What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-24 · 297 added, 338 removed, 1114 unchanged (36% of the section changed)

52 unchanged sentences

We have served as the Company’s auditor since 2015.

Redwood City, California

San Mateo, California

February 23, 2023

6 unchanged sentences

$ 141,647 $ 492,202

Short-term marketable securities

Short-term marketable debt securities

869,584 440,546

1 unchanged sentence

97,256 97,652

Inventory, net

51,598 30,674

3 unchanged sentences

1,191,594 1,114,126

Long-term marketable securities

698,034 246,597

Long-term marketable debt securities

Property and equipment, net

167,920 124,461

Right-of-use assets

Right-of-use assets, net

174,001 189,443

5 unchanged sentences

$ 1,609,985 $ 2,204,499

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$ 17,580 $ 7,340

Accrued compensation

42,496 28,280

Accrued expenses

45,285 22,639

Accounts payable and accrued liabilities 175,817 105,361

Noncontrolling interest liability

Deferred revenue

17,403 11,326

Total current liabilities

6 unchanged sentences

1,549,805 1,559,494

As of December 31,

Commitments and contingencies (Note 10)

Redeemable noncontrolling interest

As of December 31,

Stockholders’ equity:

6 unchanged sentences

1,742,114 1,657,593

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

( 19,522 ) ( 4,764 )

3 unchanged sentences

60,180 645,005

Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

$ 1,609,985 $ 2,204,499

(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.

(1) As of December 31, 2021, the Company's consolidated balance sheet included $ 20.4 million of assets, that can be used only to settle obligations of Guardant Health AMEA, Inc., the consolidated variable interest entity, or VIE, and VIE’s subsidiaries, and $ 4.3 million of liabilities of the consolidated VIE and VIE’s subsidiaries, for which their creditors do not have recourse to the general credit of the Company.

Guardant Health AMEA, Inc.

is no longer a VIE, after the completion of the Joint Venture Acquisition on June 10, 2022.

See Note 3, Joint Venture.

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

25 unchanged sentences

Interest expense ( 2,577 ) ( 2,577 ) ( 4,766 )

Other income 25,178 3,641 88

Other income (expense), net ( 12,778 ) 25,178 3,641

Fair value adjustments of noncontrolling interest liability ( 99,785 ) — —

Loss before provision for income taxes

( 653,449 ) ( 384,470 ) ( 245,904 )

Provision for (benefit from) income taxes

Provision for income taxes

1,139 300 379

18 unchanged sentences

$ ( 654,588 ) $ ( 384,770 ) $ ( 246,283 )

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

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

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

2 unchanged sentences

( 1,600 ) ( 1,692 ) 455

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

Other comprehensive (loss) income ( 14,758 ) ( 7,461 ) 1,586

Comprehensive loss

15 unchanged sentences

$ 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 unchanged sentences

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

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

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

4 unchanged sentences

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

5 unchanged sentences

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 )

1 unchanged sentence

— 101,767,446 1 1,657,593 ( 4,764 ) ( 1,007,825 ) 645,005

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

Issuance of common stock upon exercise of stock options — 228,311 — 2,625 — — 2,625

4 unchanged sentences

Stock-based compensation — — — 94,685 — — 94,685

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

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

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

Tender offer issued in connection with the Joint Venture Acquisition and acquisition related costs — — — ( 14,235 ) — — ( 14,235 )

Other comprehensive loss — — — — ( 14,758 ) — ( 14,758 )

Net loss — — — — — ( 654,588 ) ( 654,588 )

13 unchanged sentences

Charge of in-process research and development costs with no alternative future use — — 8,500

Unrealized translation gains on obligation related to royalty — — ( 147 )

Re-valuation of contingent consideration 4,305 2,380 ( 120 )

1 unchanged sentence

Amortization of debt discount and debt issuance costs 2,569 2,564 4,729

Amortization of premium (discount) on marketable securities 12,849 4,016 ( 2,310 )

Benefit from income tax differences — — ( 1,597 )

Amortization of premium (discount) on marketable debt securities 4,595 12,849 4,016

Unrealized losses on marketable equity securities 7,793 — —

Impairment of other assets 5,261 — —

Fair value adjustments of noncontrolling interest liability 99,785 — —

Credit loss adjustment and others 21 47 7,151

Changes in operating assets and liabilities, net of effect of acquisition:

Accounts receivable ( 44,353 ) ( 5,463 ) ( 7,389 )

Inventory ( 7,957 ) ( 7,535 ) ( 6,045 )

Prepaid expenses and other current assets ( 35,753 ) ( 6,077 ) ( 6,185 )

Other assets ( 4,182 ) ( 19,326 ) ( 2,852 )

Accounts payable 8,638 ( 7,859 ) 4,341

Accrued compensation 14,216 9,723 5,571

Accrued expenses and other current liabilities 11,942 ( 1,359 ) 9,289

Changes in operating assets and liabilities:

Accounts receivable, net 375 ( 44,353 ) ( 5,463 )

Inventory, net ( 20,926 ) ( 7,957 ) ( 7,535 )

Prepaid expenses and other current assets, net 20,444 ( 35,753 ) ( 6,077 )

Other assets, net 11,698 ( 4,182 ) ( 19,326 )

Accounts payable and accrued liabilities 60,328 34,796 505

Operating lease liabilities ( 20,228 ) 14,205 ( 6,042 )

2 unchanged sentences

INVESTING ACTIVITIES:

Purchase of marketable securities ( 900,808 ) ( 1,125,575 ) ( 614,290 )

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 )

Purchase of marketable debt securities ( 303,757 ) ( 900,808 ) ( 1,125,575 )

Maturity of marketable debt securities 555,000 952,110 562,548

Purchase of non-marketable equity securities and other related assets ( 23,966 ) ( 39,422 ) —

Purchase of property and equipment ( 77,461 ) ( 75,035 ) ( 36,173 )

Purchase of intangible assets and capitalized license obligations — — ( 17,886 )

Payment in connection with a license agreement — — ( 68 )

Net cash used in investing activities ( 63,155 ) ( 617,086 ) ( 317,570 )

Net cash provided by (used in) investing activities 149,816 ( 63,155 ) ( 617,086 )

FINANCING ACTIVITIES:

Payments made on royalty obligations — — ( 311 )

Payments made on finance lease obligations ( 71 ) ( 146 ) ( 174 )

2 unchanged sentences

Taxes paid related to net share settlement of restricted stock units ( 7,878 ) ( 83,759 ) ( 3,447 )

