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Item 7. Management’s Discussion and Analysis

2026-02-25 compared with 2025-02-28 · 97 added, 98 removed, 185 unchanged (51% of the section changed)

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Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 28, 2025, which is available without charge on the SEC's website at www.sec.gov and on our investor relations website at caredx.com.

We are a leading precision medicine company focused on the discovery, development and commercialization of clinically differentiated, high-value diagnostic solutions for transplant patients and caregivers.

We offer testing services, products, and patient and digital solutions along the pre- and post-transplant patient journey, and we are a leading provider of genomics-based information for transplant patients.

Our commercially available testing services consist of AlloSure® Kidney, a donor-derived cell-free DNA, or 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.

We are a precision medicine company dedicated to improving outcomes for transplant patients and advancing organ health.

We deliver solutions designed to empower clinicians and improve patient outcomes.

Our integrated solutions include non-invasive molecular testing for heart, kidney, and lung transplants;

laboratory products;

digital health technologies;

and patient solutions that support care before and after transplant.

CareDx is the leading provider of genomics-based information for transplant patients.

Our commercially available post-transplant testing services consist of AlloSure® Kidney, a donor-derived cell-free DNA, or dd-cfDNA, solution for kidney transplant patients, AlloMap® Heart, a gene expression profiling solution for heart transplant patients, AlloSure® Heart, a dd-cfDNA solution for heart transplant patients, HeartCare, the combined use of AlloMap Heart and AlloSure Heart, and AlloSure® Lung, a dd-cfDNA solution for lung transplant patients.

We have initiated several clinical studies to generate data on our existing and planned future testing services.

We have 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.

We also offer 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.

We also provide digital solutions to transplant centers and various offerings in patient and digital solutions.

From time to time, we partner with pharma and biopharma companies to use our technology and tests, often in clinical trials, to identify or screen for patients that may be appropriate candidates for their products.

We also offer high-quality products in the pre-transplant space that increase the chance of successful transplants by facilitating a better match between a donor and a recipient of stem cells and organs.

We also provide digital transplant solutions and various offerings that help transplant centers with patient management, outcomes quality and operational support.

See Part I, Item 1 (Business) of this Annual Report on Form 10-K for further information about our business.

Fourth Quarter Business Highlights

• Sixth consecutive quarter of sequential testing services volume growth

• AlloSure® Kidney surveillance testing continued to increase in the fourth quarter

• Submitted first manuscript of the Kidney Outcomes Allograft Rejection (KOAR) study for publication

• Published study in the journal Transplant International shows AlloSeq cfDNA highly accurate in detecting organ transplant rejection

• Revenue of $108 million, an increase of 25% year-over-year

• Testing services revenue of $78 million, an increase of 23% year-over-year, and testing services volume of approximately 53,000, an increase of 17% year-over-year

• Patient and digital solutions revenue of $16.8 million and product revenue of $13.3 million, representing year-over-year growth of 47% and 17%, respectively

• Average revenue per test of approximately $1,480 including approximately $5 million in prior period revenue

• Net loss of $4 million, compared to net income of $88 million for the fourth quarter of 2024

• Cash flow from operations of $21.4 million

• Share repurchases of $12 million during the quarter of 773,000 shares at an average price of $15.79 per share

Full Year 2025 Financial Highlights

• Revenue of $333.8 million, driven by testing services revenue growth of 19% year-over-year

• Testing services revenue of $249.4 million, increased 19% year-over-year, and testing services volume of approximately 176,000, increased 6% year-over-year

• Revenue of $380 million, an increase of 14% year-over-year

• Testing services revenue of $275 million, an increase of 10% year-over-year, and testing services volume of approximately 200,000, an increase of 14% year-over-year

• Patient and digital solutions revenue of $57 million and product revenue of $48 million, representing year-over-year growth of 31% and 19%, respectively

• GAAP net income of $52.5 million

• Net loss of $21 million

• Cash flow from operations of $42 million

• Cash, cash equivalents, and marketable securities of $261 million, with no debt, as of December 31, 2024

• Cash, cash equivalents and marketable securities of approximately $200 million as of December 31, 2025

• Share repurchases of $88 million during the year of 5.8 million shares at an average price of $15.16 per share

Factors Affecting Our Performance

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The growth of our testing services is tied to the number of AlloSure Kidney, AlloMap Heart and AlloSure Heart, HeartCare and AlloSure Lung patient samples we receive and patient results we report.

