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Item 2. Management’s Discussion and Analysis

2025-05-07 compared with 2024-11-08 · 105 added, 202 removed, 92 unchanged (77% of the section changed)

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

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.

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 related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2024 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 28, 2025.

“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.

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Words such as “may,” “anticipate,” “estimate,” “expects,” “projects,” “intends,” “plans,” “believes,” “seek,” “could,” “continue,” “likely,” “will,” “strategy,” and “goal” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements.

All forward-looking statements are management’s present expectations of future events and are subject to a number of known and unknown risks and uncertainties that could cause actual results, conditions, and events to differ materially and adversely from those anticipated.

All forward-looking statements are management’s present expectations of future events as of the date hereof and are subject to a number of known and unknown risks and uncertainties that could cause actual results, conditions, and events to differ materially and adversely from those anticipated.

These risks include, but are not limited to:

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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 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 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, including with respect to UnitedHealthcare's coverage decisions to no longer provide coverage for certain multi-gene panel pharmacogenetic tests, including our GeneSight test;

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

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• the risk that we may not successfully develop new markets or channels for our tests;

• the risk that we are not able to secure additional financing to fund our business, if needed, in a timely manner or on favorable terms, if it all;

• the risk that licenses to the technology underlying our tests and any future tests are terminated or cannot be maintained on satisfactory terms;

• risks related to delays or other problems with operating our laboratory testing facilities and the transition of such facilities to our new laboratory testing facilities;

• risks related to delays or other problems with operating our laboratory testing facilities;

• risks related to public concern over genetic testing in general or our tests in particular;

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• risks related to our ability to successfully integrate and derive benefits from any technologies or businesses that we license, acquire, or develop;

• the risk that we are not able to secure additional financing to fund our business, if needed, in a timely manner or on favorable terms, if it all;

• risks related to our projections or estimates about the potential market opportunity for our current and future products;

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• risks related to changes in intellectual property laws covering our tests, or patents or enforcement, in the United States and foreign countries;

• risks related to security breaches, loss of data and other disruptions, including from cyberattacks;

• risks related to security breaches, loss of data and other disruptions, including from cyberattacks and other cybersecurity incidents;

• risks of new, changing and competitive technologies in the United States and internationally, and that we may not be able to keep pace with the rapid technology changes in our industry, or properly leverage new technologies to achieve or sustain competitive advantages in our products;

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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 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.

• 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, 2025, as updated in Part II, Item 1A of this Quarterly Report on Form 10-Q, 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.

Stockholders are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q.

We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise except as required by law.

All forward-looking statements in this Quarterly Report on Form 10-Q attributable to us or to any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

We are a leading genetic testing and precision medicine company dedicated to advancing health and well-being for all.

We develop and offer tests that help assess the risk of developing disease or disease progression and guide treatment decisions across medical specialties where genetic insights can significantly improve patient care and lower health care costs.

Our genetic tests provide insights that help people take control of their health and enable healthcare providers to better detect, treat, and prevent disease.

Personalized genetic data and digital and virtual consumer trends are converging to change traditional models of care.

We believe significant growth opportunities exist to help patient populations with pressing health care needs through innovative genetic and precision medicine solutions and services.

We are a leading molecular diagnostic testing and precision medicine company dedicated to advancing health and well-being for all.

We develop and offer molecular tests that help assess the risk of developing disease or disease progression and guide treatment decisions across medical specialties where molecular insights can significantly improve patient care and lower health care costs.

Our molecular tests provide insights that help people take control of their health and enable healthcare providers to better detect, treat, and prevent disease.

Personalized molecular data and digital and virtual consumer trends are converging to transform traditional models of care.

We believe that engaging with providers and patients throughout their consumer or patient journey will better enable us to execute our strategies and fulfill our mission.

We believe there are significant growth opportunities in addressing the pressing healthcare needs of patient populations through innovative molecular diagnostic testing and precision medicine solutions and services.

