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Item 8. Financial Statements and Supplementary Data

2021-02-24 compared with 2020-02-28 · 455 added, 396 removed, 926 unchanged (48% of the section changed)

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of CareDx, Inc.

Opinion on the Financial Statement s

To the shareholders and the Board of Directors of CareDx, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of CareDx, Inc.

and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in fiscal year 2019 due to the adoption of Accounting Standards Codification (ASC) Topic 842, Leases .

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Acquired Intangible Assets — Refer to Note 5 to the consolidated financial statements

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Testing Services Revenue – Refer to Note 2 to the consolidated financial statements

Critical Audit Matter Description

On May 7, 2019 the Company completed the acquisition of Ottr Complete Transplant Management ("OttrCare"), which was accounted for as a business combination in accordance with Accounting Standards Codification Topic 805, Business Combinations .

The determination of the fair value of acquired intangible assets of $6.6 million required management to make estimates related to revenue projections and the discount rate.

We identified the valuation of acquired intangible assets as a critical audit matter because of the significant judgments and assumptions related to revenue projections and the discount rate.

Given the fair value determination of intangible assets

required management to make significant estimates and assumptions related to the future projected revenue and the selection of the discount rate, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

During the year ended December 31, 2020, the Company’s revenue from testing services was $163.6 million.

As discussed in Note 2, the Company’s testing services revenue is recognized upon the delivery of test results to the prescribing physician, at which time the Company bills for its services.

The Company recognizes revenue related to billings based on transaction prices estimated as the amount that will ultimately be realized.

The transaction price estimate represents differences between amounts billed and the estimated consideration the Company expects to receive based on historical collection experience and other anticipated adjustments, including anticipated payer denials.

In determining the amount to recognize for a delivered test, the Company considers factors such as payment history, amount collected per test, payer coverage, and whether there is a reimbursement contract between the payer and the Company.

The Company also considers whether historical collections per test are indicative of future collections or if there are any current or expected developments or changes that could affect reimbursement rates, which is an estimate that requires significant judgment by the Company.

We identified management’s estimation of the transaction price for revenue recorded as a critical audit matter due to the significant judgments required by management to estimate payer behavior.

This required a high degree of auditor judgment and an increased extent of effort, including the involvement of more experienced engagement team members, when performing audit procedures to evaluate the estimated transaction prices.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the valuation of acquired intangible assets included the following, among others:

• We tested the effectiveness of controls over the determination of fair value of intangible assets, including those over the future projected revenue and the selection of the discount rate.

• With the assistance of our fair value specialists, we evaluated the selection of the discount rate, including testing the underlying source information and the mathematical accuracy of the calculations by developing a range of independent estimates and comparing those to the rate selected by management.

• We understood and tested the reasonableness of the management revenue growth rate estimate including the following procedures:

– Compared historical revenues and revenue growth rates with growth rates used in the valuation model and investigated any differences, including the expectations from the market participant perspective.

– Held discussions with Company management, and management of the acquiree regarding their expectations of revenue growth.

– Reviewed expected growth in recent industry reports and analyst reports.

– Reviewed due diligence and internal presentations to the Board and management.

Our audit procedures related to management judgments in the estimate of transaction prices for testing services revenue, included the following, among others:

• We understood and tested the design, implementation, and operating effectiveness of controls over management’s determination of the assumptions used and the related review and approval of the transaction price estimate.

• We tested the methodology used by the Company to estimate transaction prices.

• We tested the assumptions used by management to calculate transaction prices by:

• Testing the mathematical accuracy of management’s calculation.

• Testing the historical cash receipts from payers used in the estimate of transaction prices, by making selections and agreeing the selected information to source documents.

• Testing management’s ability to estimate transaction prices accurately by comparing recorded revenue to cash receipts received through December 2020.

• Evaluating trends in revenue and accounts receivable compared to previous periods to identify any evidence that may contradict management’s assertion regarding estimated transaction price.

/s/ Deloitte & Touche LLP

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of CareDx, Inc.

To the shareholders and the Board of Directors of CareDx, Inc.

Opinion on Internal Control over Financial Reporting

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 24, 2021, expressed an unqualified opinion on those financial statements and included an explanatory paragraph related to the Company’s change in method of accounting for leases in fiscal year 2019 due to the adoption of Accounting Standards Codification (ASC) Topic 842, Leases .

As described in Management’s Annual Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Ottr Complete Transplant Management and XynManagement, Inc., except for goodwill and intangible assets.

Ottr Complete Transplant Management was acquired on May 7, 2019 and XynManagement, Inc.

on August 26, 2019, and their financial statements constitute 6% and 3% of the consolidated total assets (excluding goodwill and intangible assets) and revenues, respectively, as of and for the year ended December 31, 2019.

Accordingly, our audit did not include the internal control over financial reporting at Ottr Complete Transplant Management and XynManagement, Inc., except for goodwill and intangible assets.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

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February 24, 2021

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of CareDx, Inc.

Opinion on the Financial Statements

We have audited the consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for the year ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the consolidated results of its operations and its cash flows for the year ended December 31, 2017, in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor from 2009 to 2018.

Redwood City, California

March 22, 2018

Consolidated Balance Sheets

(In thousands, except share and per share data)

(In thousands, except share data)

As of December 31,

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Cash and cash equivalents $ 134,669 $ 38,223

Marketable securities 90,034 —

Accounts receivable 34,624 24,057

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Accrued and other liabilities 20,602 16,838

Refund liability - CMS advance payment (Note 1) 20,496 —

Total current liabilities 69,217 34,828

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Deferred payments for intangible assets 3,560 5,207

Operating lease liability, less current portion 16,069 2,370

Other liabilities 240 1,751

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Total revenue 192,194 127,068 76,569

Cost of revenue 45,455 32,987 21,371

Gross profit 81,613 43,582 26,953

Operating expenses:

Cost of testing services 43,932 29,622 21,456

Cost of product 13,847 12,919 11,531

Cost of digital and other 5,338 2,914 —

Research and development 48,941 30,711 14,514

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General and administrative 48,806 36,540 22,976

Goodwill impairment — — 1,958

Total operating expenses 214,722 151,600 92,147

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( 1,495 ) 319 ( 22,978 )

CARES Act Provider Relief Fund 4,813 — —

Other expense, net ( 811 ) ( 719 ) ( 178 )

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Comprehensive loss attributable to noncontrolling interest, net of tax

— ( 25 ) ( 99 )

Comprehensive loss attributable to CareDx, Inc.

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Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity

Common Stock Additional Paid-In Capital Accumulated Other

Comprehensive Loss Accumulated Deficit Noncontrolling Interest Total Stockholders’ Equity

(In thousands, except share amounts)

Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Noncontrolling Interest Total Stockholders’ Equity

Shares Amount

Balance at December 31, 2017 28,825,019 $ 29 $ 264,204 $ ( 2,345 ) $ ( 268,022 ) $ 180 $ ( 5,954 )

Issuance of common stock in connection with public offering

Adoption of ASC 606

— — — — 2,933 — 2,933

Issuance of common stock in connection with business acquisition

Reclassification of warrants from liability to equity

— — 6,550 — — — 6,550

Issuance of common stock in connection with public offering,

net of offering costs of $ 3,800

2,300,000 2 52,547 — — — 52,549

Conversion of convertible debt

6,161,331 6 38,846 — — — 38,852

Issuance of common stock under equity incentive plans

Issuance of common stock under ESPP

76,710 — 287 — — — 287

Issuance of common stock for Board of Director services

RSU settlements, net of shares withheld

178,150 — ( 698 ) — — — ( 698 )

Issuance of common stock for services

50,509 — 273 — — — 273

Issuance of common stock for cash upon exercise of stock options

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3,091,581 3 38,709 — — — 38,712

Issuance of common stock upon exercise of warrants

Employee stock-based compensation expense

— — 5,868 — — — 5,868

Employee and non-employee share-based compensation expense

Non-employee stock-based compensation expense

— — 1,009 — — — 1,009

Foreign currency translation adjustment

Noncontrolling interests upon acquisition

— — ( 537 ) — — ( 155 ) ( 692 )

Issuance of common stock for contingent consideration

227,848 — 2,689 — — — 2,689

Balance at December 31, 2017 28,825,019 $ 29 $ 264,204 $ ( 2,345 ) $ ( 268,022 ) $ 180 $ ( 5,954 )

Adoption of ASC 606

Issuance of warrants in connection with debt

— — 784 — — — 784

Reclassification of warrants from liability to equity

Foreign currency translation adjustment

— — — ( 1,933 ) — — ( 1,933 )

Issuance of common stock in connection with public offering,

net of offering costs of $ 3.8 million

— — — — ( 46,756 ) ( 25 ) ( 46,781 )

Conversion of convertible debt

Balance at December 31, 2018 41,384,960 $ 41 $ 412,010 $ ( 4,278 ) $ ( 311,845 ) $ — $ 95,928

Contingent consideration classified as equity

— — 222 — — — 222

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625,685 1 3,552 — — — 3,553

Issuance of common stock for cash upon exercise of warrants

3,091,581 3 38,709 — — — 38,712

Employee share-based compensation expense

— — 5,868 — — — 5,868

Non-employee share-based compensation expense

— — 1,009 — — — 1,009

Noncontrolling interests upon acquisition

— — ( 537 ) — — ( 155 ) ( 692 )

Issuance of common stock for contingent consideration

Issuance of common stock upon exercise of warrants

142,541 — 3,181 — — — 3,181

Issuance of warrants in connection with debt

Employee stock-based compensation expense

— — 22,195 — — — 22,195

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Balance at December 31, 2019 42,498,430 $ 42 $ 437,976 $ ( 5,205 ) $ ( 333,813 ) $ — $ 99,000

Contingent consideration classified as equity

Issuance of common shares through public equity offering, net of commissions and offering costs of $ 9,166

4,492,187 4 134,580 — — — 134,584

Issuance of common shares in connection with "at-the-market" equity offering, net of commissions and offering costs of $ 785

1,000,000 1 23,450 — — — 23,451

Issuance of common stock under ESPP

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338,214 1 8,007 — — — 8,008

Employee share-based compensation expense

Employee stock-based compensation expense

— — 23,055 — — — 23,055

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Consolidated Statements of Cash Flows

(In thousands)

Year Ended December 31,

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Net loss $ ( 18,714 ) $ ( 21,968 ) $ ( 46,781 )

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

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

Stock-based compensation 23,401 22,417 7,138

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Depreciation and amortization 7,006 5,523 4,215

Non-cash lease expense 1,621 — —

Amortization of right-of-use assets 2,538 1,621 —

Revaluation of warrants and derivative liabilities to estimated fair value 1,495 ( 319 ) 22,978

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Amortization of debt discount and noncash interest expense — — 2,232

Non-cash goodwill impairment — — 1,958

Debt extinguishment expenses — — 5,831

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Inventory ( 3,196 ) ( 1,270 ) 363

Prepaid and other current assets ( 829 ) ( 502 ) ( 84 )

Prepaid and other assets ( 41 ) ( 829 ) ( 502 )

Accounts payable 4,389 1,351 ( 168 )

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Accrued and other liabilities 2,911 3,029 719

Operating lease liabilities ( 1,854 ) — —

Operating lease liabilities, net ( 1,475 ) ( 1,854 ) —

Refund liability - CMS advance payment 20,496 — —

Change in deferred taxes ( 1,023 ) ( 1,280 ) ( 1,607 )

Net cash used in operating activities ( 2,769 ) ( 4,007 ) ( 14,307 )

Net cash provided by (used in) operating activities 33,431 ( 2,769 ) ( 4,007 )

Investing activities:

Purchases of marketable securities ( 90,034 ) — —

Additions of capital expenditures, net ( 7,110 ) ( 2,201 ) ( 2,035 )

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Financing activities:

Proceeds from issuance of common stock, net of issuance costs — 52,910 18,328

Proceeds from issuance of common shares in public equity offering, net of issuance costs paid 134,684 — 52,910

Proceeds from issuance of common shares in "at-the-market" equity offering, net of issuance costs paid 23,451 — —

Proceeds from debt, net of issuance costs — — 14,282

Principal payments on debt and capital lease obligations ( 172 ) ( 28,089 ) ( 14,359 )

Contingent payments related to acquisition ( 225 ) ( 225 ) —

Principal payments on debt and finance lease obligations ( 183 ) ( 172 ) ( 28,089 )

Contingent payments related to acquisition of Conexio Genomics Pty Ltd.