We incur costs in connection with collecting and

shipping all samples and a portion of the costs when we cannot ultimately issue a report.

We incur costs in connection with collecting and shipping all samples and a portion of the costs when we cannot ultimately issue a report.

As a result, the number of patient samples received largely correlates directly to the number of patient results reported.

Continued Growth of Patient and Digital Sales

The growth of our patient and digital revenues is tied to the continued successful implementation of our Ottr, MedActionPlan and XynQAPI software businesses, as well as continued support and maintenance of existing MedActionPlan, Ottr and XynManagement customers.

The Ottr software, TransChart, Tx Access and XynQAPI are currently implemented in multiple locations in the U.S.

The growth of our patient and digital revenues is tied to the continued successful implementation of our pharmacy solutions, Ottr, MedActionPlan and XynQAPI software businesses, as well as continued support and maintenance of existing pharmacy, MedActionPlan, Ottr and XynManagement customers.

The Ottr software, TransChart, Tx Access and XynQAPI are currently implemented in multiple locations in the United States.

The Ottr software implementation and XynQAPI implementation and support teams are based in Omaha, Nebraska.

In addition, patient solutions offered by TTP in Flowood, Mississippi include hospital-affiliated pharmacies located on-site at the transplant center and specialty pharmacies that provide transplant-specific care and dispensing services.

With the addition of HLA Data Systems, we are now able to support HLA laboratories in managing their day-to-day workflow.

With the addition of MediGO, we are now serving the organ procurement market for organ logistical needs.

Additionally, with of HLA Data Systems, we are able to support HLA laboratories in managing their day-to-day workflow.

Development of Additional Services and Products

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Our spending on research and development may vary substantially from quarter to quarter.

We conduct clinical studies to validate our new products, as well as on-going clinical and outcome studies to further the published evidence to support our commercialized tests.

We conduct clinical studies to validate our new products, as well as ongoing clinical and outcome studies to further the published evidence to support our commercialized tests.

Spending on research and development for both experiments and studies may vary significantly by quarter depending on the timing of these various expenses.

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Year Ended December 31,

2024 2023 Change

2025 2024 Change Change %

Testing services revenue $ 274,495 $ 249,381 $ 25,114 10 %

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General and administrative 107,565 125,139 (17,574) (14) %

Restructuring cost

1,783 2,320 (537)

Litigation expense

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Total operating expenses 410,586 293,020 117,566 40 %

Income (loss) from operations

(Loss) income from operations

(30,781) 40,765 (71,546) (176) %

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Interest income, net 9,174 11,765 (2,591) (22) %

Change in estimated fair value of common stock warrant liability — 10 (10)

Other income, net

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Total other income 9,698 12,094 (2,396) (20) %

12,094 13,220 (1,126)

Income (loss) before income taxes 52,859 (190,143) 243,002

(Loss) income before income taxes (21,083) 52,859 (73,942) (140) %

Income tax expense (271) (310) 39 (12) %

Net income (loss)

Net (loss) income

$ (21,354) $ 52,549 $ (73,903) (141) %

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Testing services revenue increased by $25.1 million, or 10%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

Revenue increase is primarily driven by testing services volume growth of 6%, and improved average selling price driven by increased collections including collections related to tests performed in prior periods.

The increase was primarily driven by testing services volume growth of approximately 14% as compared to the year ended December 31, 2024.

This increase was partially offset by an increase in the refunds reserve of $3.5 million, and a decrease of $7.8 million in collections during the year ended December 31, 2025, as compared to the year ended December 31, 2024, under ASC 606 related to specific tests performed in prior periods.

Product revenue

Product revenue increased by $7.3 million, or 22%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to higher demand of our commercial NGS-based kitted solutions.

Product revenue increased by $7.6 million, or 19%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

The increase was primarily due to higher sales of our commercial NGS-based kitted solutions resulting from growth in our existing business including conversions of targeted customers.

Patient and digital solutions revenue

Patient and digital solutions revenue increased by $6.5 million, or 18%, during the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to revenue generated from HLA Data Systems, MediGO, Transplant Pharmacy and other core digital offerings.

