UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
For the quarterly period ended
OR
For the transition period from ________ to ________
Commission File Number:
(Exact Name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
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.
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).
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 |
|
☐ |
|
☒ |
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
The number of shares of registrant’s Common Stock outstanding as of April 27, 2023 was
PERSONALIS, INC.
Form 10-Q
For the Quarterly Period Ended March 31, 2023
TABLE OF CONTENTS
|
|
Page |
|
3 |
|
|
|
|
Item 1. |
4 |
|
|
4 |
|
|
5 |
|
|
6 |
|
|
7 |
|
|
8 |
|
|
9 |
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
10 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
Item 3. |
29 |
|
Item 4. |
29 |
|
|
|
|
Item 1. |
30 |
|
Item 1A. |
30 |
|
Item 2. |
70 |
|
Item 3. |
70 |
|
Item 4. |
70 |
|
Item 5. |
70 |
|
Item 6. |
71 |
|
|
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:
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.
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, 2023 |
|
|
December 31, 2022 |
|
||
Assets |
|
|
|
|
|
|
||
Current assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Short-term investments |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
Inventory and other deferred costs |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
|
||
Other long-term assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued and other current liabilities |
|
|
|
|
|
|
||
Contract liabilities |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Long-term operating lease liabilities |
|
|
|
|
|
|
||
Other long-term liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
) |
|
|
|
|
|
|
||
Stockholders’ equity |
|
|
|
|
|
|
||
Preferred stock, $ |
|
|
— |
|
|
|
— |
|
Common stock, $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Total stockholders’ equity |
|
|
|
|
|
|
||
Total liabilities and stockholders’ equity |
|
$ |
|
|
$ |
|
||
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, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Revenue |
|
$ |
|
|
$ |
|
||
Costs and expenses |
|
|
|
|
|
|
||
Cost of revenue |
|
|
|
|
|
|
||
Research and development |
|
|
|
|
|
|
||
Selling, general and administrative |
|
|
|
|
|
|
||
Restructuring and other charges |
|
|
|
|
|
— |
|
|
Total costs and expenses |
|
|
|
|
|
|
||
Loss from operations |
|
|
( |
) |
|
|
( |
) |
Interest income |
|
|
|
|
|
|
||
Interest expense |
|
|
( |
) |
|
|
( |
) |
Other income (expense), net |
|
|
( |
) |
|
|
|
|
Loss before income taxes |
|
|
( |
) |
|
|
( |
) |
Provision for income taxes |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss per share, basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted-average shares outstanding, basic and diluted |
|
|
|
|
|
|
||
See notes to condensed consolidated financial statements.
5
PERSONALIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
(in thousands)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
||
Foreign currency translation adjustment |
|
|
|
|
|
( |
) |
|
Change in unrealized gain (loss) on available-for-sale debt securities |
|
|
|
|
|
( |
) |
|
Comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
See notes to condensed consolidated financial statements.
6
PERSONALIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
For the Three Months Ended March 31, 2023 and 2022
(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, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Proceeds from exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restricted stock units vested |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Unrealized gain on available-for-sale debt securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance—March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance—December 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Proceeds from exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Restricted stock units vested |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Unrealized loss on available-for-sale debt securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance—March 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
See notes to condensed consolidated financial statements.
7
PERSONALIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Noncash operating lease cost |
|
|
|
|
|
|
||
Amortization of premium (discount) on short-term investments |
|
|
( |
) |
|
|
|
|
Restructuring and other charges |
|
|
|
|
|
— |
|
|
Other |
|
|
|
|
|
|
||
Changes in operating assets and liabilities |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
|
|
Inventory and other deferred costs |
|
|
|
|
|
( |
) |
|
Prepaid expenses and other assets |
|
|
( |
) |
|
|
|
|
Accounts payable |
|
|
( |
) |
|
|
|
|
Accrued and other current liabilities |
|
|
|
|
|
|
||
Contract liabilities |
|
|
|
|
|
( |
) |
|
Operating lease liabilities |
|
|
|
|
|
( |
) |
|
Other long-term liabilities |
|
|
— |
|
|
|
( |
) |
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchases of available-for-sale debt securities |
|
|
( |
) |
|
|
( |
) |
Proceeds from maturities of available-for-sale debt securities |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) investing activities |
|
|
|
|
|
( |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from exercise of equity awards |
|
|
— |
|
|
|
|
|
Net cash provided by financing activities |
|
|
— |
|
|
|
|
|
Effect of exchange rates on cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
Net change in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets: |
|
|||||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash, included in other long-term assets |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
$ |
|
||
See notes to condensed consolidated financial statements.
