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Item 2. Management’s Discussion and Analysis

2022-08-08 compared with 2022-05-09 · 317 added, 156 removed, 272 unchanged (63% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto as of and for the years ended December 31, 2021 and 2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, including the section entitled “Critical Accounting Estimates,” included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2022.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Castle Biosciences, Inc.

You should read the following discussion and analysis of financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto as of and for the years ended December 31, 2021 and 2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, including the section entitled “Critical Accounting Estimates,” included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2022.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Castle,” “we,” “us” and “our” refer to Castle Biosciences, Inc.

Forward-Looking Statements

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These forward-looking statements include, but are not limited to, statements concerning the impacts of COVID-19 on our business, our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management.

The words “anticipate,” “believe,” “estimate,” “expect,” “potential,” “may,” “plan,” “will,” “would” or the negative or plural of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The words “anticipate,” “believe,” “estimate,” “expect,” “may,” “plan,” “potential,” “will,” “would” or the negative or plural of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.

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Castle Biosciences is improving health through innovative tests that guide patient care.

For the diseases that our portfolio of tests cover, we believe the traditional approach to developing a treatment plan for cancers and other diseases using clinical and pathology factors alone is inadequate and can be improved by incorporating the personalized information our diagnostic and prognostic tests provide.

We currently market five proprietary multi-analyte assays with algorithmic analysis (“MAAAs”) designed to answer clinical questions in dermatologic cancers, uveal melanoma (“UM”) (a rare cancer of the eye) and Barrett’s esophagus (“BE”).

We also have a pharmacogenomic test to guide optimal drug treatment for patients suffering from depression, anxiety and other mental health conditions following our acquisition of AltheaDx, Inc.

We currently market six proprietary multi-analyte assays with algorithmic analysis designed to answer clinical questions in dermatologic cancers, uveal melanoma (“UM”) (a rare cancer of the eye) and Barrett’s esophagus (“BE”).

We also offer a proprietary pharmacogenomic (“PGx”) test to guide optimal drug treatment for patients suffering from depression, anxiety and other mental health conditions following our acquisition of AltheaDx, Inc.

(“AltheaDx”) in April 2022, as discussed below.

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The second use is to inform the appropriate treatment plan during the initial five years post-diagnosis, regardless of the decision to undergo or avoid invasive SLNB surgery.

In a typical year, we estimate approximately 130,000 patients are diagnosed with invasive cutaneous melanoma in the United States.

In a typical year, we estimate approximately 130,000 patients are diagnosed with invasive cutaneous melanoma in the United States, representing an estimated U.S.

total addressable market (“TAM”) of approximately $540 million.

We launched DecisionDx-Melanoma in May 2013.

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On August 31, 2020, we commercially launched our cutaneous squamous cell carcinoma (“SCC”) proprietary GEP test, DecisionDx®‑SCC, for use in patients with one or more risk factors (also referred to as “high-risk” SCC).

On November 2, 2020, we commercially launched our proprietary GEP test for difficult-to-diagnose melanocytic lesions, DecisionDx® DiffDx™-Melanoma, for use in patients with a melanocytic lesion and uncertainty related to the malignancy of the lesion.

We believe that these two additional skin cancer tests address areas of high clinical need in dermatological cancer and, together, represent an estimated addressable population of approximately 500,000 patients in the United States.

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We further expanded our commercially available dermatologic portfolio in May 2021 when we acquired Myriad myPath, LLC (the “Myriad myPath Laboratory”) from Myriad Genetics, Inc.

We estimate 20% of SCC patients, or 200,000 annually in the United States, are classified as high risk, representing an estimated U.S.

TAM of approximately $820 million.

On November 2, 2020, we commercially launched our proprietary GEP test for difficult-to-diagnose melanocytic lesions, DiffDx®-Melanoma, for use in patients with a melanocytic lesion and uncertainty related to the malignancy of the lesion.

further expanded our commercially available dermatologic portfolio in May 2021 when we acquired Myriad myPath, LLC (the “Myriad MyPath Laboratory”) from Myriad Genetics, Inc.

for a cash purchase price of $32.5 million.

myPath Melanoma is a clinically validated GEP test that addresses the same unmet clinical need as our DecisionDx DiffDx-Melanoma test.

Today, we offer both our myPath Melanoma test and our DecisionDx DiffDx-Melanoma test under an offering that we refer to as our comprehensive diagnostic offering (“CDO”) of molecular testing solutions.

By offering both of these tests in a single offering, we believe we have demonstrated the ability to improve the test result performance for patients with difficult-to-diagnose melanocytic lesions.

MyPath® Melanoma is a clinically validated GEP test that addresses the same unmet clinical need as our DiffDx-Melanoma test.

Today, we offer both our MyPath Melanoma test and our DiffDx-Melanoma test under an offering that we refer to as our Diagnostic GEP offering.

We believe we have demonstrated that offering both tests can lead to an improvement in actionable test results for patients with difficult-to-diagnose melanocytic lesions.

Of the two million suspicious pigmented lesions biopsied annually in the United States, we estimate approximately 300,000 of those present a difficult-to-diagnose melanocytic lesion, representing an estimated U.S.

TAM of approximately $600 million associated with these two tests.

In 2021, we announced the launch of our innovative pipeline initiative to develop a genomic test aimed at predicting response to systemic therapy in patients with moderate to severe psoriasis, atopic dermatitis and related inflammatory skin conditions.

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

We estimate approximately 2,000 patients in the United States are diagnosed annually with a uveal melanoma, representing an estimated U.S.

TAM of approximately $10 million.

In December 2021, we extended our commercial portfolio of proprietary tests into the gastroenterology market through our acquisition of Cernostics, Inc.

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This “spatialomic” information is then interpreted using artificial intelligence approaches to predict the likelihood of progression to high-grade dysplasia and/or esophageal cancer in patients with non-dysplastic, indefinite or low-grade dysplasia BE.

We believe the addition of expertise in the spatialomics area positions us for continued growth and success in the diagnostics space, complementing our first-to-market dermatologic franchise and our proprietary test for UM.

On April 26, 2022, we completed our acquisition of AltheaDx, a commercial-stage molecular diagnostics company specializing in the field of pharmacogenomics (“PGx”) testing services that are focused on mental health, and the provider of IDgenetix, a PGx test for mental health conditions.

At closing, $65.0 million in initial consideration was payable by us to AltheaDx security holders, which consisted of $32.5 million in cash, subject to adjustments for cash, debt, transaction expenses and working capital, and $32.5 million in shares of our common stock.

Further, up to an additional $75.0 million in cash and common stock may become payable in connection with the achievement of certain milestones based on 2022, 2023 and 2024 performance and expanded Medicare coverage for the IDgenetix test.

We estimate approximately 384,000 patients annually undergo an endoscopic biopsy with a subsequent diagnosis of non-dysplastic, indefinite or low-grade dysplastic BE, representing an estimated U.S.

TAM of approximately $1 billion.

On April 26, 2022, we completed our acquisition of AltheaDx, a commercial-stage molecular diagnostics company specializing in the field of PGx testing services that are focused on mental health, and the provider of IDgenetix®, a PGx test for mental health conditions.

This acquisition enables us to offer a testing solution that we believe has the potential to accelerate our impact on patient care in an area of high unmet clinical need, significantly expand our in-market estimated U.S.

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A test report is generated when we receive a sample in our laboratory, and then the relevant test information is entered into our Laboratory Information Management System, the expression of the biomarkers is measured, then a proprietary algorithmic analysis of the combined biomarkers is performed to generate a report providing the results of that analysis, which is sent to the clinician who ordered the test.