Patient and digital solutions revenue increased by $13.3 million, or 31%, during the year ended December 31, 2025, compared to the year ended December 31, 2024.

The increase was primarily driven by higher pharmacy sales and growth in our digital solutions, particularly an expanded customer base from Ottr software.

Cost of testing services

Cost of testing services decreased by $2.0 million, or (4)%, for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The decrease is primarily driven by efficiency measures to lower laboratory expenses.

Cost of testing services increased by $6.4 million, or 12%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

The increase was primarily attributed to higher testing services volume, partially offset by the continuous efficiency measures to lower laboratory expenses.

Cost of product

Cost of product increased by $5.0 million , or 27%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to an increase in product revenue.

Cost of product decreased by $0.4 million, or 2%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

The decrease was primarily due to certain cost reduction efforts offset by an increased sales of our commercial NGS-based kitted solutions.

Cost of patient and digital solutions

Cost of patient and digital solutions increased by $7.5 million, or 25%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

The increase in the cost of patient and digital solutions is in line with the increase in revenue for patient and digital solutions and is primarily due to an increase in cost of goods from sales in the pharmacy business and our digital offerings.

The increase was primarily due to an increase in the cost of goods from our pharmacy business resulting from higher sales.

Research and development

Research and development expenses decreased by $9.5 million, or (12)%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to a decrease in clinical trials of $6.5 million, a decrease in consulting and professional fees of $2.4 million and a decrease in software costs of $0.5 million.

Research and development expenses decreased by $1.1 million, or 1%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

The decrease was primarily attributable to decreases of $4.7 million in clinical trial expenses, $2.0 million in consulting and licensing expense and $1.5 million in stock-based compensation expense, partially offset by increases of $5.5 million in personnel-related costs and $1.6 million in software-related expenses.

Sales and marketing

Sales and marketing expenses decreased by $1.6 million, or (2)%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to a decrease in stock-based compensation expense of $1.4 million, a decrease in travel costs of $0.6 million and a decrease in tradeshows and events of $1.6 million, offset by an increase in personnel-related costs of $2.2 million.

Sales and marketing expenses increased by $20.7 million, or 25%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

The increase was primarily attributable to increases of $15.4 million in personnel-related costs, $4.5 million in marketing expenses, $3.2 million in consulting expenses and $0.5 million in travel expenses, partially offset by a decrease of $2.9 million in stock-based compensation expense.

General and administrative

General and administrative expenses increased by $5.9 million, or 5%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to an increase in stock-based compensation expense of $19.5 million, and an increase in personnel-related costs of $8.8 million, offset by a decrease in legal expenses of $18.5 million, a decrease in other expenses of $4.5 million.

The increase in stock-based compensation expense was primarily due to accelerated vesting over a shortened service period for awards held by the former CEO and former General Counsel of $14.3 million.

Restructuring costs

Restructuring costs decreased by $0.5 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to lesser headcount impacted by restructuring.

General and administrative expenses decreased by $17.6 million, or 14%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

The decrease was primarily attributable to decreases of $25.7 million in stock-based compensation expense and $2.4 million in legal and consulting expenses, partially offset by increases of $3.7 million in software-related costs, $2.9 million in personnel-related costs, $2.3 million in a one-time impairment charge related to an intangible asset and associated construction in progress, $1.0 million in equipment related expenses and $0.6 million in travel expenses.

Litigation expense

Litigation expense relates to the patent infringement claims filed by Natera against us and alleged that our product, AlloSure, infringes Natera's U.S.

Patent 11,111,544.

The jury awarded Natera an amount of $96.3 million and we recorded the amount as litigation expense for the year ended December 31, 2023.

In February 2025, the District Court ruled that the patents asserted against us are invalid.

We reversed the $96.3 million of litigation expense in the year ended December 31, 2024.

The change in litigation settlement expense was mainly due reversal of litigation expense in 2024 related to the favorable outcome of patent infringement claims filed by Natera against us where the District Court ruled that the patents asserted against us were invalid, which was partially offset by settlement of the Securities Class Action lawsuit during 2025.

See Note 8, Commitments and Contingencies , to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K under the caption “Litigation and Indemnification Obligations”, which is incorporated herein by reference.

Interest income, net

Interest income, net, decreased by $0.1 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to a decrease in interest rates.