— ( 225 ) ( 225 )

Change in short-term credit facility — — ( 677 )

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Taxes paid related to net share settlement of restricted stock units ( 4,529 ) ( 4,153 ) ( 698 )

Change in bank overdraft obligation — — 63

Net cash (used in) provided by financing activities ( 132 ) 50,268 29,379

Net cash provided by (used in) financing activities 163,149 ( 132 ) 50,268

Effect of exchange rate changes on cash and cash equivalents 274 ( 849 ) 2

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Cash paid for interest $ 10 $ 22 $ 1,774

Cash paid for income taxes $ 80 $ — $ —

Supplemental disclosures of cash flow information

Shares issued in lieu of payment $ 315 $ 209 $ —

Deferred purchase consideration $ — $ — $ —

Accrued interest capitalized to debt principal $ — $ — $ 984

Deferred payments for intangible assets $ — $ 7,207 $ —

Operating lease right-of-use assets $ 55 $ 6,138 $ —

Purchased of capital expenditures in accounts payable and accrued liabilities $ 576 $ — $ —

Purchases of capital expenditures in accounts payable and accrued liabilities $ 274 $ 576 $ —

Issuance of common stock upon conversion of convertible debt $ — $ — $ 38,852

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Contingent consideration $ — $ 1,442 $ 2,689

Cash, Cash Equivalents and Restricted Cash as of:

Cash and cash equivalents $ 38,223 $ 64,616 $ 16,895

Restricted cash 256 192 9,579

Total cash, cash equivalents, and restricted cash at the end of the period $ 38,479 $ 64,808 $ 26,474

The accompanying notes are an integral part of these consolidated financial statements.

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ORGANIZATION AND DESCRIPTION OF BUSINESS

(“CareDx” or the “Company”) together with its subsidiaries, is a leading precision medicine company focused on the discovery, development and commercialization of clinically differentiated, high-value healthcare solutions for transplant patients and caregivers.

The Company’s headquarters are in South San Francisco, California.

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Fremantle, Australia and Stockholm, Sweden.

The Company’s commercially available testing services consist of AlloSure Kidney, which is a donor-derived cell-free DNA (“dd-cfDNA”) solution for kidney transplant patients, and AlloMap Heart, which is a gene expression solution for heart transplant patients.

The Company’s commercially available testing services consist of AlloSure ® Kidney, which is a donor-derived cell-free DNA (“dd-cfDNA”) solution for kidney transplant patients, AlloMap ® Heart, which is a gene expression solution for heart transplant patients, and AlloSure ® Heart, a dd-cfDNA test which can identify underlying cell injury leading to organ rejection.

The Company has initiated several clinical studies to generate data on its existing and planned future testing services.

In April 2020, the Company announced its first biopharma research partnership for AlloCell, a surveillance solution that monitors the level of engraftment and persistence of allogeneic cells for patients who have received cell therapy transplants.

The Company also offers high quality products that increase the chance of successful transplants by facilitating a better match between a donor and a recipient of stem cells and organs.

In 2019, the Company began providing digital solutions to transplant centers following the acquisitions of Ottr Complete Transplant Management (“OttrCare”) and XynManagement, Inc.

In 2019, the Company began providing digital solutions to transplant centers following the acquisitions of Ottr Complete Transplant Management (“Ottr, Inc.”) and XynManagement, Inc.

(“XynManagement”).

Testing Services

In October 2017, the Company commercially launched AlloSure Kidney, its proprietary next generation sequencing-based test that measures dd-cfDNA in kidney transplant recipients.

AlloSure Kidney has been a covered service for Medicare beneficiaries since October 2017.

The Medicare reimbursement rate for AlloSure Kidney is currently $ 2,841 .

AlloSure Kidney has also received payment from private payers on a case-by-case basis, with the first private payer, BCBS of South Carolina, issuing a positive coverage decision in its October 2019 review.

AlloMap Heart is a covered service for Medicare beneficiaries since January 1, 2006.

AlloSure Kidney has received positive coverage decisions from Blue Cross Blue Shield (“BCBS”) of South Carolina, BCB S of Kansas City and Capital Health, and is reimbursed by other private payers on a case-by-case basis .

AlloMap Heart has been a covered service for Medicare beneficiaries since January 2006.

The Medicare reimbursement rate for AlloMap Heart is currently $ 3,240 .

AlloMap Heart has also received positive coverage decisions from many of the largest U.S.

private payers.

In January 2018, the Company initiated the Kidney Allograft Outcomes AlloSure Kidney Registry study ("K-OAR"), to develop further data on the clinical utility of AlloSure Kidney for surveillance of kidney transplant recipients.

K-OAR is a multicenter, non-blinded, prospective observational cohort study which plans to enroll greater than 1,500 renal transplant patients who will receive AlloSure Kidney long-term surveillance.

In September 2019, the Company announced the commencement of the Outcomes of KidneyCare on Renal Allografts (“OKRA”) study, which is an extension of K-OAR.

OKRA is a prospective, multi-center, observational, registry of patients receiving KidneyCare for surveillance.

KidneyCare combines the dd-cfDNA analysis of AlloSure Kidney with the gene expression profiling technology of AlloMap Kidney and the predictive artificial intelligence technology of KidneyCare iBox developing a multimodality surveillance solution.

The Company has not yet made any applications to payers for reimbursement coverage of AlloMap Kidney or KidneyCare iBox.

AlloMap Heart has also received positive coverage decisions for reimbursement from many of the largest U.S.

private payers, including Aetna, Cigna, Health Care Services Corporation, Humana, Kaiser Foundation Health Plan, Inc.

and UnitedHealthcare .

In October 2020, AlloSure Heart received a final Palmetto MolDx Medicare coverage decision for AlloSure Heart.

In November 2020, Noridian Healthcare Solutions, the Company's Medicare Administrative contractor, issued a parallel coverage policy granting coverage when used in conjunction with AlloMap Heart, which became effective in December 2020.

The Medicare reimbursement rate for AlloSure Heart is currently $ 2,753 .

Clinical Studies

In January 2018, the Company initiated the Kidney Allograft Outcomes AlloSure Kidney Registry study ( “K-OAR” ), to develop additional data on the clinical utility of AlloSure Kidney for surveillance of kidney transplant recipients.

K-OAR is a multicenter, non-blinded, prospective observational cohort study which has enrolled more than 1,700 renal transplant patients who will receive AlloSure Kidney long-term surveillance.

In September 2018, the Company initiated the Surveillance HeartCare ™ Outcomes Registry (“SHORE”).

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HeartCare combines the gene expression profiling technology of AlloMap Heart with the dd-cfDNA analysis of AlloSure ® Heart in one surveillance solution.

In August 2019, AlloSure Heart received a positive draft Local Coverage Determination (dLCD) for Medicare coverage.

In February 2019, AlloSure ® Lung became available for lung transplant patients through a compassionate use program while the test is undergoing further studies.

TruSight HLA is a next generation sequencing (“NGS”)-based high-resolution typing solution that provides NGS-level resolution to HLA typing.

The Company’s suite of AlloSeq products are commercial NGS-based kitted solutions that the Company acquired as a result of its license agreement with Illumina.

In June 2020, the Company submitted an AlloSure Lung application to the Palmetto MolDx Technical Assessment program seeking coverage and reimbursement for Medicare beneficiaries.

In September 2019, the Company announced the commencement of the Outcomes of KidneyCare on Renal Allografts (“OKRA”) study, which is an extension of K-OAR.

OKRA is a prospective, multi-center, observational, registry of patients receiving KidneyCare for surveillance.

The Company has not yet made any applications to private payers for reimbursement coverage of AlloMap Kidney or KidneyCare iBox.

Enrollment for OKRA was negatively affected by the COVID-19 restrictions during the year 2020, and the study has been delayed by six months;

however, the collection of samples are at normal levels as a result of the introduction of RemoTraC.

The Company’s suite of AlloSeq products are commercial next generation sequencing (“NGS”)-based kitted solutions that the Company has developed as a result of its license agreement with Illumina, Inc.

(“Illumina”) .

These products include:

AlloSeq Tx, a high-resolution HLA typing solution, AlloSeq cfDNA, a surveillance solution designed to measure dd-cfDNA in blood to detect active rejection in transplant recipients, and AlloSeq HCT, a solution for chimerism testing for stem cell transplant recipients.

Olerup SSP is used to type Human Leukocyte Antigen (“HLA”) alleles, based on the sequence specific primer (“SSP”) technology.

Olerup SBT is a complete product range for sequence-based typing of HLA alleles.

QTYPE enables HLA typing at

a low to intermediate resolution for samples that require a fast turnaround time and uses real-time polymerase chain reaction, or PCR methodology.

AlloSeq ™ Tx, a high-resolution Human Leukocyte Antigen (“HLA”) typing solution, AlloSeq ™ cfDNA, a surveillance solution designed to measure dd-cfDNA in blood to detect active rejection in transplant recipients, and AlloSeq ™ HCT, a solution for chimerism testing for stem cell transplant recipients.

The Company's other HLA typing products include:

TruSight HLA, a NGS-based high resolution typing solution;

Olerup SSP ® , based on the sequence specific primer (“SSP”) technology;

and QTYPE ® , which uses real-time polymerase chain reaction (“PCR”) methodology, to perform HLA typing at a low to intermediate resolution for samples that require a fast turnaround time .

Digital and Other

Following the acquisitions of both OttrCare and XynManagement, the Company is a leading provider of transplant patient tracking software (“Ottr software”), as well as of transplant quality tracking and waitlist management solutions.

Following the acquisitions of both Ottr, Inc.

and XynManagement, the Company is a leading provider of transplant patient tracking software (“Ottr software”), as well as of transplant quality tracking and waitlist management solutions.

Ottr software provides comprehensive solutions for transplant patient management and enables integration with electronic medical record ("EMR") systems providing patient surveillance management tools and outcomes data to transplant centers.

XynManagement provides two unique solutions, XynQAPI software (“XynQAPI”) and Waitlist Management.

XynManagement provides two unique solutions, XynQAPI software (“XynQAPI”) and XynCare.

XynQAPI simplifies transplant quality tracking and Scientific Registry of Transplant Recipients (“SRTR”) reporting.

Waitlist Management includes a team of transplant assistants who maintain regular contact with patients on the waitlist to help prepare for their transplant and maintain eligibility.

The Company's software solutions are currently used in 84 transplant centers in the U.S.

Liquidity and Going Concern

XynCare includes a team of transplant assistants who maintain regular contact with patients on the waitlist to help prepare for their transplant and maintain eligibility.

In September 2020, the Company launched AlloCare, a mobile app that provides a patient-centric resource for transplant recipients to manage medication adherence, coordinate with Patient Care Managers for AlloSure scheduling and measure health metrics.

COVID-19 Pandemic

On January 30, 2020, the World Health Organization (the “WHO”) announced a global health emergency because of a new strain of coronavirus ( “COVID-19”) originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin.

