What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-22 compared with 2023-02-23 · 265 added, 315 removed, 1096 unchanged (35% of the section changed)

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Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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Notes to Consolidated Financial Statements

The supplementary financial information required by this Item 8 is included in Part II, Item 7 under the caption “ Quarterly Results of Operations ”, which is incorporated herein by reference.

Report of Independent Registered Public Accounting Firm

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Guardant Health, Inc.

(the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, redeemable noncontrolling interest and stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.

We have audited the accompanying consolidated balance sheet of Guardant Health, Inc.

and subsidiaries (the "Company") as of December 31, 2023, the related consolidated statements of operations, comprehensive loss, redeemable noncontrolling interest and stockholders’ equity, and cash flows, for the year ended December 31, 2023, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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

Precision Oncology Testing Revenue – Estimated Transaction Price for Clinical Customers – Refer to Note 2 to the consolidated financial statements

Critical Audit Matter Description

The Company recognizes revenue from the sale of precision oncology tests for clinical customers at the time results of the test are reported to physicians.

Most precision oncology tests requested by clinical customers are sold without a written agreement;

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

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 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.

The transaction price estimate under the portfolio approach represents consideration the Company expects to receive based on historical payment data from third-party payers and patients, adjusted for known and forecasted changes in payment patterns and subject to a constraint such that revenue recognized is not expected to be reversed.

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

Both the estimate and any subsequent revision contain uncertainty and require the use of significant judgment in the estimation of the variable consideration and application of the constraint for such variable consideration.

We identified management’s estimation of the transaction price for precision oncology tests for clinical customers as a critical audit matter due to the significant judgments required by management to estimate payer reimbursements.

This required a high degree of auditor judgment and an increased extent of effort, including the involvement of more experienced engagement team members, when performing audit procedures to evaluate the estimated transaction prices for precision oncology tests.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to estimated transaction prices for precision oncology tests for clinical customers, included the following, among others:

• We understood and tested the design, implementation, and operating effectiveness of controls over management’s determination of the assumptions used and the related review and approval of the transaction price estimate.

• We developed an independent expectation of the estimated transaction prices for precision oncology tests for clinical customers in developing an independent expectation of revenue and comparing the recorded amount to our expectation.

• We tested the assumptions used in our independent expectation of the estimated transaction prices for precision oncology tests for clinical customer by:

◦ Testing the historical test data such as the cancer type, the test type, and the insurance and payer, used in the estimate of transaction prices, by making selections and agreeing the selected information to source documents.

◦ Testing the historical cash receipts from payers used in the estimate of transaction prices, by making selections and agreeing the selected information to source documents.

◦ Testing the completeness and accuracy of the precision oncology tests for clinical customers reported to physicians used in our independent expectation, by making selections and agreeing the selected information to source documents.

• We tested management’s ability to estimate transaction prices accurately by comparing recorded revenue to cash receipts received through December 2023.

• We evaluated trends in transaction price estimates and revenue compared to previous periods to identify evidence that is inconsistent with management’s assumptions regarding estimated transaction prices.

/s/ Deloitte & Touche LLP

San Jose, California

February 22, 2024

We have served as the Company’s auditor since 2023.

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Guardant Health, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Guardant Health, Inc.

(the Company) as of December 31, 2022, the related consolidated statements of operations, comprehensive loss, redeemable noncontrolling interest and stockholders' equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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

Critical Audit Matter

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

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

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

Precision Oncology Revenue (testing services provided to ordering physicians)

Description of the Matter For the year ended December 31, 2022, revenue recognized from Precision Oncology was $392.0 million.

As described in Note 2 to the consolidated financial statements, the Company recognizes revenue from the performance of precision oncology tests for clinical customers upon delivery of test results to the ordering physician.

As most precision oncology tests requested by customers are sold based on a physician requisition form without further written terms and conditions, the Company determined an implied contract exists with its patients and estimates variable consideration to be received for these services.

Management estimates variable consideration based on historical payment data from third-party payers and patients adjusted for known and forecasted changes in payment patterns and subject to a constraint such that revenue recognized is not expected to be reversed.

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

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

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

This included testing controls relating to management’s review of the significant assumptions described above and inputs used in the determination of the estimated amount that would be collected for tests performed during the period.

We also tested controls over the current and historical data used by management in determining this estimate of variable consideration, subject to a constraint, including the completeness and accuracy of the data.

Our audit procedures over the Company’s precision oncology revenue included, among others, assessing assumptions and inputs described above, testing the completeness and accuracy of the underlying data used by the Company in its analysis, including the constraint applied.

We agreed the terms and conditions of the type of test (i.e.

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

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

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

/s/ Ernst & Young LLP

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

We served as the Company’s auditor from 2015 to 2023.

San Mateo, California

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1,347,106 1,191,594

Long-term marketable debt securities

Property and equipment, net

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Intangible assets, net

11,727 14,207

Other assets, net

124,334 61,453

Total Assets (1)

$ 1,786,421 $ 1,609,985

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Accounts payable and accrued liabilities 187,952 175,817

Noncontrolling interest liability

Deferred revenue

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Commitments and contingencies (Note 9)

As of December 31,

Stockholders’ equity:

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$ 1,786,421 $ 1,609,985

(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.