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The number of GEP test reports delivered by us during the three months ended March 31, 2022 and 2021 and for the year ended December 31, 2021 are presented in the table below:

The number of GEP test reports delivered by us during the six months ended June 30, 2022 and 2021 and for the year ended December 31, 2021 are presented in the table below:

Proprietary Dermatologic GEP Tests

Melanoma DecisionDx-SCC CDO (1)

Melanoma DecisionDx-SCC Diagnostic GEP offering (1)

Dermatologic Total DecisionDx-UM TissueCypher Barrett’s Esophagus (2)

IDgenetix (3)

Q1 2022 6,023 1,142 950 8,115 456 56 — 8,627

Q2 2022 7,125 1,344 955 9,424 431 352 827 11,034

For the six months ended June 30, 2022

13,148 2,486 1,905 17,539 887 408 827 19,661

Q1 2021 4,060 527 218 4,805 337 — — 5,142

Q2 2021 5,128 784 627 6,539 468 — — 7,007

For the six months ended June 30, 2021

9,188 1,311 845 11,344 805 — — 12,149

Q3 2021 5,505 934 913 7,352 375 — — 7,727

Q4 2021 5,635 1,265 904 7,804 438 27 — 8,269

For year ended December 31, 2021 20,328 3,510 2,662 26,500 1,618 27 — 28,145

(1) Includes DecisionDx DiffDx-Melanoma, which we commercially launched on November 2, 2020, and myPath Melanoma, which we began offering following our acquisition of the Myriad myPath Laboratory on May 28, 2021.

We offer both myPath Melanoma and DecisionDx DiffDx-Melanoma under our CDO.

(2) We began offering the TissueCypher Barrett’s Esophagus test on December 3, 2021, following the completion of our acquisition of Cernostics.

For the three months ended March 31, 2022, our dermatologic test report volume increased by 68.9% compared to the prior period in 2021, largely driven by continued growth from our DecisionDx-Melanoma test.

(1) Includes DiffDx-Melanoma and MyPath Melanoma.

We began offering MyPath Melanoma following our acquisition of the Myriad MyPath Laboratory on May 28, 2021.

We offer both MyPath Melanoma and DiffDx-Melanoma under our Diagnostic GEP offering.

(2) We began offering the TissueCypher Barrett’s Esophagus Assay on December 3, 2021, following the completion of our acquisition of Cernostics.

(3) We began offering the IDgenetix test on April 26, 2022, following our acquisition of AltheaDx.

Includes both single-gene and multi-gene tests.

For the three and six months ended June 30, 2022, our dermatologic test report volume increased by 44.1% and 54.6%, respectively, compared to the prior period in 2021, largely driven by continued growth from our DecisionDx-Melanoma test.

For a discussion of how we recognize revenue derived from our tests, refer to “Net Revenues” under “Components of Results of Operations” below.

The principal focus of our current commercial efforts is to educate clinicians and pathologists on the value of our molecular diagnostic testing products through our direct sales force in the United States.

During the first half of 2021, we expanded our dermatologic commercial team, bringing our dermatologic sales force to the mid-60s.

In connection with our acquisition of Cernostics in December 2021, we hired an initial commercial team of approximately 14 outside sales territories, along with commensurate internal sales associates and medical science liaisons, to support our launch of the TissueCypher Barrett’s Esophagus test.

During the second quarter of 2021, we expanded our dermatologic commercial team, bringing our dermatologic sales force to the mid-60s.

Starting in September 2022, we plan to have a new commercial sales team dedicated to our Diagnostic GEP offering, with the current dermatologic commercial team shifting to focus solely on DecisionDx-Melanoma and DecisionDx-SCC.

This dedicated team focuses on gastroenterology specialists that diagnose and manage patients with BE.

Similar to our dermatology commercial team, we will continue to assess market response and determine what an appropriate commercial expansion will look like.

Based on our initial market research, as well as initial provider response, we expect to add approximately 10-15 additional outside sales territories sometime in the third quarter, ending the year with approximately 25-30 outside sales territories.

AltheaDx, which we acquired in late April 2022, had a commercial team covering approximately 20 outside sales territories, all of whom have continued with Castle following the transaction.

Beginning in September 2022, we plan to add additional outside territories for our TissueCypher Barrett’s Esophagus Assay.

Similar to our dermatologic commercial team, we will continue to assess market response in determining further commercial expansions.

AltheaDx, which we acquired in late April 2022, had a commercial team covering approximately 20 outside sales territories.

We continue to see new clinicians order our dermatologic tests for the first time.

For the three months ended March 31, 2022, we saw approximately 592 new ordering clinicians for our dermatologic tests compared to 410 during the same period of 2021.

Total ordering clinicians for our dermatologic tests were approximately 3,629 and 2,456 for the three months ended March 31, 2022 and 2021, respectively.

For the three months ended June 30, 2022, we saw 608 new ordering clinicians for our dermatologic tests compared to 462 during the same period of 2021.

For the six months ended June 30, 2022 and 2021, we saw 1,200 and 872, respectively, new ordering clinicians for our dermatologic tests.

Total ordering clinicians for our dermatologic tests were 5,661 and 3,879 for the six months ended June 30, 2022 and 2021, respectively, and 2,032 and 1,423 for the three months ended June 30, 2022 and 2021, respectively.

For additional information on the metrics we disclose, refer to “Information About Certain Metrics” below.

In developing our DecisionDx-SCC and DecisionDx DiffDx-Melanoma tests, we believed that in addition to addressing significant unmet clinical needs, we would see strategic opportunities for leverage, as many of the clinicians currently ordering DecisionDx-Melanoma would likely be the same clinicians who would find value in these other dermatologic GEP tests.

For example, we found that for the three months ended March 31, 2022, approximately 56% of all clinicians ordering DecisionDx-SCC had also ordered our DecisionDx-Melanoma test during that same period.

In developing our DecisionDx-SCC and DiffDx-Melanoma tests, we believed that in addition to addressing significant unmet clinical needs, we would see strategic opportunities for leverage, as many of the clinicians currently ordering DecisionDx-

Melanoma would likely be the same clinicians who would find value in these other dermatologic GEP tests.

For example, we found that for the six months ended June 30, 2022, approximately 68% of all clinicians ordering DecisionDx-SCC had also ordered our DecisionDx-Melanoma test during that same period.

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

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

The TissueCypher Barret’s Esophagus test is paid by Medicare at the rate published on Medicare’s Clinical Laboratory Fee Schedule (“CLFS”) for the test.

Effective March

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24, 2022, we received ADLT status for our TissueCypher test, as discussed further below.

The TissueCypher Barrett’s Esophagus Assay is paid by Medicare at the rate published on Medicare’s Clinical Laboratory Fee Schedule (“CLFS”) for the test.

Effective March 24, 2022, we received Advanced Diagnostic Laboratory Test (“ADLT”) status for our TissueCypher test, as discussed further below.

ADLT status exempts TissueCypher from what is called the “14-day rule,” which simplifies the billing process for Medicare patients.

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Noridian Healthcare Solutions, LLC (“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.

In the second quarter of 2021, Palmetto and the other MACs that participate in the MolDX program each released a revised draft LCD for DecisionDx-Melanoma.

The draft LCD included commentary about two publications regarding the clinical utility of GEP tests and included an assessment stating that the new data is not sufficient to change the coverage criteria.

There was an open public comment period, and we submitted comments in support of Medicare coverage.

The comment period ended on August 8, 2021.

Palmetto issued a final LCD on May 19, 2022 with Noridian issuing the same on June 16, 2022.

The final LCDs did not result in any change in coverage.

Separately, Palmetto issued a final LCD for DecisionDx-UM, which became effective in July 2017, and Noridian issued a similar LCD that became effective in September 2017.

The Noridian LCD provides for coverage to determine metastatic risk in connection with the management of a patient’s newly diagnosed UM and to guide surveillance and referral to medical oncology for those patients.

On May 17, 2019, Centers for Medicare & Medicaid Services (“CMS”) determined that DecisionDx-UM meets the criteria for “existing advanced diagnostic laboratory test” status, also referred to as “existing ADLT” status.

For 2020, our rate was set by Noridian, our local MAC, but effective in 2021 our rate is set annually based upon the median private payor rate for the first half of the second preceding calendar year.

Our rate for 2021 was $7,776 and will remain at $7,776 for 2022, in each case based on the calculation of the median private payor rate.

Noridian’s LCD provides for coverage to determine metastatic risk in connection with the management of a patient’s newly diagnosed UM and to guide surveillance and referral to medical oncology for those patients.

On May 17, 2019, the Centers for Medicare & Medicaid Services (“CMS”) determined that DecisionDx-UM meets the criteria for “existing ADLT” status.