In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

The full impact of the COVID-19 pandemic, including the impact associated with preventative and precautionary measures that the Company, other businesses and governments are taking, continues to evolve as of the date of this report.

As such, it is uncertain as to the full magnitude that the pandemic will have on the Company, but the pandemic may materially affect the Company's financial condition, liquidity and future results of operations.

In the final weeks of March and during April 2020, with hospitals increasingly caring for COVID-19 patients, hospital administrators chose to limit or even defer, non-emergency procedures.

Immunosuppressed transplant patients either self-prescribed or were asked to avoid transplant centers and caregiver visits to reduce the risk of contracting COVID-19.

As a result, with transplant surveillance visits down, the Company experienced a slowdown in testing services volumes in the final weeks of March and during April 2020.

As a response to the COVID-19 pandemic, and to enable immune-compromised transplant patients to continue to have their blood drawn, in late March 2020, the Company launched RemoTraC, a remote home-based blood draw solution using mobile phlebotomy for AlloSure and AlloMap surveillance tests, as well as for other standard monitoring tests.

To date, more than 150 transplant centers can offer RemoTraC to their patients and over 6,000 kidney, heart and lung transplant patients have enrolled.

Based on existing and new relationships with partners, the Company has established a nationwide network of more than 10,000 mobile phlebotomists.

Following the introduction of RemoTraC and with the easing of stay-at-home restrictions and the opening up of many hospitals to non-COVID-19 patients, the Company’s testing services volumes returned to levels consistent with those experienced immediately prior to the COVID-19 pandemic, and through December 31, 2020, volumes continued to be at or above those levels since May 2020.

In spite of the resurgence of COVID-19 infection rates, which resulted in increased stay-at-home and renewed travel restrictions, the Company did not experience a decrease in testing services volumes.

The Company’s product business experienced a reduction in forecasted sales volume throughout the second and third quarters of 2020, as it was unable to undertake onsite discussions and demonstrations of its recently launched NGS products, including AlloSeq Tx 17, which was awarded CE mark authorization in May 2020.

The Company's product business maintained normal sales volumes during the fourth quarter of 2020.

The Company is maintaining its testing, manufacturing, and distribution facilities while implementing specific protocols to reduce contact among employees.

In areas where COVID-19 impacts healthcare operations, the Company’s field-based sales and clinical support teams are supporting providers through telephone and online platforms.

In August 2020, the state of California released revised criteria for loosening and tightening restrictions on certain activities on generally a county-by-county basis.

Under the updated executive orders, San Mateo County, where the Company's laboratory and headquarters are located, continues to be subject to certain restrictions.

These orders and others may be further modified, amended and adopted depending upon the COVID-19 transmission rates in our county and state, as well as other factors.

In addition, the Company has created a COVID-19 task force that is responsible for crisis decision making, employee communications, enforcing pre-arrival temperature checking, daily health check-ins and enhanced safety training/protocols in its offices for employees that do not work from home.

Liquidity and Capital Resources

The Company has incurred significant losses and negative cash flows from operations since its inception and had an accumulated deficit of $ 352.5 million at December 31, 2020.

As of December 31, 2019, the Company had cash and cash equivalents of $ 38.2 million.

The Company may require additional financing in the future to fund working capital and the Company’s future products development.

Additional financing might include issuance of equity securities, debt, or cash.

There can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its operations or on terms favorable to the Company.

The Company believes its existing cash balance and expected revenues will be sufficient to meet its anticipated cash requirements for the next 12 months.

As of December 31, 2020, the Company had cash, cash equivalents and marketable securities of $ 224.7 million.

On March 27, 2020 the U.S.

government enacted the Coronavirus Aid, Relief, and Economic Security Act ( the “ CARES Act”).

Pursuant to the CARES Act, the Centers for Medicare & Medicaid Services ( “ CMS”) expanded its current Accelerated and Advance Payment Program in order to increase cash flow to providers of services and suppliers impacted by the COVID-19 pandemic.

CMS is authorized to provide accelerated or advance payments during the period of the public health emergency to any Medicare provider who submits a request to the appropriate Medicare Administrative Contractor and meets the required qualifications.

During April 2020, the Company received an advance payment from CMS of approximately $ 20.5 million, and recorded the payment as Deferred revenue - CMS advance payment on the Company's consolidated balance sheet.

During December 2020, the Company reassessed the Deferred revenue - CMS advance payment and determined to repay the entire amount in January 2021.

The Company recorded the amount as Refund liability - CMS advance payment on the consolidated balance sheet as of December 31, 2020.

Refer to Note 8, Balance Sheet Components, for further explanation.

At-the-Market Equity Offering

On August 31, 2018, the Company entered into a sales agreement (the “Sales Agreement”) with Jefferies, LLC, as sales agent (“Jefferies”), pursuant to which the Company may offer and sell, from time to time, through Jefferies, up to $ 50.0 million in shares of its common stock, by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended.

During April 2020, the Company issued and sold 1,000,000 shares of its common stock under the Sales Agreement.

The shares were sold at an average price of $ 24.24 per share for aggregate net proceeds to the Company of approximately $ 23.5 million, after deducting sales commissions and offering costs payable by the Company.

CARES Act Provider Relief Fund for Medicare Providers

Pursuant to the CARES Act, the U.S.

Department of Health & Human Services ( “HHS ”) distributed an initial tranche of $ 30.0 billion in funds to healthcare providers that received Medicare fee-for-service (“FFS”) reimbursements in 2019.

These payments to healthcare providers are not loans and will not be required to be repaid.

As a condition to receiving these payments, providers must agree to certain terms and conditions and submit sufficient documentation demonstrating that the funds are being used for healthcare-related expenses or lost revenue attributable to the COVID-19 pandemic.

Due to the recent enactment of legislation and absence of definitive guidance, there is a high degree of uncertainty around the CARES Act’s implementation and the Company continues to assess the impact on its business.

Furthermore, HHS has indicated that it, along with the Office of Inspector General, will be closely monitoring and auditing providers to ensure that recipients comply with the terms and conditions of relief programs and to prevent fraud and abuse.

All providers will be subject to civil and criminal penalties for any deliberate omissions, misrepresentations or falsifications of any information given to HHS.

Providers will be distributed a portion of the initial $ 30.0 billion of funds based on their share of total Medicare FFS reimbursements made by the U.S.

During April 2020, the Company received a payment of approximately $ 4.8 million, representing its portion of the initial tranche of funds, recorded in other income (expense), net on the consolidated statement of operations.

Underwritten Public Offering of Common Stock

On June 15, 2020, the Company sold 4,492,187 shares of common stock (which included shares sold pursuant to the underwriters’ full exercise of an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of $ 32.00 per share for aggregate net proceeds of $ 134.6 million.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Intercompany transactions have been eliminated.

Changes in Presentation

The presentation of the financial statements for certain prior period amounts has been changed to conform with the current period presentation, including:

(i) separate presentation of debt extinguishment expenses from other expense, net, (ii) combined presentation of license and other revenue with digital revenue, (iii) combined presentation of cost of testing services, cost of product, and cost of digital, and (iv) separate presentation of gross profit.

These reclassifications had no effect on the reported results of operations.

Correction to Presentation

The presentation of certain prior period amounts within the accompanying consolidated statements of operations have been corrected, including creating separate line items for the presentation of cost of testing services, cost of product and cost of digital and other, which were previously reported, in aggregate, in total cost of revenue of $ 45.5 million and $ 33.0 million for the years ended December 31, 2019 and 2018, respectively.

These corrections had no effect on loss from operations, loss before taxes, or net loss.

The Company evaluated these corrections, considering both qualitative and quantitative factors, and concluded they are immaterial to previously issued financial statements.

Use of Estimates

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On an ongoing basis, management evaluates its estimates, including those related to transaction price estimates used for testing revenue;

accrued expenses for clinical studies inventory valuation;

the fair value of issued common stock warrants;

standalone fair value of digital revenue performance obligations;

accrued expenses for clinical studies;

inventory valuation;

the fair value of issued common stock warrants and embedded derivatives;

the fair value of assets and liabilities acquired in a business combination or an assets acquisition (including identifiable intangible assets acquired);

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Concentrations of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to credit risk consist of cash, cash equivalents and accounts receivable.

Financial instruments that potentially subject the Company to credit risk consist of cash, cash equivalents, marketable securities and accounts receivable.

The Company’s policy is to invest its cash and cash equivalents in money market funds, obligations of U.S.

government agencies and government-sponsored entities, commercial paper and various bank deposit accounts.

These financial instruments are held in Company accounts at twelve financial institutions.

government agencies and government-sponsored entities, commercial paper, corporate debt securities and various bank deposit accounts.

These financial instruments are held in Company accounts at nineteen financial institutions.

The counterparties to the agreements relating to the Company’s investments consist of financial institutions of high credit standing.

The Company is exposed to credit risk in the

event of default by the financial institutions to the extent of amounts recorded on the balance sheets that may be in excess of insured limits.

The Company is exposed to credit risk in the event of default by the financial institutions to the extent of amounts recorded on the balance sheets that may be in excess of insured limits.

The Company is also subject to credit risk from its accounts receivable, which are derived from revenue earned from AlloSure Kidney and AlloMap Heart tests provided for patients located in the U.S.

and billed to various third-party payers, from sales of products to distributors, strategic partners and transplant laboratories in Europe, the Middle East, Africa, the U.S., Latin America and other geographic regions, and from sales of digital solutions software.

and billed to various third-party payers, from sales of products to distributors, strategic partners and transplant laboratories in Europe, Asia, the Middle East, Africa, the U.S., Latin America and other geographic regions, and from sales of digital solutions software.

The Company has not experienced any significant credit losses and does not require collateral on receivables.

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No other payer represented more than 10% of accounts receivable at either December 31, 2020 or 2019.

Cash Equivalents

Cash and Cash Equivalents

Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less from the date of purchase.

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The cash used to support these arrangements of $ 0.3 million is classified as long-term restricted cash on the accompanying consolidated balance sheets.

Inventory is finished goods, work in progress, and raw materials and consists of reagent plates, testing devices, laboratory supplies, reagents and finished goods kits.

Marketable Securities

The Company considers all highly liquid investments in securities with a maturity of greater than three months at the time of purchase to be marketable securities.

As of December 31, 2020, the Company’s marketable securities consisted of corporate debt securities with maturities of greater than three months but less than twelve months at the time of purchase.

These marketable securities are classified as current assets on the consolidated balance sheet.

The Company classifies its marketable securities as held-to-maturity at the time of purchase and reevaluates such designation at each balance sheet date.

The Company has the positive intent and ability to hold these marketable securities to maturity.

Marketable securities are carried at amortized cost and are adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income (expense), net on the consolidated statements of operations.

Realized gains and losses and declines in value judged to be other-than-temporary, if any, on marketable securities are included in interest income (expense), net.

The cost of securities sold will be determined using specific identification.

Inventory is finished goods, work in progress, and raw materials and consists of reagent plates, laboratory supplies, reagents and finished goods kits.

Inventories are used in connection with tests performed, and kits produced and may also be used for research and product development efforts.

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Obsolete or damaged inventories are written off and excluded from the physical inventory.

Inventories at the Company’s Stockholm, Sweden, and Fremantle, Australia locations are stated at the lower of purchased cost, determined on an average cost basis, or net realizable value.

Inventories at the Company’s other locations are stated at the lower of actual purchased cost, determined on a first-in, first-out basis, or net realizable value.

Certain inventories are stated at the lower of purchased cost, determined on an average cost basis, or net realizable value.

Other inventories are stated at the lower of actual purchased cost, determined on a first-in, first-out basis, or net realizable value.

