as income in other income, net. In connection with this transaction, we granted RSUs having a value of up to $246.9 million to certain continuing employees. During the three months ended March 31, 2022, we recorded stock-based compensation expense of $24.9 million primarily in research and development expense.
Our purchase price allocation for the acquisition is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to certain aspects of our deferred tax liability assumed in connection with the acquisition. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
5. Goodwill and intangible assets
Goodwill
There were no changes in the carrying amounts of goodwill during the three months ended March 31, 2022.
Intangible assets
The following table presents details of our acquired intangible assets as of March 31, 2022 (in thousands):
March 31, 2022December 31, 2021
 
Cost
Accumulated
Amortization
Net
Weighted-Average
Useful Life
(In Years)
Cost
Accumulated
Amortization
Net
Weighted-Average
Useful Life
(In Years)
Customer relationships$41,515 $(14,248)$27,267 10.8$41,515 $(13,096)$28,419 10.8
Developed technology1,174,506 (100,132)1,074,374 10.7662,106 (81,902)580,204 10.2
Non-compete agreement286 (286) 0.0286 (286) 0.0
Tradename21,085 (2,646)18,439 12.021,085 (2,207)18,878 12.0
Patent assets and licenses495(145)350 15.0495 (136)359 15.0
Right to develop new technology19,359 (1,936)17,423 15.019,359 (1,613)17,746 15.0
In-process research and development29,988 — 29,988 n/a542,388 — 542,388 n/a
 $1,287,234 $(119,393)$1,167,841 10.7$1,287,234 $(99,240)$1,187,994 10.4
Acquisition-related intangibles included in the above table are generally finite-lived, other than in-process research and development, which has an indefinite life, and are carried at cost less accumulated amortization. Customer relationships related to our 2017 business combinations are being amortized on an accelerated basis in proportion to estimated cash flows. All other finite-lived acquisition-related intangibles are being amortized on a
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straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized. During the three months ended March 31, 2022, the Company launched the ArcherDX STRATAFIDE and PCM products resulting in the reclassification of the related in-process research and development intangibles to developed technology intangibles, which are finite-lived and amortizable. Amortization expense was $20.2 million and $12.1 million for the three months ended March 31, 2022 and 2021, respectively. Amortization expense is recorded in cost of revenue, research and development, and selling and marketing expense.
The following table summarizes our estimated future amortization expense of intangible assets with finite lives as of March 31, 2022 (in thousands):
2022 (remainder of year)$89,413 
2023118,461 
2024118,183 
2025116,429 
2026116,396 
Thereafter578,971 
Total estimated future amortization expense$1,137,853 
In December 2021, we acquired 100% of the equity interest of Stratify Genomics Inc., a cancer risk stratification company, for $29.0 million consisting of 1.0 million shares of common stock, $4.2 million in assumed liabilities, and $8.0 million in cash. We accounted for this transaction as an asset acquisition, as substantially all of the fair value is concentrated in the developed technology acquired. As goodwill is not recorded under an asset acquisition, an $8.7 million deferred tax liability arising from book/tax basis differences increased the value of the assets acquired above the purchase price. As a result, the fair value of the developed technology is $37.5 million, which will be amortized over eight years to cost of revenue. The remaining purchase price of $0.2 million is the fair value of cash and cash equivalents.
In July 2021, we acquired 100% of the equity interest of Medneon LLC, a digital health artificial intelligence company, for $34.1 million consisting of 0.4 million shares of common stock, $4.9 million in assumed liabilities, and $12.9 million in cash. We accounted for this transaction as an asset acquisition, as substantially all of the fair value is concentrated in the developed technology acquired. The fair value of the developed technology is $33.9 million, which will be amortized over eight years to cost of revenue. The remaining purchase price of $0.2 million is the fair value of cash and cash equivalents.
6. Balance sheet components
Inventory
Inventory consisted of the following (in thousands):
 March 31, 2022December 31, 2021
Raw materials$36,164 $27,178 
Work in progress6,446 5,342 
Finished goods847 996 
Total inventory$43,457 $33,516 
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Property and equipment, net
Property and equipment consisted of the following (in thousands):
March 31, 2022December 31, 2021
Leasehold improvements$34,412 $31,159 
Laboratory equipment66,350 61,317 
Computer equipment16,365 15,452 
Furniture and fixtures2,260 2,130 
Construction-in-progress62,319 52,039 
Other2,239 925 
Total property and equipment, gross183,945 163,022 
Accumulated depreciation and amortization(53,986)(48,308)
Total property and equipment, net$129,959 $114,714 
Depreciation expense was $5.6 million and $3.8 million for the three months ended March 31, 2022 and 2021, respectively.