8
PERSONALIS, INC. |
||
INDEX FOR NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
||
|
|
|
|
|
Page |
Note 1. |
10 |
|
Note 2. |
10 |
|
Note 3. |
13 |
|
Note 4. |
14 |
|
Note 5. |
15 |
|
Note 6. |
15 |
|
Note 7. |
16 |
|
Note 8. |
17 |
|
Note 9. |
18 |
|
Note 10. |
19 |
|
Note 11. |
20 |
|
9
PERSONALIS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Company and Nature of Business
Personalis, Inc. (the "Company") is a provider of advanced genomic tests for precision oncology and personalized testing. The Company also provides sequencing and data analysis services to support population sequencing initiatives. The Company's 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 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. Management is in the process of closing its operations in China. Refer to Note 11 for further information. The Company operates and manages its business as
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, 2022.
The condensed consolidated financial statements include the accounts of Personalis, Inc. and its wholly owned subsidiaries, Personalis (UK) Ltd. and Personalis (Shanghai) Ltd. All intercompany balances and transactions have been eliminated in consolidation.
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, 2023.
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, useful lives assigned to long-lived assets, discount rates for lease accounting, the valuation of stock options, the valuation of stock-based awards, and provisions for income taxes and contingencies. 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 Sales Agreement (the “Sales Agreement”) with BTIG, LLC (“BTIG”) under which it may offer and sell its common stock having aggregate sales proceeds of up to $
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.
10
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 performs regular reviews of customer activity and associated credit risks and does not require collateral. Historically, the Company has not experienced significant credit losses from accounts receivable.
|
|
Revenue |
|
Accounts Receivable |
||||
|
|
Three Months Ended March 31, |
|
March 31, 2023 |
|
December 31, 2022 |
||
|
|
2023 |
|
2022 |
|
|
|
|
Natera, Inc. |
|
|
|
|
||||
VA MVP |
|
|
|
|
* |
|||
Pfizer Inc. |
|
* |
|
|
|
|||
GSK plc |
|
* |
|
* |
|
|
||
* Less than |
||||||||
Revenue Recognition
The Company applies the revenue recognition guidance in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”).
Revenue Recognition
The revenue guidance provides a five-step framework through which revenue is recognized when control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that the Company concludes are within the scope of Topic 606, management performs the following five steps: (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract(s); (iii) determines the transaction price, including whether there are any constraints on variable consideration; (iv) allocates the transaction price to the performance obligations; and (v) recognizes revenue when (or as) the Company satisfies a performance obligation. At contract inception, once a contract is determined to be within the scope of the new revenue standard, the Company assesses whether individual goods or services promised within each contract are distinct and, therefore, represent separate performance obligations.
The Company derives revenue from the sale of sequencing and data analysis services. The Company's contracts are in the form of a combination of signed agreements, statements of work, and/or purchase orders. The Company accounts for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and it is probable that the Company will collect substantially all of the consideration to which it will be entitled.
The sequencing and data analysis services are the only distinct services that meet the definition of a performance obligation and are accounted for as one performance obligation under Topic 606. The Company recognizes revenue from such services at the point in time when control of the test results is transferred to the customer. The Company has elected to exclude all sales and value added taxes from the measurement of the transaction price.
Payment terms and conditions vary by contract and customer. The Company's standard payment terms are typically
Practical Expedients and Exemptions
As a practical expedient, the Company recognizes the incremental costs of obtaining contracts, such as sales commissions, as an expense when incurred since the amortization period of the asset the Company otherwise would have recognized is
11
Sales commissions are recorded within selling, general and administrative expenses in the condensed consolidated statements of operations.
Cost of Revenue
Cost of revenue consists of raw materials costs, personnel costs (salaries, bonuses, benefits, payroll taxes, and stock-based compensation), laboratory supplies and consumables, depreciation and maintenance on equipment, and allocated facilities and information technology (“IT”) costs.
Research and Development Expenses
The Company charges research and development costs to expenses as incurred, including lab and automation development costs. The expenses primarily consist of personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits); laboratory supplies and consumables; costs of processing samples for research, product development, collaborations, and studies; depreciation and maintenance on equipment; and allocated facilities and IT costs.
Stock-Based Compensation
For options granted to employees, non-employees, and directors, stock-based compensation is measured at grant date based on the fair value of the award. The Company determines the grant-date fair value of options using the Black-Scholes option-pricing model, except for certain performance-based awards for which an alternative valuation method may be used. The Company determines the fair value of restricted stock unit awards using the closing market price of the Company’s common stock on the date of grant. The grant-date fair value of awards is amortized over the employees’ requisite service period on a straight-line basis, or the non-employees’ vesting period as the goods are received or services rendered. Forfeitures are accounted for as they occur. Additionally, the Company’s 2019 Employee Stock Purchase Plan (the “ESPP”) is deemed to be a compensatory plan and therefore is included in stock-based compensation expense.
Inputs used in Black-Scholes option-pricing models to measure fair value of options are summarized as follows:
Expected Term. The expected term is calculated using the simplified method, which is available if there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting tranche for awards with graded vesting. The midpoint of the vesting date and the contractual expiration date is used as the expected term under this method. For awards with multiple vesting tranches, the assumed period for each tranche is computed separately and then averaged together to determine the expected term for the award.
