What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-25 · 307 added, 464 removed, 1145 unchanged (40% of the section changed)

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For the Years Ended December 31, 2021, 2020 and 2019

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Precision Oncology Revenue (testing services provided to ordering physicians)

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Auditing the Company’s estimate of total consideration expected to be received for the precision oncology tests is complex and requires significant judgement to evaluate management’s estimate of payments to be received for the tests.

This estimate is affected by assumptions on coverage of the tests for the patient and experience with collection from third-party payors.

This estimate is affected by assumptions on coverage of the tests for the patient and experience with collection from third-party payers.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls that address the risks of material misstatement relating to the measurement of precision oncology revenues based upon estimating variable consideration.

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lung, non-lung, etc.) to be performed to the requisition forms submitted by the physician.

We compared the significant assumptions and inputs used by management to the Company’s third-party payor collection trends and other relevant factors.

We compared the significant assumptions and inputs used by management to the Company’s third-party payer collection trends and other relevant factors.

This included testing inputs to the calculation by comparing historical information to source documents and evaluating the historical accuracy of management's estimates by comparing such estimates to actual results.

Valuation of Redeemable Non-Controlling Interest

Description of the Matter As described in Note 3 to the consolidated financial statements, in May 2018, the Company entered into an agreement with an entity affiliated with SoftBank, a related party, to establish a Joint Venture to distribute the Company’s tests in certain markets outside the United States.

The Company is consolidating the Joint Venture and as part of the accounting for the redeemable noncontrolling interest (“NCI”) held by Softbank, the Company is carrying the NCI at its fair value as the agreement has a put feature which contractually allows Softbank to return the NCI interest back to the Company.

The fair value of the NCI was determined using two valuation models, the income approach and the market approach.

Determining the fair value of the NCI requires judgment and the use of significant estimates and assumptions, such as, a discount rate and an exit multiple rate.

The discount rate is applied to calculate the present value the expected future cash flows of the Joint Venture.

The selection of exit multiple rate is used in establishing the value of an exit event (i.e.

sale or initial public offering) of the Joint Venture.

These significant estimates and assumptions are forward looking and could be affected by future economic and market conditions.

At December 31, 2020, the Company’s non-controlling interest was $57.1 million.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the fair value estimation of the NCI.

We tested controls over the selection and application of the valuation models and the underlying significant estimates and assumptions noted above.

To test the estimated fair value of the NCI, our audit procedures included, among others, involvement of our valuation specialist to assist us in the evaluation of the Company’s valuation methodology and testing of the significant estimates and assumptions.

For example, we compared the discount rate to industry trends and market conditions and the exit multiple rate to the comparable public companies.

We also compared the revenue forecast to evidence of approval by the Joint Venture board of directors.

/s/ Ernst & Young LLP

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Intangible assets, net

Capitalized license fees

14,207 16,155

Other assets, net

60,938 17,253

Total Assets (1)

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45,285 22,639

Noncontrolling interest liability

Deferred revenue

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226,053 41,565

Obligation related to royalty

Other long-term liabilities

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1,559,494 916,186

Commitments and contingencies (Note 10)

As of December 31,

Commitments and contingencies (Note 10)

Redeemable noncontrolling interest

57,100 49,600

Stockholders’ equity:

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1,657,593 1,902,389

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income

( 4,764 ) 2,697

Accumulated deficit

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$ 2,204,499 $ 2,271,781

(1) As of December 31, 2020 and 2019, this balance includes $ 35.0 million and $ 45.1 million of assets, respectively, that can be used only to settle obligations of the consolidated variable interest entity (“VIE”) and VIE’s subsidiaries, and $ 4.9 million and $ 5.7 million of liabilities of the consolidated VIE and VIE’s subsidiaries, respectively, for which their creditors do not have recourse to the general credit of the Company.

(1) As of December 31, 2021 and 2020, this balance includes $ 20.4 million and $ 35.0 million of assets, respectively, that can be used only to settle obligations of the consolidated variable interest entity, or VIE, and VIE’s subsidiaries, and $ 4.3 million and $ 4.9 million of liabilities of the consolidated VIE and VIE’s subsidiaries, respectively, for which their creditors do not have recourse to the general credit of the Company.

See Note 3, Investment in Joint Venture.

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Precision oncology testing $ 304,312 $ 236,324 $ 180,462

$ 236,324 $ 180,462 $ 78,407

Development services and other

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101,314 97,504 90,597

(1) Fiscal year 2018 results do not reflect the impact of the adoption of the new revenue accounting standard in fiscal year 2019.

The accompanying notes are an integral part of these consolidated financial statements.

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Other comprehensive income (loss), net of tax impact:

Unrealized gain on available-for-sale securities

Unrealized (loss) gain on available-for-sale securities

( 5,769 ) 1,131 1,110

Foreign currency translation adjustments

( 1,692 ) 455 84

Other comprehensive income ( 7,461 ) 1,586 1,194

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(in thousands, except share data)

Redeemable Noncontrolling Interest Convertible

Preferred Stock Common Stock Additional

Redeemable Noncontrolling Interest Common Stock Additional

Capital Accumulated

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Deficit Total Stockholders’ Equity

Shares Amount Shares Amount

Shares Amount

Balance as of January 1, 2019

$ 41,800 85,832,454 $ 1 $ 764,033 $ ( 83 ) $ ( 280,799 ) $ 483,152

Conversion of convertible preferred stock to common stock upon initial public offering

— ( 78,627,369 ) ( 499,974 ) 58,264,577 1 499,973 — — —

Issuance of common stock upon initial public offering, net of offering costs of $ 4,475

Cumulative effect adjustment for Topic 606 adoption — — — — — 4,907 4,907

Cumulative effect adjustment for ASU 2018-07 adoption — — — 1,266 — ( 1,266 ) —

Issuance of common stock upon follow-on offering, net of offering costs of $ 723

— 5,175,000 — 349,709 — — 349,709

Issuance of common stock upon exercise of stock options — 2,999,419 — 11,638 — — 11,638

— — — 963,119 — 2,905 — — 2,905

Issuance of common stock upon early exercise of stock options

— — — 44,268 — — — — —

Issuance of common stock upon exercise of warrants

— — — 320,289 — 45 — — 45

Repurchase of common stock — — — ( 31,681 ) — ( 172 ) — — ( 172 )

Vesting of restricted stock units — 22,208 — — — — —

Vesting of common stock exercised early — — — 95 — — 95

Common stock issued under employee stock purchase plan — 232,333 — 6,395 — — 6,395

Stock-based compensation — — — 16,954 — — 16,954

Issuance of equity interests in redeemable noncontrolling interest

41,000 — — — — — — — —

Adjustment of redeemable noncontrolling interest 7,800 — — — — ( 7,800 ) ( 7,800 )

800 — — — — — — ( 800 ) ( 800 )

Other comprehensive gain, net of tax impact — — — — 1,194 — 1,194

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49,600 94,261,414 1 1,150,090 1,111 ( 352,809 ) 798,393

Cumulative effect adjustment for Topic 606 adoption

— — — — — — — 4,907 4,907

Cumulative effect adjustment for ASU 2018-07 adoption

— — — — — 1,266 — ( 1,266 ) —

Issuance of common stock upon follow-on offering, net of offering costs of $ 1,130

— 4,312,500 — 354,600 — — 354,600

Equity component of convertible senior notes, net — — — 330,403 — — 330,403

Purchase of convertible senior note hedges — — — ( 90,045 ) — — ( 90,045 )

Issuance of common stock upon exercise of stock options — 1,446,843 — 9,528 — — 9,528

— — — 2,999,419 — 11,638 — — 11,638

Vesting of restricted stock units — 97,188 — — — — —

— — — 22,208 — — — — —

Vesting of common stock exercised early — — — 52 — — 52

— — — — — 95 — — 95

Common stock issued under employee stock purchase plan — 96,040 — 7,095 — — 7,095

— — — 232,333 — 6,395 — — 6,395

Taxes paid related to net share settlement of restricted stock units — — — ( 3,447 ) — — ( 3,447 )

Stock-based compensation — — — 144,113 — — 144,113

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57,100 100,213,985 1 1,902,389 2,697 ( 606,592 ) 1,298,495

Issuance of common stock upon follow-on offering, net of offering costs of $ 1,130

— — — 4,312,500 — 354,600 — — 354,600

Equity component of convertible senior notes, net — — — — — 330,403 — — 330,403

Purchase of convertible senior note hedges — — — — — ( 90,045 ) — — ( 90,045 )

Cumulative effect adjustment for ASU 2020-06 adoption — — — ( 330,403 ) — 4,437 ( 325,966 )

Issuance of common stock upon exercise of stock options — 693,074 — 8,112 — — 8,112

— — — 1,446,843 — 9,528 — — 9,528

Vesting of restricted stock units — 750,160 — — — — —

— — — 97,188 — — — — —

Vesting of common stock exercised early — — — 52 — — 52

— — — — — 52 — — 52

Common stock issued under employee stock purchase plan — 110,227 — 9,753 — — 9,753

— — — 96,040 — 7,095 — — 7,095

Taxes paid related to net share settlement of restricted stock units — — — ( 83,759 ) — — ( 83,759 )

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Adjustment of redeemable noncontrolling interest 20,900 — — — — ( 20,900 ) ( 20,900 )

Other comprehensive gain, net of tax impact — — — — — — 1,586 — 1,586

Reclassification of redeemable noncontrolling interest to noncontrolling interest liability ( 78,000 ) — — — — — —

Other comprehensive loss, net of tax impact — — — — ( 7,461 ) — ( 7,461 )

Net loss — — — — — ( 384,770 ) ( 384,770 )

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Operating lease liabilities 14,205 ( 6,042 ) ( 1,172 )

Deferred rent — — 1,307

Deferred revenue 2,776 ( 3,727 ) ( 3,861 )

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Maturity of marketable securities 952,110 562,548 325,333

Purchase of non-marketable equity and other related investments ( 39,422 ) — —

Business acquisition, net of cash acquired — — ( 7,328 )

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Proceeds from issuance of common stock upon exercise of stock options 8,112 9,528 11,638

Proceeds from issuance of common stock upon the exercise of warrants — — 45

Taxes paid related to net share settlement of restricted stock units ( 83,759 ) ( 3,447 ) —

Proceeds from public offerings of common stock — 355,730 350,432

Year Ended December 31,

2021 2020 2019

Repurchase of common stock — — ( 172 )

Proceeds from public offerings of common stock 355,730 350,432 254,006

Payment of offering costs related to public offerings of common stock — ( 1,130 ) ( 723 )

Proceeds from borrowings on convertible senior notes, net — 1,132,750 —

Payment of offering costs related to borrowings on convertible senior notes ( 784 ) — —

Purchase of convertible note hedges — ( 90,045 ) —

Net proceeds from issuance of equity interests in redeemable noncontrolling interest — — 41,000

Net cash provided by financing activities 1,410,307 367,304 293,161

Net cash (used in) provided by financing activities ( 66,824 ) 1,410,307 367,304

Net effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash ( 1,693 ) 455 84

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Cash, cash equivalents and restricted cash – Beginning of period 832,977 143,228 140,544

Cash and cash equivalents – End of period $ 832,977 $ 143,228 $ 140,544

Cash, cash equivalents and restricted cash – End of period $ 492,288 $ 832,977 $ 143,228

Supplemental Disclosures of Cash Flow Information:

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Purchases of property and equipment included in accounts payable and accrued expenses $ 8,892 $ 1,986 $ 4,818

Property and equipment acquired under finance leases $ 238 $ 47 $ —

Vesting of common stock exercised early $ 52 $ 52 $ 95

Reclassification of redeemable noncontrolling interest to noncontrolling interest liability

$ 78,000 $ — $ —

Initial fair value of contingent consideration at acquisition date $ — $ — $ 1,065

Deferred offering costs included in accounts payable and accrued expenses $ — $ — $ 89

Debt issuance costs included in accounts payable and accrued expenses $ — $ 784 $ —

Conversion of convertible preferred stock to common stock upon initial public offering $ — $ — $ 499,974

The accompanying notes are an integral part of these consolidated financial statements.

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Description of Business

Guardant Health, Inc.

(the “Company”) is a leading precision oncology company focused on helping conquer cancer globally through use of its proprietary blood tests, vast data sets and advanced analytics.

The key to conquering cancer is unprecedented access to its molecular information throughout all stages of the disease, which the Company enables by a routine blood draw, or liquid biopsy.

The Guardant Health Oncology Platform is designed to leverage the Company’s capabilities in technology, clinical development, regulatory and reimbursement to drive commercial adoption, accelerate drug development, improve patient clinical outcomes and lower healthcare costs.

In pursuit of its goal to manage cancer across all stages of the disease, the Company has launched its Guardant360, Guardant 360 CDx, and GuardantOMNI liquid biopsy-based tests for advanced stage cancer and in February 2021, launched its Guardant Reveal liquid biopsy-based tests for residual and recurring cancer to first address the need in Stage II-III colorectal cancer, and is developing tests from its Guardant360 tissue program which aims to address challenges with tissue genotyping products currently available in the market and its LUNAR program which aim to address the needs of early stage cancer patients with neoadjuvant and adjuvant treatment selection, cancer survivors with surveillance, and asymptomatic individuals eligible for cancer screening and individuals at a higher risk for developing cancer with early detection.

