CareDx, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CareDx, Inc. Index to Consolidated Financial Statements Page No. Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 86 Consolidated Balance Sheets 91 Consolidated Statements of Operations 92 Consolidated Statements of Comprehensive Loss 93 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity 94 Consolidated Statements of Cash Flows 95 Notes to Consolidated Financial Statements 96 85 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 28, 2024, expressed an adverse opinion on the Company's internal control over financial reporting because of material weaknesses. 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 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. 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 Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Testing Services Revenue (non-Medicare) — Refer to Note 2 to the consolidated financial statements Critical Audit Matter Description The Company’s testing services revenue is recognized when results of the test are provided to the healthcare provider, at which time the Company generally bills for its services. The Company estimates revenue for non-Medicare payers using transaction prices determined for each financial class of payers using history of reimbursements. The transaction price estimate includes analysis of an average reimbursement per test and a percentage of tests reimbursed. This estimate requires significant judgement. The Company monitors revenue estimates at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required. Changes in transaction price estimates are updated quarterly based on actual cash collected. 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. We identified management’s estimation of the transaction price for transaction services billed to non-Medicare payers as a critical audit matter due to the significant judgments required by management to estimate how coverage practices and policies of payers might affect amounts received. 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. 86 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management’s estimation of transaction prices for testing services revenue, included the following, among others: • We tested the assumptions used by management to estimate transaction prices by: • Testing the mathematical accuracy of management’s calculation. • Testing the historical cash receipts from non-Medicare 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 2023. • Evaluating trends in revenue and accounts receivable compared to previous periods to identify evidence inconsistent with management’s estimated transaction prices. • We tested the accuracy and completeness of the lab billing report by tracing to source documents, including the test requisition form, fax support, proof of insurance, and payment support. Testing Services Revenue (Medicare)— Refer to Note 2 to the consolidated financial statements Critical Audit Matter Description Revenue recognized for tests billed to Medicare is based on the agreed current reimbursement rate per test adjusted for historical collection trends where applicable. During 2023, new billing articles (the Billing Articles) issued by Palmetto MolDX, or MolDX, impacted Medicare coverage for certain of the Company’s tests, including AlloSure Kidney, AlloSure Heart and AlloMap Heart, and required the Company to implement new processes to address the requirements related to the Medicare claim submissions for reimbursement. We identified management’s determination of whether the reimbursement claim submission for an AlloSure Kidney, AlloSure Heart, or AlloMap Heart test for which Medicare is the payer complied with the requirements of the Billing Articles, as a critical audit matter because of the challenging judgments required to determine if a reimbursement claim submission complied with the requirements of the Billing Articles. This required a high degree of auditor judgment and increased extent of effort when performing audit procedures to determine if the reimbursement claim submission for the test met the new requirements of the Billing Articles. How the Critical Audit Matter Was Addressed in the Audit • We read the Billing Articles regarding the requirements for Medicare reimbursement for each type of testing service. • We made inquiries of members of the Company’s accounting department, billing department, and legal department regarding the impact of the Billing Articles and the effects on revenue recognition. • We tested the Company’s revised billing practices in response to the Billing Articles and evaluation of whether collection of consideration was probable when Medicare was identified as the payer, by making selections and agreeing required test information to source documents and tracing to cash receipts received from Medicare through December 31, 2023. Impact on Audit of Financial Statements Because of Material Weaknesses in Internal Control Over Reporting - Refer to Management’s Annual Report on Internal Control Over Financial Reporting Critical Audit Matter Description As discussed in Management’s Annual Report on Internal Control Over Financial Reporting, the Company identified material weaknesses across multiple components of the Internal Control – Integrated Framework (2013) issued by COSO. Because these material weaknesses impact the Company’s controls over information technology (IT) systems and business processes, affect substantially all financial statement account balances and disclosures, and required us to increase the extent of our audit effort, including the need to modify the nature and extent of audit evidence obtained, we have identified the impact to our audit procedures as a result of the material weaknesses as a critical audit matter. How the Critical Audit Matter Was Addressed in the Audit As a result of the material weaknesses, in performing our audit procedures we lowered the threshold for investigating differences between recorded amounts and independent expectations developed by us that we would have otherwise used, and increased the number of selections we would have otherwise made if the Company’s controls were designed and operating 87 Table of Contents effectively. In addition, we performed additional procedures to test the completeness and accuracy of the information included in all system reports or information generated by the Company’s IT systems which were utilized for audit evidence. /s/ Deloitte & Touche LLP San Jose, California February 28, 2024 We have served as the Company's auditor since 2018. 88 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of CareDx, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of CareDx, Inc. and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. 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, 2023, of the Company and our report dated February 28, 2024, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 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 generally accepted accounting principles. 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; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Material Weaknesses A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management's assessment: General Information Technology Controls (GITCs) The Company did not design and maintain effective general information technology controls (“GITCs”) for information systems and applications that are relevant to the preparation of the consolidated financial statements. Specifically, the Company did not design and maintain: (i) sufficient user access controls to ensure appropriate segregation of duties, logical access controls to prevent unauthorized user access and adequately restrict user and privileged access to financial applications, programs and data to appropriate Company personnel; (ii) program change management controls to ensure that information technology (“IT”) program and data changes affecting financial IT 89 Table of Contents applications and underlying accounting records are identified, tested, authorized and implemented appropriately with appropriate segregation of duties; and (iii) computer and network operations controls to ensure that batch and interface jobs are monitored and privileges are appropriately granted, authorized and monitored. As a result, business process controls (automated and manual) that are dependent on the ineffective GITCs, or that rely on data produced from systems impacted by the ineffective GITCs, are also deemed ineffective, which affects substantially all financial statement accounts and disclosures. Purchase Order Approval Workflow The Company did not design and maintain effective process-level control activities related to procurement to ensure appropriate approval of purchase orders, which could affect the amount and classification of costs capitalized or expensed. COSO Framework The Company did not fully maintain components of the COSO framework, including elements of the control environment, information and communication, control activities and monitoring activities components, relating to: (i) sufficiency of competent personnel to perform internal control activities and support the achievement of the Company’s internal control objectives; (ii) enforcing accountability of personnel for the performance of their internal control responsibilities across the organization in the pursuit of objectives; (iii) designing and maintaining general control activities over technology to support the achievement of the Company’s internal control objectives; (iv) performing control activities in accordance with established policies in a timely manner; and (v) performing sufficient reviews of information to assess its relevance, accuracy, and completeness in supporting the internal control components. As such, the Company’s management concluded that the Company did not have an adequate process in place to complete its assessment of the design and operating effectiveness of internal control over financial reporting in a timely manner. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2023, of the Company, and this report does not affect our report on such financial statements. /s/ Deloitte & Touche LLP San Jose, California February 28, 2024 90 Table of Contents CareDx, Inc. Consolidated Balance Sheets (In thousands, except share data) As of December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 82,197 $ 89,921 Marketable securities 153,221 203,168 Accounts receivable 51,061 66,312 Inventory 19,471 19,232 Prepaid and other current assets 7,763 9,216 Total current assets 313,713 387,849 Property and equipment, net 35,246 35,529 Operating leases right-of-use assets 29,891 34,689 Intangible assets, net 45,701 43,051 Goodwill 40,336 37,523 Restricted cash 586 522 Other assets 1,353 3,828 Total assets $ 466,826 $ 542,991 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 12,872 $ 9,942 Accrued compensation 19,703 16,902 Accrued and other liabilities 45,497 49,131 Total current liabilities 78,072 75,975 Deferred tax liability 136 — Common stock warrant liability — 32 Deferred payments for intangible assets 2,461 2,418 Operating lease liability, less current portion 28,278 33,406 Other liabilities 96,551 249 Total liabilities 205,498 112,080 Commitments and contingencies (Note 9) Stockholders’ equity: Preferred stock: $ 0.001 par value; 10,000,000 shares authorized at December 31, 2023 and 2022; no shares issued and outstanding at December 31, 2023 and 2022 — — Common stock: $ 0.001 par value; 100,000,000 shares authorized at December 31, 2023 and 2022; 51,503,377 shares issued and outstanding at December 31, 2023; 53,583,301 shares issued and 53,533,250 shares outstanding at December 31, 2022 49 52 Additional paid-in capital 946,511 898,806 Accumulated other comprehensive loss ( 6,963 ) ( 7,503 ) Accumulated deficit ( 678,269 ) ( 460,444 ) Total stockholders’ equity 261,328 430,911 Total liabilities and stockholders’ equity $ 466,826 $ 542,991 The accompanying notes are an integral part of these consolidated financial statements. 91 Table of Contents CareDx, Inc. Consolidated Statements of Operations (In thousands, except share and per share data) Year Ended December 31, 2023 2022 2021 Revenue: Testing services revenue $ 209,685 $ 263,748 $ 259,285 Product revenue 33,517 29,251 26,832 Patient and digital solutions 37,122 28,794 10,280 Total revenue 280,324 321,793 296,397 Operating expenses: Cost of testing services 57,642 72,286 71,251 Cost of product 18,379 17,639 18,930 Cost of patient and digital solutions 25,978 22,287 7,208 Research and development 81,866 90,388 76,525 Sales and marketing 83,334 96,027 77,245 General and administrative 117,868 100,397 74,964 Restructuring costs 2,320 — — Litigation expense (Note 17) 96,300 — — Total operating expenses 483,687 399,024 326,123 Loss from operations ( 203,363 ) ( 77,231 ) ( 29,726 ) Other income (expense): Interest income, net 11,867 3,762 160 Change in estimated fair value of common stock warrant liability 10 107 106 Other income (expense), net 1,343 ( 2,872 ) ( 2,628 ) Total other income (expense) 13,220 997 ( 2,362 ) Loss before income taxes ( 190,143 ) ( 76,234 ) ( 32,088 ) Income tax (expense) benefit ( 141 ) ( 379 ) 1,426 Net loss $ ( 190,284 ) $ ( 76,613 ) $ ( 30,662 ) Net loss per share (Note 3): Basic $ ( 3.54 ) $ ( 1.44 ) $ ( 0.59 ) Diluted $ ( 3.54 ) $ ( 1.44 ) $ ( 0.59 ) Weighted-average shares used to compute net loss per share: Basic 53,764,705 53,321,625 52,241,076 Diluted 53,764,705 53,321,625 52,241,076 The accompanying notes are an integral part of these consolidated financial statements. 92 Table of Contents CareDx, Inc. Consolidated Statements of Comprehensive Loss (In thousands) Year ended December 31, 2023 2022 2021 Net loss $ ( 190,284 ) $ ( 76,613 ) $ ( 30,662 ) Other comprehensive loss: Foreign currency translation adjustments, net of tax 540 ( 2,833 ) ( 2,574 ) Net comprehensive loss $ ( 189,744 ) $ ( 79,446 ) $ ( 33,236 ) The accompanying notes are an integral part of these consolidated financial statements. 93 Table of Contents CareDx, Inc. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (In thousands, except share amounts) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance at December 31, 2020 49,441,166 $ 49 $ 632,253 $ ( 2,096 ) $ ( 352,527 ) $ 277,679 Issuance of common shares through public equity offering, net of commissions and offering costs of $ 12,495 2,211,538 2 188,853 — — 188,855 Contingent consideration classified as equity — — ( 222 ) — — ( 222 ) Issuance of common stock under employee stock purchase plan 45,464 — 2,139 — — 2,139 RSU settlements, net of shares withheld 464,693 — ( 18,441 ) — — ( 18,441 ) Issuance of common stock for services 3,984 — 296 — — 296 Issuance of common stock for cash upon exercise of stock options 753,383 1 12,775 — — 12,776 Issuance of common stock for cash upon exercise of warrants 3,132 — 205 — — 205 Employee stock-based compensation expense — — 35,825 — — 35,825 Foreign currency translation adjustment — — — ( 2,574 ) — ( 2,574 ) Net loss — — — — ( 30,662 ) ( 30,662 ) Balance at December 31, 2021 52,923,360 52 853,683 ( 4,670 ) ( 383,189 ) 465,876 Issuance of common stock under employee stock purchase plan 93,422 — 2,230 — — 2,230 Repurchase and retirement of common stock ( 50,051 ) — — — ( 642 ) ( 642 ) RSU settlements, net of shares withheld 411,176 — ( 6,067 ) — — ( 6,067 ) Issuance of common stock for services 12,764 — 319 — — 319 Issuance of common stock for cash upon exercise of stock options 142,579 — 2,435 — — 2,435 Employee stock-based compensation expense — — 46,206 — — 46,206 Foreign currency translation adjustment — — — ( 2,833 ) — ( 2,833 ) Net loss — — — — ( 76,613 ) ( 76,613 ) Balance at December 31, 2022 53,533,250 52 898,806 ( 7,503 ) ( 460,444 ) 430,911 Issuance of common stock under employee stock purchase plan 190,841 — 1,495 — — 1,495 Repurchase and retirement of common stock ( 2,942,997 ) ( 3 ) — — ( 27,541 ) ( 27,544 ) RSU settlements, net of shares withheld 669,283 — ( 3,059 ) — — ( 3,059 ) Issuance of common stock for services 21,965 — 216 — — 216 Issuance of common stock for cash upon exercise of stock options 27,903 — 120 — — 120 Issuance of common stock for cash upon exercise of warrants 3,132 — 26 — — 26 Employee stock-based compensation expense — — 48,907 — — 48,907 Foreign currency translation adjustment — — — 540 — 540 Net loss — — — — ( 190,284 ) ( 190,284 ) Balance at December 31, 2023 51,503,377 $ 49 $ 946,511 $ ( 6,963 ) $ ( 678,269 ) $ 261,328 The accompanying notes are an integral part of these consolidated financial statements. 