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 ) 69 Consolidated Balance Sheets 73 Consolidated Statements of Operations 74 Consolidated Statements of Comprehensive Income (Loss) 75 Consolidated Statements of Stockholders’ Equity 76 Consolidated Statements of Cash Flows 77 Notes to Consolidated Financial Statements 78 68 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of CareDx, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of CareDx, Inc. and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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 27, 2025, expressed an adverse opinion on the Company's internal control over financial reporting because of a material weakness. 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 matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 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 the 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 their history of reimbursements. The transaction price estimate includes an analysis of the 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. 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 the 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. 69 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 (non-Medicare) included the following, among others: • We tested the effectiveness of controls over the Company’s testing services revenue, including those over the estimation of transaction prices. • 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 2024. ◦ 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. /s/ Deloitte & Touche LLP San Francisco, California February 27, 2025 We have served as the Company's auditor since 2018. 70 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders 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, 2024, 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 weakness 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, 2024, 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, 2024, of the Company and our report dated February 27, 2025, 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 Weakness 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 weakness has been identified and included in management's assessment: COSO Framework The Company did not fully maintain components of the COSO framework, including elements of the control environment, risk assessment, control activities, and monitoring activities components, relating to (i) sufficiency of competent personnel to perform internal control activities and support the achievement of our internal control objectives; (ii) monitoring and risk assessment are performed to monitor and identify risks related to complex and/or non-routine transactions; and (iii) performing control activities in accordance with established policies in a timely manner. 71 Table of Contents Specifically, the Company determined that insufficient risk assessment was performed to identify risks related to complex and/or non-routine transactions and financial reporting personnel failed to perform control activities and to provide necessary oversight and monitoring of the accounting and reporting of complex and/or non-routine transactions. This control deficiency creates a reasonable possibility that a material misstatement of the Company’s consolidated financial statements would not be prevented or detected on a timely basis and constitutes a material weakness in the Company’s internal control over financial reporting. This material weakness was 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, 2024 of the Company, and this report does not affect our report on such financial statements. /s/ Deloitte & Touche LLP San Francisco, California February 27, 2025 72 Table of Contents CareDx, Inc. Consolidated Balance Sheets (In thousands, except share data) As of December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 114,689 $ 82,197 Marketable securities 145,964 153,221 Accounts receivable 64,605 51,061 Inventory 19,503 19,471 Prepaid and other current assets 7,071 7,763 Total current assets 351,832 313,713 Property and equipment, net 33,552 35,246 Operating leases right-of-use assets 24,340 29,891 Intangible assets, net 38,184 45,701 Goodwill 40,336 40,336 Restricted cash 585 586 Other assets 2,221 1,353 Total assets $ 491,050 $ 466,826 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 7,686 $ 12,872 Accrued compensation 38,333 19,703 Accrued and other liabilities 43,352 45,497 Total current liabilities 89,371 78,072 Deferred tax liability 164 136 Contingent consideration 174 2,461 Operating lease liability, less current portion 22,263 28,278 Other liabilities 645 96,551 Total liabilities 112,617 205,498 Commitments and contingencies (Note 9) Stockholders’ equity: Preferred stock: $ 0.001 par value; 10,000,000 shares authorized at December 31, 2024 and 2023; no shares issued and outstanding at December 31, 2024 and 2023 — — Common stock: $ 0.001 par value; 100,000,000 shares authorized at December 31, 2024 and 2023; 54,771,203 shares issued and outstanding at December 31, 2024; 51,503,377 shares issued and outstanding at December 31, 2023 51 49 Additional paid-in capital 1,013,193 946,511 Accumulated other comprehensive loss ( 8,569 ) ( 6,963 ) Accumulated deficit ( 626,242 ) ( 678,269 ) Total stockholders’ equity 378,433 261,328 Total liabilities and stockholders’ equity $ 491,050 $ 466,826 The accompanying notes are an integral part of these consolidated financial statements. 73 Table of Contents CareDx, Inc. Consolidated Statements of Operations (In thousands, except share and per share data) Year Ended December 31, 2024 2023 2022 Revenue: Testing services revenue $ 249,381 $ 209,685 $ 263,748 Product revenue 40,783 33,517 29,251 Patient and digital solutions 43,621 37,122 28,794 Total revenue 333,785 280,324 321,793 Operating expenses: Cost of testing services 55,611 57,642 72,286 Cost of product 23,381 18,379 17,639 Cost of patient and digital solutions 30,638 25,978 22,287 Research and development 72,405 81,866 90,388 Sales and marketing 81,718 83,334 96,027 General and administrative 123,784 117,868 100,397 Restructuring costs 1,783 2,320 — Litigation expense ( 96,300 ) 96,300 — Total operating expenses 293,020 483,687 399,024 Income (loss) from operations 40,765 ( 203,363 ) ( 77,231 ) Other income (expense): Interest income, net 11,765 11,867 3,762 Change in estimated fair value of common stock warrant liability — 10 107 Other income (expense), net 329 1,343 ( 2,872 ) Total other income 12,094 13,220 997 Income (loss) before income taxes 52,859 ( 190,143 ) ( 76,234 ) Income tax expense ( 310 ) ( 141 ) ( 379 ) Net income (loss) $ 52,549 $ ( 190,284 ) $ ( 76,613 ) Net income (loss) per share (Note 3): Basic $ 1.00 $ ( 3.54 ) $ ( 1.44 ) Diluted $ 0.93 $ ( 3.54 ) $ ( 1.44 ) Weighted-average shares used to compute net income (loss) per share: Basic 52,773,247 53,764,705 53,321,625 Diluted 56,620,590 53,764,705 53,321,625 The accompanying notes are an integral part of these consolidated financial statements. 74 Table of Contents CareDx, Inc. Consolidated Statements of Comprehensive Income (Loss) (In thousands) Year ended December 31, 2024 2023 2022 Net income (loss) $ 52,549 $ ( 190,284 ) $ ( 76,613 ) Other comprehensive loss: Foreign currency translation adjustments, net of tax ( 1,606 ) 540 ( 2,833 ) Net comprehensive income (loss) $ 50,943 $ ( 189,744 ) $ ( 79,446 ) The accompanying notes are an integral part of these consolidated financial statements. 