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Cost of precision oncology testing 205,528 148,199 110,396

148,199 110,396 74,769

Cost of development services and other 21,524 8,126 12,516

Research and development expense 367,194 373,807 263,221

373,807 263,221 149,862

Sales and marketing expense 295,227 299,828 191,881

299,828 191,881 106,513

General and administrative expense 155,800 163,956 206,640

163,956 206,640 192,770

Other operating expense 83,400 — —

Total costs and operating expenses

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$ ( 479,449 ) $ ( 654,588 ) $ ( 384,770 )

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

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

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

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

16,758 ( 13,158 ) ( 5,769 )

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( 911 ) ( 1,600 ) ( 1,692 )

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

Other comprehensive income (loss) 15,847 ( 14,758 ) ( 7,461 )

Comprehensive loss

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Comprehensive loss attributable to Guardant Health, Inc.

common stockholders

$ ( 463,602 ) $ ( 669,346 ) $ ( 413,131 )

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

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

— 4,312,500 — 354,600 — — 354,600

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

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

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

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

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

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

Issuance of common stock under employee stock purchase plan — 110,227 — 9,753 — — 9,753

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

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

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

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

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

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

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— 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

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Vesting of common stock exercised early — — — 8 — — 8

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

Issuance of common stock under employee stock purchase plan — 307,953 — 9,316 — — 9,316

Taxes paid related to net share settlement of restricted stock units — — — ( 7,878 ) — — ( 7,878 )

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 )

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— 102,619,383 1 1,742,114 ( 19,522 ) ( 1,662,413 ) 60,180

Issuance of common stock upon follow-on public offering, net of offering costs of $ 21,131

— 14,375,000 — 381,369 — — 381,369

Issuance of common stock upon registered direct offering — 3,387,446 — 90,616 — — 90,616

Issuance of common stock upon exercise of stock options — 51,124 — 405 — — 405

Vesting of restricted stock units — 732,038 — — — — —

Vesting of common stock exercised early — — — 8 — — 8

Common stock issued under employee stock purchase plan — 307,953 — 9,316 — — 9,316

Issuance of common stock under employee stock purchase plan — 464,870 — 10,154 — — 10,154

Taxes paid related to net share settlement of restricted stock units — — — ( 11,197 ) — — ( 11,197 )

Stock-based compensation — — — 90,759 — — 90,759

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 )

Other comprehensive income — — — — 15,847 — 15,847

Net loss — — — — — ( 479,449 ) ( 479,449 )

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Depreciation and amortization 42,881 35,962 22,271

Non-cash operating lease costs 28,585 24,661 5,567

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

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

Non-cash stock-based compensation 94,685 151,449 144,113

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

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 — —

Operating lease costs 29,699 28,585 24,661

Contingent consideration 110 4,305 2,380

Stock-based compensation 90,759 94,685 151,449

Amortization of debt issuance costs 2,575 2,569 2,564

Amortization of (discount) premium on marketable debt securities ( 13,552 ) 4,595 12,849

Unrealized (gains) losses on marketable equity securities ( 79,710 ) 7,793 —

Impairment of non-marketable equity securities and other related assets 29,054 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:

Other ( 1,182 ) 21 47

Cash effect of changes in operating assets and liabilities:

Accounts receivable, net 8,378 375 ( 44,353 )

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Purchase of property and equipment ( 20,486 ) ( 77,461 ) ( 75,035 )

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

Other 1,531 — —

Net cash provided by (used in) investing activities 840,250 149,816 ( 63,155 )

FINANCING ACTIVITIES:

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

Proceeds from issuance of common stock under employee stock purchase plan 10,154 9,316 9,753

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Taxes paid related to net share settlement of restricted stock units ( 11,197 ) ( 7,878 ) ( 83,759 )

Proceeds from equity offerings 493,116 — —

Payment of equity offering costs ( 21,131 ) — —

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

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

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

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

Net cash (used in) provided by financing activities ( 189,093 ) ( 66,824 ) 1,410,307

Other 6,028 ( 1,136 ) ( 930 )

Net cash provided by (used in) financing activities 477,375 ( 189,093 ) ( 66,824 )

Net effect of foreign exchange rate changes on cash, cash equivalents and restricted cash ( 911 ) ( 1,600 ) ( 1,693 )

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

Net increase (decrease) in cash, cash equivalents and restricted cash 991,739 ( 350,340 ) ( 340,689 )

Cash, cash equivalents and restricted cash – Beginning of period 141,948 492,288 832,977

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Supplemental Disclosures of Cash Flow Information:

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

Cash paid for income taxes $ 1,969 $ 1,331 $ 393

Supplemental Disclosures of Noncash Investing and Financing Activities:

Operating lease liabilities arising from obtaining right-of-use assets $ 5,015 $ 4,073 $ 171,382

Purchase of property and equipment included in accounts payable and accrued liabilities $ 5,279 $ 8,291 $ 8,892

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

Vesting of common stock exercised early $ 8 $ 52 $ 52

Reclassification of redeemable noncontrolling interest to noncontrolling interest liability

$ — $ — $ 78,000

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

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents $ 1,133,537 $ 141,647 $ 492,202

Restricted cash – included in other assets, net 150 301 86

Total cash, cash equivalents and restricted cash $ 1,133,687 $ 141,948 $ 492,288

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

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Description of Business

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.

Guardant Health, Inc., or the Company, is a leading precision oncology company focused on guarding wellness and giving every person more time free from cancer.

The Company is transforming patient care by providing critical insights into what drives disease through its advanced blood and tissue tests, and real-world data.