Since 2021, our rate is set annually based upon the median private payor rate for the first half of the second preceding calendar year.

Our rate for 2022 continues to be at $7,776, based on the calculation of the median private payor rate.

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

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, the rate was also $7,193, which was calculated based upon the median private payor rate for DecisionDx-Melanoma from July 1, 2019 to November 30, 2019.

CMS has informed us that the rate for 2022 will continue to be $7,193, based on the median private payor rate.

Initially, the Medicare reimbursement rate was equal to the initial list price of $7,193.

Since 2022, the rate is set annually based upon the median private payor rate for the first half of the second preceding calendar year.

Our rate for 2022 continues to be $7,193, based on the median private payor rate.

MyPath Melanoma is currently covered under a MolDX LCD policy through Noridian, which oversees laboratories in both Utah and Arizona.

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On September 6, 2019, MyPath Melanoma was approved as a new ADLT.

The rate for 2022 will be $1,950.

The rate for 2022 is $1,950, based on the median private payor rate.

Beginning in 2023, the rates for DecisionDx-Melanoma, DecisionDx-UM, and MyPath Melanoma tests 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 2023 will be set using median private payor rate data from January 1, 2021 to June 30, 2021.

TissueCypher is performed in our Pittsburgh, Pennsylvania laboratory and falls under the Medicare jurisdiction that is managed by Novitas Solutions (“Novitas”).

Our TissueCypher test is processed in our Pittsburgh, Pennsylvania laboratory and falls under the Medicare jurisdiction that is managed by Novitas Solutions (“Novitas”).

Novitas previously reviewed TissueCypher and we are receiving payments for claims according to the CLFS.

For 2022, CMS published in its CLFS a payment amount of $2,513 for the test.

For 2022, CMS published in its CLFS a payment rate of $2,513 for the test.

On March 24, 2022, CMS determined that TissueCypher meets the criteria for “new ADLT” status.

From April 1, 2022 through December 31, 2022, CMS has set the initial period rate equal to the original list price of $2,350, subject to the possible recoupment provision described below.

Effective January 1, 2023, the rate will be based on the median private payer rates received between April 1, 2022 and August 31, 2022.

Note that for TissueCypher tests reported for April 1, 2022 through December 31, 2022, 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 of private payor rates.

IDgenetix is currently covered under a MolDX LCD policy and an accompanying billing and coding article through Noridian, which oversees laboratories in California.

Effective January 1, 2023, the rate will be based on the median private payor rates received between April 1, 2022 and August 31, 2022.

However, for TissueCypher tests reported for April 1, 2022 through December 31, 2022, CMS has the right to recoup the difference between the actual list price and 130% of the weighted-median if the original list price is greater than 130% of the weighted-median of private payor rates.

IDgenetix is currently covered under an LCD policy through MolDX and an accompanying billing and coding article through Noridian, which oversees laboratories in California.

The Medicare coverage includes depression and was recently expanded for the following seven additional mental health conditions beyond major depressive disorder:

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The dossier was accepted as complete in the third quarter of 2020.

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

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

The dossier was accepted as complete in the first quarter of 2021.

We are unable to predict when draft LCDs for DecisionDx-SCC and DecisionDx DiffDx-Melanoma will be posted and there is no assurance that any draft or final LCD will match our expectations, be posted in a timeframe consistent with our historical experience or will be posted at all.

In the second quarter of 2021, Palmetto and the other MACs that participate in the MolDX program each released a revised draft LCD for DecisionDx-Melanoma.

The draft LCD includes commentary about two publications regarding the clinical utility of GEP tests and includes an assessment stating that the new data is not sufficient to change the coverage criteria.

There was an open public comment period, and we submitted comments in support of Medicare coverage.

The comment period ended on

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August 8, 2021.

Potential outcomes following the public comment period include the posting of a final LCD consistent with the draft LCD, issuing a final LCD with coverage changes or not issuing a final LCD at all.

We are unable to predict the ultimate outcome of this matter.

In June 2022, Palmetto and Noridian each posted a draft LCD that would provide coverage criteria for DiffDx-Melanoma.

We believe the LCD for DiffDx-Melanoma will be finalized by the end of the second quarter of 2023.

However, there is no assurance that any draft or final LCD will match our expectations, be posted in a timeframe consistent with our historical experience or will be posted at all.

Regarding DecisionDx-SCC, no draft LCD has been posted by Palmetto or Noridian to date.

In the second quarter of 2022, following the completion of a requested medical review and pricing of our DecisionDx-SCC test by Novitas, we have been receiving reimbursement from Novitas on DecisionDx-SCC at a rate of approximately $3,800 per test.

On June 9, 2022, Novitas posted a draft oncology biomarker LCD that proposes to rely upon evidentiary reviews sourced from three databases:

ClinGen, OncoKB and National Comprehensive Cancer Network (“NCCN”).

Two of the databases do not review gene expression profile tests and NCCN has not yet, to our knowledge, reviewed DecisionDx-SCC.

As such, if finalized as proposed, then DecisionDx-SCC would not be included as a covered test in the associated billing and coding article.

We cannot predict whether this draft LCD will be finalized as proposed or what the timing of any final LCD might be.

Since becoming a public company, we have financed our operations with the revenue generated from the sale of our products, proceeds from our initial public offering of our common stock (our “IPO”) that closed in July 2019, follow-on public offerings of common stock in June 2020 and December 2020 and bank debt, which has since been repaid in full.

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However, we have based these estimates on assumptions which may prove to be wrong and could result in us depleting our capital resources sooner than expected.

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 Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”).

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, the effects of acquisitions and the timing of revenue recognition under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

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

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• hire additional scientific and research and development staff;

• complete acquisitions of businesses, assets, products or technologies;

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

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

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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.

We believe these decreases in our test report volume were linked to delays and/or cancellations in patient visits, resulting in fewer diagnostic biopsies and thus a reduction in the number of diagnoses of cutaneous melanoma in response, as well as the cumulative impact on promotional responsiveness as a result of reduced sales calls per day and in-person sales calls during the ongoing COVID-19 pandemic.

promotional responsiveness as a result of reduced sales calls per day and in-person sales calls during the ongoing COVID-19 pandemic.

• Our commercial team uses a combination of in-person, virtual and non-personal promotional and educational efforts.

Since the beginning of 2021, we have seen improvements in the number of promotional calls per day, as well as a continued shift from virtual to in-person sales calls.

During the three months ended March 31, 2022 and 2021, in-person sales calls accounted for over 95% and 75% of all calls during such periods, respectively.

However, we have not yet achieved pre-COVID-19 levels of calls per day per sales representative.

During the three months ended June 30, 2022 and 2021, in-person sales calls accounted for over 99% and 90% of all calls during such periods, respectively.

• Our future results will be dependent upon the extent and duration of the COVID-19 crisis, including the emergence and spread of variants of the virus, and government restrictions, which are beyond our control.

Although state and local government restrictions put in place to slow the spread of the virus have been eased in certain locations, restrictions may be reinstated from time to time in various regions depending on the circumstances, potentially impacting the flow of future patient visits as well as access to our sales targets.

Even with the easing of state and local restrictions and the availability of vaccinations, patient visits and diagnoses of the diseases covered by our diagnostic and prognostic test may be impacted by continued apprehension regarding possible exposure to the virus as well as a general shift from in-person clinical visits to telehealth approaches, which may result in missed or delayed diagnoses of skin cancer and other diseases.

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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 ongoing COVID-19 pandemic or other future public health crises.

Although state and local government restrictions put in place to slow the spread of the virus have been eased in most locations, restrictions may be reinstated from time to time in various regions depending on the circumstances, potentially impacting the flow of future patient visits as well as access to our sales targets.

Even with the easing of state and local restrictions and the availability of vaccinations, patient visits and diagnoses of the diseases covered by our diagnostic and prognostic tests may be impacted by continued apprehension regarding possible exposure to the virus as well as a general shift from in-person clinical visits to telehealth approaches, which may result in missed or delayed diagnoses of skin cancer and other diseases.

As conditions are 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 ongoing 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.

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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 be negatively impacted by ongoing developments of the ongoing COVID-19 pandemic, as discussed above.