Using data collected from the Company's tests, the Company has also developed GuardantINFORM platform to further accelerate precision oncology drug development by biopharmaceutical companies by offering them an in-silico research platform to further unlock insights into tumor evolution and treatment resistance across various biomarker-driven cancers.

Guardant Health, Inc., or the Company, is a leading precision oncology company focused on helping conquer cancer globally through use of its proprietary tests, vast data sets and advanced analytics.

Today the Company's proprietary tests are helping to realize the full potential of precision oncology by providing patients and their doctors critical insights that can inform decisions at all stages of the disease, from screening, to monitoring cancer recurrence, to treatment decisions.

The key to conquering cancer is unprecedented access to its molecular information throughout all stages of the disease, which the Company enables by its tests.

By looking at the unique dimensions of cancer found in blood, including genomic alterations, methylation, and fragmentomics, the Company is unlocking insights that can increasingly help patients across all stages of cancer, including at its earliest, when it’s most treatable.

To help identify cancer at the earliest stages, the Company is developing Guardant SHIELD, a blood test for cancer screening in average-risk adults without symptoms, that detects very early signs of cancer by interrogating genomic alterations, methylation, and fragmentomic signals from a simple blood draw.

In pursuit of its goal to manage cancer across all stages of the disease, the Company provides its Guardant360, Guardant360 LDT, Guardant 360 CDx, and GuardantOMNI liquid biopsy-based tests for advanced stage cancer.

In February 2021, the Company launched its Guardant Reveal liquid biopsy-based tests for residual and recurring cancer to first address the need in Stage II-III colorectal cancer.

In June 2021, the Company launched Guardant360 TissueNext, the Company's first tissue-based test which will be used to identify patients with advanced cancer who may benefit from biomarker-informed treatment, and Guardant360 Response which will be used to measure early indications to patients' response to treatment up to eight weeks earlier than response evaluation criteria in solid tumors.

Using data collected from the Company's tests, the Company has also developed the GuardantINFORM platform to further accelerate precision oncology drug development by biopharmaceutical companies by offering them an in-silico research platform to further unlock insights into tumor evolution and treatment resistance across various biomarker-driven cancers.

The Company was incorporated in Delaware in December 2011 and is headquartered in Redwood City, California.

In May 2018, the Company formed and capitalized Guardant Health AMEA, Inc.

(the “Joint Venture”) in the United States with an affiliate of SoftBank Vision Fund (AIV M1) L.P.

(“SoftBank”).

Under the terms of the joint venture agreement, the Company held a 50 % ownership interest in the Joint Venture.

In May 2018, the Company formed and capitalized Guardant Health AMEA, Inc., or the Joint Venture, in the United States with an affiliate of SoftBank Vision Fund (AIV M1) L.P., or SoftBank.

Under the terms of the joint venture agreement, the Company holds a 50 % ownership interest in the Joint Venture.

In November 2021, the Company exercised its call right contained in the Joint Venture agreement with SoftBank to purchase all of the shares held by SoftBank and its affiliates, see Note 3.

As of December 31, 2021, the Joint Venture has subsidiaries in Singapore and Japan (see Note 3, Investment in Joint Venture ) and the Company has a subsidiary in Switzerland, which was incorporated in 2019.

Approval of Amended and Restated Certificate of Incorporation

In September 2018, the Company’s Board of Directors and stockholders approved an amended and restated certificate of incorporation, which authorized 350,000,000 shares of common stock and 10,000,000 shares of preferred stock.

The amended and restated certificate of incorporation became effective on October 9, 2018.

Summary of Significant Accounting Policies

Basis of Presentation

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The accompanying consolidated financial statements include the accounts of Guardant Health, Inc.

and its consolidated Joint Venture.

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP.

The accompanying consolidated financial statements include the accounts of Guardant Health, Inc., its consolidated Joint Venture and majority owned subsidiary.

Other stockholders’ interests in the Joint Venture are shown in the consolidated financial statements as redeemable noncontrolling interest.

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The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances.

Estimates are used in several areas including, but not limited to, estimation of variable consideration, estimation of credit losses, standalone selling price allocation included in contracts with multiple performance obligations, the fair value of

assets acquired and liabilities assumed for business combinations, goodwill and identifiable intangible assets, stock-based compensation, contingencies, certain inputs into the provision for (benefit from) income taxes, including related reserves, valuation of redeemable noncontrolling interest, among others.

Estimates are used in several areas including, but not limited to, estimation of variable consideration, estimation of credit losses,

standalone selling price allocation included in contracts with multiple performance obligations, goodwill and identifiable intangible assets, stock-based compensation, incremental borrowing rate for operating leases, contingencies, certain inputs into the provision for (benefit from) income taxes, including related reserves, valuation of non-marketable securities, valuation of redeemable noncontrolling interest, among others.

These estimates generally involve complex issues and require judgments, involve the analysis of historical results and prediction of future trends, can require extended periods of time to resolve and are subject to change from period to period.

Actual results may differ materially from management’s estimates.

The extent to which the coronavirus 2019, or COVID-19 pandemic will ultimately impact the Company’s business, results of operations, financial conditions, or cash flows is highly uncertain and difficult to predict because it will depend on many factors that are outside the Company’s control, such as the duration, scope and severity of the pandemic, steps required or mandated by governments to mitigate the impact of the pandemic, and whether COVID-19 can be effectively prevented, detected, contained and treated, particularly in the markets where the Company operates.

JOBS Act Accounting Election

Effective December 31, 2019, the Company is no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

Foreign Currency Translation

The extent to which the coronavirus 2019, or COVID-19 pandemic, will ultimately impact the Company’s business, results of operations, financial conditions, or cash flows continues to be highly uncertain.

The severity of the impact on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, and the impact of any variants of the virus, the extent and severity of the impact on the Company's customers and suppliers, the continued disruption to demand for the Company's products and services, and the impact of the global business and economic environment on liquidity and the availability of capital, all of which are uncertain and cannot be predicted.

Foreign Currency

The functional currency of the subsidiaries of the consolidated Joint Venture is the local currency.

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Foreign currency transaction gains and losses resulting from transactions denominated in a currency other than the functional currency are recognized in the consolidated statements of operations.

For the year ended December 31, 2020, 2019 and 2018, foreign currency translation adjustment was immaterial.

For the year ended December 31, 2021, 2020 and 2019, foreign currency transaction gains and losses were immaterial.

Segment Information

The Company operates as one operating and reportable segment.

The Company’s chief operating decision makers, the Chief Executive Officer, and the President and Chief Operating Officer, manage the Company’s operations on an aggregate basis for purposes of allocating resources.

The Company's chief operating decision makers are its Co-Chief Executive Officers, who review financial information presented on a consolidated basis for the purposes of making operating decisions, assessing financial performance and allocating resources.

Cash and Cash Equivalents and Restricted Cash

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Cash equivalents are carried at cost, which approximates their fair value.

The Company did no t have any restricted cash as of December 31, 2020 and 2019.

Restricted cash consists of payroll withholding related to the Company's enrollment in certain voluntary disability insurance plan.

Restricted cash balance as of December 31, 2021, was $ 0.1 million, which was included in other assets in the accompanying consolidated balance sheets.

The Company did no t have any restricted cash as of December 31, 2020.

Marketable Securities

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The Company periodically evaluates its available-for-sale marketable securities for impairment.

Prior to the adoption of Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments , the Company assesses whether declines in fair values of its marketable securities below their book value are other-than-temporary.

Prior to the adoption of Accounting Standards Update, or ASU, 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments , the Company assesses whether declines in fair values of its marketable securities below their book value are other-than-temporary.

This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs.

Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not that it will be required to sell any marketable securities before recovery of its amortized cost basis.

Factors considered include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of the marketable security, duration and severity of the decline in value, and management’s strategy and intentions for

holding the marketable security.

Factors considered include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee

securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of the marketable security, duration and severity of the decline in value, and management’s strategy and intentions for holding the marketable security.

Realized gains and losses and declines in value, if any, judged to be other than temporary on available‑for‑sale securities are reported in other income (expense), net on the consolidated statements of operations.

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Impairment losses that are not credit-related are included in accumulated other comprehensive gain (loss) in stockholders’ equity.

Non-Marketable Securities

The Company acquires certain equity investments in private companies to promote business and strategic objectives.

The Company's investments in non-marketable equity securities do not give the Company the ability to control or exercise significant influence over the investee.

The Company's non-marketable equity and other related investments totaled $ 39.4 million as of December 31, 2021, and are included in other assets, net on the accompanying consolidated balance sheets.

The Company did no t have such non-marketable equity and other related investments as of December 31, 2020.

Non-marketable securities are subject to periodic impairment reviews and adjustments for observable price changes from orderly transactions.

The Company's evaluation of impairment of such non-marketable securities is based on adverse changes in market conditions and the regulatory or economic environment, qualitative and quantitative analysis of the operating performance of the investee;

changes in operating structure or management of the investee;

additional funding requirements;

and the investee’s ability to remain in business.

Pursuant to one of the investments in non-marketable securities purchased by the Company, and subject to the Company purchasing additional non-marketable securities from the same investee, the Company would acquire rights to purchase the investee at a pre-determined price subject to additional adjustments based on the performance of the investee, on or before December 31, 2022.

As of December 31, 2021, no impairment or adjustments to carrying value of non-marketable securities have been recorded.

The Company’s assessment of these factors in determining whether an impairment exists could change in the future due to new developments or changes in applied assumptions.

Concentration of Risk

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The Company is subject to credit risk from its accounts receivable.

The majority of the Company’s accounts receivable arises from the provision of precision oncology services and development services in the United States and are primarily with biopharmaceutical companies with high credit ratings.

The majority of the Company’s accounts receivable arises from the provision of precision oncology services and development services and other in the United States and are primarily with biopharmaceutical companies with high credit ratings.

The Company has not experienced any material losses related to receivables from individual customers, or groups of customers.

The Company does not require collateral.

Accounts receivable are recorded at net amounts.

Accounts receivable are recorded at net amount.

A significant customer is a biopharmaceutical customer or a clinical testing payer that represents 10% or more of the Company’s total revenue or accounts receivable balance.

Revenue attributable to each significant customer, including its affiliated entities, as a percentage of the Company’s total revenue, for the respective period, and accounts receivable balance attributable to each significant customers, including its affiliated entities, as a percentage of the Company’s total accounts receivable balance, at the respective consolidated balance sheet date, are as follows:

Revenue Accounts Receivable

Revenue Accounts Receivable, Net

Year Ended December 31, As of December 31,

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29 % 25 % 14 % 13 % 13 %

* * * 10 % 12 %

Customer D * * * * 11 %

Customer E * * * 13 % *

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The Company's other receivables and other assets include payments due from a third-party in relation to the settlement of a patent dispute reached in August 2020 for $ 8.0 million payable over a period of 6 years.

In December 2020, the Company received the first installment payment of $ 1.0 million and recorded a gain in other income (expense), net on the consolidated statements of operations.

The Company has evaluated and recorded a credit loss for the remaining $ 7.0 million considering the third-party's credit worthiness and lack of collection history.

In December 2020, the Company received the first installment payment of $ 1.0 million, and in December 2021, the Company received the second installment payment of $ 1.1 million.

The Company has evaluated and recorded a credit loss for the remaining $ 5.9 million considering the third-party's credit worthiness and lack of financial history.

The following table presents the receivable and the related credit loss amounts:

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December 31, 2021 December 31, 2020

Beginning Balance Charged to (Reversed from) Other Income (Expense), Net Ending Balance

Beginning Balance Charged to (Reversed from) Other Income (Expense), Net Reclassi

fication Ending Balance

(in thousand)

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Accounts Receivable, Net

Accounts receivable represent valid claims against biopharmaceutical companies, research institutes and international distributors.

Accounts receivable represent valid claims against commercial and governmental payers, biopharmaceutical companies, research institutes and international distributors, including unbilled receivables, and royalty payments due from third parties for licensing the Company’s technologies.

Unbilled receivables include balances due from biopharmaceutical customers related to development services and other revenues that are recognized upon the achievement of performance-based milestones but prior to the achievement of contractual billing rights.

As of December 31, 2021 and 2020, the Company had unbilled receivables of $ 5.7 million and $ 1.4 million, respectively.

The Company evaluates the collectability of its accounts receivable based on historical collection trends, the financial condition of payment partners, and external market factors and provides for an allowance for potential credit losses based on management’s best estimate of the amount of probable credit losses.

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Inventories are stated at the lower of cost or net realizable value on a first-in, first-out basis.

Inventory consisted entirely of supplies, which are consumed when providing liquid biopsy tests, and therefore the Company does not maintain any finished goods inventory.

Inventory consisted entirely of supplies, which are consumed when providing tests, and therefore the Company does not maintain any finished goods inventory.

In order to assess the ultimate realization of inventories, the Company is required to make judgments as to future demand requirements compared to current or committed inventory levels.

The Company periodically reviews its inventories for excess or obsolescence and writes-down obsolete or otherwise unmarketable inventory to its estimated net realizable value.

The Company periodically reviews its

inventories for excess or obsolescence and writes-down obsolete or otherwise unmarketable inventory to its estimated net realizable value.

