What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-06 compared with 2025-05-07 · 231 added, 82 removed, 115 unchanged (73% of the section changed)

33 unchanged sentences

• 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, 2025, as updated in Part II, Item 1A of this Quarterly Report on Form 10-Q, 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 under the heading "Risk Factors" in Part II, Item 1A of our Quarterly Report on Form 10-Q filed with the SEC on May 7, 2025 and 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.

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

We are a leading molecular diagnostic testing and precision 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.

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.

We believe there are significant growth opportunities in addressing urgent healthcare needs through innovative molecular diagnostic and precision testing services.

Our strategy is focused on three strategic pillars.

First, we plan to drive accelerated growth and profitability by focusing on the Cancer Care Continuum, or CCC market.

We plan to do so by increasing investment in research and development and enhancing our commercial capabilities and customer digital experience to better serve the CCC market.

We also plan to leverage strategic partnerships and biopharma services to unlock new growth drivers and expand our portfolio of testing solutions to other high-growth cancer segments such as molecular residual disease (MRD).

Second, we aim to grow our Prenatal Health and Mental Health revenues at or above market growth by leveraging our expanded prenatal offerings, including FirstGene Multiple Prenatal Screen, to drive increased volume.

We also plan to focus on high value GeneSight accounts and leverage state biomarker laws to improve our reimbursement rates.

Third, we plan to complement the revenue growth drivers outlined above with an enhanced focus and commitment on delivering sustained, profitable growth.

By maintaining financial discipline, growing revenue faster than operating expenses, and strengthening our planning and execution capabilities, we believe we can increase our profitability while delivering sustained revenue growth.

Business Updates

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 July 2025, we closed a $125 million secured term debt financing with OrbiMed (“the Agreement”), a leading global healthcare investment firm.

This Agreement includes an option to borrow up to an additional $75 million.

• In July 2025, we earned the Great Place to Work Certification for the third consecutive year.

• In June 2025, we launched early access of FirstGene Multiple Prenatal Screen, a prenatal genetic risk assessment screen that combines several testing modalities into a single assay, in a large, multi-site study, called CONNECTOR.

• In May 2025, at the American Society of Clinical Oncology (ASCO) Annual Meeting, our partner the National Cancer Center Hospital East in Japan presented MRD data from the MONSTAR-SCREEN-3 prospective study which we believe demonstrates successful pan-cancer implementation of whole genome sequencing (WGS)-based personalized circulating tumor DNA, or ctDNA, detection.

In more than 100 patients, the interim results of this study show 100% baseline detection of ctDNA across tumor types, including those traditionally challenging to assess, detection of tumor fractions as low as 0.0001%, and a lead time in detecting recurrence compared to imaging.

We believe this data demonstrates the potential importance of our ultra-sensitive Precise MRD test compared to first-generation MRD tests.

Results of Operations for the Three Months Ended June 30, 2025 and 2024

The results of operations for the three months ended June 30, 2025 and 2024 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

(in millions) 2025 2024 Change 2025 2024

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

Three months ended March 31,

Three months ended June 30,

(in thousands) 2025 2024 % Change

Product volumes:

Hereditary Cancer 78 73 7 %

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Pharmacogenomics 135 129 5 %

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.

384 389 (1) %

Revenues increased $1.6 million for the three months ended June 30, 2025 compared to the same period in the prior year primarily due to an increase in the average revenue per test, due in part to changes in contracted price and operational improvements, which was partially offset by a 1% decrease in volume.

Hereditary Cancer revenues increased $4.8 million for the three months ended June 30, 2025 compared to the same period in the prior year primarily due to a 7% increase in volume.

Prenatal revenues increased $3.2 million for the three months ended June 30, 2025 compared to the same period in the prior year due to a 17% increase in average revenue per test partially offset by an 8% decrease in volume.

These increases in Hereditary Cancer and Prenatal revenues were partially offset by decreases in Pharmacogenomics and Tumor Profiling revenue.

Pharmacogenomics revenues decreased $5.2 million for the three months ended June 30, 2025 compared to the same period in the prior year due to a 16% decrease in average revenue per test.

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

Tumor Profiling revenue decreased $1.2 million primarily due to the sale of our EndoPredict business in August 2024.