Our report volume could be negatively impacted by developments related to the ongoing COVID-19 pandemic or other future public health crises, as discussed above.

• Reimbursement.

We believe that expanding reimbursement is an important indicator of the value of our products.

Payors require extensive evidence of clinical utility, clinical validity, patient outcomes and health economic benefits in order to provide reimbursement for diagnostic and prognostic products.

Our revenue depends on our ability to demonstrate the value of our products to these payors.

Payors require extensive evidence of clinical utility, clinical validity, patient outcomes and health economic benefits in order to provide reimbursement.

Our revenue depends on our ability to demonstrate the value of our diagnostic and prognostic tests to these payors.

• Gross margin.

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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, DecisionDx-SCC, myPath Melanoma/DecisionDx DiffDx-Melanoma, DecisionDx-UM and the TissueCypher Barrett’s Esophagus test represents the number of completed test reports delivered by us during the reporting period indicated.

Test reports delivered for DecisionDx-Melanoma, DecisionDx-SCC, MyPath Melanoma/DiffDx-Melanoma, DecisionDx-UM, TissueCypher and IDgenetix 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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New ordering clinicians for our dermatologic tests represents the number of clinicians who ordered a dermatologic test from us for the first time during the reporting period specified.

Our dermatologic tests consist of DecisionDx-Melanoma, DecisionDx-SCC and our CDO.

Our dermatologic tests consist of DecisionDx-Melanoma, DecisionDx-SCC, MyPath Melanoma and DiffDx-Melanoma.

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 suite of dermatologic tests.

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

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Under ASC 606, we recognize revenue at the amount we expect to be entitled, subject to a constraint for variable consideration, in the period in which our tests are delivered to the treating physicians.

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

Variable consideration for Medicare claims that are not covered by an LCD or otherwise, including those claims undergoing appeal, 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 for Medicare claims that are not covered by an LCD or otherwise, including those claims undergoing appeal, is deemed to be fully constrained due to factors outside our influence (e.g., 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 markets, 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.

Our ability to recognize revenue for a test is dependent on the development of reimbursement experience and obtaining coverage decisions.

For tests with limited reimbursement experience or no coverage, we recognize revenues on the basis of actual cash collections.

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

Cost of Sales (exclusive of amortization of acquired intangible assets)

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

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

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

Gross margin and gross margin percentage are key indicators we use to assess our business.

See the table in “Results of Operations—Comparison of the three months ended March 31, 2022 and 2021” for details.

See the tables in “Results of Operations—Comparison of the three months ended June 30, 2022 and 2021” and “Results of Operations—Comparison of the six months ended June 30, 2022 and 2021” for details.

Research and Development

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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 our cash and cash equivalents to further support and accelerate our research and development activities, including three important studies that are underway 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.

The third is the DECIDE study, which is designed to determine the association of GEP test results with SLNB surgical decisions in patients eligible for SLNB as well as to track outcomes for patients who did and did not undergo SLNB.

We expect to use a portion of our cash and cash equivalents to further support and accelerate our research and development activities, including two important studies that are underway to support our DecisionDx-Melanoma test.

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

The second is the DECIDE study, which is designed to determine the association of GEP test results with SLNB surgical decisions in patients eligible for SLNB as well as to track outcomes for patients who did and did not undergo SLNB.

Also, as noted above, in 2021, we initiated our 4,800 patient, prospective, multi-center clinical study to develop, validate and bring to market a pipeline test aimed at predicting response to systemic therapy in patients with moderate to severe psoriasis, atopic dermatitis and related inflammatory skin conditions.

We have also initiated two additional disease studies for pipeline tests for new indications.

We previously funded the PERSONALize study, which was evaluating the use of DecisionDx-Melanoma in patients eligible for adjuvant therapy.

Other of our sponsored studies are designed to provide risk stratification analyses within various subgroups.

These studies have shown statistically and clinically significant risk stratification separation.

Based upon this currently available and anticipated future data, we have decided to close the PERSONALize study.

Selling, General and Administrative

Selling, general and administrative (“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 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,

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equipment depreciation, and utilities.

We expect continued increases in SG&A expenses related to compliance with the rules and regulations of the SEC and The Nasdaq Stock market LLC (“Nasdaq”) (in particular as we have become a large accelerated filer), investor relations activities and additional insurance expenses.

We expect continued increases in SG&A expenses related to compliance with the rules and regulations of the SEC and The Nasdaq Stock Market LLC (“Nasdaq”).

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.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets are primarily associated with developed technology.

Amortization of acquired intangible assets are primarily associated with developed technology obtained through acquisitions, such as our acquisitions of the Myriad MyPath Laboratory in May 2021, Cernostics in December 2021 and AltheaDx in April 2022.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration is associated with our acquisition of Cernostics and the related additional consideration of up to $50.0 million that may become payable based on the achievement of certain commercial milestones relating to the year ending December 31, 2022 (the “Earnout Payments”).

Change in fair value of contingent consideration is associated with our acquisitions of Cernostics and AltheaDx and the related additional consideration of up to $50.0 million and $75.0 million, respectively, that may become payable based on the achievement of certain commercial milestones relating to the year ending December 31, 2022 in the case of Cernostics, and the years ending December 31, 2022, 2023 and 2024, in the case of AltheaDx (collectively, the “Earnout Payments”).

Interest Income

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Interest Expense

Interest expense is primarily attributable to a finance lease.

Income Tax Expense

Our consolidated 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.

Interest expense is primarily attributable to finance leases.

Income Tax (Benefit) Expense

In connection with our acquisition of AltheaDx in April 2022, and taking into consideration the additional deferred tax liabilities resulting from such acquisition, we determined that a portion of our valuation allowance should be reduced, which is reflected in our income tax benefit for the three and six months ended June 30, 2022.

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

As of December 31, 2021, we had federal net operating loss carryforwards of $99.4 million, of which $43.5 million will begin to expire in 2030 if not utilized to offset federal taxable income, and $55.9 million may be carried forward indefinitely.

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Results of Operations

Certain prior year amounts in the tables below have been reclassified to conform to the current year presentation.

Specifically, we no longer present gross margin on the face of our financial statements and therefore the cost of sales line is now presented within the operating expenses section.

This reclassification had no impact on operating loss, loss before income taxes or net loss.

The calculation of our gross margin is instead presented in a separate table in following section.

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Comparison of the three months ended March 31, 2022 and 2021

Comparison of the three months ended June 30, 2022 and 2021

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

Three Months Ended

March 31, Change

June 30, Change

Net revenues $ 34,838 $ 22,758 $ 12,080 53.1 %

Operating expenses

Operating expenses and other operating income

Cost of sales (exclusive of amortization of acquired intangible assets) 7,686 3,697 3,989 107.9 %

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Selling, general and administrative 37,498 20,822 16,676 80.1 %

Amortization of acquired intangible assets 1,648 — 1,648 NA

Amortization of acquired intangible assets 2,097 256 1,841 719.1 %

Change in fair value of contingent consideration (20,398) — (20,398) NA

Total operating expenses 51,368 27,097 24,271 89.6 %

Total operating expenses, net 38,809 31,568 7,241 22.9 %

Operating loss (3,971) (8,810) 4,839 54.9 %

Interest income 30 4 26 NM

Interest income 370 24 346 1,441.7 %

Interest expense (4) — (4) NA

Loss before income taxes (3,605) (8,786) 5,181 59.0 %

Income tax expense 134 — 134 NA

Income tax (benefit) expense (1,957) 5 (1,962) NM

Net loss $ (1,648) $ (8,791) $ 7,143 81.3 %

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Total net revenues $ 34,838 $ 22,758 $ 12,080

(1) Consists of DecisionDx-Melanoma, DecisionDx-SCC and CDO.

(1) Consists of DecisionDx-Melanoma, DecisionDx-SCC and our Diagnostic GEP offering.

(2) Consists primarily of DecisionDx-UM.

Also includes TissueCypher and IDgenetix.