If the actual net realizable value is less than that estimated by the Company, or if it is determined that inventory utilization will further diminish based on estimates of demand, additional inventory write-downs may be required.

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Leasehold improvements Lesser of estimated useful life or remaining lease term

Business Combinations

The Company includes the results of operations of the businesses that are acquired as of the acquisition date.

The Company allocates the purchase price of acquisitions to the assets acquired and liabilities assumed based on the estimated fair values.

The excess of the purchase price over the fair values of the identifiable assets and liabilities is recorded as goodwill.

Acquisition related costs are recognized separately from the business combination and are expensed as incurred.

Asset Acquisition

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The total consideration is allocated to the various intangible assets acquired on a relative fair value basis.

Cash paid in connection of purchase of in-process research and development technology in an asset acquisition is presented within the investing activities of the consolidated statement of cash flows.

Cash paid in connection of purchase of in-process research and development technology in an asset acquisition is presented within the investing section of the consolidated statement of cash flows.

Goodwill and Intangible Assets, net

Intangible assets related to in-process research and development costs (“IPR&D”) are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts.

Intangible assets related to in-process research and development costs, or IPR&D, acquired in a business combination are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts.

If and when development is complete, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time.

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The Company continues to operate in one segment, which is considered to be the sole reporting unit and, therefore, goodwill was tested for impairment at the enterprise level.

As of December 31, 2020, there has been no impairment of goodwill.

As of December 31, 2021, there has been no impairment of goodwill or IPR&D.

Intangible assets are carried at cost, net of accumulated amortization.

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Amortization is recorded on a straight-line basis over the intangible asset's useful life, which is approximately 6 — 12 years.

Obligation Related to Royalty

Certain of the Company’s asset acquisitions involve the potential for future payment of consideration that is contingent upon the royalty payments due on future product net sales, subject to annual minimums.

The fair value of such liabilities is determined at the acquisition date using unobservable inputs.

These inputs include the estimated amount and timing of projected cash flows and the risk-adjusted discount rate used to present value the cash flows.

In March 2020, after the settlement of an arbitration and patent license acquisition as discussed in Note 6, Acquisitions , the Company no longer has such royalty obligations.

Impairment for Long-Lived Assets

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The Company determines if an arrangement contains a lease at inception.

Operating lease right-of-use (“ROU”) assets and operating leases liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

Operating lease right-of-use, or ROU, assets and operating leases liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received or receivable.

The Company uses its incremental borrowing rate based on the information available at the commencement date in

determining the lease liabilities, as the Company's leases generally do not provide an implicit rate.

The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities, as the Company's leases generally do not provide an implicit rate.

Lease terms may include options to extend or terminate when the Company is reasonably certain the option will be exercised.

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Transaction costs attributable to the equity component are netted with the equity component of the notes in additional paid-in capital in the consolidated balance sheets.

Revenue Recognition under ASC 606

Starting January 1, 2021, upon early adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, the carrying amount of the equity component of the cash conversion feature including the allocated debt issuance costs were reclassified from additional paid-in capital to convertible senior notes, net.

Revenue Recognition

The Company derives revenue from the provision of precision oncology testing services provided to its ordering physicians and biopharmaceutical customers, as well as from biopharmaceutical research and development services provided to its biopharmaceutical customers.

Precision oncology testing services include genomic profiling and the delivery of other genomic information derived from the Company’s platform.

Development services and other include companion diagnostic development, clinical trial setup, monitoring and maintenance, information solutions and laboratory services, and other miscellaneous revenue streams.

The Company currently receives payments from third-party commercial and governmental payers, certain hospitals and oncology centers and individual patients, as well as biopharmaceutical companies and research institutes.

Effective January 1, 2019, the Company adopted the new revenue recognition standard Financial Accounting Standards Board (“FASB") ASC Topic 606, Revenue from Contracts with Customers, or ASC 606 .

Development services and other include companion diagnostic development, clinical study setup, monitoring and maintenance, information solutions and laboratory services, and other miscellaneous revenue streams.

Effective January 1, 2019, the Company adopted the new revenue recognition standard, FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC 606 .

Revenues are recognized when control of services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

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however, the Company determines an implied contract exists with its clinical customers.

The Company identifies each sale of its liquid biopsy test to clinical customer as a single performance obligation.

With the exception of certain limited contracted arrangements with insurance carriers and other institutions where the transaction price is fixed, a stated contract price does not exist and the transaction price for each implied contract with clinical customers represents variable consideration.

The Company identifies each sale of its test to clinical customer as a single performance obligation.

variable consideration.

The Company estimates the variable consideration under the portfolio approach and considers the historical reimbursement data from third-party commercial and governmental payers and patients, as well as known or anticipated reimbursement trends not reflected in the historical data.

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The Company analyzes its actual cash collections over the expected reimbursement period and compares it with the estimated variable consideration for each portfolio and any difference is recognized as an adjustment to estimated revenue after the expected reimbursement period, subject to assessment of the risk of future revenue reversal.

For the year ended December 31, 2020 and 2019, the Company recorded $ 26.0 million and $ 16.8 million as revenue, respectively, resulting from cash

collections over the expected reimbursement period exceeding the estimated variable consideration related to samples processed in the previous years, including revenue received from successful appeals of reimbursement denials.

For the year ended December 31, 2021, 2020 and 2019, the Company recorded $ 19.3 million, $ 26.0 million and $ 16.8 million as revenue, respectively, resulting from cash collections exceeding the estimated variable consideration related to samples processed in previous years, including revenue received from successful appeals of reimbursement denials, net of recoupments.

Revenue from sales of precision oncology tests to biopharmaceutical customers are based on a negotiated price per test or on the basis of an agreement to provide certain testing volume over a defined period.

The Company identifies its promise to transfer a series of distinct liquid biopsy tests to biopharmaceutical customers as a single performance obligation.

The Company identifies its promise to transfer a series of distinct tests to biopharmaceutical customers as a single performance obligation.

Precision oncology tests to biopharmaceutical customers are generally billed at a fixed price for each test performed.

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The Company collaborates with pharmaceutical companies in the development of new drugs.

As part of these collaborations, the Company provides services related to regulatory filings to support companion diagnostic device submissions for the Company’s liquid biopsy panels.

As part of these collaborations, the Company provides services related to regulatory filings to support companion diagnostic device submissions for the Company’s testing panels.

Under these collaborations, the Company generates revenue from achievement of milestones, as well as provision of on-going support.

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Application of the constraint for variable consideration is assessed and updated at each reporting period as a revision to the estimated transaction price.

The Company recognizes development services over the period in which biopharmaceutical research and development services are provided.

The Company recognizes development services revenue over the period in which biopharmaceutical research and development services are provided.

Specifically, the Company recognizes revenue using an input method to measure progress, utilizing costs incurred to-date relative to total expected costs as its measure of progress.

The Company assesses the changes to the total expected cost estimates as well as any incremental fees negotiated resulting from changes to the scope of the original contract in determining the revenue recognition at each reporting period.

The Company revised and increased its total estimated costs relating to one of the development services contracts during the year ended December 31, 2020.

Had the Company included such additional costs in the original estimated costs, revenues for the year ended December 31, 2019 would have been lower by $ 1.8 million.

For development of new products or services under these arrangements, costs incurred before technological feasibility is reached are included as research and development expenses in the Company’s consolidated statements of operations, while costs incurred thereafter are recorded as cost of development services and other.

The Company also has other miscellaneous revenue streams that are recognized in addition to development services noted above such as clinical trial setup, monitoring and maintenance, referral fees, liquid biopsy testing development and support, GuardantConnect, GuardantINFORM and Guardant-19, and kits fulfillment related revenues.

Revenues related to clinical trial setup, monitoring and maintenance, referral fees, liquid biopsy testing development and support, GuardantConnect, GuardantINFORM are generally recognized overtime based on an input method to measure progress in the period when the associated services have been performed.

Guardant-19 and kits fulfillment related revenues are recognized when such products are delivered.

The Company also has other miscellaneous revenue streams that are recognized in addition to development services noted above such as clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect, GuardantINFORM, and kits fulfillment related revenues.

In addition, the Company derives sales-

based royalty revenues from licensing its technologies.

Revenues related to clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect, GuardantINFORM are generally recognized over time based on an input method to measure progress in the period when the associated services have been performed.

Kits fulfillment related revenues are recognized when such products are delivered.

Royalty revenues are recognized when actual sales incur.

Contracts with multiple performance obligations

Contracts with biopharmaceutical customers may include multiple distinct performance obligations, such as provision of precision oncology testing, biopharmaceutical research and development services, and clinical trial enrollment assistance, among others.

The Company evaluates the terms and conditions included within its contracts with biopharmaceutical customers to ensure appropriate revenue recognition, including whether services are considered distinct performance obligations that should be accounted for separately versus together.

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The Company determines standalone selling price by considering the historical selling price of these performance obligations in similar transactions as well as other factors, including, but not limited to, the price that customers in the market would be willing to pay, competitive pricing of other vendors, industry publications and current pricing practices, and expected costs of satisfying each performance obligation plus appropriate margin.

Contract assets

Contract assets consists primarily of:

i) precision oncology testing revenues to clinical customers that are recognized upon delivery of the test results prior to cash collection;

and ii) development services and other revenues to biopharmaceutical customers that are recognized upon the achievement of performance-based milestones but prior to the establishment of billing rights.

Contract assets are relieved when the Company receives payments from clinical customers, or when it invoices the biopharmaceutical customers when milestones are achieved, thereby reclassifying the balances from contract assets to accounts receivable.

Contract assets are presented under accounts receivable, net and other assets, net on the Company’s consolidated balance sheets.

As of December 31, 2020, the Company had contract assets of $ 15.6 million which was recorded in accounts receivable, net, which included $ 8.4 million of unbilled receivable relating to Guardant360 CDx.

As of December 31, 2019, the Company had contract assets of $ 6.2 million of which $ 1.0 million was recorded in other assets, net.

Deferred revenue

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Revenue recognized in the year ended December 31, 2021 that was included in the deferred revenue balance as of December 31, 2020 was $ 8.3 million, of which $ 3.0 million represented revenue from provision of development services under the collaboration agreements with biopharmaceutical customers.

Revenue recognized in the year ended December 31, 2019 that was included in the deferred revenue balance as of January 1, 2019 was $ 15.2 million, which primarily represented revenue from provision of development services under the collaboration agreements with biopharmaceutical customers.

Revenue recognized in the year ended December 31, 2020 that was included in the deferred revenue balance as of January 1, 2020 was $ 10.2 million, of which $ 4.8 million represented revenue from provision of development services under the collaboration agreements with biopharmaceutical customers.

Transaction price allocated to the remaining performance obligations

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as

revenues in future periods.

The Company expects to recognize substantially all of the remaining transaction price in the next 12 months.

Revenue Recognition under ASC 605

Precision oncology services include genomic profiling and the delivery of other genomic information derived from the Company’s platform.

Development services include the development of new platforms and information solutions, including companion diagnostic development and laboratory services.

The Company currently receives payments from commercial third-party payers, certain hospitals and oncology centers and individual patients, as well as biopharmaceutical companies and research institutes.

The Company recognizes revenue when all of the following criteria are met:

(i) persuasive evidence of an arrangement exists;

(ii) delivery has occurred;

(iii) the fee is fixed or determinable;

and (iv) collectability is reasonably assured.

Criterion (i) is satisfied when the Company has an arrangement or contract in place.

Criterion (ii) is satisfied when the Company delivers a test report corresponding to each sample, without further commercial obligations.

Determination of criteria (iii) and (iv) are based on management’s judgments regarding whether the fee is fixed or determinable, and whether the collectability of the fee is reasonably assured.

The Company recognizes revenue from the sale of its precision oncology tests for clinical customers, including certain hospitals, cancer centers, other institutions and patients, at the time results of the test are reported to physicians, if criteria (i) through (iv) above are met.

The Company recognizes revenue on a cash basis when it cannot conclude that criteria (iii) and (iv) have been met.

Most of precision oncology tests requested by clinical customers are sold without a contracted engagement with a third-party payer;

therefore, the Company experiences significant variability in collections and does not have sufficient history to establish a predictable pattern of payment.

Because the price is not fixed or determinable and collectability is not reasonably assured, the Company recognizes revenue on a cash basis for sales of its liquid biopsy tests to clinical customers where collection depends on a third-party payer or the individual patient.

The Company uses judgment in its assessment of whether the fee is fixed or determinable and whether collectability is reasonably assured in determining when to recognize revenue.

Accordingly, the Company expects to recognize revenue on a cash basis for these clinical customers until it has sufficient history to reliably estimate payment patterns.

The Company’s precision oncology information services are delivered electronically, and as such there are no shipping or handling fees incurred by the Company or billed to customers.

Revenue from sales of the Company’s tests to biopharmaceutical customers are based on a negotiated price per test or on the basis of an agreement to provide certain testing volume, data access or biopharmaceutical research and development services over a defined period.

The Company recognizes revenue upon delivery of the test results, or over the period in which biopharmaceutical research and development services are provided, as appropriate.

Multiple-element arrangements

The Company performs development services for its biopharmaceutical customers utilizing its precision oncology information platform.

Contracts with biopharmaceutical customers are primarily analyzed as multiple-element arrangements given the nature of the service deliverables.