75 Table of Contents CareDx, Inc. Consolidated Statements of 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, 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 Issuance of common stock under employee stock purchase plan 159,019 — 1,397 — — 1,397 Repurchase and retirement of common stock ( 55,500 ) — — — ( 522 ) ( 522 ) RSU settlements, net of shares withheld 2,620,716 2 ( 10,092 ) — — ( 10,090 ) Issuance of common stock for services 16,582 — 174 — — 174 Issuance of common stock for cash upon exercise of stock options 527,009 — 8,936 — — 8,936 Employee stock-based compensation expense — — 66,267 — — 66,267 Foreign currency translation adjustment — — — ( 1,606 ) — ( 1,606 ) Net income — — — — 52,549 52,549 Balance at December 31, 2024 54,771,203 $ 51 $ 1,013,193 $ ( 8,569 ) $ ( 626,242 ) $ 378,433 The accompanying notes are an integral part of these consolidated financial statements. 76 Table of Contents CareDx, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2024 2023 2022 Operating activities: Net income (loss) $ 52,549 $ ( 190,284 ) $ ( 76,613 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Stock-based compensation 66,406 49,086 46,553 Asset impairments and write-downs — 1,000 840 Depreciation and amortization 14,194 14,386 11,595 Amortization of right-of-use assets 5,563 5,438 4,412 Unrealized loss on long-term marketable equity securities — — 1,181 Realized gain on sale of long-term marketable equity securities, net — ( 284 ) — Loss on disposal of asset 91 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 ) Revaluation of contingent consideration to estimated fair value 931 2,677 727 Amortization of premium and accretion of discount on short-term marketable securities, net 621 ( 4,927 ) 390 Changes in operating assets and liabilities: Accounts receivable ( 13,741 ) 16,016 ( 6,660 ) Inventory ( 1,018 ) 54 ( 2,859 ) Prepaid and other assets 606 1,767 ( 1,049 ) Accounts payable ( 5,110 ) 2,904 ( 2,054 ) Accrued compensation 18,667 2,655 ( 9,251 ) Accrued and other liabilities ( 95,661 ) 89,608 11,327 Accrued royalties — ( 1,557 ) — Operating lease liabilities, net ( 5,863 ) ( 5,418 ) ( 3,456 ) Change in deferred taxes ( 187 ) 566 ( 215 ) Net cash provided by (used in) operating activities 38,048 ( 18,388 ) ( 25,239 ) Investing activities: Maturities of short-term marketable securities 166,921 256,038 111,587 Purchases of short-term marketable securities ( 160,286 ) ( 201,165 ) ( 315,145 ) Purchase of corporate equity securities ( 634 ) ( 965 ) — Sale of corporate equity securities — 2,460 — Additions of capital expenditures ( 6,484 ) ( 8,344 ) ( 21,234 ) Acquisition of intangible assets — ( 896 ) ( 3,100 ) Acquisition of business, net of cash acquired — ( 6,682 ) ( 610 ) Net cash (used in) provided by investing activities ( 483 ) 40,446 ( 228,502 ) Financing activities: Payment of contingent consideration ( 5,325 ) ( 625 ) ( 2,625 ) Repurchase and retirement of common stock ( 522 ) ( 27,541 ) ( 642 ) Proceeds from exercise of warrants — 4 — Proceeds from exercise of stock options 8,936 120 2,435 Proceeds from issuance of common stock under employee stock purchase plan 1,397 1,495 2,230 Taxes paid related to net share settlement of restricted stock units ( 10,092 ) ( 3,059 ) ( 5,933 ) Net cash used in financing activities ( 5,606 ) ( 29,606 ) ( 4,535 ) Effect of exchange rate changes on cash and cash equivalents 532 ( 112 ) 23 Net increase (decrease) in cash, cash equivalents and restricted cash 32,491 ( 7,660 ) ( 258,253 ) Cash, cash equivalents, and restricted cash at beginning of period 82,783 90,443 348,696 Cash, cash equivalents, and restricted cash at end of period $ 115,274 $ 82,783 $ 90,443 Supplemental disclosures of cash information Cash paid for interest $ — $ — $ 8 Cash paid for income taxes $ 317 $ 738 $ 392 Supplemental disclosures of cash flow information Shares issued in lieu of payment $ 174 $ 216 $ 319 Operating lease right-of-use assets $ 195 $ 607 $ 22,267 Purchases of capital expenditures in accounts payable and accrued liabilities $ 633 $ 647 $ 1,423 Employee stock purchase plan shares included in accrued compensation $ 975 $ 556 $ 686 Contingent consideration $ — $ 3,499 $ — The accompanying notes are an integral part of these consolidated financial statements. 77 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 offers testing services, products, and patient and digital solutions along the pre- and post-transplant patient journey. The Company’s headquarters are in Brisbane, California. The primary operations are in Brisbane, California; Omaha, Nebraska; 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. The Company has signed multiple biopharma research partnerships for AlloCell, a surveillance solution that monitors the level of engraftment and persistence of allogeneic cells for patients who have received cell therapy. 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 and various offerings. 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 and marketable securities. 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. The Company is also subject to credit risk from its accounts receivable, which are derived from revenue earned from AlloSure Kidney, AlloSure Heart, AlloMap Heart, HeartCare and AlloSure Lung 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, and 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, 2024, 2023 and 2022, approximately 38 %, 40 % and 53 %, respectively, of total revenue was billed to Medicare. No other payers represented more than 10% of total revenue for the years ended December 31, 2024, 2023 and 2022. As of December 31, 2024 and 2023, approximately 27 % and 36 %, respectively, of accounts receivable was due from Medicare. No other payer or customer represented more than 10% of accounts receivable at either December 31, 2024 or 2023. 78 Table of Contents 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, 2024, the Company’s short-term marketable securities consisted of corporate debt securities with maturities of greater than three months but less than 12 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, net, on the condensed 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, net. The cost of securities sold is determined using specific identification. Inventory 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. Excess and obsolete inventories are determined primarily based on expiration dates and future demand forecasts, and write-downs of excess and obsolete inventories are recorded as a component of cost of product. Property and Equipment, net Property and equipment are stated at historical 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 . 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. 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. 79 Table of Contents 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 has a single reporting unit and consequently evaluates goodwill for impairment based on an evaluation of the fair value of the Company as a whole. The Company’s annual impairment test date is December 1 st . During the goodwill impairment review, the Company assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount, including goodwill. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and the market considerations, and the Company's overall financial performance. If, after assessing the totality of these qualitative factors, the Company determines that it is not more likely than not that the fair value of the reporting unit is less than the carrying amount, then no additional assessment is deemed necessary. Otherwise, the Company proceeds to compare the estimated fair value of the reporting unit with the carrying value, including goodwill. If the carrying amount of the reporting unit exceeds the fair value, the Company records an impairment loss based on the difference. The Company elects to bypass the qualitative assessment in a period and proceeds to perform the quantitative goodwill impairment test. 