94 Table of Contents CareDx, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2023 2022 2021 Operating activities: Net loss $ ( 190,284 ) $ ( 76,613 ) $ ( 30,662 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Stock-based compensation 49,086 46,553 36,081 Asset impairments and write-downs 1,000 840 2,437 Depreciation and amortization 14,386 11,595 8,797 Amortization of right-of-use assets 5,438 4,412 3,088 Unrealized loss on long-term marketable equity securities — 1,181 1,743 Realized gain on sale of long-term marketable equity securities, net ( 284 ) — — Loss on disposal of asset 44 — — Gain on settlement of obligation and recovery of written-off investment ( 2,109 ) — — Revaluation of common stock warrant liability to estimated fair value ( 10 ) ( 107 ) ( 106 ) Revaluation of contingent consideration to estimated fair value 2,677 727 ( 609 ) Accretion of discount and amortization of premium on short-term marketable securities, net ( 4,927 ) 390 1,129 Other non-cash items — — ( 222 ) Changes in operating assets and liabilities: Accounts receivable 16,016 ( 6,660 ) ( 24,416 ) Inventory 54 ( 2,859 ) ( 6,927 ) Prepaid and other assets 1,767 ( 1,049 ) ( 5,144 ) Accounts payable 2,904 ( 2,054 ) 1,789 Accrued compensation 2,655 ( 9,251 ) 7,516 Accrued and other liabilities 89,608 11,327 10,690 Accrued royalties ( 1,557 ) — — Operating lease liabilities, net ( 5,418 ) ( 3,456 ) ( 2,603 ) Refund liability - CMS advance payment — — ( 20,496 ) Change in deferred taxes 566 ( 215 ) ( 1,379 ) Net cash used in operating activities ( 18,388 ) ( 25,239 ) ( 19,294 ) Investing activities: Maturities of short-term marketable securities 256,038 111,587 88,905 Purchases of short-term marketable securities ( 201,165 ) ( 315,145 ) — Purchases of long-term marketable securities — — ( 5,500 ) Purchase of corporate equity securities ( 965 ) — — Sale of corporate equity securities 2,460 — — Additions of capital expenditures ( 8,344 ) ( 21,234 ) ( 13,559 ) Acquisition of intangible assets ( 896 ) ( 3,100 ) ( 6,700 ) Acquisition of business, net of cash acquired ( 6,682 ) ( 610 ) ( 15,434 ) Net cash provided by (used in) investing activities 40,446 ( 228,502 ) 47,712 Financing activities: Proceeds from issuance of common shares in public equity offering, net of issuance costs paid — — 188,855 Payment of contingent consideration ( 625 ) ( 2,625 ) — Principal payments on finance lease obligations — — ( 66 ) Repurchase and retirement of common stock ( 27,541 ) ( 642 ) — Proceeds from exercise of warrants 4 — 4 Proceeds from exercise of stock options 120 2,435 12,775 Proceeds from issuance of common stock under employee stock purchase plan 1,495 2,230 2,139 Taxes paid related to net share settlement of restricted stock units ( 3,059 ) ( 5,933 ) ( 18,065 ) Net cash (used in) provided by financing activities ( 29,606 ) ( 4,535 ) 185,642 Effect of exchange rate changes on cash and cash equivalents ( 112 ) 23 ( 303 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 7,660 ) ( 258,253 ) 213,757 Cash, cash equivalents, and restricted cash at beginning of period 90,443 348,696 134,939 Cash, cash equivalents, and restricted cash at end of period $ 82,783 $ 90,443 $ 348,696 Supplemental disclosures of cash information Cash paid for interest $ — $ 8 $ 1 Cash paid for income taxes $ 738 $ 392 $ 14 Supplemental disclosures of cash flow information Shares issued in lieu of payment $ 216 $ 319 $ 296 Operating lease right-of-use assets $ 607 $ 22,267 $ 6,079 Purchases of capital expenditures in accounts payable and accrued liabilities $ 647 $ 1,423 $ 3,953 Employee stock purchase plan shares included in accrued compensation $ 556 $ 686 $ 1,521 Contingent consideration $ 3,499 $ — $ 5,341 The accompanying notes are an integral part of these consolidated financial statements. 95 Table of Contents CareDx, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND DESCRIPTION OF BUSINESS CareDx, Inc. (“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 diagnostic solutions for transplant patients and caregivers. The Company’s headquarters are in Brisbane, California. The primary operations are in Brisbane, California; Omaha, Nebraska; Fremantle, Australia; and Stockholm, Sweden. The Company’s commercially available testing services consist of AlloSure® Kidney, a donor-derived cell-free DNA (“dd-cfDNA”) solution for kidney transplant patients, AlloMap® Heart, a gene expression solution for heart transplant patients, AlloSure® Heart, a dd-cfDNA solution for heart transplant patients, and AlloSure® Lung, a dd-cfDNA solution for lung transplant patients. 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. The Company also provides digital solutions to transplant centers following the acquisitions of Ottr Complete Transplant Management (“Ottr”) and XynManagement, Inc. (“XynManagement”), as well as the acquisitions of TransChart LLC (“TransChart”), MedActionPlan.com, LLC (“MedActionPlan”) and The Transplant Pharmacy, LLC (“TTP”) in 2021, HLA Data Systems, LLC (“HLA Data Systems”) in January 2023 and MediGO, Inc. (“MediGO”) in July 2023. Testing Services AlloSure Kidney has been a covered service for Medicare beneficiaries since October 2017 through a Local Coverage Determination (“LCD”), first issued by Palmetto MolDX (“MolDX”), which was formed to identify and establish coverage and reimbursement for molecular diagnostics tests, and then adopted by Noridian Healthcare Solutions, the Company’s Medicare Administrative Contractor (“Noridian”). The Medicare reimbursement rate for AlloSure Kidney is currently $ 2,841 . AlloMap Heart has been a covered service for Medicare beneficiaries since January 2006. The Medicare reimbursement rate for AlloMap Heart is currently $ 3,240 . In October 2020, the Company received a final MolDX Medicare coverage decision for AlloSure Heart. In November 2020, Noridian issued a parallel coverage policy granting coverage for AlloSure Heart when used in conjunction with AlloMap Heart, which became effective in December 2020. In 2021, Palmetto and Noridian issued coverage policies written by MolDX to replace the former product-specific policies. The foundational LCD is titled “MolDX: Molecular Testing for Solid Organ Allograft Rejection” and the associated LCD numbers are L38568 (MolDX) and L38629 (Noridian).The Medicare reimbursement rate for AlloSure Heart is currently $ 2,753 . Effective May 9, 2023, AlloSure Lung is covered for Medicare beneficiaries through the same MolDX LCD (Noridian L38629). The Medicare reimbursement rate for AlloSure L ung is $ 2,753 . Effective April 1, 2023, HeartCare, a multimodality testing service that includes both AlloMap Heart and AlloSure Heart provided in a single patient encounter for heart transplant surveillance, is covered, subject to certain limitations, for Medicare beneficiaries through the same MolDX LCD (Noridian L38629) . The Medicare reimbursement rate for HeartCare is $ 5,993 . AlloSure Kidney has received positive coverage decisions from several commercial payers, and is reimbursed by other private payers on a case-by-case basis. AlloMap Heart has also received positive coverage decisions for reimbursement from many of the largest U.S. private payers. In May 2021 and March 2023, the Company purchased a minority investment of common stock in the biotechnology company Miromatrix Medical, Inc. (“Miromatrix”) for an aggregate amount of $ 5.1 million, and the investment is marked to market. Miromatrix works to eliminate the need for an organ transplant waiting list through the development of implantable engineered biological organs. In December 2023, Miromatrix was acquired by United Therapeutics Corporation. 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 1,900 renal transplant patients who will receive AlloSure Kidney long-term surveillance. In September 2018, the Company initiated the Surveillance HeartCare ™ Outcomes Registry (“SHORE”). SHORE is a prospective, multi-center, observational registry of patients receiving HeartCare for surveillance. HeartCare combines the gene expression profiling technology of AlloMap Heart with the dd-cfDNA analysis of AlloSure ® Heart in one surveillance solution. 96 Table of Contents 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 iBox for a multimodality surveillance solution. The Company has not yet made any applications to private payers for reimbursement coverage of AlloMap Kidney or KidneyCare. In December 2021, the Company initiated the ALAMO study. ALAMO is a multicenter observational study and focuses on surveillance in lung transplant recipients within the first post-transplant year. Beyond demonstrating the clinical validity of AlloSure in detecting Acute Lung Allograft Dysfunction, a composite outcome of acute rejection and clinically meaningful infections, the study explores its clinical utility by capturing clinician decision-making processes to further demonstrate the practical clinical application of AlloSure. In addition, the study will collect samples to enable development of AlloMap Lung. Products The Company’s suite of AlloSeq products are commercial next generation sequencing (“NGS”)-based kitted solutions. These products include: 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: 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 . In March 2021, the Company acquired certain assets of BFS Molecular S.R.L. (“BFS Molecular”), a software company focused on NGS-based patient testing solutions. BFS Molecular brings extensive software and algorithm development capabilities for NGS transplant surveillance products. Patient and Digital Solutions Following the acquisitions of both Ottr and XynManagement, the Company is a leading provider of transplant patient management 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 XynCare. XynQAPI simplifies transplant quality tracking and Scientific Registry of Transplant Recipients reporting. 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. In January 2021, the Company acquired TransChart. TransChart provides EMR software to hospitals throughout the U.S. to care for patients who have or may need an organ transplant. As part of the Company’s acquisition of TransChart in January 2021, the Company acquired TxAccess, a cloud-based service that allows nephrologists and dialysis centers to electronically submit referrals to transplant programs and closely follow and assist patients through the transplant waitlist process and, ultimately, through transplantation. In June 2021, the Company acquired the Transplant Hero patient application. The application helps patients manage their medications through alarms and interactive logging of medication eve nts . Also in June 2021, the Company entered into a strategic agreement with OrganX, which was amended in April 2022, to develop clinical decision support tools across the transplant patient journey. Together, the Company and OrganX will develop advanced analytics that integrate AlloSure with large transplant databases to provide clinical data solutions. This partnership delivers the next level of innovation by incorporating a variety of clinical inputs to create a universal composite scoring system. The Company has agreed to potential future milestone payments. In November 2021, the Company acquired MedActionPlan, a New Jersey-based provider of medication safety, medication adherence and patient education. MedActionPlan is a leader in patient medication management for transplant patients and beyond. In December 2021, the Company acquired TTP, a transplant-focused pharmacy located in Mississippi. TTP provides individualized transplant pharmacy services for patients at multiple transplant centers located throughout the U.S. 97 Table of Contents In January 2023, the Company acquired HLA Data Systems, a Texas-based company that provides software and interoperability solutions for the histocompatibility and immunogenetics community. HLA Data Systems is a leader in the laboratory information management industry for human leukocyte antigen laboratories. In July 2023, the Company acquired MediGO, an organ transplant supply chain and logistics company. MediGO provides access to donated organs by digitally transforming donation and transplantation workflows to increase organ utilization. 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 $ 678.3 million at December 31, 2023. As of December 31, 2023, the Company had cash and cash equivalents and marketable securities of $ 235.4 million and no debt outstanding. Shelf Registration Statement On May 10, 2023, the Company filed a universal shelf registration statement (File No. 333-271814) (the “Registration Statement”), whereby the Company can sell from time to time up to $ 250.0 million of shares of its common stock, preferred stock, debt securities, warrants, units or rights comprised of any combination of these securities, for the Company’s own account in one or more offerings under the Registration Statement. The terms of any offering under the Registration Statement will be established at the time of such offering and will be described in a prospectus supplement to the Registration Statement filed with the Securities and Exchange Commission (the “SEC”) prior to the completion of any such offering. Stock Repurchase Program On December 3, 2022, the Company's Board of Directors approved a stock repurchase program (the "Repurchase Program"), whereby the Company may purchase up to $ 50 million of shares of its common stock over a period of up to two years , commencing on December 8, 2022. The Repurchase Program may be carried out at the discretion of a committee of the Company's Board of Directors through open market purchase, one or more Rule 10b5-1 trading plans and block trades and in privately negotiated transactions. During the year ended December 31, 2023 , the Company purchased an a ggregate of 2,942,997 shares of its common stock under the Repurchase Program for an aggregate purchase price of $ 27.5 million. As of December 31, 2023, $ 21.9 million remained available for future repurchase under the Repurchase Program. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its subsidiaries. Intercompany transactions have been eliminated. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses in the consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to transaction price estimates used for testing services revenue; standalone fair value of patient and digital solutions revenue performance obligations; accrued expenses for clinical studies; inventory valuation; the fair value of assets and liabilities acquired in a business combination or an asset acquisition (including identifiable intangible assets acquired); the fair value of contingent consideration recorded in connection with a business combination or an asset acquisition; the grant date fair value assumptions used to estimate stock-based compensation expense; income taxes; impairment of long-lived assets and indefinite-lived assets (including goodwill); and legal contingencies. Actual results could differ from those estimates. Concentrations of Credit Risk and Other Risks and Uncertainties 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, corporate debt securities and various bank deposit accounts. 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. 