For development services performed, the Company is compensated in various ways, including (i) through non-refundable regulatory and other developmental milestone payments;

and (ii) through royalty and sales milestone payments.

The Company performs development services as part of its normal activities.

The Company records these payments as development services revenue in the consolidated statements of operations using a proportional performance model over the period which the unit of accounting is delivered or based on the level of effort expended to date over the total expected effort, whichever is considered the most appropriate measure of performance.

For development of new products or services under these arrangements, costs incurred before technological feasibility is assured are included as research and development expenses in the Company’s consolidated statements of operations, while costs incurred thereafter are recorded as cost of development services.

The Company collaborates with pharmaceutical companies in the development and clinical trials of new drugs.

As part of these collaborations, the Company provides services related to regulatory filings with the FDA to support companion diagnostic device submissions for the Company’s liquid biopsy panels.

Under these collaborations the Company generates revenue from achievement of milestones, as well as provision of on-going support.

These collaboration arrangements include no royalty obligations.

For revenue arrangements with multiple deliverables, the Company evaluates each deliverable to determine whether it qualifies as a separate unit of accounting.

This determination is based on whether the deliverable has stand-alone value to the customer and whether a general right of return exists.

In assessing whether an item has standalone value, the Company considers factors such as the research, development and commercialization capabilities of a third party and the availability of the associated expertise in the general marketplace.

In addition, the Company considers

whether the other party in the arrangement can use the other deliverables for their intended purpose without the receipt of the remaining elements, whether the value of the deliverable is dependent on the undelivered items and whether there are other vendors that can provide the undelivered elements.

The consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable.

The Company allocates the arrangement consideration following a hierarchy to determine the relative selling price to be used for allocating revenue to deliverables:

(i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of the selling price (“BESP”) if neither VSOE nor TPE is available.

The Company typically uses BESP to estimate the selling price, since it generally does not have VSOE or TPE of selling price for its units of accounting under multiple-element arrangements.

In developing the BESP for a unit of accounting, the Company considers applicable market conditions and estimated costs.

The Company validates the BESP for units of accounting by evaluating whether changes in the key assumptions used to determine the BESP will have a significant effect on the allocation of arrangement consideration between multiple units of accounting.

The consideration allocated to each unit of accounting is recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables.

The Company uses judgment in identifying the deliverables in its arrangements, assessing whether each deliverable is a separate unit of accounting and in determining the best estimate of selling price for certain deliverables.

The Company also uses judgment in determining the period over which the deliverables are recognized in certain of its arrangements.

Any amounts received that do not meet the criteria for revenue recognition are recorded as deferred revenue until such criteria are met.

The Company performed laboratory installation and maintenance services for one of its customers as part of a multiple-element arrangement entered into in 2017.

The Company recognized certain revenue from its construction service deliverables in a multiple-element collaboration arrangement based on the completed-contract method.

This method was used as the Company determined that it did not have the basis for estimating performance under the contract.

Other construction service deliverables under that contract were recognized under the percentage-of-completion method due to the Company’s ability to make reasonably dependable estimates of the extent of progress toward contract completion.

All construction services under this arrangement were completed in March 2018.

The Company recognizes payments that are contingent upon achievement of a substantive milestone in their entirety in the period in which the milestone is achieved.

Milestones are defined as events that can only be achieved based on the Company’s performance and there is substantive uncertainty about whether the event will be achieved at the inception of the arrangement.

Events that are contingent only on the passage of time or only on counterparty performance are not considered substantive milestones.

Further, the amounts received must relate solely to prior performance, be reasonable relative to all of the deliverables and payment terms within the agreement and commensurate with the Company’s performance to achieve the milestone after commencement of the agreement.

Any contingent payment that becomes payable upon achievement of events that are not considered substantive milestones are allocated to the units of accounting previously identified at the inception of an arrangement when the contingent payment is received and revenue is recognized based on the revenue recognition criteria for each unit of accounting.

Revenue from commercial milestone payments are recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met.

Costs of Precision Oncology Testing

Cost of precision oncology testing generally consists of cost of materials, direct labor including bonus, benefit and stock-based compensation, equipment and infrastructure expenses associated with processing liquid biopsy test samples (including sample accessioning, library preparation, sequencing, quality control analyses and shipping charges to transport blood samples), freight, curation of test results for physicians and license fees due to third parties.

Cost of precision oncology testing generally consists of cost of materials, direct labor including bonus, benefit and stock-based compensation, equipment and infrastructure expenses associated with processing test samples (including sample accessioning, library preparation, sequencing, quality control analyses and shipping charges to transport blood samples), freight, curation of test results for physicians and license fees due to third parties.

Infrastructure expenses include depreciation of laboratory equipment, rent costs, amortization of leasehold improvements and information technology costs.

Costs associated with performing the Company’s tests are recorded as the tests are performed regardless of whether revenue was recognized with respect to that test.

Royalties for licensed technology calculated as a percentage of revenues generated using the associated technology are recorded as expense at the time the related revenues are recognized.

Royalties for licensed technology

calculated as a percentage of revenues generated using the associated technology are recorded as expense at the time the related revenues are recognized.

One-time royalty payments related to signing of license agreements or other milestones, such as issuance of new patents, are amortized to expense over the expected useful life of the applicable patent rights.

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Cost of development service and other primarily includes costs incurred for the performance of development services requested by the Company’s biopharmaceutical customers and other revenues included as noted above.

For development of new products, costs incurred before technological feasibility has been achieved are reported as

research and development expenses, while costs incurred thereafter are reported as cost of development services and other.

For development of new products, costs incurred before technological feasibility has been achieved are reported as research and development expenses, while costs incurred thereafter are reported as cost of development services and other.

Research and Development Expenses

Research and development expenses are comprised of costs incurred to develop technology and include compensation and benefits, reagents and supplies used in research and development laboratory work, infrastructure expenses, including allocated facility occupancy and information technology costs, contract services and other outside costs.

Research and development expenses also include costs related to activities performed under contracts with biopharmaceutical companies.

Research and development costs are expensed as incurred.

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The Company incurred advertising costs of $ 2.4 million, $ 1.2 million and $ 1.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Deferred Offering Costs

Deferred offering costs consist of fees and expenses incurred in connection with the anticipated sale of the Company’s common stock in the IPO, including the legal, accounting, printing and other IPO-related costs.

In October 2018, upon completion of the IPO, the Company reclassified deferred offering costs of $ 4.5 million into additional paid-in capital as a reduction of the net proceeds received from the IPO.

There were no deferred offering costs as of December 31, 2020 and 2019.

Stock‑Based Compensation

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Compensation expense for stock options with performance metrics is calculated based upon expected achievement of the metrics specified in the grant.

In 2018, the Company accounted for stock options issued to nonemployees consultants based on the estimated fair value at the grant date and re-measured at each reporting period.

Starting January 1, 2019, upon adoption of ASU 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting , the fair value of stock options issued to nonemployee consultants is determined as of the grant date, and compensation expense is being recognized over the period that the related services are rendered.

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The Company measures the grant date fair value of its service-based and performance-based restricted stock units issued to employees based on the closing market price of the common stock on the date of grant.

The expense is recognized in the Company’s consolidated statement of operations on a straight-line basis over the requisite service period.

Compensation expense for restricted stock units with performance metrics is calculated based upon expected achievement of the metrics specified in the grant.

For restricted stock units with only service-based vesting conditions, compensation expense is recognized in the Company’s consolidated statement of operations on a straight-line basis over the requisite service period.

Compensation expense for restricted stock units with performance metrics is calculated based upon expected achievement of the metrics specified in the grant, and is recognized in the Company’s consolidated statement of operations using an accelerated attribution model over the requisite service period for each separately vesting portion of the award.

Income taxes are recorded using an asset and liability approach.

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The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period determined using the treasury stock method or the as-if converted method, as appropriate.

For purposes of this calculation, convertible preferred stock, common stock warrants, stock options, restricted stock units, shares issuable pursuant to the employee stock purchase plan, shares subject to repurchase from early exercised options and contingently issuable shares under our convertible senior notes are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive.

Prior to the closing of the Company’s IPO in October 2018 and the conversion of its convertible preferred stock into common stock, the Company calculated its basic and diluted net loss per share attributable to common stockholders of the Company in conformity with the two-class method required for companies with participating securities.

The Company considered its convertible preferred stock to be participating securities.

In the event a dividend had been declared or paid on the Company’s common stock, holders of convertible preferred stock were entitled to a share of such dividend in proportion to the holders of common stock on an as-if converted basis.

Under the two-class method, net loss attributable to common stockholders is determined by allocating undistributed earnings between common and preferred stockholders.

The net loss attributable to common stockholders was not allocated to the convertible preferred stock under the two-class method as the convertible preferred stock did not have a contractual obligation to share in the Company’s losses.

For purposes of this calculation, stock options, restricted stock units, shares issuable pursuant to the employee stock purchase plan, shares subject to repurchase from early exercised options and contingently issuable shares under the convertible senior notes are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive.

Accounting Pronouncements Adopted

Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) , in order to improve financial reporting of expected credit losses on financial instruments and other commitments to extend credit.

ASU 2016-13 requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates.

It also eliminates the concept of other-than-temporary impairment and requires credit losses related to certain available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.

These changes result in earlier recognition of credit losses.

The Company adopted ASU 2016-13 using the modified retrospective approach as of January 1, 2020.

The cumulative effect upon adoption was not material to the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04 , Intangibles—Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment which eliminates Step 2 from the goodwill impairment test and instead requires entities to perform its annual or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount .

The Company adopted this new standard on January 1, 2020.

The adoption of this standard did not have a significant impact to the Company’s consolidated financial statements.

Fair Value Measurements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement , which eliminates, adds and modifies certain disclosure requirements for fair value measurements in ASC 820, Fair Value Measurement, as part of its disclosure framework project.

The Company adopted this new guidance on January 1, 2020.

The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.

Cloud Computing Arrangements

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal—Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC Topic 350, Intangibles—Goodwill and Other , to determine which implementation costs to capitalize as assets or expense as incurred.

The Company adopted this new standard on January 1, 2020 on a prospective basis.

The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.

Collaborative Arrangements

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (ASC 808) to clarify that certain transactions between participants in a collaborative arrangement should be accounted for under R evenue from contracts with customers (Topic ASC 606) when the counterparty is a customer.

The Company adopted this new standard on January 1, 2020.

The adoption of this standard did not have a significant impact to the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The Company early adopted this new standard on January 1, 2020.

The adoption of this standard did not have a significant impact to the Company’s consolidated financial statements.

Under prior GAAP, the Company historically allocated income tax benefit to continuing operations and an offsetting income tax expense to other comprehensive income under the applicable exception to ASC Topic 740.

The new standard eliminates this exception and the Company will now determine the tax effect of pre-tax income or loss from continuing operations without regard to the tax effect of other items.

The Company applied the new intraperiod tax allocation guidance prospectively in the period of adoption.

Accounting Pronouncements Not Yet Adopted

Convertible Instruments and Contracts in an Entity’s Own Equity

In August 2020, the FASB issued ASU No.

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Among other changes, ASU 2020-06 removes the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt.

Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument.

Similarly, the embedded conversion feature will no longer be amortized as interest expense over the life of the instrument.

Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium.

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Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early

adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either a fully retrospective or modified retrospective basis.

The Company is currently planning on early adopting ASU 2020-06 in the first quarter of fiscal 2021 using the modified retrospective approach which will result in the re-classification of the carrying amount of the equity component of the cash conversion feature as of December 31, 2020 from additional paid-in capital to long-term liabilities.

The Company early adopted ASU 2020-06 in the first quarter of fiscal 2021 using the modified retrospective approach which resulted in the re-classification of the carrying amount of the equity component of the cash conversion feature including the allocated debt issuance costs as of December 31, 2020, from additional paid-in capital to convertible senior notes, net.

Investment in Joint Venture

Variable Interest Entity (“VIE”)

In May 2018, the Company and an affiliate of SoftBank formed and capitalized the Joint Venture for the sale, marketing and distribution of the Company’s tests in all areas worldwide, outside of North America, Central America, South America, the United Kingdom, all other member states of the European Union as of May 9, 2017, Iceland, Norway, Switzerland and Turkey.

Variable Interest Entity, or VIE

In May 2018, the Company and an affiliate of SoftBank formed and capitalized the Joint Venture for the sale, marketing and distribution of the Company’s tests in all areas worldwide, outside of North America, Central America, South America, the United Kingdom, all other member states of the EU as of May 9, 2017, Iceland, Norway, Switzerland and Turkey.

The Company expects to rely on the Joint Venture to accelerate commercialization of its products in Asia, the Middle East and Africa.

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In June 2020, the board of directors of the Joint Venture authorized the adoption of the Joint Venture’s 2020 Equity Incentive Plan pursuant to which 4,595,555 shares of Class B common stock have been reserved for issuance.

As of December 31, 2020, no shares of Class A and Class B common stock have been issued and outstanding and 80,000,000 shares of Series A preferred stock have been issued and outstanding.

At the inception of the arrangement and at the end of each reporting period, the Company assesses whether the Joint Venture is a variable interest entity (“VIE”), and if so, who is the primary beneficiary of the VIE.