Our focus is on innovation and growth in three key areas where we have specialized products, capabilities, and expertise:

Oncology, Women's Health, and Pharmacogenomics.

The pillars of our long-term growth strategy are founded on investments in science and innovation, technology-enabled operations, an elevated customer experience, strong commercial execution, and scalable operations.

We believe our path to continued growth is driven by articulating our clinical differentiation, raising awareness with patients who we believe would benefit from our testing products, and innovation that improves clinical outcomes, ease of use, and access.

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 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.

We are committed to disciplined management of a key set of initiatives to fulfill our mission and drive long-term growth and profitability.

Our long-term growth strategy is built on investments in science and innovation, technology-enabled operations, an enhanced customer experience, strong commercial execution, and scalable operations.

To drive continued growth, we plan to accelerate electronic medical records (EMR) integrations, expand our sales channels, including into large health systems, cross sell our portfolio of testing products to providers, enhance our testing products within medical guidelines, demonstrate our clinical differentiation and value compared to the standard of care, and optimize our revenue cycle processes.

We also continue to invest in clinical evidence development to support the growth of our existing products and launch of new products, such as FirstGene, Precise Liquid, and Precise molecular residual disease (MRD) which we expect will help us continue to grow.

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

In addition, 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.

We are committed to making molecular testing accessible and actionable for patients and providers while driving long-term growth and profitability.

Business Updates

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

• 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 September 30, % of Total Revenue

Our recent significant business updates include the following:

• Samraat Raha has been appointed President and Chief Executive Officer, effective April 30, 2025.

• Mark Verratti has been appointed Chief Operating Officer, effective April 30, 2025.

• Brian Donnelly has been appointed Chief Commercial Officer, effective May 1, 2025.

• In April 2025, new clinical data on the Precise MRD test in oligometastatic clear-cell Renal Cell Carcinoma was presented at the American Association for Cancer Research.

Results of Operations for the Three Months Ended March 31, 2025 and 2024

The results of operations for the three months ended March 31, 2025 and 2024 are discussed below.

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

Three months ended March 31, % of Total Revenue

(in millions) 2025 2024 Change 2025 2024

Testing revenues:

Hereditary Cancer $ 86.3 $ 88.1 $ (1.8) 44% 44%

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Total revenue $ 195.9 $ 202.2 $ (6.3) 100% 100%

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

Three months ended September 30,

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

Three months ended March 31,

(in thousands) 2025 2024 % Change

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Pharmacogenomics 127 124 2%

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 September 30,

(in millions) 2024 2023 Change

Cost of testing revenue $ 63.5 $ 57.6 $ 5.9

Cost of testing revenue as a % of total revenue

29.8 % 30.0 %

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 September 30,

(in millions) 2024 2023 Change

Research and development expense $ 28.5 $ 24.0 $ 4.5

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

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 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

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 September 30,

(in millions) 2024 2023 Change

Legal settlements

$ — $ 34.3 $ (34.3)

Legal settlements as a % of total revenue

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 September 30, Change

(in millions) 2024 2023

Goodwill and long-lived asset impairment charges $ 2.2 $ — $ 2.2

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

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 September 30,

(in millions) 2024 2023 Change

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

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

Revenue decreased $6.3 million for the three months ended March 31, 2025 compared to the same period in the prior year.

For the three months ended March 31, 2024, the Company recognized $7.0 million of revenue for tests in which the performance obligation was met in a prior period, including $3.0 million in revenue due to a retroactive coverage change by a payor for one of its prenatal products.

For the three months ended March 31, 2025, revenue for tests in which the performance obligation was met in a prior period was immaterial.

Pharmacogenomics revenue decreased $7.9 million for the three months ended March 31, 2025 compared to the same period in the prior year due primarily to a 22% decrease in the average revenue per test.