Property and Equipment, net

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Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets.

The estimated useful life is generally three years for machinery, computer and office equipment, and seven years for furniture and fixtures.

The estimated useful life is generally five years for machinery, computer and office equipment, and seven years for furniture and fixtures.

Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining lease term.

The Company capitalizes certain costs incurred for software developed or obtained for internal use (including hosting arrangements).

These costs include software licenses, consulting services, and direct materials, as well as employee payroll and payroll-related costs.

These costs include software licenses and consulting services, as well as employee payroll and payroll-related costs.

Capitalized internal-use software costs are usually amortized over a period of three to five years .

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Acquired Intangible Assets

Amortizable intangible assets include customer relationships, developed technology, trademarks, contracts and acquired in-process technology assets acquired as part of a business combination.

Amortizable intangible assets include customer relationships, developed technology, trademarks, contracts and assets acquired as part of a business combination or asset acquisition.

Intangible assets subject to amortization are amortized over their estimated useful lives.

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Increases (decreases) in these assumptions result in a directionally similar impact to the fair value of the common stock warrant liability.

Effective January 1, 2019, the Company adopted Accounting Standard Codification (“ASC”) Topic 842, Leases (“ASC 842”).

Effective January 1, 2019, the Company adopted ASC Topic 842, Leases (“ASC 842”).

The Company determines if an arrangement is or contains a lease at contract inception.

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Certain finance leases also include bargain purchase options of the leased equipment.

The Company recognizes revenue from testing services, products, and digital and other revenue in the amount that reflects the consideration that it expects to be entitled in exchange for goods or services as it transfers control to its customers.

Revenue is recorded considering a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

The Company recognizes revenue from testing services, product sales, and digital and other revenue in the amount that reflects the consideration that it expects to be entitled in exchange for goods or services as it transfers control to its customers.

Revenue is recorded considering a five-step revenue recognition model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

Testing Services Revenue

AlloSure Kidney and AlloMap Heart patient tests are ordered by healthcare providers.

AlloSure Kidney, AlloMap Heart and AlloSure Heart patient tests are ordered by healthcare providers.

The Company receives a test requisition form with payer information along with a collected patient blood sample.

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Testing services represent one performance obligation in a contract and are performed when results of the test are provided to the healthcare provider, at a point in time.

The healthcare providers that order the tests and on whose behalf CareDx provides testing services are generally not responsible for the payment of these services.

The healthcare providers that order the tests and on whose behalf the Company provides testing services are generally not responsible for the payment of these services.

The first and second revenue recognition criteria are satisfied when the Company receives a test requisition form with payer information from the healthcare provider.

Generally, the Company bills third-party payers upon delivery of an AlloSure Kidney or AlloMap Heart test result to the healthcare provider.

Generally, the Company bills third-party payers upon delivery of an AlloSure Kidney, AlloMap Heart or AlloSure Heart test result to the healthcare provider.

Amounts received may vary amongst payers based on coverage practices and policies of the payer.

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The main performance obligations in connection with the Company's perpetual software license agreement are the following:

(i) implementation services and delivery of the perpetual software license are considered a single performance obligation, (ii) post contract support ("PCS").

(i) implementation services and delivery of the perpetual software license are considered a single performance obligation, and (ii) post contract support ("PCS").

The Company allocates the transaction price to each performance obligation based on relative stand-alone selling prices of each distinct performance obligation.

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Revenue from software subscriptions is deferred and recognized ratably over the subscription term.

Cost of Revenue

Cost of revenue is presented in a single line on the face of the statement of operations.

It represents the total combined costs of providing testing services, products and digital solutions to the Company’s customers.

The Company’s cost of revenue associated with each of its revenue sources is as follows:

Cost of Testing Services

Cost of testing services reflects the aggregate costs incurred in delivering the Company’s testing services.

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Royalties for licensed technology, calculated as a percentage of testing services revenues, are recorded as license fees in cost of testing services at the time the testing services revenues are recognized.

Cost of Product

Cost of product reflects the aggregate costs incurred in delivering the Company’s products to customers.

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Cost of product also includes amortization of acquired developed technology and adjustments to inventory values, including write-downs of impaired, slow moving or obsolete inventory.

Cost of digital revenue and other primarily consists of personnel-related costs associated with developing, installing and maintaining software, depreciation of servers and equipment, amortization of acquired intangible assets, support of the functionality of the software's platforms, including stock based compensation expenses, and allocated costs of facilities and information technology.

Cost of Digital and Other

Cost of digital and other primarily consists of personnel-related costs associated with developing, installing and maintaining software, depreciation of servers and equipment, amortization of acquired intangible assets, support of the functionality of the software's platforms, including stock-based compensation expenses, and allocated costs of facilities and information technology.

Research and Development Expenses

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The resulting cumulative translation adjustments are reported in other comprehensive loss.

Foreign currency translation gains and losses on revenue and expenses are recognized in current operations.

Foreign currency translation gains and losses on revenue and expenses are recognized in the consolidated statements of operations.

Comprehensive Loss

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Recent Accounting Pronouncements

Effective January 1, 2019, the Company adopted ASC 842 using the optional transition method and applied the standard only to leases that existed at that date.

Under the optional transition method, the Company does not need to restate the comparative periods in transition and will continue to present financial information and disclosures for periods before January 1, 2019 in accordance with ASC Topic 840.

The Company has also chosen to apply the package of practical expedients for existing leases, which provides relief from reassessing:

(i) whether a contract is or contains a lease, (ii) lease classification, and (iii) whether initial direct costs can be capitalized.

The Company has also made some accounting policy elections to:

(i) allow the Company not to separate nonlease components from lease components, and instead to account for those as a single lease component, and (ii) elect not to recognize a ROU asset and a lease liability for leases with a term of 12 months or less.

Upon adoption of ASC 842 on January 1, 2019, the Company recorded a ROU asset of approximately $ 3.0 million and a lease liability of approximately $ 3.8 million.

The lease liability was determined based on the present value of the remaining minimum lease payments.

The ROU asset was determined based on the value of the lease liability, adjusted for the deferred rent balances of approximately $ 0.8 million, which were previously included in accrued and other liabilities as well as deferred rent, net of current portion.

See Note 8 for further details.

The standard did not have a material impact on the consolidated statement of cash flows or the consolidated statement of operations.

In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2018-2, Income Statement – Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-2”) .

The amendments in ASU 2018-2 allow a reclassification from accumulated other comprehensive income to retained earnings for certain tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”).

ASU 2018-2 became effective for all interim and annual reporting periods beginning after December 15, 2018 and may be applied retrospectively or as of the beginning of the period of adoption.

In October 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-10, Codification Improvements, which contains amendments that improve the consistency of the ASC by including all disclosure guidance in the appropriate Disclosure Section (Section 50).

The FASB provided transition guidance for all the amendments in this ASU.

The amendments in Sections B and C (Section A has been removed) of this ASU are effective for annual periods beginning after December 15, 2020 for public business entities.

Early application of the amendments in this ASU is permitted for public business entities for any annual or interim period for which financial statements have not been issued.

The amendments in this ASU should be applied retrospectively.

The Company plans to adopt this new standard on January 1, 2021.

The Company is in the process of assessing the impact that this new standard will have in its consolidated financial statements and disclosures.

In November 2018, the FASB issued ASU No.

2018-18 Collaborative Arrangements - Clarifying the Interaction between Topic 808 (Collaborative Arrangements) and Topic 606 (Revenue from Contracts with Customers) (“ASU 2018-18”), which clarifies the interaction between ASC 808, Collaborative Arrangements and ASC 606, Revenue from Contracts with Customers (“ASC 606”).

The ASU clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer.

In addition, the ASU precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue if the counterparty is not a customer for that transaction.

The Company adopted the standard on January 1, 2020.

The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.

In September 2018, the FASB issued ASU No.

2018-7, Compensation - Stock Compensation (ASC Topic 718):

Improvements to Nonemployee Share Based Payment Accounting (“ASU 2018-7”).

ASU 2018-7 is effective for all interim and annual reporting periods beginning on or after December 15, 2018.

The Company adopted ASU 2018-7 on January 1, 2019 applying a modified retrospective approach.

On transition, the Company only had nonemployee equity-classified awards with an established measurement date.

Accordingly, the Company did not record a cumulative-effect adjustment to retained earnings.

The adoption of the new standard did not have a significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No.

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Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”).

ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 and interim periods therein.

ASU 2018-15 became effective for fiscal years beginning after December 15, 2019 and interim periods therein.

Early adoption of ASU 2018-15 is permitted, including adoption in any interim period.

The Company adopted the standard during the fourth quarter of 2019.

The Company expects the new standard will impact its prospective consolidated financial statements after adoption related to implementation costs in a cloud computing arrangement if and when entered by the Company.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC Topic 820), which modifies, removes and adds certain disclosure requirements on fair value measurements based on the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8:

The Company adopted the standard on January 1, 2020.

The adoption of the new standard did not have a significant impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (ASC Topic 820) (“ASU 2018-13”), which modifies, removes and adds certain disclosure requirements on fair value measurements based on the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8:

Notes to Financial Statements.

The ASU is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020, and all annual and interim reporting period

ASU 2018-13 is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020, and all annual and interim reporting period thereafter.

The amendments on changes in unrealized gains and losses, the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.

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An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date.

The Company is in the process of assessing the impact that the ASU will have in its consolidated financial statements and disclosures.

The Company does not believe adoption of the guidance will have a significant impact on its consolidated financial statements.

In September 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (ASC Topic 326), which amends the FASB’s guidance on the impairment of financial instruments.

The Company adopted the standard on January 1, 2020.

The adoption of the new standard did not have a significant impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Measurement of Credit Losses on Financial Instruments (ASC Topic 326) (“ASU 2016-13”), which amends the FASB’s guidance on the impairment of financial instruments.

The ASU adds to U.S.

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The Company adopted the standard on January 1, 2020.

The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.

The adoption of the new standard did not have an impact on the Company’s consolidated financial statements.

NET LOSS PER SHARE ATTRIBUTABLE TO CAREDX, INC.

Basic and diluted net loss per share attributable to CareDx, Inc.

have been computed by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration for common share equivalents as their effect would have been antidilutive.

have been computed by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration of common share equivalents as their effect would have been antidilutive.

For the years ended December 31, 2020, 2019 and 2018, all common share equivalents have been excluded from the calculation of diluted net loss per share, as their effect would be antidilutive.

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6,264 355,240 656,289

Shares of common stock subject to convertible notes — — 6,127,021

Shares of common stock subject to contingent consideration

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Total common stock equivalents 4,555,528 4,481,383 4,125,710

On October 10, 2017, the Company completed an underwritten public offering (the “2017 Public Offering”), pursuant to which the Company issued and sold an aggregate of 4,992,840 shares.

During 2017 and the three months ended March 31, 2018, 6,415,039 shares of common stock were issued due to the conversion of the JGB Debt.

During 2017 and the three months ended March 31, 2018, 6,415,039 shares of common stock were issued due to the conversion of the JGB Debt (as defined below).

In the three months ended June 30, 2018, the Company achieved the milestone of performing 2,500 commercial AlloSure Kidney tests resulting in the issuance of 227,848 shares of common stock to the former owners of ImmuMetrix, Inc.

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On November 13, 2018, the Company completed an underwritten public offering (the “2018 Public Offering”) pursuant to which the Company issued and sold an aggregate of 2,300,000 shares.

During April 2020, the Company issued and sold 1,000,000 shares of its common stock under the Sales Agreement pursuant to an “at-the-market” equity offering.

On June 15, 2020, the Company completed an underwritten public offering (the “2020 Public Offering”) pursuant to which the Company sold 4,492,187 shares of common stock.