As of December 31, 2021 and 2020, 602,408 and no shares of Class B common stock have been issued and outstanding, respectively, and no shares of Class A common stock have been issued and outstanding.

As of December 31, 2021 and 2020, 80,000,000 shares of Series A preferred stock have been issued and outstanding.

At the inception of the arrangement and at the end of each reporting period, the Company assesses whether the Joint Venture is a VIE, and if so, who is the primary beneficiary of the VIE.

As of December 31, 2021, the Company and SoftBank had equal ownership interests and equal voting rights in the Joint Venture, and the Joint Venture’s board consisted of an equal number of directors representing the interest of the Company and SoftBank, respectively.

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The Company concluded the Joint Venture did not meet the definition of a business upon consolidation as it lacked the processes required to generate outputs.

Upon consolidation no liabilities were assumed and other than cash, and any identifiable assets

were related to intellectual property rights that the Company transferred to the Joint Venture shortly before it became its primary beneficiary and therefore such transfer was treated as a common control transaction.

Upon initial consolidation, the non-controlling interest of the affiliate of SoftBank was recorded at its estimated fair value of $ 41.0 million, which is equal to the original investment made by the affiliate of SoftBank.

Upon consolidation no liabilities were assumed and other than cash, and any identifiable assets were related to intellectual property rights that the Company transferred to the Joint Venture shortly before it became its primary beneficiary and therefore such transfer was treated as a common control transaction.

As of December 31, 2021 and 2020, the Joint Venture had total assets of approximately $ 20.4 million and $ 35.0 million, respectively, which were primarily comprised of cash, property and equipment, right-of-use assets and security deposits.

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The joint venture agreement includes a put-call arrangement with respect to the shares of the Joint Venture held by SoftBank and its affiliates.

Under certain specified circumstances and on terms specified in the joint venture agreement, including timely written notice, SoftBank has the right to cause the Company to purchase all shares of the Joint Venture held by SoftBank and its affiliates (the “put right”), and the Company has a right to purchase all such shares (the “call right”).

Under certain specified circumstances and on terms specified in the joint venture agreement, including timely written notice, SoftBank has the right to cause the Company to purchase all shares of the Joint Venture held by SoftBank and its affiliates, or the put right, and the Company has a right to purchase all such shares, or the call right.

If the Company’s business model were to change such that the sale, marketing and distribution of its tests in the territory covered by the joint venture agreement was no longer economical, SoftBank would have the right to cause the Company to purchase, or the Company would have the right to purchase, all of the shares of the Joint Venture held by SoftBank and its affiliates.

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The third-party valuation firm may evaluate a range of factors and employ assumptions that are subjective in nature, which could result in the fair value of SoftBank’s interests in the Joint Venture being determined to be materially different from what has been recorded in the Company’s consolidated financial statements including those included elsewhere in this Annual Report on Form 10-K.

As a result of the IPO, the put-call rights for the Company to purchase all shares of the Joint Venture held by SoftBank are exercisable on each subsequent anniversary of the IPO by the Company or SoftBank.

In the event the Company exercises its call right, the fair value of the Joint Venture will be deemed to be no less than an amount that yields a 20 % internal rate of return on each tranche of capital invested by SoftBank and its affiliates in the Joint Venture, taking into account all proceeds received by SoftBank and its affiliates arising from their shares through such date.

In the event SoftBank exercises its put right and the fair value of the Joint Venture is determined to be greater than 40 % of the fair value of the Company, the Company will only be required to purchase the number of shares of the Joint Venture held by SoftBank and its affiliates having an aggregate value equal to the product of 40 % of the Company’s fair value and the pro rata portion of the outstanding shares of the Joint Venture held by SoftBank and its affiliates.

The Company may pay the purchase price for the shares of the Joint Venture in cash, in shares of its capital stock (which may be a non-voting security with senior preferences to all other classes of its equity or, if its common stock is publicly traded on a national exchange, its common stock), or in a combination thereof.

In the event the Company exercises the call right, SoftBank will choose the form of consideration.

In the event SoftBank exercises the put right, the Company will choose the form of consideration.

The noncontrolling interest held by SoftBank contains embedded put-call redemption features that are not solely within the Company’s control and has been classified outside of permanent equity in the consolidated balance sheets.

The put-call feature embedded in the redeemable noncontrolling interest do not currently require bifurcation as it does not meet the definition of a derivative and is considered to be clearly and closely related to the redeemable noncontrolling interest.

The noncontrolling interest is considered probable of becoming redeemable as SoftBank has the option to exercise its put right to sell its equity ownership in the Joint Venture to the Company on or after the seventh anniversary of the formation of the Joint Venture, on each subsequent anniversary of the IPO and under certain other circumstances.

The Company elected to recognize the change in redemption value immediately as they occur as if the put-call redemption feature were exercisable at the end of the reporting period.

With the Company's exercising the call right, SoftBank no longer has the option to exercise its put right.

The Company elected to recognize the changes in redemption value immediately as they occur as if the put-call redemption feature were exercisable at the end of the reporting period.

The carrying value of the redeemable noncontrolling interest is first adjusted for the earnings or losses attributable to the redeemable noncontrolling interest based on the percentage of the economic or ownership interest retained in the consolidated VIE by the noncontrolling parties, and then adjusted to equal to its redemption amount, or the fair value of the noncontrolling interest held by SoftBank, as if the redemption were to occur at the end of the reporting date.

As of December 31, 2020 and 2019, the fair value of the redeemable noncontrolling interest held by SoftBank was determined using the combination of the income approach and the market approach.

Determining the fair value of the redeemable noncontrolling interest requires judgment and the use of significant estimates and assumptions.

Such estimates and assumptions include future revenue growth rates, gross profit margins, EBITDA margins, future capital expenditures, weighted average costs of capital and future market conditions, among others.

The fair value measurement of the redeemable noncontrolling interest is classified within Level 3 of the fair value hierarchy (see Note 5, Fair Value Measurements, Cash Equivalents and Marketable Securities ).

In November 2021, the Company exercised its call right contained in the joint venture agreement with SoftBank to purchase all of the shares held by SoftBank and its affiliates in consideration for the payment of the aggregate purchase price to be determined based on an independent third-party valuation.

The aggregate purchase price will be no less than an amount that yields a 20 % internal rate of return on the $ 41.0 million of capital invested by SoftBank in May 2018 as stipulated in the joint venture agreement.

The Company and SoftBank have initiated a process to determine the independent valuation of the Joint Venture, which includes the appointment of independent appraisers by both SoftBank and the Company.

As of December 31, 2021, the minimum aggregate purchase price of $ 78.0 million has been recorded in current liabilities in the Company’s consolidated balance sheet and future adjustments to the aggregate purchase price, if any, will be recorded in net loss in the Company's consolidated statement of operations.

The Company expects to complete this transaction before the end of the second quarter of 2022.

Consolidated Balance Sheet Components

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Computer hardware

16,685 10,862

Construction in progress (1)

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$ 179,285 $ 97,127

accumulated depreciation and amortization

accumulated depreciation

( 54,824 ) ( 34,345 )

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$ 124,461 $ 62,782

Depreciation and amortization expense related to property and equipment was $ 14.1 million, $ 9.3 million and $ 6.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

(1) Under construction in progress, $ 45.8 million and $ 1.1 million was related to leasehold improvements, furniture and equipment for the office in Palo Alto, California, as of December 31, 2021 and 2020, respectively.

Depreciation expense related to property and equipment was $ 20.2 million, $ 14.1 million and $ 9.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Accrued Expenses

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Accrued professional services

Accrued clinical trials and studies

Accrued clinical studies

Accrued legal expenses

Purchases of property and equipment included in accrued expenses

Accrued royalty obligations

Total accrued expenses

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$ 620,630 $ 620,630 $ — $ —

Corporate bonds

$ 16,690 $ — $ 16,690 $ —

government debt securities

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The Company measures the fair value of money market funds based on quoted prices in active markets for identical securities.

Corporate bonds, U.S.

government debt securities and U.S.

government agency bonds are valued taking into consideration valuations obtained from third-party pricing services.

government debt securities are valued taking into consideration valuations obtained from third-party pricing services.

The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value.

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There were no transfers between Level 1, Level 2 and Level 3 during the periods presented.

The following table summarizes the activities for the Level 3 financial instruments for the years ended December 31, 2020, 2019 and 2018:

Redeemable Noncontrolling Interest

Acquisition-related contingent consideration is measured at fair value on a quarterly basis and change in estimated contingent consideration to be paid are included in operating expenses in the consolidated statements of operations.

The fair value of acquisition-related contingent consideration is estimated using a multiple-outcome discounted cash flow valuation technique.

Contingent consideration is classified within Level 3 of the fair value hierarchy, as it is based on a probability that includes significant unobservable inputs.

The significant unobservable inputs include a probability-weighted estimate of achievement of certain commercialization milestones, continued services from certain former employees and consultants, resulting contingent payments, and discount rate to present value the expected payments.

A significant change in any of these input factors in isolation could have a material impact to fair value measurement.

As of December 31, 2021, and 2020, contingent consideration liability of $ 3.6 million and $ 1.2 million, respectively, was recorded within other long-term liabilities on the consolidated balance sheets.

The Company considers the fair value of the noncontrolling interest liability as of December 31, 2021, and the redeemable noncontrolling interest as of December 31, 2020, to be a Level 3 measurement.

As of December 31, 2021, the fair value of the noncontrolling interest liability was calculated based on an internal rate of return of 20 % on the initial amount of $ 41 million invested by SoftBank in May 2018.

As of December 31, 2020, the fair value of the redeemable noncontrolling interest was determined using a combination of the income approach and the market approach, and estimates and assumptions included future revenue growth rates, gross profit margins, EBITDA margins, future capital expenditures, weighted-average costs of capital and future market conditions, among others.

The following tables summarize the activities for the Level 3 financial instruments for the years ended December 31, 2021, 2020 and 2019:

Contingent Consideration

Year Ended December 31, Year Ended December 31,

Year Ended December 31,

2021 2020 2019

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Increase (decrease) in fair value 2,380 ( 120 ) 300

Fair value — end of period $ 3,625 $ 1,245 $ 1,365

Noncontrolling Interest Liability

Redeemable Noncontrolling Interest

Year Ended December 31, Year Ended December 31,

2021 2021 2020 2019

(in thousands)

Fair value — beginning of period $ — $ 57,100 $ 49,600 $ 41,800

Increase in fair value — 27,244 12,934 11,659

Net loss for the period — ( 6,344 ) ( 5,434 ) ( 3,859 )

Reclassification of redeemable noncontrolling interest to noncontrolling interest liability 78,000 ( 78,000 ) — —

Fair value — end of period $ 78,000 $ — $ 57,100 $ 49,600

The Company considers the fair value of the Convertible Notes as of December 31, 2021 to be a Level 2 measurement.

The fair value of the Convertible Notes is primarily affected by the trading price of the Company's common stock and market interest rates.

The fair value of the Convertible Notes is primarily affected by the trading price of the Company's

common stock and market interest rates.

As such, the carrying value of the Convertible Notes does not reflect the market rate.

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$ 620,630 $ — $ — $ 620,630

Corporate bond

16,679 11 — 16,690

government debt securities

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None of the Company’s investments in marketable securities has been in an unrealized loss position for more than one year.

The Company determined that it did have the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery, thus there has been no recognition of credit losses in the years ended December 31, 2020, 2019 and 2018, respectively.

The Company determined that it did have the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery and the loss position was temporary due to market volatility, thus there has been no recognition of credit losses in the years ended December 31, 2021, 2020 and 2019, respectively.

The maturities of the Company’s long-term marketable securities range from 1.1 to 1.8 years as of December 31, 2021.

Patent License Acquisition

In January 2017, the Company entered into a license agreement with a biotechnology company, KeyGene N.V.

(“KeyGene”), for an exclusive, non-transferable right to use proprietary technology related to high-throughput screening and identification of mutations in targeted gene sequences.

The payment terms of the license agreement included (i) a one-time upfront payment of € 1.0 million;

(ii) issuance of 141,774 shares of the Company’s Series D

convertible preferred stock;

(iii) a milestone payment of € 1.0 million associated with the achievement of a specified milestone event;

and (iv) future royalty payments at the minimum of € 13.4 million in the aggregate based on annual net sales in which the licensed technology are used.

The Company made a one-time upfront payment of $ 1.1 million in January 2017 and a milestone payment of $ 1.2 million in August 2017 upon achievement of the specified milestone event.

The Series D convertible preferred stock issued under the license agreement had a fair value of $ 1.1 million on the date of issuance.

The transaction was treated as an acquisition of an asset and the Company capitalized the upfront payment, milestone payments and fair value of Series D convertible preferred stock in addition to license fees of $ 6.3 million related to the future minimum royalty payments discounted to the present value.

The Company recorded the obligation at the estimated present value of the future payments using a discount rate of 15 %, the Company’s estimate of its effective borrowing rate for similar obligations.

In March 2020, the Company and KeyGene entered into a settlement and patent license agreement (the “SPLA”) to resolve the dispute and to acquire an extended worldwide non-exclusive license to certain patent rights with respect to KeyGene’s Next Generation Sequencing technologies along with certain covenant rights and research and development technology for a one-time payment of $ 18.5 million, ending all future royalty obligations to KeyGene.

