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Item 7. Management’s Discussion and Analysis

2021-03-11 compared with 2020-03-10 · 250 added, 244 removed, 210 unchanged (70% of the section changed)

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Our non-invasive products utilize proprietary algorithms to provide an assessment of a patient’s specific risk of metastasis or recurrence of their cancer, allowing physicians to identify patients who are likely to benefit from an escalation of care as well as those who may avoid unnecessary medical and surgical interventions.

Our lead product, DecisionDx-Melanoma, is a GEP test that predicts the risk of metastasis or recurrence for patients diagnosed with invasive cutaneous melanoma, a deadly skin cancer.

Our lead product, DecisionDx®-Melanoma, is a proprietary GEP test that predicts the risk of metastasis or recurrence for patients diagnosed with invasive cutaneous melanoma, a deadly skin cancer.

This test has two current clinically actionable uses.

The first use immediately following diagnosis predicts a patient’s likelihood of having a sentinel lymph node negative biopsy result so that physicians and patients can discuss the risk and benefit of undergoing SLNB surgery.

The second use is to inform the appropriate treatment plan, regardless of the decision to undergo or avoid the SLNB surgery.

We estimate more than 130,000 patients are diagnosed with invasive cutaneous melanoma each year in the United States.

We launched DecisionDx-Melanoma in May 2013.

On August 31, 2020, we commercially launched our cutaneous squamous cell carcinoma proprietary GEP test, DecisionDx®‑SCC, and on November 2, 2020, we commercially launched our proprietary GEP test for suspicious pigmented lesions, DecisionDx® DiffDx™-Melanoma.

These two indications are areas of high clinical need in dermatological cancer and, together, represent an addressable population of approximately 500,000 patients in the United States.

We also market DecisionDx®-UM, which is a proprietary GEP test that predicts the risk of metastasis for patients with uveal melanoma, a rare eye cancer.

We launched DecisionDx-UM in January 2010.

Based on the substantial clinical evidence that we have developed, we have received Medicare coverage for both of our products, which represents approximately 50% of our addressable patient population.

We also have two late-stage proprietary products in development that address SCC and suspicious pigmented lesions which are indications with high clinical need in dermatological cancer.

These indications are areas of high clinical need in dermatological cancer and, together, represent an additional addressable market of approximately 500,000 patients in the United States.

We have processed over 60,000 clinical samples since commercial launch and our annual revenue increased from $ 22.8 million in 2018 to $ 51.9 million in 2019.

For the year ended December 31, 2019, year-over-year growth in new ordering clinicians for our DecisionDx-Melanoma test was 24.3%.

Additionally, total ordering clinicians in 2019 for DecisionDx-Melanoma increased 32% to 3,927, year-over-year.

The numbers of DecisionDx-Melanoma and DecisionDx-UM test reports delivered by us during the years ended December 31, 2019 and 2018 are presented in the table below:

DecisionDx-UM

Based on the substantial clinical evidence that we have developed, we have received Medicare coverage for DecisionDx-Melanoma and DecisionDx-UM, which represents approximately 50% of the addressable patient population for both of these tests.

We have processed over 70,000 clinical samples since our inception.

Our revenue for the year ended December 31, 2020 was $62.6 million, compared to $51.9 million for 2019 and $22.8 million for 2018.

The numbers of DecisionDx-Melanoma, DecisionDx-SCC, DecisionDx-DiffDx and DecisionDx-UM test reports delivered by us during the years ended December 31, 2020 and 2019 are presented in the table below:

Proprietary Dermatologic GEP Tests

Melanoma DecisionDx-SCC (1)

DecisionDx DiffDx-Melanoma (2)

DecisionDx-UM Total

Q1 2020 4,574 — — 361 4,935

Q2 2020 3,008 — — 306 3,314

Q3 2020 4,404 57 — 318 4,779

Q4 2020 4,246 428 73 410 5,157

For the year ended December 31, 2020 16,232 485 73 1,395 18,185

Q1 2019 3,232 — — 360 3,592

Q2 2019 3,691 — — 376 4,067

Q3 2019 4,126 — — 356 4,482

Q4 2019 4,480 — — 434 4,914

For the year ended December 31, 2019 15,529 — — 1,526 17,055

(1) We commercially launched the DecisionDx-SCC test on August 31, 2020.

(2) We commercially launched the DecisionDx DiffDx on November 2, 2020.

While we continue to see new clinicians order the DecisionDx-Melanoma test for the first time, for the twelve months ended December 31, 2020, the number of new ordering clinicians (first time ordering the test) for our DecisionDx-Melanoma test decreased by 14% as compared to the same period in 2019.

We believe these decreases in the number of new ordering clinicians are the result of physician office closures and limited physician access due to the COVID-19 pandemic, as discussed further below.

Our commercial team is using a combination of in-person and virtual promotional efforts.

For additional information on the metrics we disclose, refer to “Information about certain metrics” below.

Since our inception in 2008, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, discovering product candidates, conducting clinical study activities to generate evidence demonstrating the clinical validity, clinical utility, economic benefits, and patient outcomes of our products, and commercialization activities for those products.

We currently market two proprietary GEP products and generate substantially all of our revenue from those activities.

On July 29, 2019, we completed the IPO.

In connection with the IPO, we issued and sold 4,600,000 shares of our common stock, including 600,000 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $16.00 per share.

We received approximately $65.9 million in net proceeds, after deducting underwriting discounts and commissions and other offering expenses payable by us.

Prior to the IPO, we financed our operations primarily through private placements of preferred stock, revenue generated from sales of our products, bank debt and convertible notes.

We currently market four proprietary GEP products and generate substantially all of our revenue from DecisionDx-Melanoma and DecisionDx-UM.

The principal focus of our current commercial efforts is to distribute our molecular diagnostic testing products through our direct sales force in the U.S.

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The majority of our revenue collections is paid by third-party insurers, including Medicare.

We have received LCDs, which provide coverage for our tests that meet certain criteria for Medicare and Medicare Advantage beneficiaries, representing approximately 60 million covered lives.

We have received LCDs, which provide coverage for our DecisionDx-Melanoma and DecisionDx-UM tests that meet certain criteria for Medicare and Medicare Advantage beneficiaries, representing approximately 60 million covered lives.

As it relates to DecisionDx-UM, we have contracts or have received positive medical policy decisions from additional payors representing approximately 83 million covered lives.

A ‘‘covered life’’ means a subscriber, or a dependent of a subscriber, who is insured under an insurance policy for such an insurance carrier.

Palmetto GBA MolDX, or Palmetto, the MAC responsible for administering MolDX, the program that assesses molecular diagnostic technologies, issued a final expanded LCD for DecisionDx-Melanoma, effective November 22, 2020.

With this expanded LCD and the accompanying billing and coding articles, we estimate that a significant majority of the DecisionDx-Melanoma tests performed for Medicare patients will meet the coverage criteria.

Noridian Healthcare Solutions, LLC, or Noridian, the MAC responsible for administering claims for laboratory services performed in Arizona, has adopted the same coverage policy as Palmetto and also issued an expanded final LCD for DecisionDx-Melanoma, effective December 6, 2020.

On May 17, 2019, CMS determined that DecisionDx-UM meets the criteria for “existing ADLT” status.

This means that beginning in 2021, the DecisionDx-UM Medicare rate will be set annually based upon the median private payor rate for the first half of the second preceding calendar year.

Specifically, the median private payor rate from January 1 to June 30, 2019 will be used to set the Medicare rate for the calendar year 2021.

We successfully submitted this data in January 2020.

Note that our rate for 2020 will be set by Noridian, our local MAC.

Accordingly, in 2021 the DecisionDx-UM Medicare rate will be set annually based upon the median private payor rate for the first half of the second preceding calendar year.

Note that our rate for 2020 was set by Noridian, our local MAC, but our rate for 2021 for DecisionDx-UM will be $7,776 based on the median private payor rate.

Also, on May 17, 2019, CMS determined that DecisionDx-Melanoma meets the criteria for ‘‘new ADLT’’ status.

This means that from July 1, 2019 through March 31, 2020 the Medicare reimbursement rate will equal the initial list price of $7,193.00 , subject to the possible recoupment provision described below .

The rate for April 1, 2020 through December 31, 2021 will be calculated based upon the median private payor rate from July 1, 2019 to November 30, 2019.

We successfully submitted this data in December 2019.

Note that for DecisionDx-Melanoma tests reported for July 1, 2019 through March 31, 2020, CMS has the right to recoup the difference between the actual list and 130% of the weighted median if the original list price was greater than 130% of the weighted median or private payor rates.

However, b ased on the data we collected and submitted to CMS during the data collection period ended November 30, 2019, the original list price amount was not greater than 130% of the

weighted median of private payor rates.

Therefore, we expect no recoupment to apply under this provision.

Beginning in 2022, the rate will be set annually based upon the median private payor rate for the first half of the second preceding calendar year.

Accordingly, from July 1, 2019 through March 31, 2020 the Medicare reimbursement rate was equal to the initial list price of $7,193 .