98 Table of Contents The Company is also subject to credit risk from its accounts receivable, which are derived from revenue earned from AlloSure Kidney, AlloSure Heart and AlloMap Heart tests provided for patients located in the U.S. and Canada, 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, from sales of patient and digital solutions software. The Company has not experienced any significant credit losses and does not require collateral on receivables. For the years ended December 31, 2023, 2022 and 2021, approximately 40 %, 53 % and 59 %, respectively, of total revenue was billed to Medicare. No other payers represented more than 10% of total revenue for the years ended December 31, 2023, 2022 and 2021. As of December 31, 2023 and 2022, approximately 36 % and 27 %, respectively, of accounts receivable was due from Medicare. No other payer represented more than 10% of accounts receivable at either December 31, 2023 or 2022. 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. Cash equivalents consist primarily of amounts invested in money market funds. Restricted Cash As a condition of the lease agreements for certain facilities the Company must maintain letters of credit and certain minimum collateral requirements. The cash used to support these arrangements of $ 0.6 million is classified as long-term restricted cash on the accompanying consolidated balance sheets. 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, 2023, the Company’s short-term marketable securities consisted of corporate debt securities with maturities of greater than three months but less than twelve months at the time of purchase, which were classified as current assets on the consolidated balance sheet . The Company classifies its short-term 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. Short-term marketable securities are carried at amortized cost and are adjusted for amortization of premiums and accretion of discounts to maturity, which is included i n 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 short-term marketable securities are included in interest income (expense), net. The cost of securities sold will be determined using specific identification. The Company considers investments in securities with remaining maturities of over one year as long-term investments. As of December 31, 2023, the Company’s long-term marketable securities consisted of corporate equity securities. These long-term marketable securities are classified as other assets on the consolidated balance sheet . The Company records its long-term marketable equity securities at fair market value. Unrealized gains and losses from the remeasurement of the long-term marketable equity securities to fair value are included in other income (expense), net, on the consolidated statements of operations. Inventory 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, kits produced and prescription drugs, and may also be used for research and product development efforts. Laboratory supplies subsequently designated for research and product development use are expensed. Obsolete or damaged inventories are written off. Certain inventories are stated at the lower of purchased cost, determined on an average cost basis, or net realizable value. Inventories are stated at the lower of actual purchased cost, determined on an average cost basis, on a first-in, first-out basis, or at net realizable value. Property and Equipment, net Property and equipment are stated at cost, less accumulated depreciation. 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 to five years for computer, office and laboratory 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 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 seven years . 99 Table of Contents Business Combinations The Company determines and allocates the purchase price of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values as of the business combination date, including separately identifiable intangible assets, which are separable from goodwill. The Company bases the estimated fair value of identifiable intangible assets acquired in a business combination on independent valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. The Company allocates any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets acquired and liabilities assumed to goodwill. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, royalty rates, cash flows, discount rates, estimated useful lives and probabilities surrounding the achievement of contingent milestones could result in different purchase price allocations and amortization expense in current and future periods. In those circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under Accounting Standard Codification (“ASC”), Topic 480, Distinguishing Liabilities from Equity , the Company recognizes a liability equal to the fair value of the contingent payments that the Company expects to make as of the acquisition date. The Company remeasures this liability each reporting period and records changes in the fair value as a component of operating expenses. In circumstances where the contingent consideration is classified as equity, the Company recognizes it at fair value at the acquisition date. Contingent consideration classified as equity is not subsequently remeasured. Transaction costs associated with acquisitions are expensed as incurred in general and administrative expenses. Results of operations and cash flows of acquired companies are included in the Company’s operating results from the date of acquisition. Acquired Intangible Assets Amortizable intangible assets include customer relationships, developed technology, commercialization rights, trademarks and in-process technology assets acquired as part of a business combination or asset acquisition. Intangible assets subject to amortization are amortized over their estimated useful lives. Acquired in-process technology assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. If and when development is complete, which generally occurs if and when regulatory approval to market a product is obtained, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time. Impairment of Goodwill, Intangible Assets and Long-lived Assets Goodwill Goodwill recorded in a business combination is not subject to amortization. Instead, it is tested for impairment on an annual basis and whenever events or changes in circumstances indicate its carrying amount may not be recoverable. The Company’s annual impairment test date is December 1 st . A qualitative assessment is initially made to determine whether it is necessary to perform a quantitative assessment. A qualitative assessment includes, among others, consideration of: (i) past, current and projected future earnings; (ii) recent trends and market conditions; and (iii) valuation metrics involving similar companies that are publicly-traded and acquisitions of similar companies, if available. If this qualitative assessment indicates that it is more likely than not that an impairment exists, or if the Company decides to bypass this option, it proceeds to the quantitative assessment. The quantitative assessment consists of a comparison between the estimated fair value of the Company’s reporting unit and its respective carrying amount including goodwill. Where the carrying value of the reporting unit exceeds its estimated fair value, the Company will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. When necessary, to determine the reporting unit’s fair value under the quantitative approach, the Company uses a combination of income and market approaches, such as estimated discounted future cash flows of that reporting unit, multiples of earnings or revenues, and analysis of recent sales or offerings of comparable entities. The Company also considers its market capitalization on the date of the analysis to ensure the reasonableness of the reporting unit’s fair value. In connection with the Company’s annual goodwill assessment on December 1, 2023, the Company performed a qualitative assessment taking into consideration past, current and projected future earnings, recent trends and market conditions; and the Company's 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. As such, it was not necessary to perform the quantitative goodwill impairment assessment at that time. As of December 31, 2023, no impairment of goodwill has been identified. Intangible assets not subject to amortization 100 Table of Contents The Company evaluates the carrying value of intangible assets not subject to amortization, related to acquired in-process technology assets and a favorable license agreement, which are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. Accordingly, amortization of the acquired in-process technology assets and the favorable license agreement will not occur until the products reach commercialization. During the period the assets are considered indefinite-lived, they are tested for impairment on an annual basis, as well as between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate that the fair value of the acquired in-process technology assets and the favorable license agreement are less than their carrying amounts. An impairment loss would be recorded when the fair value of an acquired in-process technology asset and the favorable license agreement are less than the carrying value. If and when development is complete, which generally occurs when the products are made commercially available, the associated acquired in-process technology asset and the favorable license agreement will be deemed finite-lived and will then be amortized based on the estimated useful life. As of December 31, 2023, no impairment of acquired in-process technology assets and the favorable license agreement has been identified. Intangible assets and long-lived assets subject to amortization The Company evaluates its finite-lived intangible assets and its long-lived assets for indicators of possible impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company then compares the carrying amounts of the assets with the future net undiscounted cash flows expected to be generated by such asset. If an impairment exists, the Company measures the impairment based on the excess carrying value of the asset over the asset’s fair value determined using discounted estimates of future cash flows. The Company has not identified any material impairment losses to date. Fair Value of Financial Instruments Fair value is defined as the price that would be received from selling an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which the Company would transact, and it takes into consideration the assumptions that market participants would use when pricing the asset or liability. The Company’s assessment of the significance of a particular input to the fair value measurement of an asset or liability requires management to make judgments and to consider specific characteristics of that asset or liability. The carrying amounts of certain financial instruments of the Company, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their short maturities. The carrying amount of the contingent consideration liability also represents its fair value. Leases The Company adopted ASC Topic 842, Leases (“ASC 842”) and determines if an arrangement is or contains a lease at contract inception. A right-of-use (“ROU”) asset, representing the underlying asset during the lease term, and a lease liability, representing the payment obligation arising from the lease, are recognized on the consolidated balance sheet at lease commencement based on the present value of the payment obligation. For operating leases, expense is recognized on a straight-line basis over the lease term. For finance leases, interest expense on the lease liability is recognized using the effective interest method and amortization of the ROU asset is recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. The Company also has lease arrangements with lease and non-lease components. The Company elected the practical expedient not to separate non-lease components from lease components for the Company's facility leases. The Company also elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease liabilities are not recognized for leases with an initial term of 12 months or less. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its incremental borrowing rate. The incremental borrowing rate is determined by using the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment. As of December 31, 2023, the Company’s leases had remaining terms of 0.42 years to 9.09 years, some of which include options to extend the lease term. Revenue The Company recognizes revenue from testing services, product sales, and patient and digital solutions 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 101 Table of Contents 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, AlloMap Heart, AlloSure Heart and AlloSure Lung patient tests are ordered by healthcare providers. The Company receives a test requisition form with payer information along with a collected patient blood sample. The Company considers the patient to be its customer and the test requisition form to be the contract. Testing services are performed in the Company’s laboratory. 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 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, AlloMap Heart, AlloSure Heart or AlloSure Lung test result to the healthcare provider. Amounts received may vary amongst payers based on coverage practices and policies of the payer. The Company has used the portfolio approach under ASC Topic 606, Revenue from Contracts with Customers , to identify financial classes of payers. Revenue recognized for Medicare and other contracted payers is based on the agreed current reimbursement rate per test, adjusted for historical collection trends where applicable. The Company estimates revenue for non-contracted payers and self-payers using transaction prices determined for each financial class of payers using history of reimbursements. This includes analysis of an average reimbursement per test and a percentage of tests reimbursed. This estimate requires significant judgment. The Company monitors revenue estimates at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required. Changes in transaction price estimates are updated quarterly based on actual cash collected or changes made to contracted rates. In March and May 2023, MolDX issued new billing articles related to the LCD entitled Molecular Testing for Solid Organ Allograft Rejection. The billing article issued in May 2023 (the “Revised Billing Article”) and together with the billing article issued in March 2023 (the “Billing Articles”) impacted Medicare coverage for AlloSure Kidney, AlloSure Heart, AlloMap Heart and AlloSure Lung, and required certain companies, including the Company, to implement new processes to address the requirements related to Medicare claim submissions. Noridian adopted the Revised Billing Article on August 17, 2023, with a retroactive effective date of March 31, 2023. Although the Company believes the Billing Articles are inconsistent with the LCDs, Noridian’s and MolDX’s responses to public comments explaining the intended scope of various LCDs, and medical necessity, the Company determined to pause its Medicare reimbursement submissions for AlloSure Kidney commencing on March 7, 2023 to allow the Company further time to evaluate the implications of the Billing Article and update the Company's billing processes for AlloSure Kidney tests by educating clinicians and working with centers to update the Company's test order forms to capture the new information required under the Billing Article. Accordingly, the Company did not submit claims for approximately 3,200 AlloSure Kidney tests for Medicare reimbursement for the period from March 7, 2023 through March 31, 2023 and did not recognize revenue on these claims in the first quarter of 2023 aggregating to approximately $ 8.9 million (the “Impacted March Tests”). On May 18, 2023, the Company submitted a letter to Noridian explaining, among other things, (i) its belief that the Billing Articles impose new restrictions