GRAIL, Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F- 2 Audited Consolidated Financial Statements Consolidated Balance Sheets F- 3 Consolidated Statements of Operations F- 4 Consolidated Statements of Comprehensive Loss F- 5 Consolidated Statements of Equity F- 6 Consolidated Statements of Cash Flows F- 7 Notes to Consolidated Financial Statements F- 8 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of GRAIL, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of GRAIL, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, equity and cash flows for each of the three years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. 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 audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 audits 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits 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 audits 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 audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2023. San Diego, California March 5, 2025 F-2 Table of Contents GRAIL, Inc. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share data) As of December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 214,234 $ 97,287 Short-term marketable securities 549,236 — Accounts receivable, net (1) 20,312 16,942 Supplies (2) 18,632 21,695 Prepaid expenses and other current assets (3) 17,447 20,141 Total current assets 819,861 156,065 Property and equipment, net (4) 69,061 84,995 Operating lease right-of-use assets 66,373 84,386 Restricted cash 3,349 4,225 Intangible assets, net 2,016,890 2,687,223 Goodwill — 888,936 Other non-current assets 7,773 7,984 Total assets $ 2,983,307 $ 3,913,814 Liabilities and stockholders’/member’s equity Current liabilities: Accounts payable (5) $ 4,844 $ 19,673 Accrued liabilities (6) 57,241 73,806 Incentive plan liabilities — 54,513 Operating lease liabilities, current portion 13,260 14,809 Other current liabilities 1,580 809 Total current liabilities 76,925 163,610 Operating lease liabilities, net of current portion 54,881 69,598 Deferred tax liability, net 345,860 32,921 Other non-current liabilities 2,236 1,498 Total liabilities 479,902 267,627 Commitments and contingencies (Note 9) Stockholders’/member’s equity: Preferred stock, par value of $ 0.001 per share; 50,000,000 shares authorized, no shares issued and outstanding as of December 31, 2024 and December 31, 2023 — — Common stock $ 0.001 par value per share, 1,500,000,000 shares authorized, 33,893,409 shares issued and outstanding as of December 31, 2024, no shares authorized, issued and outstanding as of December 31, 2023 34 — Additional paid-in capital 12,305,250 — Member’s equity — 11,421,446 Accumulated other comprehensive income 1,451 1,066 Accumulated deficit $ ( 9,803,330 ) $ ( 7,776,325 ) Total stockholders’/member’s equity 2,503,405 3,646,187 Total liabilities and stockholders’/member's equity $ 2,983,307 $ 3,913,814 (1) Includes related party accounts receivable, net of $ 65 and $ 80 , respectively. (2) Includes related party supplies of $ 3,130 and $ 5,855 , respectively. (3) Includes related party prepaid expenses and other current assets of $ 77 and $ 41 , respectively. (4) Includes related party property and equipment, net of $ 2,227 and $ 3,640 , respectively. (5) Includes related party accounts payable of $ — and $ 168 , respectively. (6) Includes related party accrued liabilities of $ 104 and $ 95 , respectively. See accompanying notes to consolidated financial statements. F-3 Table of Contents GRAIL, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share data) Year Ended December 31, 2024 December 31, 2023 January 1, 2023 Revenue: Screening revenue (1) $ 108,627 $ 74,999 $ 39,817 Development services revenue 16,968 18,106 15,733 Total revenue 125,595 93,105 55,550 Costs and operating expenses: Cost of screening revenue (exclusive of amortization of intangible assets) (2) 63,284 47,966 32,140 Cost of development services revenue (3) 6,444 6,861 5,968 Cost of revenue — amortization of intangible assets 133,889 133,889 133,889 Research and development (4) 322,380 338,745 329,576 Sales and marketing 153,958 162,292 122,328 General and administrative (5) 213,862 200,268 174,108 Goodwill and intangible assets impairment 1,420,936 718,466 4,700,431 Total costs and operating expenses 2,314,753 1,608,487 5,498,440 Loss from operations ( 2,189,158 ) ( 1,515,382 ) ( 5,442,890 ) Other income: Interest income 26,733 7,954 1,740 Other income (expense), net 64 ( 208 ) ( 238 ) Total other income, net 26,797 7,746 1,502 Loss before income taxes ( 2,162,361 ) ( 1,507,636 ) ( 5,441,388 ) Benefit from income taxes 135,356 41,951 42,290 Net loss $ ( 2,027,005 ) $ ( 1,465,685 ) $ ( 5,399,098 ) Net loss per share — Basic and Diluted $ ( 63.54 ) $ ( 47.21 ) $ ( 173.89 ) Weighted-average shares of common stock used in computing net loss per share: 31,901,259 31,049,148 31,049,148 (1) Includes related party screening revenue of $ 460 , $ 652 and $ 694 , respectively. (2) Includes related party cost of screening revenue of $ 13,091 , $ 8,532 and $ 4,142 , respectively. (3) Includes related party cost of development services revenue of $ 637 , $ 238 and $ 227 , respectively. (4) Includes related party research and development expenses of $ 18,843 , $ 19,508 and $ 18,780 , respectively. (5) Includes related party general and administrative expenses of $ 104 , $ 206 and $ 614 , respectively. See accompanying notes to consolidated financial statements F-4 Table of Contents GRAIL, Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Amounts in thousands) Year Ended (in thousands) December 31, 2024 December 31, 2023 January 1, 2023 Net loss $ ( 2,027,005 ) $ ( 1,465,685 ) $ ( 5,399,098 ) Other comprehensive income: Net unrealized gain on marketable securities, net of tax 266 — — Foreign currency translation adjustment 119 172 579 Comprehensive loss $ ( 2,026,620 ) $ ( 1,465,513 ) $ ( 5,398,519 ) See accompanying notes to consolidated financial statements. F-5 Table of Contents GRAIL, Inc. CONSOLIDATED STATEMENTS OF EQUITY (Amounts in thousands, except share data) Common Stock Shares Amount Member’s Equity Additional Paid in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders’/Member’s Equity Balance as of January 2, 2022 $ — $ — $ 10,341,750 $ — $ 315 $ ( 911,542 ) $ 9,430,523 Net loss — — — — — ( 5,399,098 ) ( 5,399,098 ) Stock-based compensation expense — — 9,884 — — — 9,884 Other comprehensive loss — — — — 579 — 579 Contribution from member, net — — 604,273 — — — 604,273 Balance as of January 1, 2023 — $ — $ 10,955,907 $ — $ 894 $ ( 6,310,640 ) $ 4,646,161 Net loss — — — — — ( 1,465,685 ) ( 1,465,685 ) Stock-based compensation expense — — 1,773 — — — 1,773 Other comprehensive loss — — — — 172 — 172 Contribution from member, net — — 463,766 — — — 463,766 Balance as of December 31, 2023 — $ — $ 11,421,446 $ — $ 1,066 $ ( 7,776,325 ) $ 3,646,187 Net loss — — — — — ( 2,027,005 ) ( 2,027,005 ) Stock-based compensation expense — — 326 31,607 — — 31,933 Other comprehensive income — — — — 385 — 385 Contribution from member, net — — 312,000 — — — 312,000 Recognition of deferred tax liability in connection with the Spin-Off* — — ( 447,190 ) — — — ( 447,190 ) Reclassification of incentive plan liabilities to additional paid-in capital — — — 54,795 — — 54,795 Disposal funding received in connection with the Spin-Off* — — 932,300 — — — 932,300 Issuance of common stock in connection with the Spin-Off and reclassification of contribution from member, net* 31,049,148 31 ( 12,218,882 ) 12,218,851 — — — Vesting of restricted stock units 2,844,261 3 — ( 3 ) — — — Balance as of December 31, 2024 33,893,409 $ 34 $ — $ 12,305,250 $ 1,451 $ ( 9,803,330 ) $ 2,503,405 *See Note 1 — Organization And Description Of Business for more information on the Spin-Off. See accompanying notes to consolidated financial statements. F-6 Table of Contents GRAIL, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended December 31, 2024 December 31, 2023 January 1, 2023 Cash flows from operating activities Net loss $ ( 2,027,005 ) $ ( 1,465,685 ) $ ( 5,399,098 ) Adjustments to reconcile net loss to net cash used by operating activities: Amortization of intangibles assets 138,333 138,333 138,333 Depreciation 19,723 20,364 16,430 Stock-based compensation expense 86,084 97,235 75,729 Cash payment for equity awards ( 53,807 ) ( 76,910 ) ( 41,009 ) Deferred income taxes ( 134,251 ) ( 38,153 ) ( 39,063 ) Amortization of discount on marketable securities ( 3,167 ) — — Goodwill and intangible assets impairment 1,420,936 718,466 4,700,431 Other 276 2,829 1,398 Changes in operating assets and liabilities: Accounts receivable (1) ( 3,370 ) ( 1,383 ) ( 8,676 ) Supplies (2) 3,073 ( 1,940 ) ( 14,082 ) Operating lease right-of-use assets and liabilities, net 1,747 6,712 4,924 Prepaid expenses and other assets (3) 1,823 ( 908 ) ( 10,526 ) Accounts payable (4) ( 14,635 ) 2,889 2,340 Accrued and other liabilities (5) ( 12,916 ) 2,351 11,556 Net cash used by operating activities ( 577,156 ) ( 595,800 ) ( 561,313 ) Cash flows from investing activities Purchases of property and equipment (6) ( 5,208 ) ( 12,887 ) ( 22,859 ) Purchases of marketable securities ( 545,803 ) — — Net cash used by investing activities ( 551,011 ) ( 12,887 ) ( 22,859 ) Cash flows from financing activities Cash funding received from Illumina 1,244,300 464,000 609,000 Taxes paid related to net share settlement of equity awards — ( 234 ) ( 4,183 ) Net cash provided by financing activities 1,244,300 463,766 604,817 Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 62 ) 305 ( 511 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 116,071 ( 144,616 ) 20,134 Cash, cash equivalents and restricted cash — beginning of period 101,512 246,128 225,994 Cash, cash equivalents and restricted cash — end of period $ 217,583 $ 101,512 $ 246,128 Represented by: Cash and cash equivalents $ 214,234 $ 97,287 $ 241,596 Restricted cash 3,349 4,225 4,532 Total $ 217,583 $ 101,512 $ 246,128 Supplemental cash flow information: Property and equipment included in accounts payable and accrued liabilities — ( 1,326 ) ( 1,940 ) Operating cash flows from operating leases, net ( 19,272 ) ( 18,733 ) ( 17,536 ) (1) Includes changes in related party accounts receivable of $ 15 , $ 133 and $( 92 ), respectively. (2) Includes changes in related party supplies of $ 2,725 , $( 871 ) and $( 2,214 ), respectively. (3) Includes changes in related party prepaid and other current assets of $( 36 ), $ 27 and $ 761 , respectively. (4) Includes changes in related party accounts payable of $( 168 ), $( 2,965 ) and $ 2,331 , respectively. (5) Includes changes in related party accrued liabilities of $ 9 , $ 91 and $( 2,400 ), respectively. (6) Includes related party purchases of property and equipment of $ — , $( 2,644 ) and $( 1,755 ), respectively. See accompanying notes to Consolidated financial statements . F-7 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS GRAIL, Inc. (“GRAIL” or the “Company”), headquartered in Menlo Park, Californi a , is an innovative commercial-stage healthcare company focused on saving lives and shifting the paradigm of early cancer detection. The Company’s Galleri blood test is a commercially available screening test for early detection of multiple types of cancer. GRAIL’s common stock is listed under the ticker symbol “GRAL” on the Nasdaq Stock Exchange. GRAIL was previously acquired by Illumina, Inc. (”Illumina”) in August 2021, at which point it became a 100 % owned subsidiary of Illumina, and held separate as a part of binding hold separate commitments implemented pursuant to orders issued by the European Commission. See Note 10 — Legal And Regulatory Proceedings for additional details. GRAIL separated from Illumina on June 24, 2024, as described below. GRAIL was a limited liability company (“LLC”) from August 19, 2021 to June 21, 2024 when it was converted into a corporation (the “Conversion”) in anticipation of such separation. Separation from Illumina On June 24, 2024, (the “Distribution Date”), Illumina completed the previously announced spin-off of GRAIL (the “Spin-Off”). The Spin-Off was completed through a distribution of 85.5 % of the Company’s outstanding common stock to the holders of record of Illumina’s common stock as of the close of business on June 13, 2024 (the “Distribution”), which resulted in the distribution of 31.0 million shares of common stock. As a result of the Distribution, the Company became an independent public entity. Illumina’s ownership of GRAIL reduced to 14.5 % after the Spin-Off. Unless the context otherwise requires, references to the Company or GRAIL, refer to (i) GRAIL, LLC prior to the Conversion and (ii) GRAIL, Inc. and its subsidiaries following the Conversion. In connection with the Spin-Off, the Company entered into or adopted agreements that provide a framework for the relationship between the Company and Illumina, including, but not limited to the following: • Separation and Distribution Agreement — governed the terms and conditions of the Spin-Off and sets forth aspects of the Company’s and Illumina’s relationship following the Spin-Off. See Note 10 — Legal And Regulatory Proceedings for more information regarding the contingencies related to this agreement. • Tax Matters Agreement — governs the respective rights, responsibilities and obligations of Illumina and the Company after the Spin-Off with respect to all tax matters and includes restrictions to preserve the tax-free status of the Distribution. See Note 13 — Taxes for more information regarding income taxes and Note 10 — Legal And Regulatory Proceedings regarding the contingencies related to this agreement. • Employee Matters Agreement — addresses employment, compensation, and benefits matters, including the allocation and treatment of assets and liabilities relating to employees and compensation and benefits plans and programs in which GRAIL employees participate, as well as the treatment of cash-based incentive awards in connection with the Spin-Off. See Note 7 — Stock-Based Compensation for further details regarding treatment of equity awards. • Stockholder and Registration Rights Agreement — governs the respective rights, responsibilities and obligations of Illumina and the Company after the Spin-Off with respect to Illumina’s continuing ownership of GRAIL common stock. • Supply and Commercialization Agreement Amendment — amends the Company’s supply and commercialization agreement with Illumina, which governs the ongoing supply and commercial relationship, including licensing, royalty payments and intellectual property between GRAIL and Illumina. See Note 15 — Related Party Transactions for more information regarding the royalty arrangements with Illumina. F-8 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Illumina provided the Company with disposal funding (the “Disposal Funding”) in the amount of $ 932.3 million in accordance with the Separation and Distribution Agreement, subject to a clawback feature in the event that the Company (i) consummates a change in control transaction, sells or licenses substantially all of its assets or adopts a plan of liquidation (collectively, a “GRAIL Change of Control”), or (ii) (1) pays any dividend on, or makes any other distribution in respect of, any shares of its capital stock or other equity or voting interests (other than a stock dividend or a stock split), or otherwise consummates a return of capital from the Company to any of its equity holders or (2) redeems, purchases or otherwise acquires any of its outstanding shares of capital stock or other equity or voting interests (other than the acquisition of any shares in order to effectuate a “net settlement” transaction for the purposes of satisfying tax withholding obligations arising in connection with the grant, vesting, exercise and/or settlement of any outstanding incentive equity awards of GRAIL held by its current or former employees), in each case, prior to September 24, 2025 (the 15 -month anniversary of the Distribution Date). If the Company consummates a transaction described in the foregoing clause (i), the Company must return to Illumina a cash amount decreasing over time calculated by reference to the number of months which have elapsed since the Distribution Date at the time of the public announcement of the event giving rise to the change of control. If the Company consummates a transaction described in the foregoing clause (ii), the Company must return to Illumina a cash amount equal to the payments made by the Company in connection with such transaction. The amount of clawback payments made cannot exceed the amount of the initial disposal funding. See Note 10 — Legal And Regulatory Proceedings — Contingencies for details. Our Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to manage its net loss and to become profitable and operate profitably, to manage the Company’s negative cash flows from operations and to generate positive cash flows from operations, and the Company’s ability to obtain financing to support working capital requirements. The Company had $ 214.2 million of cash and cash equivalents and $ 549.2 million of short-term marketable securities as of December 31, 2024 . The Company believes that its existing cash and cash equivalents and short-term marketable securities will be sufficient to meet its working capital and capital expenditure needs for at least the next 12 months, as of the date these consolidated financial statements were filed. Fiscal Year The Company has a fiscal year end of December 31. Prior to the Spin-Off, the Company’s fiscal year was the 52 or 53 weeks ending the Sunday closest to December 31. References to 2024 , 2023 and 2022 refer to the fiscal years ended December 31, 2024 , December 31, 2023, and January 1, 2023 , respectively, which were all 52 weeks. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements represent the historical operations of the standalone GRAIL legal entity and include purchase accounting adjustments and certain tax adjustments as if the Company filed a separate income tax return and was not included in Illumina’s consolidated return for the period of time the Company was owned by Illumina . All revenues and costs as well as assets and liabilities directly associated with the business activity of the Company are included in the consolidated financial statements. Illumina’s acquisition of GRAIL in August 2021 (“the Acquisition”) represented a change of control with respect to GRAIL. Given GRAIL, Inc. merged with SDG Ops, Inc., which then merged with SDG Ops LLC, authoritative guidance (ASC 805-50-30) required pushdown accounting to be applied for the Second Merger amongst entities under common control. As a result of the application of pushdown accounting, the separately F-9 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS issued financial statements of GRAIL reflect Illumina’s basis in the assets and liabilities of GRAIL which were remeasured to fair value as of the closing date of Illumina’s acquisition of GRAIL (“ Closing Date”). Intangible assets included developed technology, in-process research and development, and trade names, as well as goodwill. There were also various other purchase price adjustment entries made in connection with the Acquisition that impacted the GRAIL standalone financial statements. Management considered the need to allocate any shared costs incurred by the parent, Illumina, to the accompanying consolidated financial statements. As previously discussed, the European Commission had adopted an order requiring Illumina and GRAIL to be held and operated as distinct and separate entities. As no integration ever occurred, management concluded that no material allocations are required. However, amounts recognized by the Company are not necessarily representative of the amounts that would have been reflected in the financial statements had the Company operated independently of the parent. Related party transactions with Illumina are discussed further in Note 15 — Related Party Transactions. These consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances have been eliminated in consolidation. Use of Estimates The preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses in the consolidated financial statements and accompanying notes. 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. On an ongoing basis, management evaluates its estimates, including, but not limited to, those related to estimation of variable consideration, estimation of credit losses, standalone selling price included in contracts with multiple performance obligations, measure of progress toward the completion and satisfaction of performance obligations, accrued clinical studies and research and development expenses, stock-based compensation expense, measurement of liability-classified awards, valuation of goodwill and intangible assets, useful lives of intangible assets and property and equipment, determination of incremental borrowing rate for operating leases, contingencies, and the provision for income taxes, 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 could differ from those estimates, and such differences could be material to the consolidated financial statements. Concentration of Credit Risk Financial Instruments The Company is subject to credit risk from its portfolio of cash, cash equivalents and short-term marketable sec urities held at three accredited financial institutions. As of December 31, 2024, the Company had approximately $ 214.2 million of cash deposits and cash equivalents and short-term marketable securities of $ 549.2 million . The Company limits its exposure to credit losses by investing in money market funds and U.S government treasury securities through U.S. banks with high credit ratings. The Company’s cash consi sts of deposits held with banks that may at times exceed federally insured limits, however, its exposure to credit risk in the event of default by the financial institution is limited to the extent of amounts recorded on the consolidated balance sheets. The Company performs evaluations of the relative credit standing of these financial institutions to limit the amount of credit exposure. The Company has not experienced any losses in such accounts. The Company has policy limits for the amount it can invest in any one type of security, except for securities issued or guaranteed by the U.S. government. The goals of the Company’s investment policy, in order of priority, are as follows: minimize risk of the invested capital (including credit risk, interest rate risk and concentration risk), provide liquidity in a timely manner to accommodate operational and capital needs, and subject to the foregoing, seek to generate a reasonable return based on market conditions and given these risk and liquidity guidelines. As F-10 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of December 31, 2024, the Company had no off-balance sheet concentrations of credit risk. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, investment type and issuer, as a result, the Company is not exposed to any significant concentrations of credit risk from these financial instruments. Customers The Company is subject to credit risk related to its accounts receivable. Accounts receivable primarily arise from testing services performed in the United States and are primarily with biopharmaceutical companies, employers, healthcare organizations, concierge medicine practices, life insurance companies, and individuals. The Company does not require collateral. Accounts receivable are recorded net of the allowance for credit losses. Significant customers are those that represent more than ten percent of total revenue or accounts receivable, net balances for the periods and as of each consolidated balance sheet date presented, respectively. Revenue from a major customer that accounted for 10% or more of total revenue is as follows: Year Ended December 31, 2024 December 31, 2023 January 1, 2023 Customer A 11 % 14 % 21 % Customers that accounted for 10% of more of total accounts receivable balance are as follows: As of December 31, 2024 2023 Customer A 32 % 43 % Suppliers The Company is subject to a concentration risk for equipment, supplies and reagents that are available from a limited number of sources. We source certain laboratory equipment, supplies and reagents used to perform testing services and research and development from single vendors. Historically, we have not experienced significant issues sourcing equipment and supplies needed to perform testing services. Significant Accounting Policies Cash and Cash Equivalents Cash and cash equivalents consist of cash on deposit with banks denominated in U.S. Dollars and British Pounds, money market funds, and all highly liquid investments with an original maturity of three months or less. Restricted Cash Restricted cash is comprised of cash that is restricted as to withdrawal or use related to letters of credit for the Company’s operating lease agreements. Short-term marketable securities The Company classifies its investments as available-for-sale, which consist of high-grade United States (“U.S.”) government treasury bills and are reported at fair value. Management determines the appropriate classification of investments at the time of purchase and re-evaluates such designation as of each balance sheet date. Marketable securities that mature within twelve months from the balance sheet date are classified as short-term marketable securities and those with maturities over twelve months from the balance sheet date are F-11 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS classified as long-term marketable securities. Unrealized holding gains and losses are reflected as a separate component of shareholders’ equity in accumulated other comprehensive gain (loss) until realized. Realized gains and losses on the sale of these securities are recognized in net income or loss. The amended guidance from ASU 2016-13 requires the measurement of expected credit losses for available-for-sale debt securities held at the reporting date over the remaining life based on historical experience, current conditions, and reasonable and supportable forecasts. The Company regularly evaluates its investment portfolio under the available-for-sale debt securities impairment model guidance for indications of possible impairment from credit losses or other factors. For available-for-sale debt securities in an unrealized loss position, the Company evaluates whether a current expected credit loss exists based on available information relevant to the credit rating of the security, current economic conditions and reasonable and supportable forecasts. The Company’s investment portfolio is composed of low-risk, investment grade securities and thus the Company has not recorded an expected credit loss for its investment portfolio. Fair Value of Financial Instruments The fair value of financial assets and liabilities is determined using the fair value hierarchy established in Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”). ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The hierarchy describes three levels of inputs that may be used to measure fair value, as follows: Level 1 —Observable inputs, such as quoted prices in active markets for identical assets and liabilities. Level 2 —Observable inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 —Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The carrying amounts for financial instruments such as accounts receivable, net, prepaid expenses and other current assets, accounts payable, and accrued liabilities approximate fair value due to their short-term natur e . Accounts Receivable, Net Accounts receivable represent unconditional rights to consideration from customers. Accounts receivable are evaluated regularly for collectability and potential credit losses. Allowance for credit losses is estimated based on management’s assessment of historical collection trends and the financial conditions of customer s , among other factors. These reserves are re-evaluated on a regular basis and adjusted, as needed. Once a receivable is deemed to be uncollectible, the receivable balance is charged against the reserve. As of December 31, 2024, and December 31, 2023, the Company had $ 3.8 million and $ 3.1 million of allowance for credit losses, respectively. Supplies Supplies consists of materials and reagents consumed in the performance of testing services. The Company periodically analyzes supply levels and expiration dates, and writes down supply that has become obsolete or that has a cost basis in excess of expected sales requirements as cost of revenue. The Company records an allowance for excess or obsolete supplies using an estimate based on historical trends, usage forecasts and evaluation of near-term expirations. F-12 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property and Equipment, Net Property and equipment, net is stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the useful life of the improvements. Repair expenses and maintenance costs are expensed as incurred. When an item is sold or disposed of, the cost and related accumulated depreciation or amortization is eliminated and the resulting gain or loss, if any, is recorded in the consolidated statements of operations. The estimated useful lives of the major classes of property and equipment are generally as follows: Useful Life (in Years) Laboratory equipment 3 to 5 Computer hardware 3 Computer software 3 Furniture and fixtures 5 Leasehold improvements Lease Term Leases Leases are classified as operating or financing at lease inception and as necessary at modification. Leased assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When readily determinable, the Company uses the rate implicit in the lease to discount lease payments; however, when the rate is not readily determinable, the Company uses the incremental borrowing rate based on the information available at the commencement date. The incremental borrowing rate is the rate of interest that a company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term and in a similar economic environment. The operating lease ROU asset also includes any initial direct costs, lease payments made prior to lease commencement, and lease incentives received. Variable lease payments are expensed as incurred and are not included within the ROU asset and lease liability calculation. Variable lease payments primarily include reimbursements of costs incurred by lessors for common area maintenance and utilities. For each lease, the determined lease term is based on a noncancellable period, including any rent-free periods provided by the lessor, and may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease cost for lease payments is recognized on a straight-line basis over the lease term. Certain lease agreements contain lease and non-lease components. The Company accounts for non-lease components as part of the lease component to which they relate. The Company does not recognize ROU assets and lease liabilities for short-term leases, which have a lease term of twelve months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. Goodwill and Intangible Assets Intangible assets identified in the Acquisition