Pharmacogenomics revenue for the three months ended March 31, 2025 has been negatively impacted by UnitedHealthcare’s recent change in coverage of the GeneSight test under its commercial, individual exchange benefit, and certain managed Medicaid plans.

We expect this coverage decision will continue to negatively affect revenue in future periods.

Hereditary Cancer revenue decreased $1.8 million for the three months ended March 31, 2025 compared to the same period in the prior year due to a 5% decrease in average revenue per test, partially offset by a 3% increase in testing volume.

Tumor Profiling revenue decreased $1.6 million for the three months ended March 31, 2025 compared to the same period in the prior year due primarily to a decrease in testing volume for EndoPredict due to the sale of our EndoPredict business in August 2024.

These decreases were partially offset by an increase in revenue from Prenatal.

Prenatal revenue increased $5.0 million for the three months ended March 31, 2025 compared to the same period in the prior year due to an 11% increase in average revenue per test.

Cost of Revenue

Three months ended March 31,

(in millions) 2025 2024 Change % Change

Cost of revenue

$ 61.7 $ 64.6 $ (2.9) (4) %

Effective tax rate (4.2) % (0.2) %

Our tax rate is the product of a U.S.

federal effective rate of 21.0% and a blended state income tax rate of approximately 3.4%.

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 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 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:

Nine months ended September 30, % of Total Revenue

(in millions) 2024 2023 Change 2024 2023

Testing revenues:

Hereditary Cancer $ 270.1 $ 238.9 $ 31.2 43% 43%

Tumor Profiling 95.1 103.5 (8.4) 15% 19%

Prenatal 132.2 111.3 20.9 21% 20%

Pharmacogenomics 129.6 102.9 26.7 21% 18%

Total revenue $ 627.0 $ 556.6 $ 70.4 100% 100%

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

Nine months ended September 30,

(in thousands) 2024 2023 % Change

Product volumes:

Hereditary Cancer 219 207 5%

Tumor Profiling 41 45 (9)%

Prenatal 506 469 8%

Pharmacogenomics 380 343 11%

Cost of revenue as a % of total revenue

31.5 % 31.9 %

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

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 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

Nine months ended September 30,

(in millions) 2024 2023 Change

Cost of revenue for the three months ended March 31, 2025 decreased $2.9 million compared to the same period in the prior year primarily due to a reduction in the cost per test for the current period.

Operating Expenses

Three months ended March 31,

(in millions) 2025 2024 Change % Change

Research and development expense

$ 27.5 $ 24.9 $ 2.6 10 %

Research and development expense as a % of total revenue

Sales and marketing expense 69.2 69.4 (0.2) — %

General and administrative expense

66.5 71.2 (4.7) (7) %

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

Nine months ended September 30,

(in millions) 2024 2023 Change

Selling, general, and administrative expense

Total operating expenses

$ 163.2 $ 165.5 $ (2.3) (1) %

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

Research and development expense as a % of total revenue

14.0 % 12.3 %

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

Nine months ended September 30,

(in millions) 2024 2023 Change

Legal settlements

Sales and marketing expense as a % of total revenue 35.3 % 34.3 %

General and administrative expense as a % of total revenue

33.9 % 35.2 %

Legal settlements as a % of total revenue

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

Nine months ended September 30, Change

(in millions) 2024 2023

Goodwill and long-lived asset impairment charges

Total operating expenses as a % of total revenue

83.2 % 81.8 %

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

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.

For the three months ended March 31, 2025, operating expenses were relatively consistent with the expenses incurred in the same period of the prior year, reflecting stable operating activities across the business.

The Company remains committed to disciplined cost management while maintaining investments in key strategic areas, such as research and development.

Other Income (Expense), Net

Nine months ended September 30,

(in millions) 2024 2023 Change

Three months ended March 31,

(in millions) 2025 2024 Change % Change

Other income (expense), net $ (0.4) $ 2.0 $ (2.4) (120)%

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

Other income (expense), net decreased for the three months ended March 31, 2025 as compared to the same period in the prior year due primarily to the $2.2 million gain recognized on the Precise Tumor acquisition in the prior period.