Interest income, net, decreased by $2.6 million for the year ended December 31, 2025, compared to the year ended December 31, 2024, primarily due to a decrease in cash, cash equivalents, and marketable securities.

Other income, net

During the year ended December 31, 2023, the following events occurred:

a $1.0 million gain from settlement of an obligation and a $1.1 million gain from the recovery of an impaired loan that was already written-off, offset by a decrease in unrealized investment loss of $0.3 million.

During the year ended December 31, 2024, there was a $0.5 million gain from a reduction in contingent consideration and an increase in other business expense of $0.3 million.

These resulted in a decrease in other income, net, of $1.0 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Other income, net increased by $0.2 million for the year ended December 31, 2025, compared to the year ended December 31, 2024, primarily due to an increase in foreign exchange gains.

Income tax expense

For the year ended December 31, 2024, we recorded an income tax expense of $0.3 million on an income before income taxes of $52.9 million.

The effective tax rate for the twelve months ended December 31, 2024 differs from the federal statutory tax rate mainly due to the change in valuation allowance, windfall tax benefits from stock-based compensation, nondeductible executive compensation and tax credits.

For the year ended December 31, 2025, we recorded an income tax expense of $0.3 million on a loss before income taxes of $21.1 million.

The difference in the effective tax rate for the year ended December 31, 2023 from the federal statutory tax rate is mainly due to the state income tax expense per the new research and development regulations, whereas in prior years we only recognized the deferred tax assets from foreign losses with the full valuation allowance.

The effective tax rate for year ended December 31, 2025 differs from the federal statutory tax rate mainly due to the change in unrecognized tax benefits, non-deductible executive compensation and stock-based compensation.

Liquidity and Capital Resources

We have incurred significant losses and negative cash flows from operations since our inception and had an accumulated deficit of $626.2 million at December 31, 2024.

We have incurred significant losses and negative cash flows from operations and had an accumulated deficit of $735.4 million at December 31, 2025.

As of December 31, 2025, we had cash, cash equivalents and marketable securities of $201.4 million, and no debt outstanding.

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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, our Board of Directors approved our Stock Repurchase Program, or the Repurchase Program, whereby we may purchase up to $50 million in shares of our 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 and block trades and in privately negotiated transactions.

During the year ended December 31, 2024 , we purchased an aggregate of 55,500 shares of our common stock under the Repurchase Program for an aggregate purchase price of $0.5 million.

The Repurchase Program was renewed on February 20, 2025 where we may purchase up to $50 million in shares of our common stock over a period of up to two years, commencing on February 20, 2025.

Stock Repurchase Programs

On February 20, 2025, our Board of Directors approved the February 2025 Repurchase Program, whereby we were authorized to purchase up to $50.0 million in shares of our common stock over a period of up to two years, commencing on February 20, 2025 , through open market purchases , one or more Rule 10b5-1 trading plans, block trades and in privately negotiated transactions.

During the three months ended June 30, 2025, we repurchased an aggregate of 3.0 million shares of our common stock under the February 2025 Repurchase Program for an aggregate purchase price of $50.0 million .

Following the completion of the February 2025 Repurchase Program, on May 30, 2025, our Board of Directors authorized a new share repurchase program of up to $50.0 million in shares of our common stock over a period of up to two years, commencing on May 30, 2025, or the May 2025 Repurchase Program.

The May 2025 Repurchase Program may be carried out, subject to approval by a committee of our Board of Directors, through open market purchases, one or more Rule 10b5-1 trading plans, block trades and in privately negotiated transactions.

During the year ended December 31, 2025, we purchased an aggregate of 2.8 million shares of our common stock under the May 2025 Repurchase Program for an aggregate purchase price of $37.8 million.

As of December 31, 2025, $12.2 million was available for future share repurchases under the May 2025 Repurchase Program.

During the year ended December 31, 2025, we purchased an aggregate of 5.8 million shares of our common stock under the February 2025 and May 2025 Repurchase Programs, for a total purchase price of $87.8 million.

The following table summarizes our cash flows for the years ended December 31, 2025, 2024 and 2023:

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Effect of exchange rate changes on cash, cash equivalents and restricted cash (90) 532 (112)

Net increase (decrease) in cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash

$ (49,294) $ 32,491 $ (7,660)

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Net cash provided by operating activities for the year ended December 31, 2025 was $42.0 million.