From April 1, 2020 through December 31, 2021, CMS notified us that the rate will also be $7,193, which was calculated based upon the median private payor rate for DecisionDx-Melanoma from July 1, 2019 to November 30, 2019.

B eginning in 2022, the rate for both DecisionDx-Melanoma and DecisionDx-UM will be set annually based upon the median private payor rate for the first half of the second preceding calendar year.

For example, the rate for 2022 will be set using median private payor rate data from January 1, 2020 to June 30, 2020.

Since our inception, we have incurred significant operating losses and negative cash flows.

For the year ended December 31, 2018, our net loss was $6.4 million, our net cash used in operating activities was $12.3 million and we had an accumulated deficit of $57.5 million as of December 31, 2018.

For the year ended December 31, 2019, our net income was $5.3 million (which includes the benefit of a $5.2 million non-cash debt extinguishment gain), our net cash provided by operating activities was $7.0 million and we had an accumulated deficit of $52.2 million as of December 31, 2019.

We also have substantial indebtedness, the terms of which require us to meet a quarterly three-month trailing revenue covenant.

Our ability to generate revenue sufficient to achieve and sustain profitability will depend heavily on the successful commercialization of our currently marketed products and the products we plan to launch in the future.

We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on the commercialization of our existing products, the development of our future product candidates, and the commercialization of our product candidates.

Although we generated positive operating income during the year ended December 31, 2019, we expect to incur significant additional expenses and operating losses during the next two years as we invest in growing our commercial and research and development efforts.

We believe that our existing cash and cash equivalents and anticipated cash generated from sales of our products will be sufficient to fund our operating expenses for the foreseeable future.

However, we have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Our net income (losses) may fluctuate significantly from period to period, depending on the timing of our planned development activities, the growth of our sales and marketing activities and the timing of revenue recognition under ASC 606.

In the second quarter of 2020, we submitted our technical assessment dossier for DecisionDx-SCC to Palmetto and Noridian.

In early 2021, we submitted our technical assessment dossier for DecisionDx DiffDx-Melanoma.

We expect that draft LCDs for each of these tests will be posted in 2021.

However, there is no assurance that the timing of any draft LCD or final LCD will match our expectations or our historical experience with LCDs for our other tests.

To date, in addition to the revenue generated from the sale of our products, we have financed our operations through our July 2019 IPO, follow-on public offerings of common stock in June 2020 and December 2020, private placements of preferred stock, convertible promissory notes and bank debt.

We believe that our existing cash and cash equivalents and anticipated cash generated from sales of our products will be sufficient to fund our operations for the foreseeable future.

However, we have based these estimates on assumptions, including those related to the impact of COVID-19 on our financial condition, that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Our net (loss) income may fluctuate significantly from period to period, depending on the timing of our planned development activities, the growth of our sales and marketing activities and the timing of revenue recognition under ASC 606.

We expect our expenses will increase substantially over time as we:

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• add additional operational, financial and management information systems and personnel.

Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

Furthermore, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.

Impact of COVID-19 Pandemic

We are continuing to closely monitor the impact of the COVID-19 pandemic on our business and are taking proactive efforts designed to protect the health and safety of our workforce, continue our business operations and advance our corporate objectives.

We are providing the following update with respect to the impact of COVID-19 on our business:

• We have maintained and expect to continue to maintain uninterrupted business operations, with adequate access to reagents and consumables needed for testing patient samples and normal turnaround times for our delivery of test reports.

We have implemented adjustments to our operations designed to keep employees safe and comply with federal, state and local guidelines, including those regarding social distancing.

• Following the onset of the COVID-19 pandemic, we began experiencing declines in orders and test report volume.

For example, in the second quarter of 2020, test reports delivered for our lead product, DecisionDx-Melanoma, decreased 18.5% compared to the second quarter of 2019.

For the year ended December 31, 2020, our growth in DecisionDx-Melanoma test report volume was 4.5%, compared to year-over-year growth of 29.1% for the year ended December 31, 2019.

We believe the adverse impacts to our test report volume growth are linked to delays and/or cancellations in

patient visits, resulting in reduced diagnostic biopsies and thus reduced diagnoses of cutaneous melanoma in response to COVID-19.

• Our future results will be dependent upon the extent and duration of the COVID-19 crisis as well as the impact of ongoing state and local government restrictions, which are beyond our control, and which may be eased and/or reinstated from time to time depending on the circumstances, potentially impacting the flow of future patient visits.

Even with the easing of state and local restrictions, patient visits and diagnosis of cutaneous melanoma may be impacted by continued apprehension regarding possible exposure to the virus.

For example, our analysis of third party data indicates that during 2020, cutaneous melanoma diagnoses were down more than 20% compared to 2019.

• We continue to believe our cash and cash equivalents and anticipated cash to be generated from sales of our products, will be sufficient to fund our operations for the foreseeable future.

As conditions are continuously evolving, we are unable to predict how our future test report volume will be impacted or the extent to which our results of operations, financial condition or cash flows will be impacted by the COVID-19 pandemic, or other future public health crises.

Accordingly, the test report data presented above is not necessarily indicative of our results of operations that can be expected for future periods.

For more information on the potential impact of the COVID-19 pandemic on our business, see the risk factors included under “Risks Related to Our Business” and the other risk factors included in Part I, Item 1A., “Risk Factors,” of this Annual Report on Form 10-K.

Factors affecting our performance

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Our performance depends on our ability to retain and broaden adoption with existing prescribing physicians, as well as attract new physicians.

In the near term, our report volume may continue to be negatively impacted by the effects of the COVID-19 pandemic, as the crisis evolves, as discussed above.

• Reimbursement.

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The following provides additional information about certain metrics we have disclosed in this Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Test reports delivered for DecisionDx-Melanoma and DecisionDx-UM represents the number of completed test reports delivered by us during the reporting period indicated.

Test reports delivered for DecisionDx-Melanoma, DecisionDx-UM and DecisionDx-SCC represents the number of completed test reports delivered by us during the reporting period indicated.

The period in which a test report is delivered does not necessarily correspond with the period the related revenue, if any, is recognized, due to the timing and amount of adjustments for variable consideration under ASC 606.

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We believe this metric is useful to investors in evaluating the volume of our business activity from period to period that may not be discernible from our reported revenues under ASC 606.

We also sometimes present, on a limited basis, data on the number of orders received.

We believe order data can provide additional insight on current demand trends, particularly during the COVID-19 pandemic and with respect to new product launches, when considered in conjunction with test report volume.

However, orders received in a particular period do not necessarily correspond with actual delivered test reports or reported revenues for the same period or subsequent periods.

New ordering clinicians for DecisionDx-Melanoma represents the number of clinicians who ordered the DecisionDx-Melanoma test for the first time during the reporting period specified.

We believe this metric is useful in evaluating the effectiveness of our sales and marketing efforts in establishing new relationships with clinicians and increasing the adoption of our DecisionDx-Melanoma test.

We believe this metric is useful in evaluating the effectiveness of our

sales and marketing efforts in establishing new relationships with clinicians and increasing the adoption of the DecisionDx-Melanoma test.

We also believe this metric provides useful information to investors in assessing our ability to expand the use of the DecisionDx-Melanoma test.

Since this metric is based upon the reporting period in which an order is placed, it does not necessarily correspond to the reporting period in which a test report was delivered or in which any revenue was recognized.

Total ordering clinicians for DecisionDx-Melanoma represents the total number of clinicians who ordered the DecisionDx-Melanoma test during the reporting period specified.

The total ordering clinicians metric allows us to assess our sales and marketing efforts in both establishing new clinician relationships as well as maintaining existing ones.

We believe that this metric provides useful information to investors in assessing our ability to both expand the use of the DecisionDx-Melanoma test with new clinicians and maintain existing clinician relationships.

Components of the Results of Operations

We generate revenues from the sale of our products, primarily from the sale of DecisionDx-Melanoma and DecisionDx-UM.

We generate revenues from the sale of our products.

Currently, our revenues are primarily derived from the sale of DecisionDx-Melanoma and DecisionDx-UM.

We bill third-party payors and patients for the tests we perform.

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Variable consideration is recognized only to the extent it is probable that a significant reversal of revenue will not occur in future periods when the uncertainties are resolved.

We consider variable consideration to be fully constrained (and therefore not recognized) for Medicare claims when the payment of such claims is subject to approval by an ALJ at an appeal hearing, due to the level of uncertainty and timing of the outcome.

Variable consideration is evaluated each reporting period and adjustments are recorded as increases or decreases in revenues.

Importantly, we expect to recognize any revenue adjudicated by the ALJ in the reporting period in which we are notified of the ALJ hearing outcome and it is determined that such decision will not be appealed.

Due to ALJ hearings, potential future changes in insurance coverage policies, contractual rates, and other trends in the reimbursement of our tests, our revenues may fluctuate significantly from period to period.

Variable consideration for Medicare claims that are not covered by an LCD, including those claims subject to approval by an ALJ at an appeal hearing, is deemed to be fully constrained due to factors outside our influence (i.e., judgment or actions of third parties) and the uncertainty of the amount to be received is not expected to be resolved for a long period of time.