include GRAIL trade names, developed technology, and GRAIL in-process research and development (“IPR&D”) and were measured at fair value as of the closing date of Illumina’s acquisition of GRAIL (“ Closing Date”). Goodwill represents the excess of purchase price paid cost over fair value of the net identifiable assets acquired. F-13 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company’s trade names, GRAIL and Galler i , have brand recognition in the market related to the services GRAIL provides customers and the research and development activities GRAIL performs. GRAIL’s developed technology includes intangible assets related to Galler i , its multi-cancer early detection test that was launched as a laborator y -developed test (“LDT”) in 2021, as well as a diagnostic aid for cancer (“DAC”) test. The developed technology underpins both Galler i , designed as a cancer screening test for asymptomatic individuals over 50 years of age, and DAC that is being designed to accelerate diagnostic resolution for patients for whom there is a clinical suspicion of cancer. The cost of identifiable intangible assets with finite lives, such as trade names and developed technology assets, are amortized on a straight-line basis over the assets’ respective estimated useful lives of 9 years and 18 years, respectively. The Company’s IPR&D includes assets related to GRAIL’s development of a minimal residual disease (“MRD”) test, a post-diagnostic test, that is currently under development. IPR&D is considered indefinit e -lived and therefore is not amortized until completed and placed into service, at which point it will begin to be amortized over its estimated useful life or expensed upon abandonment of the associated research and development efforts. While goodwill and IPR&D are not amortize d , they are reviewed for impairment at least annually or more frequently if events or circumstances indicate a potential for impairment. Goodwill and IPR&D are considered impaired if the carrying value of the reporting unit or IPR&D asset exceeds its respective fair value. The Company performs its goodwill impairment analysis at the reporting unit level. The Company has one reporting unit, which aligns with its reporting structure and availability of discrete financial information. During the goodwill impairment review, the Company assesses qualitative factors to determine whether it is more likely than not that the fair value of the Company’s reporting unit is less than the carrying amount, including goodwill. During the indefinite-lived intangible asset impairment review, the Company assesses the qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset fair value is less than the carrying amount. The qualitative factors considered include, but are not limited to, macroeconomic conditions, industry and market considerations, and our overall financial performance. If the Company determines that it is not more likely than not that the fair value of our reporting unit or the intangible asset is less than the carrying amount, no additional assessment is necessary. If the carrying amount of the reporting unit or intangible asset exceeds its fair value, the Company records an impairment loss based on the excess. The Company may elect to bypass the qualitative assessment in a period and proceed to perform the quantitative goodwill and indefinite-lived intangible asset impairment test. Impairment of Long-Lived Assets Long-lived assets, other than goodwill and IPR&D (as described above), are evaluated for indications of possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amounts to the future undiscounted cash flows attributable to these assets. Should impairment exist, the impairment would be measured as the amount by which the carrying amount of the assets exceeds the fair value of those assets. Segments The Company operates and manages its business as one reportable operating segment which provides multi-cancer early detection testing and services. The chief operating decision maker reviews financial information on an aggregate basis for the purposes of evaluating financial performance and allocating the company resources. Substantially all of the Company’s long-lived assets are located in the United States. Revenue Recognition Revenue is accounted for in accordance with Topic 606, which provides for a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation. Revenues are derived from screening and development services. The Company’s revenues were primarily generated in the United States. F-14 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Screening Revenue Th e Compan y recognize s screenin g revenu e fro m th e sal e o f cance r screenin g testin g service s fo r patients. Patient s obtai n test s vi a thei r employers , healthcar e systems , payors , concierg e medicin e practices , lif e insurance provider s o r directl y vi a telemedicine . Patient s receiv e th e multi-cance r earl y detectio n ki t afte r th e orde r i s placed an d complet e th e bloo d draw . Th e specime n i s the n sen t t o th e Company’ s lab , th e tes t i s processed , an d th e resul t is electronicall y delivere d t o th e patients ’ physician . Th e tes t pric e i s base d o n th e negotiate d contractua l rat e wit h the Company’ s direc t customers , otherwis e th e Company’ s standar d lis t pric e applies . Th e Compan y identifie s each sal e o f it s tes t t o a custome r a s a singl e performanc e obligation ; therefore , revenu e i s recognize d a t th e poin t o f time whe n th e tes t resul t repor t i s delivered . Invoice s ar e generall y du e withi n 3 0 day s o f receipt. For self-pay patients, the Company has concluded that an implied contract exists, however the transaction price for the implied contract represents variable consideration as there are situations in which the Company is not expected to collect the full invoiced amounts from self-pay patients due to price concessions. The Company utilizes the expected value approach to estimate the transaction price and applies a constraint for such variable consideration, on a portfolio basis. The Company monitors the estimated amounts to be collected at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required. 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. The Company analyzes its actual cash collections over the expected collection 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 collection period, subject to assessment of the risk of future revenue reversal. Development Services Revenue Development services revenue includes development activities performed in partnership with biopharmaceutical companies. The Company’s targeted methylation-based technology enables development of products and services to optimize treatment once a cancer has been diagnosed. Biopharmaceutical partners engage the Company to run pilots and research studies to evaluate and learn about the technology’s application. The Company evaluates the terms and conditions included within its development services contracts with biopharmaceutical customers to ensure appropriate revenue recognition, including whether services are considered distinct performance obligations. The Company first identifies material promises under the contract and then evaluates whether these promises are capable of being distinct within the context of the contract. In assessing whether a promised service is capable of being distinct, the Company considers whether the customer could benefit from the service either on its own or together with other resources that are readily available to the customer, including factors such as the research, development, and commercialization capabilities of a third party as well as the availability of the associated expertise in the general marketplace. For contracts with multiple performance obligations, the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines the standalone selling price by considering the historical selling price of these performance obligations in similar transactions as well as other factors, including, but not limited to, the price that customers in the market would be willing to pay, competitive pricing of other vendors, industry publications and current pricing practices, and expected costs of satisfying each performance obligation plus appropriate margin; or by using the residual approach if standalone selling price is not observable, by reference to the total transaction price less the sum of the observable standalone selling prices of other performance obligations promised in the contract. Biopharmaceutical partners engage the Company to run pilot and research studies by sending patient samples and comparing the Company’s test result to their expected result for evaluation of performance and application. The Company recognizes revenue as performance obligations are completed. Following favorable results from pilot and research studies, biopharmaceutical partners and the Company may enter into development service agreements related to clinical trial and companion diagnostic device development and regulatory submissions for the developed product(s). These agreements typically have multiple commitments of services and therefore have longer performance periods. The Company uses an input method based on costs incurred to measure its progress toward the completion and satisfaction of the performance F-15 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS obligations. The Company assesses the changes to the total expected cost estimates as well as any incremental fees negotiated resulting from changes to the scope of the original contract in determining the revenue recognized at each reporting period. Invoices are generally due within 60 days. Deferred Revenue Deferred revenue, which is a contract liability, consists primarily of payments received in advance of revenue recognition from contracts with customers. For example, prepayments received from patients for screening testing services and development services and other contracts with biopharmaceutical customers often contain upfront payments which results in the recording of deferred revenue to the extent cash is received prior to the Company’s performance of the related development services. Contract liabilities are relieved as the Company performs its obligations under the contract and revenue is recognized. Deferred revenue was $ 1.6 million and $ 0.8 million as of December 31, 2024 and December 31, 2023, respectively, all of which is considered short-term and was recorded within other current liabilities on the accompanying consolidated balance sheets. Cost of Screening Revenue Cost of screening revenue generally consists of cost of materials, labor including salaries and wages, bonus, benefits and stock-based compensation , amortization of GRAIL intangible assets, blood collection kits and shipping, phlebotomy, royalties, electronic medical records, equipment depreciation, and allocations of overhead expenses such as facilities and information technology costs . Per the terms of the Separation and Distribution Agreement with Illumina, the royalty arrangement with Illumina is suspended until the earlier of December 24, 2026 or any change of control of the Company, at which time a high-single digit royalty payments will be payable . Cost of Development Services Revenue Cost of development services revenue generally consists of materials and patient sample acquisition, labor including salaries and wages, bonus, benefits and stock-based compensation, royalties, equipment depreciation, and allocations of overhead expenses such as facilities and information technology costs . Per the terms of the Separation and Distribution Agreement with Illumina, the royalty arrangement with Illumina is suspended until the earlier of December 24, 2026 or any change of control of the Company, at which time a high-single digit royalty payments will be payable . Accrued Clinical Studies and Research and Development Expenses Estimates of unbilled costs of research and development activities for clinical studies conducted by third- party service providers are accrued. The estimated costs of research and development activities are recorded based upon the estimated amount of services provided. These costs are included in accrued liabilities in the consolidated balance sheets and within research and development expenses in the consolidated statements of operations. These costs are a significant component of research and development expenses. The costs are accrued based on factors such as estimates of the work completed and in accordance with agreements established with third-party service providers. The judgments and estimates in determining the accrued liabilities balance are assessed in each reporting period. Research and Development Research and development expenses include costs incurred to develop the Company’s technology (prior to establishing technological feasibility), collect clinical samples, and conduct clinical studies to develop and support the Company’s multi-cancer test s . These costs consist of personnel costs, including salaries, benefits, and stock-based compensation expense associated with the research and development personnel, laboratory supplies, consulting costs, costs associated with setting up and conducting clinical studies at domestic and international sites, and allocated overhead expenses including rent, information technology, and equipment depreciation. Both internal and external research and development costs are expensed in the periods in which they are incurred. Nonrefundable advance payments for goods and services that will be used or rendered in future research and F-16 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS development activities are deferred and recognized as expense in the period in which the related goods are delivered, or services are performed. Advertising Costs Advertising costs are expensed as incurred. Advertising costs were $ 17.7 million, $ 21.9 million and $ 24.5 million for the years ended December 31, 2024, December 31, 2023 , and January 1, 2023 , respectively. Stock-Based Compensation Expense The Company’s stock-based compensation expense includes expenses related to Cash-Based Equity Awards, restricted stock units (“RSUs”), deferred stock units (“DSUs”), and performance stock options. Forfeitures are accounted for as incurred, as a reversal of stock-based compensation expense related to awards that will not vest. A cash-based equity incentive award (the “Cash-Based Equity Award”) program was adopted following Illumina’s acquisition of GRAIL in 2021 to provide GRAIL employees with dollar-denominated long-term incentive awards that were indexed to the value of GRAIL. In connection with the Spin-Off, in accordance with the Employee Matters Agreement, the Cash-Based Equity Awards, which were cash-settled, liability-classified awards, were modified to become RSUs that will be settled in shares of the Company’s common stock upon vesting (the “Award Modification”). Unvested performance stock options that were previously held by certain GRAIL employees to purchase Illumina common stock were converted to options to purchase GRAIL common stock in connection with the Spin-Off. See Note 7 — Stock-Based Compensation for further details of the Award Modification. Prior to the Award Modification, the Cash-Based Equity Awards were liability-classified awards because the Cash-Based Equity Awards could be (and were) settled in cash. Until April 30, 2024, GRAIL’s stand-alone value calculation was estimated by the Company based on its analysis and the input from independent valuation advisors. The