In January 2017, the Company entered into a license agreement with a biotechnology company, KeyGene N.V., or KeyGene.

An arbitration was initiated between the parties in 2018.

In March 2020, the Company and KeyGene entered into a settlement and patent license agreement, or the SPLA, to resolve the dispute and to acquire an extended worldwide non-exclusive license to certain patent rights with respect to KeyGene’s Next Generation Sequencing technologies along with certain covenant rights and research and development technology for a one-time payment of $ 18.5 million, ending all future royalty obligations to KeyGene.

This transaction was accounted for as an asset acquisition as the purchase did not meet the definition of a business.

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The remaining $ 1.2 million was allocated to the settlement of the prior dispute between the parties and was included in general and administrative expenses for the year ended December 31, 2020.

Amortization of capitalized license fees relating to the January 2017 license agreement was immaterial, $ 1.0 million and $ 0.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Acquisition of Bellwether Bio

In April 2019, the Company purchased of all of the outstanding shares of Bellwether Bio, Inc.

(“Bellwether Bio”), a privately-held company developing a method for early blood-based cancer detection.

The Company accounted for the acquisition as a business combination.

The total purchase consideration was $ 8.7 million, which consisted of i) $ 7.6 million in cash paid upon closing;

and ii) future contingent consideration liability with a fair value of $ 1.1 million on the acquisition date.

The contingent consideration is subject to the achievement of certain commercialization milestones with a maximum payout amount of $ 10.0 million.

The Company will also pay additional earn-out consideration of up to $ 10.0 million subject to the achievement of certain commercialization milestones and the continued provision of services to the Company by certain former employees and consultants of Bellwether Bio.

The contingent consideration and earn-out consideration may be paid, at the Company’s election, in cash or in the Company’s common stock.

As of December 31, 2020, the Company did not believe the earn-out consideration is probable to be achieved, and therefore, did not record any compensation expense.

The excess purchase consideration over the fair value of assets acquired and liabilities assumed was recorded as goodwill.

Goodwill is attributable to future revenue opportunities that we expect to achieve from leveraging Bellwether Bio’s existing license and IPR&D, as well as the assembled workforce.

The valuation of the intangible assets acquired was determined using currently available information and reasonable assumptions.

The following table summarizes the allocation of the total consideration to the estimated fair values of assets acquired and liabilities assumed:

(in thousands)

Identified intangible assets

Goodwill 3,289

Net liabilities assumed ( 1,802 )

The following table presents details of the identified intangible assets acquired from the Bellwether Bio acquisition:

Fair Value Estimated Useful Life

(in thousands)

Acquired license

$ 5,100 10 years

* IPR&D assets are not subject to amortization.

In connection with the acquisition of Bellwether Bio, the Company also entered into non-compete agreements with certain key individuals based on their experience and importance to the operation of Bellwether Bio.

The Company accounted for the covenants not to compete as purchases of intangible assets separate from the business combination as these non-compete agreements were initiated by the Company to protect its interests.

The fair value of acquired covenants not to compete was estimated to be $ 2.5 million, which is recorded within intangible assets on the consolidated balance sheet and will be amortized over an estimated useful life of 6 years using the straight-line method.

Acquisition-related contingent consideration is measured at fair value on a quarterly basis based on additional information as it becomes available and change in estimated contingent consideration to be paid will be included in operating expenses in the consolidated statements of operations.

The fair value of acquisition-related contingent consideration is estimated using a multiple-outcome discounted cash flow valuation technique.

Contingent consideration is classified within Level 3 of the fair value hierarchy (see Note 5, Fair Value Measurements, Cash Equivalents and Marketable Securities ), as it is based on a probability that includes significant unobservable inputs.

A significant change in any of these input factors in isolation could have a material impact to fair value measurement.

As of December 31, 2020 and 2019, contingent consideration liability of $ 1.2 million and $ 1.4 million, respectively, was recorded within other long-term liabilities on the consolidated balance sheets.

For the year ended December 31, 2019, the Company incurred acquisition-related transaction costs of $ 0.4 million which are included in general and administrative expenses in the consolidated statements of operations.

Intangible Assets, Net and Goodwill

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Acquired license $ 11,886 $ ( 1,367 ) $ 10,519 9.8

Non-compete agreements 2,500 ( 303 ) 2,197 5.5

Non-compete agreements and other covenant rights 5,100 ( 1,064 ) 4,036 4.9

Total intangible assets subject to amortization

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$ 21,876 $ ( 2,431 ) $ 19,445

Amortization of finite-lived intangible assets was $ 1.8 million and $ 0.7 million for the year ended December 31, 2020 and 2019, respectively.

There were no intangible assets as of December 31, 2018.

Amortization of finite-lived intangible assets was $ 1.9 million, $ 1.8 million and $ 0.7 million, for the years ended December 31, 2021, 2020 and 2019, respectively.

The following table summarizes estimated future amortization expense of finite-lived intangible assets, net:

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Convertible Senior Notes

In November 2020, the Company issued $ 1.15 billion principal amount of its 0 % Convertible Senior Notes due 2027 (the “2027 Notes”).

In November 2020, the Company issued $ 1.15 billion principal amount of its 0 % Convertible Senior Notes due 2027, or the 2027 Notes.

The 2027 Notes do not bear interest, and the principal amount of the Notes will not accrete.

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Before August 15, 2027, holders of the 2027 Notes will have the right to convert their 2027 Notes only under the following circumstances:

• during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on March 31, 2021, if the last reported sale price of the Company's common stock exceeds 130 % of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter (the “sale price condition”);

• during the five consecutive business days immediately after any ten consecutive trading day period (the “measurement period”) if the trading price per $1,000 principal amount of the Notes for each trading day of the measurement period is less than 98 % of the product of the last reported sale price of the Company's common stock on such trading day and the conversion rate on such trading day;

• during the five consecutive business days immediately after any ten consecutive trading day period, or the measurement period, if the trading price per $1,000 principal amount of the Notes for each trading day of the measurement period is less than 98 % of the product of the last reported sale price of the Company's common stock on such trading day and the conversion rate on such trading day;

• upon the occurrence of specified corporate events

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This difference represents a debt discount that is amortized as interest expense using an effective interest over the term of the 2027 Notes.

Since the 2027 Notes were not convertible as of December 31, 2020, the net carrying amount of the 2027 Notes was classified as a long-term liability and the equity component was included in additional paid-in capital in the consolidated balance sheet as of December 31, 2020.

The following table sets forth the components of the 2027 Notes as of December 31, 2020:

Effective January 1, 2021, the Company

early adopted ASU 2020-06 which resulted in the re-classification of the equity component representing the associated convertible feature and the related debt issuance costs into long-term liabilities with a corresponding impact to retained earnings.

Since the 2027 Notes were not convertible as of December 31, 2021, the net carrying amount of the 2027 Notes was classified as a long-term liability.

The following table sets forth the components of the 2027 Notes as of December 31, 2021 and 2020:

As of December 31,

(in thousands)

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Net amount recorded in equity $ — $ 330,403

The total estimated fair value of the 2027 Notes was $ 1.3 billion as of December 31, 2020.

The total estimated fair value of the 2027 Notes was $ 1.2 billion and $ 1.3 billion as of December 31, 2021 and 2020, respectively.

The fair value was determined based on the closing trading price per $ 100 of the 2027 Notes as of the last day of trading for the period.

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The fair value of the 2027 Notes is primarily affected by the trading price of the Company's common stock and market interest rates.

The following table sets forth interest expense recognized related to the Notes for the year ended December 31, 2020:

The following table sets forth interest expense recognized related to the Notes for the year ended December 31, 2021 and 2020:

For the Year Ended December 31,

(in thousands)

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Effective interest rate of the liability component 0.2 % 5.2 %

To minimize the impact of potential economic dilution upon conversion of the 2027 Notes, the Company entered into convertible note hedge transactions (the "2027 Note Hedges") with respect to its common stock concurrent with the issuance of the Notes.

To minimize the impact of potential economic dilution upon conversion of the 2027 Notes, the Company entered into convertible note hedge transactions, or the 2027 Note Hedges, with respect to its common stock concurrent with the issuance of the Notes.

The 2027 Note Hedges cover, subject to customary adjustments, the number of shares of common stock initially underlying the Notes.

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As leases approach maturity, the Company considers various factors such as market conditions and the terms of any renewal options that may exist to determine whether it will renew the lease, as such, the Company does not include renewal options in its lease terms for calculating its lease liability, as the renewal options allow it to maintain operational flexibility and the Company is not reasonably certain it will exercise these renewal options at the time of the lease commencement.

Operating lease expense for the year ended December 31, 2020 and 2019 was $ 5.6 million and $ 4.4 million which includes both lease and non-lease components (primarily common area maintenance charges and property taxes).

Rent expense for the facility leases was $ 4.6 million for the year ended December 31, 2018.

In July 2020, the Company entered into two lease agreements for additional office space in Palo Alto, California, the Palo Alto Lease, and in San Diego, California, the San Diego Lease.

The San Diego Lease has a term of 8 years with rent payments commencing in May 2022.

The Palo Alto Lease has a term of 12 years with an option to renew the lease term for an additional ten years which has not been considered in the determination of ROU or the lease liability as the Company does not consider it reasonably certain of exercising the renewal option.

Rent payments for the Palo Alto Lease will commence in June 2022.

Both leases consist of fixed and variable payments and are being accounting for as operating leases.

The Company took possession of these facilities in March 2021.

The Company estimated the incremental borrowing rate to determine the present value of lease payments for the San Diego and Palo Alto leases using trading data of the Company's convertible debt adjusted for credit rating and market yield curves.

Operating lease expense for the year ended December 31, 2021, 2020 and 2019, was $ 24.7 million, $ 5.6 million and $ 4.4 million, which includes both lease and non-lease components (primarily common area maintenance charges and property taxes).

As of December 31,

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4.01 % 8.07 %

The following table summarizes our future principal contractual obligations for operating lease commitments as of

December 31, 2020:

The following table summarizes the Company's future principal contractual obligations for operating lease commitments as of December 31, 2021:

Year Ending December 31,

(in thousands)

2022 $ 18,840

2027 and thereafter 149,637

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Total operating lease liabilities $ 238,909

In July 2020, the Company entered into two facility lease agreements for terms ranging from 8 - 12 years.

One of the lease agreements provides an option to renew the lease term for an additional ten years .

As of December 31, 2020, the Company has additional future minimum lease payments relating to these two facility lease agreements that have not yet commenced amounting to $ 239.5 million.

The Company anticipates to take possession of these facilities within the second fiscal quarter of 2021.

Finance leases are not material to the Company's consolidated financial statements.

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The Company has also instituted, and may in the future institute, additional legal proceedings to enforce its rights and seek remedies, such as monetary damages, injunctive relief and declaratory relief.

The Company cannot predict the results of any such disputes, and despite the potential outcomes, the existence thereof may have an adverse material impact because of diversion of management time and attention as well as the financial costs related to resolving such disputes.

The Company cannot predict the results of any such disputes, and despite the potential outcomes, the existence thereof may have an adverse material impact on the Company because of diversion of management time and attention as well as the financial costs related to resolving such disputes.

The Company and its affiliates are parties to the legal claims and proceedings described below.

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Patent Disputes

In November 2017, the Company filed a lawsuit against Foundation Medicine, Inc.

(“Foundation Medicine”) in the United States District Court for the District of Delaware.

In November 2017, the Company filed a lawsuit against Foundation Medicine, Inc., or Foundation Medicine, in the United States District Court for the District of Delaware.

The Company has alleged that Foundation Medicine has infringed four of the Company’s digital sequencing technology patents.

Foundation Medicine has asserted counterclaims of patent invalidity, unenforceability under the doctrine of inequitable conduct, and non-infringement.

Foundation Medicine has asserted counterclaims of patent invalidity, unenforceability under the doctrine of inequitable conduct, license and non-infringement.

The parties are seeking damages, injunctive relief and attorneys’ fees.

Discovery in the lawsuit has closed, and a number of pre-trial motions were filed in September and October 2020.

The trial is presently continued pending resolution by the District Court of the pre-trial motions.

Foundation Medicine also filed six petitions for inter partes review with the PTAB, challenging the patentability of all four of the patents asserted by the Company.

The PTAB denied institution of inter partes review for four of the six petitions filed by Foundation Medicine and instituted inter partes review for the remaining two petitions.

The Company plans to vigorously defend its patent rights during such PTAB actions.

At this time, the Company cannot reasonably ascertain the likelihood that any of the remaining challenged patents will be found to be invalid or unenforceable.

On August 31, 2020, the Company and Personal Genome Diagnostics, Inc.

In November 2020, the Company filed a lawsuit against Foundation Medicine in the United States District Court for the District of Delaware, wherein the Company alleged that Foundation Medicine infringes seven of the Company’s patents.

Foundation Medicine has asserted counterclaims of patent invalidity, unenforceability under the doctrine of inequitable conduct, license, non-infringement, and that the Company has violated Section 2 of Sherman Act.

December 2020, the Company filed a Motion for a Preliminary Injunction to prohibit Foundation Medicine from practicing two of the asserted patents.