For these fully constrained claims, we generally recognize revenue in the period the uncertainty is favorably resolved, if at all.

Due to potential future changes in Medicare coverage policies and appeal cycles, insurance coverage policies, contractual rates and other trends in the reimbursement of our tests, our revenues may fluctuate significantly from period to period.

Additionally, our ability to recognize revenue for our recently launched tests, DecisionDx-SCC and DecisionDx DiffDx-Melanoma, is dependent on the development of reimbursement experience and coverage decisions for these tests.

Due to limited reimbursement experience, we are currently recognizing revenues for these two tests on the basis of actual cash collections.

Our ability to increase our revenues will depend on our ability to further penetrate our target market, and, in particular, generate sales through our direct sales force, develop and commercialize additional tests, obtain reimbursement from additional third-party payors and increase our reimbursement rate for tests performed.

In the near term, our financial performance will be highly dependent on reimbursement for DecisionDx-Melanoma.

The use of DecisionDx-Melanoma is not yet broadly covered under positive coverage policies, although many third-party payors have begun to reimburse for this test.

Cost of Sales

The components of our cost of sales are material and service costs, personnel costs, which includes stock-based compensation expense, equipment and infrastructure expenses associated with testing samples, electronic medical records, order and delivery systems, shipping charges to transport samples, third-party test fees, and allocated overhead including rent, information technology costs, equipment depreciation and utilities.

Costs associated with performing tests are recorded when the test is

processed regardless of whether and when revenues are recognized with respect to that test.

The components of our cost of sales are material and service costs, personnel costs (including salaries, bonuses, benefits and stock-based compensation expense), equipment and infrastructure expenses associated with testing samples, electronic medical records, order and delivery systems, shipping charges to transport samples, third-party test fees, and allocated overhead including rent, information technology costs, equipment depreciation and utilities.

Costs associated with performing tests are recorded when the test is processed regardless of whether and when revenues are recognized with respect to that test.

As a result, our cost of sales as a percentage of revenues may vary significantly from period to period because we do not recognize all revenues in the period in which the associated costs are incurred.

We expect cost of sales in absolute dollars to increase as the number of tests we perform increases.

Gross margin, calculated as net revenue minus cost of sales, is a key indicator we use to assess our business.

For example, in 2016, we transitioned the performance of our genomic tests to our own dedicated clinical lab from a third-party contract lab.

This transition increased the gross margin from our genomic tests while also increasing our level of control of the performance of our tests and laboratory quality metrics.

Additionally, we expect cost of sales to increase with the expansion of laboratory capacity and staffing in advance of anticipated growth of our recently launched tests.

Gross margin, calculated as net revenues minus cost of sales, and gross margin percentage, calculated as gross margin divided by net revenues, are key indicators we use to assess our business.

Research and Development

Research and development expenses include costs incurred to develop our genomic tests, collect clinical samples and conduct clinical studies to develop and support our products.

These costs consist of personnel costs, including stock-based compensation expense, prototype materials, laboratory supplies, consulting costs, regulatory costs, electronic medical records set up costs, costs associated with setting up and conducting clinical studies and allocated overhead, including rent, information technology, equipment depreciation and utilities.

These costs consist of personnel costs (including salaries, bonuses, benefits and stock-based compensation expense), prototype materials, laboratory supplies, consulting costs, regulatory costs, electronic medical records set up costs, costs associated with setting up and conducting clinical studies and allocated overhead, including rent, information technology, equipment depreciation and utilities.

We expense all research and development costs in the periods in which they are incurred.

We expect our research and development expenses to increase in absolute dollars as we continue to invest in research and development activities related to developing enhanced and new products.

We expect to use a portion of the proceeds from the June 2020 and December 2020 follow-on public offerings to further support and accelerate our research and development activities, including two important studies that we have recently commenced to support our DecisionDx-Melanoma test.

The first is the PERSONALize study, in which we are evaluating DecisionDx-Melanoma for interactions with adjuvant therapies.

The second is the CONNECTION study, which is collecting long-term outcomes for up to 10,000 patients who have been tested with DecisionDx-Melanoma.

Selling, General and Administrative

Selling, general and administrative, or SG&A, expenses include executive, selling and marketing, legal, finance and accounting, human resources, billing and client services.

These expenses consist of personnel costs, including stock-based compensation expense, direct marketing expenses, audit and legal expenses, consulting costs, training and medical education activities, payor outreach programs and allocated overhead, including rent, information technology, equipment depreciation, and utilities.

In the near term, we expect increases in SG&A expenses related to compliance with the rules and regulations of the SEC and Nasdaq, investor relations activities, and additional insurance expenses.

These expenses consist of personnel costs (including salaries, bonuses, benefits and stock-based compensation expense), direct marketing expenses, audit and legal expenses, consulting costs, training and medical education activities, payor outreach programs and allocated overhead, including rent, information technology, equipment depreciation, and utilities.

We expect continued increases in SG&A expenses related to compliance with the rules and regulations of the SEC and Nasdaq, investor relations activities and additional insurance expenses.

Other administrative and professional services expenses within SG&A are expected to increase with the scale of our business, but selling and marketing-related expenses are expected to increase significantly, consistent with our growth strategy.

Other Operating Income

Other operating income consists of an automatic payment received from HHS for provider relief funds pursuant to the CARES Act.

Interest Income

Interest income consists primarily of interest earned on cash and cash equivalents in interest-bearing accounts.

Interest income consists primarily of earnings on cash and cash equivalents, primarily money market funds.

Interest Expense

Interest expense is attributable to borrowings under our term debt, revolving line of credit and the convertible promissory notes issued in January and February of 2019, or the Q1 2019 Notes, and also includes the amortization of debt discount and issuance costs.

Gain on Extinguishment of Debt

The gain on extinguishment of debt is associated with the settlement of the Q1 2019 Notes in connection with the IPO.

(Loss) Gain on Extinguishments of Debt

The loss on extinguishment of debt is associated with the early repayment of our term loan facility in December 2020 while the gain on extinguishment of debt is associated with the settlement of the Q1 2019 Notes in connection with the IPO.

Other Expense, Net

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Our financial statements do not reflect any federal or state income tax benefits attributable to the net losses we have incurred, due to the uncertainty of realizing a benefit from those items.

As of December 31, 2019, we had federal net operating loss carryforwards of $57.4 million , of which $43.5 million will begin to expire in 2028 if not utilized to offset taxable income, and $13.9 million may be carried forward indefinitely.

As of December 31, 2020, we had federal net operating loss carryforwards of $55.9 million, of which $42.0 million will begin to expire in 2033 if not utilized to offset federal taxable income and $13.9 million may be carried forward indefinitely.

Also, as of December 31, 2020, we had state net operating loss carryforwards of $41.6 million, which begin to expire in 2028 if not utilized to offset state taxable income.

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The following table summarizes our results of operations for the periods indicated (in thousands, except percentages):

Years Ended December 31,

Increase (Decrease)

Years Ended December 31, Change

Net revenues $ 62,649 $ 51,865 $ 10,784 20.8 %

Cost of sales 9,685 7,310 2,375 32.5 %

Operating expenses:

Gross margin 52,964 44,555 8,409 18.9 %

Gross margin percentage 84.5 % 85.9 %

Operating expenses and other operating income:

Research and development 13,256 7,385 5,871 79.5 %

Selling, general and administrative 48,132 29,842 18,290 61.3 %

Total operating expenses

Operating income (loss)

Other operating income (1,882) — (1,882) N/A

Total operating expenses, net 59,506 37,227 22,279 59.8 %

Operating (loss) income (6,542) 7,328 (13,870) (189.3) %

Interest income 373 312 61 19.6 %

Interest expense (2,634) (4,571) 1,937 42.4 %

Gain on extinguishment of debt

(Loss) gain on extinguishments of debt (1,397) 5,213 (6,610) (126.8) %

Other expense, net — (2,933) 2,933 100.0 %

Income (loss) before income taxes

(Loss) income before income taxes (10,200) 5,349 (15,549) (290.7) %

Income tax expense 84 72 12 16.7 %

Net income (loss)

Net revenues increased by $29.1 million , or 127.6% , to $51.9 million due to a combination of increased test volume and higher per-unit revenues.

Approximately 94% of the increase is attributable to DecisionDx-Melanoma test revenues with the remainder primarily attributable to DecisionDx-UM.

For the year ended December 31, 2019, we experienced an increase in DecisionDx-Melanoma and DecisionDx-UM test volume of 26.9%, compared to the year ended December 31, 2018.

Our 2019 per-unit revenues also benefited from the attainment of “new ADLT” status for our DecisionDx-Melanoma test, effective July 1, 2019, which resulted in a higher Medicare reimbursement rate for the test, as described above.

Revenues for the year ended December 31, 2019 were also positively impacted by the full-year effect of our final LCD for DecisionDx-Melanoma.

The LCD was issued by Palmetto, effective December 3, 2018, and provided for payment of covered claims submitted for reimbursement beginning in February 2018.