value of the Cash-Based Equity Awards was recorded over the applicable vesting periods, with recognition of a corresponding liability recorded in incentive plan liabilities in the consolidated balance sheets. The Cash-Based Equity Awards were remeasured at each reporting date until settlement with changes in fair value recognized in stock-based compensation expense. On April 30, 2024, Illumina’s Compensation Committee approved an adjustment of the ordinary course payouts of the Cash-Based Equity Awards providing that the Cash-Based Equity Awards would be paid based on their nominal (face) value without adjustment based on changes in equity value. Subsequent to this adjustment to the Cash-Based Equity Awards and continuing until the Award Modification, the Cash-Based Equity Awards were expensed in accordance with their applicable vesting schedules. In connection with the Acquisition, Illumina issued equity awards to GRAIL employees in exchange for their remaining outstanding and unvested GRAIL equity awards (the “Replacement Awards”). The awards consisted of restricted stock units and performance stock options that settled in shares of Illumina common stock at vesting or exercise, as applicable. The compensation expense for the Replacement Awards was recognized based on the fair value on a straight-line basis over the requisite service periods of the awards. The grant date fair values of RSUs and DSUs are generally determined based on the closing market price of GRAIL’s common stock on the date of the grant, but (i) in the case of RSUs resulting from the Award Modification, the date of the Award Modification, and (ii) in the case of DSUs resulting from deferrals of director cash fees, based on the closing market price of GRAIL’s common stock on the date that such cash fees would have been otherwise paid. Stock-based compensation expense is recognized based on the fair value of the award on a straight-line basis over the requisite service periods of the RSUs. The fair value of performance stock options with service conditions is determined using the Black-Scholes-Merton option-pricing model. The model assumptions include expected volatility, term, dividends, and the risk-free interest rate. The expected volatility is generally determined by weighting the historical and implied volatility of peer companies’ common stock. The expected term is the Company’s best estimates based on the vesting period and contractual term. Given that cash dividends were never declared or paid on the Illumina nor GRAIL common F-17 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS stock, the expected dividend yield is determined to be 0 %. The Company does not anticipate paying cash dividends in the foreseeable future. The risk-free interest rate is based upon U.S. Treasury securities with remaining terms similar to the expected term of the stock-based awards. The fair value of the performance stock options begins to be recognized when it is probable that the performance-based condition will be met. Defined Contribution Plan The Company sponsors a defined contribution plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) pursuant to which, eligible employees can elect to contribute eligible compensation to the 401(k) Plan, subject to certain limitations. On January 1, 2023, the 401K Plan was modified to provide for a 100 % employer match of employee contributions up to a maximum of three thousand dollars per employee. For the years ended December 31, 2024 and December 31, 2023, the Company contributed $ 3.9 million and $ 3.9 million to match employee contributions, respectively. The Company pays the administrative costs for the 401(k) plan. Provision for (Benefit from) Income Taxes As a standalone entity, the Company files tax returns on its own behalf, and tax balances and the effective income tax rate may differ from the amounts reported in historical periods. As of June 24, 2024 and in connection with the Spin-Off, the Company adjusted its deferred tax balances and computed its related tax provision to reflect operations as a standalone entity. During the period that Illumina held the Company, the Company’s activity generated various tax attributes recognized as deferred tax assets (“DTAs”), due primarily to the generation of net operating losses (“NOLs”), IRC 174 capitalized research and experimental expenditures, and research and development (“R&D”) tax credits that could not be specifically utilized by the Company as it did not generate positive taxable income and it was not a separately regarded tax paying entity from Illumina. Since the Company was not a separately regarded taxable entity from Illumina, these tax attributes were either utilized by or will be utilized by Illumina when filing its consolidated tax return. Historically, the tax attributes were only presented in the Company’s standalone financial statements to allow the users to understand the financial position of the Company as a standalone taxable entity under the Separate-Return Method. The total tax-effected value of the tax attributes, net of Financial Accounting Standards Board Interpretation No. 48 (“FIN48”) liabilities and valuation allowance that were deemed to be the property of Illumina, was $ 447.2 million. In connection with the Spin-off, the underlying $ 447.2 million of tax attributes were adjusted through an entry of $ 447.2 million to additional paid in capital. Net Loss Per Share Attributable to Common Stockholders The Company calculates basic net loss per share attributable to common stockholders by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. In loss periods, basic and diluted net loss per share are identical since the effect of potentially dilutive common shares is antidilutive and therefore excluded. Potentially dilutive common shares consist of shares issuable under equity awards. Potentially dilutive common shares from equity awards are determined using the average share price for each period under the treasury stock method. In addition, proceeds from exercise of equity awards and the average amount of unrecognized compensation expense for equity awards are assumed to be used to repurchase shares. Restructuring Charges Restructuring charges consist primarily of severance, benefits, payroll taxes, and other related costs. The Company evaluates the nature of these costs to determine if they relate to ongoing benefit arrangements which are accounted for under ASC 712, Compensation - Nonretirement Postemployment Benefits, or one-time benefit arrangements which are accounted for under ASC 420, Exit or Disposal Cost Obligations. The Company records a liability for ongoing employee termination benefits when it is probable that an employee is entitled to them and the amount of the benefits can be reasonably estimated. One-time employee termination costs are recognized F-18 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS when management has communicated the termination plan to employees, unless future service is required, in which case the costs are recognized ratably over the future service period. All other related costs are recognized when incurred. Restructuring charges are recognized as an operating expense within the consolidated statements of operations and are classified based on each employee’s respective function. Foreign Currency The functional currency of the foreign subsidiary is the British Pound. Adjustments resulting from translating the financial statements of the United Kingdom subsidiary into U.S. Dollars are recorded as a component of other comprehensive loss in the consolidated statements of comprehensive loss. Monetary assets and liabilities denominated in a foreign currency are translated into U.S. Dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at the weighted-average exchange rates during the period. Equity transactions are translated using historical exchange rates. Gains and losses resulting from translation of foreign currency monetary transactions are reported in other income (expense), net in the consolidated statements of operations and comprehensive loss. Gains and losses resulting from foreign currency transactions that are deemed to be of a long-term investment nature are reported as a separate component of other comprehensive loss. Reclassification Certain amounts on the consolidated balance sheets, consolidated statements of operations and statements of cash flows have been conformed to the December 31, 2024 presentation of related party balances and transactions. Recent Accounting Pronouncements The Company evaluates all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (the "FASB") for consideration of their applicability. ASUs not included in the disclosures in this report were assessed and determined to be either not applicable or are not expected to have a material impact on the Company’s consolidated financial statements. Recently Adopted Accounting Pronouncements In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This update improves reportable segment disclosure requirements, primarily through enhanced disclosures of significant segment expenses. This standard was effective for the Company beginning in fiscal year 2024 and interim periods within fiscal year 2025. We adopted the standard on its effective date in fiscal year 2024 and applied the amendments retrospectively to all prior periods presented in the consolidated financial statements. The Company has included the required disclosures in “ Note 14 — Segment Information .” Accounting Pronouncements Not Yet Adopted In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures. This update improves income tax disclosure requirements, primarily through enhanced transparency and decision usefulness of disclosures. 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 potential impact of this guidance on its consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures. This update intends to improve financial reporting by requiring disclosure of additional information about specific expense categories. This guidance is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and the guidance is to be applied prospectively and may be applied F-19 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS retrospectively. The Company is currently evaluating the impact of this guidance on our consolidated financial statements and related disclosures. NOTE 3. REVENUE The following table presents the Company’s revenue disaggregated by geographic areas based on the customers’ locations: Year Ended (in thousands) December 31, 2024 December 31, 2023 January 1, 2023 United States Screening $ 108,536 $ 75,000 $ 39,817 Development Services 2,280 3,679 3,545 International (1) Screening 91 — — Development Services 14,688 14,426 12,188 Total $ 125,595 $ 93,105 $ 55,550 _________ (1) International region includes revenue earned from customers located outside of the United States. The following table presents the Company’s revenue disaggregated by revenue source: Year Ended (in thousands) December 31, 2024 December 31, 2023 January 1, 2023 Screening Commercial $ 108,467 $ 75,000 $ 39,817 Government (1) 160 — — Development Services Commercial 16,968 18,105 15,733 Total $ 125,595 $ 93,105 $ 55,550 _________ (1) Government screening revenue primarily consists of revenue earned as part of our Galleri-Medicare clinical study. NOTE 4. GOODWILL AND INTANGIBLE ASSETS Due to the application of pushdown accounting, the Company’s balance sheet includes goodwill and intangible assets recognized by Illumina in connection with Illumina’s acquisition of the Company. Goodwill Impairment Goodwill represents the excess of purchase price Illumina paid over the fair value of the net identifiable assets acquired upon the Acquisition of the Company. F-20 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) Goodwill Balance as of January 2, 2022 $ 6,197,833 Impairment ( 4,700,431 ) Balance as of January 1, 2023 1,497,402 Impairment ( 608,466 ) Balance as of December 31, 2023 888,936 Impairment ( 888,936 ) Balance as of December 31, 2024 — 2024 Goodwill Impairment In Q2 2024, prior to the Spin-Off, the approval of the Spin-Off by Illumina’s board of directors represented a potential indicator of impairment, which also aligned with the timing of Illumina’s annual goodwill impairment test date for 2024. The assessment was performed using a market approach to determine the fair value of goodwill which utilized the valuation ranges prepared by the divestment financial advisors engaged by Illumina in connection with the Spin-Off. The valuation ranges were determined using revenue multiples from public company peers for 2024 and 2025. The implied discount rate for the goodwill impairment assessment was 51.5 %. These estimates and assumptions represent a Level 3 measurement because they include unobservable inputs that are supported by little or no market activity and reflect Company-determined and judgmental factors for these assumptions in measuring fair value. The assumptions in the assessment of an impairment analysis are inherently subjective due to uncertainty and any slight changes in these rates and assumptions could have a significant impact on the concluded value of goodwill. The Company recognized a goodwill impairment of $ 888.9 million as a result of the impairment assessment, primarily due to changes to the forecast of GRAIL’s value and the method for valuing GRAIL . 2023 Goodwill Impairment In Q3 2023, Illumina concluded the sustained decrease in Illumina’s stock price and overall market capitalization during the quarter was a triggering event indicating the fair value of GRAIL might be less than its carrying amount which led the Company to test goodwill for impairment. The assessment was performed using a combination of both an income and a market approach to determine the fair value of goodwill. The income approach utilized estimated discounted cash flows, while the market approach utilized comparable company information. Estimates and assumptions used in the income approach included projected cash flows and a discount rate . The discount rate selected at the time of the goodwill impairment assessment was 24.0 % . These estimates and assumptions represent a Level 3 measurement because they include unobservable inputs that are supported by little or no market activity and reflect Company-determined and judgmental factors for these assumptions in measuring fair value. The assumptions in the assessment of an impairment analysis are inherently subjective due to uncertainty and any slight changes in these rates and assumptions could have a significant impact on the concluded value of goodwill. The Company recognized a goodwill impairment of $ 608.5 million as a result of the impairment assessment, primarily due to changes to expected timing of revenue and a higher discount rate selected for the fair value calculation of GRAIL. 