10-Q 1 psnl-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

 

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

For the quarterly period ended March 31, 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: 001-38943

 

img80984557_0.jpg 

Personalis, Inc.

(Exact Name of registrant as specified in its charter)

 

 

Delaware

27-5411038

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

6600 Dumbarton Circle

Fremont, California

94555

(Address of principal executive offices)

(Zip Code)

 

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

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001

 

PSNL

 

The Nasdaq Global Market

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

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

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

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer

 

Smaller reporting company

 

Emerging growth company

 

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

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

The number of shares of registrant’s Common Stock outstanding as of April 29, 2024 was 51,938,839.

 

 


 

PERSONALIS, INC.

 

Form 10-Q

For the Quarterly Period Ended March 31, 2024

 

TABLE OF CONTENTS

 

Page

Note Regarding Forward-Looking Statements

3

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements

4

Condensed Consolidated Balance Sheets

4

Condensed Consolidated Statements of Operations

5

Condensed Consolidated Statements of Comprehensive Loss

6

Condensed Consolidated Statements of Stockholders’ Equity

7

Condensed Consolidated Statements of Cash Flows

8

Index to Notes

9

Notes to Condensed Consolidated Financial Statements (Unaudited)

10

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

70

Item 3.

Defaults Upon Senior Securities

70

Item 4.

Mine Safety Disclosures

70

Item 5.

Other Information

70

Item 6.

Exhibits

71

Signatures

72

 

2


NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

the evolution of cancer therapies and market adoption of our services and products;
estimates of our total addressable market, future revenue and the timing thereof, expenses, use of cash and other resources, cost savings, capital requirements, and our needs for additional financing;
future reimbursement and reimbursement rulings;
our ability to enter into and compete in new markets;
the impact our collaboration agreements and key opinion leaders may have on the broader use of our products in the future;
the expected benefits of and activities to be performed under our Commercialization and Reference Laboratory Agreement with Tempus AI, Inc. (formerly known as Tempus Labs, Inc.);
our ability to obtain financing when needed;
the potential impacts of inflation, macroeconomic conditions, and geopolitical conflicts on our business and operations;
the benefits of our products and services, including their ability to increase the probability of clinical trial success;
our ability to compete effectively with existing competitors and new market entrants;
our sales, marketing and commercialization plans and strategies;
our business strategies, including our aim to focus on certain indications and the timing thereof;
our ability to benefit from the scaling of our infrastructure and new facility in Fremont;
our ability to manage and grow our business by expanding our sales to existing customers or introducing our services and products to new customers;
our ability to establish and maintain intellectual property protection for our services and products or avoid claims of infringement;
our success in defending and enforcing our intellectual property rights, including patents;
potential effects of government regulation;
our ability to hire and retain key personnel;
the impact of our reductions in force on our operations and operating results;
our belief that approval of personalized cancer therapies by the U.S. Food and Drug Administration may drive benefits to our business;
our future business with the U.S. Department of Veterans Affairs' Million Veteran Program ("VA MVP"), Natera, Inc., and other collaboration partners and customers; and
our ability to maintain proper and effective internal controls.

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

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

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

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

3


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PERSONALIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share and per share data)

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

43,981

 

 

$

56,984

 

Short-term investments

 

 

51,438

 

 

 

57,195

 

Accounts receivable, net

 

 

11,345

 

 

 

17,730

 

Inventory and other deferred costs

 

 

8,767

 

 

 

10,474

 

Prepaid expenses and other current assets

 

 

4,908

 

 

 

4,361

 

Total current assets

 

 

120,439

 

 

 

146,744

 

Property and equipment, net

 

 

54,529

 

 

 

57,366

 

Operating lease right-of-use assets

 

 

17,515

 

 

 

17,852

 

Other long-term assets

 

 

2,793

 

 

 

3,137

 

Total assets

 

$

195,276

 

 

$

225,099

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

9,179

 

 

$

14,920

 

Accrued and other current liabilities

 

 

16,159

 

 

 

23,941

 

Contract liabilities

 

 

3,526

 

 

 

3,288

 

Short-term warrant liability

 