Net (loss) income $ (10,284) $ 5,277 $ (15,561) (294.9) %

The following table indicates the amount of stock-based compensation expense reflected in the line items above (in thousands):

Years Ended December 31,

2020 2019 Change

Cost of sales $ 1,049 $ 170 $ 879

Research and development 1,492 165 1,327

Selling, general and administrative 5,768 914 4,854

Total stock-based compensation expense $ 8,309 $ 1,249 $ 7,060

Net revenues increased by $10.8 million, or 20.8%, to $62.6 million primarily due to higher per-unit revenues as well as an increase in overall test report volume, partially offset by reduced revenue adjustments related to prior periods.

The overall revenue increase is primarily attributable to DecisionDx-Melanoma test revenues, partially offset by lower DecisionDx-UM test revenues.

Our 2020 per-unit revenues benefited from having the “new ADLT” status for our DecisionDx-Melanoma test, effective July 1, 2019, which resulted in a higher Medicare reimbursement rate for the test, as described above, for the full year in 2020.

For the year ended December 31, 2020, we experienced an increase in DecisionDx-Melanoma test volume of 4.5% but a decrease in DecisionDx-UM test report volume of 8.6%, compared to the year ended December 31, 2019.

For these two tests, while we saw a year-over-year increase in test reports delivered of 37.4% during the first quarter of 2020, we experienced year-over-year (decreases) increases in test reports delivered of (18.5%), 5.4% and (5.3%) during the second, third and fourth quarters, respectively, of 2020.

We believe the adverse impacts to our test report volume growth are linked to delays and/or cancellations in patient visits, resulting in reduced diagnostic biopsies and thus reduced diagnoses of cutaneous melanoma in response to COVID-19, as discussed above.

For the years ended December 31, 2020 and 2019, we recorded net positive revenue adjustments of $0.2 million and $2.5 million, respectively, related to tests delivered in previous periods, associated with changes in estimated variable consideration.

The additional positive revenue adjustments in the current year primarily relate to recognition of revenue for certain tests delivered in prior periods for which no revenue was recognizable originally, but was recognized upon cash collection of payments for the tests in the current-year period.

The positive revenue adjustments include the recognition of revenue for

certain tests delivered in prior periods for which no revenue was recognizable originally, but was recognized upon cash collection of payments for the tests in the respective periods.

Cost of Sales

Cost of sales for the year ended December 31, 2020 increased by $2.4 million, or 32.5%, compared to the year ended December 31, 2019, primarily due to increased costs of supplies and services, attributable to the higher activity levels, as well as higher personnel costs due to additional headcount in our laboratory testing operations.

Our gross margin percentage was 85.9% for the year ended December 31, 2019, compared to 76.8% for the same period in 2018, with the improvement principally a result of the increased operating leverage on the higher revenues.

The additional personnel costs included a year-over-year increase in stock-based compensation expense of $0.9 million.

Our gross margin percentage was 84.5% for the year ended December 31, 2020, compared to 85.9% for the same period in 2019, reflecting the expansion of laboratory staff in preparation for both launches of DecisionDx-SCC and DecisionDx DiffDx-Melanoma as well as anticipated further volume growth for DecisionDx-Melanoma.

Due to the nature of our business, a significant portion of our cost of sales expenses represent fixed costs associated with our testing operations.

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Research and Development

Research and development expenses increased by $2.5 million , or 52.1% , for the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily associated with increases in personnel costs.

Research and development expenses increased by $5.9 million, or 79.5%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily associated with increases in personnel costs and costs incurred in our clinical studies.

Personnel costs increased due to expansions in headcount in support of our growth, including higher stock-based compensation expense, which increased by $1.3 million.

Selling, General and Administrative

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In early 2019, we expanded our sales organization from 14 territories to 23 territories and implemented an additional expansion to 32 territories beginning in December 2019.

Further, we expanded our sales organization headcount in the third quarter of 2020 in preparation for the commercial launch of our DecisionDx DiffDx-Melanoma test.

The higher personnel costs also reflect expanded headcount in our administrative support functions.

The remainder of the increase was primarily associated with higher professional fees (principally attributable to reimbursement and accounting), increased travel costs, increased spending for events and conferences, higher insurance expense and other general increases.

Stock-based compensation expense included in SG&A expense was $5.8 million for the year ended December 31, 2020 compared to $0.9 million for the year ended December 31, 2019, reflecting both higher post-IPO stock option valuations as well as additional awards outstanding due to growth in headcount.

The remainder of the increase in SG&A expense was primarily associated with higher marketing expenses, professional fees, board of director compensation, insurance expense and other general increases.

Other Operating Income

Other operating income of $1.9 million for the year ended December 31, 2020 consists entirely of the automatic payment received from HHS pursuant to the CARES Act for provider relief funds.

We initially recognized income attributable to the payment in the second quarter of 2020 based on our expectation of meeting the requirements to retain the funds.

However, due a change in requirements of the program in the third quarter of 2020, we reversed this income.

However, in the fourth quarter of 2020, a legislative change was enacted affecting the program, under which we concluded it is reasonably assured we will qualify to retain the funds.

Accordingly, we recognized the income again in the fourth quarter of 2020.

See Note 2 to the financial statements for additional information.

Interest Income

Interest income increased by $0.3 million for the year ended December 31, 2019, compared to the year ended December 31, 2018, as a result of higher interest-bearing balances of cash and cash equivalents.

The higher cash and cash equivalents were primarily attributable to proceeds from the IPO and the issuance of convertible promissory notes during 2019.

Interest income increased by $0.1 million for the year ended December 31, 2020, compared to the year ended December 31, 2019, as a result of higher average balances of cash and cash equivalents, largely offset by the effect of lower interest rates.

The higher average balances of cash and cash equivalents were primarily attributable to proceeds from the IPO in 2019 and two public offerings of common stock in 2020.

Interest Expense

Interest expense increased by $2.3 million , or 101.0% , for the year ended December 31, 2019 compared to the year ended December 31, 2018.

The effect of the issuance of the Q1 2019 Notes in January and February 2019 added $1.7 million in interest expense for the year ended December 31, 2019 and consisted of the accrual of the contractual 8% interest plus the amortization of issuance costs and debt discount.

The remainder of the increase is due to a combination of higher average outstanding balances and higher interest rates on our variable-rate debt under our banking credit facility.

Average outstanding bank debt balances were approximately $4.6 million higher during the year ended December 31, 2019 compared to the year ended December 31, 2018 and average interest rates increased by approximately 0.6% from the same period in 2018.

Gain on Extinguishment of Debt

We recorded a non-cash extinguishment gain related to the Q1 2019 Notes totaling $5.2 million during the year ended December 31, 2019, which was associated with the conversion of the Q1 2019 Notes into shares of common stock in connection with the IPO and was considered an extinguishment for accounting purposes.

This gain resulted from certain accounting requirements associated with the extinguishment of debt with a beneficial conversion feature.

See Note 7 to the financial statements for additional information.

Interest expense decreased by $1.9 million, or 42.4%, for the year ended December 31, 2020 compared to the year ended December 31, 2019 and was primarily attributable to interest expense on the Q1 2019 Notes during the year ended December 31, 2019, which was $1.7 million, and consisted of the accrual of the contractual 8% interest plus the amortization of issuance costs and debt discount.

The outstanding principal amount and accrued interest on the Q1 2019 Notes converted into shares of common stock in connection with the IPO in July 2019.

The decrease also reflects lower interest expense on our banking term loan facility primarily due to lower average balances outstanding.

We terminated and repaid all amounts due on the term loan facility in December 2020, as discussed further below.

(Loss) Gain on Extinguishments of Debt

We recorded an extinguishment loss of $1.4 million during the year ended December 31, 2020 related to the early repayment and termination of our banking term loan facility.

The extinguishment loss w as attributable to the write off of the unamortized discount and issuance costs as well as early termination and prepayment fees.

During the year ended December 31, 2019, we recorded a non-cash extinguishment gain related to the Q1 2019 Notes totaling $5.2 million, which was associated with the conversion of the Q1 2019 Notes into shares of common stock in connection with the IPO that was considered an extinguishment for accounting purposes.

See Notes 6 and 7 to the financial statements for additional information on these extinguishments of debt.

Other Expense, Net

Other expense, net for the year ended December 31, 2019 consisted of losses associated with changes in fair value of the July 2019 Note, the liability for convertible preferred stock warrants and the embedded derivative associated with the Q1 2019 Notes of $2.1 million, $0.6 million and $0.2 million, respectively.

The activity for the year ended December 31, 2018 consists entirely of changes in fair value of the liability for the convertible preferred stock warrants.

These liabilities were adjusted to their current fair values each period, but effective with the IPO, the July 2019 Note and Q1 2019 Notes automatically converted into shares of common stock and we reclassified our liability for convertible preferred stock warrants to stockholders’ equity.

Accordingly, no further changes in fair value for these items will be reflected in periods after the IPO date.

Accordingly, no further changes in fair value for these items are reflected in periods after the IPO date.

Income Tax Expense

We recorded minimal income tax expense in both the years ended December 31, 2019 and 2018, because the income tax expense (benefit) of net income (loss) in both periods was largely offset by changes in the valuation allowance on net deferred tax assets, as we have determined that it is more likely than not that these benefits will not be realized.