Net operating assets increased by $3.8 million.

Our noncash items included $34.9 million in stock-based compensation expense, $15.0 million of depreciation and amortization expense, $5.4 million of amortization of right-of-use assets, $2.3 million of impairment of

intangible asset and associated construction in progress, $1.3 million of amortization of premium on marketable securities, net, and revaluation of contingent consideration to estimated fair value of $0.7 million.

Net cash provided by operating activities for the year ended December 31, 2024 was $38.0 million.

Net operating assets decreased by $102.3 million.

Our noncash items included $66.4 million in stock-based compensation expense, $14.2 million of depreciation and amortization expense, $5.6 million of amortization of right-of-use assets, $0.6 million of amortization of premium on short-term marketable securities, net, and revaluation of contingent consideration to estimated fair value of $0.9 million.

Net cash used in operating activities for the year ended December 31, 2023 was $18.4 million.

Our net loss of $190.3 million was our primary use of cash in operating activities.

Our net loss also included the following noncash items:

$49.1 million in stock-based compensation expense, $14.4 million of depreciation and amortization expense, amortization of right-of-use assets of $5.4 million, asset impairments and write-downs of $1.0 million, amortization of premium on short-term marketable securities, net of $4.9 million, gain on settlement of obligation and recovery of written-off investment of $2.1 million and revaluation of contingent consideration to estimated fair value of $2.7 million.

Cash used in operating activities was also due to an increase in accounts receivable of $16.0 million.

Cash used in operating activities was partially offset by an increase in net

operating assets of $90.6 million including litigation expense of $96.3 million recorded as other liabilities related to the jury award in the Natera IP infringement matter.

Our noncash items included $66.4 million in stock-based compensation expense, $14.2 million of depreciation and amortization expense, $5.6 million of amortization of right-of-use assets, $0.6 million of amortization of premium on marketable securities and revaluation of contingent consideration to estimated fair value of $0.9 million.

Cash Flows from Investing Activities

For the year ended December 31, 2024, net cash used in investing activities was $0.5 million and primarily related to purchase of short-term marketable securities of $160.3 million, additions of capital expenditures of $6.5 million and purchase of corporate equity securities of $0.6 million, offset by maturities of short-term marketable securities of $166.9 million.

For the year ended December 31, 2023, net cash provided by investing activities was $40.4 million and primarily related to proceeds from maturities of marketable securities of $256.0 million and sale of corporate equity securities of $2.5 million.

These proceeds were partially offset by the purchase of short-term marketable securities of $201.2 million, additions of capital expenditures of $8.3 million, payments for acquired intangibles of $0.9 million, purchase of corporate equity securities of $1.0 million and acquisition of business, net of cash acquired of $6.7 million.

For the year ended December 31, 2025, net cash provided by investing activities was $2.2 million and primarily related to maturities of marketable securities of $154.7 million, partially offset by purchase of marketable securities of $145.9 million, additions of capital expenditures of $5.9 million and $0.7 million related to acquisition of an intangible asset.

For the year ended December 31, 2024, net cash used in investing activities was $0.5 million and primarily related to purchase of marketable securities of $160.3 million, additions of capital expenditures of $6.5 million and purchase of corporate equity securities of $0.6 million, offset by maturities of marketable securities of $166.9 million.

Cash Flows from Financing Activities

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Contractual Obligations

For a discussion regarding our significant contractual obligations as of December 31, 2024 and the effect those obligations are expected to have on our liquidity and cash flows in future periods, please refer to Note 9, Commitments and Contingencies , of the consolidated financial statements, and “Results of Operations—Liquidity and Capital Resources”, respectively, included elsewhere in this Annual Report on Form 10-K.

For a discussion regarding our significant contractual obligations as of December 31, 2025 and the effect those obligations are expected to have on our liquidity and cash flows in future periods, refer to Note 8, Commitments and Contingencies , of the consolidated financial statements, and “Results of Operations—Liquidity and Capital Resources”, respectively, included elsewhere in this Annual Report on Form 10-K.

Foreign Operations

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Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies , of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Some of these accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of

matters that are inherently uncertain.

Some of these

accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements.

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In addition, consistent with ASC 606-10-25-1 , we continue to assess whether it is probable that we will collect substantially all of the consideration to which we will be entitled when determining if a contract with a customer exists.