 

2,509

 

 

 

5,085

 

Total current liabilities

 

 

31,373

 

 

 

47,234

 

Long-term operating lease liabilities

 

 

37,434

 

 

 

38,321

 

Long-term warrant liability

 

 

2,753

 

 

 

4,942

 

Other long-term liabilities

 

 

3,022

 

 

 

5,161

 

Total liabilities

 

 

74,582

 

 

 

95,658

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock, $0.0001 par value — 200,000,000 shares authorized; 51,394,199 and 50,480,694 shares issued and outstanding, respectively

 

 

5

 

 

 

5

 

Additional paid-in capital

 

 

602,488

 

 

 

598,364

 

Accumulated other comprehensive loss

 

 

(125

)

 

 

(222

)

Accumulated deficit

 

 

(481,674

)

 

 

(468,706

)

Total stockholders’ equity

 

 

120,694

 

 

 

129,441

 

Total liabilities and stockholders’ equity

 

$

195,276

 

 

$

225,099

 

 

See notes to condensed consolidated financial statements.

4


PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Revenue

 

$

19,525

 

 

$

18,860

 

Costs and expenses

 

 

 

 

 

 

Cost of revenue

 

 

14,032

 

 

 

14,130

 

Research and development

 

 

12,771

 

 

 

16,573

 

Selling, general and administrative

 

 

11,602

 

 

 

14,097

 

Restructuring and other charges

 

 

 

 

 

3,885

 

Total costs and expenses

 

 

38,405

 

 

 

48,685

 

Loss from operations

 

 

(18,880

)

 

 

(29,825

)

Interest income

 

 

1,359

 

 

 

1,253

 

Interest expense

 

 

(9

)

 

 

(47

)

Other income (expense), net

 

 

4,569

 

 

 

(26

)

Loss before income taxes

 

 

(12,961

)

 

 

(28,645

)

Provision for income taxes

 

 

7

 

 

 

14

 

Net loss

 

$

(12,968

)

 

$

(28,659

)

Net loss per share, basic and diluted

 

$

(0.26

)

 

$

(0.61

)

Weighted-average shares outstanding, basic and diluted

 

 

50,678,586

 

 

 

46,740,270

 

 

See notes to condensed consolidated financial statements.

5


PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net loss

 

$

(12,968

)

 

$

(28,659

)

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

Changes in foreign currency translation adjustments:

 

 

 

 

 

 

Change during period

 

 

(29

)

 

 

28

 

Reclassification of adjustments to net loss due to dissolution of Personalis (Shanghai) Ltd

 

 

199

 

 

 

 

Net changes in foreign currency translation adjustments

 

 

170

 

 

 

28

 

Change in unrealized gain (loss) on available-for-sale debt securities

 

 

(73

)

 

 

429

 

Comprehensive loss

 

$

(12,871

)

 

$

(28,202

)

 

See notes to condensed consolidated financial statements.

6


PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

For the Three Months Ended March 31, 2024 and 2023

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance—December 31, 2023

 

 

50,480,694

 

 

$

5

 

 

$

598,364

 

 

$

(222

)

 

$

(468,706

)

 

$

129,441

 

Proceeds from sales of common stock under ATM facility, net of commissions

 

 

880,000

 

 

 

 

 

 

1,437

 

 

 

 

 

 

 

 

 

1,437

 

Restricted stock units vested

 

 

33,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,687

 

 

 

 

 

 

 

 

 

2,687

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

170

 

 

 

 

 

 

170

 

Unrealized loss on available-for-sale debt securities

 

 

 

 

 

 

 

 

 

 

 

(73

)

 

 

 

 

 

(73

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,968

)

 

 

(12,968

)

Balance—March 31, 2024

 

 

51,394,199

 

 

$

5

 

 

$

602,488

 

 

$

(125

)

 

$

(481,674

)

 

$

120,694

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—December 31, 2022

 

 

46,707,084

 

 

$

5

 

 

$

579,456

 

 

$

(912

)

 

$

(360,410

)

 

$

218,139

 

Restricted stock units vested

 

 

67,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,695

 

 

 

 

 

 

 

 

 

3,695

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

 

 

 

28

 

Unrealized gain on available-for-sale debt securities

 

 

 

 

 

 

 

 

 

 

 

429

 

 

 

 

 

 

429

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,659

)

 

 

(28,659

)

Balance—March 31, 2023

 

 

46,774,490

 

 

$

5

 

 

$

583,151

 

 

$

(455

)

 

$

(389,069

)

 

$

193,632

 

 

See notes to condensed consolidated financial statements.