The following table presents the calculation of gross margin (in thousands, except percentages):

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Gross margin percentage 71.9 % 82.6 % (10.7) %

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

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Total stock-based compensation expense $ 8,783 $ 4,766 $ 4,017

Net revenues for the three months ended March 31, 2022 increased by $4.0 million, or 17.7%, to $26.9 million compared to the three months ended March 31, 2021, primarily due to $3.4 million higher revenue from dermatologic tests, primarily DecisionDx-Melanoma, and to a lesser extent, higher revenues from our other tests (non-dermatologic) of $0.6 million.

The increase in dermatologic revenue was primarily attributable to a 69% increase in test volumes, with higher test reports delivered across each of our dermatologic offerings, due to a combination of increased patient flow attributable to the easing of COVID-19 restrictions and the effects of our dermatologic sales force expansion during the first half of 2021.

The higher volumes were partially offset by the effect of lower positive revenue adjustments related to tests delivered in previous periods, associated with changes in estimated variable consideration, which were $0.6 million for the three months ended March 31, 2022 compared to $5.3 million for the three months ended March 31, 2021.

The year-over-year decrease is primarily attributable to the effect of favorable adjustments related to the settlement and collection during the three months ended March 31, 2021 of certain groups of receivables from prior years that did not recur during the three months ended March 31, 2022.

The increase in revenue from our other tests (non-dermatologic) of $0.6 million was primarily attributable to higher volume of DecisionDx-UM, which we believe is largely attributable to the easing of COVID-19 restrictions.

Net revenues for the three months ended June 30, 2022 increased by $12.1 million, or 53.1%, to $34.8 million compared to the three months ended June 30, 2021, primarily due to a $11.5 million increase in revenue from our dermatologic tests, primarily DecisionDx-Melanoma and DecisionDx-SCC.

The increase in dermatologic revenue was primarily attributable to a 44.1% increase in test volumes, with higher test reports delivered across each of our dermatologic offerings, due to a combination of the effects of our dermatologic sales force expansion during the second quarter of 2021 and increased patient flow potentially attributable to the easing of COVID-19 restrictions.

The higher revenues also reflect Medicare payments on DecisionDx-SCC, as discussed above, and the effect of higher positive (negative) revenue adjustments related to tests delivered in previous periods, associated with changes in estimated variable consideration, which were $0.6 million for the three months ended June 30, 2022 compared to $(0.2) million for the three months ended June 30, 2021.

The increase in revenue from our other tests (non-dermatologic) of $0.6 million was primarily attributable to our acquisitions of Cernostics in December 2021 and AltheaDx in April 2022.

Cost of Sales (exclusive of amortization of acquired intangible assets)

Cost of sales (exclusive of amortization of acquired intangible assets) for the three months ended March 31, 2022 increased by $2.9 million, or 96.3%, compared to the three months ended March 31, 2021, primarily due to higher personnel costs, attributable to additional headcount in our laboratory testing operations, including headcount attributable to the addition of Cernostics, as well as increased costs of supplies and services, attributable to the higher activity levels.

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

Cost of sales (exclusive of amortization of acquired intangible assets) for the three months ended June 30, 2022 increased by $4.0 million, or 107.9%, compared to the three months ended June 30, 2021, primarily due to higher personnel costs and increased costs of supplies and third-party services.

Personnel costs have increased with additions in headcount in our laboratory testing operations, including headcount attributable to our acquisitions of Cernostics and AltheaDx.

The increased personnel costs also reflect higher salaries and wages for existing employees.

Supply and services expense have increased due to higher laboratory activity, which is attributable to higher test volumes.

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

Accordingly, our cost of sales expense will not necessarily increase or decrease commensurately with the change in net revenues from period to period.

We expect our cost of sales (exclusive of amortization of acquired intangible assets) to continue to increase in future periods as we hire additional laboratory personnel and related resources to support our expected growth in volume for our dermatologic, gastrointestinal, mental health and pipeline tests.

Our gross margin percentage was 71.7% for the three months ended March 31, 2022, compared to 86.7% for the same period in 2021.

The decrease was primarily due to this year’s amortization expense associated with our acquired intangible assets, lower positive revenue adjustments related to tests delivered in previous periods and additional investments in laboratory headcount.

We expect our cost of sales expenses (exclusive of amortization of acquired intangible assets) to continue to increase in future periods as we hire additional laboratory personnel and related resources to support our expected growth in volume for our dermatologic, gastrointestinal, mental health and pipeline tests.

Our gross margin percentage was 71.9% for the three months ended June 30, 2022, compared to 82.6% for the same period in 2021.

The decrease was primarily due to this year’s additional investments in laboratory headcount, higher salaries and wages,

and higher amortization expense associated with our acquired intangible assets.

In the near term, we expect that our gross margin percentage will decline, compared to prior periods, as we invest in additional laboratory personnel and related resources to support the anticipated growth in our test report volumes in advance of obtaining reimbursement coverage.

Additionally, our gross margin percentage will continue to be negatively impacted by amortization of intangible assets associated with recent acquisitions.

Research and Development

Research and development expenses increased by $5.1 million, or 75.6%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021.

Approximately 50.1% of the increase is attributable to higher personnel costs, primarily due to expansions in headcount in support of our growth, higher salaries and wages, and higher stock-based compensation expense, and approximately 23.6% is attributable to higher costs for clinical studies, including costs related to the PERSONALize, CONNECTION and DECIDE studies.

In the second quarter of 2022, we decided to close our PERSONALize study.

The remainder of the increase is primarily associated with higher costs incurred for outside legal fees.

We expect to continue to increase our research and development expenses as we fund ongoing evidence development for our existing products as well as additional pipeline programs.

Selling, General and Administrative

The following table provides a breakdown of SG&A expenses (in thousands):

Three Months Ended

2022 2021 Change

Sales and marketing $ 21,581 $ 11,867 $ 9,714

General and administrative 15,917 8,955 6,962

Total selling, general and administrative expense $ 37,498 $ 20,822 $ 16,676

Sales and marketing expenses increased by $9.7 million, or 81.8%, for the three months ended June 30, 2022, compared to three months ended June 30, 2021.

Approximately $5.2 million, or 53.6%, of the increase is attributable to higher personnel costs including salaries, bonuses and stock-based compensation.

Personnel costs have increased through the expansion of our dermatology-facing commercial team headcount to the mid-60s in the second quarter of 2021 and through our acquisitions of Cernostics in December 2021 and AltheaDx in April 2022.

Following our acquisition of Cernostics in December 2021, we hired an initial commercial team of approximately 14 outside sales territories, along with commensurate internal sales associates and other personnel, to support our launch of the TissueCypher Barrett’s Esophagus Assay and to serve as a dedicated team focused on gastroenterology specialists that diagnose and manage patients with BE.

Through our acquisition of AltheaDx, we added a commercial team of approximately 20 outside sales territories to support our launch of the IDgenetix test.

In addition to increases through sales force expansion, higher personnel costs also reflect salary increases for members of our existing sales force.

The remainder of the increase in sales and marketing expenses was primarily associated with training events, meetings, travel and other general increases.

The higher expenses for training events and travel reflect an increase in our sales and commercial operations related to our expanded headcount and expanded test offerings, as well a return to more in-person activities resulting from the continued easing of COVID-19 restrictions.

Stock-based compensation expense included in sales and marketing expense was $2.9 million for the three months ended June 30, 2022, compared to $1.5 million for the three months ended June 30, 2021.We expect sales and marketing expenses to increase in future periods as we intend to expand our outside sales territories and sales force further during 2022, as discussed under “Overview” above.

General and administrative expenses increased by $7.0 million, or 77.7%, for the three months ended June 30, 2022, compared to three months ended June 30, 2021.

The increase is primarily attributable to $3.6 million in higher personnel costs including salaries, bonuses and stock-based compensation.

The higher personnel costs reflect expanded headcount in our administrative support functions, including that related to the acquisitions of Cernostics and AltheaDx, as well as higher rates of pay.

Stock-based compensation expense included in general and administrative expense was $3.2 million for the three months ended June 30, 2022, compared to $1.8 million for the three months ended June 30, 2021.

Furthermore, we incurred $1.7 million of transaction costs associated with our acquisition of AltheaDx.