We recorded minimal income tax expense in both the years ended December 31, 2020 and 2019, because the income tax (benefit) expense of net (loss) income in both periods was largely offset by changes in the valuation allowance on net deferred tax assets, as we have determined that it is more likely than not that these benefits will not be realized.

Stock-Based Compensation Expense

Stock-based compensation expense, which is allocated among cost of sales, research and development expense and SG&A expense, totaled $8.3 million for the year ended December 31, 2020 compared to $1.2 million for the year ended December 31, 2019.

We expect material increases in stock-based compensation expense in future periods, reflecting both higher post-IPO stock option valuations as well as additional awards outstanding due to growth in our headcount.

As of December 31, 2020 we had 201 employees compared to 135 as of December 31, 2019.

As of December 31, 2020, the total unrecognized stock-based compensation cost related to outstanding awards was $57.1 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 3.4 years.

We expect to continue granting stock-based compensation awards, which we expect to further contribute to increases in stock-based compensation expense in future periods.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses and negative cash flows.

For the year ended December 31, 2019, we reported net income of $5.3 million (which includes the benefit of a $5.2 million non-cash debt extinguishment gain), our net cash provided by operating activities was $7.0 million and we had an accumulated deficit of $52.2 million as of December 31, 2019.

We also have substantial indebtedness, the terms of which require us to meet a three-month trailing revenue covenant, which is currently tested quarterly.

As of December 31, 2019 and 2018, we are in compliance with this covenant.

At the time of the issuance of our financial statements for the years ended December 31, 2018 and 2017, management’s projections, including consideration of certain revenue recognition policies, indicated potential non-compliance with the then-

effective revenue covenant during the 12 months following the date of issuance of those financial statements.

Subsequently, in June 2019, we entered into an amendment to our 2018 LSA, or the First Amendment, which, among other changes , modified the revenue covenant from a trailing six-month calculation to a trailing three-month calculation with revised revenue targets tested monthly.

In February and March 2020, we entered into amendments of the 2018 LSA that, among other things, changed the covenant from being tested monthly to quarterly testing and established revenue targets for the year ending December 31, 2020.

M anagement expects to be in compliance with the covenant for at least the next 12 months.

Prior to the IPO, we had raised aggregate cash proceeds of $46.6 million from the sale of our convertible preferred stock, in various private placements beginning in 2008, which we have used to fund our operations.

In addition, we have obtained financing through term debt, a revolving line of credit and convertible promissory notes, which are discussed further below.

Initial Public Offering

Sources of Liquidity

Our principal sources of liquidity are our cash and cash equivalents and cash generated from sales of our products.

As of December 31, 2020 and 2019, we had cash and cash equivalents of $409.9 million and $98.8 million, respectively.

To date, in addition to the revenue generated from the sale of our products, we have financed our operations through the IPO, two follow-on public offerings of common stock in June 2020 and December 2020, private placements of preferred stock, convertible promissory notes and bank debt.

On December 14, 2020, we filed an automatically effective shelf registration statement on Form S-3 (File No.

333-251331) with the SEC as a “well-known seasoned issuer.” The registration statement allows us to issue an indeterminate number or amount of common stock, preferred stock, debt securities and warrants from time to time in one or more offerings.

However, there can be no assurance that we will complete any such offerings of securities.

Any future offerings under this registration statement will be dependent upon, among other factors, market conditions, available pricing, our financial condition, investor perception of our prospects, our capital needs and our ability to maintain status as a well-known seasoned issuer.

Public Offerings of Common Stock

In connection with the closing of the IPO on July 29, 2019, we issued and sold 4,600,000 shares of our common stock, including 600,000 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $16.00 per share.

We received approximately $65.9 million in net proceeds, after deducting underwriting discounts and commissions and other offering expenses payable by us.

We received approximately $65.9 million in net proceeds, after deducting underwriting discounts and commissions and other offering expenses payable to us.

On June 29, 2020 and July 2, 2020, we issued and sold 2,000,000 and 300,000 shares, respectively, of our common stock in a follow-on public offering at a price of $37.00 per share.

We received $79.5 million in aggregate net proceeds, after deducting

underwriting discounts and commissions and offering costs.

The shares issued and sold on July 2, 2020 reflect the underwriters’ exercise in full of their 30-day option to purchase additional shares at the public offering price, less underwriting discounts and commissions.

On December 18, 2020, we issued and sold 4,600,000 shares of our common stock in a follow-on public offering at a price of $58.00 per share.

We received $250.5 million in aggregate net proceeds, after deducting underwriting discounts and commissions and offering costs (excluding $0.4 million in offering costs that were incurred but not paid as of December 31, 2020).

The shares issued and sold includes the underwriters’ exercise in full of their 30-day option to purchase additional shares at the public offering price, less underwriting discounts and commissions.

On December 21, 2020, we used a portion of these proceeds to repay, in full, our outstanding term loan credit facility.

See “Long-Term Debt” below for additional information.

As mentioned above, we expect to use a portion of these proceeds to further support and accelerate our research and development activities, including two important studies that we have recently commenced to support our DecisionDx-Melanoma test.

Medicare Advance Payment

On April 16, 2020, we received an advance payment of $8.3 million, or the Advance Payment, from CMS under its Accelerated and Advance Payment Program, which was expanded to provide increased cash flow to service providers during the COVID-19 pandemic.

We have recorded the Advance Payment as a liability, consisting of both a current and noncurrent portion, on our balance sheet as of December 31, 2020.

We will reduce the balance of the Advance Payment as it is applied to claims or is otherwise recouped by CMS.

Under the Continuing Appropriations Act, 2021 and Other Extensions Act, enacted on October 1, 2020, the recoupment of the Advance Payment will commence in April 2021.

For the first eleven months of recoupment, CMS will apply 25% of the Medicare payments otherwise owed to us against the balance of the Advance Payment.

After that eleven-month period, CMS will recoup at a rate of 50% of the Medicare payments otherwise owed to us for an additional six months.

If the Advance Payment is not fully recovered by CMS after this recoupment period, we will be required to repay any remaining balance.

Funding Requirements

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical research and development services, laboratory and related supplies, legal and other regulatory expenses and general administrative costs.

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical research and development services, laboratory operations, equipment and related supplies, legal and other regulatory expenses, general administrative costs and, from time to time, expansion of our facilities in support of our growth.

We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on the commercialization of our existing products, the development of our future product candidates, the potential commercialization of our product candidates, should their development be successful, and general administrative costs.

We have two product candidates in the late stage development that we plan to launch commercially in the second half of 2020.

The successful development of other product candidates is highly uncertain.

At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the clinical development of all our product candidates.

We are also unable to predict when, if ever, revenue will commence from sales of our product candidates.

This is due to the numerous risks and uncertainties associated with developing genomic tests, including, among others, the uncertainty of:

We may also, from time to time, consider various strategic opportunities, which may involve using a portion of our capital resources to fund acquisitions of businesses, assets, products or technologies.

Since our inception, we have generally incurred significant losses and negative cash flows.

For the year ended December 31, 2020 we had a net loss of $10.3 million and an accumulated deficit of $62.5 million as of December 31, 2020.

Our ability to generate revenue sufficient to achieve profitability will depend heavily on the successful commercialization of our currently marketed products and the products we plan to launch in the future as well as our spending on research and development activities.

We expect to incur additional expenses and losses in the future as we invest in the commercialization of our existing products, the development of our future product candidates and the commercialization of our product candidates.

We believe that our existing cash and cash equivalents and anticipated cash generated from sales of our products will be sufficient to fund our operations for the foreseeable future.

However, we have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

There are numerous risks and uncertainties associated with developing genomic tests, including, among others, the uncertainty of:

• successful commencement and completion of clinical study protocols;

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• acceptance of new genomic tests by physicians, patients and third-party payors.

A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate.

We will also incur costs as a public company that we have not previously incurred or have previously incurred at lower rates, including increased costs and expenses for fees to members of our board of directors, increased personnel costs, increased director and officer insurance premiums, audit and legal fees, investor relations fees and expenses for compliance with public-company reporting requirements under the Exchange Act and rules implemented by the SEC and Nasdaq.

As of December 31, 2019 and December 31, 2018, we had cash and cash equivalents of $98.8 million and $4.5 million , respectively.

In the first quarter of 2019, we received net proceeds of $11.7 million from the sale of the Q1 2019 Notes.

In July 2019, we received net proceeds of $9.2 million from the issuance of the July 2019 Note and $65.9 million in net proceeds from the IPO.

We believe that our existing cash and cash equivalents and anticipated cash generated from sales of our products, will be sufficient to fund our operating expenses for the foreseeable future.

We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements.

Our future funding requirements will depend on and could increase significantly as a result of many factors, including those listed above.

Until such time, if ever, as we can generate revenue sufficient to achieve and sustain profitability, we expect to finance our operations through our cash on hand and, to the extent necessary, a combination of equity and debt financings, which may not be available to us when needed, on terms that we deem to be favorable or at all.