FAIR VALUE MEASUREMENTS

The Company records its financial assets and liabilities at fair value except for its debt, which was recorded at amortized cost.

The Company records its financial assets and liabilities at fair value.

The carrying amounts of certain financial instruments of the Company, including cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities.

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Inputs that include quoted prices in active markets for identical assets and liabilities.

Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis, as of December 31, 2019 and 2018 (in thousands):

The following table sets forth the Company’s financial assets and liabilities, measured at fair value on a recurring basis, as of December 31, 2020 and 2019 (in thousands):

December 31, 2020

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(Level 1) (Level 2) (Level 3) Total

Cash equivalents:

Money market funds $ 85,797 $ — $ — $ 85,797

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(Level 1) (Level 2) (Level 3) Total

Cash equivalents:

Money market funds $ 29,177 $ — $ — $ 29,177

Common stock warrant liability $ — $ — $ 6,607 $ 6,607

The following table presents the issuances, changes in fair value and classifications of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis (in thousands):

Consideration

Liability Perceptive

The following table presents the issuances, exercises, changes in fair value and reclassifications of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis (in thousands):

Common Stock Warrant Liability (Level 3)

Balance as December 31, 2018 $ 10,003

Exercise of warrants ( 3,077 )

Extinguishment of derivative liabilities — — ( 12,066 ) ( 202 ) ( 12,268 )

Reclassification to equity (Note 2) — ( 6,550 ) — — ( 6,550 )

Issuance of Perceptive derivative liability — — — 245 245

Issuance of shares of common stock ( 2,689 ) — — — ( 2,689 )

Change in estimated fair value ( 319 )

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See Note 7, "Goodwill and Intangible Assets”.

In the event the Company had to fair value this investment, it would be based on Level 3 inputs.

In the event the Company had to calculate the fair value of this investment, it would be based on Level 3 inputs.

This investment is not considered material to the Company's consolidated financial statements.

The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period.

There were no transfers between Level 1, Level 2 and Level 3 categories during the periods presented.

In determining fair value, the Company uses various valuation approaches within the fair value measurement framework.

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• Money market funds —Investments in money market funds are classified within Level 1.

Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange.

At December 31, 2020 and 2019, money market funds were included as cash and cash equivalents in the consolidated balance sheets.

• Marketable securities —Investments in marketable securities are classified within Level 2.

The securities are valued using third-party pricing sources.

The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly.

• Common stock warrant liability —The Company utilizes a binomial-lattice pricing model (the “Monte Carlo Simulation Model”) that involves a market condition simulation to estimate the fair value of the warrants.

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Increases (decreases) in the assumptions discussed above result in a directionally similar impact to the fair value of the common stock warrant liability.

Common Stock Warrant and Derivative Liability Valuation Assumptions:

Common Stock Warrant Liability Valuation Assumptions:

Private Placement Common Stock Warrant Liability

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Risk-free interest rate 0.14 % 1.62 %

Warrants liabilities exercised during 2019 were remeasured at the exercise date.

Their fair value approximate their intrinsic value, which was recorded to additional paid in capital in the consolidated statements of stockholders’ equity.

Warrants liabilities exercised during 2020 and 2019 were remeasured at the exercise date.

Their fair value approximates their intrinsic value, which was recorded to additional paid in capital in the consolidated statements of stockholders’ equity.

The Company’s liabilities classified as Level 3 were valued based on unobservable inputs and management’s judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of the financial instruments.

BUSINESS COMBINATIONS

CASH AND MARKETABLE SECURITIES

Cash, Cash Equivalents and Restricted Cash

A reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the amount reported within the consolidated statements of cash flows is shown in the table below (in thousands):

December 31, 2020 December 31, 2019 December 31, 2018

Cash and cash equivalents $ 134,669 $ 38,223 $ 64,616

Restricted cash 270 256 192

Total cash, cash equivalents, and restricted cash at the end of the period $ 134,939 $ 38,479 $ 64,808

Marketable Securities

All marketable securities were considered held-to-maturity at December 31, 2020.

There were no marketable securities at December 31, 2019.

As of December 31, 2020 some of the Company’s marketable securities were in an unrealized loss position.

The Company determined that it had the positive intent and ability to hold until maturity all marketable securities that have been in a continuous loss position, thus there was no recognition of any other-than-temporary impairment as of December 31, 2020.

All marketable securities with unrealized losses as of each balance sheet date have been in a loss position for less than twelve months.

The amortized cost, gross unrealized holding losses, and fair value of the Company’s marketable securities by major security type at each balance sheet date are summarized in the table below (in thousands):

December 31, 2020

Amortized Cost Unrealized Holding Losses Fair Value

Short-term marketable securities:

Corporate debt securities $ 90,034 $ ( 136 ) $ 89,898

Total short-term marketable securities $ 90,034 $ ( 136 ) $ 89,898

Contractual maturities of the short-term marketable securities as of December 31, 2020 are as follows (in thousands):

Within one year $ 90,034

After one year through five years —

After five years through ten years —

After ten years —

Total $ 90,034

BUSINESS COMBINATIONS

On May 7, 2019, the Company acquired 100 % of the outstanding common stock of OttrCare for total consideration of $ 16.1 million.

OttrCare was formed in 1993 and is a leading provider of organ transplant patient tracking software.

On May 7, 2019, the Company acquired 100 % of the outstanding common stock of Ottr, Inc.

for total consideration of $ 16.1 million.

was formed in 1993 and is a leading provider of organ transplant patient tracking software.

The Ottr software provides comprehensive solutions for transplant patient management and enables integration with EMR systems providing patient surveillance management tools and outcomes data to transplant centers.

The Company accounted for the transaction as a business combination using the acquisition method of accounting.

Results of operations of OttrCare have been included with the Company’s results since the date of the acquisition.

Results of operations of Ottr, Inc.

have been included with the Company’s results since the date of the acquisition.

Acquisition-related costs of $ 0.6 million associated with the acquisition were expensed as incurred, and classified as part of general and administrative expenses in the consolidated statement of operations.

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All of the goodwill has been assigned to the Company’s existing operating segment.

The following table summarizes the consideration paid for OttrCare and the provisional amounts of the assets acquired and liabilities assumed recognized at their estimated fair value at the acquisition date (in thousands):

The following table summarizes the consideration paid for Ottr, Inc.

and the provisional amounts of the assets acquired and liabilities assumed recognized at their estimated fair value at the acquisition date (in thousands):

Consideration

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Total consideration $ 16,148

Recognized amounts of identifiable assets acquired and

liabilities assumed

Recognized amounts of identifiable assets acquired and liabilities assumed

Current assets $ 1,525

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At the acquisition date, the Company estimated net deferred tax assets of approximately $ 0.2 million arising from temporary differences related to assets acquired and liabilities assumed.

The Company estimated that OttrCare had net operating losses (“NOLs”) carryforward of approximately $ 6.9 million, $ 4.3 million of which will begin to expire in 2033, and the remaining $ 2.6 million will be carried forward indefinitely.

A full valuation allowance of $ 0.2 million was recognized as of the acquisition date resulting in no impact from deferred taxes to OttrCare’s opening balance.

The Company estimated that Ottr, Inc.

had net operating losses (“NOLs”) carryforward of approximately $ 6.9 million, $ 4.3 million of which will begin to expire in 2033, and the remaining $ 2.6 million will be carried forward indefinitely.

A full valuation allowance of $ 0.2 million was recognized as of the acquisition date resulting in no impact from deferred taxes to Ottr, Inc.’s opening balance.

An Internal Revenue Code Section 382 study for NOLs was finalized during the third quarter of 2019 and deferred taxes acquired were finalized as of December 31, 2019.

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Total $ 6,600

Customer relationships acquired by the Company represent the fair value of future projected revenue that is expected to be derived from sales of OttrCare’s products to existing customers.

Customer relationships acquired by the Company represent the fair value of future projected revenue that is expected to be derived from sales of Ottr, Inc.’s products to existing customers.

The customer relationships’ fair value has been estimated utilizing a multi-period excess earnings method under the income approach, which reflects the present value of the projected cash flows that are expected to be generated by the customer relationships, less charges representing the contribution of other assets to those cash flows that use projected cash flows with and without the intangible asset in place.

The economic useful life was determined based on the distribution of the present value of the cash flows attributable to the intangible asset.

The acquired developed technology represents the fair value of OttrCare’s proprietary software.

The trademark acquired consists primarily of the OttrCare brand and markings.

The acquired developed technology represents the fair value of Ottr, Inc.’s proprietary software.

The trademark acquired consists primarily of the Ottr, Inc.

brand and markings.

The fair value of both the developed technology and the trademark were determined using the relief-from-royalty method under the income approach.

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The Company utilized a discount rate of 14.5 % in estimating the fair value of these three intangible assets.

As of December 31, 2019, OttrCare’s digital revenue of $ 3.4 million was included in the Company’s consolidated statement of operations from the acquisition date of May 7, 2019.

Unaudited supplemental pro forma information is not disclosed because it is considered immaterial.

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The goodwill for this acquisition is not deductible for income tax purposes.

Contingent consideration relates to potential future cash payments upon reaching specified revenue and non-financial targets.

The fair value of contingent consideration was determined using the Monte Carlo simulation model.

The contingent consideration relates to potential future cash payments upon reaching specified revenue and non-financial targets.

GOODWILL AND INTANGIBLE ASSETS

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There were no indicators of impairment in the year ended December 31, 2020.

The following table presents details of the Company’s goodwill for the years ended December 31, 2019 and 2018 (in thousands):

The following table presents details of the Company’s goodwill as of December 31, 2020 and 2019 ($ in thousands):

Balance as of January 1, $ 23,857 $ 12,005

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Balance as of December 31, $ 23,857 $ 23,857

On December 1, 2019, the Company performed a qualitative assessment of its reporting unit taking into consideration past, current and projected future earnings, recent trends and market conditions;

and its market capitalization.

On December 1, 2020, the Company performed a qualitative assessment of its reporting unit taking into consideration past, current and projected future earnings, recent trends and market conditions, and its market capitalization.

Based on this analysis, the Company concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying amount.

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Intangible Assets

The following tables present details of the Company’s intangible assets as of December 31, 2019 (in thousands):

The following tables present details of the Company’s intangible assets as of December 31, 2020 (dollar amounts in thousands):

December 31, 2020

Gross Carrying Amount Accumulated

Amount Weighted

Intangible assets with finite lives:

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Total intangible assets $ 61,066 $ ( 15,518 ) $ ( 1,193 ) $ 44,355

The following tables present details of the Company’s intangible assets as of December 31, 2019 (dollar amounts in thousands):

December 31, 2019

Amount Accumulated

Intangible assets with finite lives:

Acquired and developed technology $ 29,106 $ ( 6,473 ) $ ( 1,852 ) $ 20,781 8.2

Customer relationships 18,168 ( 3,397 ) ( 1,498 ) 13,273 10.1

Commercialization rights 8,079 ( 231 ) — 7,848 9.7

Trademarks and tradenames 2,360 ( 618 ) ( 206 ) 1,536 9.1

Total intangible assets with finite lives 57,713 ( 10,719 ) ( 3,556 ) 43,438

Acquired in-process technology 2,103 — — 2,103

Total intangible assets $ 59,816 $ ( 10,719 ) $ ( 3,556 ) $ 45,541

Acquisition of intangible assets

In June 2020, the Company commercially launched AlloSeq HCT, a NGS solution for chimerism testing for stem cell transplant recipients.

This technology can provide better sensitivity and data analysis compared to current solutions on the market.

