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Item 2. Management’s Discussion and Analysis

2024-11-08 compared with 2024-08-07 · 110 added, 102 removed, 184 unchanged (54% of the section changed)

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

( Dollars and shares in millions, except per share data )

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the related notes thereto included in this Quarterly Report on Form 10-Q and the audited Consolidated Financial Statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2023 included in our Annual Report on Form 10-K filed with the SEC on February 28, 2024.

“We,” “us,” “our,” “Myriad” and the “Company” as used in this Quarterly Report on Form 10‑Q refer to Myriad Genetics, Inc., a Delaware corporation, and its subsidiaries.

Myriad, the Myriad logo, BRACAnalysis, BRACAnalysis CDx, Colaris, ColarisAP, MyRisk, Myriad myRisk, MyRisk Hereditary Cancer, myChoice, Tumor BRACAnalysis CDx, MyChoice CDx, Prequel, Prequel with Amplify, Amplify, Foresight, Foresight Universal Plus, Precise Tumor, Precise Oncology Solutions, Precise Liquid, Precise MRD, FirstGene, SneakPeek, SneakPeek Early Gender DNA Test, SneakPeek Snap, Urosuite, Mygenehistory, Health.Illuminated., RiskScore, Prolaris, GeneSight, and EndoPredict are registered trademarks or trademarks of Myriad.

Myriad, the Myriad logo, BRACAnalysis, BRACAnalysis CDx, Colaris, MyRisk, Myriad myRisk, MyRisk Hereditary Cancer, myChoice, Tumor BRACAnalysis CDx, MyChoice CDx, Prequel, Prequel with Amplify, Amplify, Foresight, Foresight Universal Plus, Precise Tumor, Precise Oncology Solutions, Precise Liquid, Precise MRD, FirstGene, SneakPeek, SneakPeek Early Gender DNA Test, SneakPeek Snap, Urosuite, Mygenehistory, Health.Illuminated., RiskScore, Prolaris, and GeneSight are registered trademarks or trademarks of Myriad.

Solely for convenience, trademarks, trade names and service marks referred to in this Quarterly Report on Form 10-Q may appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks.

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• risks related to our ability to achieve certain revenue growth targets and generate sufficient revenue from our existing product portfolio or in launching and commercializing new tests to be profitable;

• risks related to changes in governmental or private insurers’ coverage and reimbursement levels for our tests or our ability to obtain reimbursement for our new tests at comparable levels to our existing tests;

• risks related to changes in governmental or private insurers’ coverage and reimbursement levels for our tests or our ability to obtain reimbursement for new tests at comparable levels to our existing tests, including risks to our business and financial results associated with UnitedHealthcare's recent update to its medical policy for pharmacogenetic testing to no longer provide coverage for certain multi-gene panel pharmacogenetic tests, such as GeneSight, under its commercial and individual exchange benefit plans, effective January 1, 2025, and our pursuit of a resolution with respect thereto that may benefit the company and patients that could benefit from GeneSight;

• risks related to increased competition and the development of new competing tests;

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• risks related to current and future investigations, claims or lawsuits, including derivative claims, product or professional liability claims, and risks related to the amount of our insurance coverage limits and scope of insurance coverage with respect thereto;

• other factors discussed under the heading "Risk Factors" contained in Item 1A of our Annual Report on Form 10-K filed with the SEC on February 28, 2024, our Quarterly Report on Form 10-Q filed with the SEC on May 8, 2024, and this Quarterly Report on Form 10-Q.

• other factors discussed under the heading "Risk Factors" contained in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on February 28, 2024, as updated in Part II, Item 1A of our Quarterly Report on Form 10-Q filed with the SEC on May 8, 2024, and subsequent filings we make with the SEC.

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report on Form 10-Q, or in any document incorporated by reference might not occur.

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By investing in technology-enabled commercial tools, new laboratory facilities, advanced automation, and standardized processes and technology, we believe we will be able to reduce complexity and cost while enhancing our ability to scale and grow.