The Company's tests help improve outcomes across all stages of care, including screening to find cancer early, monitoring for recurrence in early-stage cancer, and helping doctors select the best treatment for patients with advanced cancer.

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.

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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.

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, 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.

For early cancer detection, 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.

In December 2022, the Company announced that the ECLIPSE study, a registrational study evaluating the performance of its Shield blood test for detecting colorectal cancer in average-risk adults, met co-primary endpoints.

In addition, in March 2023, the Company submitted a premarket approval application, or PMA, for its Shield blood test to the FDA.

The FDA’s Molecular and Clinical Genetics Panel of the Medical Devices Advisory Committee intends to review the PMA.

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 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

Basis of Presentation

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

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.

Basis of Presentation and Consolidation

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP, and in conjunction with the rules and regulations of the Securities and Exchange Commission, or the SEC.

The accompanying consolidated financial statements include the accounts of Guardant Health, Inc., its consolidated Joint Venture (see 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 in June 2022.

All intercompany balances and transactions have been eliminated in consolidation.

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

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

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 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 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

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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.

One of the investees is concluded to be a variable interest entity, or VIE, but the Company is deemed not to be the primary beneficiary as the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance.

The Company's non-marketable equity and other related investments totaled $ 8.6 million and $ 25.0 million as of December 31, 2023, and 2022, 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.

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

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

changes in operating structure or management of the investee;

additional funding requirements;

and the investee’s ability to remain in business.

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

and additional funding requirements of the investee.

As a result of the evaluation, the Company recorded an impairment of $ 22.1 million for the year ended December 31, 2023 for one of its non-marketable equity security investments, included in other income (expense), net on the accompanying consolidated statements of operations.

In addition, in connection with the 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 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, included in other income (expense), net on the accompanying consolidated statements of operations.

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, and acquired rights to obtain the exclusive license of the investee's certain technologies.

In June 2023, the Company decided not to exercise such rights and recorded an impairment of $ 7.0 million for the year ended December 31, 2023, included in other income (expense), net on the accompanying consolidated statements of operations.

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

Concentration of Risk

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The Company does not require collateral.

Accounts receivable are recorded at net amount.

Accounts receivable are recorded net of allowance for credit losses, if any.

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.

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31 % 30 % 29 % 12 % 11 %

Customer D * * * * 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, 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.

As of December 31, 2023, the Company has received $ 4.3 million payments from the third-party, and evaluated and recorded a credit loss for the remaining $ 3.7 million considering the third-party's credit worthiness and lack of financial history.

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

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

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

Reclassification

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

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

The Company recorded immaterial credit losses related to its accounts receivable for the years ended December 31, 2023, 2022 and 2021.

Inventory, Net

17 unchanged sentences

Leasehold improvements Lesser of estimated useful life or remaining lease term

Asset Acquisition

If an acquisition of an asset or group of assets does not meet the definition of a business, the transaction is accounted for as an asset acquisition rather than a business combination.

An asset acquisition does not result in the recognition of goodwill and transaction costs are capitalized as part of the cost of the asset or group of assets acquired.

Transaction costs allocated to in-process research and development technology with no future alternate use is expensed as incurred.

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

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

Goodwill and Intangible Assets, net

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

The Company had immaterial amount of impairment for long-lived assets for the years ended December 31, 2023, 2022 and 2021.

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.

For the years ended December 31, 2023 and 2022, the Company recorded post-acquisition contingent consideration expense of $ 2.1 million and $ 5.2 million, respectively, included in research and development expenses on the accompanying consolidated statements of operations.

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

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 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 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.

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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.

Precision oncology testing revenue includes amount derived from the delivery of the Company's precision oncology tests, including those tests delivered by labs operated by our strategic partners.

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

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

For the year ended December 31, 2022, 2021 and 2020, the Company recorded $ 8.8 million, $ 19.3 million and $ 26.0 million as revenue, respectively, resulting from cash collections exceeding the estimated variable consideration related to samples processed in previous years, including revenue received from successful appeals of reimbursement denials, net of recoupments.

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

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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.

In addition, the Company licenses its digital sequencing technologies to its domestic customers and international laboratory partners.

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.

Other revenue also includes kit fulfillment, which is recognized when such products are delivered.

Contracts with multiple performance obligations

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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, 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.

As of December 31, 2023 and 2022, the Company's deferred revenue balance was $ 22.9 million and $ 21.2 million, respectively, of which $ 5.0 million and $ 3.8 million was considered long-term and recorded within other long-term liabilities on the accompanying consolidated balance sheets.

Revenue recognized in the year ended December 31, 2023 that was included in the deferred revenue balance as of December 31, 2022 was $ 13.9 million, and 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, respectively.

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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.

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.

Cost of Development Services and Other

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

Cost of development services and other primarily includes costs incurred for the performance of development services requested by the Company’s biopharmaceutical customers, and costs associated with the Company's partnership agreements and delivery of screening tests.

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

Research and Development Expenses

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

Research and development expenses consist of costs incurred to develop technology and include salaries and benefits including stock-based compensation, reagents and supplies used in research and development laboratory work, infrastructure expenses, including facility occupancy and information technology costs, contract services, other outside costs and costs to develop the Company's technology capabilities.

Research and development expenses also include costs related to activities performed under contracts with biopharmaceutical companies before technological feasibility has been achieved.