AlloSeq HCT, previously included in Acquired in-process technology as of December 31, 2019, is included in Acquired and developed technology as of December 31, 2020.

Illumina License and Commercialization Agreement

On May 4, 2018, the Company entered into the License Agreement with Illumina, which provides the Company with certain worldwide distribution, development and commercialization rights to Illumina’s NGS product line for use in the field of bone marrow and solid organ transplantation diagnostic testing (the “Field”).

On May 4, 2018, the Company entered into a license agreement with Illumina, which provides the Company with certain worldwide distribution, development and commercialization rights to Illumina’s NGS product line for use in the field of bone marrow and solid organ transplantation diagnostic testing (the “Field”).

As a result, from June 1, 2018, the Company is the exclusive worldwide distributor of Illumina’s TruSight HLA product line.

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Significant assumptions utilized in the valuation of identified intangible assets were based on company-specific information and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by U.S.

The Company determined the estimated fair values using Level 3

inputs after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management.

The Company determined the estimated fair values using Level 3 inputs after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management.

Customer relationships represent the fair value of future projected revenue that is expected to be derived from sales of TruSight HLA products to existing customers of Illumina.

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A discount rate of 40 % for the AlloSeq HCT acquired in-process technology was utilized to discount the cash flows to the present value.

The acquired in-process technology will not be amortized until completion of the related products, which is determined to occur when the products commence commercial production.

Upon completion, each acquired in-process technology product will be amortized over its estimated useful life.

In November 2019, the acquired in-process technology intangible for AlloSeq Tx commenced commercial production.

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Effective April 30, 2019, the Company entered into a license and commercialization agreement (the “Cibiltech Agreement”) with Cibiltech SAS (“Cibiltech”).

Cibiltech is a French company engaged in the development and support of predictive medicine and artificial intelligence software, services and technology, with an emphasis on personalized patient care and clinical research, including its proprietary software and service offering known as KidneyCare iBox in the U.S.

for the predictive analysis of post-transplantation kidney allograft loss.

as KidneyCare iBox for the predictive analysis of post-transplantation kidney allograft loss.

The Cibiltech Agreement provides the Company with an irrevocable, non-transferable right to commercialize Cibiltech’s proprietary software in the field of transplantation in the U.S.

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The Company does not have a significant influence on Cibiltech’s operations.

The following tables present details of the Company’s intangible assets as of December 31, 2018 (in thousands):

December 31, 2018

Intangible assets with finite lives:

Acquired and developed technology $ 22,937 $ ( 4,399 ) $ ( 1,411 ) $ 17,127 8.4

Customer relationships 13,058 ( 2,290 ) ( 1,131 ) 9,637 11.6

Trademarks and tradenames 2,260 ( 454 ) ( 140 ) 1,666 12.0

Total intangible assets with finite lives 38,255 ( 7,143 ) ( 2,682 ) 28,430

Acquired in-process technology 4,822 — — 4,822

Total intangible assets $ 43,077 $ ( 7,143 ) $ ( 2,682 ) $ 33,252

The net carrying amount of intangible assets and the related amortization expense of intangible assets may change due to the effects of foreign currency fluctuations as a result of acquiring an entity with a functional currency other than the U.S.

Amortization expense was $ 3.6 million for the year ended December 31, 2019, of which $ 2.3 million, and $ 1.3 million were amortized to cost of revenue and sales and marketing expenses, respectively.

Amortization expense was $ 2.4 million for the year ended December 31, 2018, of which $ 1.4 million and $ 1.0 million were amortized to cost of revenue and sales and marketing expenses, respectively.

Amortization expense was $ 2.6 million for the year ended December 31, 2017, of which $ 1.6 million, and $ 1.0 million were amortized to cost of revenue and sales and marketing expenses, respectively.

Amortization of Intangible Assets

Amortization expense was $ 4.8 million, $ 3.6 million and $ 2.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

For the year ended December 31, 2020, $ 1.3 million, $ 1.7 million, $ 0.3 million and $ 1.5 million were amortized to cost of testing services, cost of product, cost of digital and other and sales and marketing, respectively.

For the year ended December 31, 2019, $ 0.7 million, $ 1.4 million, $ 0.2 million and $ 1.3 million were amortized to cost of testing services, cost of product, cost of digital and other and sales and marketing, respectively.

For the year ended December 31, 2018, $ 0.5 million, $ 1.5 million, $ 0.0 million and $ 1.0 million were amortized to cost of testing services, cost of product, cost of digital and other and sales and marketing, respectively.

Intangible assets are carried at cost less accumulated amortization.

Amortization expenses are recorded to cost of product and sales and marketing expenses in the consolidated statements of operations.

Amortization expenses are recorded to cost of testing services, cost of product, cost of digital and other and sales and marketing expenses in the consolidated statements of operations.

The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of December 31, 2020 (in thousands):

Years Ending December 31, Cost of

Years Ending December 31, Cost of Testing Services Cost of

Cost of Digital and Other Sales and

2021 $ 1,316 $ 1,847 $ 345 $ 1,392 $ 4,900

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Property and equipment consisted of the following (in thousands):

Machinery and equipment $ 9,325 $ 7,546

Leasehold improvements 8,096 5,458

Furniture and fixtures 683 720

Computer and office equipment 5,414 4,996

Machinery and equipment 7,546 6,961

Internally developed software 2,312 —

Furniture and fixtures 683 683

Construction in progress 1,873 840

$ 19,523 $ 18,234

Property and equipment $ 27,703 $ 19,523

Accumulated depreciation and amortization ( 16,999 ) ( 15,093 )

Property and equipment, net $ 10,704 $ 4,430

Depreciation expense was $ 1.6 million in the year ended December 31, 2019, and $ 1.2 million in each of the years ended December 31, 2018 and 2017.

Depreciation expense was $ 1.9 million, $ 1.6 million and $ 1.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Assets purchased under finance leases, included above in machinery and equipment, and computer and office equipment, were $ 0.6 million at each of December 31, 2020 and 2019.

Accumulated depreciation was $ 0.4 million and $ 0.2 million at December 31, 2019 and 2018, respectively.

Accumulated depreciation was $ 0.4 million at each of December 31, 2020 and 2019.

Related amortization expense, included in depreciation and amortization expense, was $ 0.1 million, $ 0.2 million and $ 0.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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

Deferred revenue $ 3,686 $ 39

Clinical studies $ 6,733 $ 3,068

Deferred revenue 3,530 3,686

Short-term lease liability 2,033 3,017

Deferred payments for intangible assets 2,000 2,098

Test sample processing fees 835 657

Contingent consideration 810 —

Professional fees 1,529 766

Accrued royalty 1,072 547

Contingent consideration 738 810

Test sample processing fees 416 835

Other accrued expenses 2,551 2,011

Total accrued and other liabilities $ 20,602 $ 16,838

CMS Accelerated and Advance Payment Program for Medicare Providers

On March 27, 2020, the U.S.

government enacted the CARES Act.

Pursuant to the CARES Act, CMS expanded its current Accelerated and Advance Payment Program in order to increase cash flow to providers of services and suppliers impacted by the COVID-19 pandemic.

CMS was authorized to provide accelerated or advance payments during the period of the public health emergency to any Medicare provider who submits a request to the appropriate Medicare Administrative Contractor and meets the required qualifications.

During April 2020, the Company received an advance payment from CMS of approximately $ 20.5 million and recorded the payment as Deferred revenue - CMS advance payment on the Company's consolidated balance sheet.

During December 2020, the Company reassessed the Deferred revenue - CMS advance payment and determined to repay the entire amount in January 2021.

The Company recorded the amount as Refund liability - CMS advance payment on the consolidated balance sheet as of December 31, 2020.

COMMITMENTS AND CONTINGENCIES

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and Stockholm, Sweden;

and Vienna, Austria.

The Company also leases equipment under finance lease agreements.

The lease for the Company’s facility in Vienna, Austria is on a month-to-month basis.

The facility leases expire at various dates through 2022.

On January 2, 2020, the Company executed the second amendment to the operating lease agreement for the building located at Brisbane, California.

The building is mainly utilized for laboratory operations and research and development.

The lease will be extended for a period of eight years and two months starting on January 1, 2021.

The Company has determined that the amendment constitutes a lease modification effective January 1, 2020.

At the inception of the lease modification, the ROU asset increased by $ 13.0 million.

The Company's facility leases expire at various dates through 2029.

I n the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties .

As of December 31, 2020, the carrying value of the ROU asset was $ 15.2 million.

The related current and non-current liabilities as of December 31, 2020 were $ 2.0 million and $ 16.1 million, respectively.

The current and non-current lease liabilities are included in accrued and other current liabilities and operating lease liability, less current portion, respectively, in the consolidated balance sheets.

The following table summarizes the lease cost for the year ended December 31, 2020 (in thousands):

Twelve Months Ended

Operating lease cost $ 4,441

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Weighted-average discount rate - Finance leases (%) 5.4 %

Rent expense under the non-cancelable operating leases was $ 2.3 million, $ 2.0 million and $ 1.7 million in 2019, 2018 and 2017, respectively.

Rent expense under the non-cancelable operating leases was $ 4.9 million, $ 2.3 million and $ 2.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Future minimum lease commitments under these operating and finance leases on December 31, 2020, are as follows (in thousands):

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2021 $ 71 $ 4,562

2021 71 1,350

Thereafter — 10,256

Total minimum lease payments $ 71 $ 31,530

On January 2, 2020, the Company executed the second amendment to the operating lease agreement for the building located at Brisbane, California.

The total minimum lease payments in connection with this amendment total $ 23.9 million starting in March 2021 and up to February 2029.

Refer to Note 16 for additional details.

The current portion of obligations under finance leases is included in accrued and other liabilities on the balance sheets.

The long-term portion is included in other liabilities on the balance sheets.

The current portion of obligations under finance leases is included in accrued and other liabilities, and the long-term portion of finance leases are included in other liabilities within the consolidated balance sheets.

Royalty Commitments

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payments and royalties in the low single digits of net sales of products incorporating the licensed technology.

Royalties incurred for the year ended December 31, 2019 were not material.

On May 4, 2018, the Company entered into the License Agreement with Illumina.

The License Agreement requires the Company to pay royalties in the mid-single to low-double digits on sales of future commercialized products.

In the year ended December 31, 2019, the Company paid no royalties to Illumina.

On May 4, 2018, the Company entered into the License Agreement with Illumina (the “Illumina Agreement”).

The Illumina Agreement requires the Company to pay royalties in the mid-single to low-double digits on sales of products covered by the Illumina Agreement.

Cibiltech Commitments

Pursuant to the Cibiltech Agreement, the Company will share an agreed-upon percentage of revenue

with Cibiltech, if and when revenues are generated from KidneyCare iBox.

Pursuant to the Cibiltech Agreement, the Company will share an agreed-upon percentage of revenue with Cibiltech, if and when revenues are generated from KidneyCare iBox.

Tax Commitments

As of December 31, 2020, the Company had gross unrecognized tax benefits of $ 4.4 million, which include penalties and interest of $ 0.2 million.

Approximately $ 0.2 million has been recorded as a noncurrent liability.

At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years in connection with these tax liabilities.

Other Commitments

Pursuant to the License Agreement with Illumina, the Company is obligated to complete timely development and

commercialization of other NGS product lines for use in the Field, and has agreed to minimum purchase commitments of

finished products and raw materials from Illumina through 2023.

Pursuant to the Illumina Agreement, the Company has agreed to minimum purchase commitments of finished products and raw materials from Illumina through 2023.

The Company has also committed to make potential future payments to third parties as part of its collaboration and licensing agreements.

Payments under these agreements generally become due and payable only upon achievement of specific project milestones.