In June 2024, we launched the Universal Plus Panel to our Foresight ® Carrier Screen (the "Foresight Universal Plus Test") which is an expanded carrier screening test.

We also plan to launch new products, such as FirstGene, Precise Liquid, and Precise minimal residual disease, which we expect will help accelerate our growth.

In June 2024, we launched the Universal Plus Panel to our Foresight Carrier Screen or the Foresight Universal Plus Test, which is an expanded carrier screening test.

We also plan to launch new products, such as FirstGene, Precise Liquid, and Precise minimal residual disease, or MRD, which we expect will help accelerate our growth.

We intend to develop and enhance our products and services to support growth, improve patient and provider experience, and reach more patients of all backgrounds.

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Our recent significant business updates and financial highlights include the following:

• Second quarter 2024 testing volumes grew 9% year-over-year, driven by 12% growth year-over-year in Prenatal test volumes, 10% growth year-over-year in Pharmagenomics test volumes, and 3% growth year-over-year in Hereditary Cancer test volumes, partially offset by a 13% decrease year-over-year in Tumor Profiling test volumes.

• Revenue growth of 15% year-over-year for the quarter ended June 30, 2024.

• In July 2024, we announced entering into an agreement with Personalis, Inc.

to cross-license patent estates covering tumor-informed approaches to detect minimal residual disease (MRD).

• Achieved the Great Place to Work ® Certification for 2024.

• In June 2024, we announced the launch of our Foresight Universal Plus Test.

• In May 2024, we announced a collaboration with QIAGEN N.V.

to develop distributable homologous recombination deficiency test for global research and companion diagnostics.

• Blue Shield of California, a major commercial and managed Medicaid plan, added GeneSight to its medical policy, effective July 2024.

In addition, a managed Medicaid plan in the Southeast indicated that it plans to incorporate GeneSight into its coverage.

Results of Operations for the Three Months Ended June 30, 2024 and 2023

The results of operations for the three months ended June 30, 2024 and 2023 are discussed below.

• Revenue growth of 11% year-over-year for the quarter ended September 30, 2024.

• Third quarter 2024 testing volumes grew 6% year-over-year, driven by 10% growth year-over-year in Pharmacogenomics test volumes, 5% growth year-over-year in Hereditary Cancer test volumes, and 3% growth year-over-year in Prenatal test volumes.

• In October 2024, we announced five research collaborations to study the use of MRD testing in Breast Cancer.

• In October 2024, we announced a joint effort with Ultima Genomics to explore the UG 100 TM sequencing platform and its ppmSeq TM technology to advance clinical testing.

• In October 2024, we announced a third patent granted for MRD with an early priority date.

• In August 2024, Peach State Health Plan, a managed Medicaid plan in Georgia, added GeneSight to its medical policy.

The Peach State Plan is part of the Centene network of managed Medicaid plans.

On November 1, 2024, UnitedHealthcare updated its medical policy for pharmacogenetic testing to no longer provide coverage for certain multi-gene panel pharmacogenetic tests, including our GeneSight test, under its commercial and individual exchange benefit plans, effective January 1, 2025.

We recognized approximately $40.0 million in revenue for GeneSight volume from UnitedHealthcare under these commercial and individual exchange plans during the last twelve months ended September 30, 2024.

We do not believe that the updated policy affects coverage of GeneSight by UnitedHealthcare under Medicare Advantage and managed Medicaid plans.

While we are still assessing the full impact of UnitedHealthcare's change in its GeneSight coverage policy, including our ability to offset the loss in GeneSight coverage, we anticipate that this change will negatively impact revenue in fiscal year 2025 and thereafter.

In addition, please refer to Note 6, "Goodwill and Intangible Assets" in the notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and Item 1A, "Risk Factors" in Part II of this Quarterly Report on Form 10-Q for potential impacts of UnitedHealthcare's change on goodwill in our Pharmacogenomics reporting unit.

Results of Operations for the Three Months Ended September 30, 2024 and 2023

The results of operations for the three months ended September 30, 2024 and 2023 are discussed below.