We do not currently have any committed

external source of funds.

Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate our exact working capital requirements.

Our future funding requirements will depend on

and could increase significantly as a result of many factors, including those listed above as well as those listed in Part I, Item 1A., “Risk Factors,” of this Annual Report on Form 10-K.

We do not currently have any committed external source of funds.

In the event additional funding is required, we expect that we would use a combination of equity and debt financings, which may not be available to us when needed, on terms that we deem to be favorable or at all.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders.

Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends.

As a result of the COVID-19 crisis and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.

There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur.

If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive.

If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our product discovery and development activities or future commercialization efforts.

Long-Term Debt

Our long-term debt consists of term debt and a revolving line of credit and are presented in the table below (in thousands):

Our long-term debt balances are presented in the table below (in thousands):

Years Ended December 31,

Revolving line of credit

Total principal amount

Term debt $ — $ 26,688

Unamortized discount and issuance costs — (1,566)

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Long-term debt, less current portion $ — $ 19,289

On November 30, 2018, we entered into the 2018 LSA with Oxford as collateral agent, and Oxford and SVB as equal syndicated lenders, or the Lenders.

The 2018 LSA replaced the 2017 Loan and Security Agreement and provided for a $20.0 million term loan, or the 2018 Term Loan, and a credit line of up to $5.0 million (discussed in the ‘‘Revolving Line of Credit’’ section below), prior to amendment of the 2018 LSA on June 13, 2019, as discussed below.

Our obligations under the 2018 LSA are secured by substantially all of our assets, excluding intellectual property and subject to certain other exceptions and limitations.

We have the right to prepay the 2018 Term Loan in whole or in part at any time, subject to a prepayment fee of 2.50% if prepaid on or prior to November 30, 2019, 1.50% if prepaid after November 30, 2019 and on or prior to November 30, 2020, and 0.75% thereafter.

Upon prepayment, we are also obligated to pay a non-refundable early termination fee of $496,785.

Amounts prepaid or repaid under the 2018 Term Loan may not be reborrowed.

Initially, the 2018 LSA contained a financial covenant that requires us to achieve a monthly trailing six-month revenue target each month throughout the term of the agreement, but the covenant amended on June 13, 2019 and changed to a monthly trailing three-month revenue target, as discussed further below.

As of December 31, 2019 and December 31, 2018, we were in compliance with this covenant.

On June 13, 2019, we entered into the First Amendment, which, among other things, (i) eliminated the $5.0 million revolving line and increased the 2018 Term Loan by $5.0 million and (ii) amended the financial covenant to require us to achieve a monthly trailing three-month revenue target each month throughout the term of the agreement.

The revenue targets were amended primarily to align with a more current reflection of our revenue projections after taking into account the impact of ASC 606 on our revenue recognition following our early adoption of ASC 606.

The First Amendment was accounted for as a modification of the 2018 LSA, and therefore no extinguishment gain or loss was recognized.

For each month through December 31, 2019, the trailing three-month revenue requirements were calculated as a percentage of our previously approved applicable monthly revenue projections.

In February 2020, we entered into an amendment of the 2018 LSA, or the Second Amendment, that, among other things, change the covenant from being tested monthly to quarterly testing.

In March 2020, we entered into an amendment of the 2018 LSA, or the Third Amendment, with the Lenders to establish revenue targets for the year ending December 31, 2020.

Such requirements, for the quarterly periods from January to December 2020, are equal to generally increasing dollar amounts, in millions, in the low double digits.

For quarterly periods ending after December 31, 2020, the trailing three-month revenue requirements will be determined by the Lenders upon receipt and review of our quarterly financial projections for the year, subject to certain specified criteria regarding minimum requirements.

Revenues, if any, that we recognize as a result of an ALJ appeal process from consolidated claims initiatives for DecisionDx-Melanoma do not count toward the minimum revenue requirements.

We were in compliance with this covenant as of the most recently tested quarter.

In addition, the 2018 LSA contains customary conditions of borrowing, events of default and covenants, including covenants that restrict our ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to

holders of our capital stock.

Should an event of default occur, including the occurrence of a material adverse change, we could be liable for immediate repay ment of all obligations under the 2018 LSA.

The Second Amendment included a waiver, by the Lenders, of an event of default by us attributable to maintaining a balance in a certain third-party deposit account, beyond the maximum level permitted, without obtaining a control agreement for such deposit account in favor of the collateral agent, Oxford.

In addition to the waiver, the Second Amendment also provided a modification to increase the maximum balance permitted for this deposit account.

We are currently in compliance with this provision of the 2018 LSA.

While we were able to obtain a waiver and amendment in this instance, there can be no assurance that the Lenders would agree to provide any future waivers or amendments if another event of default were to occur as result of noncompliance with this or any other covenant under the 2018 LSA.

Should we seek to further amend the terms of the 2018 LSA, the consent of Oxford and SVB would be required, and there can be no assurance that any such amendment would be available on terms acceptable to us, if at all.

The 2018 Term Loan bears interest at a floating rate equal to the greater of (1) 8.55% and (2) the 30-day U.S.

We had a Loan and Security Agreement, or the 2018 LSA, with Oxford Finance LLC, or Oxford, as collateral agent, and Oxford and Silicon Valley Bank as equal syndicated lenders.

The 2018 LSA consisted of a $25.0 million secured term loan credit facility, or the Term Loan.

The Term Loan bore interest at a floating rate equal to the greater of (1) 8.55% and (2) the 30-day U.S.

LIBOR rate as reported in The Wall Street Journal on the last business day of the month that precedes the month in which the interest will accrue, plus 6.48%.

The applicable interest rate on the 2018 Term Loan was 8.55% as of December 31, 2019 and 8.98% as of December 31, 2018, respectively.

Interest on the 2018 Term Loan is payable monthly in arrears.

We are permitted to make interest-only payments on the 2018 Term Loan through May 31, 2020.

The principal is required to be repaid in 30 equal monthly installments beginning on June 1, 2020.

All unpaid principal and accrued and unpaid interest are due on November 1, 2022, or the 2018 Term Loan Maturity Date.

We are also obligated to make an additional final payment of 6.75% of the aggregate original principal amount, or $1,687,500 as of December 31, 2019, upon any prepayment or on the 2018 Term Loan Maturity Date.

The final payment amount is being amortized as additional interest expense using the effective interest method of the term of the debt.

The 2018 Term Loan was fully funded on November 30, 2018 and the 2018 Revolving Line (defined and discussed below) was fully drawn upon on November 30, 2018.

Proceeds from the 2018 LSA were used to repay all outstanding obligations under the 2017 LSA and to provide working capital.

As a condition of the loan, we issued Series F preferred stock warrants to the Lenders with an aggregate initial fair value of $158,000.

In accordance with ASC 480-10, Distinguishing Liabilities from Equity , the warrants were liability-classified as the underlying to the warrant was a puttable security.

The initial recognition of the warrant liability created a discount to the debt, which is being amortized over the debt term using the effective interest method.

The 2018 LSA was accounted for as a modification of the previous lending arrangement with SVB and Oxford, and therefore no extinguishment gain or loss was recognized.

Revolving Line of Credit

Under the 2018 LSA, we had a $5.0 million revolving line of credit, or the 2018 Revolving Line, contingent on our satisfaction of borrowing base eligibility requirements.

The 2018 Revolving Line bore interest at a floating per annum rate equal to the greater of (1) 6.25% and (2) 5.48% above the U.S.

The applicable interest rate on the 2018 Revolving Line at December 31, 2018 was 7.98%.

The 2018 Revolving Line was to be due in full no later than November 30, 2020, but was eliminated in connection with the First Amendment.

Q1 2019 Convertible Promissory Notes

In January and February 2019, we issued $11,770,000 principal amount of unsecured convertible promissory notes of which $4,756,000 was with related parties (executive officers, members of our board of directors or entities affiliated with them).

The Q1 2019 Notes bear simple interest at a rate of 8% per annum.

Originally, the Q1 2019 Notes had a maturity date of January 31, 2020, but on July 3, 2019 we entered into an amendment with the holders of the Q1 2019 Notes to extend the maturity date to June 30, 2020.

Such amendment was treated as a modification of the existing debt and therefore no extinguishment gain or loss was recognized in connection with the amendment.

Prior to the actual conversion of the Q1 2019 Notes on July 29, 2019 (discussed below), on or before the maturity date, the entire outstanding principal amount of and accrued interest on the Q1 2019 Notes, or the Conversion Amount, was automatically convertible into shares of our equity securities issued and sold in a single or series of related transactions, with the principal purpose of raising capital, in which we sell shares of such equity securities for aggregate gross proceeds of at least $10.0 million, or the Next Equity Financing.

The number of shares of such equity securities issuable in the Next Equity Financing was equal to the quotient of the Conversion Amount as of the closing date of the Next Equity Financing divided by a per share price that is equal to 80% of the lowest per share purchase price of the equity securities sold in the Next Equity Financing.