Joint Venture Acquisition ( 177,785 ) — —

Tender offer issued in connection with the Joint Venture Acquisition and acquisition related costs ( 14,235 ) — —

Payment of contingent consideration ( 1,065 ) — —

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

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

Year Ended December 31,

2022 2021 2020

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

3 unchanged sentences

Net effect of foreign exchange rate changes on cash, cash equivalents and restricted cash ( 1,600 ) ( 1,693 ) 455

Net increase in cash, cash equivalents and restricted cash ( 340,689 ) 689,749 2,684

Net (decrease) increase in cash, cash equivalents and restricted cash ( 350,340 ) ( 340,689 ) 689,749

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

2 unchanged sentences

Operating lease liabilities arising from obtaining right-of-use assets $ 4,073 $ 171,382 $ 13,123

Cash paid for interest $ — $ — $ 1,181

Cash paid for income taxes $ 1,331 $ 393 $ 331

Supplemental Disclosures of Noncash Investing and Financing Activities:

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

Purchase of property and equipment included in accounts payable and accrued liabilities $ 8,291 $ 8,892 $ 1,986

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

2 unchanged sentences

$ — $ 78,000 $ —

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

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

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

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

2 unchanged sentences

Description of Business

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.

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

The Company believes its tests can transform cancer care by unlocking insights that will help patients at all stages of the disease, including at its earliest stages, when it’s most treatable.

For patients with advanced stage cancer, the Company has commercially launched Guardant360 LDT and Guardant360 CDx, the first comprehensive liquid biopsy test approved by the U.S.

Food and Drug Administration, or the FDA, to provide tumor mutation profiling with solid tumors and to be used as a companion diagnostic in connection with non-small cell lung cancer, or NSCLC, and breast cancer.

The Company has also launched the Guardant360 TissueNext tissue test for advanced-stage cancer, Guardant Reveal blood test to detect residual and recurring disease in early-stage colorectal, breast and lung cancer patients, and Guardant360 Response blood test to predict patient response to immunotherapy or targeted therapy eight weeks earlier than current standard-of-care imaging.

The Company also collaborates with biopharmaceutical companies in clinical studies by providing the above-mentioned tests, as well as the GuardantOMNI blood test for advanced-stage cancer, and the GuardantINFINITY blood test, launched in September 2022, which is a next-generation smart liquid biopsy that provides new, multi-dimensional insights into the complexities of tumor molecular profiles and immune response to advance cancer research and therapy development.

Using data collected from its tests, the Company has also developed its GuardantINFORM platform to help biopharmaceutical companies accelerate precision oncology drug development through the use of this in-silico research platform to unlock further insights into tumor evolution and treatment resistance across various biomarker-driven cancers.

In May 2022, the Company launched the Shield LDT test to address the needs of individuals eligible for colorectal cancer screening.

From a simple blood draw, Shield uses a novel multimodal approach to detect colorectal cancer signals in the bloodstream, including DNA that is shed by tumors.

In addition, in December 2022, the Company announced positive results from ECLIPSE, an over 20,000 patient registrational study evaluating the performance of its Shield blood test for detecting colorectal cancer in average-risk adults.

The Company also expects to expand into lung and multi-cancer screening with its investigational, next-generation Shield assay.

The Company was incorporated in Delaware in December 2011 and is headquartered in Palo Alto, California.

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.

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

In June 2022, the Company completed the purchase of all of the shares of the Joint Venture, or the Joint Venture Acquisition, held by SoftBank and its affiliates, and issued a tender offer to purchase the Joint Venture's Class B common stock issued and issuable upon exercise of vested Joint Venture's stock options held by the Joint Venture's employees.

Upon completion of the Joint Venture Acquisition and the tender offer, Guardant Health AMEA, Inc.

became the Company's wholly owned subsidiary (see Note 3, Joint Venture and Note 12, Stock-Based Compensation ).

Summary of Significant Accounting Policies

1 unchanged sentence

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.

All significant intercompany balances and transactions have been eliminated in consolidation.

The Company believes that its existing cash and cash equivalents and marketable securities as of December 31, 2021 will be sufficient to allow the Company to fund its current operating plan through at least a period of one year after the date the accompanying consolidated financial statements are issued.

The accompanying consolidated financial statements include the accounts of Guardant Health, Inc., its consolidated Joint Venture (see Note 1, Description of Business and Note 3, Joint Venture ), and its wholly owned subsidiaries.

Other stockholders’ interests in the Joint Venture were shown in the consolidated financial statements as noncontrolling interest liability before the Joint Venture Acquisition was completed.

All intercompany balances and transactions have been eliminated in consolidation.

Certain reclassifications of prior period amounts were made to conform with the current period presentation.

The Company believes that its existing cash and cash equivalents and marketable debt securities as of December 31, 2022 will be sufficient to allow the Company to fund its current operating plan through at least a period of one year after the date the accompanying consolidated financial statements are issued.

As the Company continues to incur losses, its transition to profitability is dependent upon a level of revenues adequate to support the Company’s cost structure.

3 unchanged sentences

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, 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.

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, 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 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.

The assets and liabilities of the subsidiaries are translated into U.S.

dollars at exchange rates in effect at each balance sheet date, with the resulting translation adjustments recorded to a separate component of accumulated other comprehensive loss within stockholders’ equity.

Income and expense accounts are translated at average exchange rates during the period.

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, 2021, 2020 and 2019, foreign currency transaction gains and losses were immaterial.

The severity of the impact of the COVID-19 pandemic 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.

Segment Information

7 unchanged sentences

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

Marketable securities consist primarily of high-grade U.S.

Restricted cash balance was $ 0.3 million and $ 0.1 million as of December 31, 2022, and 2021, respectively, which was included in other assets in the accompanying consolidated balance sheets.

Marketable Debt Securities

Marketable debt securities consist primarily of high-grade U.S.

government and agency securities and corporate bonds.

Marketable securities with original maturities at the time of purchase between three and twelve months from balance sheet dates are classified as short-term marketable securities and those with maturities over twelve months from balance sheet dates are classified as long-term marketable securities.

The Company classifies all marketable securities as available-for-sale, which are recorded at fair value.

Marketable debt securities with original maturities at the time of purchase between three and twelve months from balance sheet dates are classified as short-term marketable debt securities and those with maturities over twelve months from balance sheet dates are classified as long-term marketable debt securities.

The Company classifies all marketable debt securities as available-for-sale, which are recorded at fair value.

Unrealized gains and losses are included in accumulated other comprehensive gain (loss) in stockholders’ equity.

Any premium or discount arising at purchase is amortized or accreted to interest income or expense.