The following table summarizes year-over-year revenue changes in our core product categories:

Three months ended June 30, % of Total Revenue

Three months ended September 30, % of Total Revenue

(in millions) 2024 2023 Change 2024 2023

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The following table summarizes testing volume changes in our core product categories:

Three months ended June 30,

(in thousands)

2024 2023 % Change

Three months ended September 30,

(in thousands) 2024 2023 % Change

Product volumes:

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Pharmacogenomics 127 116 10 %

Test revenues increased $28.0 million for the three months ended June 30, 2024 compared to the same period in the prior year primarily due to an increase in the average revenue per test across the majority of our products, due in part to changes in contracted price and operational improvements, as well as an increase in test volumes.

Hereditary Cancer revenues increased $14.8 million for the three months ended June 30, 2024 compared to the same period in the prior year due to a 16% increase in average revenue per test and a 3% increase in testing volume.

Prenatal revenues increased $8.8 million for the three months ended June 30, 2024 compared to the same period in the prior year due to an 11% increase in average revenue per test and a 12% increase in testing volume.

Pharmacogenomics revenues increased $7.8 million for the three months ended June 30, 2024 compared to the same period in the prior year due to an 11% increase in the average revenue per test and due to a 10% increase in testing volume.

Tumor Profiling revenues decreased $3.4 million for the three months ended June 30, 2024 compared to the same period in the prior year due primarily to a decrease in volume for MyChoice CDx, which was largely driven by MyChoice CDx studies in the prior year.

Test revenues increased $21.4 million for the three months ended September 30, 2024 compared to the same period in the prior year primarily due to both an increase in testing volumes and an increase in the average revenue per test, due in part to changes in contracted price and operational improvements.

Pharmacogenomics revenues increased $12.0 million for the three months ended September 30, 2024 compared to the same period in the prior year due to a 22% increase in the average revenue per test and a 10% increase in testing volume.

Average revenue per test increased primarily due to a change in estimate.

We expect that Pharmacogenomics revenues in fiscal year 2025 and thereafter will be negatively impacted by UnitedHealthcare's recent change in GeneSight test coverage under its commercial and individual exchange benefits plans.

Hereditary Cancer revenues increased $4.0 million for the three months ended September 30, 2024 compared to the same period in the prior year primarily due to a 5% increase in testing volume.

Prenatal revenues increased $4.0 million for the three months ended September 30, 2024 compared to the same period in the prior year due to a 6% increase in average revenue per test and a 3% increase in testing volume.

Cost of Sales

Three months ended June 30,

Three months ended September 30,

(in millions) 2024 2023 Change

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29.8 % 30.0 %

Cost of testing revenue for the three months ended June 30, 2024 increased $6.6 million compared to the same period in the prior year primarily due to an increase in volumes in Pharmacogenomics, Hereditary Cancer, and Prenatal tests.

Cost of testing revenue for the three months ended September 30, 2024 increased $5.9 million compared to the same period in the prior year primarily due to an increase in testing volumes in Pharmacogenomics, Hereditary Cancer, and Prenatal tests.

Research and Development Expense

Three months ended June 30,

Three months ended September 30,

(in millions) 2024 2023 Change

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Research and development expense as a % of total revenue 13.4 % 12.5 %

Research and development expense for the three months ended June 30, 2024 increased by $5.9 million compared to the same period in the prior year primarily due to a $3.5 million increase in compensation expense.

Compensation expense increased in part due to an estimated higher attainment of short-term incentive pay for the current period compared to the prior period.

Research and development expense for the three months ended September 30, 2024 increased by $4.5 million compared to the same period in the prior year primarily due to additional investments in research and development related to increased headcount and laboratory expenses.

Selling, General, and Administrative Expense

Three months ended June 30,

Three months ended September 30,

(in millions) 2024 2023 Change

Selling, general, and administrative expense

$ 139.1 $ 136.1 $ 3.0

Selling, general, and administrative expense as a % of total revenue

Selling, general and administrative expense increased by $4.2 million for the three months ended June 30, 2024 compared to the same period in the prior year primarily due to a $2.6 million increase in compensation costs.