7


PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(12,968

)

 

$

(28,659

)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

2,687

 

 

 

3,695

 

Depreciation and amortization

 

 

2,837

 

 

 

2,781

 

Noncash operating lease cost

 

 

337

 

 

 

539

 

Noncash gain related to liability classified Tempus Warrants

 

 

(4,765

)

 

 

 

Amortization of premium (discount) on short-term investments

 

 

(723

)

 

 

(390

)

Noncash restructuring and other charges

 

 

 

 

 

1,204

 

Other

 

 

199

 

 

 

144

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

6,385

 

 

 

(1,460

)

Inventory and other deferred costs

 

 

1,707

 

 

 

262

 

Prepaid expenses and other assets

 

 

(203

)

 

 

(254

)

Accounts payable

 

 

(5,637

)

 

 

(1,407

)

Accrued and other current liabilities

 

 

(7,836

)

 

 

426

 

Contract liabilities

 

 

(1,593

)

 

 

4,999

 

Operating lease liabilities

 

 

(840

)

 

 

2,375

 

Net cash used in operating activities

 

 

(20,413

)

 

 

(15,745

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of available-for-sale debt securities

 

 

(29,095

)

 

 

(21,529

)

Proceeds from maturities of available-for-sale debt securities

 

 

35,500

 

 

 

39,100

 

Purchases of property and equipment

 

 

(104

)

 

 

(3,778

)

Net cash provided by investing activities

 

 

6,301

 

 

 

13,793

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from sales of common stock under ATM facility, net of commissions

 

 

1,437

 

 

 

 

Repayments of loans

 

 

(308

)

 

 

 

Net cash provided by financing activities

 

 

1,129

 

 

 

 

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

 

 

(20

)

 

 

(4

)

Net change in cash, cash equivalents and restricted cash

 

 

(13,003

)

 

 

(1,956

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

58,774

 

 

 

90,918

 

Cash, cash equivalents and restricted cash, end of period

 

$

45,771

 

 

$

88,962

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Cash and cash equivalents

 

$

43,981

 

 

$

87,172

 

Restricted cash, included in other long-term assets

 

 

1,790

 

 

 

1,790

 

Total cash, cash equivalents and restricted cash

 

$

45,771

 

 

$

88,962

 

See notes to condensed consolidated financial statements.

8


PERSONALIS, INC.

INDEX FOR NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

 

 

 

Page

Note 1.

Company and Nature of Business

10

Note 2.

Summary of Significant Accounting Policies

10

Note 3.

Revenue

11

Note 4.

Balance Sheet Details

12

Note 5.

Fair Value Measurements

13

Note 6.

Loans

14

Note 7.

Leases

15

Note 8.

Tempus Agreement

15

Note 9.

Restructuring and Other Charges

17

Note 10.

Stock-Based Compensation

17

Note 11.

Contingencies

19

Note 12.

Basic and Diluted Net Loss Per Common Share

20

 

9


PERSONALIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 1. Company and Nature of Business

Personalis, Inc. (the "Company" or "Personalis") develops and markets advanced cancer genomic tests and analytics for precision oncology and personalized testing. The Company also provides sequencing and data analysis services to support population sequencing initiatives. Genomic tests are sold primarily to pharmaceutical companies, biopharmaceutical companies, diagnostics companies, universities, non-profits, and government entities, while services for population sequencing initiatives are sold primarily to government entities. The principal markets for the Company’s services are in the United States and Europe.

The Company is expanding its business model to offer genomic tests directly to cancer patients in a clinical setting. However, revenue generated from clinical customers was not significant for any periods presented.