2022 Goodwill Impairment On July 13, 2022, the European General Court ruled that the European Commission had jurisdiction under the European Union Merger Regulation to review the Acquisition. Additionally, on September 6, 2022, the European Commission issued a decision prohibiting the Acquisition. These decisions constituted substantive changes in circumstances and led Illumina to test goodwill for impairment. The assessment was performed using a combination of both an income and a market approach to determine the fair value of goodwill. The income approach utilized the estimated discounted cash flows, while the market approach utilized comparable company information. Estimates and assumptions used in the income approach included projected cash flows and a discount rate. The discount rate selected at the time of the goodwill impairment assessment was 22.0 %. These estimates and assumptions represent a Level 3 measurement because they include unobservable inputs that are F-21 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS supported by little or no market activity and reflect Company-determined and judgmental factors for these assumptions in measuring a fair value. The assumptions in the assessment of an impairment analysis are inherently subjective due to uncertainty and any slight changes in these rates and assumptions could have a significant impact on the concluded value of goodwill. The Company recognized a goodwill impairment of $ 4.7 billion as a result of the impairment assessment, primarily due to the negative impact of capital market conditions and a higher discount rate selected for the fair value calculation of GRAIL. Intangible Assets Intangible assets recognized as part of the Acquisition include developed technologies, trade name and IPR&D that were measured at fair value as of the Closing Date. The following roll-forward indicates the fair values assigned to identifiable assets from the Acquisition and the resulting amortization and impairmen t : December 31, 2024 (in thousands) Gross Carrying Amount Accumulated Amortization Impairment Net Intangible Assets Developed Technologies 2,410,000 ( 446,297 ) — 1,963,703 Trade Names 40,000 ( 14,813 ) — 25,187 Total Finite-Lived Intangible Assets 2,450,000 ( 461,110 ) — 1,988,890 In-process Research and Development (IPR&D) 560,000 — ( 532,000 ) 28,000 Total Intangible Assets 3,010,000 ( 461,110 ) ( 532,000 ) 2,016,890 December 31, 2023 (in thousands) Gross Carrying Amount Accumulated Amortization Impairment Net Intangible Assets Developed Technologies 2,410,000 ( 312,408 ) — 2,097,592 Trade Names 40,000 ( 10,369 ) — 29,631 Total Finite-Lived Intangible Assets 2,450,000 ( 322,777 ) — 2,127,223 In-process Research and Development (IPR&D) 670,000 — ( 110,000 ) 560,000 Total Intangible Assets 3,120,000 ( 322,777 ) ( 110,000 ) 2,687,223 The fair values of the developed technologies, trade name and IPR&D were estimated using an income approach, under which an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. The estimated fair values were developed by discounting future net cash flows to their present value at market-based rates of return and inclusive of an assumption for technology obsolescence. The useful lives of the intangible assets for amortization purposes were determined by considering the period of expected cash flows used to measure the fair values of the intangible assets, adjusted as appropriate for entity-specific factors including legal, regulatory, contractual, competitive, economic, and other factors that may limit the useful life. The developed technology and trade name assets are amortized on a straight-line basis over their estimated useful lives. In conjunction with Illumina’s Q2 2024 goodwill impairment assessment, the IPR&D intangible asset of the GRAIL reporting unit was evaluated for potential impairment by Illumina prior to the Spin-Off. The evaluation for a potential impairment of the IPR&D intangible asset was performed by comparing its carrying value to the assessed estimated fair value, which was determined by the income approach, using a discounted cash flow model. Estimates and assumptions used in the income approach included projected cash flows and a discount rate. The discount rate selected at the time of the IPR&D intangible impairment assessment was 46.5 %. Based on the impairment test performed, Illumina assessed and determined that the carrying value of GRAIL’s IPR&D intangible asset exceeded its estimated fair value. As a result of push down accounting, the Company recognized an impairment of $ 420.0 million primarily due to changes to revenue projections and the discount rate utilized. Subsequent to the Spin-Off, the Company performed a portfolio review and determined to decrease investment in the development of the IPR&D asset, which impacted the amount and timing of expected future cash flows attributable to IPR&D. This determination was driven by the impact of our post-Spin-Off capital F-22 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS structure, constitution of our Board at the time of the Spin-Off as the key decision maker for the determination, and increased ability to revisit our business strategy and portfolio as a standalone public company without regulatory oversight. This represented a potential impairment indicator. An impairment assessment was performed using a discounted cash flow model utilizing the updated projected cash flows and discount rate. The discount rate selected was 20 %. Based on the impairment test performed, the Company assessed and determined that the carrying value of the IPR&D intangible asset exceeded its estimated fair value. As a result, the Company recognized an additional impairment of $ 112.0 million, primarily due to a decrease in projected cash flows. In conjunction with the Q3 2023 goodwill impairment assessment described above, the Company also evaluated the IPR&D intangible asset for potential impairment. The evaluation for a potential impairment of the IPR&D intangible asset was performed by comparing its carrying value to the assessed estimated fair value, which was determined by the income approach, using a discounted cash flow model. Estimates and assumptions used in the income approach included projected cash flows and a discount rate. The discount rate selected at the time of the IPR&D intangible impairment assessment was 19.0 %. Based on the impairment test performed, the Company assessed and determined that the carrying value of the IPR&D intangible asset exceeded its estimated fair value. As a result, the Company recognized an impairment of $ 110.0 million, primarily due to a decrease in projected cash flows and a higher discount rate selected for the fair value calculation. The estimates and assumptions updated in each of these evaluations described above represent a Level 3 measurement because they include unobservable inputs that are supported by little or no market activity and reflect Company- determined and judgmental factors for these assumptions in measuring a fair value. The assumptions in the assessment of an impairment analysis are inherently subjective due to uncertainty and any slight changes in these rates and assumptions could have a significant impact on the concluded value of the IPR&D intangible asset. A recoverability test for the finite-lived intangible assets, which includes developed technology and trade names, was also performed. Based on the assessment performed, no impairment was noted for the finite-lived intangibles. As of December 31, 2024 the research and development project had not been completed or abandoned. The IPR&D intangible asset is not currently subject to amortization. The estimated future annual amortization of finite-lived intangible assets is shown in the following table. Actual amortization expense to be reported in future periods could differ from these estimates as a result of acquisitions, divestitures, and asset impairments, among other factors. (in thousands) Estimated Annual Amortization 2025 138,333 2026 138,333 2027 138,333 2028 138,333 2029 138,333 Thereafter 1,297,225 Total $ 1,988,890 F-23 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. BALANCE SHEET COMPONENTS The following tables present financial information of certain consolidated balance sheets components: As of December 31, (in thousands) 2024 2023 Prepaid expenses and other current assets Prepaid software $ 4,641 $ 4,734 Tax receivable 4,329 5,411 Prepaid insurance 2,439 814 Prepaid service and maintenance 601 1,220 Indirect taxes 145 1,383 Prepaid other 5,292 6,579 Total prepaid expenses and other current assets $ 17,447 $ 20,141 As of December 31, (in thousands) 2024 2023 Property and equipment, net Leasehold improvements $ 59,764 $ 58,439 Laboratory equipment 53,550 46,520 Computer hardware 4,682 4,767 Furniture and fixtures 2,577 2,524 Construction-in-process 1,296 7,966 Computer software 1,072 324 Property and equipment, gross 122,941 120,540 Less accumulated depreciation and amortization ( 53,880 ) ( 35,545 ) Total property and equipment, net $ 69,061 $ 84,995 As of December 31, (in thousands) 2024 2023 Accrued liabilities Accrued compensation expenses $ 34,530 $ 41,484 Accrued research and development expenses 7,914 6,692 Accrued clinical studies expenses 5,113 6,897 Accrued legal and professional expenses 2,966 7,820 Accrued marketing 605 1,882 Accrued other expenses 6,113 9,031 Total accrued liabilities $ 57,241 $ 73,806 NOTE 6. FAIR VALUE MEASUREMENTS, CASH EQUIVALENTS AND MARKETABLE SECURITIES The following tables represent the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2024 and December 31, 2023 : F-24 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2024 (in thousands) Fair Value Level 1 Level 2 Level 3 Financial Assets: Money market funds $ 94,697 $ 94,697 $ — $ — U.S. government treasury bills 117,442 117,442 — — Total cash equivalents 212,139 212,139 — — U.S. government treasury bills 549,236 549,236 — — Total short-term marketable securities 549,236 549,236 — — Total $ 761,375 $ 761,375 $ — $ — December 31, 2023 (in thousands) Fair Value Level 1 Level 2 Level 3 Financial Assets: Money market funds $ 92,640 $ 92,640 $ — $ — Total cash equivalents $ 92,640 $ 92,640 $ — $ — The following tables summarize the Company’s cash equivalents and marketable securities’ amortized costs, gross unrealized gains, gross unrealized losses and estimated fair values by significant investment category: December 31, 2024 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Money market funds $ 94,697 $ — $ — $ 94,697 U.S. government treasury bills $ 666,412 $ 266 $ — $ 666,678 Total 761,109 266 — 761,375 December 31, 2023 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Money market funds $ 92,640 $ — $ — $ 92,640 Total $ 92,640 $ — $ — $ 92,640 All of the Company’s marketable securities had maturities of less than one year. There were no marketable securities in an unrealized loss position as of December 31, 2024 and none of the Company’s marketable securities had been in an unrealized loss position for more than one year as of December 31, 2024. The Company evaluates investments that are in an unrealized loss position for impairment as a result of credit loss. It was determined that no credit losses exist as of December 31, 2024 because no securities were in an unrealized loss position. F-25 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. STOCK-BASED COMPENSATION Stock-based compensation expense, which includes expense for both equity and liability-classified awards, reported in our consolidated statements of operations was as follows: Year Ended (in thousands) December 31, 2024 (1) December 31, 2023 (2) January 1, 2023 (3) Cost of screening revenue (exclusive of amortization of intangible assets) $ 1,724 $ 1,932 $ 955 Cost of development services revenue 230 38 2 Research and development 30,701 39,792 34,859 Sales and marketing 15,310 17,506 11,232 General and administrative 38,119 37,967 28,681 Stock-based compensation expense, before taxes 86,084 97,235 75,729 Related income tax benefits ( 20,890 ) ( 23,455 ) ( 18,046 ) Stock-based compensation expense, net of taxes $ 65,194 $ 73,780 $ 57,683 _________ (1) Includes $ 54.7 million related to the Cash-Based Equity Awards, $ 29.9 million related to restricted stock units, $ 1.1 million related to Performance Options, and $ 0.4 million related to Replacement Awards. (2) Includes $ 95.5 million related to the Cash-Based Equity Awards and $ 1.7 million related to Replacement Awards. (3) Includes $ 65.8 million related to the Cash-Based Equity Awards and $ 9.9 million related to Replacement Awards. 2024 Incentive Award Plan The GRAIL, Inc. 2024 Incentive Award Plan (the “2024 Plan”) was adopted by GRAIL and approved by Illumina, in its capacity as GRAIL’s sole stockholder, in May 2024 to facilitate the grant of cash and equity incentive awards to non-employee directors, employees, and consultants of the Company and its subsidiaries and to enhance the ability of the Company and any of its subsidiaries to obtain and retain the services of these individuals following the Spin-Off. This plan authorizes the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance-based awards, and other stock or cash based awards. The restricted stock units granted to employees and directors consist of vesting periods ranging between 18 months and 48 months. The maximum number of shares authorized for issuance under the 2024 Plan is the sum of (a) 8,656,817 shares; and (b) an annual increase on the first day of each calendar year beginning on and including January 1, 2025 and ending on and including January 1, 2034, equal to the lesser of (i) 5 % of the aggregate number of shares outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as is determined by the GRAIL board of directors. The total number of shares authorized for issuance increased by 1,694,670 shares to 10,351,487 shares on the first day of fiscal year 2025 pursuant to the annual automatic evergreen increase provision of the 2024 Plan. Shares Available for Grant Balance as of the Spin-Off 8,656,817 Awarded ( 9,124,761 ) Forfeited 947,283 Balance as of December 31, 2024 479,339 2024 Deferred Compensation Plan F-26 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The GRAIL, Inc. Deferred Compensation Plan for Directors (the “2024 Deferred Compensation Plan”) was adopted by GRAIL’s board of directors on July 15, 2024 to provide GRAIL’s non-employee directors with an opportunity to defer payment of all or a portion of their eligible compensation, consisting of cash fees and/or equity awards granted during a given year. Each director may make an irrevocable deferral election with respect to all or a portion of their eligible compensation in accordance with the terms and conditions of the 2024 Deferred Compensation Plan, deferring payment until the earlier of (i) a fixed date elected by the director (if any), (ii) the director’s separation from service, (iii) a “change in control” (as defined in the 2024 Plan) or (iv) the director’s death or permanent disability. If a director elects to defer all or a portion of their cash fees, GRAIL will issue a number of DSUs to the director equal to the portion cash fees deferred divided by the fair market value of a share of GRAIL’s common stock on the date that such fees would have otherwise been paid, rounded down to the nearest whole share. If a director elects to defer their equity awards, GRAIL will issue a number of deferred stock units to the director equal to the number of shares of GRAIL common stock underlying the deferred awards and subject to the same vesting, forfeiture and other restrictions that would have otherwise applied to such equity award absent the deferral. All DSUs will be issued under the 2024 Incentive Award Plan. As of December 31, 2024 , three of our directors had elected to defer their 2024 cash fees and two of our directors had elected to defer their equity awards granted in 2024. 