Compensation expense increased in part due to an estimated higher attainment of short-term incentive pay and stock-based compensation expense for the current period compared to the prior period, partially offset by a decrease in commissions and other compensation.

65.2 % 70.9 %

Selling, general, and administrative expense in the current period was generally consistent with the expenses incurred in the same period of the prior year.

Legal Settlements

Three months ended June 30,

Three months ended September 30,

(in millions) 2024 2023 Change

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Legal settlements as a % of total revenue

There were no legal settlements in the three months ended June 30, 2024.

The three months ended June 30, 2023 included $77.5 million of accruals related to the securities class action settlement.

There were no legal settlements in the three months ended September 30, 2024.

Legal settlements in the three months ended September 30, 2023 consisted of $34.3 million in connection with accruals for pending settlements.

Goodwill and Long-lived Asset Impairment Charges

Three months ended June 30, Change

Three months ended September 30, Change

(in millions) 2024 2023

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Goodwill and long-lived asset impairment charges as a % of total revenue 1.0 % — %

The three months ended June 30, 2024 included $10.2 million of impairment expense as the result of the definitive agreement entered into by us in May 2024 to sell the EndoPredict business to Eurobio Scientific.

There were no corresponding impairment charges in the prior period.

Goodwill and long-lived asset impairment charges in the three months ended September 30, 2024 consisted of $2.2 million of losses in connection with the sale of the EndoPredict business.

There were no corresponding impairment charges in the same period of the prior year.

Other Income (Expense), Net

Three months ended June 30,

Three months ended September 30,

(in millions) 2024 2023 Change

Other income (expense), net $ (1.2) $ (1.1) $ (0.1)

Other income (expense), net decreased for the three months ended June 30, 2024 as compared to the same period in the prior year due primarily to the prior period loss on the sale of investments.

Income Tax Expense (Benefit)

Three months ended June 30,

Other income (expense), net remained consistent for the three months ended September 30, 2024 as compared to the same period in the prior year.

Income Tax Expense

Three months ended September 30,

(in millions) 2024 2023 Change

Income tax expense (benefit)

Income tax expense

$ 0.9 $ 0.1 $ 0.8

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Certain significant or unusual items are separately recognized during the period in which they occur and can be a source of variability in the effective tax rates from period to period.

For the three months ended June 30, 2024, there was $0.5 million income tax benefit and our effective tax rate was 1.3%.

For the three months ended June 30, 2023, there was no income tax expense or benefit and our effective tax rate was 0%.

For the three months ended June 30, 2024 and 2023, our effective tax rate differs from the U.S.

federal statutory rate primarily due to the recognition of valuation allowances and uncertain tax positions.

For the three months ended September 30, 2024, there was $0.9 million income tax expense and our effective tax rate was (4.2)%.

For the three months ended September 30, 2023, there was $0.1 million income tax expense and our effective tax rate was (0.2)%.

For the three months ended September 30, 2024 and 2023, our effective tax rate differs from the U.S.

federal statutory rate primarily due to the recognition of valuation allowances.

Due to our cumulative loss and the exhaustion of future taxable income from the reversal of taxable temporary differences, our estimated annual effective tax rate for the current year includes a valuation allowance against the majority of the current year increase in deferred tax assets.

Results of Operations for the Six Months Ended June 30, 2024 and 2023

The results of operations for the six months ended June 30, 2024 and 2023 are discussed below.

Results of Operations for the Nine Months Ended September 30, 2024 and 2023

The results of operations for the nine months ended September 30, 2024 and 2023 are discussed below.

The following table summarizes year-over-year revenue changes in our core product categories:

Six months ended June 30, % of Total Revenue

Nine months ended September 30, % of Total Revenue

(in millions) 2024 2023 Change 2024 2023

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The following table summarizes testing volume changes in our core product categories:

Six months ended June 30,

(in thousands)

2024 2023 % Change

Nine months ended September 30,

(in thousands) 2024 2023 % Change

Product volumes:

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Pharmacogenomics 380 343 11%

Test revenues increased $49.0 million for the six months ended June 30, 2024 compared to the same period in the prior year primarily due to an increase in the average revenue per test across the majority of our products, due in part to changes in contracted price and operational improvements, as well as an increase in test volumes.