Research and development costs are expensed as incurred.

Payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered.

Costs to develop the Company’s technology capabilities are recorded as research and development unless they meet the criteria to be capitalized as internal-use software costs.

Costs to develop technology capabilities are recorded as research and development expenses unless they meet the criteria to be capitalized as internal-use software costs.

The Company expenses advertising costs as incurred.

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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.

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 Company uses the Black‑Scholes option‑pricing model to estimate the fair value of stock options granted under the 2012 Stock Plan (as amended and restated), or the 2012 Plan, the 2018 Incentive Award Plan, or the 2018 Plan, the former Joint Venture's 2020 Equity Incentive Plan (see Note 11, Stock-Based Compensation ), and the 2023 Employment Inducement Incentive Award Plan, or the 2023 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 determined the fair value of common stock of the Joint Venture.

Forfeitures are accounted for as they occur.

For market-based restricted stock units, the Company derives the requisite service period using the Monte Carlo simulation model and the related compensation expense is recognized over the derived service period using an accelerated attribution model commencing on the grant date.

Stock-based compensation expense will be recorded regardless of whether the market conditions are achieved or not.

If the related market condition is achieved earlier than its estimated derived service period, the stock-based compensation expense will be accelerated, and a cumulative catch-up expense will be recorded during the period in which the market condition is met.

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

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

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

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

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

No stock-based compensation expense is recorded for PSUs, unless it is determined to be probable that the related performance metrics will be met.

Any PSUs that remain unvested at the end of the performance period will be forfeited.

Forfeitures are accounted for as they occur.

For market-based restricted stock units, or MSU, the Company derived the requisite service period using the Monte Carlo simulation model and the related compensation expense was recognized over the derived service period using an accelerated attribution model commencing on the grant date.

Stock-based compensation expense was recorded regardless of whether the market conditions were achieved or not.

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

Income taxes are recorded using an asset and liability approach.

13 unchanged sentences

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.

New Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board, or FASB, issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which requires an enhanced disclosure of significant segment expenses on an annual and interim basis.

This guidance will be effective for the annual reporting periods beginning the year ended December 31, 2024, and for interim reporting periods beginning January 1, 2025, with early adoption permitted, and should be applied retrospectively.

The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which amended existing income tax disclosure guidance, primarily requiring more detailed disclosures on the effective tax rate reconciliation and income taxes paid.

This guidance will be effective for annual reporting periods beginning the year ended December 31, 2025, with early adoption permitted and can be applied on either a prospective or retroactive basis.

The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

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.

In May 2018, the Company and an affiliate of SoftBank formed and capitalized Guardant Health AMEA, Inc., 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 its 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.

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 were reserved for issuance.

Put-call arrangements

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;

(ii) the effectiveness of the Company’s initial public offering, a change in control of the Company, the seventh anniversary of the formation of the Joint Venture, or each subsequent anniversary of each of the foregoing events;

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 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.

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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 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.

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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.

In connection with the Joint Venture Acquisition, the Company also 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 (see Note 11, Stock-Based Compensation ).

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

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

became the Company's wholly owned subsidiary.

Consolidated Balance Sheet Components

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Construction in progress

20,598 55,873

Furniture and fixtures

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$ 145,096 $ 167,920

(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 $ 40.0 million, $ 33.4 million and $ 20.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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$ 1,032,500 $ 1,032,500 $ — $ —

government debt securities

14,987 — 14,987 —

Total cash equivalents

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$ 3,104 $ 3,104 $ — $ —

government debt securities 14,987 — 14,987 —

Total cash equivalents

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$ 869,584 $ — $ 869,584 $ —

government debt securities

$ 698,034 $ — $ 698,034 $ —

Total long-term marketable debt securities

Long-term marketable equity securities

$ 18,291 $ 18,291 $ — $ —

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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.

In July 2022, one of the Company's equity investees, Lunit Inc., or Lunit, completed its initial public offering, or IPO, subsequent to which, the Company started to account for the investment in Lunit at fair value on a recurring basis, and classified the investment as marketable equity securities 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 Lunit's IPO date, during which the Company shall not transfer Lunit's shares between accounts, establish or cancel pledges, sell, or withdraw such shares, without approval from the Korea Exchange.

In November 2023, Lunit issued bonus shares to its existing shareholders by allocating one new share for each existing share, and the Company is subject to the same lock-up period with the same restrictions for these bonus shares.

As of December 31, 2023 and 2022, the balance of the investment in Lunit was $ 98.0 million and $ 18.3 million, respectively, included in other assets, net, on the accompanying consolidated balance sheets.

In addition, the Company recorded $ 79.7 million unrealized gains and $ 7.8 million unrealized losses on the investment in Lunit for the years ended December 31, 2023 and 2022, respectively, included in other income (expense), net on the accompanying consolidated statements of operations.

The Company did no t record any unrealized gains or losses on the investment in Lunit for the year ended December 31, 2021.

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

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

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

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

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

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.

As of December 31, 2023 and 2022, the Company's acquisition-related contingent consideration liability was $ 6.5 million and $ 6.4 million, respectively, of which $ 5.0 million and $ 4.9 million was considered long-term and recorded within other long-term liabilities on the accompanying consolidated balance sheets.

Prior to the completion of the Joint Venture Acquisition in June 2022, 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.

The noncontrolling interest liability was fully paid by June 30, 2022 (see Note 3, Joint Venture ).