on Medicare coverage for the CareDx tests from those contained in the existing LCDs, (ii) that the Company planned to submit claims for reimbursement for the Impacted March Tests for which it had not obtained additional information from the ordering physicians to be able to specifically determine whether these tests meet the new coverage restrictions contained in the Billing Articles, and (iii) that AlloSure Kidney orders with a date of service on or after March 31, 2023 for other indications outside the parameters of the Revised Billing Article, or where the reason for testing is not specified by the ordering physician, will either not be billed pending the receipt of additional information regarding whether the orders meet the coverage restrictions contained in the Revised Billing Article or be submitted with a test description that is intended to identify those tests as falling outside the parameters of the Revised Billing Article. Following the submission of this letter to Noridian on May 18, 2023, the Company submitted claims for reimbursement for the Impacted March Tests for which the Company subsequently received payment from Noridian and recognized revenue totaling approximately $ 7.8 million in the second quarter of 2023. The Company continued the Medicare reimbursement submissions for AlloMap Heart or AlloSure Heart following the issuance of the Billing Articles. In addition, the Company informed Noridian on May 18, 2023 that until Noridian adopts the Revised Billing Article, the Company would continue to submit AlloSure Heart tests for reimbursement only when used in conjunction with AlloMap Heart according to requirements of the Billing Article currently effective at Noridian. The Company also informed Noridian on May 18, 2023 that (i) until June 30, 2023, the Company plans to submit claims for reimbursement for AlloMap Heart and AlloSure Heart tests for which the Company has not obtained additional information from the ordering physicians to be able to specifically determine whether these tests meet the new coverage restrictions contained in the Billing 102 Table of Contents Articles, and (ii) AlloSure Heart and AlloMap Heart orders placed on or after June 30, 2023 for other indications outside the surveillance and for-cause parameters of the Revised Billing Article, or where the reason for testing is not specified by the ordering physician, will either not be billed pending the receipt of additional information regarding whether the orders meet the coverage restrictions contained in the Revised Billing Article or be submitted with a test description that is intended to identify those tests as falling outside the parameters of the Revised Billing Article. On August 28, 2023, the Company submitted a subsequent letter to Noridian regarding its AlloSure Heart and AlloMap Heart testing submissions, explaining, among other things, that (i) prior to August 17, 2023, the Company submitted claims as outlined in its prior communications, including submitting AlloSure Heart and AlloMap Heart claims that were in compliance with the billing article in effect for Noridian (but that were not necessarily in compliance with the Revised Billing Article that had not yet been adopted by Noridian); (ii) for claims with dates of service of August 17, 2023 or later, the Company is submitting AlloSure Heart and AlloMap Heart testing claims in compliance with the Revised Billing Article, including submitting AlloSure Heart claims when not used in conjunction with AlloMap Heart, and submitting HeartCare (AlloSure Heart and AlloMap Heart used together in a single patient encounter) claims for surveillance testing in lieu of a biopsy from 55 days to 370 days post-transplant; and (iii) for AlloSure Heart and AlloMap Heart tests performed on or after August 17, 2023 that are outside the parameters of the Revised Billing Article, certain billing codes will be used to enable any additional review deemed appropriate by Noridian and potential appeal by the Company of the denied claims. On August 10, 2023, MolDX and Noridian released a draft proposed revision to the LCD (DL38568, Palmetto; DL38629, Noridian) that, if adopted, would revise the existing foundational LCD, MolDX: Molecular Testing for Solid Organ Allograft Rejection (L38568 and L38629). On August 14, 2023, MolDX released a draft billing article (DA58019) to accompany the proposed draft LCD, which generally reflected the changes in coverage included in the Revised Billing Article. The comment period end date for this proposed LCD was September 23, 2023. The Company presented at public meetings regarding the proposed draft LCD held on September 18, 2023 and September 20, 2023, with MolDX and Noridian respectively. The Company also submitted written comments on the proposed draft LCD. Product Revenue Product revenue is recognized from the sale of products to end-users, distributors and strategic partners when all revenue recognition criteria are satisfied. The Company generally has a contract or a purchase order from a customer with the specified required terms of order, including the number of products ordered. Transaction prices are determinable and products are delivered and the risk of loss is passed to the customer upon either shipping or delivery, as per the terms of the agreement. Patient and Digital Solutions Revenue Patient and digital solutions revenue is mainly derived from a combination of software as a service (“SaaS”) and perpetual software license agreements entered into with various transplant centers, which are the Company’s customers for this class of revenue. The main performance obligations in connection with the Company’s SaaS and perpetual software license agreements are the following: (i) implementation services and delivery of the perpetual software license, which are considered a single performance obligation, and (ii) post contract support. The Company allocates the transaction price to each performance obligation based on relative stand-alone selling prices of each distinct performance obligation. Digital revenue in connection with perpetual software license agreements is recognized over time based on the Company’s satisfaction of each distinct performance obligation in each agreement. Perpetual software license agreements typically require advance payments from customers upon the achievement of certain milestones. The Company records deferred revenue in relation to these agreements when cash payments are received or invoices are issued in advance of the Company’s performance, and generally recognizes revenue over the contractual term, as performance obligations are fulfilled. In addition, the Company derives patient and digital solutions revenue from software subscriptions and medication sales. The Company generally bills software subscription fees in advance. Revenue from software subscriptions is deferred and recognized ratably over the subscription term. The medication sales revenue is recognized based on the negotiated contract price with the governmental, commercial and non-commercial payers with any applicable patient co-pay. The Company recognizes revenue from medication sales when prescriptions are delivered. Cost of Testing Services Cost of testing services reflects the aggregate costs incurred in delivering the Company’s testing services. The components of cost of testing services are materials and service costs, direct labor costs, stock-based compensation, equipment and infrastructure expenses associated with testing samples, shipping, logistics and specimen processing charges to collect and transport samples, and allocated overhead including rent, information technology, equipment depreciation, utilities and royalties. 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. 103 Table of Contents Cost of Product Cost of product reflects the aggregate costs incurred in delivering the Company’s products to customers. The components of cost of product are materials costs, manufacturing and kit assembly costs, direct labor costs, equipment and infrastructure expenses associated with preparing kitted products for shipment, shipping, and allocated overhead including rent, information technology, equipment depreciation and utilities. 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 Patient and Digital Solutions Cost of patient and digital solutions 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, cost of prescription drugs and allocated costs of facilities and information technology. Research and Development Expenses Research and development expenses, including clinical operations, represent costs incurred to develop diagnostic products and services, high quality evidence to support use of the Company’s tests, as well as continued efforts related to improving the Company’s existing products and patient and digital solutions service lines. These expenses include payroll and related expenses, consulting expenses, laboratory supplies, clinical studies and certain allocated expenses as well as amounts incurred under certain collaborative agreements. Research and development costs are expensed as incurred. The Company records accruals for estimated study costs comprised of work performed by contract research organizations under contract terms. Stock-based Compensation The Company uses the Black-Scholes Model, which requires the use of estimates such as stock price volatility and expected option lives, to value employee stock options. The Company estimates the expected option lives using historical data, estimates volatility using its own historical stock prices, estimates risk-free rates using the implied yield currently available in the U.S. Treasury zero-coupon issues with a remaining term equal to the expected option lives, and estimates dividend yield using the Company’s expectations and historical data. The fair value of each restricted stock unit is calculated based upon the closing price of the Company’s common stock on the date of the grant. The Company uses the straight-line attribution method for recognizing compensation expense. Compensation expense is recognized on awards ultimately expected to vest and reduced for forfeitures that are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on the Company’s historical experience. Compensation expense for stock options issued to nonemployees is calculated using the Black-Scholes Model and is recorded over the service performance period using the straight-line attribution method. Options subject to vesting are required to be periodically remeasured over their service performance period, which is generally the same as the vesting period. Income Taxes The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. The Company’s assessment of an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit may change as new information becomes available. Foreign Currency Translation The functional currency of the Company’s foreign subsidiaries is the local currency for each entity, including the Swedish Krona, Australian dollar and the Euro. The revenue and expenses of such subsidiaries have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the 104 Table of Contents balance sheet date. The resulting cumulative translation adjustments are reported in other comprehensive loss. Foreign currency translation gains and losses on revenue and expenses are recognized in the consolidated statements of operations. Comprehensive Loss Comprehensive loss consists of net loss and other losses affecting stockholders’ equity that, under U.S. GAAP, are excluded from net income or loss. For the Company, such items consist of foreign currency losses on the translation of foreign assets and liabilities. Recent Accounting Pronouncements There were no recently adopted accounting standards which would have a material effect on the Company’s consolidated financial statements and accompanying disclosures, and no recently issued accounting standards that are expected to have a material impact on the Company’s consolidated financial statements and accompanying disclosures. Effective in Future Periods In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires enhanced disclosure of significant segment expenses. All current annual disclosures about a reportable segment’s profit or loss and assets will also be required in interim periods. The new guidance also requires disclosure of the title and position of the Chief Operating Decision Maker (“CODM”) and explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments set forth in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption of the amendments is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. This ASU will be effective for the Company’s annual disclosures in fiscal year 2024 and interim-period disclosures in fiscal year 2025. As the amendments only relate to disclosures, there will be no impact on the Company’s financial position or results of operations. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 340): Improvements to Income Tax Disclosures , which requires annual disclosures in the rate reconciliation table to be presented using both percentages and reporting currency amounts, and this table must include disclosure of specific categories. Additional information will also be required for reconciling items that meet a quantitative threshold. The new guidance also requires enhanced disclosures of income taxes paid, including the amount of income taxes paid disaggregated by federal, state and foreign taxes and the amount of income taxes paid disaggregated by individual jurisdictions that exceed a quantitative threshold. The amendments should be applied on a prospective basis, but retrospective application is permitted. The amendments set forth in this ASU are effective for annual periods beginning after December 15, 2024 for public entities. This guidance will be effective for the Company’s annual disclosures in fiscal year 2025. As the amendments only relate to disclosures, there will be no impact on the Company’s financial position or results of operations. 3. NET LOSS PER SHARE Basic and diluted net loss per share 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, 2023, 2022 and 2021, all common share equivalents have been excluded from the calculation of diluted net loss per share, as their effect would be antidilutive. 105 Table of Contents The following tables set forth the computation of the Company’s basic and diluted net loss per share (in thousands, except shares and per share data): Year Ended December 31, 2023 2022 2021 Numerator: Net loss used to compute basic net loss per share $ ( 190,284 ) $ ( 76,613 ) $ ( 30,662 ) Net loss used to compute diluted net loss per share $ ( 190,284 ) $ ( 76,613 ) $ ( 30,662 ) Denominator: Weighted-average shares used to compute basic net loss per share 53,764,705 53,321,625 52,241,076 Weighted-average shares used to compute diluted net loss per share 53,764,705 53,321,625 52,241,076 Net loss per share: Basic $ ( 3.54 ) $ ( 1.44 ) $ ( 0.59 ) Diluted $ ( 3.54 ) $ ( 1.44 ) $ ( 0.59 ) The following potentially dilutive securities have been excluded from diluted net loss per share because their effect would be antidilutive: Year Ended December 31, 2023 2022 2021 Shares of common stock subject to outstanding options 3,055,208 2,921,925 1,863,633 Shares of common stock subject to outstanding common stock warrants — 3,132 3,132 Restricted stock units 5,001,370 3,092,467 2,047,657 Total common stock equivalents 8,056,578 6,017,524 3,914,422 On January 25, 2021 and February 11, 2021, the Company completed an underwritten public offering, including the sale of shares pursuant to the exercise of the underwriters' over-allotment option, pursuant to which the Company sold 1,923,077 and 288,461 shares of common stock, respectively. 4. FAIR VALUE MEASUREMENTS 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. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows: • Level 1: Inputs that include quoted prices in active markets for identical assets and liabilities. • Level 2: 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. • Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. 