The Company was incorporated in Delaware in February 2011 and began operations in September 2011. The Company formed a wholly owned subsidiary, Personalis (UK) Ltd., in August 2013 and a wholly owned subsidiary, Shanghai Personalis Biotechnology Co., Ltd., which is referred to as “Personalis (Shanghai) Ltd” herein, in October 2020. The Company terminated its operations in China during 2023 and completed the process of dissolving the entity in the first quarter of 2024. Refer to Note 9 for further information. The Company operates and manages its business as one reportable operating segment, which is the sale of sequencing and data analysis services.

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

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

The condensed consolidated financial statements include the accounts of Personalis, Inc. and its wholly owned subsidiary, Personalis (UK) Ltd. All intercompany balances and transactions have been eliminated in consolidation. Upon dissolution of Personalis (Shanghai) Ltd during the first quarter of 2024, an accumulated foreign currency translation adjustment of $0.2 million was reclassified from accumulated other comprehensive loss to net loss within Other income (expense), net.

The condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year ending December 31, 2024.

Use of Estimates

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

At-the-Market Equity Offerings

In December 2021, the Company entered into an At-the-Market ("ATM") Sales Agreement (the “Sales Agreement”) with BTIG, LLC (“BTIG”) under which it may offer and sell its common stock from time to time through BTIG as its sales agent. BTIG will use commercially reasonable efforts to sell the Company’s common stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company will pay BTIG a commission of up to 3% of the gross sales proceeds of any common stock sold under the Sales Agreement. The Company is not obligated to make any sales of common stock under the Sales Agreement.

10


During the three months ended March 31, 2024, the Company issued and sold 0.9 million shares of its common stock under the Sales Agreement at a weighted-average price of $1.67 per share and received $1.4 million in proceeds, net of commissions.

Concentration of Credit Risk and Other Risks and Uncertainties

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

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

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

The Company routinely assesses the creditworthiness of its customers and does not require collateral. Historically, the Company has not experienced significant credit losses from accounts receivable. Multiple customers have provided more than 10% of total revenue in the periods presented, or accounted for more than 10% of accounts receivable at each respective balance sheet date, as follows:

 

 

Revenue

 

Accounts Receivable

 

 

Three Months Ended March 31,

 

March 31, 2024

 

December 31, 2023

 

 

2024

 

2023

 

 

 

 

Natera, Inc.

 

41%

 

50%

 

52%

 

36%

Moderna, Inc.

 

24%

 

*

 

*

 

*

VA MVP

 

*

 

16%

 

*

 

*

Pfizer Inc.

 

*

 

*

 

22%

 

*

* Less than 10% of revenue or accounts receivable

 

Significant Accounting Policies

As of March 31, 2024, the Company’s significant accounting policies are consistent with those discussed in Note 2 - “Summary of Significant Accounting Policies” in its consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Recent Accounting Pronouncements

New Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The guidance will be effective for the Company's annual period ending December 31, 2025. The Company is currently evaluating the impact of the new guidance on its income tax disclosures.

Note 3. Revenue

The Company disaggregates revenue by the following four customer types:

Pharma tests and services includes sales of testing services and data analytics for clinical trials and research to pharmaceutical companies in support of their drug development programs. Contracts typically contemplate a single project and involve a range of tests and analytics to fulfill the requirements of each particular project.
Enterprise sales includes sales of tumor profiling and diagnostic tests directly to another business as an input to their products. The Company is typically contracted to deliver specified tests and analytics in high volume over time. Revenue from the Company's partnership with Natera to provide advanced tumor analysis for use in Natera's molecular residual disease ("MRD") test makes up substantially all of the revenue in this category.
Population sequencing includes sales of genomic sequencing services and data analytics to support large-scale genetic research programs. The Company is typically contracted to perform whole genome sequencing and provide data that can be used for analysis across a large volume of samples. All of the revenue within this category is from the Company's partnership with the VA MVP.

11


Other includes sales of genomic tests and analytics to universities and non-profits. Other also includes sales of diagnostics tests ordered by healthcare providers for cancer patients.