The following tables summarize the activities for the Level 3 financial instruments for the years ended December 31, 2023, 2022 and 2021:

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

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

Increase in fair value 110 4,305 2,380

Settlement — ( 1,500 ) —

Fair value — end of period $ 6,540 $ 6,430 $ 3,625

Noncontrolling Interest Liability

Noncontrolling

Interest Liability

Redeemable Noncontrolling Interest

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$ 904,446 $ 8 $ ( 16,779 ) $ 887,675

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.

None of the Company’s marketable debt securities had been in an unrealized loss position for more than one year as of December 31, 2023.

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

December 31, 2022

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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

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

An arbitration was initiated between the parties in 2018.

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

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

The total consideration, including $ 0.6 million of certain capitalizable transaction costs, was allocated to various components of the SPLA.

The Company allocated $ 9.4 million to the patent and covenant rights granted under the SPLA, which have useful lives in the range of 6 - 12 years.

The Company allocated $ 8.5 million to IPR&D technology, which have no alternative future use and was included in research and development expenses for the year ended December 31, 2020.

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

The Company determined that it did have the ability and intent to hold all marketable debt securities that had 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 for the years ended December 31, 2023, 2022 and 2021, respectively.

Intangible Assets, Net and Goodwill

20 unchanged sentences

Non-compete agreements and other covenant rights 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

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(in thousands)

Liability component:

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

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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.

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

The following table sets forth interest expense recognized and effective interest rate represented related to the 2027 Notes:

For the Year Ended December 31,

1 unchanged sentence

(in thousands)

Amortization of debt discount $ — $ — $ 4,593

Amortization of debt issuance costs $ 2,575 $ 2,569 $ 2,564

Total interest expense recognized $ 2,575 $ 2,569 $ 2,564

Effective interest rate of the liability component 0.2 % 0.2 % 5.2 %

Effective interest rate 0.2 % 0.2 % 0.2 %

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

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The Company paid an aggregate amount of $ 90.0 million for the 2027 Note Hedges, which has been recorded as a reduction to additional paid-in capital and will not be remeasured.

The Company has entered into various operating lease agreements for office space, data center, lab and warehouse use, with remaining terms ranging from 1 year to 11 years some of which include one or more options to renew.

The Company has entered into various operating lease agreements for office space, data center, lab and warehouse use, with remaining terms ranging from 0.75 to 9.5 years, some of which include one or more options to renew.

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, 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 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.

The Company took possession of these facilities in March 2021.

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, and took possession of these facilities in March 2021.

The San Diego Lease has a term of 8 years, and 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 asset or lease liability as the Company does not consider it reasonably certain of exercising the renewal option.

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

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, 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).

Operating lease expense for the years ended December 31, 2023, 2022 and 2021, was $ 29.7 million, $ 28.6 million and $ 24.7 million, respectively, which includes both lease and non-lease components (primarily common area maintenance charges and property taxes).

As of December 31,

12 unchanged sentences

Commitments and Contingencies

License Agreements

The Company has patent license agreements with four different parties.

Under these agreements, the Company has made one-time upfront and milestone payments, which it has capitalized and is amortizing to expense ratably over the useful life of the underlying patent right(s).

Under some of these agreements, the Company is obligated to pay low single-digit percentage running royalties on net sales where the licensed patent right(s) are used in the product or service sold, subject to minimum annual royalties or fees in certain agreements.

Royalty expenses were included in cost of precision oncology testing on the accompanying consolidated statements of operations.

The Company recognized royalty expenses of $ 0.7 million, $ 0.7 million and $ 1.1 million, or 0.2 %, 0.2 % and 0.4 % of precision oncology testing revenue in each period, for the years ended December 31, 2022, 2021 and 2020, respectively.

Indemnification Agreements

22 unchanged sentences

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

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

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.

Discovery in the case has concluded.

In October 2023, the District Court dismissed with prejudice TwinStrand’s infringement claims related to U.S.

10,689,699 and 10,752,951.

On November 14, 2023, a jury verdict was entered in favor of TwinStrand Biosciences and the University of Washington and against the Company.

The jury found that the Company willfully infringed U.S.

10,287,631 and 10,760,127, and awarded TwinStrand Biosciences and the University of Washington $ 83.4 million in damages, representing a 6 % royalty on past sales.

As a result, the Company recorded a liability of $ 83.4 million in the fourth quarter of 2023, which is reflected as a charge to other operating expense on its consolidated statements of operations, and as a component of other long-term liabilities on its consolidated balance sheets.

Post-trial motions by both parties are due on March 4, 2024, where the Company will file motions to overturn the jury’s verdict, seek a new trial, and/or amend the judgment.

TwinStrand BioSciences has indicated to the District Court that it will seek treble damages based on the jury’s finding of willful infringement, pre- and post-judgment interest, and a go-forward running royalty.

A hearing date has not yet been set on the post-trial motions.

The Company strongly disagrees with the jury verdict and will vigorously contest the verdict and judgment through post-trial motions in the District Court, and if needed, through appeal to the U.S.

Court of Appeals for the Federal Circuit.

On August 1, 2023, the Company publicly announced that it entered into a Collaboration and Settlement Agreement, or the Collaboration Agreement, with Illumina, Inc., or Illumina.

Under the terms of the Collaboration Agreement, the parties have agreed to extend their long-standing commercial relationship by agreeing to collaborate on the sharing of specimen samples in order to advance cancer research, and by entering into a new long-term purchase and supply commitment.