106 Table of Contents The following table sets forth the Company’s financial assets and liabilities, measured at fair value on a recurring basis, as of December 31, 2023 and 2022 (in thousands): December 31, 2023 Fair Value Measured Using (Level 1) (Level 2) (Level 3) Total Balance Assets Cash equivalents: Money market funds $ 60,525 $ — $ — $ 60,525 Total $ 60,525 $ — $ — $ 60,525 Liabilities Short-term liabilities: Contingent consideration $ — $ — $ 5,469 $ 5,469 Long-term liabilities: Contingent consideration — — 2,461 2,461 Total $ — $ — $ 7,930 $ 7,930 December 31, 2022 Fair Value Measured Using (Level 1) (Level 2) (Level 3) Total Balance Assets Cash equivalents: Money market funds $ 66,594 $ — $ — $ 66,594 Long-term marketable securities: Corporate equity securities 2,076 — — 2,076 Total $ 68,670 $ — $ — $ 68,670 Liabilities Short-term liabilities: Contingent consideration $ — $ — $ 1,025 $ 1,025 Long-term liabilities: Contingent consideration — — 2,418 2,418 Common stock warrant liability — — 32 32 Total $ — $ — $ 3,475 $ 3,475 107 Table of Contents 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): (Level 3) Common Stock Warrant Liability and Contingent Consideration Balance at December 31, 2021 $ 5,480 Change in estimated fair value of common stock warrant liability ( 107 ) Additions to contingent consideration 727 Payment related to contingent consideration ( 2,625 ) Balance at December 31, 2022 3,475 Exercise of warrants ( 22 ) Change in estimated fair value of common stock warrant liability ( 10 ) Change in estimated fair value of contingent consideration on business combination 2,677 Change in estimated fair value of contingent consideration on asset acquisition 166 Additions to contingent consideration 2,269 Payment related to contingent consideration ( 625 ) Balance at December 31, 2023 $ 7,930 During March 2023, the Company wrote off $ 1.0 million of its investment in convertible preferred shares of Cibiltech SAS (“Cibiltech”), which was carried at cost. Cibiltech’s operations have been liquidated. The fair value of this investment was based on Level 3 inputs. In July 2023, the Company entered into a Securities Holders’ Agreement (the “Agreement”) with a private entity based in France. The private entity was established to continue Cibiltech's activity, which consists of designing, developing, publishing, promoting, distributing, and marketing of software related to predictive solutions, to monitoring and/or to remote monitoring in the field of human organ allotransplantation, allografting, and chronic organ diseases. The private entity retained all assets of Cibiltech, including its licenses. Pursuant to the Agreement, the Company agreed to invest a certain amount in the private entity, in order to continue the commercialization of the iBox technology. The Company's investment is in the form of ordinary and Class B shares carried at cost. This investment is not considered material to the Company's consolidated financial statements. In December 2023, Miromatrix was acquired by United Therapeutics Corporation. The Company tendered and sold all of its shares of Miromatrix to United Therapeutics Corporation for $ 2.5 million. The Company recognized a $ 1.5 million gain from the disposal of its Miromatrix shares and recorded as other income (expense), net, on the consolidated statements of operations for the year ended December 31, 2023. In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. The valuation methodologies used for the Company’s instruments measured at fair value and their classification in the valuation hierarchy are summarized below: • 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, 2023 and 2022, money market funds were included as cash and cash equivalents in the consolidated balance sheets. • Long-term marketable equity and debt securities – Investments in long-term marketable equity securities are classified within Level 1. The securities are recorded at fair value based on readily available quoted market prices in active markets. The securities are recorded at fair value based on observable inputs for quoted prices for identical or similar assets in markets that are not active. Long-term marketable securities are located within other assets on the consolidated balance sheets. • Contingent consideration – Contingent consideration is classified within Level 3. Contingent consideration relates to asset acquisitions and business combinations. The Company recorded the estimate of the fair value of the contingent consideration based on its evaluation of the probability of the achievement of the contractual conditions that would result in the payment of the contingent consideration. Contingent consideration was estimated using the fair value of the milestones to be paid if the contingency is met based on management’s estimate of the probability of success and projected revenues for revenue-based considerations at discounted rates ranging from 6 % and 12 % at December 31, 2023 and 12 % at December 31, 2022. The significant input in the Level 3 108 Table of Contents measurement that is not supported by market activity is the Company’s probability assessment of the achievement of the milestones. The value of the liability is subsequently remeasured to fair value at each reporting date, and the change in estimated fair value is recorded as income or expense within operating expenses in the consolidated statements of operations until the milestones are paid, expire or are no longer achievable. Increases or decreases in the estimation of the probability percentage result in a directionally similar impact to the fair value measurement of the contingent consideration liability. The carrying amount of the contingent consideration liability represents its fair value. • Common stock warrant liability – Common stock warrant liability is classified within Level 3. The Company utilizes intrinsic value to estimate the fair value of the warrants. The intrinsic value is computed as the difference between the fair value of the Company’s common stock on the valuation date and the exercise price of the warrants. Increases (decreases) in the Company’s stock price discussed above result in a directionally similar impact to the fair value of the common stock warrant liability. 109 Table of Contents 5. 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, 2023 December 31, 2022 December 31, 2021 Cash and cash equivalents $ 82,197 $ 89,921 $ 348,485 Restricted cash 586 522 211 Total cash, cash equivalents, and restricted cash at the end of the period $ 82,783 $ 90,443 $ 348,696 Marketable Securities All short-term marketable securities were considered held-to-maturity at December 31, 2023. At December 31, 2023, some of the Company’s short-term marketable securities were in an unrealized loss position. The Company determined that it had the positive intent and ability to hold until maturity all short-term marketable securities that have been in a continuous loss position, thus there was no recognition of any other-than-temporary impairment at December 31, 2023. All short-term marketable securities with unrealized losses as of the balance sheet date have been in a loss position for less than twelve months. Contractual maturities of the short-term marketable securities were within one year or less. The long-term marketable equity securities were recorded in the consolidated balance sheets at fair market value with changes in the fair value recognized in earnings at December 31, 2023. The long-term marketable debt securities were considered available-for-sale. The contractual maturity of the long-term marketable debt securities are less than three years. During 2022, the Company wrote off $ 0.5 million of long-term marketable debt securities. 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, 2023 Amortized Cost Unrealized Holding Gains Fair Value Short-term marketable securities: U.S. agency securities $ 80,468 $ 2,038 $ 82,506 Corporate debt securities 72,753 711 73,464 Total short-term marketable securities 153,221 2,749 155,970 Total $ 153,221 $ 2,749 $ 155,970 December 31, 2022 Amortized Cost Unrealized Holding Gains (Losses) Fair Value Short-term marketable securities: U.S. agency securities $ 79,347 $ 452 $ 79,799 Corporate debt securities 123,821 ( 220 ) 123,601 Total short-term marketable securities 203,168 232 203,400 Long-term marketable securities: Corporate equity securities 5,000 ( 2,924 ) 2,076 Total long-term marketable securities 5,000 ( 2,924 ) 2,076 Total $ 208,168 $ ( 2,692 ) $ 205,476 110 Table of Contents Contractual maturities of the marketable securities at each balance sheet date are as follows (in thousands): December 31, 2023 2022 Within one year $ 153,221 $ 203,168 After one year through five years — — Total $ 153,221 $ 203,168 6. BUSINESS COMBINATIONS AND ASSET ACQUISITION Business Combinations HLA Data Systems In January 2023, the Company acquired HLA Data Systems, a Texas-based company that provides software and interoperability solutions for the histocompatibility and immunogenetics community. The Company acquired HLA Data Systems with a combination of cash consideration paid upfront and contingent consideration with a fair value of $ 1.3 million. The Company accounted for the transaction as a business combination using the acquisition method of accounting. Acquisition-related costs of $ 0.4 million associated with the acquisition were expensed as incurred, and classified as part of general and administrative expenses in the consolidated statement of operations. Goodwill of $ 2.1 million arising from the acquisition primarily consists of synergies from integrating HLA Data Systems’ technology with the current testing and digital solutions offered by the Company. The acquisition of HLA Data Systems will provide a robust and comprehensive Laboratory Information Management System and support the laboratory workflows. None of the goodwill is expected to be deductible for income tax purposes. All of the goodwill has been assigned to the Company’s existing operating segment. The following table summarizes the fair values of the intangible assets acquired as of the acquisition date ($ in thousands): Estimated Fair Value Estimated Useful Lives (Years) Customer relationships $ 3,010 13 Developed technology 770 11 Trademarks 320 17 Total $ 4,100 Customer relationships acquired by the Company represent the fair value of future projected revenue that is expected to be derived from sales of HLA Data Systems’ 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 HLA Data Systems’ proprietary software. The trademark acquired consists primarily of the HLA Data Systems 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. This method considers the value of the asset to be the value of the royalty payments from which the Company is relieved due to its ownership of the asset. The royalty rates of 10 % and 2 % were used to estimate the fair value of the developed technology and the trademark, respectively. A discount rate of 24 % was utilized in estimating the fair value of these three intangible assets. The pro forma impact of the HLA Data Systems acquisition is not material, and the results of operations of the acquisition have been included in the Company’s consolidated statements of operations from the respective acquisition date. MediGO In July 2023, the Company acquired MediGO, an organ transplant supply chain and logistics company. MediGO provides access to donated organs by digitally transforming donation and transplantation workflows to increase organ utilization. The Company acquired MediGO with a combination of cash consideration paid upfront and contingent consideration with a fair value of $ 0.3 million. 111 Table of Contents The Company accounted for the transaction as a business combination using the acquisition method of accounting. Acquisition-related costs of $ 0.3 million associated with the acquisition were expensed as incurred, and classified as part of general and administrative expenses in the consolidated statement of operations. Goodwill of $ 0.6 million arising from the acquisition primarily consists of synergies from integrating MediGO’s technology with the current testing and digital solutions offered by the Company. The acquisition of MediGO will provide a comprehensive software platform that optimizes complex logistics from referral to recovery and during the critical movement of organs and teams and gives organ procurement organizations and transplant centers the ability to unify decentralized stakeholders, coordinate resources and make vital decisions with the goal of increasing organ utilization and improving equity and access to transplantation . None of the goodwill is expected to be deductible for income tax purposes. All of the goodwill has been assigned to the Company’s existing operating segment. The following table summarizes the fair values of the intangible assets acquired as of the acquisition date ($ in thousands): Estimated Fair Value Estimated Useful Lives (Years) Customer relationships $ 810 17 Developed technology 850 12 Trademarks 360 17 Total $ 2,020 Customer relationships acquired by the Company represent the fair value of future projected revenue that is expected to be derived from sales of MediGO’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 MediGO’s proprietary software. The trademark acquired consists primarily of the MediGO 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. This method considers the value of the asset to be the value of the royalty payments from which the Company is relieved due to its ownership of the asset. The royalty rates of 10 % and 2 % were used to estimate the fair value of the developed technology and the trademark, respectively. A discount rate of 25 % was utilized in estimating the fair value of these three intangible assets. The pro forma impact of the MediGO acquisition is not material, and the results of operations of the acquisition have been included in the Company’s consolidated statements of operations from the respective acquisition date. Combined Consideration Paid The following table summarizes the consideration paid for HLA Data Systems and MediGO and the provisional amounts of the assets acquired and liabilities assumed recognized at their estimated fair value at the acquisition date (in thousands): 112 Table of Contents Total Consideration Cash $ 6,682 Total consideration $ 6,682 Recognized amounts of identifiable assets acquired and liabilities assumed Current assets $ 1,413 Identifiable intangible assets 6,120 Current liabilities ( 1,060 ) Other current liabilities ( 810 ) Contingent considerations ( 1,620 ) Other liabilities ( 7 ) Total identifiable net assets acquired 4,036 Goodwill 2,646 Total consideration $ 6,682 The preliminary allocation of the purchase price to assets acquired and liabilities assumed was based on the fair value of such assets and liabilities as of the acquisition date. Asset Acquisition Effective as of August 9, 2023, the Company purchased an asset from a private entity. The asset consists of a licensing agreement with a university institution. See also Note 9. The purchased asset did not meet the definition of a business under ASC Topic 805, Business Combinations, and therefore the Company accounted for the transaction as an asset acquisition. In an asset acquisition, goodwill is not recognized, but rather, any excess consideration transferred over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable assets acquired. Acquisition costs relating to the asset acquired were $ 2.6 million, comprised of base consideration of $ 1.8 million, contingent consideration at fair value of $ 0.5 million and associated transaction costs of $ 0.3 million. There was only one asset acquired and the entire cost is assigned to the licensing agreement, which is recorded under Intangible assets, net, in the consolidated balance sheets and under the intangible assets with indefinite lives category. 