2024 Inducement Award Plan The GRAIL, Inc. 2024 Inducement Award Plan (the “2024 Inducement Plan”) was adopted by GRAIL’s board of directors on August 9, 2024. The 2024 Inducement Plan was adopted to enhance the ability of the Company and any of its subsidiaries to attract, retain and motivate eligible employees by providing these employees with equity ownership opportunities and/or equity-linked compensatory opportunities. The plan is used exclusively for the grant of equity awards to prospective employees who (i) were not previously employees of GRAIL, or (ii) are returning to GRAIL following a bona fide period of non-employment, in any case, in connection with and as an inducement material to such prospective employee’s entering into employment with GRAIL pursuant to Nasdaq Listing Rule 5635(c)(4). This plan authorizes the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance-based awards, and other stock or cash based awards. A summary of the Company’s restricted stock unit activity is as follows: Restricted Stock Units Weighted-Average Grant-Date Fair Value Per Share (Units in thousands) Outstanding at January 1, 2024 — $ — Conversion 6,485 $ 15.37 Awarded 2,833 $ 13.07 Released ( 2,844 ) $ 15.37 Forfeited ( 951 ) $ 15.22 Outstanding at December 31, 2024 5,523 $ 14.22 F-27 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2024 , there were 4,442 DSUs that were vested but unreleased related to the three directors that had elected to defer their 2024 cash fees. As of December 31, 2024, approximately $ 48.2 million of total unrecognized compensation cost related to restricted stock units was expected to be recognized over a weighted average period of approximately 1.2 years. Pre-tax intrinsic value of outstanding restricted stock a s of December 31, 2024, was $ 98.6 million. There was no pre-tax intrinsic value of outstanding restricted stock as of December 31, 2023. The fair value of restricted stock that vested during the years ended December 31, 2024 and December 31, 2023 was $ 45.5 million and $ 0.5 million, respectively. 2024 Employee Stock Purchase Plan The GRAIL, Inc. 2024 Employee Stock Purchase Plan (the “ESPP”) was adopted by GRAIL and approved by Illumina, in its capacity as GRAIL’s sole stockholder, in May 2024. The number of shares of Company common stock initially available under the ESPP is equal to (a) 414,021 (b) an annual increase on the first day of each calendar year beginning on and including January 1, 2025 and ending on and including January 1, 2034, equal to the lesser of (i) 1 % of the aggregate number of shares outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as is determined by the GRAIL board of directors. There were 414,021 shares of Company common stock initially available for issuance pursuant to the ESPP. As of December 31, 2024 , no shares had been granted under the ESPP plan. The total number of shares authorized for issuance increased by 338,934 shares to 752,955 shares on the first day of fiscal year 2025 pursuant to the annual automatic evergreen increase provision of the ESPP. Performance Options The Company has two awards of performance-based stock options (“Performance Options”) outstanding. The outstanding Performance Options, in general, have contractual terms of ten years from the respective grant dates. The Performance Options generally vest monthly over three years upon the achievement of Company-specified performance targets and are subject to continued service through the applicable vesting date. The performance condition for one of the outstanding awards of Performance Options covering 63,484 shares that has an exercise price of $ 14.00 per share was met on November 1, 2024, meaning that this option now vests and become exercisable in thirty-six equal monthly installments on the monthly anniversaries of November 1, 2024, subject to continued service through the vesting date. As of December 31, 2024, 1,763 shares subject to this Performance Option were vested and exercisable. The other outstanding award of Performance Options covers 40,831 shares has an exercise price of $ 12.80 per share and will commence vesting upon meeting certain performance-based conditions; achievement of this performance condition is considered not probable as of December 31, 2024. As such, there has been no expense recognized for this Performance Option. As of December 31, 2024 , approximately $ 1.1 million of total unrecognized compensation cost related to the Performance Options was expected to be recognized over a period of approximately 2.9 years. The aggregate intrinsic value of the Performance Options outstanding as of December 31, 2024 and December 31, 2023 was $ 0.5 million and $ 0.9 million, respectively. Performance stock option activity was as follows: (Units in thousands) Performance Stock Options Weighted-Average Exercise Price Outstanding at December 31, 2023 — $ — Converted 104 $ 13.53 Outstanding at December 31, 2024 104 $ 13.53 F-28 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Liability-classified Awards Performance-Based Award The Company has one performance-based award outstanding held by a former employee for which vesting is based on future revenues. The award has an aggregate potential value of up to $ 78.0 million and expires, to the extent unvested, in August 2030. One-fourth of the total potential value of the award vests immediately upon the achievement of cumulative net revenues in any period of four consecutive fiscal quarters of $ 500.0 million, $ 750.0 million, $ 1.5 billion, and $ 2.0 billion. The Company assesses the probability of achieving the performance conditions associated with the award on a quarterly basis at each reporting period. If and to the extent that the liability becomes due and payable prior to 12:01 a.m. Eastern Time December 24, 2026 (the “Disposal Funding Period”) and paid by GRAIL, in cash, during the Disposal Funding Period, Illumina will reimburse GRAIL all or such portion of the liability paid by GRAIL in accordance of the terms of the Separation and Distribution Agreement. As of December 31, 2024 , it was not probable that the performance conditions associated with the award would be achieved and, therefore, no stock-based compensation expense, or corresponding loss recovery asset or liability, has been recognized in the consolidated financial statements. Cash-Based Equity Awards The Cash-Based Equity Award program was adopted following Illumina’s acquisition of GRAIL in 2021 to provide GRAIL employees with dollar-denominated long-term incentive awards that increased or decreased in value based on corresponding changes in GRAIL’s calculated value. GRAIL’s standalone value calculation was estimated by the Company based on its analysis and input from independent valuation advisors. To estimate the value of GRAIL for the purposes of the Cash-Based Equity Awards, various assumptions were used, including long-range financial projections, as well as the discount rate and terminal growth rate. The awards generally vested in four equal installments on the first four anniversaries of the grant date, subject to continued employment through the applicable vesting date. In April 2024, Illumina’s Compensation Committee and Board of Directors (as applicable) approved an adjustment of the ordinary course payouts for all outstanding Cash-Based Equity Awards providing that the Cash-Based Equity Awards would be paid based on their nominal (face) values without adjustment based on changes in equity value. Subsequent to this adjustment to the Cash-Based Equity Awards and continuing until the Award Modification, the Cash-Based Equity Awards were expensed based on such nominal (face) value in accordance with their applicable vesting schedules. The payments in respect of the Cash-Based Equity Awards between the adoption of such adjustment and the Distribution Date were paid out in cash at the applicable Cash-Based Equity Awards’ nominal (face) value. Payments in respect of the Cash-Based Equity Awards before such adjustment were paid out in cash based on the adjusted value of the Cash-Based Equity Award on the applicable vesting date. During the second quarter of 2024, one-time Cash-Based Equity Awards were granted to GRAIL employees, including executives, for retention purposes (“2024 Transition Incentive Awards”) with a total grant date fair value of $ 40.2 million which were treated as a liability-classified awards. Each 2024 Transition Award vests entirely in one year or less from its grant date, subject to the applicable holder’s continued service through the vesting date or, if earlier upon (i) the applicable holder’s termination due to death or disability or (ii) following a “change in control” (as defined in the award agreement evidencing the 2024 Transition Incentive Awards), the applicable holder’s termination without “cause” or for “good reason” (each as defined in the award agreement evidencing the 2024 Transition Incentive Awards). In connection with the Spin-Off, the 2024 Transition Incentive Awards were converted into RSUs covering 2.5 million shares in accordance with the Employee Matters Agreement by dividing the aggregate award value by the volume-weighted average share price over the first four trading days following the Spin-Off. On the modification date, June 28, 2024, these liability-classified 2024 Transition Incentive Awards in the amount of $ 4.4 million were reclassified to Additional Paid-In Capital. In connection with the Spin-Off, all outstanding Cash-Based Equity Awards, with the exception of the 2024 Transition Incentive Awards described above, were modified and converted into RSUs in accordance with the Employee Matters Agreement, with the number of RSUs determined by dividing the Aggregate Award Value (as discussed below) for such Cash-Based Equity Award by the volume-weighted average share price of GRAIL stock on the first four trading days following the Spin-Off. All other terms and conditions of the awards, including vesting F-29 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and payment terms, were unaffected by the conversion. All other terms and conditions of the awards, including vesting and payment terms, were unaffected by the conversion. For each Cash-Based Equity Award, the “Aggregate Award Value” is equal to, (i) for the portion of such award originally scheduled to vest in 2024, the initial grant value of such portion, and (ii) for the remaining unvested portion of such award, the initial grant value of such portion adjusted up or down based on a percentage, with such percentage determined by (A) GRAIL’s average closing market capitalization for the four trading days immediately following the distribution date minus the aggregate equity value of GRAIL at the time the Cash-Based Equity Award was granted, as reflected in the consolidated financial statements of Illumina (the “Baseline Equity Value”), divided by (B) the Baseline Equity Value. Upon modification, the awards became equity-classified. The value of tranches of the Cash-Based Equity Awards that vest in future years (exclusive of the 2024 Transition Incentive Awards described above) was reduced and, as a result, there was no incremental compensation cost. Approximately 1,300 grantees were impacted by this modification. On the modification date, June 28, 2024, the liability-classified awards were reclassified to Additional Paid-In Capital at their fair value in the amount of $ 50.3 million. Due to the higher value of the 2024 tranche of the Cash-Based Equity Awards, compensation cost will be recognized over the vesting period to ensure compensation cost has been recognized at least equal to the amount that is legally vested. As the result of this modification, the Cash-Based Equity Awards that were outstanding on the Distribution Date (in addition to the 2024 Transition Incentive Awards) were converted to 4.0 million RSUs to be settled in GRAIL RSUs shares. Cash-Based Equity Award activity was as follows: Year Ended (in thousands) December 31, 2024 December 31, 2023 January 1, 2023 Beginning balance $ 292,189 $ 293,359 $ 184,532 Granted 66,864 116,407 168,065 Cancelled ( 11,751 ) ( 32,159 ) ( 40,937 ) Vested and paid in cash ( 53,807 ) ( 76,910 ) ( 41,009 ) Change in fair value ( 9,535 ) ( 8,508 ) 22,708 Conversion of outstanding awards to GRAIL RSUs ( 283,960 ) — — Outstanding balance $ — $ 292,189 $ 293,359 Replacement Awards Illumina issued Replacement Awards to GRAIL employees in exchange for any of their remaining outstanding and unvested GRAIL equity awards as of the Closing Date. The Replacement Awards, granted under Illumina’s 2015 Stock and Incentive Compensation Plan (the 2015 Stock Plan), consisted of restricted stock units and performance stock options that were issued as shares of Illumina common stock at vesting. Replacement Awards granted in the form of restricted stock units generally vested over a two-year period with equal vesting quarterly. The terms of the Replacement Awards were substantially similar to the former GRAIL equity awards for which they were exchanged. F-30 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of the Company’s replacement restricted stock unit activity is as follows: Restricted Stock Units Weighted-Average Grant-Date Fair Value Per Share (Units in thousands) Outstanding at January 2, 2022 47 $ 510.61 Vested ( 39 ) $ 510.61 Cancelled ( 6 ) $ 510.61 Outstanding at January 1, 2023 2 $ 510.61 Vested ( 2 ) $ 510.61 Outstanding at December 31, 2023 — $ — A summary of the Company’s replacement performance options activity is as follows: (Units in thousands) Performance Stock Options Weighted-Average Exercise Price Outstanding at January 2, 2022 17 $ 85.54 Outstanding at January 1, 2023 17 $ 85.54 Exercised ( 1 ) $ 16.69 Outstanding at December 31, 2023 16 $ 87.74 As of the Distribution Date, there were two remaining unvested Performance Options. In connection with the Spin-Off, unvested replacement performance-based stock options previously issued to GRAIL employees to purchase Illumina common stock were converted into Performance Options in accordance with the Employee Matters Agreement. On June 28, 2024, the modification date, the Company accounted for the modification of the two Performance Options as Type I (for the Performance Option for which the performance condition was met on November 1, 2024) and Type IV (for the Performance Option for which achievement of the performance condition was considered not probable) modifications, respectively. These options were converted at a ratio equal to the average of the volume weighted average per share price of Illumina stock trading during the four days immediately preceding the Distribution Date divided by the average of volume weighted average per share price of GRAIL common stock on the first four trading days immediately following the Distribution Date. For the Performance Option with Type I modification, the incremental charge recognized of the difference in the fair value of the option before and immediately after the modification was immaterial. For the Performance Option with Type IV modification, the fair value of the award as of the Modification Date will be used for expense purposes once the award becomes probable of achievement. As the result of this modification, the Performance Options that were outstanding on the Distribution Date were converted to 0.1 million options. NOTE 8. LEASES The Company has entered into operating leases for facilities and equipment used for research and development. Operating leases have remaining lease terms which range from less than 1 year to 9 years, and often include one or more options to renew. These renewal terms can extend the lease term from 5 to 15 years and are included in the lease term when it is reasonably certain that the option will be exercised. The exercise of lease renewal and termination options are at the sole discretion of the Company. The Company also has variable lease payments that are primarily comprised of common area maintenance and utility charges. F-31 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company’s weighted average