Hereditary Cancer revenues increased $27.2 million for the six months ended June 30, 2024 compared to the same period in the prior year due to an 11% increase in average revenue per test and a 6% increase in testing volume.

Prenatal revenues increased $16.9 million for the six months ended June 30, 2024 compared to the same period in the prior year due to a 12% increase in average revenue per test and a 11% increase in testing volume.

Pharmacogenomics revenues increased $14.7 million for the six months ended June 30, 2024 compared to the same period in the prior year due primarily to an 11% increase in testing volume and a 9% increase in the average revenue per test.

Tumor Profiling revenues decreased $9.8 million for the six months ended June 30, 2024 compared to the same period in the prior year due primarily to a decrease in volume for MyChoice CDx, which was largely driven by MyChoice CDx studies in the prior year.

1,146 1,064 8%

Test revenues increased $70.4 million for the nine months ended September 30, 2024 compared to the same period in the prior year primarily due to an increase in the average revenue per test across the majority of our products, due in part to changes in contracted price and operational improvements, as well as an increase in testing volumes.

For the nine months ended September 30, 2024, we recorded $17.3 million of revenue as a change of estimate related to previously delivered tests, as compared to the nine months ended September 30, 2023, in which we recorded a $6.2 million decrease in revenue as a change of estimate related to previously delivered tests.

Hereditary Cancer revenues increased $31.2 million for the nine months ended September 30, 2024 compared to the same period in the prior year due to an 8% increase in average revenue per test and a 5% increase in testing volume.

Pharmacogenomics revenues increased $26.7 million for the nine months ended September 30, 2024 compared to the same period in the prior year due primarily to a 13% increase in the average revenue per test, which was partially due to changes in the estimated revenue per test related to prior periods, and an 11% increase in testing volume.

Prenatal revenues increased $20.9 million for the nine months ended September 30, 2024 compared to the same period in the prior year due to a 10% increase in average revenue per test and an 8% increase in testing volume.

Tumor Profiling revenues decreased $8.4 million for the nine months ended September 30, 2024 compared to the same period in the prior year due primarily to a decrease in testing volume for MyChoice CDx, which was largely driven by MyChoice CDx studies that occurred in the prior year period.

Cost of Sales

Six months ended June 30,

Nine months ended September 30,

(in millions) 2024 2023 Change

Cost of testing revenue $ 192.5 $ 174.6 $ 17.9

Cost of testing revenue as a % of revenue

31.2 % 32.1 %

Cost of testing revenue for the six months ended June 30, 2024 increased $11.9 million compared to the same period in the prior year primarily due to an increase in volumes in Pharmacogenomics, Hereditary Cancer, and Prenatal tests.

Cost of testing revenue as a % of total revenue 30.7 % 31.4 %

Cost of testing revenue for the nine months ended September 30, 2024 increased $17.9 million compared to the same period in the prior year primarily due to an increase in testing volumes in Pharmacogenomics, Hereditary Cancer, and Prenatal tests.

Research and Development Expense

Six months ended June 30,

Nine months ended September 30,

(in millions) 2024 2023 Change

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13.0 % 12.2 %

Research and development expense for the six months ended June 30, 2024 increased by $9.0 million compared to the same period in the prior year primarily due to a $6.0 million increase in compensation costs.

Compensation expense increased in part due to estimated higher attainment of short-term incentive pay and an increase in the average cost per employee for the current period compared to the prior period.

Research and development expense for the nine months ended September 30, 2024 increased by $13.5 million compared to the same period in the prior year primarily due to additional investments in research and development, consisting of an $8.1 million increase in compensation costs and $4.5 million increase in laboratory expenses.

Compensation expense increased in part due to an increase in the average cost per employee for the current period compared to the same period in the prior year.