Furthermore, the parties agreed to dismiss with prejudice the March 2022 lawsuit filed by Illumina in the U.S.

District Court for the District of Delaware, Illumina, Inc.

Guardant Health, Inc.

et al , Case No.

1:22-cv-00334-GBW-CJB, including any allegations related to the subject intellectual property.

False Advertising Dispute

3 unchanged sentences

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.

The Company and Natera have both moved for summary judgment on various claims, with the court granting in part non-dispositive motions brought by each party.

Trial is scheduled to commence in March 2024.

Civil Investigative Demand

10 unchanged sentences

Shares underlying unvested restricted stock units 4,346,785 3,687,888

Market-based restricted stock units 2,260,764 2,260,764

Performance-based restricted stock units 341,713 374,596

Shares underlying unvested market-based restricted stock units 2,260,764 2,260,764

Shares underlying unvested performance-based restricted stock units 412,490 341,713

Shares available for issuance under the 2018 Incentive Award Plan

1 unchanged sentence

Shares available for issuance under the 2018 Employee Stock Purchase Plan 1,679,635 1,118,311

Shares available for issuance under the 2023 Employment Inducement Incentive Award Plan 4,949,988 —

Total 24,715,971 16,249,546

Follow-on Offering

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.

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

Equity Offering

In May 2023, the Company completed a follow-on underwritten public offering, in which it issued and sold 14,375,000 shares of its common stock at a price of $ 28.00 per share, and received net proceeds of $ 381.4 million after deducting underwriting discounts and commissions and other offering costs of $ 21.1 million.

In December 2023, the Company completed a registered direct offering with an investment management firm, in which it issued and sold 3,387,446 shares of its common stock at a price of $ 26.77 per share, and received net proceeds of $ 90.6 million.

Stock-Based Compensation

2012 Stock Plan and 2018 Incentive Award Plan

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

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

Shares issued under the 2018 Plan may be authorized but unissued shares, or shares purchased in the open market or treasury shares.

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

Upon effectiveness of the 2018 Plan in connection with the IPO in October 2018, the 2012 Plan was terminated and 508,847 shares reserved under the 2012 Plan were forfeited.

1 unchanged sentence

No further grants will be made under the 2012 Plan.

The number of shares of common stock available for issuance under the 2018 Plan may be increased on January 1 of each calendar year beginning in 2019 and ending in 2028 by an amount equal to the least of (i) 3,689,000 shares, (ii) four percent of the shares of common stock outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year, assuming the conversion of any shares of preferred stock, but excluding shares issuable upon the exercise or payment of stock options, warrants or other equity securities with respect to which shares have not actually been issued, and (iii) such smaller number of shares as determined by the Company’s Board of Directors.

2023 Employment Inducement Incentive Award Plan

In August 2023, the Company’s Board of Directors adopted the 2023 Employment Inducement Incentive Award Plan, or the 2023 Plan, under which the Company may exclusively grant awards to its new employees as an inducement material to the employee’s entry into employment with the Company.

The 2023 Plan was approved by the Company's Board of Directors without stockholder approval in accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules.

Stock Option Activity

A summary of the Company’s stock option activity under the 2012 Plan and the 2018 Plan and related information is as follows:

A summary of the Company’s stock option activity under the 2012 Plan, the 2018 Plan and the 2023 Plan, and related information is as follows:

Options Outstanding

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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 canceled 558,254 —

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

3 unchanged sentences

2018 Plan annual increase (1)

Shares authorized under the 2023 Plan 5,000,000 —

Granted ( 1,000,760 ) 1,000,760 30.80

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

Exercised — ( 51,124 ) 7.93

8 unchanged sentences

2,401,061 $ 25.39 4.9 $ 37,730

(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.

(1) Effective as of January 1, 2021, 2022 and 2023, an additional 3,689,000 shares of common stock became available for issuance under the 2018 Plan, as a result of the operation of the 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, 2023 was $ 39.8 million, which is expected to be recognized over a weighted-average period of 2.4 years.

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

A summary of the Company’s restricted stock unit activity excluding the performance-based and market-based restricted stock units under the 2012 Plan and the 2018 Plan and related information is as follows:

A summary of the Company’s restricted stock unit activity excluding the performance-based and market-based restricted stock units under the 2012 Plan, the 2018 Plan and the 2023 Plan, and related information is as follows:

Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value

7 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

3 unchanged sentences

Granted 2,436,947 26.62

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

Vested and released ( 728,603 ) 60.07

4 unchanged sentences

Performance-based Restricted Stock Units

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 1.5 years to 4 years and an additional service period requirement of six months to one year after the performance metrics are met.

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, to its employees and non-employees.

The PSUs granted to employees consist of financial and/or operational metrics to be met over a performance period of approximately 0.3 to 4 years and an additional service period requirement of up to 2 years after the performance metrics are met.

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

The PSUs are expected to be expensed over a period of approximately 2.5 years to 4.5 years subject to meeting the respective performance metrics and service requirements.

As of December 31, 2022, a significant portion of these PSUs are not expected to achieve the related performance metrics, and therefore, no stock-based compensation expense was recorded for the PSUs that were not probable to vest.

The PSUs are expected to be expensed over a period of approximately 0.3 to 4.5 years subject to meeting the respective performance metrics and service requirements.