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

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.

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.

When securities are sold, any associated unrealized gain or loss initially recorded as a separate component of stockholders’ equity is reclassified out of stockholders’ equity on a specific‑identification basis and recorded in earnings for the period.

Starting January 1, 2020, upon adoption of ASU 2016-13, when the fair value of a marketable security is below its amortized cost, the amortized cost is reduced to its fair value if it is more likely than not that the Company is required to sell the impaired security before recovery of its amortized cost basis, or the Company has the intention to sell the security.

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

When the fair value of a marketable debt security is below its amortized cost, the amortized cost is reduced to its fair value if it is more likely than not that the Company is required to sell the impaired security before recovery of its amortized cost basis, or the Company has the intention to sell the security.

If neither of these conditions are met, the Company determines whether the impairment is due to credit losses by comparing the present value of the expected cash flows of the security with its amortized cost basis.

4 unchanged sentences

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.

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

The Company's non-marketable equity and other related investments totaled $ 25.0 million and $ 39.4 million as of December 31, 2022, and 2021, respectively, and are included in other assets, net on the accompanying consolidated balance sheets.

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

3 unchanged sentences

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.

Pursuant to one of the investments in non-marketable securities purchased by the Company, the Company acquired 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.

In September 2022, the Company decided not to exercise such rights to purchase the investee and recorded an impairment of $ 5.3 million for the year ended December 31, 2022 based on an independent third-party valuation, which has been included in other income (expense), net on the accompanying consolidated statements of operations.

No other impairment or downward adjustments to the carrying value of non-marketable securities have been otherwise recorded.

In addition, pursuant to another investment in non-marketable securities purchased by the Company, the Company acquired rights to purchase the investee at a pre-determined price subject to additional adjustments based on the performance of the Company, on or before October 1, 2023.

In July 2022, one of the investees completed its initial public offering, or IPO, subsequent to which, the Company started to account for the investment in the investee at fair value on a recurring basis (see Note 5, Fair Value Measurements, Cash Equivalents and Marketable Securities ).

Concentration of Risk

The Company is subject to credit risk from its portfolio of cash equivalents held at one commercial bank and investments in marketable securities.

The Company is subject to credit risk from its portfolio of cash equivalents held at one commercial bank and investments in marketable debt securities.

The Company limits its exposure to credit losses by investing in money market funds through a U.S.

9 unchanged sentences

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 and other 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, primarily with biopharmaceutical companies and international laboratory partners, all of which have high credit ratings.

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

1 unchanged sentence

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.

A significant customer is any biopharmaceutical customer, clinical testing payer, or international laboratory partner 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:

4 unchanged sentences

30 % 29 % 25 % 11 % 13 %

* * * 10 % 12 %

Customer D * * * * 13 %

Customer E * * * 13 % *

* less than 10%

1 unchanged sentence

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 in December 2021, the Company received the second installment payment of $ 1.1 million.

In December 2020, 2021 and 2022, the Company received the first, second and third installment payments of $ 1.0 million, $ 1.1 million and $ 1.1 million, respectively.

The Company has evaluated and recorded a credit loss for the remaining $ 4.8 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:

Gross Amount Allowance for Credit Losses Net Amount

December 31, 2021 December 31, 2020 Year Ended December 31, 2021

December 31, 2021 December 31, 2020

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

fication Ending Balance

(in thousand)

As of December 31,

(in thousands)

Prepaid expenses and other current assets:

Allowance for Credit Losses

Other assets:

$ 4,800 $ 5,900

Allowance for Credit Losses

( 4,800 ) ( 5,900 )

The following table summarizes the allowance for credit losses activities for the years ended December 31, 2022, 2021 and 2020:

Year Ended December 31,

2022 2021 2020

(in thousands)

Prepaid expenses and other current assets:

Allowance for credit losses—Beginning of period

Charged to (reversed from) other income (expense), net

( 1,100 ) ( 1,100 ) —

Reclassification

1,100 1,100 —

Allowance for credit losses—End of period

Other assets:

Allowance for credit losses—Beginning of period

$ 5,900 $ 7,000 $ —

Charged to (reversed from) other income (expense), net

Reclassification

( 1,100 ) ( 1,100 ) —

Allowance for credit losses—End of period

$ 4,800 $ 5,900 $ 7,000

Accounts Receivable, Net

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.

Accounts receivable represent valid claims against commercial and governmental payers, biopharmaceutical companies, research institutes, international laboratory partners and 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.

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As of December 31, 2022 and 2021, the Company had immaterial allowance for credit losses related to its accounts receivable.

Inventory, Net

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

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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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Prior to completion of the research and development efforts, the assets are considered indefinite-lived.

During this period, the assets will not be amortized but will be tested for impairment on an annual basis and between annual tests if we become aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts.

During this period, the assets will not be amortized but will be tested for impairment on an annual basis and between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts.

In connection with the launch of Shield LDT in May 2022, the Company's IPR&D of $ 1.6 million was reclassified as an intangible asset with a useful life of 2 years.

Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities.

Goodwill and IPR&D are not amortized but are tested for impairment at least annually during the fourth fiscal quarter, or if circumstances indicate their value may no longer be recoverable.

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

Goodwill is not amortized but is tested for impairment at least annually during the fourth fiscal quarter, or if circumstances indicate its value may no longer be recoverable.

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

As of December 31, 2022, there has been no impairment of goodwill.

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

The Company does not have intangible assets with indefinite useful lives other than goodwill and the acquired IPR&D.

The Company does not have intangible assets with indefinite useful lives other than goodwill.

Amortization is recorded on a straight-line basis over the intangible asset's useful life, which is approximately 2 — 12 years.

Impairment for Long-Lived Assets

The Company evaluates long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable.

The Company evaluates its long-lived assets, including property and equipment, finite-lived intangible assets, and right-of-use assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable.

An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.

Impairment, if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

Post-acquisition Contingent Consideration

Post-acquisition contingent consideration is recognized over the service period, subject to meeting the respective service requirements and performance metrics.

For the year ended December 31, 2022, the Company recorded post-acquisition contingent consideration expense of $ 5.2 million in research and development expenses on the accompanying consolidated statement of operations.

The Company did no t record any post-acquisition contingent consideration expense for the years ended December 31, 2021 and 2020.

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

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Convertible Senior Notes

In accounting for the issuance of the convertible senior notes, the Company separates the notes into liability and equity components.

The carrying amount of the liability component is calculated by measuring the fair value of a similar liability that does not have an associated convertible feature, using a discounted cash flow model with a risk adjusted yield.