7. GOODWILL AND INTANGIBLE ASSETS Goodwill Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible assets acquired. Goodwill is tested annually for impairment at the reporting unit level during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances. The Company identified an indicator of goodwill impairment during the quarter ended September 30, 2023 due to a sustained decrease in share price. During the quarter ended September 30, 2023, the Company estimated the fair value of its reporting unit using a combination of the income and market approaches. In performing the goodwill impairment test, the Company used an exit multiple given the development phase of the Company and a discount rate of 16.4 % in its estimation of fair value. The evaluation performed resulted in no impairment as of September 30, 2023. On December 1, 2023, 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. As such, it was not necessary to perform the quantitative goodwill impairment assessment at this time. As of December 31, 2023, no impairment of goodwill has been identified. 113 Table of Contents The following table presents details of the Company’s goodwill as of December 31, 2023 and 2022 (in thousands): 2023 2022 Balance as of January 1, $ 37,523 $ 36,983 Goodwill acquired 2,646 540 Remeasurement adjustment 167 — Balance as of December 31, $ 40,336 $ 37,523 Intangible Assets The following table presents details of the Company’s intangible assets as of December 31, 2023 ($ in thousands): December 31, 2023 Gross Carrying Amount Accumulated Amortization Foreign Currency Translation Net Carrying Amount Weighted Average Remaining Useful Life (In Years) Intangible assets with finite lives: Acquired and developed technology $ 37,367 $ ( 18,340 ) $ ( 2,269 ) $ 16,758 7.2 Customer relationships 25,718 ( 9,094 ) ( 1,959 ) 14,665 9.2 Commercialization rights 11,579 ( 4,496 ) — 7,083 5.6 Trademarks and tradenames 5,220 ( 1,713 ) ( 288 ) 3,219 9.3 Total intangible assets with finite lives 79,884 ( 33,643 ) ( 4,516 ) 41,725 Acquired in-process technology 1,250 — — 1,250 Favorable license agreement 2,726 — — 2,726 Total intangible assets with indefinite lives 3,976 — — 3,976 Total intangible assets $ 83,860 $ ( 33,643 ) $ ( 4,516 ) $ 45,701 The following table presents details of the Company’s intangible assets as of December 31, 2022 ($ in thousands): December 31, 2022 Gross Carrying Amount Accumulated Amortization Foreign Currency Translation Net Carrying Amount Weighted Average Remaining Useful Life (In Years) Intangible assets with finite lives: Acquired and developed technology $ 35,747 $ ( 15,138 ) $ ( 2,369 ) $ 18,240 7.5 Customer relationships 21,898 ( 7,459 ) ( 2,104 ) 12,335 9.0 Commercialization rights 11,579 ( 3,233 ) — 8,346 6.6 Trademarks and tradenames 4,540 ( 1,345 ) ( 315 ) 2,880 8.5 Total intangible assets with finite lives 73,764 ( 27,175 ) ( 4,788 ) 41,801 Acquired in-process technology 1,250 — — 1,250 Total intangible assets $ 75,014 $ ( 27,175 ) $ ( 4,788 ) $ 43,051 Acquisition of intangible assets In January and July 2023, the Company acquired the intangible assets of HLA Data Systems and MediGO, respectively. The intangible assets are included in Acquired and developed technology, Customer relationships and Trademarks and tradenames as of December 31, 2023. Amortization of Intangible Assets Intangible assets are carried at cost less accumulated amortization. Amortization expenses are recorded to cost of testing services, cost of product, cost of patient and digital solutions, and sales and marketing expenses in the consolidated statements of operations. The following table summarizes the Company's amortization expense of intangible assets (in thousands): 114 Table of Contents Year Ended December 31, 2023 2022 2021 Cost of testing services $ 1,316 $ 1,316 $ 1,316 Cost of product 1,655 1,716 1,905 Cost of patient and digital solutions 1,039 945 684 Sales and marketing 2,457 2,252 1,891 Total $ 6,467 $ 6,229 $ 5,796 The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of December 31, 2023 (in thousands): Years Ending December 31, Cost of Testing Services Cost of Product Cost of Patient and Digital Solutions Sales and Marketing Total 2024 $ 1,316 $ 1,715 $ 850 $ 2,557 $ 6,438 2025 1,316 1,715 681 2,557 6,269 2026 1,316 751 681 2,554 5,302 2027 1,316 751 681 2,541 5,289 2028 1,316 751 681 2,541 5,289 Thereafter 1,509 2,567 1,462 7,600 13,138 Total future amortization expense $ 8,089 $ 8,250 $ 5,036 $ 20,350 $ 41,725 8. BALANCE SHEET COMPONENTS Inventory Inventory consisted of the following (in thousands): December 31, 2023 2022 Finished goods $ 3,658 $ 2,962 Work in progress 5,191 4,306 Raw materials 10,622 11,964 Total inventory $ 19,471 $ 19,232 Property and Equipment, Net Property and equipment consisted of the following (in thousands): December 31, 2023 2022 Leasehold improvements $ 18,259 $ 17,389 Machinery and equipment 18,051 16,294 Internally developed software 15,116 10,893 Construction in progress 8,306 7,639 Computer and office equipment 5,609 5,570 Furniture and fixtures 2,168 2,168 Property and equipment 67,509 59,953 Less: Accumulated depreciation and amortization ( 32,263 ) ( 24,424 ) Property and equipment, net $ 35,246 $ 35,529 Depreciation expense was $ 7.9 million, $ 5.2 million and $ 2.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. 115 Table of Contents There were no assets purchased under finance leases during 2023. Accumulated depreciation was $ 0.6 million and $ 0.6 million at December 31, 2023 and 2022, respectively. Related amortization expense, included in depreciation and amortization expense, was $ 0.0 million, $ 0.1 million and $ 0.1 million for the three years ended December 31, 2023, 2022 and 2021, respectively. Accrued and Other Liabilities Accrued and other liabilities consisted of the following (in thousands): December 31, 2023 2022 Clinical studies $ 15,744 $ 14,816 Short-term lease liability 5,943 5,591 Professional fees 5,911 6,115 Contingent consideration 5,469 1,025 Deferred revenue 4,748 5,342 Laboratory processing fees and materials 2,890 2,189 Accrued royalty 348 4,633 Deferred payments for intangible assets 920 2,062 Accrued shipping expenses 335 489 License and other collaboration fees 250 1,000 Capital expenditures 151 1,316 Other accrued expenses 2,788 4,553 Total accrued and other liabilities $ 45,497 $ 49,131 9. COMMITMENTS AND CONTINGENCIES Leases The Company leases its operating and office facilities for various terms under long-term, non-cancelable operating lease agreements in Brisbane, California; Columbus, Ohio; West Chester, Pennsylvania; Flowood, Mississippi; Gaithersburg, Maryland; Omaha, Nebraska; Fremantle, Australia; and Stockholm, Sweden. The Company's facility leases expire at various dates through 2033. In 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, 2023, the carrying value of the ROU asset was $ 29.9 million. The related current and non-current liabilities as of December 31, 2023 were $ 5.9 million and $ 28.3 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 years ended December 31, (in thousands): 2023 2022 2021 Operating lease cost $ 7,936 $ 6,716 $ 5,134 Finance lease cost — — 53 Total lease cost $ 7,936 $ 6,716 $ 5,187 Finance lease cost included interest from the lease liability and amortization of the ROU asset. December 31, 2023 2022 Other information: Weighted-average remaining lease term - Operating leases (in years) 5.43 6.26 Weighted-average discount rate - Operating leases (%) 7.1 % 7.1 % 116 Table of Contents In February and June 2022, the Company entered into various lease agreements to lease office buildings in California, Nebraska, and Australia with lease terms ranging from 2 to 10.5 years. Certain leases have options to renew the lease terms ranging from 5 to 10 years. In June 2022, the Company modified the termination date of the lease agreement for its headquarters in South San Francisco, California from December 31, 2022 to July 15, 2022. As a result, the Company remeasured its lease liability using the current incremental borrowing rate and made an adjustment by reducing the ROU asset and lease liability by $ 0.5 million. Lease liabilities for the lease agreements made in February and June 2022 are recognized at the present value of the fixed lease payments using the current incremental borrowing rate at the lease commencement date. ROU assets are recognized based on the initial present value of the fixed lease payments. The following table summarizes the ROU assets and lease liabilities for certain lease agreements which commenced in July 2022 (in thousands): December 31, 2023 2022 ROU assets $ 12,073 $ 14,321 Lease liabilities $ 13,221 $ 15,302 The following table summarizes the ROU assets and lease liabilities for certain lease agreements which commenced in August 2022 (in thousands): December 31, 2023 2022 ROU assets $ 5,347 $ 5,814 Lease liabilities $ 5,627 $ 6,005 Supplemental cash flow information related to leases for the years ended December 31, are as follows (in thousands): 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows used for operating leases $ 5,454 $ 3,665 $ 2,580 Operating cash flows used for finance leases — — 63 Total $ 5,454 $ 3,665 $ 2,643 Maturities of operating lease liabilities as of December 31, 2023, are as follows (in thousands): Years ending December 31, Operating Leases 2024 $ 7,993 2025 7,875 2026 7,124 2027 7,274 2028 6,599 Thereafter 4,115 Total lease payments 40,980 Less imputed interest 6,759 Present value of future minimum lease payments 34,221 Less operating lease liability, current portion 5,943 Operating lease liability, long-term portion $ 28,278 Royalty Commitments The Board of Trustees of the Leland Stanford Junior University (“Stanford”) In June 2014, the Company entered into a license agreement with Stanford (the “Stanford License”), which granted the Company an exclusive license to a patent relating to the diagnosis of rejection in organ transplant recipients using dd-cfDNA. Under the terms of the Stanford License, the Company is required to pay an annual license maintenance fee, six milestone payments and royalties in the low single digits of net sales of products incorporating the licensed technology. In March 2023, 117 Table of Contents the Stanford License agreement was amended, which reduced the maximum royalty rate to a lower rate at which the Company may be liable to Stanford effective from April 2022 and also provided that the Company would seek a review from the U.S. Supreme Court (the “Review”). During the pendency of the Review, certain of the Company’s licensing payment and reporting obligations to Stanford with respect to licensed products sold in the U.S. were suspended. As a result, the Company reversed the excess liability in March 2023. In May 2023, the Company submitted a petition of certiorari to the U.S. Supreme Court for consideration of the patent infringement suit and in October 2023, the U.S. Supreme Court declined to hear this patent infringement suit. As the Review is complete and the Company's petition for review was denied, the Stanford License automatically terminated, and in December 2023, the Company paid Stanford certain past royalties at a reduced rate that were previously suspended within 90 days of the termination. There was no outstanding obligation with Stanford as of December 31, 2023. 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. Other Royalty Commitment Effective as of August 2023, the Company entered into a license agreement with a university institution (the "University Agreement"). The University Agreement requires the Company to pay royalties in the low single digits on sales of products covered by the University Agreement. Cibiltech Commitments Pursuant to that certain license and commercialization agreement that the Company entered into with Cibiltech, effective April 30, 2019, the Company will share an agreed-upon percentage of revenue with Cibiltech, if and when revenues are generated from iBox. In July 2023, the Company entered into a settlement agreement with Cibiltech (the “Settlement Agreement”), pursuant to which the Company agreed to pay a certain amount of its obligation owed to Cibiltech. A judicial court in Paris, France, granted the liquidation of Cibiltech, which filed for bankruptcy. In the Settlement Agreement, Cibiltech irrevocably waived and relinquished any and all claims, demands, grievances, proceeding, actions or other requests, whether judicial, administrative, arbitral or otherwise, against the Company. The outstanding obligation of the Company with Cibiltech was waived and relinquished, except for $ 0.4 million, which was paid in July 2023, and represented the amount that the Company agreed to per the Settlement Agreement. There was no outstanding obligation as of December 31, 2023. Tax Commitments As of December 31, 2023, the Company had gross unrecognized tax benefits of $ 6.2 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 Illumina Agreement, the Company has agreed to minimum purchase commitments of finished products and raw materials from Illumina. Effective as of July 2023, the Company entered into a license and collaboration agreement with a private entity pursuant to which the Company was granted an irrevocable, non-transferable right to commercialize its proprietary software, iBox, for the predictive analysis of post-transplantation kidney allograft loss in the field of transplantation for a period of four years with exclusive rights in the United States. The Company will share an agreed-upon percentage of revenue with the private entity, if and when revenues are generated from iBox. Litigation and Indemnification Obligations 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, 118 Table of Contents and the Court granted Natera’s request. The trial commenced on March 7, 2022 and concluded on March 14, 2022, with the jury finding that Natera violated the Lanham Act by falsely advertising the scientific performance of its Prospera transplant test and awarding the Company $ 44.9 million in damages, comprised of $ 21.2 million in compensatory damages and $ 23.7 million in punitive damages. In July 2023, the Court upheld and reaffirmed the March 2022 jury verdict but did not uphold the monetary damages awarded by the jury, which the Company intends to appeal. In August 2023, the Court issued an injunction prohibiting Natera from making the claims the jury previously found to be false advertising. The case is now on appeal. On July 19, 2022, the U.S. Court of Appeals for the Federal Circuit affirmed the Court’s judgment dismissing the Company’s patent infringement suit against Natera. In May 2023, the Company submitted a petition of certiorari to the U.S. Supreme Court for consideration of the patent infringement suit and in October 2023, the U.S. Supreme Court declined to hear the suit. In addition, 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. This case was consolidated with the Company’s patent infringement suit on February 4, 2020. 