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 assess the reasonableness of the reporting unit’s fair value. Indefinite-lived intangible assets The Company evaluates the carrying value of indefinite-lived intangible assets, 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. Finite-lived intangible assets and long-lived assets 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 group may not be recoverable. The Company then compares the carrying amounts of the asset group with the future net undiscounted cash flows expected to be generated by such asset group. If an impairment exists, the Company measures the impairment based on the excess carrying value of the asset group over the asset group’s fair value determined using discounted estimates of future cash flows. Intangible assets subject to amortization 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. 80 Table of Contents Fair Value of Financial Instruments 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 Company uses the U.S. GAAP fair value 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. The carrying amounts of certain financial instruments of the Company, including accounts receivable, prepaid expenses and other current assets, 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 determines if an arrangement is or contains a lease at contract inception. For leases with an initial term of 12 months or less, 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 does not 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. 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 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, HeartCare 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. 81 Table of Contents 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 criterion, identify the contracts(s) with a customer, and the second criterion, identify the performance obligations in the contract, of revenue recognition 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, HeartCare 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 a history of reimbursements. This includes analysis of the average reimbursement per test and a percentage of tests reimbursed. These estimates require 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, the Company's discussions with payers, and other pertinent information. In addition, consistent with ASC 606-10-25-1, the Company continues to assess whether it is probable that it will collect substantially all of the consideration to which it will be entitled when determining if a contract with a customer exists. For the year ended December 31, 2024, the Company recognized $ 17.4 million in revenue for the tests performed in prior periods, as all performance obligations were satisfied at the time the contract was established. 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, including the number of products ordered. Transaction prices are determinable in the contract. The products are delivered and control is transferred to the customer upon either shipping or delivery, as per the terms of the agreement. There are no further performance obligations related to a contract and revenue is recognized at the point of delivery consistent with the terms of the contract or purchase order. Patient and Digital Solutions Revenue Patient and digital solutions revenue is primarily 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 at the point in time when control of the license is transferred and made available for the customer's use and benefit. 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 for which the related revenues have not been recognized because one or more of the revenue recognition criteria have not been met, 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. Cost of Product 82 Table of Contents 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 excess 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 the use of the Company’s tests, as well as continued efforts related to improving the Company’s existing products and patient and digital solutions offerings. 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 based on measure of progress. 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. 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. 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. 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 83 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 Income (Loss) Comprehensive income (loss) consists of net income (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 In December 2024, the Company adopted the new segment reporting standard issued by the Financial Accounting Standards Board (“FASB”) under 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 an 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. This ASU is effective for the Company’s annual disclosures in fiscal year 2024 and interim-period disclosures in fiscal year 2025. See Note 15, Segment Reporting . Effective in Future Periods 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. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures . This standard requires entities to disaggregate certain costs and expenses into specific categories and by relevant expense caption in the statement of operations. The standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. This guidance will be effective for the Company's annual disclosures in fiscal year 2027 and for interim period disclosures beginning in fiscal year 2028. The Company is currently evaluating the impact of adopting of the new standard on its consolidated financial statements and related disclosures. 3. NET INCOME (LOSS) PER SHARE Basic and diluted net income (loss) per share have been computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. For the year ended December 31, 2024, common share equivalents have been included in the calculation of diluted net income per share. For the years ended December 31, 2023 and 2022, all common share equivalents have been excluded from the calculation of diluted net loss per share, as their effect would be antidilutive. 84 Table of Contents The following tables set forth the computation of the Company’s basic and diluted net income (loss) per share (in thousands, except shares and per share data): Year Ended December 31, 2024 2023 2022 Numerator: Net income (loss) used to compute basic net income (loss) per share $ 52,549 $ ( 190,284 ) $ ( 76,613 ) Net income (loss) used to compute diluted net income (loss) per share $ 52,549 $ ( 190,284 ) $ ( 76,613 ) Denominator: Weighted-average shares used to compute basic net income (loss) per share 52,773,247 53,764,705 53,321,625 Weighted-average shares used to compute diluted net income (loss) per share 56,620,590 53,764,705 53,321,625 Net income (loss) per share: Basic $ 1.00 $ ( 3.54 ) $ ( 1.44 ) Diluted $ 0.93 $ ( 3.54 ) $ ( 1.44 ) The following potentially dilutive securities have been excluded from diluted net income (loss) per share because their effect would be antidilutive: Year Ended December 31, 2024 2023 2022 Shares of common stock subject to outstanding options 2,496,063 3,055,208 2,921,925 Shares of common stock subject to outstanding common stock warrants — — 3,132 Restricted stock units 543,479 5,001,370 3,092,467 Total common stock equivalents 3,039,542 8,056,578 6,017,524 85 Table of Contents 4. FAIR VALUE MEASUREMENTS The following table sets forth the Company’s financial assets and liabilities, measured at fair value on a recurring basis, as of December 31, 2024 and 