Litigation and Indemnification Obligations

In response to our false advertising suit filed against Natera Inc., or Natera, on April 10, 2019, Natera filed a counterclaim against the Company on February 18, 2020, in the U.S.

District Court for the District of Delaware alleging CareDx made false and misleading claims about the performance capabilities of AlloSure.

In addition, in response to the Company's patent infringement suit filed against Natera on March 26, 2019, Natera filed suit against the Company on January 13th, 2020, in the U.S.

District Court for the District of Delaware alleging, among other things, that AlloSure infringes Natera’s U.S.

In response to the Company's false advertising suit filed against Natera Inc.

(“Natera”), on April 10, 2019, Natera filed a counterclaim against the Company on February 18, 2020, in the U.S.

District Court for the District of Delaware (the “Court”) alleging the Company made false and misleading claims about the performance capabilities of AlloSure.

The suit seeks injunctive relief and unspecified monetary relief.

On September 30, 2020, Natera requested leave of Court to amend its counterclaims to include additional allegations regarding purportedly false claims the Company made with respect to AlloSure;

the Court granted Natera’s request.

Trial is currently scheduled to begin on July 26, 2021.

In addition, in response to the Company's patent infringement suit filed against Natera on March 26, 2019, Natera filed suit against the Company on January 13, 2020, in the Court alleging, among other things, that AlloSure infringes Natera’s U.S.

Patent 10,526,658.

The suit seeks a judgment that the Company has infringed Natera’s patent, an order preliminarily and permanently enjoining the Company from any further infringement of such patent and unspecified damages.

The Company intends to defend both of these matters vigorously, and believe the Company has good and substantial defenses to the claims alleged in the suits, but there is no guarantee that the Company will prevail.

On March 25, 2020, Natera filed an amendment to the suit alleging, among other things, that AlloSure also infringes Natera’s U.S.

Patent 10,597,724.

The suit seeks a judgment that the Company has infringed Natera’s patents, an order preliminarily and permanently enjoining the Company from any further infringement of such patents and unspecified damages.

The Company intends to defend both of these matters vigorously, and believes that the Company has good and substantial defenses to the claims alleged in the suits, but there is no guarantee that the Company will prevail.

The Company has not recorded any liabilities for these suits.

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(i) information available prior to issuance of the consolidated financial statements indicates that it is probable that a liability had been incurred at the date of the consolidated financial statements and (ii) the range of loss can be reasonably estimated.

The Company is not involved in any material litigation as of December 31, 2019.

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for indemnification for certain liabilities.

The exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made.

To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations.

However, the Company may record charges in the future as a result of these indemnification obligations.

The Company also has indemnification obligations to its directors and executive officers for specified events or occurrences, subject to some limits, while they are serving at the Company’s request in such capacities.

There have been no claims to date and the Company believes the fair value of these indemnification agreements is minimal.

Accordingly, the Company has not recorded any liabilities for these agreements as of December 31, 2019 and as of December 31, 2018.

The Company did no t have any outstanding debt as of December 31, 2020.

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STOCKHOLDERS’ EQUITY

2017 Public Offering

On October 10, 2017, the Company sold in the 2017 Public Offering (the “2017 Public Offering”) an aggregate of 4,992,840 shares of its common stock, including 651,240 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares to cover over-allotments, at a public offering price of $ 4.00 per share.

Net proceeds from the 2017 Public Offering were $ 18.3 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

On October 5, 2017, JGB converted $ 1.3 million of outstanding principal under the Debentures into shares of common stock.

On October 5, 2017, JGB converted $ 1.3 million of outstanding principal under certain debentures into shares of common stock.

Accordingly, the Company issued 288,022 shares of common stock to JGB at a price per share of $ 4.34 .

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Total net proceeds received were $ 52.9 million net of underwriter’s fees and issuance costs.

The Company did no t issued preferred stock during the years ended December 31, 2019, 2018 and 2017.

At-the-Market Equity Offering

On August 31, 2018, the Company entered into the Sales Agreement with Jefferies, as sales agent, pursuant to which the Company may offer and sell, from time to time, through Jefferies, up to $ 50.0 million in shares of its common stock, by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended.

During April 2020, the Company issued and sold 1,000,000 shares of its common stock under the Sales Agreement.

Underwritten Public Offering of Common Stock

On June 15, 2020, the Company sold in the 2020 Public Offering an aggregate of 4,492,187 shares of its common stock, including 585,937 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares at a public offering price of $ 32.00 per share.

Total net proceeds received were $ 134.6 million net of underwriter's fees and issuance costs.

The Company did no t issue preferred stock during the years ended December 31, 2020, 2019 and 2018.

The Company sponsors a 401(k) defined contribution plan covering all U.S.

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On January 1, 2018, the Company began to make contributions to the employee plan.

The Company incurred expenses related to contributions to the plan of $ 0.6 million and $ 0.3 million for the year ended December 31, 2019 and 2018, respectively.

The Company issues common stock warrants in connection with debt or equity financings to a lender, a placement agent or investors.

The Company incurred expenses related to contributions to the plan of $ 0.7 million, $ 0.6 million and $ 0.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company issues common stock warrants in connection with debt or equity financings to lenders, placement agents and investors.

Issued warrants are considered standalone financial instruments and the terms of each warrant are analyzed for equity or liability classification in accordance with U.S.

Warrants that are classified as liabilities usually have various features that would require net-cash settlement by the Company.

Warrants that are not liabilities, derivatives and/or meet exception criteria are classified as equity.

Warrants that are not liabilities, derivatives and/or meet the exception criteria are classified as equity.

Warrants liabilities are remeasured at fair value at each period end with changes in fair value recorded in the consolidated statements of operations until expired or exercised.

Warrants that are classified as equity are valued at their relative fair value on the date of issuance, recorded in additional paid in capital and not remeasured.

In the year ended December 31, 2019, warrants to purchase approximately 94,000 shares of common stock were exercised for cash payments of $ 0.1 million.

During the year ended December 31, 2020, warrants to purchase approximately 314,000 shares of common stock were exercised for cash proceeds of $ 0.4 million.

During the year ended December 31, 2020, a warrant to purchase approximately 34,000 shares of common stock was exercised on a cashless basis and approximately 24,000 shares were issued pursuant to the exercise.

During the year ended December 31, 2019, warrants to purchase approximately 94,000 shares of common stock were exercised for cash proceeds of $ 0.1 million.

During the year ended December 31, 2019, approximately 207,400 warrants were exercised on a cashless basis and approximately 49,000 shares were issued pursuant to the exercises.

In the year ended December 31, 2018, warrants to purchase approximately 2,998,000 shares of common stock were exercised for cash payments of $ 11.0 million

As of December 31, 2020, outstanding warrants to purchase common stock were:

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Original issue date:

January 2015 Equity 5 years $ 6.96 34,483

April 2016 Liability 7 years $ 1.12 6,264

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On April 21, 2016, the Company adopted the 2016 Inducement Equity Incentive Plan (the “2016 Plan”), pursuant to which the Company may grant stock awards of up to a total of 155,500 shares of common stock to new employees of the Company.

The 2016 Plan was adopted to accommodate a reserve of additional shares of common stock for issuance to new employees hired by the Company from Allenex.

The 2016 Plan was adopted to accommodate a reserve of additional shares of common stock for issuance to new employees hired by the Company from Allenex AB.

The terms in the 2016 Plan are substantially similar to the 2014 Plan.

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The Company began granting RSUs pursuant to the 2016 Plan starting June 2016.

2019 Equity Incentive Plan

The Company grants stock based awards under 2019 Equity Inceptive Plan (the “2019 Plan”) that allows for issuance of stock options, RSUs and other stock awards to new employees of the Company.

2019 Inducement Equity Incentive Plan

The Company grants stock based awards under 2019 Inducement Equity Incentive Plan (the “2019 Plan”) that allows for issuance of stock options, RSUs and other stock awards to new employees of the Company.

Stock options granted under the 2019 Plan may be exercised when vested and generally expire ten years from the date of the grant or three months from the date of termination of employment.

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Stock Options and RSUs

The following table summarizes options and RSUs activity under the Company’s 2014, 2016 and 2019 Plans and related information:

The following table summarizes option and RSUs activity under the Company’s 2014 Plan, 2016 Plan and 2019 Plan, and related information:

Balance—December 31, 2019 504,775 2,609,848 $ 16.47 1,516,285 $ 22.51

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Balance—December 31, 2020 672,968 2,670,398 $ 21.92 1,878,866 $ 28.42

The total intrinsic value of options exercised was $ 15.1 million, $ 6.8 million and less than $ 0.2 million in the years ended December 31, 2019, 2018 and 2017, respectively.

The total intrinsic value of options exercised was $ 19.2 million, $ 15.1 million and $ 6.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The total fair value of RSUs vested during 2020 was $ 15.7 million.

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Options outstanding that have vested and are expected to vest at December 31, 2020 are as follows:

Shares Issued

Shares Issued (In thousands) Weighted Average Exercise

Price Weighted

Contractual Life

Intrinsic Value

(In thousands)

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provided, however, an eligible employee’s right to purchase shares of the Company’s common stock may not accrue at a rate which exceeds $ 25,000 of the fair market value of such shares for each calendar year in which such rights are outstanding.

The ESPP has consecutive offering

periods of approximately six months in length.

The ESPP has consecutive offering periods of approximately six months in length.

The purchase price per share must be equal to the lower of 85 % of the fair value of the common stock on the first day of the offering period or on the exercise date.

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Valuation Assumptions

The estimated fair value of employee stock options and ESPP shares was estimated using the Black-Scholes Model based on the following weighted average assumptions.

The estimated fair values of employee stock options and ESPP shares were estimated using the Black-Scholes option pricing model based on the following weighted average assumptions:

Year Ended December 31,

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Expected volatility 62.56 % – 93.17 %

70.80 % – 76.66 %

59.94 % – 105.32 %

Risk-free interest rate 0.17 % – 1.57 %

2.10 % – 2.51 %

1.61 % – 2.14 %

Expected dividend yield — % — % — %

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2020 2019 2018

Cost of revenue $ 2,183 $ 821 $ 188

Cost of testing services $ 1,493 $ 1,751 $ 761

Cost of product 391 280 60

Cost of digital and other 449 152 —

Research and development 4,676 4,422 1,631

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General and administrative 10,597 11,804 3,700

$ 22,417 $ 7,138 $ 1,744

No tax benefit was recognized related to share-based compensation expense since the Company has never reported taxable income and has established a full valuation allowance to offset all of the potential tax benefits associated with its deferred tax assets.

In addition, no amounts of share-based compensation costs were capitalized for the periods presented.

Total $ 23,401 $ 22,417 $ 7,138

No tax benefit was recognized related to stock-based compensation expense since the Company has never reported taxable income and has established a full valuation allowance to offset all of the potential tax benefits associated with its deferred tax assets.

In addition, no amounts of stock-based compensation costs were capitalized for the periods presented.