Accrued liabilities
Accrued liabilities consisted of the following (in thousands):
 March 31, 2022December 31, 2021
Accrued compensation and related expenses$42,492 $35,877 
Accrued expenses32,193 32,136 
Compensation and other liabilities associated with business combinations15,019 11,622 
Deferred revenue6,963 9,431 
Accrued interest583 6,646 
Other accrued liabilities11,248 10,741 
Total accrued liabilities$108,498 $106,453 
Other long-term liabilities
Other long-term liabilities consisted of the following (in thousands):
 March 31, 2022December 31, 2021
Compensation and other liabilities associated with business combinations, non-current16,804 27,919 
Deferred revenue, non-current2,519 663 
Other9,943 9,215 
Total other long-term liabilities$29,266 $37,797 
7. Fair value measurements
Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The authoritative guidance establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity.
The three-level hierarchy for the inputs to valuation techniques is summarized as follows:
Level 1—Observable inputs such as quoted prices (unadjusted) for identical instruments in active markets.
Level 2—Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-derived valuations whose significant inputs are observable.
Level 3—Unobservable inputs that reflect the reporting entity’s own assumptions.
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The following tables set forth the fair value of our consolidated financial instruments that were measured at fair value on a recurring basis (in thousands):
 March 31, 2022
 
Amortized
Cost
Gross Unrealized GainsGross Unrealized Losses
Estimated
Fair Value
   
 Level 1Level 2Level 3
Financial assets:       
Money market funds$175,814 $ $ $175,814 $175,814 $ $ 
U.S. Treasury notes640,776  (773)640,003 640,003   
U.S. government agency securities9,409  (12)9,397  9,397  
Total financial assets$825,999 $ $(785)$825,214 $815,817 $9,397 $ 
Financial liabilities:
Stock payable liability$10,922 $ $ $10,922 
Contingent consideration2,029   2,029 
Total financial liabilities$12,951 $ $ $12,951 
 March 31, 2022
Reported as: 
Cash equivalents$265,558 
Restricted cash10,275 
Marketable securities549,381 
Total cash equivalents, restricted cash, and marketable securities$825,214 
Other long-term liabilities$12,951 

 December 31, 2021
 
Amortized
Cost
Gross Unrealized GainsGross Unrealized Losses
Estimated
Fair Value
   
 Level 1Level 2Level 3
Financial assets:       
Money market funds$913,990 $ $ $913,990 $913,990 $ $ 
U.S. Treasury notes111,187  (6)111,181 111,181   
U.S. government agency securities10,941  (1)10,940  10,940  
Total financial assets$1,036,118 $ $(7)$1,036,111 $1,025,171 $10,940 $ 
Financial liabilities:
Stock payable liability$20,925 $ $ $20,925 
Contingent consideration1,875   1,875 
Total financial liabilities$22,800 $ $ $22,800 
 December 31, 2021
Reported as: 
Cash equivalents$903,715 
Restricted cash10,275 
Marketable securities122,121 
Total cash equivalents, restricted cash, and marketable securities$1,036,111 
Other long-term liabilities$22,800 
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There were no transfers between Level 1, Level 2 and Level 3 during the periods presented. Our debt securities of U.S. government agencies are classified as Level 2 as they are valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, interest rate curves, reported trades, broker/dealer quotes and reference data. At March 31, 2022, the remaining contractual maturities of available-for-sale securities ranged from one to nine months.
The total fair value of investments with unrealized losses at March 31, 2022 was $629.4 million. None of the available-for-sale securities held as of March 31, 2022 have been in an unrealized loss position for more than one year. The Company evaluates investments that are in an unrealized loss position for impairment as a result of credit loss. It was determined that no credit losses exist as of March 31, 2022, because the change in market value of those securities has resulted from fluctuations in market interest rates since the time of purchase, rather than a deterioration of the credit worthiness of the issuers. For marketable securities in an unrealized loss position, we assess our intent to sell, or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. We intend to hold our marketable securities to maturity and it is unlikely that they would be sold before their cost bases are recovered.