2023 (in thousands): December 31, 2024 Fair Value Measured Using (Level 1) (Level 2) (Level 3) Total Balance Assets Cash equivalents: Money market funds $ 52,230 $ — $ — $ 52,230 Total $ 52,230 $ — $ — $ 52,230 Liabilities Short-term liabilities: Contingent consideration $ — $ — $ 2,414 $ 2,414 Long-term liabilities: Contingent consideration — — 174 174 Total $ — $ — $ 2,588 $ 2,588 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 86 Table of Contents The following table presents the exercise, changes in estimated fair value, additions, deduction and payments 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, 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 Change in estimated fair value of contingent consideration on business combination 931 Change in estimated fair value of contingent consideration on asset acquisition ( 448 ) Deduction from contingent consideration ( 500 ) Payment related to contingent consideration ( 5,325 ) Balance at December 31, 2024 $ 2,588 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, monitoring and/or 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. In December 2024, the Company made an additional investment. As of December 31, 2024, the Company has invested a total of $ 1.4 million. The Company's investment is in the form of ordinary and Class B shares carried at cost. In December 2023, Miromatrix was acquired by United Therapeutics Corporation ("United Therapeutics"). The Company tendered and sold all of its shares of Miromatrix to United Therapeutics in the transaction for $ 2.5 million. The Company recognized a $ 1.5 million gain from the disposal of Miromatrix and recorded it as other income (expense), net, on the consolidated statements of operations for the year ended December 31, 2023. The Company received contingent value rights from United Therapeutics which will expire on December 31, 2025. 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, 2024 and 2023, money market funds were included as cash and cash equivalents in 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 7 % to 12 % at December 31, 2024 and 6 % to 12 % at December 31, 2023. The significant input in the Level 3 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 87 Table of Contents or are no longer achievable. Increases or decreases in the estimation of the probability percentage results 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 result in a directionally similar impact to the fair value of the common stock warrant liability. 88 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, 2024 December 31, 2023 December 31, 2022 Cash and cash equivalents $ 114,689 $ 82,197 $ 89,921 Restricted cash 585 586 522 Total cash, cash equivalents, and restricted cash at the end of the period $ 115,274 $ 82,783 $ 90,443 Marketable Securities All short-term marketable securities were considered held-to-maturity at December 31, 2024 and 2023. 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. The Company assesses whether the decline in value of short-term marketable securities is temporary or other-than-temporary. In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information. There has been no recognition of any other-than-temporary impairment at December 31, 2024 and 2023. The amortized cost, unrealized holding gains, and fair value of the Company’s marketable securities by major security type at each balance sheet date are summarized in the tables below (in thousands): December 31, 2024 Amortized Cost Unrealized Holding Gains Fair Value Short-term marketable securities: U.S. agency securities $ 90,918 $ 1,648 $ 92,566 Corporate debt securities 55,046 718 55,764 Total short-term marketable securities $ 145,964 $ 2,366 $ 148,330 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 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 statements 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 89 Table of Contents 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 has been included in the Company’s consolidated statements of operations from the 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. 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 statements 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 90 Table of Contents 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 (final amount) and MediGO (final amount) of the assets acquired and liabilities assumed recognized at their estimated fair value at the acquisition date (in thousands): Total Consideration Cash and contingent consideration $ 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 consideration ( 1,620 ) Other liabilities ( 7 ) Total identifiable net assets acquired 4,036 Goodwill 2,646 Total consideration $ 6,682 The 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, Commitments and Contingencies . 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. Only one asset was acquired and the entire cost is assigned to the licensing agreement, which is recorded under Intangible assets, net, in the consolidated balance sheets. The licensing agreement has an indefinite life and is presented in notes to the consolidated financial statements under the intangible assets with indefinite lives category. 91 Table of Contents 7. GOODWILL AND INTANGIBLE ASSETS Goodwill On December 1, 2024, 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, 2024, 2023 and 2022, there has been no impairment of goodwill. The following table presents details of the Company’s goodwill as of December 31, 2024 and 2023 (in thousands): 2024 2023 Balance as of January 1, $ 40,336 $ 37,523 Goodwill acquired — 2,646 Remeasurement adjustment — 167 Balance as of December 31, $ 40,336 $ 40,336 Intangible Assets The following table presents details of the Company’s intangible assets as of December 31, 2024 ($ in thousands): December 31, 2024 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 $ ( 21,357 ) $ ( 2,531 ) $ 13,479 6.6 Customer relationships 25,718 ( 10,777 ) ( 2,332 ) 12,609 8.4 Commercialization rights 11,579 ( 5,760 ) — 5,819 4.6 Trademarks and tradenames 5,220 ( 2,094 ) ( 356 ) 2,770 8.5 Total intangible assets with finite lives 79,884 ( 39,988 ) ( 5,219 ) 34,677 Acquired in-process technology 1,250 — — 1,250 Favorable license agreement 2,257 — — 2,257 Total intangible assets with indefinite lives 3,507 — — 3,507 Total intangible assets $ 83,391 $ ( 39,988 ) $ ( 5,219 ) $ 38,184 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 92 Table of Contents As of December 31, 2024, 2023 and 2022, there has been no impairment of intangible assets. The following table summarizes the Company's amortization expense of intangible assets (in thousands): Year Ended December 31, 2024 2023 2022 Cost of testing services $ 1,316 $ 1,316 $ 1,316 Cost of product 1,660 1,655 1,716 Cost of patient and digital solutions 850 1,039 945 Sales and marketing 2,520 2,457 2,252 Total $ 6,346 $ 6,467 $ 6,229 The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of December 31, 2024 (in thousands): Years Ending December 31, Cost of Testing Services Cost of Product Cost of Patient and Digital Solutions Sales and Marketing Total 2025 $ 1,316 $ 1,614 $ 681 $ 2,488 $ 6,099 2026 1,316 730 681 2,487 5,214 2027 1,316 730 681 2,473 5,200 2028 1,316 730 681 2,473 5,200 2029 1,085 730 493 2,177 4,485 Thereafter 424 1,795 969 5,291 8,479 Total future amortization expense $ 6,773 $ 6,329 $ 4,186 $ 17,389 $ 34,677 93 Table of Contents 8. BALANCE SHEET COMPONENTS Inventory Inventory consisted of the following (in thousands): December 31, 2024 2023 Finished goods $ 4,819 $ 3,658 Work in progress 3,793 5,191 Raw materials 10,891 10,622 Total inventory $ 19,503 $ 19,471 