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. On May 13, 2022, Natera filed two new complaints alleging that AlloSure infringes Natera’s U.S. Patents 10,655,180 and 11,111,544. These two cases were consolidated with the patent infringement case on June 15, 2022. On May 17, 2022, Natera agreed to dismiss the case alleging infringement of Natera’s U.S. Patent 10,526,658. On July 6, 2022, the Company moved to dismiss the rest of Natera’s claims. On September 6, 2022, the Company withdrew its motion to dismiss. On December 11, 2023, the Court dismissed the case alleging infringement of Natera's U.S. Patent 10,597,724. Natera has appealed that decision. See Note 17, Subsequent Events , for further information. United States Department of Justice and United States Securities and Exchange Commission Investigations As previously disclosed, in 2021, the Company received a civil investigative demand (“CID”) from the United States Department of Justice (“DOJ”) requesting that the Company produce certain documents in connection with a False Claims Act investigation being conducted by the DOJ regarding certain business practices related to the Company’s kidney testing and phlebotomy services, and a subpoena from the United States Securities and Exchange Commission (the “SEC”) in relation to an investigation by the SEC in respect of matters similar to those identified in the CID, as well as certain of the Company’s accounting and public reporting practices. By letter dated September 19, 2023, the Company was notified by the staff of the SEC that the SEC has concluded its investigation as to the Company and does not intend to recommend an enforcement action by the SEC against the Company. The notice was provided under the guidelines set out in the final paragraph of Securities Act Release No. 5310. The Company may receive additional requests for information from the DOJ, the SEC, or other regulatory and governmental agencies regarding similar or related subject matters. The Company does not believe that the CID raises any issues regarding the safety or efficacy of any of the Company’s products or services and is cooperating fully with the DOJ investigation. Although the Company remains committed to compliance with all applicable laws and regulations, it cannot predict the outcome of the DOJ investigation or any other requests or investigations that may arise in the future regarding these or other subject matters. From time to time, the Company may become involved in litigation and other legal actions. The Company estimates the range of liability related to any pending litigation where the amount and range of loss can be estimated. The Company records its best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a range of estimated loss with no best estimate in the range, the Company records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (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. Olymbios Matter On April 15, 2022, a complaint was filed by Michael Olymbios against the Company in the Superior Court of the State of California for the County of San Mateo (the “San Mateo County Court”). The complaint alleged that the Company failed to pay certain fees and costs required to continue an arbitration proceeding against Dr. Olymbios, and that the Company has defamed Dr. Olymbios. Dr. Olymbios also sought to void restrictive covenants previously agreed to by him in favor of the Company and to recover damages purportedly incurred by Dr. Olymbios. The Company filed a motion to compel arbitration and dismiss the case. On April 25, 2022, the San Mateo County Court granted the Company’s ex parte application to stay the case and advance the hearing date to June 10, 2022 for the motion to compel arbitration and dismiss. At the June 10, 2022 hearing, the San Mateo County Court found that the decision should be made by the arbitrator, and stayed the case. On July 19, 2022, Dr. Olymbios filed a motion to withdraw from arbitration before Judicial Arbitration and Mediation Services, Inc., which was denied on 119 Table of Contents August 18, 2022. Both the arbitration and the San Mateo County Court matter were settled in the fourth quarter of 2023 and have been resolved. Securities Class Action On May 23, 2022, Plumbers & Pipefitters Local Union #295 Pension Fund filed a federal securities class action in the U.S. District Court for the Northern District of California against the Company, Reginald Seeto, its former President, Chief Executive Officer and member of the Company’s Board of Directors, Ankur Dhingra, its former Chief Financial Officer, Marcel Konrad, its former interim Chief Financial Officer and former Senior Vice President of Finance & Accounting, and Peter Maag, its former President, former Chief Executive Officer, former Chairman of the Company’s Board of Directors and current member of the Company’s Board of Directors. The action alleges that the Company and the individual defendants made materially false and/or misleading statements and/or omissions and that such statements violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder. The action also alleges that the individual defendants are liable pursuant to Section 20(a) of the Exchange Act as controlling persons of the Company. The suit seeks to recover damages caused by the alleged violations of federal securities laws, along with the plaintiffs’ costs incurred in the lawsuit, including their reasonable attorneys’ and experts’ witness fees and other costs. On August 25, 2022, the court appointed an investor group led by the Oklahoma Police Pension and Retirement System as lead plaintiffs and appointed Saxena White P.A. and Robbins Geller Rudman & Dowd LLP as lead counsels. Plaintiffs filed an amended complaint on November 28, 2022. On January 27, 2023, defendants moved to dismiss all claims and to strike certain allegations in the amended complaint. On May 24, 2023, the court granted the Company’s motion to strike and motion to dismiss, dismissing all claims against defendants with leave to amend. On June 28, 2023, plaintiffs filed a second amended complaint against the Company, Reginald Seeto, Ankur Dhingra, and Peter Maag. Under a briefing schedule ordered by the court on June 12, 2023, defendants’ motion to dismiss and motion to strike the second amended complaint was filed on July 26, 2023, plaintiffs’ opposition was filed on August 30, 2023, and defendants’ reply was filed on September 22, 2023. The court held oral argument on October 31, 2023. The Company intends to defend itself vigorously, and believes that the Company has good and substantial defenses to the claims alleged in the suit, but there is no guarantee that the Company will prevail. The Company has not recorded any liabilities for this suit. See Note 17, Subsequent Events , for further information. Derivative Actions On September 21, 2022, Jeffrey Edelman brought a stockholder derivative action complaint in the U.S. District Court for the Northern District of California against the Company as nominal defendant and Drs. Seeto and Maag and Mr. Dhingra, and other current and former members of the Company’s Board of Directors (the “ Edelman Derivative Action ” ). The plaintiff alleges that the individual defendants breached their fiduciary duties as directors and/or officers of the Company and engaged in insider trading, waste of corporate assets, unjust enrichment and violations of Sections 14(a) and 20(a) of the Exchange Act. The action alleges that the individual defendants are liable pursuant to Section 20(a) of the Exchange Act as controlling persons of the Company. The suit seeks a declaration that the individual defendants breached their fiduciary duties to the Company, violated Sections 14(a) and 20(a) of the Exchange Act and were unjustly enriched, and also seeks to recover damages sustained by the Company as a result of the alleged violations, along with the plaintiff’s costs incurred in the lawsuit, including reasonable attorneys’ and experts’ fees, costs and expenses. On December 8, 2022, the court stayed the Edelman Derivative Action until 20 days after the earlier of the following events: (a) the securities class action is dismissed in its entirety with prejudice; (b) the motion to dismiss in the securities class action is denied; (c) a joint request by plaintiff and defendants to lift the stay; (d) notification that a related derivative action that has been filed is not stayed or is no longer stayed; or (e) notification that there has been a settlement reached in the securities class action or any related derivative action. On February 7, 2023, Jaysen Stevenson brought a stockholder derivative action complaint in the U.S. District Court for the Northern District of California against the Company as nominal defendant and Drs. Seeto and Maag and Mr. Dhingra and other current and former members of the Company’s Board of Directors (the “Stevenson Derivative Action”). The claims and allegations in the Stevenson Derivative Action are substantially similar to those in the Edelman Derivative Action. The plaintiff alleges that the individual defendants breached their fiduciary duties as directors and/or officers of the Company and engaged in insider trading, waste of corporate assets, unjust enrichment and violations of Sections 14(a) and 20(a) of the Exchange Act. The suit seeks declaratory relief and to recover alleged damages sustained by the Company as a result of the alleged violations, along with the plaintiff’s costs incurred in the lawsuit, including reasonable attorneys’ and experts’ fees, costs and expenses. On March 9, 2023, the court consolidated the Edelman Derivative Action and the Stevenson Derivative Action and stayed both actions pursuant to the terms of the stay order in the Edelman Derivative Action. The consolidated derivative action remains stayed. The parties in the Stevenson Derivative Action filed a joint status statement with the court on September 6, 2023. See Note 17, Subsequent Events , for further information. 120 Table of Contents The Company intends to defend itself vigorously, and believes that the Company has good and substantial defenses to the claims alleged in the suits, but there are no guarantees that the Company will prevail. Insurance Matter In December 2022, the Company filed a lawsuit against its directors and officers liability insurance carriers in San Mateo County Superior Court. The Company seeks a declaration that costs and fees incurred by the Company in responding to governmental investigatory requests are covered under its policies. The Company also asserts breach of contract against its primary insurer Great American Insurance Company for denying the claim. The policies provide up to $ 15 million in coverage limits. The Company intends to vigorously pursue its claims, and believes it has good and substantial support for its claims, but there is no guarantee that the Company will prevail in these claims. The parties are presently briefing the Company's entitlement to coverage under the policies. 10. STOCKHOLDERS’ EQUITY Stock Repurchase Program On December 3, 2022, the Company's Board of Directors approved a Stock Repurchase Program (the "Repurchase Program"), whereby the Company may purchase up to $ 50 million in shares of its common stock over a period of up to two years , commencing on December 8, 2022. The Repurchase Program may be carried out at the discretion of a committee of the Board of Directors through open market purchases, one or more Rule 10b5-1 trading plans, block trades and in privately negotiated transactions. For the years ended December 31, 2023 and 2022 , the Company purchased an aggregate of 2,942,997 and 50,051 shares of its common stock, respectively, under the Repurchase Program for an aggregate purchase price of $ 27.5 million and $ 0.6 million, respectively. As of December 31, 2023, $ 21.9 million remained available for future repurchases under the Repurchase Program. These shares were retired upon repurchase. The Company's policy related to repurchase of its common stock is to charge the excess of cost over par value to accumulated deficit. January 2021 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 offering expenses. On February 11, 2021, the Company sold 288,461 shares of its common stock pursuant to the full exercise of the overallotment option granted to the underwriters in connection with the January 2021 offering. The net proceeds to the Company from the full exercise of the underwriters' overallotment option were approximately $ 24.7 million. The Company did no t issue preferred stock during the years ended December 31, 2023, 2022 and 2021. 11. 401(K) PLAN The Company sponsors a 401(k) defined contribution plan covering all U.S. employees under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). Employee contributions are voluntary and are determined on an individual basis subject to the maximum allowable under federal tax regulations. The Company incurred expenses related to contributions to the plan of $ 1.7 million, $ 1.8 million and $ 1.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. 12. WARRANTS 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. GAAP. 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 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. During the year ended December 31, 2023, warrants to purchase approximately 3,000 shares of common stock were exercised for cash proceeds of $ 4,000 . During the year ended December 31, 2022, no warrants to purchase shares of common stock were exercised. As of December 31, 2023, no warrants to purchase common stock were outstanding. 121 Table of Contents 13. STOCK INCENTIVE PLANS 2014 Equity Incentive Plan The Company grants stock based awards under 2014 Equity Incentive Plan (the “2014 Plan”) that allows for issuance of stock options, restricted stock units (“RSUs”) and other stock awards to the Company’s employees, directors, and consultants. Stock options granted under the 2014 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. Vesting periods vary based on awards granted, however, certain stock-based awards may vest immediately or may accelerate based on performance-driven measures. Stock option awards generally vest over four years with first year annual cliff vesting. The RSUs generally vest annually over four years in equal increments. There were 670,455 shares of common stock reserved for future issuance under the 2014 Plan as of December 31, 2023. 2016 Inducement Plan 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 AB. The terms in the 2016 Plan are substantially similar to the 2014 Plan. There were 62,752 shares of common stock reserved for future issuance under the 2016 Plan as of December 31, 2023. The 2016 Plan allows RSUs to be granted in addition to stock options. The RSUs vest annually over four years in equal increments. The Company began granting RSUs pursuant to the 2016 Plan starting June 2016. 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. Vesting periods vary based on awards granted, however, certain stock-based awards may vest immediately or may accelerate based on performance-driven measures. Stock option awards generally vest over four years with first year annual cliff vesting. The RSUs generally vest annually over four years in equal increments. The terms in the 2019 Plan are substantially similar to the 2014 Plan. There were 135,904 shares of common stock reserved for future issuance under the 2019 Plan as of December 31, 2023. Stock Options and RSUs The following table summarizes option and RSUs activity under the Company’s 2014 Plan, 2016 Plan and 2019 Plan, and related information: Shares Available for Grant Stock Options Outstanding Weighted- Average Exercise Price Number of RSU Shares Weighted- Average Grant Date Fair Value Balance—December 31, 2022 1,490,462 2,921,925 $ 28.13 3,094,396 $ 37.39 Additional options authorized 2,141,330 — — — — Common stock awards for services ( 21,965 ) — — — — RSUs granted ( 4,028,424 ) — — 4,028,424 10.52 RSUs vested — — — ( 989,314 ) 36.43 Options granted ( 680,788 ) 680,788 12.60 — — Options exercised — ( 27,903 ) 4.29 — — Repurchases of common stock under employee incentive plans 322,163 — — — — RSUs forfeited 1,126,731 — — ( 1,126,731 ) 22.92 Options forfeited 265,395 ( 265,395 ) 26.90 — — Options expired 254,207 ( 254,207 ) 27.13 — — Balance—December 31, 2023 869,111 3,055,208 $ 25.21 5,006,775 $ 19.02 The total intrinsic value of options exercised was $ 0.1 million, $ 1.6 million and $ 42.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. 