The carrying amount of the equity component representing the conversion option is determined by deducting the fair value of the liability component from the par value of the notes as a whole.

This difference represents a debt discount that is amortized to interest expense using the effective interest method over the term of the notes.

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the issuance of the convertible senior notes, the Company separated the notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that did not have an associated convertible feature, using a discounted cash flow model with a risk adjusted yield.

The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the notes as a whole.

This difference represented a debt discount that was amortized to interest expense using the effective interest method over the term of the notes.

The equity component was not remeasured as long as it continued to meet the conditions for equity classification.

In accounting for the transaction costs related to the issuance of the notes, the Company allocated the total amount incurred to the liability and equity components based on their relative fair values.

Transaction costs attributable to the liability component are netted with the liability component and amortized to interest expense using the effective interest method over the term of the notes.

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.

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.

Transaction costs attributable to the liability component were netted with the liability component and amortized to interest expense using the effective interest method over the term of the notes.

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

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

Convertible senior notes are accounted for as a liability and measured at their amortized cost.

Transaction costs related to the issuance of the notes are netted with the liability and are amortized to interest expense over the term of the notes, using an effective interest rate method.

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.

The Company derives revenue from the provision of precision oncology testing services, as well as from development services and other.

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 study 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, research institutes and international distributors.

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

Development services include companion diagnostic development and regulatory approval, clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect and GuardantINFORM.

Other revenue includes amounts derived from licensing the Company's technologies and kit fulfillment.

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.

ASC 606 provides for a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

FASB ASC Topic 606, Revenue from Contracts with Customers , provides for a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

Precision oncology testing

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

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

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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However, under certain contracts, a biopharmaceutical customer may engage the Company for multiple distinct development services which are both capable of being distinct and separately identifiable from other promises in the contracts and, therefore, distinct performance obligations.

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

The Company collaborates with biopharmaceutical 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 testing panels.

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

For development services performed, the Company is compensated through a combination of an upfront fee and performance-based, non-refundable regulatory and other developmental milestone payments.

The transaction price of the Company's development services contracts typically represents variable consideration.

For the companion diagnostic development and regulatory approval services performed, the Company is compensated through a combination of an upfront fee and performance-based, non-refundable regulatory and other developmental milestone payments.

The transaction price of these contracts typically represents variable consideration.

Application of the constraint for variable consideration to milestone payments is an area that requires significant judgment.

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

The Company recognizes companion diagnostic development and regulatory approval 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.

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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 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.

The Company also recognizes revenue from other development services, in addition to companion diagnostic development and regulatory approval services noted above, such as clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect and GuardantINFORM.

These revenues are generally recognized over time based on an input method to measure progress in the period when the associated services have been performed.

In addition, other revenue includes amounts derived from licensing the Company's digital sequencing technologies to its domestic customers and international laboratory partners, and kit fulfillment.

For the licensed technology, the Company is compensated through royalty-based payments, non-refundable upfront payments, guaranteed minimum payments, and/or sample milestone payments.

Depending on the nature of the technology licensing arrangements, and considering factors including but not limited to enforceable right to payment and payment terms, and if an asset with alternative use is created, these revenues are recognized in the period when royalty-bearing sales occur, when the technology transfer is complete, or over the technology transfer period.

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

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 study 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.

Contracts with biopharmaceutical customers and international laboratory partners may include multiple distinct performance obligations, such as provision of precision oncology testing, the above-mentioned development services, and digital sequencing technology licensing, among others.

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

The Company first identifies material promises, in contrast to immaterial promises or administrative tasks, under the contract, and then evaluates whether these promises are both capable of being distinct and distinct within the context of the contract.

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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;

or by using the residual approach if standalone selling price is not observable, by reference to the total transaction price less the sum of the observable standalone selling prices of other performance obligations promised in the contract.

Deferred revenue

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Contract liabilities are relieved as the Company performs its obligations under the contract and revenue is consequently recognized.

As of December 31, 2021 and 2020, the deferred revenue balance was $ 11.3 million and $ 8.6 million, respectively, which included $ 3.5 million and $ 3.0 million, respectively, related to collaboration development efforts with pharmaceutical companies to be recognized as the Company performs research and development services in the future periods.

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, 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.

As of December 31, 2022, the deferred revenue balance was $ 21.2 million, of which $ 3.8 million is considered long-term and was recorded within other long-term liabilities on the accompanying consolidated balance sheets.

As of December 31, 2021, the deferred revenue balance was $ 11.3 million.

Revenue recognized in the year ended December 31, 2022 that was included in the deferred revenue balance as of December 31, 2021 was $ 7.6 million, and 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, respectively.

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.

The Company expects to recognize substantially all of the remaining transaction price in the next 1 - 2 years.

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 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.

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

Infrastructure expenses include depreciation of laboratory equipment, lease 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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Compensation expense for stock options with performance metrics is calculated based upon expected achievement of the metrics specified in the grant.

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.

The Company uses the Black‑Scholes option‑pricing model to estimate the fair value of stock options granted under the 2012 Stock Plan, the 2018 Incentive Award Plan, and the Joint Venture's 2020 Equity Incentive Plan, and stock purchase rights granted under the 2018 Employee Stock Purchase Plan.

The Black-Scholes option-pricing model requires assumptions to be made related to the expected term of an award, expected volatility, risk-free rate and expected dividend yield.

The board of directors of the Joint Venture has determined the fair value of common stock of the Joint Venture.

The board of directors of the Joint Venture determined the fair value of common stock of the Joint Venture.

Forfeitures are accounted for as they occur.

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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

Convertible Instruments and Contracts in an Entity’s Own Equity

In August 2020, the FASB issued ASU No.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06) , which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.

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 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.

Among other potential impacts, this change is expected to reduce reported interest expense, increase reported net income, and result in a reclassification of certain conversion feature balance sheet amounts from stockholders’ equity to liabilities as it relates to the Company’s convertible senior notes.

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

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, 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.

Under the terms of the joint venture agreement, the Company paid $ 9.0 million for 40,000 shares of common stock, or 50 % ownership interest, of the Joint Venture, and the affiliate of SoftBank contributed $ 41.0 million for 40,000 shares of common stock, or the other 50 % ownership interest, of the Joint Venture.

Neither party has the obligation to provide additional financial support to the Joint Venture.

Each party holds two seats on the board of the Joint Venture and has to cast through its representatives on the board at least one vote for any board resolution of the Joint Venture to pass.