If the Q1 2019 Notes had not been repaid or converted prior to the maturity date, then, at the request of the holders of a majority of the then-outstanding principal amount of and accrued interest on the Q1 2019 Notes, then the Conversion Amount as of the maturity date would have converted into shares of our Series F redeemable convertible preferred stock, or any

senior equity security issued by us after the first issuance of the Q1 2019 Notes, in each case at a conversion price equal to the price at which such security was last sold (which was $5.8208 for shares of our Series F redeemable convertible preferred stock).

If we had undergone a change of control while the Q1 2019 Notes were outstanding, we would have been required to repurchase each note from each holder at a repurchase price equal to two times the principal amount of such note, plus any accrued and unpaid interest on such note as of the date of such repurchase.

As discussed further in Note 7 to the financial statements appearing elsewhere in this Annual Report on Form 10-K, the Q1 2019 Notes contained a beneficial conversion feature and an embedded derivative, both of which created a significant debt discount that was being amortized over the life of the debt (that is, through June 30, 2020) using the effective interest method, which resulted in increases in non-cash interest expense in each succeeding reporting period until the Q1 2019 Notes were converted into shares of common stock on July 29, 2019.

Extinguishment Gain

The closing of the IPO on July 29, 2019 was considered to be the Next Equity Financing under the terms of the Q1 2019 Notes.

Accordingly, on July 29, 2019, the Conversion Amount of the Q1 2019 Notes as of such date converted into 954,074 shares of common stock based on a price of $12.80 per share, or 80% of the IPO price of $16.00 per share.

Based on applicable accounting guidance, the conversion of the Q1 2019 notes was considered an extinguishment for accounting purposes, which resulted in a gain of $5.2 million.

The gain resulted from certain accounting requirements associated with the extinguishment of debt with a beneficial conversion feature.

See Note 7 to the financial statements for additional information.

July 2019 Convertible Promissory Note

On July 12, 2019, we issued an unsecured convertible promissory note having a principal amount of $10,000,000 and our net proceeds, after deducting issuance costs, was $9.2 million .

In connection with the issuance of the July 2019 Note, we also issued to the purchaser a warrant to purchase 209,243 shares of common stock at an exercise price of approximately $0.001 per share, which expires on July 12, 2026.

The July 2019 Note bore simple interest at a rate of 8% per annum and had an original maturity date of June 30, 2020.

As a result of the IPO, the outstanding principal amount plus accrued interest on the July 2019 Note converted into 707,032 shares of common stock on July 29, 2019, based on a price derived from a valuation calculated pursuant to the terms of the July 2019 Note.

As discussed further in Note 7 to the financial statements, we accounted for the July 2019 Note at fair value and recognized a loss of $2.1 million during the year ended December 31, 2019, which represents the excess of the fair value of the shares issued upon conversion of the July 2019 Note over the net proceeds received.

The applicable interest rate on the Term Loan was 8.55% as of December 31, 2019.

We were permitted to make interest-only payments on the Term Loan through May 31, 2020.

As required, we began to repay the principal in 30 equal monthly installments of $833,333 each beginning on June 1, 2020.

All unpaid principal and accrued and unpaid interest was to be due at maturity on November 1, 2022.

However, o n December 21, 2020, we terminated the 2018 LSA and repaid in full all amounts due, which totaled $21.6 million as of such date, including the outstanding principal balance, the final payment amount, early termination and prepayment fees and accrued interest.

For additional information on the 2018 LSA, refer to Note 7, “Long-Term Debt,” in the accompanying notes to our audited financial statements included in this Annual Report on Form 10-K.

Operating Leases

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Refer to Note 8 to the financial statements for additional information on our leasing arrangements.

As of December 31, 2019 and December 31, 2018, we had cash and cash equivalents of $98.8 million and $4.5 million , respectively.

The following table summarizes our sources and uses of cash and cash equivalents for each of the periods presented (in thousands):

Years Ended December 31,

Net cash provided by (used in) operating activities

Net cash provided by operating activities $ 9,865 $ 7,015

Net cash used in investing activities (4,748) (937)

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Net increase in cash and cash equivalents 311,007 94,366

Cash and cash equivalents, beginning of year 98,845 4,479

Cash and cash equivalents, end of year $ 409,852 $ 98,845

Operating Activities

preferred stock warrant fair value adjustments of $0.6 million , and $1.1 million of other items, partially offset by $5.2 million of a debt extinguishment gain).

Net cash used in operating activities was $12.3 million for the year ended December 31, 2018 and was primarily attributable to the net loss of $6.4 million and increases in accounts receivable of $8.4 million , partially offset by increases in accrued compensation of $1.3 million and non-cash charges of $0.9 million.

Net cash provided by operating activities was $9.9 million for the years ended December 31, 2020 and was primarily attributable to net non-cash charges of $10.5 million (consisting of $8.3 million in stock-based compensation expense, $1.4 million of loss on extinguishment of debt, and $0.8 million in amortization of debt discount and issuance costs), the receipt of the Advance Payment of $8.3 million, increases in accrued compensation of $3.3 million and decreases in accounts receivable of $1.7 million, partially offset by the net loss of $10.3 million and increases in prepaid expenses and other current assets of $2.8 million, other assets of $1.4 million and inventory of $1.0 million.

Net cash provided by operating activities was $7.0 million for the year ended December 31, 2019 and was primarily attributable to net income of $5.3 million and net non-cash charges of $1.7 million (consisting of $2.1 million of fair value adjustments, $1.9 million in amortization of debt discount and issuance costs, stock-based compensation expense of $1.2 million , preferred stock warrant fair value adjustments of $0.6 million , and $1.1 million of other items, partially offset by $5.2 million of a debt extinguishment gain).

Investing Activities

Net cash used in investing activities for the years ended December 31, 2020 and 2019 consisted entirely of purchases of property and equipment.

The increase in purchases of property and equipment for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily associated with the expansion of our facilities.

Financing Activities

Net cash provided by financing activities was $305.9 million for the year ended December 31, 2020 and consisted primarily of $330.0 million of proceeds from two common stock offering (net of underwriting discounts, commissions and issuance costs), $1.6 million of proceeds from contributions to the employee stock purchase plan and $1.6 million of proceeds from exercise of common stock options, partially offset by repayments of term debt, including extinguishment costs, of $27.4 million.

Net cash provided by financing activities was $88.3 million for the year ended December 31, 2019 and consisted primarily of $65.9 million of proceeds from our IPO (net of underwriting discounts, commissions and issuance costs), $11.7 million of net proceeds from the issuance of the Q1 2019 Notes, $9.2 million of net proceeds from the issuance of the July 2019 Note, $1.8 million of net proceeds associated with an increase in the 2018 Term Loan in connection with an amendment to the 2018 LSA and $1.2 million of proceeds from the exercise of stock options, partially offset by principal repayments of $1.8 million on our line of credit.

Net cash provided by financing activities was $15.8 million for the year ended December 31, 2018 and consisted primarily of $10.4 million attributable to proceeds received from the issuance of preferred stock and preferred stock warrants, $4.4 million from the issuance of term debt and preferred stock warrants in connection with the 2018 LSA and $1.0 million in proceeds from our line of credit.

Contractual Obligations and Commitments

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Critical Accounting Policies and Significant Judgments and Estimates

Our financial statements are prepared in accordance with U.S.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements.

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and (5) recognize revenues when the performance obligations are satisfied.

All of our revenues from contracts with customers are associated with the provision of diagnostic and prognostic cancer test reports.

Our revenues are primarily derived from DecisionDx-Melanoma, for cutaneous melanoma, and we also have revenues attributable to DecisionDx-UM, for uveal melanoma.

We have determined that we have a contract with the patient when the treating physician orders the test.

Our contracts generally contain a single performance obligation, which is the delivery of the test report, and we satisfy our performance obligation at the point in time when we deliver the test report to the treating physician, at which point we can bill for the report.

of revenue recognized reflects the amount of consideration we expect to receive, or the transaction price, and considers the effects of variable consideration, which is discussed further below.

Once we satisfy our performance obligations and bill for the test report, the timing of the collection of payments may vary based on the payment practices of the third-party payor and the existence of contractually established reimbursement rates.

Most of the payments for our test reports are made by third-party payors, including Medicare and commercial health insurance carriers.

All of our revenues from contracts with customers are associated with the provision of diagnostic and prognostic cancer testing services.

Most of our revenues are attributable to DecisionDx-Melanoma for cutaneous melanoma.

We also provide a test for uveal melanoma, DecisionDx-UM.

We launched a test for patients with cutaneous squamous cell carcinoma, DecisionDx-SCC in August 2020 and launched a test for use in patients with suspicious pigmented lesions, DecisionDx DiffDx-Melanoma in November 2020.

We have determined that we have a contract with the patient when the treating clinician orders the test.

Our contracts generally contain a single performance obligation, which is the delivery of the test report, and we satisfy our performance obligation at the point in time when we deliver the test report to the treating clinician, at which point we can bill for the report.

The amount of revenue recognized reflects the amount of consideration we expect to be entitled, or the transaction price, and considers the effects of variable consideration, which is discussed further below.

Once we satisfy our performance obligations and bill for the service, the timing of the collection of payments may vary based on the payment practices of the third-party payor and the existence of contractually established reimbursement rates.