122 Table of Contents The total fair value of RSUs vested during 2023 was $ 9.5 million. As of December 31, 2023, the total intrinsic value of outstanding RSUs was approximately $ 61.6 million and there were $ 55.8 million of unrecognized compensation costs related to RSUs, which are expected to be recognized over a weighted-average period of 2.23 years. The Company granted performance restricted stock units ("PSUs"), included in RSUs, under the 2014 Plan. The PSUs granted to employees consist of financial and operational metrics to be met over a performance period of 2 years. The number of shares outstanding was 449,983 and 160,538 as of December 31, 2023 and December 31, 2022, respectively. The weighted-average period was 1.01 years and 1.16 years for the years ended December 31, 2023 and 2022, respectively. Options outstanding that have vested and are expected to vest at December 31, 2023 are as follows: Number of Shares Issued (In thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (In thousands) Vested 1,786 $ 26.21 6.27 $ 1,751 Expected to Vest 1,191 23.56 8.59 530 Total 2,977 $ 2,281 The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock at December 31, 2023 for stock options that were in-the-money. The weighted-average grant-date fair value of options to purchase common stock granted for the years ended December 31, 2023, 2022 and 2021 using the Black-Scholes Model was $ 8.63 , $ 19.51 and $ 52.65 , respectively. The total fair value of options that vested during 2023 was $ 18.4 million. As of December 31, 2023, there were approximately $ 17.5 million of unrecognized compensation costs related to stock options, which are expected to be recognized over a weighted-average period of 2.26 years. 2014 Employee Stock Purchase Plan The Company has an Employee Stock Purchase Plan (the “ESPP”), under which employees can purchase shares of its common stock based on a percentage of their compensation, but not greater than 15 % of their earnings; 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 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. During the offering period in 2023 that ended on June 30, 2023, 143,817 shares were purchased for aggregate proceeds of $ 1.0 million from the issuance of shares, which occurred on July 6, 2023. During the offering period in 2023 that ended on December 31, 2023, 73,759 shares were purchased for aggregate proceeds of $ 0.5 million from the issuance of shares, which occurred on January 2, 2024. The Company issued 190,842 shares and 93,422 shares of common stock during the years ended December 31, 2023 and December 31, 2022, respectively, pursuant to the ESPP. The Company received proceeds of $ 1.5 million and $ 3.0 million from the purchases of shares during the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, the Company had 583,906 shares available for issuance under the ESPP. Board of Directors Stock Awards Granted for Services For the years ended December 31, 2023, 2022 and 2021, the Company paid a portion of its directors’ compensation through the award of fully vested common shares. The stock awards are classified as equity, and compensation expense was recognized upon the issuance of the shares at the grant date price per share, which is the fair value. As of December 31, 2023, there were a total of 310,609 shares issued to the Company’s directors, for a total fair value of $ 2.5 million. Stock-based compensation expense associated with the awards was $ 0.2 million, $ 0.4 million and $ 0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively, which was included in general and administrative expense on the consolidated statements of operations. 123 Table of Contents Valuation 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, 2023 2022 2021 Employee stock options Expected term (in years) 5.61 5.96 5.94 Expected volatility 77.86 % 77.62 % 77.70 % Risk-free interest rate 3.67 % 2.74 % 0.80 % Expected dividend yield — % — % — % Employee stock purchase plan Expected term (in years) 0.5 0.5 0.5 Expected volatility 75.91 % – 93.38 % 67.79 % – 77.88 % 53.10 % – 67.79 % Risk-free interest rate 5.26 % – 5.47 % 2.51 % – 4.76 % 0.09 % – 0.19 % Expected dividend yield — % — % — % Risk-free Interest Rate: The Company based the risk-free interest rate over the expected term of the award based on the constant maturity rate of U.S. Treasury securities with similar maturities as of the date of grant. Volatility : The Company used an average historical stock price volatility of its own stock. Expected Term: The expected term represents the period for which the Company’s stock-based compensation awards are expected to be outstanding and is based on analyzing the vesting and contractual terms of the awards and the holders’ historical exercise patterns and termination behavior. Expected Dividends : The Company has not paid and does not anticipate paying any dividends in the near future. Stock-Based Compensation Expense The following table summarizes stock-based compensation expense relating to employee and nonemployee stock-based awards for the years ended December 31, 2023, 2022 and 2021, included on the consolidated statements of operations as follows (in thousands): Year Ended December 31, 2023 2022 2021 Cost of testing services $ 1,854 $ 1,529 $ 2,358 Cost of product 1,165 1,120 579 Cost of patient and digital solutions 1,377 1,331 728 Research and development 6,556 7,391 7,126 Sales and marketing 12,470 14,403 10,887 General and administrative 25,664 20,779 14,403 Total $ 49,086 $ 46,553 $ 36,081 No tax benefit was recognized related to stock-based compensation expense since the Company has never reported taxable income (after net operating loss) and has established a full valuation allowance to offset all of the potential tax benefits associated with its deferred tax assets. In addition, stock-based compensation costs were only capitalized under Internal Revenue Code Section 174, capitalized research and development costs for the periods presented. 124 Table of Contents 14. INCOME TAXES Loss before income taxes for the years ended December 31, 2023, 2022 and 2021 is summarized as follows (in thousands): As of December 31, 2023 2022 2021 United States $ ( 188,421 ) $ ( 73,089 ) $ ( 27,921 ) Foreign ( 1,722 ) ( 3,145 ) ( 4,167 ) Total loss before income taxes $ ( 190,143 ) $ ( 76,234 ) $ ( 32,088 ) The components of the provision for (benefit from) income taxes are summarized as follows (in thousands): As of December 31, 2023 2022 2021 Current Federal $ ( 117 ) $ 145 $ 89 State 186 328 2 Foreign — 184 ( 139 ) Total current income tax expense (benefit) 69 657 ( 48 ) Deferred Federal 184 ( 130 ) ( 409 ) State ( 112 ) 75 ( 127 ) Foreign — ( 223 ) ( 842 ) Total deferred income tax expense (benefit) 72 ( 278 ) ( 1,378 ) Income tax expense (benefit) $ 141 $ 379 $ ( 1,426 ) 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 2023, 2022 and 2021, to loss before income taxes as a result of the following: Year Ended December 31, 2023 2022 2021 Federal tax statutory rate 21.0 % 21.0 % 21.0 % Stock-based compensation ( 3.8 ) % ( 2.8 ) % 38.8 % Change in valuation allowance ( 18.1 ) % ( 16.9 ) % 86.4 % Foreign rate differential 0.2 % ( 0.2 ) % 0.7 % Non-deductible executive compensation ( 0.4 ) % ( 2.1 ) % ( 23.4 ) % Research credits 0.4 % 1.8 % 6.9 % Changes in net operating loss carryforwards, including expirations 0.8 % ( 0.5 ) % ( 125.1 ) % Other ( 0.2 ) % ( 0.8 ) % ( 0.9 ) % Effective income tax rate ( 0.1 ) % ( 0.5 ) % 4.4 % 125 Table of Contents Deferred income tax assets and liabilities consist of the following (in thousands): As of December 31, 2023 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 30,260 $ 26,658 Tax credit carryforwards 10,317 9,138 Accruals 26,256 2,971 Lease liability 7,947 9,250 Section 174 capitalized costs 31,724 20,602 Stock-based compensation 12,799 7,798 Other 1,351 959 Gross deferred tax assets 120,654 77,376 Valuation allowance ( 102,865 ) ( 59,499 ) Total deferred tax assets 17,789 17,877 Deferred tax liabilities: Purchased intangibles ( 6,112 ) ( 6,615 ) Operating leases right-of-use assets ( 6,914 ) ( 8,189 ) Property and equipment ( 4,443 ) ( 2,548 ) Other ( 456 ) ( 497 ) Total deferred tax liabilities ( 17,925 ) ( 17,849 ) Net deferred tax (liabilities) assets $ ( 136 ) $ 28 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 believes that based on the history of its U.S. losses and other factors, the weight of available evidence indicates that it is more likely than not that it will not be able to realize its U.S. net deferred tax assets. The Company has also placed a valuation allowance on the net deferred tax assets of its Swedish operations. The valuation allowance increased by $ 43.4 million and $ 13.9 million during the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, the Company had domestic federal net operating loss carryforwards of $ 109.1 million, domestic state net operating loss carryforwards of $ 77.6 million, and foreign net operating loss carryforwards of $ 12.0 million that can reduce future taxable income. The domestic federal and state net operating loss carryforwards will begin to expire in 2024 and 2030, respectively. The foreign net operating loss carryforwards can be carried forward indefinitely. As of December 31, 2023, the Company had credit carryforwards of approximately $ 11.5 million and $ 11.1 million available to reduce future taxable income, if any, for domestic federal and California state income tax purposes, respectively. The domestic federal credit carryforwards will begin to expire in 2023. California credits have no expiration date. The Company has recorded a valuation allowance against its deferred tax assets at December 31, 2023 and 2022 because the Company's management believes that it is more likely than not that these assets will not be fully realized. The increase in the valuation allowance is approximately $ 43.4 million in the year ended December 31, 2023. A reconciliation of the Company’s unrecognized tax benefits is as follows (in thousands): Year Ended December 31, 2023 2022 2021 Balance at the beginning of the year $ 5,436 $ 4,156 $ 4,416 Additions based on tax positions related to the current year 839 1,255 805 Additions based on tax positions related to prior years — 25 130 Decreases based on tax positions related to prior years ( 91 ) — ( 1,195 ) Balance at the end of the year $ 6,184 $ 5,436 $ 4,156 126 Table of Contents None of the $ 6.2 million of net unrecognized tax benefit as of December 31, 2023, if recognized, would impact the Company's effective tax rate. During the year ended December 31, 2023, 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, 2023 and December 31, 2022, 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. The Company files U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. 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 the 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. 127 Table of Contents 15. SEGMENT REPORTING Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the Company’s 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 Office of the 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. Revenues by geographic regions are based upon the customers’ ship-to address for product revenue and the region of testing for testing services revenue. The following table summarizes reportable revenues by geographic regions (in thousands): Year Ended December 31, 2023 2022 2021 Testing services revenue United States $ 209,158 $ 262,959 $ 258,412 Rest of World 527 789 873 $ 209,685 $ 263,748 $ 259,285 Product revenue United States $ 19,753 $ 16,409 $ 13,512 Europe 9,901 9,081 9,740 Rest of World 3,863 3,761 3,580 $ 33,517 $ 29,251 $ 26,832 Patient and digital solutions revenue United States $ 36,719 $ 28,175 $ 10,085 Europe 266 468 82 Rest of World 137 151 113 $ 37,122 $ 28,794 $ 10,280 Total United States $ 265,630 $ 307,543 $ 282,009 Total Europe $ 10,167 $ 9,549 $ 9,822 Total Rest of World $ 4,527 $ 4,701 $ 4,566 Total $ 280,324 $ 321,793 $ 296,397 The following table summarizes long-lived assets, consisting of property and equipment, net, by geographic regions (in thousands): December 31, 2023 December 31, 2022 Long-lived assets: United States $ 34,714 $ 35,020 Europe 476 405 Rest of World 56 104 Total $ 35,246 $ 35,529 128 Table of Contents 16. RESTRUCTURING In January 2023, the Company announced a restructuring plan that is intended to optimize costs and simplify its organizational and corporate structure. The restructuring plan includes the discontinuation of operations at one of its two locations in Fremantle, Australia. The Company expects to complete the closure of the affected location in June 2024. The Company incurred immaterial restructuring charges for the year ended December 31, 2023. In May and December 2023, the Company announced a reduction of its workforce to simplify and streamline its organization and strengthen the overall effectiveness of its operations. The restructuring charges are primarily related to employee severance pay and related costs. As a result of this plan, the Company incurred $ 2.2 million in restructuring charges for the year ended December 31, 2023. 17. SUBSEQUENT EVENTS Litigation As discussed in Note 9, Commitment and Contingencies , Natera filed claims against the Company alleging that AlloSure infringes Natera’s U.S. Patents 10,655,180 and 11,111,544. On January 26, 2024, following a five-day trial, a jury concluded that the Company did not infringe Natera's U.S. Patent 10,655,180 but did infringe Natera's U.S. Patent 11,111,544. The jury awarded Natera approximately $ 96.3 million in damages based on sales of AlloSure and AlloSeq between September 2021 and August 2023. Natera's U.S. Patent 11,111,544 expires in September 2026. The Company anticipates continued litigation as to whether its current AlloSure process infringes the patent. Natera may also move for injunctive relief. The Company intends to seek judicial review of the verdict and contest any potential claims of ongoing infringement and any motion for injunctive relief. The Company intends to defend 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 recorded the damages of $ 96.3 million as other liabilities on the consolidated balance sheets as of December 31, 2023 and as litigation expense under the operating expense on the consolidated statements of operations for the year ended December 31, 2023. Derivative Action On February 8, 2024, Christian Jacobsen filed a stockholder derivative action complaint in the U.S. District Court for the Northern District of California against the Company as nominal defendant and Dr. Seeto, Mr. Dhingra, Dr. Maag, and other current and former members of the Company's Board of Directors (the “Jacobsen Derivative Action”). The plaintiff alleges that the individual defendants breached their fiduciary duties as directors and/or officers of the Company, violated Section 14(a) of the Exchange Act, are liable for contribution under Sections 10(b) and 21(D) of the Exchange Act, engaged in unjust enrichment, waste of corporate assets, aiding and abetting, insider trading, and misappropriation of information, and/or are liable for indemnification. The suit seeks declaratory relief, disgorgement, and to recover alleged damages sustained by the Company as a result of the alleged violations, along with plaintiff’s costs incurred in the lawsuit, including reasonable attorneys’, accountants’, and experts’ fees, costs, and expenses. The Jacobsen Derivative Action was designated related to the consolidated derivative action. As discussed in Note 9, Commitment and Contingencies , the court consolidated the Edelman Derivative Action and the Stevenson Derivative Action. On February 13, 2024, the parties in the consolidated derivative action filed a joint status statement and administrative motion with the court. Securities Class Action As discussed in Note 9, Commitment and Contingencies , on May 3, 2022, Plumbers & Pipefitters Local Union #295 Pension Fund filed a federal securities class action against the Company and Reginald Seeto, Ankur Dhingra, and Peter Maag. The parties filed a joint status statement with the court on February 15, 2024. The Company intends to defend itself vigorously, and believes that the Company has good and substantial defenses to the claims alleged in the suits, but there are no guarantees that the Company will prevail. 129 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.