The representatives of the Company on the Joint Venture’s board of directors have the right to appoint and remove a chief executive officer and a legal representative for the Joint Venture, in each case, subject to the approval of the full Joint Venture board of directors.

The Joint Venture’s board of directors has the right to appoint and remove all other members of the Joint Venture’s senior management reporting to its chief executive officer and to approve the compensation of all foregoing individuals, including the compensation of the chief executive officer and legal representative.

In June 2020, an amended and restated certificate of incorporation of the Joint Venture, as approved by the board of directors of the Joint Venture, was filed with the Secretary of State of the State of Delaware.

The amended and restated certificate of incorporation, among other things, increased the number of authorized shares of common stock to 89,000,000 shares consisting of 80,000,000 shares of Class A common stock and 9,000,000 shares of Class B (non-voting) common stock;

and authorized 80,000,000 shares of Series A preferred stock.

Pursuant to the amended and restated certificate of incorporation, each share of common stock held by the Company and the affiliate of SoftBank was reclassified and exchanged for 1,000 shares of Series A preferred stock.

As a result, each of the Company and the affiliate of SoftBank held 40,000,000 shares of Series A preferred stock.

The holders of Series A preferred stock are entitled to receive dividends at the rate of $ 0.05 per share if and when declared by the board of directors of the Joint Venture.

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, 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.

As of December 31, 2021, the Joint Venture’s board had the right to vote on all critical matters that most significantly impact the Joint Venture’s economic performance, except that the Company had the unilateral right to make pricing decisions.

As of December 31, 2021, the Company had responsibility for the Joint Venture’s daily operations, while SoftBank served as a financing partner.

The Company also entered into various ancillary agreements with the Joint Venture necessary to operate its business.

The Joint Venture is deemed to be a VIE, and considering the power and benefits criterion, the Company and SoftBank, collectively as a related party group, has the characteristics of the primary beneficiary of the Joint Venture, as the related party group has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Because the Company is most closely associated with the Joint Venture within the related party group, it has been identified as the VIE’s primary beneficiary.

As the primary beneficiary, the Company has consolidated the financial position, results of operations and cash flows of the Joint Venture in its financial statements and all intercompany balances have been eliminated in consolidation.

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.

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.

Although the Company consolidates the Joint Venture, the legal structure of the Joint Venture limits the recourse that its creditors will have over the Company’s general credit or assets.

Similarly, the assets held in the Joint Venture can be used only to settle obligations of the Joint Venture.

As of December 31, 2021 and 2020, the Company has not provided financial or other support to the Joint Venture that was not previously contracted or required.

Joint Venture

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 generally outside the Americas and Europe, and to accelerate commercialization of our products in Asia, the Middle East and Africa.

Under the terms of the joint venture agreement, each party held an approximately 50 % ownership interest in the Joint Venture and two seats on the board of the Joint Venture.

Put-call arrangements

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, 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.

In this instance, the Company would be required to repurchase the shares at an aggregate purchase price of $ 41.0 million, the original purchase price paid by SoftBank to the Joint Venture for the shares.

The joint venture agreement included 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 had 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 had a right to purchase all such shares, or the call right.

Additionally, each of the Company and SoftBank may exercise its respective put-call rights for the Company to purchase all shares of the Joint Venture held by SoftBank in the event of (i) certain material disagreements relating to the Joint Venture or its business that may seriously affect the ability of the Joint Venture to perform its obligations under the joint venture agreement or may otherwise seriously impair the ability of the Joint Venture to conduct its business in an effective matter, other than one relating to the Joint Venture’s business plan or to factual matters that may be capable of expert determination;

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or (iii) a material breach of the joint venture agreement by the other party that goes unremedied within 20 business days.

Unless the shares of the Joint Venture are publicly traded and listed on a nationally recognized stock exchange, the purchase price per share of the Joint Venture in these situations will be determined by a third-party valuation firm on the assumption that the sale is on an arm’s-length basis on the date of the put or call notice.

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.

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.

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.

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

Unless the shares of the Joint Venture are publicly traded and listed on a nationally recognized stock exchange, the purchase price per share of the Joint Venture in these situations would be determined by a third-party valuation firm on the assumption that the sale is on an arm’s-length basis on the date of the put or call notice.

Prior to the completion of the Joint Venture Acquisition in June 2022, the Joint Venture was deemed to be a VIE, and the Company had been identified as the VIE’s primary beneficiary.

As the primary beneficiary, the Company had consolidated the financial position, results of operations and cash flows of the Joint Venture in its financial statements and all intercompany balances had been eliminated in consolidation.

The Company had 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, 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.

Prior to November 2021, the noncontrolling interest held by SoftBank contained embedded put-call redemption features that were not solely within the Company’s control and had been classified outside of permanent equity in the consolidated balance sheets.

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

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.

The carrying value of the redeemable noncontrolling interest was 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 occurred at the end of the reporting date.

The adjustment of redeemable noncontrolling interest was recorded as an adjustment to net loss attributable to Guardant Health, Inc.

common stockholders in the Company's consolidated statement of operations.

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.

Upon the Company's exercise of the call right in November 2021, SoftBank no longer had the option to exercise its put right.

In connection with exercising the call right, the Company reclassified $ 78.0 million from redeemable noncontrolling interest to noncontrolling interest liability.

In June 2022, the Company purchased all of the shares held by SoftBank and its affiliates in consideration for a cash payment of the aggregate purchase price of $ 177.8 million, which resulted in $ 99.8 million of fair value adjustments to the noncontrolling interest liability for the year ended December 31, 2022.

Consolidated Balance Sheet Components

10 unchanged sentences

Construction in progress (1)

20,598 55,873

Furniture and fixtures

6 unchanged sentences

$ 167,920 $ 124,461

(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.

(1) As of December 31, 2022 and 2021, $ 2.2 million and $ 45.8 million of construction in progress was related to leasehold improvements, furniture and equipment for the office in Palo Alto, California, respectively.

Starting from February 2022, part of the Palo Alto office has been put in service and related construction in progress has been transferred to fixed assets.

Depreciation expense related to property and equipment was $ 33.4 million, $ 20.2 million and $ 14.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Accrued Expenses

Accrued expenses consist of the following:

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following:

As of December 31,

(in thousands)

Accounts payable $ 68,911 $ 38,517

Accrued compensation 55,788 42,496

Operating lease liabilities

21,878 12,856

Accrued tax liabilities

Accrued professional services

Accrued clinical studies

Accrued legal expenses

Purchases of property and equipment included in accrued expenses

Total accrued expenses

29,240 11,492

Total accounts payable and accrued liabilities

$ 175,817 $ 105,361

Fair Value Measurements, Cash Equivalents and Marketable Securities

Financial instruments consist of cash equivalents, marketable securities, accounts receivable, net, prepaid expenses and other current assets, net, accounts payable and accrued expenses.