Cost of Revenue

Three months ended March 31,

Three months ended June 30,

(in millions) 2025 2024 Change % Change

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28.8 % 30.4 %

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,

Cost of revenue for the three months ended June 30, 2025 decreased $3.1 million compared to the same period in the prior year primarily due to a reduction in the cost per test for the current period driven by reductions in the cost of laboratory reagents and supplies.

Research and Development Expense

Three months ended June 30,

(in millions) 2025 2024 Change % Change

Research and development expense $ 25.6 $ 27.1 $ (1.5) (6) %

$ 27.5 $ 24.9 $ 2.6 10 %

Research and development expense as a % of total revenue 12.0 % 12.8 %

Research and development expenses for the three months ended June 30, 2025 were relatively consistent with the expenses incurred in the same period of the prior year, reflecting stable operating activities across the business.

We remain committed to disciplined cost management while maintaining investments in key strategic areas, such as research and development.

Sales and Marketing Expense

Three months ended June 30,

(in millions) 2025 2024 Change % Change

Sales and marketing expense

$ 71.9 $ 72.8 $ (0.9) (1) %

Sales and marketing expense as a % of total revenue

33.7 % 34.4 %

Sales and marketing expenses for the three months ended June 30, 2025 were relatively consistent with the expenses incurred in the same period of the prior year, reflecting stable operating activities across the business.

General and Administrative Expense

Three months ended June 30,

(in millions) 2025 2024 Change % Change

General and administrative expense

$ 66.8 $ 72.1 $ (5.3) (7) %

Total operating expenses

General and administrative expense as a % of total revenue

31.3 % 34.1 %

Research and development expense as a % of total revenue

General and administrative expense decreased by $5.3 million for the three months ended June 30, 2025 compared to the prior year primarily due to a decrease in consulting fees, a decrease in amortization for previously impaired intangible assets, and compensation expenses.

Goodwill and Long-lived Asset Impairment Charges

Three months ended June 30, Change

(in millions) 2025 2024 % Change

Goodwill and long-lived asset impairment charges $ 316.7 $ 11.6 $ 305.1 2,630 %

Goodwill and long-lived asset impairment charges as a % of total revenue 148.6 % 5.5 %

Goodwill and long-lived asset impairment charges of $316.7 million in the three months ended June 30, 2025 consisted of goodwill impairment charges of $234.7 million and intangible asset impairment charges of $82.0 million related to our Women's Health and Pharmacogenomics reporting units.

For additional information regarding the testing and analysis performed, refer to "Critical Accounting Estimates" below.

In the prior year, we recognized $11.6 million of losses in connection with the sale of the EndoPredict business.

Other Income (Expense), Net

Three months ended June 30,

(in millions) 2025 2024 Change % Change

Other income (expense), net $ (1.4) $ (0.7) $ (0.7) 100.0 %

Other income (expense), net for the three months ended June 30, 2025 decreased $0.7 million as compared to the same period in the prior year due to an increase in interest expense.

Income Tax Benefit

Three months ended June 30,

(in millions) 2025 2024 Change % Change

Income tax benefit

$ (0.1) $ (0.5) $ 0.4 (80.0) %

Effective tax rate — % 1.3 %

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 June 30, 2025, there was $0.1 million income tax benefit and our effective tax rate was 0.0%.

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, 2025 and 2024, our effective tax rate differs from the U.S.

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

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 period includes a valuation allowance against the majority of the current year increase in deferred tax assets, including any tax-deductible loss from the $316.7 million of goodwill and long-lived impairment charges recorded during the three months ended June 30, 2025.

Results of Operations for the Six Months Ended June 30, 2025 and 2024

The results of operations for the six months ended June 30, 2025 and 2024 are discussed below.

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

Six months ended June 30, % of Total Revenue

(in millions) 2025 2024 Change 2025 2024

Hereditary Cancer $ 182.6 $ 179.6 $ 3.0 44% 44%

Tumor Profiling 60.7 63.5 (2.8) 15% 15%

Prenatal 96.9 88.7 8.2 24% 21%

Pharmacogenomics 68.8 81.9 (13.1) 17% 20%

Total revenue $ 409.0 $ 413.7 $ (4.7) 100% 100%

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

Six months ended June 30,

(in thousands) 2025 2024 % Change

Hereditary Cancer 151 144 5%

Tumor Profiling 24 28 (14)%

Prenatal 332 345 (4)%

Pharmacogenomics 262 253 4%

Revenue decreased $4.7 million for the six months ended June 30, 2025 compared to the same period in the prior year.