Income Tax (Benefit) Expense

Three months ended March 31,

(in millions) 2025 2024 Change % Change

Income tax (benefit) expense

$ (29.3) $ 0.1 $ (29.4) (29400)%

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Our tax rate is the product of a blended U.S.

federal effective rate of 21.0% and a blended state income tax rate of approximately 3.4%.

statutory federal income tax rate of 21.0% and a blended state income tax rate of approximately 3.4%.

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 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.

Income tax benefit for the three months ended March 31, 2025 was $29.3 million and our effective tax rate was 99.7%.

Income tax expense for the three months ended March 31, 2024 was $0.1 million and our effective tax rate was (0.4)%.

For the three months ended March 31, 2025 and 2024, our recognized effective tax rate differs from the U.S.

federal statutory rate primarily due to the release of unrecognized tax benefits and the recognition of valuation allowances.

The unrecognized tax benefits released were primarily related to tax refund claims following the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, that allowed the carryback of losses related to tax years ended June 30, 2017 through June 30, 2020.

During the three months ended March 31, 2025, we were notified by the Joint Committee on Taxation that it had concluded its review of these tax refund claims.

We remeasured or released the unrecognized benefits resulting in a discrete tax benefit of $29.6 million.

Liquidity and Capital Resources

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.

As of March 31, 2025, we had cash and cash equivalents of $91.8 million and our availability under the ABL Facility was $41.9 million.

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

We believe that investing organically through research and development and new product development or acquisitively to support our business strategy provides the best return on invested capital.

In March 2025, we received notification from the congressional Joint Committee on Taxation that it had concluded its review of tax refund claims following the CARES Act that allowed the carryback of losses.

As a result, we currently estimate we will receive a refund of approximately $13 million, including interest, during 2025.

On June 30, 2023, we entered into an ABL Facility with an initial maximum principal amount of $90.0 million.

On October 31, 2023, we entered into an amendment to the ABL Facility pursuant to which we increased the maximum principal amount of the available revolving line of credit by $25.0 million for a total maximum principal commitment of $115.0 million under the ABL Facility.

Our ABL Facility has a total maximum principal commitment of $115.0 million.

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 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.

The ABL Facility requires that we and our subsidiaries guaranteeing the indebtedness, on a consolidated basis, maintain a fixed charge coverage ratio of at least 1.0 to 1.0 if availability under the ABL Facility is less than the greater of (a) $10.6 million and (b) 12.5% of the lesser of the maximum commitment amount and the borrowing base.

As of March 31, 2025, we had $60.0 million outstanding under the ABL Facility and our availability under the ABL Facility was $41.9 million.

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

Our available capital resources, however, may be consumed more rapidly than currently expected, or may be insufficient for our business needs for many reasons, including as a result of our operational cash needs, capital expenditures, and litigation related costs not covered by, or above the limits set forth in, our insurance.

As a result, we may need or want to raise additional fi nancing.

We may not be able to secure such financing in a timely manner or on favorable terms, if at all.

In addition, we are subject to covenants under our ABL Facility which could limit our ability to incur additional indebtedness or impact our ability to pursue other financing.

If we do not generate sufficient cash from operations, if our capital resources are consumed more rapidly than expected, or if we no longer have access to additional funds under our ABL Facility and we are unable to secure additional funds on acceptable terms, or at all, we may be forced to delay, scale back or eliminate some of our sales and marketing efforts, research and development activities, or other operations;

Our ability to raise capital through equity or equity-based financing may also be constrained by the current price of our common stock, and any such financing could result in dilution to existing stockholders.

If we do not gene rate sufficient cash from operations, if our capital resources are consumed more rapidly than expected, or if we no longer have access to additional funds under our ABL Facility and we are unable to secure additional funds on acceptable terms, or at all, we may be forced to delay, scale back or eliminate some of our sales and marketing efforts, research and development activities, or other operations;

or delay development of our tests in an effort to provide sufficient funds to continue our operations.