Financial instruments consist of cash equivalents, marketable securities, accounts receivable, net, prepaid expenses and other current assets, net, and accounts payable and accrued liabilities.

Cash equivalents and marketable securities are stated at fair value.

Prepaid expenses and other current assets, net, accounts payable and accrued expenses are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date.

Prepaid expenses and other current assets, net, and accounts payable and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date.

Fair value is defined as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

15 unchanged sentences

$ 3,104 $ 3,104 $ — $ —

Total cash equivalents

$ 357,785 $ 357,785 $ — $ —

government debt securities

14,987 — 14,987 —

Total short-term marketable securities

Total cash equivalents

$ 18,091 $ 3,104 $ 14,987 $ —

1 unchanged sentence

$ 869,584 $ — $ 869,584 $ —

Total long-term marketable securities

Total short-term marketable debt securities

$ 869,584 $ — $ 869,584 $ —

Long-term marketable equity securities $ 18,291 $ 18,291 $ — $ —

$ 905,966 $ 21,395 $ 884,571 $ —

13 unchanged sentences

$ 440,546 $ — $ 440,546 $ —

Total short-term marketable securities

Total short-term marketable debt securities

$ 440,546 $ — $ 440,546 $ —

1 unchanged sentence

$ 698,034 $ — $ 698,034 $ —

Total long-term marketable securities

Total long-term marketable debt securities

$ 698,034 $ — $ 698,034 $ —

11 unchanged sentences

and other observable inputs.

In July 2022, one of the Company's equity investees completed its IPO, subsequent to which, the Company started to account for the investment at fair value on a recurring basis, and classified the investment within Level 1 of the fair value hierarchy as the investment is valued using the quoted market price.

The Company is subject to a 2 -year lock-up period from the IPO date, during which the Company shall not transfer the investee's shares between accounts, establish or cancel pledges, sell, or withdraw such shares, without approval from the local securities and exchange commission.

As of December 31, 2022 and 2021, the balance of the investment was $ 18.3 million and $ 26.1 million, respectively, included in other assets, net, on the accompanying consolidated balance sheets.

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

2 unchanged sentences

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.

The significant unobservable inputs include a probability-weighted estimate of achievement of certain commercialization milestones, 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.

As of December 31, 2022, the Company recorded contingent consideration liability of $ 6.4 million, net of payment made in September 2022, of which $ 4.9 million is considered long-term and was recorded within other long-term liabilities on the accompanying consolidated balance sheets.

As of December 31, 2021, the Company recorded contingent consideration liability of $ 3.6 million within other long-term liabilities on the accompanying consolidated balance sheets.

As of December 31, 2021, the fair value of the noncontrolling interest liability was considered to be a Level 3 measurement and was determined based on an annual internal rate of return of 20 % on the initial amount of $ 41.0 million invested by SoftBank in May 2018, to the date of Company's exercising the call right in November 2021.

In June 2022, the Company purchased all of the shares held by SoftBank and its affiliates in consideration for the cash payment of the aggregate purchase price of $ 177.8 million, which was determined by an independent valuation firm using a combination of the income approach with consideration of discounted future cash flows and the market approach with consideration of comparable publicly traded companies.

The noncontrolling interest liability was fully paid by June 30, 2022.

The following tables summarize the activities for the Level 3 financial instruments for the years ended December 31, 2022, 2021 and 2020:

4 unchanged sentences

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

Initial valuation on the date of acquisition — — 1,065

Increase (decrease) in fair value 4,305 2,380 ( 120 )

Settlement ( 1,500 ) — —

Fair value — end of period $ 6,430 $ 3,625 $ 1,245

7 unchanged sentences

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

Settlement ( 177,785 ) — — —

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

1 unchanged sentence

The Company considers the fair value of the Convertible Notes as of December 31, 2022 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.

See Note 8, Debt , for additional information related to the fair value of the Convertible Notes.

Cash Equivalents and Marketable Securities

The following tables summarizes the Company’s cash equivalents and marketable securities’ amortized costs, gross unrealized gains, gross unrealized losses and estimated fair values by significant investment category:

The following tables summarize the Company’s cash equivalents and marketable debt securities’ amortized costs, gross unrealized gains, gross unrealized losses and estimated fair values by significant investment category:

December 31, 2022

14 unchanged sentences

$ 1,499,957 $ 2 $ ( 3,594 ) $ 1,496,365

There have been no material realized gains or losses on marketable securities for the periods presented.

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 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.

The following table presents the estimated fair values and gross unrealized losses of the Company's marketable debt securities that have been in a continuous unrealized loss position as of December 31, 2022.

None of the Company’s investments in marketable debt securities had been in an unrealized loss position for more than one year as of December 31, 2021.

December 31, 2022

Less Than 12 Months 12 Months or Greater Total

Estimated Fair Value Gross Unrealized Loss Estimated Fair Value Gross Unrealized Loss Estimated Fair Value Gross Unrealized Loss

(in thousands)

government debt securities

$ 170,975 $ ( 2,958 ) $ 685,754 $ ( 13,821 ) $ 856,729 $ ( 16,779 )

There have been no material realized gains or losses on marketable debt securities for the periods presented.

The Company determined that it did have the ability and intent to hold all marketable debt 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, 2022, 2021 and 2020, respectively.

The Company recorded $ 7.8 million unrealized losses on marketable equity securities for the year ended December 31, 2022, included in other income (expense), net on the accompanying consolidated statement of operations.

The Company did no t record any unrealized gains or losses on marketable equity securities for the years ended December 31, 2021 and 2020.

Patent License Acquisition

16 unchanged sentences

5,100 ( 2,747 ) 2,353 2.9

Acquired technology 1,600 ( 533 ) 1,067 1.4

Total intangible assets subject to amortization

1 unchanged sentence

Intangible assets not subject to amortization:

IPR&D 1,600 — 1,600

Goodwill 3,290 — 3,290

40 unchanged sentences

The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock.

In accounting for the 2027 Notes, the Company separated the 2027 Notes into liability and equity components.

The carrying amount of the liability component was calculated using a Black-Scholes model by measuring the fair value of a similar instrument that does not have an associated convertible feature.

The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2027 Notes as a whole.