For the six months ended June 30, 2024, we recognized $9.3 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 six months ended June 30, 2025, revenue for tests in which the performance obligation was met in a prior period was immaterial.

Pharmacogenomics revenue decreased $13.1 million for the six months ended June 30, 2025 compared to the same period in the prior year due primarily to a 19% decrease in the average revenue per test.

Pharmacogenomics revenue for the six months ended June 30, 2025 has been negatively impacted by UnitedHealthcare’s 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.

Tumor Profiling revenue decreased $2.8 million for the six months ended June 30, 2025 compared to the same period in the prior year due primarily to a decrease in volume for EndoPredict due to the sale of our EndoPredict business in August 2024.

These decreases in revenue were partially offset by growth in our Prenatal and Hereditary Cancer revenues.

Prenatal revenue increased $8.2 million for the six months ended June 30, 2025 compared to the same period in the prior year due to a 14% increase in average revenue per test, partially offset by a 4% decrease in volume primarily driven by decline in volume for SneakPeek.

Hereditary Cancer revenue increased $3.0 million for the six months ended June 30, 2025 compared to the same period in the prior year due to a 5% increase in volume, partially offset by a 3% decrease in average revenue per test.

Cost of Revenue

Six months ended June 30,

(in millions) 2025 2024 Change % Change

Cost of revenue

$ 123.0 $ 128.9 $ (5.9) (5) %

Cost of revenue as a % of total revenue

30.1 % 31.2 %

Cost of revenue for the six months ended June 30, 2025 decreased $5.9 million compared to the same period in the prior year primarily due to a reduction in the cost per test for the current period driven by reduction in the cost of laboratory reagents and supplies.

Research and Development Expense

Six months ended June 30,

(in millions) 2025 2024 Change % Change

Research and development expense $ 53.1 $ 52.7 $ 0.4 1 %

Research and development expense as a % of total revenue 13.0 % 12.7 %

Research and development expense for the six months ended June 30, 2025 were relatively consistent with the expenses incurred in the same period of the prior year, reflecting stable operating activities across the business.

Sales and Marketing Expense

Six months ended June 30,

(in millions) 2025 2024 Change % Change

Sales and marketing expense $ 141.1 142.2 $ (1.1) (1) %

Sales and marketing expense as a % of total revenue 34.5 % 34.4 %

Sales and marketing expense for the six months ended June 30, 2025 were relatively consistent with the expenses incurred in the same period of the prior year, reflecting stable operating activities across the business.

General and Administrative Expense

Six months ended June 30,

(in millions) 2025 2024 Change % Change

General and administrative expense $ 133.3 142.7 $ (9.4) (7) %

General and administrative expense as a % of total revenue 32.6 % 34.5 %

33.9 % 35.2 %

Total operating expenses as a % of total revenue

General and administrative expense decreased by $9.4 million for the six months ended June 30, 2025 compared to the prior year primarily due to a decrease of $4.1 million in consulting fees, a $3.4 million decrease in amortization for previously impaired intangible assets, and a $3.2 million decrease in compensation and benefits.

Goodwill and Long-lived Asset Impairment Charges

Six months ended June 30,

(in millions) 2025 2024 Change

Goodwill and long-lived asset impairment charges

$ 316.7 $ 11.6 $ 305.1 2630 %

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.

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

Goodwill and long-lived asset impairment charges in the six months ended June 30, 2025 included goodwill impairment charges of $234.7 million and intangible asset impairment charges of $82.0 million related to our Women's Health and Pharmacogenomics reporting units.

For additional information regarding the testing and analysis performed, refer to "Critical Accounting Estimates" in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations." In the prior year, we recognized $11.6 million of losses in connection with the sale of the EndoPredict business.