The following table presents the Company’s revenue disaggregated by customer type (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Pharma tests and services

 

$

9,812

 

 

$

6,333

 

Enterprise sales

 

 

7,972

 

 

 

9,458

 

Population sequencing

 

 

1,500

 

 

 

3,005

 

Other

 

 

241

 

 

 

64

 

Total revenue

 

$

19,525

 

 

$

18,860

 

Revenue from countries outside of the United States, based on the billing addresses of customers, represented approximately 4% and 13% of the Company’s revenue for the three months ended March 31, 2024 and 2023, respectively.

Contract Assets and Liabilities

The opening and closing balances of receivables and contract liabilities from contracts with customers are shown below (in thousands). Contract assets were immaterial for all periods presented.

 

 

March 31, 2024

 

 

December 31, 2023

 

Opening balances:

 

 

 

 

 

 

Accounts receivable, net

 

$

17,730

 

 

$

16,642

 

 

 

 

 

 

 

 

Short-term contract liabilities

 

$

3,288

 

 

$

1,264

 

Long-term contract liabilities (included in other long-term liabilities)

 

 

3,928

 

 

 

 

Total contract liabilities

 

 

7,216

 

 

 

1,264

 

 

 

 

 

 

 

 

Closing balances:

 

 

 

 

 

 

Accounts receivable, net

 

$

11,345

 

 

$

17,730

 

 

 

 

 

 

 

 

Short-term contract liabilities

 

$

3,526

 

 

$

3,288

 

Long-term contract liabilities (included in other long-term liabilities)

 

 

2,097

 

 

 

3,928

 

Total contract liabilities

 

 

5,623

 

 

 

7,216

 

Amounts collected in advance of services being provided are deferred as contract liabilities in the condensed consolidated balance sheets. The associated revenue is recognized, and the contract liability is reduced, as the services are subsequently performed. As of March 31, 2024, amounts related to unfulfilled services under contracts with an original expected duration of more than one year was $4.5 million. The Company expects to recognize approximately $2.4 million of this amount in the next 12 months, and the remaining $2.1 million in the 12 months after that. Revenue recognized that was included in the contract liability balance at the beginning of each reporting period was $2.0 million for the three months ended March 31, 2024, and was immaterial for the three months ended March 31, 2023.

Note 4. Balance Sheet Details

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

 

 

March 31, 2024

 

 

December 31, 2023

 

Raw materials

 

$

4,975

 

 

$

5,661

 

Other deferred costs

 

 

3,792

 

 

 

4,813

 

Total inventory and other deferred costs

 

$

8,767

 

 

$

10,474

 

Property and equipment. Depreciation and amortization expense for each of the three months ended March 31, 2024 and 2023 was $2.8 million. Accumulated depreciation and amortization was $40.5 million and $37.7 million as of March 31, 2024 and December 31, 2023, respectively.

Restricted cash. The Company’s restricted cash is pledged as collateral for a standby letter of credit related to a property lease. The balance of restricted cash was $1.8 million as of March 31, 2024 and December 31, 2023, and is included in other long-term assets.

12


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

 

 

March 31, 2024

 

 

December 31, 2023

 

Accrued compensation

 

$

4,586

 

 

$

12,816

 

Operating lease liabilities

 

 

7,809

 

 

 

7,761

 

Loans—current portion (Note 6)

 

 

1,654

 

 

 

1,646

 

Accrued liabilities

 

 

1,126

 

 

 

858

 

Employee ESPP contributions

 

 

579

 

 

 

311

 

Accrued taxes

 

 

50

 

 

 

512

 

Customer deposits

 

 

355

 

 

 

37

 

Total accrued and other current liabilities

 

$

16,159

 

 

$

23,941

 

 

Note 5. Fair Value Measurements

The following tables show the Company’s financial assets measured at fair value on a recurring basis and the level of inputs used in such measurements as of March 31, 2024 and December 31, 2023 (in thousands):

 

 

March 31, 2024

 

 

Adjusted Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

 

Fair Value Level

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

765

 

 

$

 

 

$

 

 

$

765

 

 

 

Money market funds

 

 

10,598

 

 

 

 