The remainder of the increase in general and administrative expenses was primarily associated with professional fees and other general increases.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets increased by $1.8 million for the three months ended June 30, 2022, compared to the three months ended June 30, 2021.

The increase is primarily associated with amortization of developed technology attributable

to the acquisitions of the Myriad MyPath Laboratory, Cernostics, and AltheaDx in May 2021, December 2021 and April 2022, respectively.

Change in Fair Value of Contingent Consideration

The change in fair value of contingent consideration for the three months ended June 30, 2022 of $20.4 million, a net gain, is primarily related to the remeasurement of the Earnout Payments associated with our acquisition of Cernostics and reflects changes in management’s projections regarding attainment of certain commercial milestones.

There was no such activity during the three months ended June 30, 2021.

Interest Income

Interest income increased by $0.3 million for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, primarily as a result of higher interest rates.

Income Tax (Benefit) Expense

Our income tax benefit was $2.0 million for the three months ended June 30, 2022 and was primarily attributable to a reduction of $1.8 million in our valuation allowance on net deferred tax assets resulting from our acquisition of AltheaDx in April 2022.

Specifically, we took into consideration the additional deferred tax liabilities resulting from the acquisition and determined that a portion of our existing valuation allowance should be reduced.

Other than this item, we recorded minimal amounts in income tax benefit because in both the three months ended June 30, 2022 and 2021, the income tax benefit of the pre-tax loss was largely offset by corresponding 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 $8.8 million for the three months ended June 30, 2022, compared to $4.8 million for the three months ended June 30, 2021.

We expect material increases in stock-based compensation expense in future periods, reflecting mainly higher awards outstanding due to growth in our headcount.

As of June 30, 2022, we had 482 employees compared to 292 as of June 30, 2021.

As of June 30, 2022, the total unrecognized stock-based compensation cost related to outstanding awards was $99.5 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 3.0 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.

Comparison of the six months ended June 30, 2022 and 2021

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

Six Months Ended

June 30, Change

Net revenues $ 61,690 $ 45,571 $ 16,119 35.4 %

Operating expenses and other operating income

Cost of sales (exclusive of amortization of acquired intangible assets) 13,630 6,725 6,905 102.7 %

Research and development 22,687 12,701 9,986 78.6 %

Selling, general and administrative 67,951 38,983 28,968 74.3 %

Amortization of acquired intangible assets 3,745 256 3,489 1,362.9 %

Change in fair value of contingent consideration (17,836) — (17,836) NA

Total operating expenses, net 90,177 58,665 31,512 53.7 %

Operating loss (28,487) (13,094) (15,393) (117.6) %

Interest income 400 28 372 1,328.6 %

Interest expense (7) — (7) NA

Loss before income taxes (28,094) (13,066) (15,028) (115.0) %

Income tax (benefit) expense (1,823) 5 (1,828) NM

Net loss $ (26,271) $ (13,071) $ (13,200) (101.0) %

NA = Not applicable

NM = Not meaningful

The following table provides a disaggregation of net revenues by type (in thousands):

Six Months Ended

2022 2021 Change

Dermatologic (1)

$ 56,236 $ 41,288 $ 14,948

5,454 4,283 1,171

Total net revenues $ 61,690 $ 45,571 $ 16,119

(1) Consists of DecisionDx-Melanoma, DecisionDx-SCC and Diagnostic GEP offering.

(2) Consists primarily of DecisionDx-UM.

Also includes TissueCypher and IDgenetix.

The following table presents the calculation of gross margin (in thousands, except percentages):

Six Months Ended

2022 2021 Change

Net revenues $ 61,690 $ 45,571 $ 16,119

Cost of sales (exclusive of amortization of acquired intangible assets) 13,630 6,725 6,905

Amortization of acquired intangible assets 3,745 256 3,489

Gross margin $ 44,315 $ 38,590 $ 5,725

Gross margin percentage 71.8 % 84.7 % (12.9) %

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

Six Months Ended

2022 2021 Change

Cost of sales (exclusive of amortization of acquired intangible assets) $ 1,750 $ 925 $ 825

Research and development 3,659 2,131 1,528

Selling, general and administrative 11,793 6,623 5,170

Total stock-based compensation expense $ 17,202 $ 9,679 $ 7,523

Net revenues for the six months ended June 30, 2022 increased by $16.1 million, or 35.4%, to $34.8 million compared to the six months ended June 30, 2021, primarily due to a $14.9 million increase in revenue from our dermatologic tests, primarily DecisionDx-Melanoma and DecisionDx-SCC, and to a lesser extent, a $1.2 million increase in revenue from our other tests (non-dermatologic).

The increase in dermatologic revenue was primarily attributable to a 54.6% increase in test volumes, with higher test reports delivered across each of our dermatologic offerings, due to a combination of the effects of our dermatologic sales force expansion during the second quarter of 2021 and increased patient flow potentially attributable to the easing of COVID-19 restrictions.

The higher revenues also reflect Medicare payments on DecisionDx-SCC, as discussed above.

The higher volumes were partially offset by the effect of lower positive (negative) revenue adjustments related to tests delivered in previous periods, associated with changes in estimated variable consideration, which were $(0.3) million for the six months ended June 30, 2022 compared to $5.1 million for the six months ended June 30, 2021.

The year-over-year decrease is primarily attributable to the effect of favorable adjustments related to the settlement and collection during the six months ended June 30, 2021 of certain groups of receivables from prior years that did not recur during the six months ended June 30, 2022.

The increase in revenue from our other tests (non-dermatologic) of $1.2 million was primarily attributable to higher test report volume of DecisionDx-UM and the acquisitions of Cernostics in December 2021 and AltheaDx in April 2022.

Cost of Sales (exclusive of amortization of acquired intangible assets)

Cost of sales (exclusive of amortization of acquired intangible assets) for the six months ended June 30, 2022 increased by $6.9 million, or 102.7%, compared to the six months ended June 30, 2021, primarily due to higher personnel costs and increased costs of supplies and third-party services.

Personnel costs have increased with additions in headcount in our laboratory testing operations, including headcount attributable to our acquisitions of Cernostics and AltheaDx.

The increased personnel costs also reflect higher salaries and wages for existing employees.

Supply and service expenses have increased due to higher laboratory activity, which is attributable to higher test volumes.

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

Accordingly, our cost of sales expense will not necessarily increase or decrease commensurately with the change in net revenues from period to period.

Our gross margin percentage was 71.8% for the six months ended June 30, 2022, compared to 84.7% for the same period in 2021.

The decrease was primarily due to lower revenue adjustments related to tests delivered in previous periods, higher personnel costs attributable to investments in laboratory headcount as well as higher salaries and wages, and higher amortization expense associated with our acquired intangible assets.

In the near term, we expect that our gross margin percentage will decline, compared to prior periods, as we invest in additional laboratory personnel and related resources to support the anticipated growth in our report volumes for tests in advance of obtaining reimbursement coverage.

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Research and Development

Research and development expenses increased by $4.9 million, or 82.1%, for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

Approximately 51% of the increase is attributable to higher personnel costs, primarily due to expansions in headcount in support of our growth, including higher stock-based compensation expense of $0.8 million, and approximately 20% is attributable to higher costs for clinical studies, including costs related to the PERSONALize, CONNECTION and DECIDE studies.

Research and development expenses increased by $10.0 million, or 78.6%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021.

Approximately 50.7% of the increase is attributable to higher personnel costs, primarily due to expansions in headcount in support of our growth, higher pay rates and higher stock-based compensation expense, and

approximately 22.0% is attributable to higher costs for clinical studies, including costs related to the PERSONALize, CONNECTION and DECIDE studies.

In the second quarter of 2022, we decided to close our PERSONALize study.

The remainder of the increase is primarily associated with meeting costs and travel expenses.

We expect to continue to increase our research and development expenses as we fund ongoing evidence development for our existing products as well as additional pipeline programs.

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Selling, General and Administrative

The following table provides a breakdown of SG&A expenses (in thousands):

Three Months Ended

Six Months Ended

2022 2021 Change

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Total selling, general and administrative expense $ 67,951 $ 38,983 $ 28,968

Sales and marketing expenses increased by $8.6 million, or 88.7%, for the three months ended March 31, 2022, compared to three months ended March 31, 2021.