remaining lease term is approximately 7.3 years and 7.6 years as of December 31, 2024, and December 31, 2023, respectively. The Company’s weighted average discount rate for operating leases is 2.5 % and 2.4 % as of December 31, 2024, and December 31, 2023, respectively. The components of lease costs are as follows: Year Ended (in thousands) December 31, 2024 December 31, 2023 January 1, 2023 Operating lease costs $ 18,577 $ 24,357 $ 23,055 Variable lease costs 4,666 3,676 3,079 Total lease costs $ 23,243 $ 28,033 $ 26,134 Future undiscounted lease payments under operating leases as of December 31, 2024 were as follows: (in thousands) Amount 2025 $ 15,160 2026 14,043 2027 8,021 2028 8,232 2029 8,448 Thereafter 32,132 Total undiscounted lease payments $ 86,036 Less: Imputed interest ( 8,005 ) Less: Tenant improvement allowance* ( 9,890 ) Total operating lease liabilities $ 68,141 _________ * Tenant improvement allowance is estimated to be received as follows: approximately $ 0.2 million in 2025 and $ 9.7 million thereafter. NOTE 9. COMMITMENTS AND CONTINGENCIES The future non-lease commitments over the next five years and thereafter were as follows: As of December 31, 2024 (in thousands) Purchase Commitments 2025 $ 21,086 2026 20,164 2027 18,544 2028 258 2029 258 Thereafter — Total $ 60,310 Licensing Agreements The Company has entered into licensing agreements related to its research efforts. These agreements contain minimum annual royalty payments which are cancellable at the Company’s discretion, therefore they are not reflected in the above chart. Additionally, some of these licensing agreements include royalties that would be F-32 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS payable on net sales of Galler i , and any future products, pursuant to existing agreements and licenses with Illumina, the Chinese University of Hong Kong, and other third parties in excess of minimum annual royalty payments. Purchase Commitments The purchase commitments primarily relate to contractual commitments for future use of web services, laboratory supplies and marketing events in the normal course of business. Intellectual Property The Company entered into an agreement with a third party for exclusive option rights to certain intellectual property. The Company exercised those option rights to license intellectual property in December 2022. Under the terms of the agreement, the Company may be obligated to make future milestone payments if certain milestone events, such as new product launches or expansion into new regions, are achieved with respect to products covered by the licensed intellectual property. Two such milestones were achieved within 2024 and $ 1.0 million paid as of December 31, 2024. The remaining milestones are based on net sales over a minimum threshold in specified geographic regions, which were not probable of achievement as of December 31, 2024. Indemnification The Company has agreed to indemnify its directors and officers for certain events or occurrences while the director or officer is (or was) serving in such capacity. The indemnification period covers all pertinent events and occurrences during the director’s or officer’s service. The maximum potential amount of future payments the Company could be required to make under the applicable indemnification agreements is not specified in the agreements. The Company enters into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to the Company’s technology. The term of these indemnification agreements is generally perpetual after the execution of the agreement. The maximum potential amount of future payments that the Company could be required to make under these arrangements is not determinable. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. NOTE 10. LEGAL AND REGULATORY PROCEEDINGS The Company is subject to various claims, complaints, regulatory proceedings, and legal actions that arise from time to time in the ordinary course of business. Antitrust and Competition Proceedings On March 30, 2021, the U.S. Federal Trade Commission (“FTC”) issued an administrative complaint seeking to prevent the Acquisition. On September 1, 2022, an administrative law judge issued a decision in favor of the transaction and dismissed the FTC’s complaint. The FTC’s complaint counsel appealed to the full FTC Commission. On March 31, 2023, the FTC Commission issued a decision overturning the administrative law judge’s prior ruling. GRAIL and Illumina appealed the FTC’s decision to the U.S. Court of Appeals for the Fifth Circuit (“Fifth Circuit”). On December 15, 2023, the Fifth Circuit issued its opinion and order, in which the court ruled that the FTC applied the incorrect standard in assessing Illumina’s open offer contract and, on that basis, vacated the FTC order and remanded the case to the FTC for reconsideration of the effects of the open offer contract under the proper standard as described in the Fifth Circuit Court’s decision, and in all other respects upheld the FTC’s decision. Following completion of the Spin-Off, the Company and Illumina sought dismissal of the FTC’s complaint on July 30, 2024. On August 15, 2024, the FTC dismissed without prejudice the complaint on F-33 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the basis that the Spin-Off effectively abandoned the transaction giving rise to the complaint (the “FTC Dismissal”). On April 19, 2021, the European Commission accepted a request for a referral of the GRAIL, Inc. acquisition for European Union merger review, submitted by a Member State of the European Union (France), and joined by several other EEA Member States (Belgium, Greece, Iceland, the Netherlands, and Norway), under Article 22(1) of Council Regulation (EC) No 139/2004 (the “EU Merger Regulation”). On April 28, 2021, Illumina filed an action in the General Court of the European Union (the “EU General Court”) asking for annulment of the European Commission’s assertion of jurisdiction to review the Acquisition under Article 22 of the EU Merger Regulation, as the Acquisition did not meet the jurisdictional criteria under the EU Merger Regulation or under the national merger control laws of any Member State of the European Union. On July 13, 2022, the EU General Court confirmed the European Commission’s jurisdiction to examine the Acquisition (“EU General Court Article 22 Judgment”). On September 22 and September 30, 2022, Illumina and the Company each asked for annulment of the EU General Court Article 22 Judgment at the Court of Justice of the European Union (“EU Court of Justice”). On September 3, 2024, the EU Court of Justice set aside the EU General Court’s judgment and annulled the European Commission’s decision to review Illumina’s acquisition of Grail on the basis the European Commission did not have the jurisdiction to do so (the “ECJ Decision”). During the period between the initial assertion of jurisdiction by the European Commission on April 19, 2021 and the completion of the Spin-Off, the European Commission adopted several additional orders consisting of orders imposing interim measures on October 29, 2021 and October 28, 2022 (the “Interim Measures Orders”), a decision finding Illumina’s acquisition of GRAIL, Inc. incompatible with the internal market in the European Union on September 6, 2022 and a decision requiring Illumina to divest the Company and to restore the situation prevailing before the Company’s acquisition by Illumina (the “Divestment Decision”). The Company operated under the Interim Measures Decisions from the period of adoption through the Spin-Off. The Spin-Off was conducted pursuant to the Divestment Decision and a divestment plan prepared by Illumina and approved by the European Commission as provided by the terms of the Divestment Decision. With the completion of the Spin-Off and the effectiveness of the ECJ Decision, these additional orders are no longer in effect. With the completion of the Spin-Off, the FTC Dismissal and the ECJ Decision, the Company believes these matters are substantially concluded. SEC Inquiry Letter We may also be a party or otherwise involved in new litigation proceedings regarding the Acquisition. For example, in July 2023, Illumina was informed that the staff of the SEC was conducting an investigation relating to Illumina and was requesting documents and communications primarily related to Illumina’s acquisition of GRAIL and certain statements and disclosures concerning GRAIL, our products and the acquisition, and related to the conduct and compensation of certain members of Illumina and GRAIL management, among other things. GRAIL is cooperating with the SEC in this investigation. Federal Securities Class Actions On November 11, 2023, the first of three securities class action complaints was filed against Illumina and certain of its current and former executive officers in the United States District Court for the Southern District of California. The first-filed case is captioned Kangas v. Illumina, Inc. et al., the second-filed case is captioned Roy v. Illumina, Inc. et al., and the third-filed case is captioned Louisiana Sheriffs’ Pension & Relief Fund v. Illumina, Inc. et al. (collectively, the “Actions”). The complaints generally allege, among other things, that defendants made materially false and misleading statements and omitted material facts relating to Illumina’s acquisition of Grail. The complaints seek unspecified damages, interest, fees, and costs. On January 9, 2024, four movants filed motions to consolidate the Actions and to appoint a lead plaintiff (“Lead Plaintiff Motions”). On April 11, 2024, the Court issued an order consolidating the Actions into a single action (captioned in re Illumina, Inc. Securities Litigation No. 23-cv-2082-LL-MMP), and appointed Universal-Investment-Gesellschaft mbH, UI BVK Kapitalverwaltungsgesellschaft mbH, and ACATIS Investment Kapitalverwaltungsgesellschaft mbH as lead plaintiffs. (the “Lead Plaintiffs”). On June 21, 2024, the Lead Plaintiffs filed a consolidated amended complaint. F-34 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The amended complaint alleges that GRAIL, in addition to Illumina, and certain of their respective current and former directors and others violated sections 10(b) and 20(a) of the Securities Exchange Act and SEC Rule 10b-5 in connection with Illumina's acquisition of GRAIL and disclosures concerning the same. GRAIL has an indemnification obligation for certain current and former directors and officers involved in the matter pursuant to indemnification agreements entered into by these individuals and GRAIL. On September 13, 2024 the plaintiffs further amended the complaint. On November 12, 2024, the Company and other defendants filed a motion to dismiss the second amended consolidated complaint. On December 20, 2024, the Lead Plaintiffs filed their opposition to the motion to dismiss. The defendants’ final reply brief was filed on February 3, 2025. No hearing date has been set. The Company denies the allegations in the complaints and intends to vigorously defend the litigation. Other Legal Matters Legal matters include various claims, complaints, and legal actions that arise from time to time. In addition to direct involvement in legal matters, the Company has entered into indemnification agreements with each of its current and former directors, executive officers, and certain other officers to provide these directors and officers with indemnification, and has certain indemnification obligations under the Company’s charter and bylaws to these individuals, which may give rise to liability for the Company even if the Company is not directly named. The Company has indemnification obligations in respect of the Kangas Actions and with respect to other legal matters that may arise, or have arisen, from time to time. There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on the Company’s financial statements. The Company is involved in various lawsuits and claims arising in the ordinary course of business, including actions with respect to employment matters. In connection with these matters, the Company assesses, on a regular basis, the probability and range of possible loss based on the developments in these matters. A liability is recorded in the consolidated financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Since litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. The Company regularly reviews outstanding legal matters to determine the adequacy of the liabilities accrued and related disclosures. The Company may change its estimates if its assessment of the various factors changes and the amount of ultimate loss may differ from estimates, resulting in a material effect on the Company’s business, financial statements. As of December 31, 2024 , there were no pending litigation with any probable losses that can be reasonably estimated . Contingencies Contingencies primarily correspond to claims arising in the ordinary course of business. If necessary, these contingencies will be accrued, to the extent believed to be reasonably estimable to resolve the matter. The accrued contingency amounts are included in other current liabilities. Should the Company not be able to secure the terms it expects, these estimates may change and will be recognized in the period in which they are identified. In connection with the Spin-Off, Illumina provided the Company with disposal funding in the amount of $ 932.3 million in accordance with the Separation and Distribution Agreement, subject to a clawback feature. The clawback is triggered if, prior to September 24, 2025 (the 15 -month anniversary of the Distribution Date), the Company (i) consummates a change in control of the Company or (ii) (1) pays any dividend on, or makes any other distribution in respect of, any shares of its capital stock or other equity or voting interests (other than a stock dividend or a stock split), or otherwise consummates a return of capital from GRAIL to any of its equity holders or (2) redeems, purchases or otherwise acquires any of its outstanding shares of capital stock or other equity or voting interests (other than the acquisition of any shares in order to effectuate a “net settlement” transaction for the purposes of satisfying tax withholding obligations arising in connection with the grant, vesting, exercise and/or settlement of any outstanding incentive equity awards of GRAIL held by its current or former employees). If the Company consummates a transaction described in the foregoing clause (i), the Company must return to Illumina a cash amount decreasing over time calculated by reference to the number of months which have elapsed since the Distribution Date at the time of the public announcement of the event giving rise to the change of control. If the F-35 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Company consummates a transaction described in the foregoing clause (ii), the Company must return to Illumina a cash amount equal to the payments made by the Company in connection with such transaction. The amount of clawback payments made cannot exceed the amount of the initial disposal funding. As of December 31, 2024 , no contingency liability was recorded as the contingent loss is not probable. On June 21, 2024, in connection with the Spin-Off, Illumina and the Company also entered into the Tax Matters Agreement to govern the respective rights, responsibilities and obligations of Illumina and the Company after the Spin-Off with respect to all tax matters and will include restrictions to preserve the tax-free status of the Distribution. The Tax Matters Agreement included a number of restrictions on the Company to