Refunds Reserve

With respect to revenue recognized related to testing services whereby consideration is expected to be received from third-party payers, we recognized a constraint to the estimated variable consideration such that it is not probable that a significant revenue reversal will occur.

When assessing the total consideration expected to be received from third-party payers, a certain percentage of revenues is further constrained for estimated refunds.

Certain refunds were recognized in accrued liabilities until they are either paid to the respective third-party payers or it is determined the refund will not ultimately be paid, at which time the related accrual is reduced with a corresponding increase to testing services revenue.

During the year ended December 31, 2025, the refunds reserve to third-party payers were recognized and testing services revenue decreased by $3.5 million for amounts we estimated that would be refunded to third-party payers.

Product Revenue

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The products are delivered and risk of loss passed to the customer upon either shipping or delivery, as per the terms of the agreement.

There are no further performance obligation related to a contract and revenue is recognized at the point of delivery consistent with the terms of the contract or purchase order.

There are no further performance obligation related to a contract and revenue is recognized at the point of shipment or 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 SaaS and perpetual software license agreements entered into with various transplant centers, which are our customers for this class of revenue.

The main performance obligations in connection with our 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, (ii) post contract support.

We allocate 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.

We record deferred revenue in relation to these agreements when cash payments are received, or invoices are issued in advance of our performance, and generally recognize revenue over the contractual term, as performance obligations are fulfilled.

In addition, we derive patient and digital solutions revenue from software subscriptions and medication sales.

We generally bill software subscription fees in advance.

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

Patient and digital solutions revenue is primarily derived from software as a service, or SaaS, agreements entered into with various transplant centers, which are our customers for this class of revenue.

Digital revenue in connection with 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.

The PCS is recognized ratably over the term of the arrangement beginning on the date when access to the subscription is made available to the customer in accordance with ASC 606.

Software license agreements typically require advance payments from customers upon the achievement of certain milestones.

We record 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 recognize revenue over the contractual term, as performance obligations are fulfilled.

In addition, we derive patient revenue from medication sales.

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.

We recognize revenue from medication sales when prescriptions are delivered.

Based on the individual agreement, we recognize revenue from medication sales when prescriptions are shipped or delivered.

Stock-based Compensation

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Treasury zero-coupon issues with a remaining term equal to the expected option lives, and estimate dividend yield using our 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 our common stock on the date of the grant.

We use the straight-line attribution method for recognizing compensation expense.

Our stock-based compensation arrangements vest over a three to four year vesting schedule.

We expense our stock-based compensation under the ratable method, which treats each vesting tranche as if it were an individual grant.

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 our historical experience.

Options subject to vesting are required to be periodically re-measured over their service performance period, which is generally the same as the vesting period.

Business Combinations

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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 ASC Topic 480, Distinguishing Liabilities from Equity , we recognize a liability equal to the fair value of the contingent payments that we expect to make as of the acquisition date.

We re-measure this liability each reporting period and record changes in the fair value as a component of operating expenses.

In those circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under Accounting Standard Codification, or ASC, Topic 480, Distinguishing Liabilities from Equity , we recognize a liability equal to the fair value of the contingent payments that we expect to make as of the acquisition date.

We remeasure this liability each reporting period and record 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.

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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.

Amortizable intangible assets include customer relationships, developed technology, commercialization rights, trademarks and trade names 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.

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If the carrying amount of the reporting unit exceeds the fair value, we record an impairment loss based on the difference.

We elect 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, we use 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.

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Intangible assets not subject to amortization

We evaluate the carrying value of intangible assets not subject to amortization, related to acquired in-process technology assets and a favorable license agreement, which are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts.

Accordingly, amortization of the acquired in-process technology assets and favorable license agreement will not occur until the products reach commercialization.

We evaluate the carrying value of intangible assets not subject to amortization, related to acquired in-process technology assets and a favorable license agreement.

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 we become aware of any events occurring or changes in circumstances that would indicate that the fair values of the acquired in-process technology assets are less than their carrying amounts.

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If an impairment exists, we measure 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.

As of December 31, 2024, no impairment has been identified.

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, research and development expenses and sales and marketing expenses in the consolidated statements of operations.

Recently Issued Accounting Standards

1 unchanged sentence

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

What changed 10-K

Item 7. Management’s Discussion and Analysis