Stock payable liabilities relate to certain indemnification hold-backs resulting from business combinations that are settled in shares of our common stock. We elected to account for these liabilities using the fair value option due to the inherent nature of the liabilities and the changes in value of the underlying shares that will ultimately be issued to settle the liabilities. The estimated fair value of these liabilities is classified as Level 3 and determined based upon the number of shares that are issuable to the sellers and the quoted closing price of our common stock as of the reporting date. The number of shares that will ultimately be issued is subject to adjustment for indemnified claims that existed as of the closing date for each acquisition. Changes in the number of shares issued and share price can significantly affect the estimated fair value of the liabilities. During the three months ended March 31, 2022 and 2021, the change in fair value related to stock payable liabilities recorded to other income, net was income of $10.0 million and $3.4 million, respectively.
8. Commitments and contingencies
Leases
In 2015, we entered into an operating lease agreement for our headquarters and main production facility in San Francisco, California, which commenced in 2016. This lease expires in 2026 and we may renew the lease for an additional ten years. This optional period was not considered reasonably certain to be exercised and therefore we determined the lease term to be a ten-year period expiring in 2026. In connection with the execution of the lease, we provided a security deposit of approximately $4.6 million, which is included in restricted cash in our consolidated balance sheets. We also have other operating leases for office and laboratory space domestically and internationally. We expect to enter into new leases and modify existing leases as we support continued growth of our operations.
We have entered into various finance lease agreements to obtain laboratory equipment. The terms of our finance leases are generally three years and are typically secured by the underlying equipment. The portion of the future payments designated as principal repayment and related interest was classified as a finance lease obligation on our consolidated balance sheets. Finance lease assets are recorded within other assets on our consolidated balance sheets.
Debt financing
In October 2020, we entered into a credit agreement with a financial institution under which we borrowed $135.0 million (the "2020 Term Loan") concurrent with the closing of the ArcherDX acquisition. The 2020 Term Loan is secured by a first priority lien on all of our and our subsidiaries' assets, and is guaranteed by us and our subsidiaries. The 2020 Term Loan bears interest at an annual rate equal to three-month LIBOR, subject to a 2.00% LIBOR floor, plus a margin of 8.75%. If three-month LIBOR can no longer be determined or if the applicable governmental authority ceases to supervise or sanction such rates, then we will endeavor to agree with the administrative agent, an alternate rate of interest that gives due consideration to the then prevailing market convention for determining interest for comparable loans in the United States, provided that until such alternative rate of interest is agreed, the 2020 Term Loan shall bear interest at the Wall Street Journal Prime Rate. The three-month LIBOR is expected to be available and representative through June 30, 2023. The 2020 Term Loan will
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mature on (i) June 1, 2024, if at such time our 2024 Notes (defined below) are outstanding and are due to mature on September 1, 2024 (provided that if, prior to such date, the maturity date of at least 80% of the 2024 Notes is extended to a date that is prior to September 1, 2025, the maturity date for the 2020 Term Loan will be automatically extended to a date that is 90 days prior to such 2024 Notes maturity date as extended), or (ii) otherwise, on June 1, 2025. The full amount of the 2020 Term Loan is due upon maturity. If the 2020 Term Loan is prepaid (whether such prepayment is optional or mandatory), we must pay a prepayment fee of 6% if the prepayment occurs prior to the third anniversary of the closing date or 4% if the prepayment occurs after the third anniversary of the closing date and we must also pay a make-whole fee if the prepayment occurs prior to the second anniversary of the closing date.
The credit agreement contains customary events of default and covenants, including among others, covenants limiting our ability to incur debt, incur liens, undergo a change in control, merge with or acquire other entities, make investments, pay dividends or other distributions to holders of our equity securities, repurchase stock, and dispose of assets, in each case subject to certain customary exceptions. In addition, the credit agreement contains financial covenants that require us to maintain a minimum cash balance and minimum quarterly revenue levels.
Debt discounts, including debt issuance costs, related to the 2020 Term Loan of $32.8 million were recorded as a direct deduction from the debt liability and are being amortized to interest expense over the term of the 2020 Term Loan. Interest expense related to our debt financings, excluding the impact of our convertible senior notes (defined below), was $5.9 million for both the three months ended March 31, 2022 and 2021.