 

 

 

 

 

10,598

 

 

Level 1

Commercial paper

 

 

31,063

 

 

 

 

 

 

(15

)

 

 

31,048

 

 

Level 2

U.S. government securities

 

 

1,570

 

 

 

 

 

 

 

 

 

1,570

 

 

Level 2

Total cash and cash equivalents

 

 

43,996

 

 

 

 

 

 

(15

)

 

 

43,981

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government securities

 

 

51,509

 

 

 

 

 

 

(71

)

 

 

51,438

 

 

Level 2

Total short-term investments

 

 

51,509

 

 

 

 

 

 

(71

)

 

 

51,438

 

 

 

Total assets measured at fair value

 

$

95,505

 

 

$

 

 

$

(86

)

 

$

95,419

 

 

 

 

 

 

December 31, 2023

 

 

Adjusted Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

 

Fair Value Level

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

3,649

 

 

$

 

 

$

 

 

$

3,649

 

 

 

Money market funds

 

 

14,968

 

 

 

 

 

 

 

 

 

14,968

 

 

Level 1

Commercial paper

 

 

34,416

 

 

 

 

 

 

(18

)

 

 

34,398

 

 

Level 2

U.S. agency securities

 

 

1,985

 

 

 

1

 

 

 

 

 

 

1,986

 

 

Level 2

U.S. government securities

 

 

1,983

 

 

 

 

 

 

 

 

 

1,983

 

 

Level 2

Total cash and cash equivalents

 

 

57,001

 

 

 

1

 

 

 

(18

)

 

 

56,984

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

495

 

 

 

 

 

 

 

 

 

495

 

 

Level 2

U.S. agency securities

 

 

1,976

 

 

 

 

 

 

 

 

 

1,976

 

 

Level 2

U.S. government securities

 

 

54,720

 

 

 

7

 

 

 

(3

)

 

 

54,724

 

 

Level 2

Total short-term investments

 

 

57,191

 

 

 

7

 

 

 

(3

)

 

 

57,195

 

 

 

Total assets measured at fair value

 

$

114,192

 

 

$

8

 

 

$

(21

)

 

$

114,179

 

 

 

Marketable debt securities at March 31, 2024 have maturities due in less than 12 months. No security has been in a continuous unrealized loss position for more than 12 months and the Company does not consider any of its marketable debt securities to be impaired.

Tempus Warrants

The Black-Scholes option-pricing model was used to estimate fair value of the warrants issued to Tempus AI, Inc. (formerly known as Tempus Labs, Inc., and referred to herein as "Tempus") at the date of issuance, November 28, 2023, and at each subsequent balance sheet date. Assumptions used are listed below, which are Level 3 fair value inputs. Expected term is equal to the remaining contractual periods of each of the two warrants. Expected volatility was based on the Company's actual historical volatility over the expected terms of the warrants. The risk-free interest rate was based on the U.S. Treasury yield curve over the expected term of the warrants. Refer to Note 8 for further information about the warrants issued to Tempus.

13


 

 

As of March 31, 2024

 

 

As of December 31, 2023

 

Expected term (in years)

 

0.75 - 1.75

 

 

1.00 - 2.00

 

Volatility

 

103.91 - 106.32%

 

 

102.55 - 108.46%

 

Risk-free interest rate

 

4.70 - 5.21%

 

 

4.23 - 4.79%

 

Dividend yield

 

%

 

 

%

 

Total fair value of Tempus Warrants (in thousands)

 

$

5,262

 

 

$

10,027

 

The following table sets forth a summary of the changes in fair value of the Tempus Warrants, which are classified as Level 3 financial instruments (in thousands):

 

 

Warrant
Liabilities

 

Balance—December 31, 2023

 

$

10,027

 

Change in fair value

 

 

(4,765

)

Balance—March 31, 2024

 

$

5,262

 

 

Note 6. Loans

Amounts outstanding under loans are as follows (in thousands):

 

 

March 31, 2024

 

 

December 31, 2023

 

Principal

 

$

2,594

 

 

$

2,904

 

Less: unamortized discount

 

 

(15

)

 

 