preserve the intended tax treatment of the Spin-Off. Breach of any covenant or representation contained in the Tax Matters Agreement will result in liability to specific separation taxes. As of December 31, 2024 , as it was not probable that the Company will breach the agreement, no contingent liability was recorded in connection with the Tax Matters Agreement. NOTE 11. RESTRUCTURING On August 9, 2024, following a portfolio review, the Company’s Board of Directors approved a restructuring plan (“Restructuring Plan”) designed to re-prioritize the Company’s resources to focus on its core MCED business and reduce overall spend as the Company progresses towards completion of registrational studies and premarket approval application (“PMA”) submission. The Restructuring Plan was substantially completed in the fourth quarter of 2024, and the Company incurred approximately $ 18.3 million of total restructuring charges from August 9, 2024 through December 31, 2024, consisting primarily of employee severance, benefits, payroll taxes, asset impairments and other associated costs. The following table presents the total restructuring charges by function for the periods indicated: Year Ended December 31, 2024 (in thousands) Severance and related benefit costs Other Costs Total Research and development $ 8,783 $ 297 $ 9,080 Sales and marketing 4,858 — 4,858 General and administrative 3,897 478 4,375 Total $ 17,538 $ 775 $ 18,313 As of December 31, 2024, the Company had a $ 1.0 million remaining restructuring liability, consisting primarily of accrued severance costs, which are included in "Accrued liabilities" in the accompanying consolidated balance sheets. The following table summarizes the restructuring-related liabilities: (in thousands) Severance and related benefit costs Other Costs Total Restructuring charges $ 17,538 $ 775 $ 18,313 Cash payments made ( 16,732 ) ( 454 ) ( 17,186 ) Non-cash charges — ( 99 ) ( 99 ) Amount recorded in accrued liabilities as of December 31, 2024 $ 806 $ 222 $ 1,028 NOTE 12. NET LOSS PER SHARE Prior to the completion of the Spin-Off from Illumina, the Company had no common shares issued and outstanding. In connection with the Spin-Off, on June 24, 2024, there were 31.0 million shares of GRAIL common stock distributed to Illumina stockholders. This share amount is utilized for the calculation of basic and diluted F-36 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS earnings per share for all periods presented prior to the Spin-Off. For the years ended December 31, 2023 and January 1, 2023, these shares are treated as issued and outstanding for purposes of calculating historical earnings per share. The following table presents the calculation of the Company’s basic and diluted net loss per share attributable to common stockholders: Year Ended (in thousands, except share and per share data) December 31, 2024 December 31, 2023 January 1, 2023 Numerator Net loss $ ( 2,027,005 ) $ ( 1,465,685 ) $ ( 5,399,098 ) Denominator Weighted average shares of common stock—basic and diluted 31,901,259 31,049,148 31,049,148 Net loss per share attributable to common stockholders Basic $ ( 63.54 ) $( 47.21 ) $ ( 173.89 ) Diluted $ ( 63.54 ) $( 47.21 ) $ ( 173.89 ) Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share, as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive. The following weighted-average common stock equivalents were excluded from the calculation of diluted net loss per share for the periods presented as they had an anti-dilutive effect: Year Ended December 31, 2024 December 31, 2023 January 1, 2023 Unvested restricted stock units 2,672,716 6,564,282 6,564,282 Shares subject to options to purchase common stock 102,552 104,315 104,315 Total 2,775,268 6,668,597 6,668,597 NOTE 13. TAXES Income (loss) before income taxes summarized by region was as follows: Year Ended (in thousands) December 31, 2024 December 31, 2023 January 1, 2023 United States $ ( 2,165,006 ) $ ( 1,509,885 ) $ ( 5,443,759 ) Foreign 2,645 2,249 2,371 Loss before provision for (benefit from) income taxes $ ( 2,162,361 ) $ ( 1,507,636 ) $ ( 5,441,388 ) F-37 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The provision for (benefit from) income taxes consisted of the following: Year Ended (in thousands) December 31, 2024 December 31, 2023 January 1, 2023 Current taxes: Foreign $ ( 1,628 ) $ ( 3,798 ) $ ( 3,227 ) Total current income tax expense/(benefit) ( 1,628 ) ( 3,798 ) ( 3,227 ) Deferred taxes: Federal ( 92,184 ) ( 22,019 ) ( 24,496 ) State ( 41,544 ) ( 16,134 ) ( 14,567 ) Total deferred income tax expense/(benefit) ( 133,728 ) ( 38,153 ) ( 39,063 ) Provision for (Benefit from) income taxes $ ( 135,356 ) $ ( 41,951 ) $ ( 42,290 ) The provision for (benefit from) income taxes reconciles to the amount computed by applying the federal statutory rate to income (loss) before income taxes as follows: Year Ended (in thousands) December 31, 2024 December 31, 2023 January 1, 2023 Tax at federal statutory rate $ ( 454,122 ) $ ( 316,603 ) $ ( 1,142,691 ) State, net of federal benefit ( 41,720 ) ( 28,833 ) ( 22,553 ) Research tax credits ( 11,108 ) ( 10,913 ) ( 12,104 ) Change in valuation allowance 181,517 178,867 146,621 Impact of foreign operations ( 685 ) ( 1,299 ) ( 4,352 ) Stock compensation 252 134 1,767 Impact of acquisition related items 2,156 3,520 2,548 Goodwill impairment 186,641 127,778 987,090 Change in tax rates — — — Other 1,713 5,398 1,384 Total tax provision (benefit from) income taxes $ ( 135,356 ) $ ( 41,951 ) $ ( 42,290 ) F-38 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Significant components of deferred tax assets and liabilities were as follows: (in thousands) December 31, 2024 December 31, 2023 Deferred tax assets: Net operating losses $ 43,707 $ 899,323 Tax credits 7,963 88,571 Other accruals and reserves 14,675 19,223 Stock compensation 372 373 Capitalized U.S. research and development expenses 23,088 124,997 Other amortization 57,401 61,036 Operating lease liabilities 16,539 19,825 Property & equipment 2,063 — Other 1,026 662 Total gross deferred tax assets 166,834 1,214,010 Valuation allowance on deferred tax assets ( 7,744 ) ( 570,897 ) Total deferred tax assets $ 159,090 $ 643,113 Deferred tax liabilities: Purchased intangible amortization $ ( 488,874 ) $ ( 653,478 ) Property and equipment — ( 2,964 ) Operating lease right-of-use assets ( 16,076 ) ( 19,592 ) Total deferred tax liabilities ( 504,950 ) ( 676,034 ) Deferred tax liability, net $ ( 345,860 ) $ ( 32,921 ) A valuation allowance is established when it is more likely than not that the future realization of all or some of the deferred tax assets will not be achieved. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis and includes a review of all available positive and negative evidence, including operating results and future reversals of existing taxable temporary differences such as the deferred tax liabilities related to purchased intangibles. Based on the available evidence as of December 31, 2024, the Company was not able to conclude it is more likely than not certain deferred tax assets will be realized. Therefore, a valuation allowance of $ 7.7 million was recorded against certain foreign deferred tax assets. As of December 31, 2024, the net operating loss carryforwards for federal and state tax purposes were $ 151.0 million and $ 107.1 million, respectively. Net operating loss carryforwards for state tax purposes will begin to expire in 2039 unless utilized prior. The federal and state tax credit carryforwards were $ 6.1 million and $ 4.0 million. The federal credits will begin to expire in 2044 unless utilized prior. The state credits do not expire and can be carried forward indefinitely. GRAIL’s UK subsidiary had $ 21.7 million of UK net operating losses that can generally be carried forward indefinitely provided that the UK entity maintains its existing trade or business. Pursuant to Section 382 and 383 of the Internal Revenue Code, utilization of net operating losses and credits may be subject to annual limitations in the event of any significant future changes in its ownership structure. These annual limitations may result in the expiration of net operating losses and credits prior to utilization. F-39 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the gross amount of uncertain tax positions: Year Ended (in thousands) December 31, 2024 December 31, 2023 January 1, 2023 Balance at beginning of year $ 59,295 $ 51,843 $ 43,595 Increases related to prior year tax positions — — — Decreases related to prior year tax positions — — — Decreases related to the Spin-Off ( 59,295 ) — — Increases related to current year tax positions 3,859 7,452 8,248 Balance at end of year $ 3,859 $ 59,295 $ 51,843 Included in the balance of uncertain tax positions as of December 31, 2024, December 31, 2023 , and January 1, 2023 were $ 3.6 million, $ 54.4 million, and $ 47.6 million, respectively, of net unrecognized tax benefits that, if recognized, would reduce the effective income tax rate in future periods. The Company has not recognized any interest or penalties related to uncertain tax positions. If interest and penalties are recognized in the future, such amounts will be included in the provision for income taxes. Tax years 2019 to 2024 remain subject to future examination by the major tax jurisdictions in which the Company is subject to tax. It is reasonably possible that the balance of unrecognized tax benefits could change significantly over the next 12 months. However, due to the number of years remaining that are subject to examination, the Company is unable to estimate a full range of possible adjustments to the balance of unrecognized tax benefits. NOTE 14. SEGMENT INFORMATION The Company operates and manages its business as one reportable operating segment which provides multi-cancer early detection testing and services. The Company's chief operating decision maker (“CODM”) is the chief executive officer. The chief operating decision maker reviews financial information on an aggregate basis for the purposes of evaluating financial performance and allocating resources based on net income (loss), adjusted gross margin and adjusted EBITDA. Net income (loss) is the measure of segment profit most consistent with U.S. GAAP that is regularly reviewed by the CODM to allocate resources and assess performance. The CODM does not evaluate operating segment performance using asset information. The following table is representative of the significant expense categories regularly provided to the CODM when managing the Company’s single reporting segment. A reconciliation to the consolidated net loss for the years ended December 31, 2024, December 31, 2023 and January 2, 2023 is included in the table below: F-40 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended (in thousands) December 31, 2024 December 31, 2023 January 1, 2023 Revenue: Screening revenue $ 108,627 $ 74,999 $ 39,817 Development services revenue 16,968 18,106 15,733 Total revenue 125,595 93,105 55,550 Costs and operating expenses: Cost of screening revenue (exclusive of amortization of intangible assets) 63,284 47,966 32,140 Cost of development services revenue 6,444 6,861 5,968 Compensation 310,157 311,375 252,838 Stock-based compensation 84,130 95,265 75,729 Professional services 63,630 49,151 49,751 Clinical studies 43,890 54,590 63,667 Laboratory supplies and research collaborations 43,205 41,863 39,805 Facilities 17,748 20,475 22,321 Depreciation and intangible assets amortization expense 158,056 158,697 154,763 Cloud computing and information technology 31,778 31,868 28,231 Other segment expenses (1) 71,495 71,910 72,796 Goodwill and intangible assets impairment 1,420,936 718,466 4,700,431 Total costs and operating expenses 2,314,753 1,608,487 5,498,440 Loss from Operations ( 2,189,158 ) ( 1,515,382 ) ( 5,442,890 ) Other income (expense): Interest income 26,733 7,954 1,740 Other income (expense), net 64 ( 208 ) ( 238 ) Benefit from income taxes 135,356 41,951 42,290 Net Loss $ ( 2,027,005 ) $ ( 1,465,685 ) $ ( 5,399,098 ) (1) Other segment expenses includes costs related to contractors and temporary labor, marketing expenses, and legal expenses. NOTE 15. RELATED PARTY TRANSACTIONS Illumina Purchases and Sales The Company was a subsidiary of Illumina, Inc. between August 19, 2021 to June 23, 2024. Subsequent to the Spin-Off, Illumina retained a 14.5 % stake in the Company. As of December 31, 2024, Illumina held a 13.3 % stake in the Company. Illumina is both a customer of the Company and a major supplier of the Company’s reagents and capital equipment. Goods and services transactions with Illumina are invoiced and paid when due. F-41 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Goods and services transactions with Illumina have been reflected in the consolidated financial statements as follows: As of December 31, (in thousands) 2024 2023 Accounts receivable $ 65 $ 80 Supplies 3,130 5,855 Prepaid expenses and other current assets 77 41 Property and equipment, net 2,227 3,640 Accounts payable — 168 Accrued liabilities 104 95 Year Ended (in thousands) December 31, 2024 December 31, 2023 January 1, 2023 Screening revenue $ 460 $ 652 $ 694 Cost of screening revenue 13,091 8,532 4,142 Cost of development services revenue 637 238 227 Operating expenses—Research and development 18,843 19,508 18,780 Operating expenses—General and administrative 104 206 614 On June 21, 2024, the Company entered into a fourth amendment to its Supply and Commercialization Agreement with Illumina. Under the terms of the amended agreement, regardless of whether its products incorporate any Illumina technology, the Company has agreed to pay to Illumina a high single-digit royalty, subject to certain reductions, in perpetuity on net sales generated by its products or revenues otherwise generated or received by the Company, subject to certain exceptions, in the field of oncology. Per the terms of the Separation and Distribution Agreement with Illumina, the royalty arrangement is suspended until the earlier of December 24, 2026 or any earlier change of control of the Company, at which time a high-single digit royalty payments will be payable. Contributions from Member, Net The following related party transactions between the Company and Illumina have been included in these consolidated financial statements. As there was no intercompany loan agreement between Illumina and GRAIL and because these transactions had no history of being settled and were not settled per the terms of the Separation and Distribution Agreement, the total net effect of these transactions are reflected in the consolidated statements of cash flows as cash provided by financing activities and in the consolidated balance sheets as contribution from member, net, in member’s equity. The following table presents the components of the net transfers to and from Illumina: Year Ended (in thousands) December 31, 2024 December 31, 2023 January 1, 2023 Cash funding received from Illumina $ 1,244,300 $ 464,000 $ 609,000 Taxes paid related to net share settlement of equity awards — ( 234 ) ( 4,183 ) Other — — ( 544 ) Total contribution from member, net $ 1,244,300 $ 463,766 $ 604,273 F-42 Table o f Contents GRAIL, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16. SUBSEQUENT EVENTS Subsequent to December 31, 2024, the Company granted 2.1 million restricted stock units (RSUs) of Class A common stock to employees. Subject to continued service, the RSUs will generally vest annually over a service period of 3 to 4 years, and had a fair market value on the grant dates of $ 85.5 million. F-43 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.