Other Income (Expense), Net

Three months ended March 31,

Six months ended June 30,

(in millions) 2025 2024 Change % Change

Other income (expense), net $ (1.8) $ 1.3 $ (3.1) (238)%

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,

Other income (expense), net changed for the six months ended June 30, 2025 as compared to the same period in the prior year due primarily due to an increase in interest expense for the current period and due to the $2.2 million gain recognized on the Precise Tumor acquisition in the prior period

Income Tax Benefit

Six months ended June 30,

(in millions) 2025 2024 Change % Change

Income tax (benefit) expense

Income tax benefit

$ (29.4) $ (0.4) $ (29.0) 7250%

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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 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.

Income tax benefit for the six months ended June 30, 2025 was $29.4 million and our effective tax rate was 8.2%.

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 three and six months ended June 30, 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.

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.

Following the success of these claims, we remeasured or released the unrecognized benefits resulting in a discrete tax benefit of $29.6 million during the six months ended June 30, 2025.

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, including any tax-deductible loss from the $316.7 million of goodwill and long-lived impairment charges recorded for the six months ended June 30, 2025.

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 ("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.

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

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

On July 31, 2025 (the "Closing Date"), we entered into a Credit Agreement (the "Credit Agreement") with the lenders from time to time party thereto, and OrbiMed Royalty & Credit Opportunities IV, LP., as administrative agent (the "Administrative Agent") and as initial lender (“OrbiMed”).

The Credit Agreement consists of a $200 million term loan credit facility with an initial term loan of $125 million (the "Initial Loan"), which amount was funded on the Closing Date, and delayed draw term loans (the "Delayed Draw Loans" and together with the Initial Loan, the "Loans"), at our election on or prior to June 30, 2027, in a maximum principal amount of $75 million (the "Credit Facility").

The proceeds of the Credit Facility were or will be used for working capital needs and general corporate purposes, including, without limitation, refinancing existing indebtedness, including $60.2 million of the proceeds to repay the ABL Facility in full.

The Credit Facility matures on July 31, 2030 (the "Maturity Date").

Loans outstanding under the Credit Facility will bear interest at a rate per annum equal to (x) the greater of the one-month SOFR Rate and 2.50% plus (y) an applicable margin of 6.50%.

Commencing on September 30, 2029, and on the last business day of each fiscal quarter thereafter, we are required to make a scheduled principal payment equal to 2.50% of the unpaid principal amount of the loans outstanding on the fourth anniversary of the Closing Date, together with any applicable exit fee and repayment premium.

We may elect to prepay all or any portion of the amounts owed prior to the Maturity Date subject to a repayment premium.

The Credit Facility is also subject to customary mandatory prepayments with the proceeds of indebtedness and certain asset sales and casualty events.

In addition to the repayment premium referenced above, voluntary and mandatory prepayments and all other payments of the Credit Facility must also be accompanied by payment of accrued interest on the principal amount repaid or prepaid.

The Credit Facility is also subject to other customary fee arrangements.

The Credit Facility is secured by substantially all of our assets and those of our subsidiary guarantors under a Pledge and Security Agreement entered into with the Administrative Agent.

The Credit Facility requires us and our subsidiaries, on a consolidated basis, to comply with a minimum trailing twelve-month revenue test as of the end of each month, commencing with the month ending December 31, 2025 at $615.0 million and increasing quarterly to $974.0 million beginning on December 31, 2029 and thereafter.

In addition, the Credit Facility contains customary representations and warranties and affirmative and negative covenants, including covenants that limit or restrict us and our subsidiaries’ ability to incur liens, incur indebtedness, dispose of assets, make investments, make certain restricted payments, merge or consolidate and enter into certain speculative hedging arrangements.

The Credit Facility includes a number of customary events of default, including, among other things, nonpayment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults, material judgment defaults and the occurrence of a change of control.

If any event of default occurs (subject, in certain instances, to specified grace periods), the principal, premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the Credit Facility may become due and payable immediately.

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 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 or capital expenditures.

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.

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;

Our available cash from operations has been and may continue to be impacted by delays in the timing of the payment of receivables due to claims review, audit and appeal processes.

In addition, we are subject to covenants under our Credit 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 Credit 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.

If any of these events occurs, our ability to achieve our development and commercialization goals could be adversely affected.