Loss before income taxes for the years ended December 31, 2020, 2019 and 2018 is summarized as follows (in thousands):

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Foreign ( 5,517 ) ( 4,561 ) ( 7,106 )

$ ( 23,947 ) $ ( 48,215 ) $ ( 57,269 )

Total loss before income taxes $ ( 19,750 ) $ ( 23,947 ) $ ( 48,215 )

The components of the provision for (benefit from) income taxes are summarized as follows (in thousands):

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Federal $ ( 58 ) $ ( 571 ) $ 24

State 1 — ( 4 )

Foreign 160 83 139

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Foreign ( 1,178 ) ( 887 ) ( 1,614 )

Total deferred income tax expense (income tax benefit) ( 1,492 ) ( 1,597 ) ( 1,847 )

Total deferred income tax benefit ( 1,139 ) ( 1,492 ) ( 1,597 )

Income tax benefit $ ( 1,036 ) $ ( 1,979 ) $ ( 1,434 )

The Company's actual provision for tax differed from the amounts computed by applying the U.S.

federal income tax rates of 21% in each of the years ended 2019 and 2018 and 34% in the year ended 2017, to loss before income taxes as a result of the following:

federal income tax rates of 21% in each of the years ended 2020, 2019 and 2018, to loss before income taxes as a result of the following:

Year Ended December 31,

2020 2019 2018

Federal tax rate 21.0 % 21.0 % 34.0 %

Federal tax statutory rate 21.0 % 21.0 % 21.0 %

Stock-based compensation 13.5 % 9.9 % 1.3 %

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Interest expense ( 0.3 ) % ( 0.2 ) % ( 1.7 ) %

Goodwill impairment — % — % ( 1.2 ) %

Impact of 2017 Tax Cuts and Jobs Act on change in deferred tax assets — % — % ( 46.5 ) %

Non-deductible executive compensation ( 6.8 ) % ( 7.6 ) % ( 0.7 ) %

Research credits 3.9 % 2.6 % 0.4 %

Changes in net operating loss carryforwards, including expirations 6.9 % ( 1.5 ) % — %

Other 1.2 % 0.1 % ( 0.3 ) %

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Net deferred tax liabilities $ ( 1,299 ) $ ( 1,973 )

The Company assesses the realizability of its net deferred tax assets by evaluating all available evidence, both positive and negative, including (1) cumulative results of operations in recent years, (2) sources of recent losses, (3) estimates of future taxable income and (4)the length of net operating loss carryforward periods.

The Company assesses the realizability of its net deferred tax assets by evaluating all available evidence, both positive and negative, including (i) cumulative results of operations in recent years, (ii) sources of recent losses, (iii) estimates of future taxable income and (iv) the length of net operating loss carryforward periods.

The Company believes that based on the history of its U.S.

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and Australia net deferred tax assets have been offset by a full valuation allowance.

The valuation allowance increased by $ 4.1 million and decreased by $ 5.4 million during the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2019, the Company had domestic federal net operating loss carryforwards of $ 220.3 million, domestic state net operating loss carryforwards of $ 89.7 million, and foreign net operating loss carryforwards of $ 10.5 million that can reduce

future taxable income.

The domestic federal and state net operating loss carryforwards will begin to expire in 2020 and 2029, respectively.

The valuation allowance increased by $ 8.4 million and $ 4.1 million during the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, the Company had domestic federal net operating loss carryforwards of $ 239.0 million, domestic state net operating loss carryforwards of $ 93.9 million, and foreign net operating loss carryforwards of $ 15.3 million that can reduce future taxable income.

Of the $ 239.0 million of federal net operating losses, $ 32.6 million is carried forward indefinitely.

The remaining domestic federal and state net operating loss carryforwards will begin to expire in 2021 and 2029, respectively.

The foreign net operating loss carryforwards can be carried forward indefinitely.

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Additions based on tax positions related to the current year 824 667 285

Additions (decreases) based on tax positions related

to prior years

( 466 ) — ( 2,274 )

Decreases based on tax positions related to prior years ( 58 ) ( 466 ) —

Balance at the end of the year $ 4,416 $ 3,650 $ 3,449

Approximately $ 0.1 million of the $ 3.7 million of net unrecognized tax benefit as of December 31, 2019, if recognized, would impact the Company's effective tax rate.

None of the $ 4.4 million net unrecognized tax benefit as of December 31, 2020, if recognized, would impact the Company's effective tax rate.

During the year ended December 31, 2020, given the Company's valuation allowance, the uncertain tax benefits would not have impacted the effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

As of December 31, 2019 and December 31, 2018, the Company had $ 0.2 million and $ 0.3 million, respectively, of cumulative interest and penalties related to unrecognized tax benefits.

As of December 31, 2020 and December 31, 2019, the Company had in each year $ 0.2 million of cumulative interest and penalties related to unrecognized tax benefits.

The Company does not anticipate a significant change in the unrecognized tax benefits over the next twelve months.

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Due to net operating loss and credit carryovers, the domestic federal and state income tax returns are subject to tax authority examination from inception.

In jurisdictions where the Company files income tax returns, the statutes of limitations with respect to these jurisdictions vary from jurisdiction to jurisdiction and range from 3 to 6 years.

In foreign jurisdictions where the Company files income tax returns, the statutes of limitations with respect to these jurisdictions vary from jurisdiction to jurisdiction and range from 3 to 6 years.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), was signed into law making significant changes to the Internal Revenue Code.

Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017.

The Company calculated the impact of the Tax Act in its year end income tax provision in accordance with its understanding of the Tax Act and guidance available as of the date of this filing which did not result in any additional income tax expense in the fourth quarter of 2017.

The Company calculated the impact of the Tax Act in its year end income tax provision in accordance with its understanding of the Tax Act and guidance available as of the date of the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2017, which did not result in any additional income tax expense in the fourth quarter of 2017.

The enactment of the Tax Act also requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted.

Consequently, the Company accounted for a provisional estimated reduction of the U.S.

deferred tax assets from $ 72.5 million to approximately $ 45.9 million with a corresponding decrease of $ 27.0 million to the Company’s valuation allowance.

The Company completed its analysis of the impacts of the 2017 Tax Act in the fourth quarter of 2018 with no net change to its provisional estimates due to the valuation allowance.

deferred tax assets from $ 72.5 million to approximately $ 45.9 million with a corresponding decrease of $ 27.0 million to the Company’s valuation allowance in 2018.

The Company completed its analysis of the impacts of the 2017 Tax Act in the fourth quarter of 2018 with no net change to its provisional estimates.

Starting in 2018, companies may be subject to global intangible low tax income (“GILTI”), which is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations as well as the new base erosion anti-abuse tax (“BEAT”) under the Tax Act.

GILTI will be effectively taxed at a tax rate of 10.5%.

Due to the complexity of the GILTI tax rules, companies are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S.

inclusions in taxable income related to GILTI as a current-period expense when incurred or (2) factoring such amounts into a company’s measurement of its deferred taxes.

The Company has not made an election with respect to GILTI and does not believe that GILTI will have a material impact on the Company’s 2020 taxes.

The Company will continue to review the GILTI and BEAT rules to determine their applicability to the Company and the impact that the rules may have on the Company's results of operations and financial condition.

SEGMENT REPORTING

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the CODM, or decision making group, whose function is to allocate resources to and assess the performance of the operating segments.

The Company has identified its CEO as the CODM.

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the Company's Chief Operating Decision Maker (“CODM”), or decision making group, whose function is to allocate resources to and assess the performance of the operating segments.

The Company has identified its Chief Executive Officer as the CODM.

In determining its reportable segments, the Company considered the markets and types of customers served and the products or services provided in those markets.

The Company operates in a single reportable segment.

Both the OttrCare and XynManagement acquisitions have been integrated into the Company’s single reportable segment.

Revenues by geographic regions are based upon the customers’ ship-to address for product revenue and the region of testing for testing services revenue.

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SUBSEQUENT EVENTS

On January 2, 2020, the Company executed the second amendment to the operating lease agreement for the building located at Brisbane, California.

The building is mainly utilized for laboratory operations and research and development.

The lease will be extended for a period of eight years and two months starting on January 1, 2021.

The Company has determined that the amendment constitutes a lease modification effective January 1, 2020.

The Company estimates that the lease liability and the ROU asset will increase by approximately $ 14.1 million and $ 13.2 million, respectively, on the effective modification date.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table presents selected unaudited consolidated financial data for each of the eight quarters in the two-year period ended December 31, 2019.

The Company believes this information reflects all recurring adjustments necessary to fairly present this information when read in conjunction with the Company’s consolidated financial statements and the related notes.

Net loss per share attributable to CareDx, Inc., basic and diluted, for the four quarters of each fiscal year may not sum to the total for the fiscal year because of the different number of shares outstanding during each period.

The results of operations for any quarter are not necessarily indicative of the results to be expected for any future period.

Quarter Ended:

March 31 June 30 September 30 December 31

(In thousands, except share and per share data)

Consolidated Statements of Operations Data:

Total revenue $ 25,982 $ 31,454 $ 33,811 $ 35,821

Net loss attributable to CareDx, Inc.

used to compute basic net loss per share

$ ( 7,531 ) $ ( 7,847 ) $ ( 1,813 ) $ ( 4,777 )

Net loss per common share attributable to CareDx, Inc., basic

$ ( 0.18 ) $ ( 0.19 ) $ ( 0.04 ) $ ( 0.11 )

Net loss per common share attributable to CareDx, Inc., diluted

$ ( 0.18 ) $ ( 0.19 ) $ ( 0.04 ) $ ( 0.11 )

Shares used in calculation of net loss per share attributable to CareDx, Inc., basic

41,611,399 42,132,396 42,393,550 42,457,171

Shares used in calculation of net income loss per share attributable to CareDx, Inc., diluted

41,611,399 42,132,396 42,393,550 42,457,171

Consolidated Statements of Operations Data:

Total revenue $ 14,053 $ 17,823 $ 21,184 $ 23,509

Net loss attributable to CareDx, Inc.

used to compute basic net loss per share

$ ( 8,969 ) $ ( 14,062 ) $ ( 19,970 ) $ ( 3,755 )

Net loss per common share attributable to CareDx, Inc., basic

$ ( 0.30 ) $ ( 0.40 ) $ ( 0.54 ) $ ( 0.09 )

Net loss per common share attributable to CareDx, Inc., diluted

$ ( 0.30 ) $ ( 0.40 ) $ ( 0.54 ) $ ( 0.09 )

Shares used in calculation of net loss per share attributable to CareDx, Inc., basic

29,615,441 35,549,837 37,154,293 40,104,341

Shares used in calculation of net income loss per share attributable to CareDx, Inc., diluted

29,615,441 35,549,837 37,154,293 40,104,341

CMS Accelerated and Advance Payment Program for Medicare Providers

As discussed in Note 8, on January 19, 2021, the Company repaid the $ 20.5 million Refund liability - CMS advance payment.

After repayment, the remaining balance was $ 0.0 million .

Underwritten Public Offering of Common Stock

On January 25, 2021, the Company sold 1,923,077 shares of its common stock through an underwritten public offering at a public offering price of $ 91.00 per share.

The net proceeds to the Company from the offering were approximately $ 164.0 million, after deducting underwriting discounts and commissions and estimated offering expenses.

On February 11, 2021, the Company sold 288,461 shares of its common stock pursuant to the underwriters' full exercise of an overallotment option granted to the underwriters in connection with the offering.

The net proceeds to the Company from the full exercise of the underwriters' overallotment option were approximately $ 24.7 million.

The aggregate net proceeds to the Company, including the shares sold pursuant to the underwriters' full exercise of the overallotment option, were approximately $ 188.7 million, after deducting underwriting discounts and commissions and estimated offering expenses.

TransChart LLC

In January 2021, the Company acquired TransChart LLC (“TransChart”) for cash.

TransChart provides EMR software to hospitals throughout the U.S.

to care for patients who have or may need an organ transplant.

TransChart builds on the Company's digital offerings, which include Ottr, Inc.

transplant electronic medical record software and XynQAPI transplant quality management solutions.

Given the timing of the closing of this transaction, the Company is currently in the process of valuing the assets acquired and liabilities assumed in the business combination.

As a result, the Company is not yet able to provide the amounts to be recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed and other related disclosures.

The Company will disclose this and other related information in the Company's Form 10-Q for the quarter ended March 31, 2021.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data