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

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, 2022, 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:

The following table sets forth the net carrying amounts of the 2027 Notes as of December 31, 2022 and 2021:

As of December 31,

2 unchanged sentences

Principal $ 1,150,000 $ 1,150,000

debt discount, net of amortization — ( 331,074 )

debt issuance costs, net of amortization ( 12,609 ) ( 15,179 )

Net carrying amount $ 1,137,391 $ 1,134,821

Equity component recorded at issuance:

2027 Notes $ — $ 335,667

issuance costs — ( 5,264 )

Net amount recorded in equity $ — $ 330,403

The total estimated fair value of the 2027 Notes was $ 0.7 billion and $ 1.2 billion as of December 31, 2022 and 2021, 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.

We consider the fair value of the Notes as of December 31, 2021 to be a Level 2 measurement.

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, 2021 and 2020:

The following table sets forth interest expense recognized related to the Notes:

For the Year Ended December 31,

2022 2021 2020

(in thousands)

14 unchanged sentences

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.

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.

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

The Palo Alto Lease has a term of 12 years with an option to renew the lease term for an additional 10 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.

After the initial payment of $ 0.9 million in February 2022, the remaining rent payments for the Palo Alto Lease commenced in July 2022.

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

1 unchanged sentence

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).

Operating lease expense for the year ended December 31, 2022, 2021 and 2020, was $ 28.6 million, $ 24.7 million and $ 5.6 million, respectively, which includes both lease and non-lease components (primarily common area maintenance charges and property taxes).

As of December 31,

38 unchanged sentences

The Company also provides disclosure when it is reasonably possible that a loss may be incurred or when it is reasonably possible that the amount of a loss will exceed its recorded liability.

Patent Disputes

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, 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.

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.

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.

Intellectual Property Disputes

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.

2 unchanged sentences

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

In March 2022, Illumina Inc., or Illumina, filed suit in the United States District Court for the District of Delaware against the Company and its Co-Chief Executive Officers, Drs.

Helmy Eltoukhy and AmirAli Talasaz, or collectively, the Defendants, alleging that Illumina is the owner of certain of the Company’s patents and patent applications, and that the Defendants allegedly misappropriated Illumina trade secrets.

Illumina also alleges that Drs.

Eltoukhy and Talasaz breached various Illumina employment contracts, company policies, and implied covenants of good faith and fair dealing as part of their former employment with Illumina prior to starting the Company.

Illumina is requesting unspecified compensatory and punitive damages, attorneys’ fees, and specific performance in the form of a declaration of ownership and assignment of intellectual property filed for or obtained by the Defendants that derives from the alleged misuse of Illumina confidential information.

The Defendants deny the allegations of misconduct, and have moved to dismiss the complaint, and discovery has been stayed pending resolution of the Company's motion.

False Advertising Dispute

2 unchanged sentences

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.

The Company moved to dismiss Natera’s counterclaims, and in January 2022, the court granted in part and denied in part the Company's motion to dismiss.

The Company and Natera have both moved for summary judgment on various claims and the motions are pending.

Trial is scheduled to commence in July 2023.

Civil Investigative Demand

17 unchanged sentences

Follow-on Offering

In May 2019, the Company completed an underwritten public offering, in which it issued and sold 5,175,000 shares of its common stock at a price of $ 71.00 per share.

The Company received net proceeds of $ 349.7 million after deducting underwriting discounts and commissions and offering expenses payable by the Company.

In June 2020, the Company completed an underwritten public offering, in which it issued and sold 4,312,500 shares of its common stock at a price of $ 84.00 per share.

15 unchanged sentences

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

2018 Plan annual increase (1)

Granted ( 127,590 ) 127,590 81.78

3 unchanged sentences

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

6 unchanged sentences

Restricted stock units canceled

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

2 unchanged sentences

Granted ( 1,051,466 ) 1,051,466 44.86

Granted in connection with the Joint Venture Acquisition ( 15,128 ) 15,128 4.90

Exercised — ( 228,311 ) 6.29

2 unchanged sentences

Restricted stock units canceled

Market-based restricted stock units granted

Market-based restricted stock units canceled 558,254 —

Performance-based restricted stock units granted ( 26,935 ) —

4 unchanged sentences

2,056,695 $ 19.88 5.2 $ 38,837

(1) Effective as of January 1, 2020, an additional 3,689,000 shares of common stock became available for issuance under the 2018 Plan, as a result of the operation of an automatic annual increase provision therein.

(1) Effective as of January 1, 2020, 2021 and 2022, an additional 3,689,000 shares of common stock became available for issuance under the 2018 Plan, as a result of the operation of an automatic annual increase provision therein.

Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options.

2 unchanged sentences

Future stock-based compensation for unvested options as of December 31, 2022 was $ 45.0 million, which is expected to be recognized over a weighted-average period of 3.0 years.

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.

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

There was no such modification in 2022 and 2021.

Restricted Stock Units

2 unchanged sentences

Balance as of January 1, 2020

496,131 82.08

Granted 823,454 96.39

9 unchanged sentences

Granted 2,902,217 45.04

Granted in connection with the Joint Venture Acquisition 93,316 38.24

Vested and released ( 315,673 ) 96.36

5 unchanged sentences

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 employees consist of financial and operational metrics to be met over a performance period of 1.5 years to 4 years and an additional service period requirement of six months to one year 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.

11 unchanged sentences

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.

Granted 26,935 37.50

Canceled ( 59,818 ) 114.94

Balance as of December 31, 2022

341,713 $ 110.64

Stock-based compensation recorded for the PSUs for the years ended December 31, 2022, 2021 and 2020 was $ 1.3 million, $ 1.3 million and $ 0.1 million, respectively.

Future stock-based compensation for unvested PSUs that are probable to vest as of December 31, 2022 was $ 2.9 million, which is expected to be recognized over a weighted-average period of 2.1 years.

5 unchanged sentences

The vesting of the MSUs can also be triggered upon a change in control event and achievement of a certain change in control price goal, or when there is a qualifying termination or in the event of death or disability.

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

The following table presents additional information relating to each MSU award:

8 unchanged sentences

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.

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.

The weighted-average grant date fair value of the MSUs was $ 67.00 per share 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 had 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:

8 unchanged sentences

2,260,764 65.20

Balance as of December 31, 2022

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.

No MSUs were granted, vested or canceled during the year ended December 31, 2022.

The MSUs were fully expensed as of June 30, 2022.

Stock-based compensation for the MSUs for the years ended December 31, 2022, 2021 and 2020 was $ 16.1 million, $ 99.2 million and $ 111.9 million, respectively, which was recorded in general and administrative expenses on the accompanying consolidated statement of operations.