Sales and marketing expenses increased by $18.3 million, or 84.9%, for the six months ended June 30, 2022, compared to six months ended June 30, 2021.

Approximately $10.6 million, or 57.9%, of the increase is attributable to higher personnel costs including salaries, bonuses and stock-based compensation.

Stock-based compensation expense included in sales and marketing expense was $2.8 million for the three months ended March 31, 2022, compared to $1.5 million for the three months ended March 31, 2021.

Personnel costs have increased through the expansion of our dermatology-facing commercial team headcount to the mid-60s during the first and second quarters of 2021 and through our acquisition of Cernostics in December 2021, where we hired an initial commercial team of approximately 14 outside sales territories, along with commensurate internal sales associates and other personnel, to support our launch of the TissueCypher Barrett’s Esophagus test and to serve as a dedicated team focused on gastroenterology specialists that diagnose and manage patients with BE.

Personnel costs have increased through the expansion of our dermatology-facing commercial team headcount to the mid-60s during the second quarter of 2021 and through our acquisitions of Cernostics in December 2021 and AltheaDx in April 2022.

Following our acquisition of Cernostics, we hired an initial commercial team of approximately 14 outside sales territories, along with commensurate internal sales associates and other personnel, to support our launch of the TissueCypher Barrett’s Esophagus Assay and to serve as a dedicated team focused on gastroenterology specialists that diagnose and manage patients with BE.

Through our acquisition of AltheaDx, we added a commercial team of approximately 20 outside sales territories to support our launch of the IDgenetix test.

In addition to increases through sales force expansion, higher personnel costs also reflect salary increases for members of our existing sales force.

The remainder of the increase in sales and marketing expenses was primarily associated with training events, meetings, travel and other general increases.

The higher expenses for training events and travel reflect both a higher headcount as well a return to more in-person activities resulting from the continued easing of COVID-19 restrictions.

Stock-based compensation expense included in sales and marketing expense was $5.7 million for the six months ended June 30, 2022, compared to $3.0 million for the six months ended June 30, 2021.

We expect sales and marketing expenses to increase in future periods as we intend to expand our outside sales territories and sales force further during 2022, as discussed under “Overview” above.

General and administrative expenses increased by $3.7 million, or 43.8%, for the three months ended March 31, 2022, compared to three months ended March 31, 2021.

General and administrative expenses increased by $10.7 million, or 61.2%, for the six months ended June 30, 2022, compared to six months ended June 30, 2021.

The increase is primarily attributable to $6.3 million in higher personnel costs including salaries, bonuses and stock-based compensation.

Stock-based compensation expense included in general and administrative expense was $2.6 million for the three months ended March 31, 2022, compared to $1.4 million for the three months ended March 31, 2021.

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

The higher personnel costs reflect expanded headcount in our administrative support functions, including that related to the acquisitions of Cernostics and AltheaDx, as well as higher rates of salaries and wages.

Stock-based compensation expense included in general and administrative expense was $6.1 million for the six months ended June 30, 2022, compared to $3.6 million for the six months ended June 30, 2021.

Furthermore, we incurred $1.7 million of transaction costs associated with our acquisition of AltheaDx.

The remainder of the increase in general and administrative expenses was primarily associated with professional fees and other general increases.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets was $1.6 million for the three months ended March 31, 2022 and was primarily associated with amortization of developed technology attributable to the acquisitions of Myriad myPath, LLC and Cernostics in May 2021 and December 2021, respectively.

There was no such amortization during the three months ended March 31, 2021.

Amortization of acquired intangible assets increased by $3.5 million for the six months ended June 30, 2022, compared to the six months ended June 30, 2021.

The increase is primarily associated with amortization of developed technology attributable to the acquisitions of the Myriad MyPath Laboratory, Cernostics, and AltheaDx in May 2021, December 2021 and April 2022, respectively.

Change in Fair Value of Contingent Consideration

The change in fair value of contingent consideration for the three months ended March 31, 2022 of $2.6 million is related to the remeasurement of the Earnout Payments associated with our acquisition of Cernostics and primarily reflects the passage of time.

There was no such activity during the three months ended March 31, 2021.

The change in fair value of contingent consideration for the six months ended June 30, 2022 of $17.8 million, a net gain, is primarily related to the remeasurement of the Earnout Payments associated with our acquisition of Cernostics and reflects changes in management’s projections regarding attainment of certain commercial milestones.

There was no such activity during the six months ended June 30, 2021.

Interest Income

Interest income increased by $0.3 million for the six months ended June 30, 2022 , compared to the six months ended June 30, 2021 , primarily as a result of higher interest rates.

Income Tax (Benefit) Expense

Our income tax benefit was $1.8 million for the six months ended June 30, 2022, and was primarily attributable to a reduction of $1.8 million in our valuation allowance on net deferred tax assets resulting from our acquisition of AltheaDx in April 2022.

Specifically, we took into consideration the additional deferred tax liabilities resulting from the acquisition and determined that a portion of our existing valuation allowance should be reduced.

Other than this item, we recorded minimal amounts in income tax benefit because in both the six months ended June 30, 2022 and 2021, the income tax benefit of the pre-tax loss was largely offset by corresponding 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 $8.4 million for the three months ended March 31, 2022, compared to $4.9 million for the three months ended March 31, 2021.

Stock-based compensation expense, which is allocated among cost of sales, research and development expense and SG&A expense, totaled $17.2 million for the six months ended June 30, 2022, compared to $9.7 million for the six months ended June 30, 2021.

We expect material increases in stock-based compensation expense in future periods, reflecting mainly higher awards outstanding due to growth in our headcount.

As of March 31, 2022, we had 400 employees compared to 242 as of March 31, 2021.

As of March 31, 2022, the total unrecognized stock-based compensation cost related to outstanding awards was $97.1 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 3.1 years.

As of June 30, 2022, we had 482 employees compared to 292 as of June 30, 2021.

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.

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Liquidity and Capital Resources

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

As of March 31, 2022 and December 31, 2021, we had cash and cash equivalents of $309.0 million and $329.6 million, respectively.

As of June 30, 2022 and December 31, 2021, we had cash and cash equivalents of $273.2 million and $329.6 million, respectively.

In addition to the revenue generated from the sale of our commercial products, we have financed our operations through our IPO in July 2019, two follow-on public offerings of common stock in June 2020 and December 2020, and a $25.0 million secured term loan credit facility, which we repaid in full in December 2020.

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Any future offerings under our Shelf 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.

Our market capitalization as of May 6, 2022 is below the level required to maintain status as well-known seasoned issuer in the future.

Our market capitalization as of August 1, 2022 is below the level required to maintain status as well-known seasoned issuer in the future.

As mentioned above, we expect to use a portion of our cash and cash equivalents, including any proceeds from subsequent offerings under our Shelf Registration Statement, to further support and accelerate our research and development activities, including the clinical studies noted above in “Components of the Results of Operations—Research and Development.”

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With respect to AltheaDx, we agreed to pay up to an additional $75.0 million, 50% in cash and 50% in common stock, based on the achievement of certain commercial milestones relating to the years ending December 31, 2022, 2023 and 2024.

Our actual liability with respect to these commercial milestone payments from our acquisitions will depend, in part, on our ability to successfully integrate the TissueCypher Barrett’s Esophagus test (acquired from Cernostics) and IDgenetix (acquired from AltheaDx) into our suite of commercial product offerings.

In each case, the number of shares of our common stock that may be issued in connection with the Earnout Payments is subject to limitations, as discussed in Notes 5 and 10 to the unaudited

condensed consolidated financial statements.

Our actual liability with respect to these commercial milestone payments from our acquisitions will depend, in part, on our ability to successfully integrate the TissueCypher Barrett’s Esophagus Assay (acquired from Cernostics) and IDgenetix (acquired from AltheaDx) into our suite of commercial product offerings and the timing thereof.

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

For the year ended December 31, 2021 we had a net loss of $31.3 million and an accumulated deficit of $93.8 million as of December 31, 2021.

For the three months ended March 31, 2022, we had a net loss of $24.6 million and an accumulated deficit of $118.4 million as of March 31, 2022.