Most of the payments for our services are made by third-party payors, including Medicare and commercial health insurance carriers.

Certain contracts contain a contractual commitment of a reimbursement rate that differs from our list prices.

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The Medicare claims that are covered by policy under an LCD are generally paid at the established rate by our Medicare contractor within 30 days from receipt.

As the LCD currently only covers a portion of the DecisionDx-Melanoma test reports, we provide for patients covered by Medicare, we intend to attempt to expand this LCD coverage policy in the future.

Medicare claims that were either submitted to Medicare prior to the LCD’s effective date or that are not otherwise covered by the terms of the LCD, but that may meet the definition of being reasonable and necessary pursuant to Section 1862(a)(1)(A) of the Social Security Act, are generally appealed by us.

If our appeal is successful at the first level (termed “redetermination”), second level (termed “reconsideration”) or third level of appeal (de novo hearing with an ALJ), payment may be made for all or a portion of the claim.

We have concluded that our contracts include variable consideration because the amounts paid by Medicare or commercial health insurance carriers may be paid at less than our standard rates or not paid at all, with such differences considered implicit price concessions.

Medicare claims that were either submitted to Medicare prior to the LCD’s effective date or are not covered by the terms of the LCD, but meet the definition of being medically reasonable and necessary pursuant to the controlling Section 1862(a)(1)(A) of the Social Security Act are generally appealed and may ultimately be paid at the first (termed “redetermination”), second (termed “reconsideration”) or third level of appeal (de novo hearing with an ALJ).

A successful appeal at any of these levels results in payment.

In the absence of LCD coverage or contractually established reimbursement rates, we have concluded that our contracts include variable consideration because the amounts paid by Medicare or commercial health insurance carriers may be paid at less than our standard rates or not paid at all, with such differences considered implicit price concessions.

Variable consideration attributable to these price concessions is measured at the expected value using the “most likely amount” method under ASC 606.

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Variable consideration may be constrained and excluded from the transaction price in situations where there is no contractually agreed upon reimbursement coverage or in the absence of a predictable pattern and history of collectability with a payor.

Variable consideration for Medicare claims is deemed to be fully constrained when the payment of such claims is subject to approval by an ALJ at an appeal hearing, due to factors outside our influence (i.e., judgment or actions of third parties) and the uncertainty of the amount to be received is not expected to be resolved for a long period of time.

Variable consideration for Medicare claims that are not covered by an LCD, including those claims

subject to approval by an ALJ at an appeal hearing, is deemed to be fully constrained due to factors outside our influence (i.e., judgment or actions of third parties) and the uncertainty of the amount to be received is not expected to be resolved for a long period of time.

Variable consideration is evaluated each reporting period and adjustments are recorded as increases or decreases in revenues.

Included in revenues for the years ended December 31, 2019 and 2018 were $2.5 million and $0.3 million, respectively, of revenue increases associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.

Because our contracts with customers have an expected duration of one year or less, we have elected the practical expedient in ASC 606 to not disclose information about our remaining performance obligations.

Any incremental costs to obtain contracts are recorded as SG&A expense as incurred due to the short duration of our contracts.

Contract balances consisted solely of accounts receivable (both current and noncurrent) as of December 31, 2019 and 2018.

Included in revenues for the years ended December 31, 2020 and 2019 were $176,000 and $2,493,000, respectively, of revenue increases associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.

These amounts include (i) adjustments for actual collections versus estimated amounts and (ii) cash collections and the related recognition of revenue in current period for tests delivered in prior periods due to the release of the constraint on variable consideration.

DecisionDx-Melanoma Claims Consolidation

In June 2017, we submitted to the Office of Medicare Hearings and Appeals, or OMHA, a formal request to participate in a program to consolidate and adjudicate large volumes of claim disputes at an accelerated rate.

The program consolidates outstanding claim appeals pending at the ALJ level and uses a statistical-sampling approach where multiple ALJs will determine reimbursement results for a sample of claims which are then extrapolated to the universe of claims.

Our consolidated appeal includes 2,698 DecisionDx-Melanoma claims dating from 2013 through spring 2017.

The judges who will review the sample sets have been identified and the hearings were held in April 2019 with a supplemental hearing in May 2019.

No formal ruling has been issued to date.

In accordance with ASC 606, we have not recognized (fully constrained the variable consideration) any revenues attributable to these claims in our financial statements pending the outcome of this matter.

We expect to recognize any revenue adjudicated by the ALJ in the reporting period in which we are notified of the ALJ hearing outcome and it is determined that such decision will not be appealed.

In June 2017, we submitted to OMHA a formal request to participate in a program that OMHA developed with the intent of providing appellants a means to have large volumes of claim disputes adjudicated at an accelerated rate.

The program consolidates outstanding claims at the ALJ level and uses a statistical-sampling approach where five ALJs will determine reimbursement results for a sample of claims which are then extrapolated to the universe of claims.

Our consolidation includes 2,698 DecisionDx-Melanoma claims dating from 2013 through spring 2017.

Hearings were held in April 2019 with a supplemental hearing in May 2019.

On March 12, 2020, OMHA issued a decision denying payment on all claims in the consolidation.

We have filed an appeal to the decision, although no ruling on such appeal has been issued to date.

In accordance with ASC 606 and consistent with prior periods, we have not recognized (fully constrained the variable consideration) any revenues attributable to these claims in our financial statements pending the outcome of this matter.

Stock-Based Compensation

Stock-based compensation expense for equity instruments issued to employees and non-employees, including the purchase rights issued under our 2019 Employee Stock Purchase Plan, or ESPP, is measured based on the grant-date fair value of the awards.

The fair value of each employee stock option is estimated on the date of grant using the Black-Scholes option-pricing valuation model and on the offering date for the ESPP.

We recognize compensation costs on a straight-line basis for all employee stock-based compensation awards over the requisite service period of the awards, which is generally the awards’ vesting period, which is typically four years for options and the two-year offering period for the ESPP.

Stock-based compensation expense for equity instruments issued to employees and non-employees, including stock options, restricted stock units, or RSUs, and purchase rights issued under our 2019 Employee Stock Purchase Plan, or ESPP, is measured based on the grant date fair value of the awards.

For stock options and purchase rights granted under the ESPP, we estimate the grant date fair value using the Black-Scholes option-pricing valuation model.

For RSUs, we use the closing price of our common stock on the date of grant to determine the fair value.

We recognize compensation costs on a straight-line basis for all stock-based compensation awards over the requisite service period of the awards, which is generally the awards’ vesting period, which is typically four years for options and RSUs and the two-year offering period for the ESPP.

Forfeitures are accounted for as they occur.

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Therefore, we use an expected dividend yield of zero in the Black-Scholes option valuation model.

Prior to our IPO, the estimated fair value of our common stock had been determined by our board of directors as of the date of each award grant, with input from management, considering our most recently available third-party valuations of common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant, which intended all options granted to be exercisable at price per share not less than the per share fair value of our common stock underlying those options on the grant date.

Subsequent to our IPO, the fair value of our common stock is the closing selling price per share of our common stock as reported on the Nasdaq Global Market on the date of grant or other relevant determination date.

The fair value of our common stock is also an assumption used to determine the fair value of stock options.

Prior to the IPO, the estimated fair value of our common stock had been determined by our board of directors as of the date of each award, with input from management, considering our most recently available third-party valuations of common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant, which intended all options granted to be exercisable at price per share not less than the per share fair value of our common stock underlying those options on the grant date.

Subsequent to the IPO, the fair value of our common stock is the closing selling price per share of our common stock as reported on the Nasdaq Global Market on the date of grant or other relevant determination date.

The following table sets forth the assumptions used to determine the fair value of stock options:

Years Ended December 31,

Average expected term

Average expected term (years) 6 6

Expected stock price volatility 59.57% - 67.02% 56.74%- 60.17%

56.74% - 60.17%

57.77% - 58.29%

Risk-free interest rate 0.28% - 1.76% 1.63% - 2.47%

1.63% - 2.47%

2.77% - 3.13%

Dividend yield —% —%

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Years Ended December 31,

Average expected term

Not applicable

Average expected term (years) 1.2 1.2

Expected stock price volatility 56.80% - 100.49% 61.12% - 68.89%

61.12% - 68.89%

Not applicable

Risk-free interest rate 0.12% - 0.95% 1.56% - 1.80%

1.56% - 1.80%

Not applicable

Dividend yield —% —%

Not applicable

Recent Accounting Pronouncements

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We will remain an emerging growth company until the earliest of (1) December 31, 2024, (2) the last day of the fiscal year (a) in which we have total annual gross revenue of at least $1.07 billion or (b) in which we are deemed to be a ‘‘large accelerated filer’’ as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the prior June 30 th , and (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

As of March 5, 2021 , the market value of our common stock held by non-affiliates exceeded $700.0 million.

If the market value of our common stock held by non-affiliates exceeds $700.0 million as of June 30, 2021, we will cease to be an emerging growth company effective December 31, 2021.

Qualitative and Quantitative Disclosures About Market Risk.

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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