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

AMEA 2020 Equity Incentive Plan

6 unchanged sentences

For individuals holding more than 10 % of the total combined voting power of all classes of stock of the Joint Venture, the exercise price of an option will not be less than 110 % of the fair market value of the Joint Venture's common stock on the date of grant, and the term of the option will not exceed 5 years.

A total of 4,595,555 shares of the Joint Venture's Class B common stock are initially reserved for issuance under the AMEA 2020 Plan, and the number of shares may be increased in accordance with the terms of the AMEA 2020 Plan.

A total of 4,595,555 shares of the Joint Venture's Class B common stock were initially reserved for issuance under the AMEA 2020 Plan, and the number of shares may be increased in accordance with the terms of the AMEA 2020 Plan.

In June 2022, in connection with the Joint Venture Acquisition, the Company issued a tender offer to purchase the Joint Venture's Class B common stock issued and issuable upon exercise of vested Joint Venture's stock options, at a price of $ 4.44 per share determined pursuant to an independent valuation.

In July 2022, the Company settled the tender offer with the 39 grantees for a total amount of $ 13.7 million.

In addition, in connection with the Joint Venture Acquisition, the unvested Joint Venture's stock options were cancelled and such grantees received replacement awards covering a number of shares of the Company's common stock.

The replacement awards, valued at $ 4.1 million, are subject to the same vesting schedule that applied to the unvested Joint Venture's stock option immediately prior to the close of the Joint Venture Acquisition transaction, to be recognized over a weighted-average period of 2.2 years.

The Company accounted for this as a modification which resulted in an immaterial incremental stock-based compensation expense.

After the settlement of the tender offer in July 2022, the Company cancelled the AMEA 2020 Plan.

A summary of the Joint Venture's stock option activity under the AMEA 2020 Plan and related information is as follows:

14 unchanged sentences

340,928 3,652,219 0.58 8.8 —

Exercised — ( 2,051,645 ) 0.58

Canceled 82,407 ( 82,407 ) 0.58

Canceled in connection with the Joint Venture Acquisition ( 423,335 ) ( 1,518,167 ) 0.58

Balance as of December 31, 2022

— — $ — 0.0 $ —

Vested and Exercisable as of December 31, 2022

— $ — 0.0 $ —

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.

No stock options were granted under the AMEA 2020 Plan for the year ended December 31, 2022.

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

Stock‑Based Compensation Expense

14 unchanged sentences

Valuation of Stock Options

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 stock options was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions including the Joint Venture:

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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.

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

The grant date fair value of the Joint Venture’s common stock was determined using valuation methodologies which utilize certain assumptions including probability weighting of events, volatility, time to liquidation, a risk-free interest rate and an assumption for a discount for lack of marketability.

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The comparable companies are chosen based on their similar size, stage in the life cycle or area of specialty.

The Joint Venture derived the expected volatility from the average historical volatility over a period approximately equal to the expected term of comparable publicly traded companies within its peer group that were deemed to be representative of future stock price trends as the Joint Venture does not have any trading history for its common stock.

The Joint Venture will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

The Joint Venture derived the expected volatility from the average historical volatility over a period approximately equal to the expected term of comparable publicly traded companies within its peer group that were deemed to be representative of future stock price trends as the Joint Venture did not have any trading history for its common stock.

Risk-Free Interest Rate

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

Effective as of January 1, 2020, an additional 942,614 shares of common stock became available for issuance under the ESPP, as a result of the operation of an automatic annual increase provision therein.

Effective as of January 1, 2020, an additional 942,614 shares of common stock became available for issuance under the ESPP.

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

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 307,953 , 110,227 and 96,040 , for the years ended December 31, 2022, 2021 and 2020, respectively.

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The valuation assumptions used were substantially consistent with the assumption used to value stock options with the exception of the expected term which was based on the term of each purchase period.

The grant date fair value of the stock purchase right granted under the ESPP was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions:

The grant date fair value of the stock purchase right granted under the ESPP was estimated using a Black-Scholes option-pricing model with the following assumptions:

Year Ended December 31,

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0.1 % – 0.2 %

1.6 % – 2.5 %

Expected dividend yield — %

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$ 294,757 $ 232,657

Capitalized research and development costs 89,084 —

Property, equipment and intangible assets 7,422 13,233

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Right-of-use asset ( 44,825 ) ( 47,130 )

Unrealized gain/loss on investments — ( 571 )

Debt discount — ( 81,964 )

Other ( 316 ) ( 14 )

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$ 1,139 $ 300 $ 379

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.

In connection with the acquisition of Bellwether Bio, a deferred tax liability was established for the book-tax basis differences related to the non-goodwill intangible assets.

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, 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.

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, 2022, 2021 and 2020, primarily due to the change in valuation allowance, state income taxes net of federal benefits, research and development tax credits, and stock-based compensation expenses.

As of December 31, 2022 and 2021, the Company had a net operating loss carryforwards of $ 1.2 billion and $ 1.0 billion for federal purposes, and $ 871.4 million and $ 542.0 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 2023 for state and local purposes.

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deferred tax assets.

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 net change in total valuation allowance was an increase of $ 175.9 million, an increase of $ 188.7 million and a decrease of $ 0.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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

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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 $ 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.

The Company recorded unrecognized tax benefits for uncertain tax positions of $ 29.6 million and $ 20.1 million as of December 31, 2022 and 2021, respectively, which, if recognized, would not affect the effective income tax rate due to the valuation allowance that currently offsets the deferred tax assets.

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

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Related Party Transactions

As discussed in Note 3, Investment in Joint Venture , the Company and an affiliate of SoftBank formed and capitalized the Joint Venture to accelerate commercialization of its products in Asia, the Middle East and Africa.

The Company has consolidated the financial position, results of operations and cash flows of the Joint Venture in its financial statements and all intercompany balances have been eliminated in consolidation.

The Company and its subsidiaries may, in the ordinary course of business, have transactions with unaffiliated companies of which certain of the Company’s directors are directors and/or executive officers.

The Company believes that such transactions are on the same terms generally offered by such other companies to other entities in comparable transactions.

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.

As discussed in Note 3, Joint Venture , in May 2018, the Company and an affiliate of SoftBank formed and capitalized the Joint Venture to accelerate commercialization of its products in Asia, the Middle East and Africa.

Prior to the completion of the Joint Venture Acquisition in June 2022, the Company had consolidated the financial position, results of operations and cash flows of the Joint Venture in its financial statements and all intercompany balances had been eliminated in consolidation.

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