In November 2020, and as part of these PSU programs, the Company granted PSUs consisting of a performance period of 4 years combined with an additional service period requirement of six months should the vesting criteria be met.

As of December 31, 2023, these PSUs had a grant-date fair value of approximately $ 25.7 million, net of forfeitures, however no compensation expense for these PSUs has been recorded to-date since the achievement of the performance metrics did not meet the criteria for accrual as of December 31, 2023.

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

1 unchanged sentence

Balance as of January 1, 2021

377,922 $ 113.40

Granted 52,917 135.94

Canceled ( 56,243 ) 113.40

Balance as of December 31, 2021

5 unchanged sentences

Granted 126,041 32.84

Vested and released ( 3,435 ) 32.86

Canceled ( 51,829 ) 80.91

16 unchanged sentences

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

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

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

The derived service period is the median duration of the successful stock price paths to meet the price goal for each tranche as simulated in the Monte Carlo valuation model.

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

The derived service period was the median duration of the successful stock price paths to meet the price goal for each tranche as simulated in the Monte Carlo valuation model.

The Monte Carlo valuation model used 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 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.

No MSUs were granted, vested or canceled during the years ended December 31, 2023, and 2022.

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

1 unchanged sentence

Balance as of January 1, 2021

Granted 3,391,148 67.00

Balance as of December 31, 2020

3,391,148 $ 67.00

5 unchanged sentences

2,260,764 65.20

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

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

Balance as of December 31, 2023

2,260,764 $ 65.20

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

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.

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

AMEA 2020 Equity Incentive Plan

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

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

Incentive stock options may be granted only to employees of the Joint Venture or its affiliates.

Nonstatutory stock options may be granted to employees, directors and non-employee consultants.

Stock options may be granted at an exercise price of not less than the fair market value of the Joint Venture's common stock on the date of grant, determined by the board of directors of the Joint Venture.

Options generally vest over 4 years and expire as determined by the board of directors of the Joint Venture, provided that the term of options may not exceed 10 years from the date of grant.

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 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.

10 unchanged sentences

542,220 4,053,335 $ 0.58 9.6 $ —

Shares authorized 4,595,555 — —

Granted ( 826,667 ) 826,667 0.58

Canceled 8,889 ( 8,889 ) 0.58

Balance as of December 31, 2020

542,220 4,053,335 0.58 9.6 —

Granted ( 826,667 ) 826,667 0.58

Exercised — ( 602,408 ) 0.58

7 unchanged sentences

— — $ — 0.0 $ —

Vested and Exercisable as of December 31, 2022

— $ — 0.0 $ —

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.

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

Stock‑Based Compensation Expense

5 unchanged sentences

$ 4,614 $ 5,498 $ 3,468

Cost of development services and other 1,851 — —

Research and development expense

24 unchanged sentences

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 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.

In determining the fair value of the Joint Venture’s common stock, the methodologies used to estimate the enterprise value of the Joint Venture were performed using methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation .

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

The methodologies used to estimate the enterprise value of the Joint Venture were performed using methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation .

Expected Term

1 unchanged sentence

Expected Volatility

Prior to the commencement of trading of the Company’s common stock on the Nasdaq Global Select Market on October 4, 2018 in connection with the IPO, there was no active trading market for the Company’s common stock.

Prior to the commencement of trading of the Company’s common stock on the Nasdaq Global Select Market on October 4, 2018 in connection with its IPO, there was no active trading market for the Company’s common stock.

Due to limited historical data for the trading of the Company’s common stock, expected volatility is estimated based on the average volatility for comparable publicly traded peer group companies in the same industry plus the Company's expected volatility for the available periods.

5 unchanged sentences

Expected Dividend Yield

The Company and the Joint Venture does not anticipate paying any dividends in the foreseeable future and, therefore, uses an expected dividend yield of zero .

Valuation of MSUs

The estimated fair value of the MSUs was determined using a Monte Carlo simulation model.

The valuation assumptions used were substantially consistent with the assumption used to value stock options with the exception of the following:

Expected Volatility

Due to limited historical data for the trading of the Company’s common stock, expected volatility is estimated based on the average volatility for comparable publicly traded peer group companies and implied volatility of publicly traded options in the same industry plus the Company's expected volatility for the available periods.

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

Expected Term

The expected term represents the derived service period for the respective tranches which has been estimated using the Monte Carlo simulation model.

The risky rate represents the Company's cost of equity.

Discount for Lack of Marketability

The discount for lack of marketability represents the discount applied for post vest term restrictions and has been derived using the Monte Carlo simulation model.

The following assumptions were used to calculate the stock-based compensation for MSUs:

a weighted-average expected term of 0.83 – 2.07 years;

expected volatility of 65.5 %;

a risk-free interest rate of 0.53 %;

a zero dividend yield;

a risky rate (cost of equity) of 16 %;

and a discount for post-vesting restrictions of 10.4 % – 14.5 %.

The Company does not anticipate paying any dividends in the foreseeable future and, therefore, uses an expected dividend yield of zero .

The Joint Venture did not anticipate paying any dividends, therefore used an expected dividend yield of zero.

2018 Employee Stock Purchase Plan

1 unchanged sentence

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.