If any of these events occur, our ability to achieve our development and commercialization goals could be adversely affected.

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

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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 change in UnitedHealthcare coverage has negatively impacted our revenue, profitability, and cash flow in the first half 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,

(in millions) June 30,

2025 December 31,

Cash and cash equivalents $ 74.4 $ 102.4 $ (28.0)

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 and cash equivalents as of June 30, 2025 as compared to December 31, 2024 was primarily driven by $29.9 million in cash used by operations, $15.2 million in cash used for capital expenditures including the capitalization of internal-use software, and $3.1 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:

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2025 2024 Change

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Effect of foreign exchange rates on cash, cash equivalents, and restricted cash 0.7 (1.5) 2.2

Change in cash and cash equivalents classified as held for sale

Net decrease in cash, cash equivalents, and restricted cash

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Cash Flows from Operating Activities

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.

We used $13.9 million more cash for operating activities for the six months ended June 30, 2025 compared to the same period in the prior year.

The increase in cash used for operating activities was primarily driven by a $10.9 million decrease in cash collected from accounts receivables driven by timing differences in collections.

Cash Flows from Investing Activities

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 used in investing activities for the six months ended June 30, 2025 were relatively consistent with the same period of the prior year, reflecting stable investing activities across the business.

Cash Flows from Financing Activities

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.

Cash flows from financing activities increased $22.6 million for the six months ended June 30, 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

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Critical Accounting Estimates

Critical accounting estimates are those policies which are both important to the presentation of a company’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on a company's financial condition or results of operations.

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 March 31, 2025.

No significant changes to our critical accounting estimates took place during the three months ended June 30, 2025, except as described below:

During the second quarter of 2025, we concluded that an impairment triggering event had occurred due to a further sustained decline in our market capitalization, resulting in our carrying value of these assets exceeding our total market capitalization.

Additional factors that contributed to this conclusion included downward revisions to our forecasts.

These factors were applicable to all of our reporting units, developed technology intangible assets, and certain other intangible assets.

Thus, we performed quantitative impairment testing on our goodwill and intangible assets as discussed above.

See also Note 5, "Goodwill and Intangible Assets" in the notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Based on the outcome of these assessments, we recognized goodwill and asset impairment charges totaling $316.7 million.

We test goodwill for impairment by reporting unit on an annual basis and in the interim if events and circumstances indicate that goodwill may be impaired.

The events and circumstances that are considered include business climate and market conditions, legal factors, operating performance indicators and competition.

Impairment of goodwill is evaluated on a qualitative basis before calculating the fair value of the reporting unit.

If the qualitative assessment suggests that impairment is more likely than not, a quantitative impairment analysis is performed.

The quantitative analysis involves comparison of the fair value of a reporting unit with its carrying amount.

The valuation of a reporting unit requires judgment in estimating future cash flows, discount rates, residual growth rates and other factors.

In making these judgments, we evaluate the financial health of our business, including such factors as industry performance, market saturation and opportunity, changes in technology and operating cash flows, and other relevant entity-specific events.

Goodwill impairment testing requires us to make a number of assumptions and estimates concerning future levels of revenue growth, operating margins, and other financial assumptions, which are based upon our long-term plan.

The discount rate is an estimate of the overall after-tax rate of return required by a market participant whose weighted average cost of capital includes both debt and equity, including a risk premium.

While we use the best available information to prepare our cash flows and discount rate assumptions, actual future cash flows and/or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances.

While changes in assumptions will occur to reflect changing business and market conditions, our overall methodology used has remained unchanged.

Changes in our forecasts or decreases in the value of our common stock could cause book value of reporting units to exceed their fair values.

If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

If an event occurs that would cause a revision to the estimates and assumptions used in analyzing the value of the goodwill, the revision could result in a non-cash impairment charge that could have a material impact on our financial results.

During the second quarter of 2025, we identified an impairment triggering event had occurred based on a sustained decline in our market capitalization, due in part to downward revisions to the Company's forecasts and resulted in us performing quantitative goodwill impairment testing on all of our reporting units.