Convertible senior notes
Convertible senior notes due 2024
In September 2019, we issued, at par value, $350.0 million aggregate principal amount of 2.00% convertible senior notes due 2024 (the "2024 Notes") in a private offering. The 2024 Notes are our senior unsecured obligations and will mature on September 1, 2024, unless earlier converted, redeemed or repurchased. The 2024 Notes bear cash interest at a rate of 2.0% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020.
Upon conversion, the 2024 Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The initial conversion rate for the 2024 Notes is 33.6293 shares of our common stock per $1,000 principal amount of the 2024 Notes (equivalent to an initial conversion price of approximately $29.74 per share of common stock).
If we undergo a fundamental change (as defined in the indenture governing the 2024 Notes), the holders of the 2024 Notes may require us to repurchase all or any portion of their 2024 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2024 Notes to be repurchased plus accrued and unpaid interest to, but excluding, the redemption date.
The 2024 Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding March 1, 2024, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2024 Notes on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call any or all of the 2024 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after March 1, 2024 until the close of business on the business day immediately preceding the maturity date, holders may convert their 2024 Notes at any time, regardless of the foregoing circumstances. Since issuance, these notes were convertible at the option of the holders during the quarters beginning on January 1, 2021 and April 1, 2021 due to the sale price of our common stock during the quarters ended December 31, 2020 and March 31, 2021, respectively. The notes were not convertible during the three months ended March 31, 2022 and none have been converted to date in the periods in which they were convertible.
We may not redeem the 2024 Notes prior to September 6, 2022. We may redeem for cash all or any portion of the 2024 Notes, at our option, on or after September 6, 2022 and on or before the 30th scheduled trading day
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immediately before the maturity date if the last reported sale price of the common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
Convertible senior notes due 2028
In April 2021, we issued, at 99% of par value, $1,150.0 million aggregate principal amount of 1.5% convertible senior notes due 2028 (the "2028 Notes") in a private offering. The 2028 Notes are our senior unsecured obligations and will mature on April 1, 2028, unless earlier converted, redeemed or repurchased. The 2028 Notes bear cash interest at a rate of 1.5% per year, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021. Upon conversion, the 2028 Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.
The 2028 Notes will be convertible at the option of the holder at any time until the second scheduled trading day prior to the maturity date, including in connection with a redemption by us. The 2028 Notes will be convertible into shares of our common stock based on an initial conversion rate of 23.1589 shares of common stock per $1,000 principal amount of the 2028 Notes (which is equal to an initial conversion price of $43.18 per share), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions. None of the 2028 Notes have been converted to date.
We may not redeem the 2028 Notes prior to April 6, 2025. On or after April 6, 2025, the 2028 Notes will be redeemable by us in the event that the closing sale price of our common stock has been at least 150% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide the redemption notice at a redemption price of 100% of the principal amount of such 2028 Notes, plus accrued and unpaid interest to, but excluding, the redemption date.
With certain exceptions, upon a change of control of the Company or the failure of our common stock to be listed on certain stock exchanges, the holders of the 2028 Notes may require that we repurchase all or part of the principal amount of the Notes at a repurchase price of 100% of the principal amount of the 2028 Notes to be repurchased, plus unpaid interest to, but excluding, the maturity date.
Summary of convertible senior notes
We adopted the provisions of ASU 2020-06 on January 1, 2021. See Note 2, "Summary of significant accounting policies" for additional information. Our 2024 Notes and 2028 Notes (collectively, our "Convertible Senior Notes") consisted of the following (in thousands):
March 31, 2022December 31, 2021
Outstanding principal$1,499,996 $1,499,996 
Unamortized debt discount and issuance costs(34,210)(35,858)
Net carrying amount, liability component$1,465,786 $1,464,138 
As of March 31, 2022, the fair value of the 2024 Notes and 2028 Notes was $301.5 million and $631.4 million, respectively. The estimated fair value of the 2024 Notes and 2028 Notes, which use Level 2 fair value inputs, was determined based on the estimated or actual bid prices in an over-the-counter market and/or market conditions including the price and volatility of our common stock and comparable company information. We recognized $7.7 million and $2.2 million of interest expense related to our convertible senior notes during the three months ended March 31, 2022 and 2021, respectively. Of the interest expense recognized during the three months ended March 31, 2022 and 2021, $