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From time to time, we enter into purchase commitments or other agreements that may materially impact our liquidity position in future periods.

In April 2024, we entered into an amendment of our lease in west Salt Lake City, Utah to include approximately 63,000 additional square feet.

The lease has a term of 12 years, which is expected to commence in the second half of 2026.

Total future rent payments for the additional space are approximately $18.2 million.

Because of the technical nature of our business and our focus on science, research, and development, we are highly dependent upon our ability to attract and retain highly qualified and experienced management, scientific, and technical personnel.

Loss of the services of or failure to recruit additional key management, scientific, and technical personnel and other qualified personnel who are necessary to operate our business would adversely affect our business, and it may have a material adverse effect on our business as a whole.

Additionally, disruptions to our supply chain could cause shortages of critical materials required to conduct our business, which may have a material adverse effect on our business as a whole.

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) September 30,

For example, UnitedHealthcare updated its medical policies for pharmacogenetic testing to no longer provide coverage for certain multi-gene panel pharmacogenetic tests, including our GeneSight test, under its commercial, individual exchange benefit, and certain managed Medicaid plans, effective during the first half of 2025.

The change in UnitedHealthcare coverage has negatively impacted our revenue, profitability, and cash flow in the first quarter of 2025 and we expect that these negative impacts will continue into future periods.

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

(in millions) March 31,

2025 December 31,

Cash and cash equivalents $ 91.8 $ 102.4 $ (10.6)

Marketable investment securities — 8.8 (8.8)

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 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 decrease in cash and cash equivalents as of March 31, 2025 as compared to December 31, 2024 was primarily driven by $16.3 million in cash used by operations, $5.3 million in cash used for capital expenditures, $3.0 million in cash used for the capitalization of internal-use software, and $5.8 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 $19.5 million increase in net borrowings under the ABL Facility.

The following table represents the Condensed Consolidated Cash Flow Statement:

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) 2025 2024 Change

Cash flows used in operating activities $ (16.3) $ (18.6) $ 2.3

Cash flows provided by (used in) investing activities (6.0) 43.9 (49.9)

Cash flows used in investing activities (8.3) (7.1) (1.2)

Cash flows provided by (used in) financing activities 13.6 (8.8) 22.4

Effect of foreign exchange rates on cash, cash equivalents, and restricted cash 0.1 (0.8) 0.9

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

Net decrease in cash, cash equivalents, and restricted cash

(10.9) (35.3) 24.4

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Cash Flows from Operating Activities

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.

We used $2.3 million less cash for operating activities for the three months ended March 31, 2025 compared to the same period in the prior year.

The improvement in cash used for operating activities was driven by an overall improvement in our operating assets and liabilities of $6.7 million and annual cash bonuses for senior leaders not being paid until the second quarter of 2025, whereas in the prior year annual bonuses were paid in the first quarter of 2024.

Cash Flows from Investing Activities

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 used in investing activities increased $1.2 million for the three months ended March 31, 2025 compared to the same period in the prior year.

The increase was primarily due to an increase in the capitalization of intangible assets expenditures for software developed for internal use.

Cash Flows from Financing Activities

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.

Cash flows from financing activities increased $22.4 million for the three months ended March 31, 2025 compared to cash flows used in financing activities in the same period in the prior year, primarily due to the incremental borrowing of $19.5 million from the ABL Facility.

Effects of Inflation

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.

While inflation returned to more moderate levels in 2024 and 2025, 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.

If inflation were to increase it may negatively impact our profitability and may 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.

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.

Furthermore, to the extent tariffs imposed by the United States affect our costs, we may not be able to pass on any portion of the cost increase to our customers.

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, 2025.

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

No significant changes to our accounting policies took place during the three months ended March 31, 2025.

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