Expected Volatility. The Company used an average historical stock price volatility of a peer group of publicly traded companies to be representative of its expected future stock price volatility, as the Company did not have sufficient trading history for its common stock. For purposes of identifying these peer companies, the Company considered the industry, stage of development, size, and financial leverage of potential comparable companies. For each grant, the Company measured historical volatility over a period equivalent to the expected term.
Risk-Free Interest Rate. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of a stock award.
Expected Dividend Rate. The Company has
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities at the time of purchase of three months or less. Cash equivalents include bank demand deposits and money market accounts that invest primarily in cash, U.S. Treasury bills, notes, and other obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, and repurchase agreements secured by such obligations or cash. Cash equivalents also include commercial paper and U.S. Treasury bills, which are marketable debt securities recorded at fair value and accounted for in the same manner as other marketable debt securities described below.
Short-term Investments
The Company’s investments in marketable debt securities are classified as available-for-sale and recorded at fair value. Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. Short-term investments primarily consist of U.S. Treasury notes, U.S. Treasury bills, commercial paper, and U.S. government agency bonds.
12
Any discount or premium arising at purchase is accreted or amortized to interest income or expense. Unrealized gains and losses are included in accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses are reported in other income (expense), net. When securities are sold, any associated unrealized gain or loss initially recorded as a separate component of stockholders’ equity is reclassified out of stockholders’ equity on a specific-identification basis and recorded in earnings for the period. If an available-for-sale debt security's fair value is less than its amortized cost basis, the Company evaluates whether the decline is the result of a credit loss, in which case an impairment is recorded through an allowance for credit losses.
Accounts Receivable, Net
Trade accounts receivable are recorded at the invoiced amount and are noninterest bearing. The Company maintains an allowance for credit losses, consisting of known specific troubled accounts as well as an amount based on overall estimated potential uncollectible accounts receivable based on historical experience and review of their current credit quality. Expected credit losses are recorded as selling, general and administrative expenses in the condensed consolidated statements of operations.
Inventory and Other Deferred Costs
Inventory consists of raw materials and supplies used to fulfill customer genomic analysis contracts and is valued at the lower of cost or net realizable value. Cost is determined using actual costs, on a first-in, first-out basis.
Other deferred costs relate to work that has begun on customer contracts but not yet completed or recognized as revenue. Other deferred costs are comprised of direct labor and overhead costs incurred.
Leases
The Company categorizes leases with contractual terms longer than 12 months as either operating or finance leases. Finance leases are generally those leases that allow the Company to substantially utilize or pay for the entire asset over its estimated life. All other leases are categorized as operating leases. As of March 31, 2023, the Company had no finance leases.
Certain lease contracts include obligations to pay for other services, such as maintenance. The Company elected to account for these other services as a component of the lease (i.e., the Company elected the practical expedient not to separate lease and non-lease components).
Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on the Company’s current borrowing rate at the lease commencement date, adjusted for various factors including level of collateralization and term (the “incremental borrowing rate”), unless the rate implicit in the lease is readily determinable. The current portion of lease liabilities is included in “Accrued and other current liabilities.” Lease assets are recognized based on the initial present value of the fixed lease payments plus any direct costs from executing the leases and any lease prepayments. Lease assets are presented as “Operating lease right-of-use assets” as a long-term asset. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.
The Company has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from leases with a term of 12 months or less. Fixed lease payments are recognized as an expense on a straight-line basis over the lease term. Variable lease costs are amounts owed by us to a lessor that are not fixed, such as reimbursement for common area maintenance, operating expenses, utilities, or other costs that are subject to fluctuation from period to period. The Company has also elected to include expenses related to leases with a term of one month or less in the short-term lease cost disclosure.
Recent Accounting Pronouncements
New Accounting Pronouncements Adopted
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The accounting update also made minor changes to the impairment model for available-for-sale debt securities. The Company
Note 3. Revenue
The Company disaggregates revenue by the following four customer types:
13
The following table presents the Company’s revenue disaggregated by customer type (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Pharma tests and services |
|
$ |
|
|
$ |
|
||
Enterprise sales |
|
|
|
|
|
|
||
Population sequencing |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total revenue |
|
$ |
|
|
$ |
|
||
Revenue from countries outside of the United States, based on the billing addresses of customers, represented approximately
Contract Assets and Liabilities
Contract assets as of March 31, 2023 and December 31, 2022 were immaterial.
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 contracted services are subsequently performed. The balance of contract liabilities was $
Note 4. Balance Sheet Details
Inventory and other deferred costs consist of the following (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Other deferred costs |
|
|
|
|
|
|
||
Total inventory and other deferred costs |
|
$ |
|
|
$ |
|
||
Property and equipment. Depreciation and amortization expense for the three months ended March 31, 2023 and 2022 was $
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 $
Accrued and other current liabilities consist of the following (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Accrued compensation |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|||
Loans—current portion (Note 6) |
|
|
|
|
|
|
||
Accrued liabilities |
|
|
||||||