For the six months ended June 30, 2022, we had a net loss of $26.3 million and an accumulated deficit of $120.0 million as of June 30, 2022.

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.

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

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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.

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We have entered into various operating and finance leases, which are primarily associated with our laboratory facilities and office space.

Total undiscounted future minimum payment obligations under our operating leases and finance leases as of March 31, 2022 totaled approximately $10.3 million, of which $1.0 million is payable through the remainder of 2022 and $9.3 million through the end of 2033.

Total undiscounted future minimum payment obligations under our operating leases and finance leases as of June 30, 2022 totaled approximately $10.1 million, of which $0.7 million is payable through the remainder of 2022 and $9.4 million through the end of 2033.

The leases expire on various dates through 2033 and provide certain options to renew for additional periods.

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On April 1, 2022, we entered into a new lease agreement with an initial term of 10.5 years for laboratory and office space located in Pittsburgh, Pennsylvania.

As of March 31, 2022, neither of the two leases had commenced.

As of June 30, 2022, neither of the two leases had commenced.

Upon commencement, we expect these two leases to increase our undiscounted future minimum payment obligations by a total of approximately $13.8 million.

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

Three Months Ended

Six Months Ended

Net cash used in operating activities $ (30,431) $ (10,069)

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Operating Activities

Net cash used in operating activities was $21.4 million for the three months ended March 31, 2022, and was primarily attributable to the net loss of $24.6 million, decreases in accrued compensation of $6.9 million and increases in accounts receivable of $2.7 million, partially offset by non-cash stock compensation expense of $8.4 million, change in fair value of contingent consideration of $2.6 million and depreciation and amortization of $2.2 million.

Net cash used in operating activities was $3.6 million for the three months ended March 31, 2021, and was primarily attributable to the net loss of $4.3 million, decreases in accrued compensation of $3.9 million, increases in accounts receivable of $1.6 million and decreases in other accrued liabilities of $0.3 million, partially offset by stock compensation expense of $4.9 million and decreases in prepayments and other current assets of $1.7 million.

The $17.8 million additional net cash used in operating activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 is primarily due to cash requirements associated with the increases in operating expenses, the majority of which were attributable to salaries, bonuses and benefits due to our growth in headcount, as discussed in further

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detail under “Results of Operations—Comparison of the three months ended March 31, 2022 and 2021” above.

The effect of the higher expenses on net cash used in operating activities was partially offset by the higher revenues.

Net cash used in operating activities was $30.4 million for the six months ended June 30, 2022, and was primarily attributable to the net loss of $26.3 million, the change in fair value of contingent consideration of $17.8 million, increases in accounts receivable of $5.6 million and deferred income taxes of $1.8 million, partially offset by non-cash stock compensation expense of $17.2 million and depreciation and amortization of $4.8 million.

Net cash used in operating activities was $10.1 million for the six months ended June 30, 2021, and was primarily attributable to the net loss of $13.1 million, increases in accounts receivable of $5.3 million and recoupment of $2.2 million of an advance payment from CMS under its Accelerated and Advance Payment Program, partially offset by non-cash stock compensation expense of $9.7 million and decreases in prepayments and other current assets of $1.3 million.

The $20.4 million additional net cash used in operating activities for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 is primarily due to cash requirements associated with the increases in operating expenses, the majority of which were attributable to salaries, bonuses and benefits due to our growth in headcount, as discussed in further detail under “Results of Operations—Comparison of the six months ended June 30, 2022 and 2021” above.

The effect of the higher expenses on net cash used in operating activities was partially offset by cash inflows from the higher revenues.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2022 and 2021 consisted of purchases of property and equipment in both periods.

Net cash used in investing activities was $27.9 million for the six months ended June 30, 2022 and consisted primarily of the cash portion of the AltheaDx purchase consideration of $26.7 million (net of cash and cash equivalents acquired) and purchases of property and equipment of $1.8 million.

Net cash used in investing activities was $34.8 million for the six months ended June 30, 2021 and consisted primarily of the purchase of Myriad MyPath Laboratory of $33.2 million (including transaction costs) and purchases of property and equipment of $1.7 million.

Financing Activities

Net cash provided by financing activities was $1.2 million for the three months ended March 31, 2022, and primarily consisted of $0.9 million in proceeds from contributions to the employee stock purchase plan and $0.4 million in proceeds from the exercise of stock options.

Net cash provided by financing activities was $1.5 million for the three months ended March 31, 2021, and primarily consisted of $1.0 million in proceeds from the exercise of stock options and $0.9 million in proceeds from contributions to the employee stock purchase plan.

Net cash provided by financing activities was $1.9 million for the six months ended June 30, 2022, and primarily consisted of $1.5 million in proceeds from contributions to the employee stock purchase plan and $0.5 million in proceeds from the exercise of stock options.

Net cash provided by financing activities was $3.4 million for the six months ended June 30, 2021, and primarily consisted of $2.3 million in proceeds from the exercise of stock options and $1.4 million in proceeds from contributions to the employee stock purchase plan.

In 2021, the rate of inflation in the United States began to increase and has since risen to levels not experienced in over 40 years.

We are experiencing inflationary pressures, primarily in personnel costs, and we anticipate impacts on other cost areas within the next twelve months.

The extent of any future impacts from inflation on our business and our results of operations will be dependent upon how long the elevated inflation levels persist and the extent to which the rate of inflation further increases, if at all, neither of which we are able to predict.

If elevated levels of inflation were to persist or if the rate of inflation were to accelerate, the purchasing power of our cash and cash equivalents may be diminished, our expenses could increase faster than anticipated and we may utilize our capital resources sooner than expected.

Further, given the complexities of the reimbursement landscape in which we operate, our payors may be unwilling or unable to increase reimbursement rates to

compensate for inflationary impacts.

As such, the effects of inflation may adversely impact our results of operations, financial condition and cash flows.

Critical Accounting Estimates

During the three months ended March 31, 2022, there were no significant changes to the information discussed under “Critical Accounting Estimates” included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2021.

During the six months ended June 30, 2022, except as noted below, there were no significant changes to the information discussed under “Critical Accounting Estimates” included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2021.

The following is an updated discussion of our critical accounting estimates related to contingent consideration.

This information should be read in conjunction with our other information on critical accounting estimates included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Contingent Consideration

Under the terms of business combinations or asset acquisitions, we may be required to pay additional consideration if specified future events occur or if certain conditions are met.

In a business combination, in accordance with to ASC Topic 805, Business Combinations, contingent consideration is recorded at fair value as of the acquisition date and classified as liabilities or equity based on applicable accounting principles generally accepted in the United States of America (“U.S.

For contingent consideration classified as liabilities, we remeasure the contingent consideration at fair value each period with changes in fair value recorded in the statements of operations and comprehensive loss each period.

For contingent consideration in transactions that are not business combinations, we apply applicable U.S.

With respect to the additional consideration that may be payable in connection with the acquisition of Cernostics, an asset acquisition we completed on December 3, 2021, we account for the contingent consideration as liability in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), under the guidance for obligations that must or may be settled by issuance of a variable number of shares.

In accordance with ASC 480, we record the contingent consideration initially and subsequently at fair value with changes in fair value recorded in the condensed consolidated statements of operations and comprehensive loss each period.

Liabilities for contingent consideration are classified as a “Level 3” fair value measurements (as defined in Note 11 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021) due to the use of significant unobservable inputs and a Monte Carlo simulation to determine its fair value.

The Monte Carlo simulation uses projections of the commercial milestones for the applicable period as well as the corresponding targets and approximate timing of payment based on the terms of the arrangement.

The analysis also uses assumptions for expected volatility of the financial metrics and a risk-adjusted discount rate.

The assumptions and estimates we use in the Monte Carlo simulation require considerable judgment and may change in future periods as a result of new information.

For example, during the three months ended June 30, 2022, as a result of a change in management’s projections regarding the outcome of certain commercial milestones associated with our acquisition of Cernostics, the fair value of the related contingent consideration liability decreased by $20.8 million.

Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, we are not required to provide the information required by this Item.

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-Q

Item 2. Management’s Discussion and Analysis