In March 2021, the Company filed two lawsuits against Foundation Medicine GmbH in the District Court of Munich I in Germany, wherein the Company alleged that Foundation Medicine GmbH infringes two of the Company’s patents.

In May 2021, the Company entered into a binding term sheet, or the Term Sheet, with Foundation Medicine, which upon execution of a definitive settlement agreement, would result in the dismissal of all pending patent litigation between the parties regarding the Company’s digital sequencing technology patents, or collectively, the Patents.

Under the Term Sheet, Foundation Medicine will pay the Company $ 25.0 million as well as certain royalties for the remaining term of the Patents, while the Company will grant Foundation Medicine a non-exclusive license to the Patents.

In December 2021, the Company entered into a Settlement and License Agreement with Foundation Medicine, the terms and conditions of which were consistent with the Term Sheet, resulting in the dismissal of all pending patent litigation worldwide between the parties.

In August 2020, the Company and Personal Genome Diagnostics, Inc.

settled the patent infringement lawsuit brought by the Company.

Under the terms of the confidential settlement, the lawsuit and counterclaims, as well as other challenges to the Company’s patents, have been dismissed.

Other Disputes

In the first quarter of 2018, the Company settled a commercial dispute.

In connection with the settlement, the Company received a payment of $ 4.25 million, which was reported as other income in the consolidated statements of operations for the year ended December 31, 2018.

The Company’s common stockholders are entitled to dividends if and when declared by the Company’s Board of Directors (the “Board of Directors”).

In August 2021, TwinStrand Biosciences, Inc., or TwinStrand Biosciences, and the University of Washington filed a patent infringement suit in the United States District Court for the District of Delaware alleging that the Company infringes U.S.

and 10,760,127.

The Company answered the complaint in October 2021, denying TwinStrand Biosciences’ allegations and asserted counterclaims of invalidity, unenforceability due to inequitable conduct and infringement of four of the Company’s patents.

Discovery in the case is ongoing and trial is scheduled to commence in November 2023.

False Advertising Dispute

In May 2021, the Company also filed a lawsuit against Natera, Inc., or Natera, in the United States District Court for the Northern District of California, wherein the Company alleged that Natera is misleading healthcare providers about the performance of the Company’s new oncology test, Guardant Reveal, by suggesting the test is inaccurate and/or insensitive, and inferior to Natera’s Signatera assay.

The Company is seeking an injunction to prevent Natera from continuing to make false and misleading statements and to require Natera to take corrective actions.

Natera has asserted counterclaims of false and misleading statements, false advertising, unlawful trade practices and unfair competition.

The Company moved to dismiss Natera’s counterclaims, and in January 2022, the United States District Court for the Northern District of California granted in part and denied in part our motion to dismiss.

Discovery is ongoing and trial is scheduled to commence in December 2022.

Civil Investigative Demand

In January 2022, the Company received a Civil Investigative Demand, or CID, from the United States Attorney for the Northern District of California in connection with an investigation under the False Claims Act.

The CID requests information and documents regarding billing of government-funded programs for the Company’s panel of genetic tests known as Guardant360.

The Company is fully cooperating with the investigation.

At this time, the Company is unable to predict the outcome of this investigation.

The Company’s common stockholders are entitled to dividends if and when declared by the Company’s Board of Directors, or the Board of Directors.

As of December 31, 2021 and 2020, no dividends on the Company’s common stock had been declared by the Board of Directors.

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Total 13,416,775 11,344,620

Reverse Stock Split

In September 2018, the Board of Directors and its stockholders approved a 0.7378 -for-one reverse stock split of the Company’s common stock.

The reverse stock split became effective on September 19, 2018.

The par value of the common stock was not adjusted as a result of the reverse stock split.

Adjustments corresponding to the reverse stock split were made to the ratio at which the convertible preferred stock was convertible into common stock immediately prior to the closing of the IPO.

Initial Public Offering

In October 2018, the Company completed the IPO, in which it issued and sold 14,375,000 shares of its common stock at a price of $ 19.00 per share.

The Company received net proceeds of $ 249.5 million after deducting underwriting discounts and commissions and offering expenses payable by the Company.

All then-outstanding warrants to purchase the Company’s common stock were exercised prior to the completion of the IPO.

In addition, in connection with the IPO, all shares of the Company’s then-outstanding convertible preferred stock were automatically converted into 58,264,577 shares of its common stock, and all then-outstanding warrants to purchase the Company’s convertible preferred stock were automatically converted into warrants to purchase 7,636 shares of the Company’s common stock.

Follow-on Offering

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The Company received net proceeds of $ 354.6 million after deducting underwriting discounts and commissions and offering expenses payable by the Company.

In connection with a bank loan agreement with a financial institution in September 2013, the Company issued warrants to purchase 5,386 shares of Series A convertible preferred stock at an exercise price of $ 0.93 per share.

In October 2014, the Company issued additional warrants to the same financial institution to purchase 4,965 shares of Series B convertible preferred stock at an exercise price of $ 3.16 per share.

These preferred stock warrants were converted to warrants to purchase common stock upon the consummation of the IPO and were net exercised into 6,548 shares of common stock in October 2018.

In 2012, the Company issued to certain investors warrants to purchase 495,775 shares of common stock.

The exercise price of the warrants is $ 0.14 per share and the warrants have a contractual term through September 2023.

For the year ended December 31, 2018, 313,741 shares were issued upon the exercise of these warrants, and these warrants were fully exercised prior to the consummation of the IPO in October 2018.

No warrants remained outstanding as of December 31, 2020 and 2019.

Convertible Preferred Stock

The Company previously issued convertible preferred stock in one or more series, each with such designations, rights, qualifications, limitations, and restrictions as set forth in the Company’s certificate of incorporation, as in effect prior to the IPO.

Immediately prior to the completion of the IPO, as described in Note 1, Description of

Business , all shares of convertible preferred stock then outstanding were automatically converted to 58,264,577 shares of common stock at the respective conversion ratios in October 2018.

Stock-Based Compensation

2012 Stock Plan and 2018 Incentive Award Plan

In June 2012 and September 2018, the Company’s Board of Directors adopted and its stockholders approved the Company’s 2012 Stock Plan (as amended and restated, the “2012 Plan”) and the Company’s 2018 Incentive Award Plan (the “2018 Plan”), respectively, under which the Company may grant cash and equity incentive awards such as stock options, restricted shares, stock units and stock appreciation rights to its employees and non-employees.

In June 2012 and September 2018, the Company’s Board of Directors adopted and its stockholders approved the Company’s 2012 Stock Plan, or as amended and restated, the 2012 Plan, and the Company’s 2018 Incentive Award Plan, or the 2018 Plan, respectively, under which the Company may grant cash and equity incentive awards such as stock options, restricted shares, stock units and stock appreciation rights to its employees and non-employees.

Stock options granted may be either incentive stock options or nonstatutory stock options.

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3,556,507 7,588,405 $ 4.58 8.3 $ 250,495

Shares authorized in 2018 Plan 3,658,602 —

Shares forfeited ( 508,847 ) —

Granted ( 324,579 ) 324,579 88.18

Exercised — ( 2,999,419 ) 3.87

795,371 ( 883,899 ) 4.57

Repurchase of early exercised shares

Canceled 12,636 ( 418,676 ) 6.64

Restricted stock units granted ( 567,425 ) —

Restricted stock units canceled

Balance as of December 31, 2019

2,726,225 4,494,889 10.90 7.7 306,392

2018 Plan annual increase (1)

Granted ( 127,590 ) 127,590 81.78

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Restricted stock units canceled

Market-based restricted stock units granted

( 3,391,148 ) —

Performance-based restricted stock units granted ( 377,922 ) —

Balance as of December 31, 2020

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Market-based restricted stock units granted

( 3,391,148 ) —

Market-based restricted stock units canceled 558,254 —

Performance-based restricted stock units granted ( 52,917 ) —

Performance-based restricted stock units canceled 56,243 —

Balance as of December 31, 2021

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Future stock-based compensation for unvested options as of December 31, 2021 was $ 31.7 million, which is expected to be recognized over a weighted-average period of 3.0 years.

In December 31, 2020 and 2019, the Company modified one of the performance based awards issued to a nonemployee which resulted in reversal of expense of $ 0.7 million and $ 1.0 million, respectively, due to options not vested.

On December 31, 2020 and 2019, the Company modified one of the performance based awards issued to a nonemployee which resulted in reversal of expense of $ 0.7 million and $ 1.0 million, respectively, due to options not vested.

There was no such modification in 2021.

Restricted Stock Units

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Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value

Balance as of January 1, 2019

Granted 567,425 78.61

Vested and released ( 22,208 ) 47.78

Canceled ( 49,086 ) 57.51

Balance as of December 31, 2019

496,131 82.08

Granted 823,454 96.39

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Performance-based Restricted Stock Units

In November 2020, the Compensation Committee of the Board of Directors approved a total of 377,922 performance-based restricted stock units (“PSUs”) which have a grant date fair value of approximately $ 42.9 million.

The PSUs consist of financial and operational metrics to be met over a performance period of 4 years and an additional service period requirement of six months after the performance metrics are met.

These equity awards are expected to be expensed over a period of approximately 4.5 years subject to meeting the performance metrics and service requirements.

Since November 2020, the Compensation Committee of the Board of Directors started to approve, and the Company started to grant performance-based restricted stock units, or PSUs, under the 2018 Plan.

The PSUs granted to employees consist of financial and operational metrics to be met over a performance period of 4 years and an additional service period requirement of six months after the performance metrics are met.

The PSUs granted to a consultant consistent of operational metrics to be met over a performance period of 4 years.

The PSUs are expected to be expensed over a period of approximately 4 years to 4.5 years subject to meeting the respective performance metrics and service requirements.

As of December 31, 2021, a significant portion of these PSUs are not expected to achieve the related performance metrics, and therefore, no stock-based compensation expense was recorded for the PSUs that were not probable to vest.

Stock-based compensation recorded for the PSUs for the year ended December 31, 2020 was $ 0.1 million.

A summary of the Company’s performance-based restricted stock unit activity under the 2018 Plan and related information is as follows:

Performance-based Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value

Balance as of January 1, 2020

Granted 377,922 113.40

Balance as of December 31, 2020

377,922 113.40

Granted 52,917 135.94

Canceled ( 56,243 ) 113.40

Balance as of December 31, 2021

374,596 $ 116.58

Stock-based compensation recorded for the PSUs for the year ended December 31, 2021 and 2020 was $ 1.3 million and $ 0.1 million, respectively.

Future stock-based compensation for unvested PSUs that are probable to vest as of December 31, 2021 was $ 3.9 million, which is expected to be recognized over a weighted-average period of 3.1 years.

Market-based Restricted Stock Units

In May 2020, the Board of Directors approved and granted 1,695,574 market-based restricted stock units (“MSUs”) under the 2018 Plan to each of the Company's Chief Executive Officer and the Company's President and Chief Operating Officer, which is subject to the achievement of market-based share price goals established by the Board of Directors.

In May 2020, the Board of Directors approved and granted 1,695,574 market-based restricted stock units, or MSUs, under the 2018 Plan to each of the Company's Co-Chief Executive Officers, which is subject to the achievement of market-based share price goals established by the Board of Directors.

The MSUs consist of three separate tranches and the vesting of each tranche is subject to the Company's common stock closing price being maintained at or above a predetermined share price goal for a period of 30 consecutive calendar days.

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The grant date fair values of the MSUs were determined using a Monte Carlo valuation model for each tranche.

The related stock-based compensation expense for each tranche is recognized based on an accelerated attribution method

over the estimated derived service period.

The related stock-based compensation expense for each tranche is recognized based on an accelerated attribution method over the estimated derived service period.

If the related share price goal is achieved earlier than its expected derived service period, the stock-based compensation expense will be recognized as a cumulative catch-up expense from the grant date to that point in time in achieving the share price goal.

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The Monte Carlo valuation model uses assumptions such as volatility, risk-free interest rate, cost of equity and dividend estimated for the performance period of the MSU.

The weighted average grant date fair value of the MSUs was $ 67.00 and the weighted average derived service period was estimated to be in the range of 0.83 – 2.07 years.

Stock-based compensation recorded for the MSUs for the year ended December 31, 2020 was $ 111.9 million and is recorded in general and administrative expenses in our consolidated statement of operations.

The weighted-average grant date fair value of the

MSUs was $ 67.00 and the weighted-average derived service period was estimated to be in the range of 0.83 – 2.07 years.

On January 1, 2021, Tranche 1 of the MSUs became vested because it has met both service requirement and market-based performance metrics as the predetermined share price goal of $120 per share was achieved for a period of 30 consecutive calendar days.

A summary of the Company’s market-based restricted stock unit activity under the 2018 Plan and related information is as follows:

Market-based Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value

Balance as of January 1, 2020

Granted 3,391,148 67.00

Balance as of December 31, 2020

3,391,148 67.00

Vested and released ( 572,130 ) 70.58

( 558,254 ) 70.58

Balance as of December 31, 2021

2,260,764 $ 65.20

(1) Represented shares withheld by the Company for MSU holders' tax obligation upon release of vested MSUs.

Stock-based compensation recorded for the MSUs for the year ended December 31, 2021 and 2020 was $ 99.2 million and $ 111.9 million, respectively, and is recorded in general and administrative expenses in our consolidated statement of operations.