The quantitative assessments performed during the second quarter of 2025, resulted in a total goodwill impairment charge of $234.7 million, which includes impairment charges of $143.5 million and $91.2 million related to our Women's Health and Pharmacogenomics reporting units, respectively, which is included in Goodwill and long-lived asset impairment charges in the Condensed Consolidated Statements of Operations included in this Quarterly Report on Form 10-Q.

As of the date the impairment, the remaining value of goodwill was $4.5 million for Women's Health and $29.8 million for Pharmacogenomics reporting units.

We measured the fair value of the Pharmacogenomics and Women's Health reporting units utilizing the market approach and the discounted cash flow method under the income approach.

The income approach considered projected revenue and profitability associated with each reporting unit and a discount rate reflective of the risk-adjusted cost of capital of 17.0% and 16.0% for the Pharmacogenomics and Women's Health reporting units, respectively.

We measured the fair value of the International reporting unit utilizing the market approach and the discounted cash flow method under the income approach.

The income approach considered projected revenue and profitability associated with the reporting unit and a discount rate reflective of the risk-adjusted cost of capital of 16.0%.

The resulting fair value of the International reporting unit exceeded its carrying value by 145.7%.

Additionally, we corroborated the reasonableness of the estimated reporting unit fair values by reconciling them to our enterprise value and market capitalization as of May 2025.

Considerable management judgment is necessary to estimate expected future cash flows for our reporting units, including evaluating the impact of operational and external economic factors on our future cash flows, all of which are subject to uncertainty.

The assumptions and estimates used in determining the fair value of our reporting units involve significant elements of subjective judgment and analysis by management.

Certain future events and circumstances, including a higher cost of capital or a decline in actual and expected revenues or profitability, among others, could result in changes to these assumptions and judgements.

A revision of these estimates and assumptions could cause the fair values of the reporting units to fall below their respective carrying values, resulting in impairment charges, which could have a material adverse effect on our results of operations.

We will continue to monitor our reporting units for any triggering events or other signs of impairment which could result in impairment charges in the future.

Intangible Assets.

Intangible assets are initially recorded at their acquisition date fair value and are subsequently amortized over their useful lives.

We review our intangible assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable.

We performed the recoverability test by comparing the carrying value of certain of our asset groups to their estimated undiscounted future cash flows.

The analysis indicated that the carrying value exceeded the recoverable amount for certain of our asset groups, requiring us to determine the fair value of those groups.

The fair value of our Pharmacogenomics developed technology intangible asset was determined using a discounted cash flow model.

The approach considered projected revenue, profitability associated with the developed technology, a discount rate reflective of the risk-adjusted cost of capital of 17% and the expected remaining useful life of the developed technology.

As the carrying value for the developed technology intangible asset exceeded the relative fair value, we recognized impairment charges of $71.8 million during the period ended June 30, 2025, which is included in Goodwill and long-lived asset impairment charges in the Consolidated Statements of Operations included in this Quarterly Report on Form 10-Q.

The impairment reduced the carrying value of the developed technology to its estimated fair value of $12.1 million as of the impairment date.

The fair value of the Gateway intangible assets, including developed technology, trademark and customer relationship intangible assets, was determined using a discounted cash flow model and relief from royalty models.

The primary assumptions used in the discounted cash flow model included projected revenue and profitability associated with the developed technology based on management's forecast and a discount rate reflective of the risk-adjusted cost of capital of 16%.

The primary assumptions used in the relief from royalty models were projected revenue and royalty rates.

As the carrying value of each of the intangible assets exceeded the relative value fair value, we recognized a total impairment charge of $10.2 million associated with the asset group during the period ended June 30, 2025.

The impairment reduced the carrying value of these intangible assets to their estimated fair value of $2.4 million as of the impairment date.

The assumptions and estimates used in determining the fair value of our intangible assets involve significant elements of subjective judgment and analysis by management.

Certain future events and circumstances, including higher cost of capital or a decline in actual and expected revenues or profitability, could result in changes to these assumptions and judgements.

A revision of these estimates and assumptions could cause the fair values of the intangible assets to fall below their respective carrying values, resulting in impairment charges, which could have a material adverse effect on our results of operations.

We will continue to monitor our intangible assets for any triggering events or other signs of impairment, which could result in impairment charges in the future.

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