On the first day of each calendar year beginning on January 1, 2019 and ending on and including January 1, 2028, the number of shares of common stock available for issuance under the ESPP may be increased by the least of (i) 1,106,700 shares, (ii) 1 % of the shares outstanding (on an as-converted basis) on the last day of the immediately preceding calendar year, assuming the conversion of any shares of preferred stock, but excluding shares issuable upon the exercise or payment of stock options, warrants or other equity securities with respect to which shares have not actually been issued, and (iii) such smaller number of shares as determined by the Company’s Board of Directors.

Effective as of January 1, 2020 and March 2, 2023, an additional 942,614 and 1,026,194 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.

3 unchanged sentences

The total compensation expense related to the ESPP was $ 5.1 million, $ 4.6 million and $ 3.5 million, for the years ended December 31, 2023, 2022 and 2021, respectively.

The fair value of the stock purchase right granted under the ESPP was estimated on the first day of each offering period using the Black-Scholes option pricing model.

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 assumptions:

The grant date fair value of the stock purchase right granted under the ESPP was estimated on the first day of each offering period using the Black-Scholes option pricing model.

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

Year Ended December 31,

36 unchanged sentences

Stock options issued and outstanding 3,566 2,799 2,715

2,799 2,715 3,830

Restricted stock units 3,474 2,342 1,208

5 unchanged sentences

Total 18,091 16,086 14,954

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

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

The components of (loss) income before provision for income taxes are as follows:

Year Ended December 31,

13 unchanged sentences

Federal $ — $ 18 $ 108

State 3 20 34

Foreign ( 541 ) ( 257 ) 50

4 unchanged sentences

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets are as follows:

Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows:

As of December 31,

13 unchanged sentences

54,564 59,757

Total deferred tax asset

Total deferred tax assets

$ 654,257 $ 534,687

Deferred tax liabilities:

Section 481 (a) adjustment — ( 305 )

Right-of-use asset $ ( 40,213 ) $ ( 44,825 )

Equity security investments ( 9,044 ) —

Other ( 206 ) ( 316 )

7 unchanged sentences

(in thousands)

Tax at the statutory federal rate $ ( 137,276 ) $ ( 80,739 ) $ ( 51,639 )

Other nondeductible items 1,795 1,399 786

Taxes at the statutory federal rate $ ( 100,553 ) $ ( 137,276 ) $ ( 80,739 )

Capitalized research and expenditures true-up 8,212 — —

Stock-based compensation 8,077 7,905 1,354

4 unchanged sentences

3,908 ( 1,146 ) 3,412

Total provision for (benefit from) income taxes

Total provision for income taxes

$ 685 $ 1,139 $ 300

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.

The Company’s actual tax expense differed from the statutory federal income tax expense using a tax rate of 21% for the years ended December 31, 2023, 2022 and 2021, primarily due to the change in valuation allowance, state income taxes net of federal benefits, withholding taxes, research and development tax credits, stock-based compensation expenses, and capitalized research and expenditures true-up.

As of December 31, 2023 and 2022, the Company had net operating loss carryforwards of $ 1.4 billion and $ 1.2 billion for federal purposes, and $ 1.0 billion and $ 0.9 billion 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 purposes, and 2024 for state and local purposes.

Federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited.

Some but not all states conform to the federal treatment of net operating losses.

As of December 31, 2022 and 2021, the Company had research and development tax credit carryforwards for federal tax purposes of $ 32.7 million and $ 21.4 million, and state research and development tax credit carryforwards of $ 21.8 million and $ 15.9 million, respectively.

As of December 31, 2023, the Company had federal and state research and development tax credit carryforwards of $ 41.9 million, net of reserve of $ 22.6 million, and $ 26.1 million, net of reserve of $ 14.0 million, respectively.

As of December 31, 2022, the Company had federal and state research and development tax credit carryforwards of $ 32.7 million and $ 21.8 million, respectively.

The federal research and development tax credit carryforwards will expire at various dates beginning in the year 2032.

9 unchanged sentences

deferred tax assets.

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 net change in total valuation allowance was an increase of $ 114.7 million, an increase of $ 175.9 million and an increase of $ 188.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The Company considers the earnings of certain non-U.S.

subsidiaries to be indefinitely reinvested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings.

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

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

federal and state income tax expense and foreign withholding taxes on approximately $ 4.7 million of undistributed earnings of foreign subsidiaries indefinitely reinvested outside the United States.

If the foreign earnings are repatriated, the income tax provision would be adjusted in the period the earnings are determined to be no longer indefinitely reinvested outside the United States.

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

8 unchanged sentences

Increases related to current year’s tax positions 8,465 9,233 8,223

Increases related to prior years’ tax positions 301 608 60

(Decreases) increases related to prior years’ tax positions ( 1,153 ) 301 608

Unrecognized tax benefits - End of period $ 36,946 $ 29,634 $ 20,100

4 unchanged sentences

Employee Benefit Plan

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

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

For the years ended December 31, 2023, 2022 and 2021, the Company contributed $ 7.1 million, $ 6.7 million and $ 4.5 million, respectively, to match employee contributions as permitted by the plan.

9 unchanged sentences

International 37,424 28,920 21,092

28,920 21,092 22,073

Total revenue

$ 563,948 $ 449,538 $ 373,653

(1) No single country outside of the United States accounted for more than 10% of total revenue during each of the years ended December 31, 2022, 2021 and 2020.

As of December 31, 2023 and 2022, 98 % and 99 %, respectively, of the Company’s long-lived assets and right-of-use assets are located in the United States.

4 unchanged sentences

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