Future stock-based compensation for unvested MSUs as of December 31, 2021 was $ 16.1 million, which is expected to be recognized over a weighted-average period of 0.5 years.

In the event of a change in control, a qualifying termination, death, disability or the share price goal occurring earlier than the estimated derived service period, the stock-based compensation relating to these MSUs could be accelerated.

Any MSUs that remain unvested at the end of the 7-year performance period will automatically be forfeited and terminated without further consideration.

AMEA 2020 Equity Incentive Plan

In August 2020, the board of directors of the Joint Venture approved its 2020 Equity Incentive Plan (the “AMEA 2020 Plan”), under which the Joint Venture may grant equity incentive awards such as stock options, restricted stock, restricted stock units, stock appreciation rights and cash-based awards to its employees and non-employees.

In August 2020, the board of directors of the Joint Venture approved its 2020 Equity Incentive Plan, or the AMEA 2020 Plan, under which the Joint Venture may grant equity incentive awards such as stock options, restricted stock, restricted stock units, stock appreciation rights and cash-based awards to its employees and non-employees.

Stock options granted may be either incentive stock options or nonstatutory stock options.

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(in thousands)

Balance as of December 31, 2019

Balance as of January 1, 2020

— — $ — 0.0 $ —

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542,220 4,053,335 0.58 9.6 —

Granted ( 826,667 ) 826,667 0.58

Exercised — ( 602,408 ) 0.58

Canceled 625,375 ( 625,375 ) 0.58

Balance as of December 31, 2021

340,928 3,652,219 $ 0.58 8.8 $ —

Vested and Exercisable as of December 31, 2021

2,148,474 $ 0.58 8.6 $ —

The weighted-average grant date fair value of options granted was $ 0.33 per share for the year ended December 31, 2020.

The weighted-average grant date fair value of options granted was $ 0.33 and $ 0.33 per share for the years ended December 31, 2021 and 2020, respectively.

Future stock-based compensation for unvested options as of December 31, 2021 was $ 0.4 million, which is expected to be recognized over a weighted-average period of 2.5 years.

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Starting January 1, 2019, the Company adopted ASU 2018-07 which aligns the accounting treatment of nonemployee awards with employee awards, and the fair value of stock options issued to employees and nonemployee consultants are both determined as of the grant date.

The grant date fair value of employee and nonemployee stock options was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions including the Joint Venture:

The grant date fair value of stock options was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions including the Joint Venture:

Year Ended December 31,

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Fair Value of Common Stock

Prior to the IPO, the grant date fair value of the Company’s common stock was determined by the Board of Directors with the assistance of management and an independent third-party valuation specialist.

Subsequent to the IPO, the fair value of the Company’s common stock is determined by the closing price, on the date of grant, of its common stock, which is traded on the Nasdaq Global Select Market.

The fair value of the Company’s common stock is determined by the closing price, on the date of grant, of its common stock, which is traded on the Nasdaq Global Select Market.

The grant date fair value of the Joint Venture's common stock has been determined by the board of directors of the Joint Venture.

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2018 Employee Stock Purchase Plan

In September 2018, the Company’s Board of Directors adopted and its stockholders approved the 2018 Employee Stock Purchase Plan (the “ESPP”).

In September 2018, the Company’s Board of Directors adopted and its stockholders approved the 2018 Employee Stock Purchase Plan, or the ESPP.

A total of 922,250 shares of common stock were initially reserved for issuance under the ESPP.

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Subject to any plan limitations, the ESPP allows eligible employees to contribute, normally through payroll deductions, up to 10 % of their earnings for the purchase of the Company’s common stock at a discounted price per share.

The price at which common stock is purchased under the ESPP is equal to 85 % of the fair market value of the

Company’s common stock on the first or last day of the offering period, whichever is lower.

The price at which common stock is purchased under the ESPP is equal to 85 % of the fair market value of the Company’s common stock on the first or last day of the offering period, whichever is lower.

The initial offering period ran from October 2, 2018 to January 31, 2019, the second offering period ran from February 1, 2019 to July 31, 2019, and the third offering period began on August 1, 2019 and ran to November 14, 2019.

For subsequent years starting with 2020, the ESPP provides for separate six-month offering periods beginning on May 15 and November 15 of each year.

For subsequent years, the ESPP provides for separate six-month offering periods beginning on May 15 and November 15 of each year.

Shares of common stock purchased under the ESPP were 110,227 , 96,040 and 232,333 , for the years ended December 31, 2021, 2020 and 2019, respectively.

No shares were purchased under the ESPP for the year ended December 31, 2018.

The total compensation expense related to the ESPP was $ 3.5 million, $ 3.0 million and $ 2.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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45.7 % – 73.2 %

58.8 % – 60.3 %

Risk-free interest rate — % – 0.1 %

0.1 % – 0.2 %

1.6 % – 2.5 %

Expected dividend yield — %

As of December 31, 2021, the unrecognized stock-based compensation expense related to the ESPP was $ 1.6 million , which is expected to be recognized over the remaining term of the offering period of 0.4 years.

Liabilities for Early Exercise of Employee Options

The Company allowed certain stock option holders to exercise unvested options to purchase shares of the Company’s common stock.

Shares received from such early exercises are subject to repurchase in the event of the optionee’s employment termination, at the original issuance price, until the options are fully vested.

As of December 31, 2020 and 2019, 12,914 shares and 23,981 shares of common stock were subject to repurchase at weighted-average price of $ 4.66 per share, respectively.

As of December 31, 2020 and 2019, the cash proceeds received for unvested shares of common stock of $ 0.1 million and $ 0.1 million was recorded within other long-term liabilities on the consolidated balance sheet, respectively.

The shares issued pursuant to unvested options have been included in shares issued and outstanding on the consolidated balance sheet and consolidated statement of redeemable noncontrolling interest and stockholders’ equity as such shares are considered legally outstanding.

Net Loss Per Share Attributable to Guardant Health, Inc.

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(in thousands)

Convertible preferred stock (on an as if converted basis)

Preferred stock warrants (on an as if converted basis) — — 6

Common stock warrants — — 208

Stock options issued and outstanding (1)

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MSUs 2,357 2,031 —

PSUs 397 60 —

ESPP obligation 45 37 52

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Total 14,954 7,624 6,311

(1) Excludes stock options of 4,053,335 shares of the Joint Venture's Class B common stock granted under the AMEA 2020 Plan as of December 31, 2020.

(1) Excludes stock options of 3,652,219 and 4,053,335 shares of the Joint Venture's Class B common stock granted under the AMEA 2020 Plan as of December 31, 2021 and 2020, respectively.

The components of loss before provision for income taxes were as follows (in thousands):

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$ 232,657 $ 133,015

Intangible assets

14,198 14,165

Property, equipment and intangible assets 13,233 14,198

Accruals and reserves

10,326 10,117

Research and development credits

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Stock-based compensation

10,217 28,745

Lease liabilities

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Deferred tax liabilities:

Property and equipment $ — $ ( 119 )

Section 481 (a) adjustment ( 305 ) ( 607 )

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Debt discount — ( 81,964 )

Other ( 14 ) —

Total deferred tax liabilities

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( 14,998 ) ( 11,119 ) ( 8,253 )

Change in tax rate due to Tax Act

2,013 2,228 ( 605 )

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$ 300 $ 379 $ ( 1,872 )

The Company’s actual tax expense differed from the statutory federal income tax expense using a tax rate of 21% for the year ended December 31, 2020, 2019 and 2018 primarily due to state and foreign income taxes, nondeductible expenses, research and development tax credits, the acquisition of Bellwether Bio, and the change in valuation allowance.

The Company’s actual tax expense differed from the statutory federal income tax expense using a tax rate of 21% for the year ended December 31, 2021, 2020 and 2019, primarily due to state and foreign income taxes, nondeductible expenses, research and development tax credits, the acquisition of Bellwether Bio, Inc., or "Bellwether Bio", and the change in valuation allowance.

The benefit from income taxes for the year ended December 31, 2019 included a release of a valuation allowance of $ 1.6 million associated with nondeductible intangible assets recorded as a result of the acquisition of Bellwether Bio.

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The net deferred tax liability from this acquisition creates an additional source of income to offset the Company’s deferred tax assets.

The benefit from income taxes for the year ended December 31, 2019 also included a benefit of $ 0.4 million associated

with the utilization of tax losses from continuing operations against other comprehensive income gains in accordance with intra-period tax allocation under ASC Topic 740.

As of December 31, 2020 and 2019, the Company had a net operating loss carryforwards of $ 547.3 million and $ 365.3 million for federal purposes, $ 306.7 million and $ 223.2 million for state and local purposes, respectively, which may be subject to limitations as described below.

The benefit from income taxes for the year ended December 31, 2019 also included a benefit of $ 0.4 million associated with the utilization of tax losses from continuing operations against other comprehensive income gains in accordance with intra-period tax allocation under ASC Topic 740.

As of December 31, 2021 and 2020, the Company had a net operating loss carryforwards of $ 956.9 million and $ 547.3 million for federal purposes, and $ 542.0 million and $ 306.7 million for state and local purposes, respectively, which may be subject to limitations as described below.

If not utilized, these carryforwards will begin to expire in 2031 for federal, and 2022 for state and local purposes.

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The Company’s state research and development tax credit carryforwards do not expire.

Utilization of the net operating loss (“NOL”) carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions.

Utilization of the net operating loss, or NOL, carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions.

The annual limitation may result in the expiration of NOL carryforwards and credits before utilization.

Current laws impose substantial restrictions on the utilization of NOL carryforwards and credits in the event of an “ownership change” within a three-year period as defined by the Internal Revenue Code Section 382 (“Section 382”).

If there should be an ownership change, the Company’s ability to utilize its NOL carryforwards and credits could be limited.

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deferred tax assets.

The net change in total valuation allowance was a decrease of $ 0.8 million, and an increase of $ 59.0 million and $ 22.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The net change in total valuation allowance was an increase of $ 188.7 million, a decrease of $ 0.8 million and an increase of $ 59.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company has not recorded a provision for deferred U.S.

tax expense that could result from the remittance of foreign undistributed earnings since the Company intends to reinvest the earnings in its foreign subsidiaries indefinitely.

The Company has made an accounting policy election to treat Global Intangible Low-Taxed Income ("GILTI") taxes as a current period expense rather than including these amounts in the measurement of deferred taxes.

The Company has made an accounting policy election to treat Global Intangible Low-Taxed Income, or GILTI, taxes as a current period expense rather than including these amounts in the measurement of deferred taxes.

Uncertain Tax Positions

The Company records unrecognized tax benefits, where appropriate, for all uncertain income tax positions.

The Company recorded unrecognized tax benefits for uncertain tax positions of $ 11.3 million and $ 6.5 million as of December 31, 2020 and 2019, respectively, none of which would impact the Company’s effective tax rate if recognized, because the benefit would be offset by an increase in the valuation allowance.

The Company recorded unrecognized tax benefits for uncertain tax positions of $ 20.1 million and $ 11.3 million as of December 31, 2021 and 2020, respectively, of which an immaterial amount would impact the Company’s effective tax rate if recognized, because the benefit would be offset by an increase in the valuation allowance.

A reconciliation of the beginning and ending balance of total unrecognized tax benefits is as follows:

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The Company sponsors a 401(k) plan, and pursuant to its terms, eligible employees can elect to contribute to the 401(k) plan, subject to certain limitations, up to the lesser of the statutory maximum or 100 % of eligible compensation on a pre-tax basis.

For the years ended December 31, 2020 and 2019, the Company contributed $ 2.8 million and $ 0.3 million, respectively, to match employee contributions as permitted by the plan.

For the year ended December 31, 2018, the Company did not elect to match employee contributions as permitted by the plan.

For the years ended December 31, 2021, 2020 and 2019, the Company contributed $ 4.5 million, $ 2.8 million and $ 0.3 million, respectively, to match employee contributions as permitted by the plan.

The Company pays the administrative costs for the plan.

Segment and Geographic Information

The Company operates as one operating segment.

The following table sets forth the Company’s revenue by geographic areas based on the customers’ locations:

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United States $ 352,561 $ 264,657 $ 194,312

$ 264,657 $ 194,312 $ 77,916

International (1)

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(1) No single country outside of the United States accounted for more than 10% of total revenue during each of the years ended December 31, 2021, 2020 and 2019.

(2) Fiscal years 2018 results do not reflect the impact of the adoption of the new revenue accounting standard in fiscal year 2019.

As of December 31, 2021 and 2020, 98 % and 94 %, respectively, of the Company’s long-lived assets and right-of-use assets are located in the United States.

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The Company does not consider the amounts involved in such transactions to be material in relation to its businesses, the businesses of such other companies or the interests of the directors involved.

Revenue from an entity affiliated with a member of the Company's Board of Directors was $ 2.4 million and $ 2.6 million for the years ended December 31, 2020 and 2019.

There was no revenue recognized by the Company from this entity for the year ended December 31, 2018.

As of December 31, 2020 and 2019, the Company has accounts receivable from this entity of $ 1.8 million and $ 1.4 million, respectively.

In October 2020, SoftBank entered into an underwriting agreement with an independent third party and sold 7,700,000 shares of the Company's common stock.

The Company did not sell any shares of its common stock in this transaction.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data