Selling, General, and Administrative Expense

Six months ended June 30,

Nine months ended September 30,

(in millions) 2024 2023 Change

Selling, general, and administrative expense

$ 424.0 $ 428.5 $ (4.5)

Selling, general, and administrative expense as a % of total revenue

Selling, general and administrative expense decreased $7.5 million for the six months ended June 30, 2024 compared to the same period in the prior year primarily due to decreases in expense associated with our real estate optimization strategy, including a decrease in rent expense of $2.2 million, a decrease in depreciation expense of $1.8 million due to the prior year including $5.7 million of accelerated depreciation in connection with our decision to cease use of our former corporate headquarters, and a $1.2 million gain in the current period associated with a lease termination.

The current period also includes a $2.5 million decrease in sales and marketing expenses.

These decreases were partially offset by a $2.1 million increase in compensation cost in the current period.

67.6 % 77.0 %

Selling, general, and administrative expense decreased $4.5 million for the nine months ended September 30, 2024 primarily due to a decrease in facility costs associated with our real estate optimization strategy.

Legal Settlements

Six months ended June 30,

Nine months ended September 30,

(in millions) 2024 2023 Change

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Legal settlements as a % of total revenue

There were no legal settlements in the six months ended June 30, 2024.

The six months ended June 30, 2023 included $77.5 million of accruals related to the securities class action settlement.

There were no legal settlements in the nine months ended September 30, 2024.

Legal settlements for the nine months ended September 30, 2023 consisted of $111.8 million in connection with accruals for pending settlements.

Goodwill and Long-lived Asset Impairment Charges

Six months ended June 30, Change

Nine months ended September 30, Change

(in millions) 2024 2023

Goodwill and long-lived asset impairment charges

$ 13.8 $ — $ 13.8

Goodwill and long-lived asset impairment charges as a % of total revenue

The six months ended June 30, 2024 included $10.2 million of impairment expense as the result of the definitive agreement entered into by us in May 2024 to sell the EndoPredict business to Eurobio Scientific.

There were no corresponding impairment charges in the prior period.

Goodwill and long-lived asset impairment charges in the nine months ended September 30, 2024 included $12.4 million of losses in connection with the sale of the EndoPredict business.

There were no corresponding impairment charges in the same period of the prior year.

Other Income (Expense), Net

Six months ended June 30,

Nine months ended September 30,

(in millions) 2024 2023 Change

Other income (expense), net $ 0.1 $ (3.9) $ 4.0

Other income (expense), net increased for the six months ended June 30, 2024 compared to the same period in the prior year due primarily to the $2.2 million gain recognized on the February 2024 Precise acquisition in the current period, an additional $1.1 million loss due to foreign currency fluctuations in the current period and the prior period including an additional $1.4 million in expense from the sale of investments.

Income Tax Expense (Benefit)

Six months ended June 30,

Other income (expense), net increased for the nine months ended September 30, 2024 compared to the same period in the prior year due primarily to the $2.2 million gain recognized on the February 2024 acquisition of Precise assets and laboratory from Intermountain Health in the current period, an additional $1.3 million loss due to foreign currency fluctuations in the current period and the prior period including an additional $1.4 million in expense from the sale of investments.

Income Tax Expense

Nine months ended September 30,

(in millions) 2024 2023 Change

Income tax expense (benefit)

Income tax expense

$ 0.4 $ 2.2 $ (1.8)

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Certain significant or unusual items are separately recognized during the period in which they occur and can be a source of variability in the effective tax rates from period to period.

Income tax benefit for the six months ended June 30, 2024 was $0.4 million and our effective tax rate was 0.6%.

For the six months ended June 30, 2024 and 2023, our recognized effective tax rate differs from the U.S.

federal statutory rate primarily due to valuation allowances and uncertain tax positions.

Income tax expense for the six months ended June 30, 2023 was $2.1 million and our effective tax rate was (1.2)%.

Income tax expense for the nine months ended September 30, 2024 was $0.4 million and our effective tax rate was (0.5)%.

Income tax expense for the nine months ended September 30, 2023 was $2.2 million and our effective tax rate was (1.0)%.