Property and Equipment, Net Property and equipment consisted of the following (in thousands): December 31, 2024 2023 Machinery and equipment $ 18,771 $ 18,051 Leasehold improvements 18,106 18,259 Internally developed software 13,843 15,116 Construction in progress 11,937 8,306 Computer and office equipment 5,650 5,609 Furniture and fixtures 2,187 2,168 Property and equipment 70,494 67,509 Less: Accumulated depreciation and amortization ( 36,942 ) ( 32,263 ) Property and equipment, net $ 33,552 $ 35,246 Depreciation expense was $ 7.8 million, $ 7.9 million and $ 5.2 million for the years ended December 31, 2024, 2023 and 2022, respectively. Accrued and Other Liabilities Accrued and other liabilities consisted of the following (in thousands): December 31, 2024 2023 Clinical studies $ 16,166 $ 15,744 Short-term lease liability 6,103 5,943 Professional fees 5,971 5,911 Deferred revenue 4,848 4,748 Laboratory processing fees and materials 3,184 2,890 Contingent consideration 2,414 5,469 Travel and expenses 819 — Accrued shipping expenses 504 335 Accrued royalty 255 348 Deferred payments for intangible assets 250 920 Capital expenditures 126 151 License and other collaboration fees 67 250 Other accrued expenses 2,645 2,788 Total accrued and other liabilities $ 43,352 $ 45,497 94 Table of Contents 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; 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, 2024, the carrying value of the ROU asset was $ 24.3 million. The related current and non-current liabilities as of December 31, 2024 were $ 6.1 million and $ 22.3 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. Effective March 2024, the Company entered into a sublease agreement with a sub-lessee (a third-party) for office space with a six-year term, commencing on May 1, 2024, for a total of $ 2.6 million base rent for the duration of the contract. The following table summarizes the lease cost for the years ended December 31, (in thousands): 2024 2023 2022 Operating lease cost $ 7,717 $ 7,936 $ 6,716 Total lease cost $ 7,717 $ 7,936 $ 6,716 December 31, 2024 2023 Other information: Weighted-average remaining lease term - Operating leases (in years) 4.61 5.43 Weighted-average discount rate - Operating leases (%) 7.1 % 7.1 % Supplemental cash flow information related to leases for the years ended December 31, are as follows (in thousands): 2024 2023 2022 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows used for operating leases $ 5,339 $ 5,454 $ 3,665 Total $ 5,339 $ 5,454 $ 3,665 Maturities of operating lease liabilities as of December 31, 2024, are as follows (in thousands): Years ending December 31, Operating Leases 2025 $ 7,823 2026 7,162 2027 7,274 2028 6,599 2029 1,606 Thereafter 2,509 Total lease payments 32,973 Less imputed interest 4,607 Present value of future minimum lease payments 28,366 Less operating lease liability, current portion 6,103 Operating lease liability, long-term portion $ 22,263 As of December 31, 2024, the Company’s leases had remaining terms of 0.33 years to 8.09 years, some of which include options to extend the lease term. Royalty Commitments 95 Table of Contents 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, 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, 2024. Illumina On May 4, 2018, the Company entered into a license agreement with Illumina, Inc. (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. Other Commitments 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 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. Natera 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, 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. In August 2023, the Court issued an injunction prohibiting Natera from making the claims the jury previously found to be false advertising. Both parties appealed. On October 8, 2024, the United States Court of Appeals for the Third Circuit remanded the case to make additional findings. On December 23, 2024, the U.S. District Court for 96 Table of Contents the District of Delaware issued an order concluding that there was sufficient evidence to support the jury’s findings of falsity on eight advertisements by Natera. Following the decision, the parties submitted additional briefing to the Third Circuit. The Company did not record a receivable or a gain from the judgment as the amount has not yet been realized. 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 appealed that decision. On March 13, 2024, the Federal Circuit dismissed Natera's appeal after Natera failed to file its brief and other required papers. On May 30, 2024, Natera filed a second notice of appeal of the dismissal of U.S. Patent 10,597,724. On June 19, 2024, the Company moved to dismiss Natera's appeal. On September 11, 2024, the Federal Circuit denied that motion. 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. Following trial, Natera moved for an injunction on the Company's prior AlloSure process and the parties engaged in motion practice regarding the jury's verdict and discovery as to whether the Company’s current AlloSure process infringes Natera's U.S. Patent 11,111,544. On September 11, 2024, Natera informed the Court that it was abandoning claims of ongoing infringement. On January 3, 2025, the Court issued an order denying Natera’s motion to set aside the jury’s finding that the Company did not infringe Natera's U.S. Patent 10,655,180. On February 24, 2025, the Court issued an order concluding that Natera's U.S. Patents 11,111,544 and 10,655,180 were invalid for lack of written description thereby overturning the jury verdict. On February 25, 2025, the Court issued an order denying Natera's motion for an injunction as moot but Natera has a right to appeal the Court's invalidation of its patents. The Company intends to defend itself in 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. In addition, Natera's U.S. Patent 11,111,544 is also subject to a pending ex parte reexamination before the United States Patent and Trademark Office (“PTO”). On February 14, 2025, a PTO examiner issued a non-final Office action rejecting Claims 21, 26, and 27 of the patent, the claims CareDx was found to have infringed in the litigation. Natera now has a right to respond to this Office action and there is no guarantee that these Claims will ultimately be rejected. After the jury finding, the Company recognized the damages of $ 96.3 million as other liabilities on the consolidated balance sheets as of December 31, 2023 as the loss was probable and reasonably estimable at that time. After the Court order overturned the jury finding, the Company derecognized the $ 96.3 million in other liabilities on the consolidated balance sheets as of December 31, 2024 as the Company concluded that the loss was no longer probable. It is reasonably possible that the Company may not prevail if the case is appealed in which case the range of loss could be up to the jury awarded amount of $ 96.3 million plus potential interest. 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. In a court document unsealed on October 7, 2024, the DOJ notified the United States District Court for the Eastern District of New York that it was declining to intervene in a qui tam action filed against the Company by a former employee that served as the basis for the CID. Accordingly, CareDx understands that the DOJ has closed its investigation of the Company with no finding of wrongdoing. On February 18, 2025, the private plaintiff who originally filed the qui tam action in 2021 filed an 97 Table of Contents executed summons indicating his intent to proceed with the claims that the DOJ and SEC reviewed and declined to prosecute. The Company denies the allegations in the qui tam action and intends to vigorously defend itself. 