(24

)

Total carrying amount

 

 

2,579

 

 

 

2,880

 

Less: current portion (included in accrued and other current liabilities)

 

 

(1,654

)

 

 

(1,646

)

Long-term portion (included in other long-term liabilities)

 

$

925

 

 

$

1,234

 

Equipment and Software Loans

In April 2021, the Company entered into a secured payment agreement with a financing entity to finance the purchase of $2.4 million of internal use software licenses and related software maintenance from a vendor. The financing entity and vendor are not related. The Company repaid the financed amount in three equal payments of $0.8 million in May 2021, May 2022, and May 2023. The payment agreement was noninterest bearing and the Company concluded that such interest rate (zero) did not represent fair and adequate compensation to the financing entity for the use of the related funds. Accordingly, the Company approximated the rate at which it could obtain financing of a similar nature from other sources at the date of the transaction. The resulting imputed interest rate was 7% and was used to establish the present value of the payment agreement. The discount is recognized as interest expense in the condensed consolidated statements of operations over the life of the payment agreement.

The Company entered into two more secured payment agreements in April 2021 and July 2022, with the same financing entity, to finance the purchase of $3.1 million of computer hardware and related hardware maintenance and $1.3 million of internal use software licenses and related ongoing support, respectively. The Company is required to pay three equal payments of $1.0 million in July 2021, June 2022, and June 2023 for the first agreement, and three equal payments of $0.4 million in September 2022, September 2023, and September 2024 for the second agreement. The nature of these agreements and resulting accounting treatment are the same as the payment agreement described in the preceding paragraph, except the imputed interest rate was 9% for the July 2022 agreement.

Repayments are presented as financing cash outflows. Interest expense was less than $0.1 million for periods presented.

Lab Equipment Loan

In November 2023, the Company purchased lab equipment from one of its main vendors for $3.4 million. Extended payment terms were provided to the Company through a financial solutions partner of the vendor. Terms included a 30% down payment and 24 equal monthly payments for the remaining balance, with such monthly payments commencing in January 2024, and no interest or financing charges. Title for the lab equipment transferred immediately upon delivery to the Company. The financial solutions partner retains a security interest until payoff is complete at the end of 2025. The purchase price for the lab equipment was equal to the cash price and thus the impact of imputing interest would have been de minimis. Repayments are presented as financing cash outflows.

14


Note 7. Leases

In 2021, the Company entered into a noncancelable operating lease for approximately 100,000 square feet in Fremont, California used for laboratory operations and its corporate headquarters. The lease term is 13.5 years and commenced in October 2022. The Company gained early access to the premises for the purpose of constructing and installing tenant improvements, for which the landlord contributed $15.1 million. Such contributions were accounted for as lease incentives and are recognized as reductions to lease expense over the lease term. The lease expires at the end of March 2036 and includes two options to extend the term for a period of five-years per option at market rates. The Company determined the extension options are not reasonably certain to be exercised. The lease includes escalating rent payments.

The Company has a noncancelable operating lease expiring in November 2027 for 31,280 square feet in Menlo Park, California previously used for laboratory operations and its former corporate headquarters. The lease includes escalating rent payments. In 2021, the Company expanded the leased premises by an additional 14,710 square feet of space (the “Expansion Lease”). The Expansion Lease expired at the end of December 2022 and was not extended. The Company moved all laboratory operations to the Fremont facility during the third quarter of 2023 and is actively marketing the vacated Menlo Park space for sublease.

The Company has noncancelable operating leases for data center space expiring between 2025 and 2026. The leases include renewal options that the Company determined are not reasonably certain to be exercised. Separately, the Company also has various other short-term leases.

As of March 31, 2024, operating leases had a weighted-average remaining lease term of 10.3 years and a weighted-average discount rate of 10.5%. Discount rates are based on estimates of the Company's incremental borrowing rate, as the discount rates implicit in the leases cannot be readily determined. Future lease payments under operating leases as of March 31, 2024 were as follows (in thousands):

 

 

Amount

 

2024 (remaining nine months)

 

$

6,111

 

2025

 

 

8,057

 

2026