For the nine months ended September 30, 2024 and 2023, our recognized effective tax rate differs from the U.S.

federal statutory rate primarily due to the recognition of valuation allowances.

Liquidity and Capital Resources

Our primary sources of liquidity are our cash, cash equivalents and marketable investment securities, our expected cash flows from operations, and, in certain circumstances as discussed below, amounts available for borrowing under our asset-based revolving credit facility with JPMorgan Chase Bank, N.A., as administrative agent and issuing bank, and the other lender parties thereto (the "ABL Facility").

As of June 30, 2024, we had cash, cash equivalents and marketable investment securities of $97.3 million and availability under the ABL Facility was $41.5 million, subject to the minimum availability requirement under the ABL Facility.

Our primary sources of liquidity are our cash and cash equivalents, our expected cash flows from operations, and, in certain circumstances as discussed below, amounts available for borrowing under our asset-based revolving credit facility with JPMorgan Chase Bank, N.A., as administrative agent and issuing bank, and the other lender parties thereto, or the ABL Facility.

As of September 30, 2024, we had cash and cash equivalents of $99.9 million and availability under the ABL Facility was $48.8 million, subject to the minimum availability requirement under the ABL Facility.

Our capital deployment strategy focuses on use of resources in the key areas of research and development, technology and acquisitions.

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The ABL Facility requires that we and our subsidiaries guaranteeing the indebtedness, on a consolidated basis, maintain minimum liquidity of $60.0 million and minimum availability of $25.0 million at all times before achieving a fixed charge coverage ratio of 1.0 to 1.0 and, thereafter, to maintain a fixed charge coverage ratio of 1.0 to 1.0 until achieving availability under the ABL Facility of greater of (a) $10.6 million and (b) 12.5% of the lesser of the maximum commitment amount and the borrowing base for a period of 30 consecutive days.

As of June 30, 2024, we had $40.0 million outstanding under the ABL Facility and availability under the ABL Facility was $41.5 million, subject to the minimum availability requirement under the ABL Facility.

As of September 30, 2024, we had $40.0 million outstanding under the ABL Facility and availability under the ABL Facility was $48.8 million, subject to the minimum availability requirement under the ABL Facility.

We believe that our existing capital resources will be sufficient to meet our projected operating requirements for at least the next 12 months.

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In addition, as discussed below, inflation has had, and may continue to have, an impact on the costs we incur to attract and retain qualified personnel, costs to generate sales and produce testing results, and costs of laboratory supplies.

Third-party payors, including state and federal health care programs such as Medicare, managed care organizations, and other private health insurers, are increasingly attempting to contain health care costs by limiting or denying coverage for certain tests and reducing reimbursement rates for both new and existing tests.

We have experienced and may continue to experience coverage limitations or denials for many of our products.

For example, on November 1, 2024, UnitedHealthcare updated its medical policy for pharmacogenetic testing to no longer provide coverage for certain multi-gene panel pharmacogenetic tests, including our GeneSight test, under its commercial and individual exchange benefit plans, effective January 1, 2025.

While we are still assessing the full impact of UnitedHealthcare's change in its GeneSight coverage policy, including our ability to offset the loss in GeneSight coverage, we anticipate that this change would negatively impact our revenue, profitability and cash flow in fiscal year 2025 and thereafter.

The following table represents the balances of cash, cash equivalents and marketable investment securities as of the dates set forth in the table below:

(in millions) June 30,

(in millions) September 30,

2024 December 31,

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Cash, cash equivalents and marketable investment securities $ 99.9 $ 140.9 $ (41.0)

The decrease in cash, cash equivalents and marketable investment securities as of June 30, 2024 as compared to December 31, 2023 was primarily driven by $16.0 million in cash used by operations, $11.9 million in cash used for capital expenditures, $5.6 million in cash used for the capitalization of internal-use software, and $6.2 million in cash used for the payment of withholding tax for the issuance of common stock, net of proceeds from the issuance of common stock.