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. Although the Company remains committed to compliance with all applicable laws and regulations, it cannot predict the outcome of, or any other requests or investigations that may arise, in the future. 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. On September 18, 2024, the court granted the Company’s motion to dismiss the second amended complaint without prejudice, providing plaintiffs leave to file a third amended complaint by no later than October 2, 2024 (a deadline which was subsequently extended by stipulation). On October 18, 2024, plaintiffs filed a third amended complaint, which again alleges that the Company and the individual defendants made materially false and/or misleading statements and/or omissions in violation of Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. Among other things, plaintiffs removed former Chief Financial Officer, Ankur Dhingra, as a named defendant. The third amended complaint reiterates many of the same factual allegations as in prior complaints, but purports to add new allegations based on, among other things, a recently unsealed qui tam action filed by a former employee. On November 15, 2024 the defendants filed a motion to dismiss the third amended complaint and on December 13, 2024, plaintiffs filed an opposition brief. On January 10, 2025, defendants filed their reply brief and a hearing was held on January 28, 2025. On February 18, 2025, the court denied the defendant’s motion to dismiss the third amended complaint. 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. Derivative Actions On September 21, 2022, Jeffrey Edelman 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 Drs. Seeto and Maag and Mr. Dhingra, and other current and former members of the Company’s Board of Directors asserting, among other things, alleged breaches of fiduciary duty against the Individual Defendants based on the factual allegations of the Securities Class Action (the “ Edelman Derivative Action ” ). In 2023, and 2024, various additional derivative complaints asserting similar allegations and claims were filed in the U.S. District Court for the Northern District of California, all of which were consolidated on April 23, 2024 by the court (the “Consolidated Derivative Action”). On November 5, 2024 the parties filed a stipulation of voluntary dismissal and proposed order. On November 7, 2024, the court entered a modified order, dismissing the Consolidated Derivative Action without prejudice. In its modified order, the court requested that the parties submit a joint statement to address whether any additional notice to Company stockholders was 98 Table of Contents required. On November 8, 2024, the parties submitted a supplemental joint statement, explaining that the parties did not believe additional Rule 23(c) notice was required and on January 7, 2025, the Court issued an order affirming that finding. The Consolidated Derivative Action has now been dismissed. On February 26, 2025, the plaintiffs in the Consolidated Derivative Action initiated a new action, captioned Edelman v. Bickerstaff, 3:25-c-02036 (N.D. Cal. filed Feb. 26, 2025), purporting to reinstate the claims in the Consolidated Derivative Action and updating and amending their prior complaint. On March 20, 2024, Edward W. Burns IRA filed a stockholder derivative action complaint in the Court of Chancery of the State of Delaware against the Company as nominal defendant and Dr. Seeto, Mr. Dhingra, Dr. Maag, and other current and former members of the Board of Directors (the “Burns Derivative Action”). Prior to filing the complaint, the Company produced documents to the plaintiff in response to a books and records inspection demand made pursuant to Section 220 of the Delaware General Corporation Law. The plaintiff purports to incorporate those documents in the complaint. The plaintiff alleges that the individual defendants breached their fiduciary duties as directors and/or officers of the Company and engaged in insider trading, unjust enrichment, waste of corporate assets, and aiding and abetting breaches of fiduciary duty. The suit seeks declaratory relief, recovery of alleged damages sustained by the Company as a result of the alleged violations, equitable relief, restitution, and plaintiff’s costs incurred in the lawsuit, including reasonable attorneys’, accountants’, and experts’ fees, costs, and expenses. On April 11, 2024, the court entered an order staying the Burns Derivative Action pursuant to a stipulation filed by the parties. On May 30, 2024, the parties to the Burns Derivative Action filed an amended stipulation and proposed order to continue the stay in that action, which was so-ordered by the court on May 31, 2024. Given the decision in the securities class action, the stay in the Burns Derivative Action will lift in accordance with the terms so-ordered by the court unless otherwise extended. 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. 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. On June 4, 2024, the Superior Court of the State of California for the County of San Mateo entered an order granting a motion for summary judgment by the insurers. The Company is currently pursuing an appeal of the matter. 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. 10. STOCKHOLDERS’ EQUITY Shelf Registration Statement On May 10, 2023, the Company filed a universal shelf registration statement (File No. 333-271814) (the “Registration Statement”), and thereafter filed post-effective amendments on May 9, 2024 and May 23, 2024. The SEC declared the Registration Statement effective on May 23, 2024, and as a result, 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 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 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, subject to approval by the 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, 2024 and 2023 , the Company purchased an aggregate of 55,500 and 2,942,997 shares of its common stock, respectively, under the Repurchase Program for an aggregate purchase price of $ 0.5 million and $ 27.5 million, respectively. 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. 99 Table of Contents 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 $ 2.3 million, $ 1.7 million and $ 1.8 million for the years ended December 31, 2024, 2023 and 2022, 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. Warrant 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, 2024, no warrants to purchase shares of common stock were exercised. 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 . As of December 31, 2024 and 2023, no warrants to purchase common stock were outstanding. 13. STOCK INCENTIVE PLANS 2014 Equity Incentive Plan The Company grants stock-based awards under its 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 10 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 a one-year cliff. The RSUs generally vest annually over four years in equal increments. There were 1,398,171 shares of common stock reserved for future issuance under the 2014 Plan as of December 31, 2024. 2016 Inducement Plan On April 21, 2016, the Company adopted the 2016 Inducement Equity Incentive Plan (the “2016 Plan”), that allows for the issuance of stock options, RSUs and other 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, 2024. 2019 Inducement Equity Incentive Plan The Company grants stock-based awards under the 2019 Inducement Equity Incentive Plan (the “2019 Plan”) that allows for the issuance of stock options, RSUs and other stock awards to new employees of the Company. The terms in the 2019 Plan are substantially similar to the 2014 Plan. There were 35,084 shares of common stock reserved for future issuance under the 2019 Plan as of December 31, 2024. 2024 Equity Incentive Plan The Company grants stock-based awards under the 2024 Equity Incentive Plan (the “2024 Plan”) that allows for the issuance of stock options, RSUs and other stock awards to the Company’s employees, directors, and consultants. The terms in the 2024 Plan are substantially similar to the 2014 Plan. There were 3,063,094 shares of common stock reserved for future issuance under the 2024 Plan as of December 31, 2024. The Inducement Grants On April 15, 2024 and September 12, 2024, the Company granted a total of 1,487,326 shares of stock options and RSUs for the appointment of certain executive officers (the “Inducement Grants”). The Inducement Grants were approved by the Compensation Committee of the Company's Board of Directors as an inducement material to the employee's acceptance of 100 Table of Contents employment with the Company in compliance with and in reliance on Nasdaq Listing Rule 5635(c)(4), which exempts employment grants from the general requirement of the Nasdaq Listing Rules that equity-based compensation plans and arrangements be approved by stockholders. Stock Options and RSUs The following table summarizes option and RSUs activity under the Company’s 2014 Plan, 2016 Plan, 2019 Plan and 2024 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, 2023 869,111 3,055,208 $ 25.21 5,006,775 $ 19.02 Additional options authorized 7,047,461 — — — — Common stock awards for services ( 16,582 ) — — — — RSUs granted ( 3,726,419 ) — — 3,726,419 11.12 RSUs vested — — — ( 3,245,483 ) 16.41 Options granted ( 1,053,285 ) 1,053,285 13.14 — — Options exercised — ( 527,009 ) 16.96 — — Repurchases of common stock under employee incentive plans 622,202 — — — — RSUs forfeited 645,041 — — ( 645,041 ) 15.61 Options forfeited 32,481 ( 32,481 ) 29.87 — — Options expired 139,091 ( 139,091 ) 27.19 — — Balance—December 31, 2024 4,559,101 3,409,912 $ 22.63 4,842,670 $ 15.38 The total intrinsic value of options exercised was $ 4.8 million, $ 0.1 million and $ 1.6 million for the years ended December 31, 2024, 2023 and 2022, respectively. The total fair value of RSUs vested during 2024 was $ 62.0 million. As of December 31, 2024, the total intrinsic value of outstanding RSUs was approximately $ 107.3 million and there were $ 38.0 million of unrecognized compensation costs related to RSUs, which are expected to be recognized over a weighted-average period of 2.12 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 two years . The number of shares outstanding was 335,583 and 449,983 as of December 31, 2024 and December 31, 2023, respectively. The weighted-average remaining recognition period was 1.07 years and 1.01 years for the years ended December 31, 2024 and 2023, respectively. Options outstanding that have vested and are expected to vest at December 31, 2024 are as follows: Number of Options Issued (In thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (In thousands) Vested 2,075 $ 26.76 5.04 $ 6,512 Expected to Vest 1,172 16.16 8.89 9,133 Total 3,247 $ 15,645 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, 2024 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, 2024, 2023 and 2022 using the Black-Scholes Model was $ 9.08 , $ 8.63 and $ 19.51 , respectively. The total fair value of options that vested during 2024 was $ 11.6 million. As of December 31, 2024, there were approximately $ 11.8 million of unrecognized compensation costs related to stock options, which are expected to be recognized over a weighted-average period of 2.72 years. 101 Table of Contents 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 2024 that ended on December 31, 2024, 66,747 shares were purchased for aggregate proceeds of $ 0.9 million from the issuance of shares, which occurred on January 2, 2025. During the offering period in 2024 that ended on June 30, 2024, 85,260 shares were purchased for aggregate proceeds of $ 0.9 million from the issuance of shares, which occurred on July 2, 2024. 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 159,019 shares and 190,842 shares of common stock during the years ended December 31, 2024 and December 31, 2023, respectively, pursuant to the ESPP. The Company received proceeds of $ 1.4 million and $ 1.5 million from the purchases of shares during the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, the Company had 558,787 shares available for issuance under the ESPP. Board of Directors Stock Awards Granted for Services For the years ended December 31, 2024, 2023 and 2022, 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, 2024, there were a total of 321,234 shares issued to the Company’s directors, for a total fair value of $ 2.6 million. Stock-based compensation expense associated with the awards was $ 0.1 million, $ 0.2 million and $ 0.4 million for the years ended December 31, 2024, 2023 and 2022, respectively, which was included in general and administrative expense on the consolidated statements of operations. 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, 2024 2023 2022 Employee stock options Expected term (in years) 5.90 5.61 5.96 Expected volatility 76.83 % 77.86 % 77.62 % Risk-free interest rate 4.38 % 3.67 % 2.74 % Expected dividend yield — % — % — % Employee stock purchase plan Expected term (in years) 0.5 0.5 0.5 Expected volatility 69.60 % – 91.99 % 75.91 % – 93.38 % 67.79 % – 77.88 % Risk-free interest rate 5.24 % – 5.37 % 5.26 % – 5.47 % 2.51 % – 4.76 % 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. 102 Table of Contents 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, 2024, 2023 and 2022, included on the consolidated statements of operations as follows (in thousands): Year Ended December 31, 2024 2023 2022 Cost of testing services $ 1,560 $ 1,854 $ 1,529 Cost of product 870 1,165 1,120 Cost of patient and digital solutions 1,276 1,377 1,331 Research and development 6,501 6,556 7,391 Sales and marketing 11,035 12,470 14,403 General and administrative 45,164 25,664 20,779 Total $ 66,406 $ 49,086 $ 46,553 103 Table of Contents 14. INCOME TAXES Income (loss) before income taxes for the years ended December 31, 2024, 2023 and 2022 is summarized as follows (in thousands): As of December 31, 2024 2023 2022 United States $ 55,151 $ ( 188,421 ) $ ( 73,089 ) Foreign ( 2,292 ) ( 1,722 ) ( 3,145 ) Total income (loss) before income taxes $ 52,859 $ ( 190,143 ) $ ( 76,234 ) The components of the provision for (benefit from) income taxes are summarized as follows (in thousands): As of December 31, 2024 2023 2022 Current Federal $ 2 $ ( 117 ) $ 145 State 198 186 328 Foreign 9 — 184 Total current income tax expense (benefit) 209 69 657 Deferred Federal ( 10 ) 184 ( 130 ) State ( 26 ) ( 112 ) 75 Foreign 137 — ( 223 ) Total deferred income tax expense (benefit) 101 72 ( 278 ) Income tax expense $ 310 $ 141 $ 379 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 2024, 2023 and 2022, to income (loss) before income taxes as a result of the following: Year Ended December 31, 2024 2023 2022 Federal tax statutory rate 21.0 % 21.0 % 21.0 % Stock-based compensation ( 6.3 ) % ( 3.8 ) % ( 2.8 ) % Change in valuation allowance ( 18.9 ) % ( 18.1 ) % ( 16.9 ) % Foreign rate differential — % 0.2 % ( 0.2 ) % Non-deductible executive compensation 9.9 % ( 0.4 ) % ( 2.1 ) % Research credits ( 5.1 ) % 0.4 % 1.8 % Changes in net operating loss carryforwards, including expirations — % 0.8 % ( 0.5 ) % Other — % ( 0.2 ) % ( 0.8 ) % Effective income tax rate 0.6 % ( 0.1 ) % ( 0.5 ) % 104 Table of Contents Deferred income tax assets and liabilities consist of the following (in thousands): As of December 31, 2024 2024 2023 Deferred tax assets: Net operating loss carryforwards $ 29,839 $ 30,260 Tax credit carryforwards 14,045 10,317 Accruals 5,027 26,256 Lease liability 6,843 7,947 Section 174 capitalized costs 33,651 31,724 Stock-based compensation 16,163 12,799 Other 1,061 1,351 Gross deferred tax assets 106,629 120,654 Valuation allowance ( 92,217 ) ( 102,865 ) Total deferred tax assets 14,412 17,789 Deferred tax liabilities: Purchased intangibles ( 4,828 ) ( 6,112 ) Operating leases right-of-use assets ( 5,858 ) ( 6,914 ) Property and equipment ( 3,524 ) ( 4,443 ) Other ( 366 ) ( 456 ) Total deferred tax liabilities ( 14,576 ) ( 17,925 ) Net deferred tax liabilities $ ( 164 ) $ ( 136 ) 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 Australian operations. Accordingly, the U.S. and Sweden net deferred tax assets have been offset by a full valuation allowance. The valuation allowance decreased by $ 10.6 million and increased by $ 43.4 million during the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, the Company had domestic federal net operating loss carryforwards of $ 109.8 million, domestic state net operating loss carryforwards of $ 66.3 million, and foreign net operating loss carryforwards of $ 12.6 million that can reduce future taxable income. The domestic federal and state net operating loss carryforwards will begin to expire in 2025 and 2027, respectively. The foreign net operating loss carryforwards can be carried forward indefinitely. As of December 31, 2024, the Company had credit carryforwards of approximately $ 12.3 million and $ 13.2 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 2024. California credits have no expiration date. The Company has recorded a valuation allowance against its deferred tax assets at December 31, 2024 and 2023 because the Company's management believes that it is more likely than not that these assets will not be fully realized. The decrease in the valuation allowance is approximately $ 10.6 million in the year ended December 31, 2024. 105 Table of Contents A reconciliation of the Company’s unrecognized tax benefits is as follows (in thousands): Year Ended December 31, 2024 2023 2022 Balance at the beginning of the year $ 6,184 $ 5,436 $ 4,156 Additions based on tax positions related to the current year 1,323 839 1,255 Additions based on tax positions related to prior years 1,134 — 25 Decreases based on tax positions related to prior years — ( 91 ) — Balance at the end of the year $ 8,641 $ 6,184 $ 5,436 None of the $ 8.6 million of net unrecognized tax benefit as of December 31, 2024, if recognized, would impact the Company's effective tax rate. During the year ended December 31, 2024, 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, 2024 and December 31, 2023, the Company had in each year $ 0.2 million of cumulative interest and penalties related to unrecognized tax benefits., of which 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. The Company does not anticipate a significant change in the unrecognized tax benefits over the next 12 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 4 to 6 years. 106 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 President and 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 has determined that it has one operating segment, and therefore, one reportable segment. Revenues by geographic regions are based upon the customers’ ship-to address for product revenue, the region of testing for testing services revenue and the region where the performance obligation is satisfied for patient and digital solutions revenue. The following table summarizes reportable revenues by geographic regions (in thousands): Year Ended December 31, 2024 2023 2022 Testing services revenue United States $ 248,247 $ 209,158 $ 262,959 Rest of World 1,134 527 789 $ 249,381 $ 209,685 $ 263,748 Product revenue United States $ 26,024 $ 19,753 $ 16,409 Europe 10,549 9,901 9,081 Rest of World 4,210 3,863 3,761 $ 40,783 $ 33,517 $ 29,251 Patient and digital solutions revenue United States $ 43,461 $ 36,719 $ 28,175 Europe 120 266 468 Rest of World 40 137 151 $ 43,621 $ 37,122 $ 28,794 Total revenue Total United States $ 317,732 $ 265,630 $ 307,543 Total Europe $ 10,669 $ 10,167 $ 9,549 Total Rest of World $ 5,384 $ 4,527 $ 4,701 $ 333,785 $ 280,324 $ 321,793 The following table summarizes long-lived assets, consisting of property and equipment, net, by geographic regions (in thousands): December 31, 2024 December 31, 2023 Long-lived assets: United States $ 33,286 $ 34,714 Europe 258 476 Rest of World 8 56 Total $ 33,552 $ 35,246 The Company’s CODM assessed the Company’s performance by using net income (loss). The CODM uses net income (loss) predominately in the annual budget and forecasting process. The CODM considers budget-to-actual variances on a quarterly basis for the profit measure when making decisions. The CODM organizes the business and leaders functionally. The CODM assesses performance and resources are allocated to functions which utilizes those allocations across the business's services, products and digital solutions offerings. The following table summarizes the reconciliation to net income (loss) (in thousands): 107 Table of Contents Year Ended December 31, 2024 2023 2022 Revenue: Testing services revenue $ 249,381 $ 209,685 $ 263,748 Product revenue 40,783 33,517 29,251 Patient and digital revenue 43,621 37,122 28,794 Total revenue 333,785 280,324 321,793 Less: Cost of testing services 1 52,734 54,472 69,441 Cost of product 1 20,904 15,672 14,803 Cost of patient and digital solutions 28,502 23,631 20,011 Personnel cost 116,251 103,354 109,216 Professional and legal fees 42,655 63,695 60,575 Research materials and clinical trials expense 14,653 18,277 17,452 Depreciation and amortization expense 12,455 12,413 9,729 Stock-based compensation expense 66,406 49,086 46,553 Litigation expense ( 96,300 ) 96,300 — Other segment items 2 34,741 45,575 54,388 Interest income, net ( 11,765 ) ( 11,867 ) ( 3,762 ) Segment and consolidated net income (loss) $ 52,549 $ ( 190,284 ) $ ( 76,613 ) 1 Cost of testing services and cost of product include depreciation expense. 2 Other segment items include the following: restructuring costs, acquisition costs, software expenses, corporate expenses, rent and maintenance expense, travel and event related expense, and other expenses (income). 108 Table of Contents 16. RESTRUCTURING In the years 2024 and 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. The Company incurred $ 1.8 million and $ 2.2 million in restructuring charges related to this plan for the years ended December 31, 2024 and 2023, respectively. The Company completed the 2024 and 2023 restructurings as of December 31, 2024 and 2023, respectively. 17. SUBSEQUENT EVENTS Stock Repurchase Program On February 20, 2025, 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 February 20, 2025. The Repurchase Program may be carried out, subject to approval by the 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. Litigation On February 24, 2025, the District Court for the District of Delaware entered an order overturning Natera's $ 96.3 million jury verdict against the Company. In light of that decision, the Company concluded that the associated liability, which had been previously recognized as other liabilities on the consolidated balance sheets as of December 31, 2023, was no longer probable and was reversed as of December 31, 2024. 109 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.