The decrease in cash, cash equivalents and marketable investment securities as of September 30, 2024 as compared to December 31, 2023 was primarily driven by $15.3 million in cash used by operations, $15.4 million in cash used for capital expenditures, $8.4 million in cash used for the capitalization of internal-use software, and $9.2 million in cash used for the payment of withholding tax for the issuance of common stock, net of proceeds from the issuance of common stock.

The decrease in cash was partially offset by $8.8 million in cash received from the sale of our EndoPredict business.

The following table represents the Condensed Consolidated Cash Flow Statement:

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) 2024 2023 Change

3 unchanged sentences

Effect of foreign exchange rates on cash, cash equivalents, and restricted cash (0.3) (0.1) (0.2)

Change in cash and cash equivalents classified as held for sale

(2.3) — (2.3)

Net increase (decrease) in cash, cash equivalents, and restricted cash

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Cash Flows from Operating Activities

We used less cash for operating activities for the six months ended June 30, 2024 compared to the same period in the prior year, primarily due to an improvement in core operations driven by a 13% increase in revenues and a 9% decrease in expenses as a percentage of revenue, excluding non-cash expenses for goodwill and long-lived asset impairment charges and accrued legal settlements.

This increase in cash flows was partially offset by the receipt of $16.3 million in tenant improvement allowance reimbursements in the prior period.

We used less cash for operating activities for the nine months ended September 30, 2024 compared to the same period in the prior year, primarily due to an improvement in core operations which drove a 13% increase in revenues and an 8% decrease in expenses as a percentage of revenue, excluding non-cash expenses for goodwill and long-lived asset impairment charges and accrued legal settlements.

In the nine months ended September 30, 2023, we received $16.3 million in tenant improvement allowance reimbursements that did not reoccur during the nine months ended September 30, 2024.

Cash Flows from Investing Activities

The decrease in cash flows used in investing activities for the six months ended June 30, 2024 compared to the same period in the prior year was primarily due to the $84.7 million decrease in cash flows from marketable investment securities, partially offset by a $30.4 million decrease in capital expenditures in connection with the build-out of new facilities in the prior year.

The decrease in cash flows used in investing activities for the nine months ended September 30, 2024 compared to the same period in the prior year was primarily due to the $94.7 million decrease in cash flows from maturities and sales of marketable investment securities in the current period, partially offset by a $37.8 million decrease in capital expenditures in the current period in connection with the completion of the build-out of new facilities in the prior year.

Cash Flows from Financing Activities

The decrease in cash flows used in financing activities for the six months ended June 30, 2024 compared to the same period in the prior year was primarily due to proceeds of $40.0 million under the ABL Facility in the prior period.

The decrease in cash flows used in financing activities for the nine months ended September 30, 2024 compared to the same period in the prior year was primarily due to proceeds of $40.0 million under the ABL Facility in the prior year period.

Effects of Inflation

Inflation has had, and may continue to have, an impact on the labor costs we incur to attract and retain qualified personnel, costs to generate sales and produce testing results, and costs of laboratory supplies.

While inflation continues to return to more moderate levels in 2024, inflation has had, and may continue to have, an impact on the labor costs we incur to attract and retain qualified personnel, costs to generate sales and produce testing results, and costs of laboratory supplies.

Inflationary costs have impacted our profitability and may continue to adversely affect our business, financial condition and results of operations.

In addition, increased inflation has had, and may continue to have, an effect on interest rates.

Increased interest rates may adversely affect our borrowing rate and our ability to obtain, or the terms under which we can obtain, additional funding.

An increase in interest rates in the future may adversely affect our borrowing rate and our ability to obtain, or the terms under which we can obtain, additional funding.

Critical Accounting Estimates

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For a further discussion of our critical accounting estimates, see our Annual Report on Form 10-K filed with the SEC on February 28, 2024.

Other than the policy on held for sale assets and liabilities described in Note 1, “Basis of Presentation” in the Notes to Condensed Consolidated Financial Statements included herein, no significant changes to our accounting policies took place during the three months ended June 30, 2024.

No significant changes to our accounting policies took place during the three months ended September 30, 2024.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis