What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-28 compared with 2023-02-28 · 396 added, 206 removed, 829 unchanged (42% of the section changed)

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Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive (Loss) Income

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Stockholders’ Equity

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Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting F irm

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Pacific Biosciences of California, Inc.

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We have audited the accompanying consolidated balance sheets of Pacific Biosciences of California, Inc.

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

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss , stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2023, expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2024, expressed an unqualified opinion thereon.

Basis for Opinion

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

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

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

Critical Audit Matter

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

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

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

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

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

Revenue recognition - Identification of performance obligations and allocation of contract consideration

Description of the Matter

For the year ended December 31, 2022, the Company recognized revenue of $128.3 million, including $108.7 million of product revenue, which consists primarily of instrument sales and related consumables.

As described in Note 1 to the consolidated financial statements, instrument sales are generally sold in a bundled arrangement and commonly include the instrument, instrument accessories, training, and consumables.

For bundled arrangements, the Company identifies a performance obligation for each promise to transfer, to the customer, a product or service that is distinct.

The consideration for bundled arrangements is allocated between each performance obligation based on its individual standalone selling price, which is estimated by the Company, using historical sales data, as well as management judgment.

Description of the Matter For the year ended December 31, 2023, the Company recognized revenue of $200.5 million, including $183.9 million of product revenue, which consists primarily of instrument sales and related consumables.

As described in Note 1 to the consolidated financial statements, the Company may enter into contracts with customers that includes a combination of promised products and services, resulting in arrangements containing multiple performance obligations.

The Company identifies a performance obligation for each promise to transfer to the customer, a product or service that is distinct.

The consideration is allocated between each performance obligation based on its individual standalone selling price, which is estimated by the Company, using historical sales data, as well as management judgment.

The Company enters into, or periodically modifies, revenue contracts with non-standard terms, requiring management to evaluate whether these non-standard terms represent a performance obligation.

For example, the Company may offer specified discounts on current components of the bundled arrangements and on future purchase options, for which historical information may not be available.

As part of the Company's identification of performance obligations and the resulting determination of the allocation of contract consideration, the Company considers if these specified discounts represent a material right when compared to the estimated standalone selling price and, therefore, a performance obligation to be included in the allocation of the contract value.

For example, the Company may offer specified discounts on current products within an arrangement and on future purchase options, for which historical information may not be available.

Auditing management’s identification of the performance obligations and the resulting determination of the allocation of contract consideration in certain contracts involved a higher degree of judgment due to the subjective nature of identifying certain performance obligations and the related determination of standalone selling price when it is not based on historical information.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls addressing management’s identification of performance obligations and allocation of contract consideration, including standalone selling price determination.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls addressing management’s identification of performance obligations and allocation of contract consideration, including standalone selling price determination.

Our audit procedures included, among others, reading executed contracts for a sample of arrangements and evaluating whether terms of the contracts (including specified discounts on current and future purchase options) resulted in additional performance obligations.

Additionally, we tested the completeness and accuracy of the information used in management’s allocation of contract consideration, including the data incorporated in underlying calculations to determine standalone selling price.

Business combination - Valuation of intangible asset

Description of the Matter As described in Note 2 to the consolidated financial statements, the Company completed its acquisition of Apton Biosystems, Inc.

The transaction was accounted for as a business combination, and the Company recorded an indefinite-lived intangible asset of $55.0 million.

Auditing the Company’s accounting for the acquisition was challenging because the determination of the fair value of the identified intangible asset, which consisted of in-process research and development (IPR&D), required management to make certain subjective estimates and assumptions.

The Company used an income approach to measure the intangible asset.

The valuation of the intangible asset is subject to higher estimation uncertainty due to management’s judgments in determining significant assumptions, which included certain components of the revenue projection and the discount rate.

A change in these significant assumptions could have a significant effect on the fair value of the intangible asset.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls addressing the identified audit risk.

For example, we tested controls over management’s review of the significant assumptions used to develop the fair value estimate of the intangible asset.

We also tested management’s controls to validate that data used in the fair value estimate was complete and accurate.

To test the estimated fair value of the intangible asset, we performed audit procedures that included, among others, evaluating the Company’s valuation model with the assistance of valuation specialists, performing sensitivity analyses to determine which assumptions had the greatest impact on the overall determination of value, and testing the completeness and accuracy of the underlying data used to develop the assumptions.

We also evaluated the assumptions by comparing them to market and economic trends, historical results of the Company’s business and other guideline companies within the same industry.

/s/ Ernst & Young LLP

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Cash and cash equivalents $ 179,911 $ 325,089

Investments 451,505 447,229

Accounts receivable, net 36,615 18,786

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Intangible assets, net 456,984 410,245

Goodwill 462,261 409,974

Other long-term assets 13,274 10,528

Total assets $ 1,746,013 $ 1,767,086

Liabilities and Stockholders’ Equity

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Additional paid-in capital 2,539,892 2,099,782

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss) 219 ( 4,765 )

Accumulated deficit ( 1,839,075 ) ( 1,532,340 )

( 1,532,340 )

( 1,218,092 )

Total stockholders’ equity 701,304 562,904

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PACIFIC BIOSCIENCES OF CALIFORNIA, INC.

Consolidated Statements of Operations and Comprehensive (Loss) Income

Consolidated Statements of Operations and Comprehensive Loss

Years Ended December 31,

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Cost of service and other revenue 14,754 13,899 14,989

Amortization of intangible assets

Amortization of acquired intangible assets 1,983 733 306

Loss on purchase commitment 3,436 3,705 —

Total cost of revenue 147,741 79,269 71,653

Gross profit 52,780 49,035 58,860

Operating Expense:

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Change in fair value of contingent consideration 15,060 2,377 1,143

Amortization of acquired intangible assets 6,157 — —

Total operating expense 387,247 356,231 269,295

Operating loss ( 334,467 ) ( 307,196 ) ( 210,435 )

Gain from Reverse Termination Fee from Illumina

(Loss)/Gain from Continuation Advances from Illumina

Loss from Continuation Advances from Illumina — — ( 52,000 )

Loss on extinguishment of debt ( 2,033 ) — —

Interest expense ( 14,343 ) ( 14,690 ) ( 12,530 )

Other income, net 32,684 7,638 93

(Loss) income before benefit from income taxes

Loss before benefit from income taxes ( 318,159 ) ( 314,248 ) ( 274,872 )

Benefit from income taxes ( 11,424 ) — ( 93,649 )

Net (loss) income

Other comprehensive (loss) income:

Unrealized (loss) gain on investments

Comprehensive (loss) income

Net (loss) income per share:

Weighted average shares outstanding used in calculating

‎ net (loss) income per share

Net loss ( 306,735 ) ( 314,248 ) ( 181,223 )

Other comprehensive income (loss):

Unrealized gain (loss) on investments 4,984 ( 3,678 ) ( 1,172 )

Comprehensive loss $ ( 301,751 ) $ ( 317,926 ) $ ( 182,395 )

Net loss per share:

Basic $ ( 1.21 ) $ ( 1.40 ) $ ( 0.89 )

Diluted $ ( 1.21 ) $ ( 1.40 ) $ ( 0.89 )

Weighted average shares outstanding used in calculating net loss per share

Basic 253,629 224,550 204,136

Diluted 253,629 224,550 204,136

See accompanying notes to the consolidated financial statements.

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Consolidated Statements of Stockholders’ Equity

Common Stock Additional

Capital Accumulated

Comprehensive

Stockholders'

(in thousands)

Income (Loss)

Balance at December 31, 2019

( 1,066,240 )

Other comprehensive gain

ASC 326 adoption effect

Issuance of common stock in conjunction with equity plans

Issuance of common stock from Underwritten Public Equity Offerings, net of issuance costs

Share-based compensation expense

Income (Loss) Accumulated

Deficit Total

Stockholders'

(in thousands) Shares Amount

Balance at December 31, 2020 192,294 $ 192 $ 1,372,083 $ 85 $ ( 1,036,869 ) $ 335,491

( 1,036,869 )

Net loss — — — — ( 181,223 ) ( 181,223 )

Other comprehensive loss — — — ( 1,172 ) — ( 1,172 )

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Balance at December 31, 2021 220,978 $ 221 $ 2,009,945 $ ( 1,087 ) $ ( 1,218,092 ) $ 790,987

( 1,218,092 )

Net loss — — — — ( 314,248 ) ( 314,248 )

Other comprehensive loss — — — ( 3,678 ) — ( 3,678 )

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Balance at December 31, 2022 226,505 $ 227 $ 2,099,782 $ ( 4,765 ) $ ( 1,532,340 ) $ 562,904

( 1,532,340 )

Net loss — — — — ( 306,735 ) ( 306,735 )

Other comprehensive income — — — 4,984 — 4,984

Issuance of common stock following milestone achievement 8,988 9 84,752 — — 84,761

Issuance of common stock in acquisition of Apton 6,121 6 76,636 — — 76,642

Issuance of common stock in connection with Apton liquidity event bonus plan 169 — 2,111 — — 2,111

Issuance of common stock from Underwritten Public Equity Offering, net of issuance costs 20,125 20 189,180 — — 189,200

Issuance of common stock in conjunction with equity plans 5,836 6 15,313 — — 15,319

Share-based compensation expense — — 72,118 — — 72,118

Balance at December 31, 2023 267,744 $ 268 $ 2,539,892 $ 219 $ ( 1,839,075 ) $ 701,304

See accompanying notes to the consolidated financial statements.

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Cash flows from operating activities

Net (loss) income

Net loss $ ( 306,735 ) $ ( 314,248 ) $ ( 181,223 )

Adjustments to reconcile net loss to net cash used in operating activities

Loss (gain) from Continuation Advances — — 52,000

Amortization of intangibles

Depreciation 11,463 9,480 7,199

Amortization of intangible assets 8,261 913 381

Amortization of right-of-use assets 6,810 6,925 4,005

Amortization of debt discount and financing costs

Share-based compensation 72,118 78,613 73,355

Merger-related compensation expense 3,395 — —

Loss on extinguishment of debt 2,033 — —

Amortization of premium and accretion of discount on marketable securities, net ( 12,840 ) ( 244 ) 4,011

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Inventory provision 10,584 6,027 678

Loss on disposition of equipment

Deferred income taxes ( 11,424 ) — ( 93,649 )

Other 1,059 918 593

Changes in assets and liabilities

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Operating lease liabilities ( 8,759 ) ( 7,724 ) ( 4,990 )

Contingent consideration liability ( 14,882 ) — —

Other liabilities 2,449 887 ( 803 )

Net cash (used in) provided by operating activities

Net cash used in operating activities ( 259,173 ) ( 263,211 ) ( 111,180 )

Cash flows from investing activities

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Purchase of intangible assets — ( 179 ) —

Cash paid for purchase of Circulomics, net of cash acquired

Cash paid for purchase of Omniome, net of cash acquired

Cash paid for purchases of acquired entities, net of cash acquired ( 102 ) — ( 319,793 )

Purchase of investments ( 756,567 ) ( 442,788 ) ( 988,046 )

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Proceeds from issuance of common stock from equity plans 15,319 11,230 31,806

Payment of debt issuance costs ( 7,375 ) — —

Payment of contingent consideration ( 86,411 ) — —

Notes payable principal payoff ( 1,842 ) ( 1,608 ) ( 361 )

Other — — ( 245 )

Net cash provided by financing activities 108,891 9,622 1,169,581

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Right-of-use asset and liability additions and modifications $ — $ — $ 2,576

Issuance of common stock in acquisition of Omniome

Issuance of common stock in acquisition of Apton and Omniome $ 76,642 $ — $ 237,885

Issuance of common stock in connection with Apton liquidity event bonus plan $ 2,111 $ — $ —

Convertible Senior Notes exchange $ 441,000 $ — $ —

Issuance of common stock following milestone achievement $ 84,761 $ — $ —

See accompanying notes to the consolidated financial statements.

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We are a life science technology company that is designing, developing, and manufacturing advanced sequencing solutions that enable scientists and clinical researchers to improve their understanding of the genome and ultimately, resolve genetically complex problems.

Our products and technology under development stem from two highly differentiated core technologies focused on accuracy, quality, and completeness, which include our existing HiFi long-read sequencing technology and our emerging short-read Sequencing by Binding (SBB ® ) technology.

Our products address solutions across a broad set of applications including human genomics, plant and animal sciences, infectious disease and microbiology, oncology, and other emerging applications.

Our focus is on providing our customers with advanced sequencing technologies with higher throughput and improved workflows that we believe will enable dramatic advancements in routine healthcare.

Our products and technology under development stem from two highly differentiated core technologies focused on accuracy, quality, and completeness, which include our HiFi long-read sequencing technology and our Sequencing by Binding (SBB ® ) technology.

Our products address solutions across a broad set of applications including human genetics, plant and animal sciences, infectious disease and microbiology, oncology, and other emerging applications.

Our focus is on creating some of the world's most advanced sequencing systems to provide our customers the most complete and accurate view of genomes, transcriptomes, and epigenomes.

Our customers include academic and governmental research institutions, commercial testing and service laboratories, genome centers, public health labs, hospitals and clinical research institutes, contract research organizations (CROs), pharmaceutical companies, and agricultural companies.

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The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the financial statements.

On an ongoing basis, we evaluate our significant estimates including, but not limited to, the valuation of inventory, the determination of stand-alone selling prices for revenue recognition, the fair value of contingent consideration, the valuation of acquired intangible assets, the fair value of certain equity awards, the useful lives assigned to long-lived assets, the computation of provisions for income taxes, the borrowing rate used in calculating the operating lease right-of-use assets and operating lease liabilities, the probability associated with variable payments under partnership development agreements, and the valuations related to our convertible senior notes.

While the extent of the potential impact of the current macroeconomic conditions and ongoing COVID-19 pandemic on our business is highly uncertain, we considered information available related to assumptions and estimates used to determine the results reported and asset valuations as of December 31, 2022.

On an ongoing basis, we evaluate our significant estimates including, but not limited to, the valuation of inventory, the fair value of contingent consideration, the valuation of acquired intangible assets, the useful lives assigned to long-lived assets, the computation of provisions for income taxes, and the valuations related to our convertible senior notes.

While the extent of the potential impact of the current macroeconomic conditions on our business is highly uncertain, we considered information available related to assumptions and estimates used to determine the results reported and asset valuations as of December 31, 2023.

Actual results could differ materially from these estimates.

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We remeasure foreign subsidiaries monetary assets and liabilities to the U.S.

dollar and record net gains or losses from remeasurement in other income, net, in the consolidated statement of operations and comprehensive ( loss) income.

dollar and record net gains or losses from remeasurement in other income, net, in the consolidated statements of operations and comprehensive loss.

Cash, Cash Equivalents, Restricted Cash, and Investments

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We evaluate our available-for-sale investments in unrealized loss positions and assess whether the unrealized loss is credit-related.

Unrealized gains and losses that are not credit-related are recognized in accumulated other comprehensive (loss) income in stockholders’ equity.

Unrealized gains and losses that are not credit-related are recognized in accumulated other comprehensive income (loss) in stockholders’ equity.

Realized gains and losses, expected credit losses, as well as interest income, on available-for-sale securities are also reported in other income, net.

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The allowance for credit losses is based on our assessment of the collectability of customer accounts.

We regularly review our trade receivable including consideration of factors such as historical experience, the age of the accounts receivable balances, customer creditworthiness, customer industry, and current and forecasted economic conditions that may affect a customer’s ability to pay.

We regularly review our trade receivables including consideration of factors such as historical experience, the age of the accounts receivable balances, customer creditworthiness, customer industry, and current and forecasted economic conditions that may affect a customer’s ability to pay.

We have not experienced any significant credit losses to date.

Although we have historically not experienced significant credit losses, our exposure to credit losses may increase if our customers are adversely affected by changes in economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current COVID-19 pandemic, or other customer-specific factors.

For the year ended December 31, 2023, no single customer accounted for 10% or greater of our total revenue.

For the years ended December 31, 2022 and 2021, one customer accounted for approximately 12 %, and 13 % of our total revenue, respectively.

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As of December 31, 2023, one customer represented approximately 10 % of our net accounts receivable.

As of December 31, 2021, no customer represented 10% or greater of our net accounts receivable.

As of December 31, 2022, one customer represented approximately 10 % of our net accounts receivable.

We currently purchase several key parts and components used in the manufacture of our products from a limited number of suppliers.

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Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess or obsolete balances.

Cost includes depreciation, labor, material, and overhead costs, including product and process technology costs while determining net realizable value of inventories involves numerous judgements, including projecting future average selling prices, sales volumes, and costs to complete products in work in process inventories.

Cost includes depreciation, labor, material, and overhead costs, including product and process technology costs.

Determining net realizable value of inventories involves numerous judgements, including projecting future average selling prices, sales volumes, and costs to complete products in work in process inventories.

We make inventory purchases and commitments to meet future shipment schedules based on forecasted demand for our products.

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Estimated Useful Lives

Leasehold improvements

3 to 10 years

Lab equipment

Computer equipment

Computer software

Furniture and fixtures

Leasehold improvements 3 to 10 years

Lab equipment 3 to 5 years

Computer equipment 3 to 5 years

Computer software 3 years

Furniture and fixtures 3 to 5 years

Operating Leases

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These estimates require significant management judgment, including probabilities of achieving certain future milestones.

Changes in the fair value of the contingent consideration subsequent to the acquisition date are recognized in operating expense in our consolidated statements of operations and comprehensive (loss) income.

Changes in the fair value of the contingent consideration subsequent to the acquisition date are recognized in operating expense in our consolidated statements of operations and comprehensive loss.

If the initial accounting for a business combination is incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our financial statements.

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We record these adjustments to the provisional amounts with a corresponding offset to goodwill.

Any adjustments identified after the measurement period are recorded in the consolidated statements of income.

Any adjustments identified after the measurement period are recorded in the consolidated statements of operations and comprehensive loss.

Goodwill, Intangible Assets, and Other Long-Lived Assets

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Intangible assets acquired in a business combination that are used for IPR&D activities are considered indefinite lived until the completion or abandonment of the associated research and development efforts.

Upon reaching the end of the relevant research and development project (i.e., upon commercialization), the IPR&D asset is amortized over its estimated useful life.

Upon reaching the end of the relevant research and development project (i.e., upon commercialization), the IPR&D asset is assessed for impairment and then amortized over its estimated useful life.

If the relevant research and development project is abandoned, the IPR&D asset is expensed in the period of abandonment.

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however, they are reviewed for impairment at least annually.

We perform annual impairment testing of goodwill in the second quarter of each year and IPR&D in the fourth quarter of each year, or more frequently if indicators of potential impairment exist.

We perform annual impairment testing of goodwill in the second quarter of each year, or more frequently if indicators of potential impairment exist.

We generally perform annual impairment testing of IPR&D in the fourth quarter of each year, or more frequently if indicators of potential impairment exist.

We perform our goodwill impairment analysis at the reporting unit level.

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We account for a contract with a customer when there is a legally enforceable contract between us and the customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable.

Revenues are recognized when control of the promised goods, or services is transferred to our customers, or services are performed, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Our instrument sales are generally sold in a bundled arrangement and commonly include the instrument, instrument accessories, training, and consumables.

For such bundled arrangements, we account for individual products and services separately if they are distinct, that is, if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer.

Installation services are considered distinct from the instrument.

Revenues are recognized when control of the promised goods are transferred to our customers, or services are performed, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

We may enter into contracts with customers that include a combination of promised products and services, resulting in arrangements containing multiple performance obligations.

We determine whether each product or service is distinct, in order to identify the performance obligations in the contract and allocate the contract transaction price among the distinct performance obligations.

A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract.

We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service.

Therefore, instrument revenue is recognized upon transfer of control of the asset to the customer, which is generally upon delivery for sales made to our non-distributor customers and upon shipment for sales made to our distributor customers.

The consideration for bundled arrangements is allocated between separate performance obligations based on their individual standalone selling price.

The consideration for contracts with multiple performance obligations is allocated between separate performance obligations based on their individual standalone selling price.

We determine the best estimate of standalone selling price using average selling prices over a 12-month period combined with an assessment of current market conditions.

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In accounting for customer options, we determine whether an option is a material right and this requires us to exercise significant judgment.

If a contract provides the customer an option

to acquire additional goods or services at a discount that exceeds the range of discounts that we typically give for that product or service for the same class of customer, or if the option provides the customer certain additional goods or services for free, the option may be considered a material right.

If the contract gives the customer the option to acquire additional goods or services at their normal standalone selling prices, we would likely determine that the option is not a material right and, therefore, account for it as a separate performance obligation when the customer exercises the option.

If a contract provides the customer an option to acquire additional goods or services at a discount that exceeds the range of discounts that we typically give for that product or service for the same class of customer, or if the option provides the customer certain additional goods or services for free, the option may be considered a material right.

If the standalone selling price of the option is not directly observable, an estimated standalone selling price is utilized which considers adjustments for discounts that the customer could receive without exercising the option and the likelihood that the option will be exercised.

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Additionally, we generally provide a one-year warranty on instruments.

W e accrue the cost of the assurance warranty when revenue of the instrument is recognized.

We accrue the cost of the assurance warranty when revenue of the instrument is recognized.

Employee sales commissions are generally recorded as selling, general, and administrative expense when incurred as the amortization period for such costs, if capitalized, would have been one year or less.

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Available-for-sale debt securities

Our investment portfolio at any point in time contains investments in cash deposits, money market funds, commercial paper, corporate debt securities and U.S.

Our investment portfolio contains investments in cash deposits, money market funds, commercial paper, corporate debt securities and U.S.

government and agency securities.

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The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income.

Unrealized losses that are not credit related are included in accumulated other comprehensive income.

Unrealized losses that are not credit related are included in accumulated other comprehensive income (loss).

The unrealized losses on our investments are mainly attributable to government securities, including U.S.

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We have the ability to hold and do not intend to sell the investments in unrealized loss positions before the recovery of their amortized cost bases.

Although we have historically not experienced significant credit losses, our exposure to credit losses may increase if our customers are adversely affected by changes in economic pressures or uncertainty associated with local or global economic recessions, disruptions associated with the evolution of the COVID-19 pandemic, or other customer-specific factors.

Although we have historically not experienced significant credit losses, our exposure to credit losses may increase if our customers are adversely affected by changes in economic pressures or uncertainty associated with local or global economic recessions, disruptions associated with the evolution of COVID-19 or other epidemics or pandemics, or other customer-specific factors.

We account for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax bases of our assets and liabilities and the amounts reported in the financial statements.

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Share-based Compensation

We account for share-based payments using a fair-value based method for costs related to all share-based payments, including stock options, restricted stock units, and stock issued under our employee stock purchase plan (“ESPP”).

We estimate the fair value of share-based payment awards that are stock options and issued under our ESPP on the date of grant using an option-pricing model.

We recognize share-based compensation expense for share-based payments, including stock options, restricted stock units, performance stock units and stock issued under our employee stock purchase plan ("ESPP") based on the grant-date fair value.

We estimate the fair value of stock options and ESPP using an option-pricing model.

Stockholders’ Equity for further information regarding share-based compensation.

Other Comprehensive (Loss) Income

Other comprehensive (loss) income is comprised of unrealized (losses) gains on our investment securities.

Other Comprehensive Income (Loss)

Other comprehensive income (loss) is comprised of unrealized gains (losses) on our investment securities.

Shipping and Handling

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Earnings per Share

Basic net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of shares of common stock outstanding during the period.

Diluted net (loss) income per share is computed using the weighted-average number of shares of common stock outstanding and potential shares assuming the dilutive effect of outstanding stock options, restricted stock units, and common stock issuable pursuant to our ESPP, using the treasury stock method.

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding and potential shares assuming the dilutive effect of outstanding stock options, restricted stock units, and common stock issuable pursuant to our ESPP, using the treasury stock method.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

There are no accounting standards updates (“ASUs”) that have been recently adopted and are applicable to our consolidated financial statements .

Accounting Pronouncements Pending Adoption

In October 2021, the FASB issued ASU No.

In October 2021, the FASB issued Accounting Standards Update ("ASU") No.

2021-08, Business Combinations (Topic 805):

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This amendment improves comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination.

This authoritative guidance will be effective for us in the first quarter of 2023.

The adoption of this guidance is not expected to have a material effect on our consolidated financial statements.

We adopted this ASU on January 1, 2023.

The adoption of this guidance did not have a material effect on our consolidated financial statements.

Accounting Pronouncements Pending Adoption

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

This ASU requires entities to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid.

This authoritative guidance will be effective for us in fiscal year 2025, with early adoption permitted.

The Company is currently evaluating the impact of the ASU but does not expect any material impacts upon adoption.

BUSINESS ACQUISITIONS

Apton Biosystems

On August 2, 2023, we acquired Apton Biosystems, Inc.

(“Apton”), a California-based genomics company focused on developing a high throughput short-read sequencer using highly differentiated optics and image processing, paired with novel clustering and chemistry (the “Apton acquisition”).

In connection with the Apton acquisition, all outstanding equity securities of Apton were cancelled in exchange for shares of our common stock with a fair value of $ 76.6 million, cash of $ 0.2 million, and contingent consideration with a preliminary estimated fair value of $ 18.5 million.

Excluded from consideration transferred was $ 1.3 million attributable to accelerated share-based compensation expense.

The fair value of the 6,121,571 common shares issued was determined based on the closing market price of our common stock on the acquisition date.

In connection with the Apton acquisition, contingent consideration of $ 25.0 million, which we may elect to pay in cash, shares of our common stock or a combination of cash and shares of our common stock, is due upon the achievement of a milestone, defined as the achievement of $ 50.0 million in revenue associated with Apton's technology, provided that the milestone event occurs prior to the 5-year anniversary of the closing date of the acquisition.

At this time, the number of shares, if any, to be issued in connection with the achievement of the specified milestone is not known and will be calculated based on the daily volume-weighted average price of our common stock for the twenty trading days ending on and including the fifth trading day immediately prior to the occurrence of the specified milestone.

Upon achievement of the milestone, we may pay cash in lieu of our common stock to ensure that the issuance of our common stock does not exceed 19.9 % of our outstanding shares of common stock then outstanding.

The contingent consideration is accounted for as a liability at fair value, with changes during each reporting period recognized in our consolidated statements of operations and comprehensive loss.

The fair value of the contingent consideration liability is calculated, with the assistance from a third-party valuation firm, using a Monte Carlo Simulation to estimate the volatility and systematic relative risk of revenues subject to sales milestone payments and discounting the associated cash payment amounts to their present values using a credit-risk-adjusted interest rate.

We allocated the consideration transferred to the identifiable assets acquired and liabilities assumed based on preliminary estimates of their respective fair values at the date of the completion of the Apton acquisition, and such allocation is subject to adjustment for up to one year after the close of the acquisition as additional

information is obtained.

The major classes of assets and liabilities to which we have allocated the total fair value of the consideration transferred, based on the preliminary estimated fair values were as follows (in thousands):

Cash and cash equivalents $ 97

In-process research and development 55,000

Goodwill 52,287

Other assets, current 153

Deferred income tax liability ( 11,338 )

Liabilities assumed ( 2,191 )

Total consideration transferred $ 94,008

The purchase price allocation is preliminary, primarily due to the pending finalization of review of various tax attributes.

We continue to collect information regarding certain estimates and assumptions, including potential liabilities and contingencies.

We will record adjustments to the fair value of the assets acquired, liabilities assumed and goodwill within the twelve months measurement period, if necessary.

During the year ended December 31, 2023, we recorded a measurement period adjustment of $ 1.6 million to decrease goodwill, and a corresponding $ 2.0 million increase in intangible assets and $ 0.4 million decrease in the deferred tax liability on the consolidated balance sheets, and a $ 0.7 million increase to our benefit from income taxes on the consolidated statements of operations and comprehensive loss.

The measurement period adjustment was due to new information that became available to us upon the completion of the valuation assessment of the in-process research and development and the tax provision.

We incurred costs related to the Apton acquisition of approximately $ 9.0 million during the year ended December 31, 2023, which are included in merger-related expenses on the consolidated statement of operations and comprehensive loss.

Merger-related expenses include $ 2.8 million relating to a liquidity event bonus plan that was treated as a separate transaction and included the issuance of 168,621 shares of common stock that were issued with a fair value of $ 2.1 million based on the closing market price of our common stock on the acquisition date.

As a result, the total shares issued in connection with the Apton acquisition were 6.3 million shares of common stock.

The excess of the value of consideration paid over the aggregate fair value of those net assets has been recorded as goodwill.

We recognized goodwill of $ 52.3 million, based on preliminary estimates, which is primarily attributable to the synergies expected to occur from the integration of Apton and is not deductible for income tax purposes.

We preliminarily allocated $ 55.0 million of the purchase price to acquired in-process research and development ("IPR&D").

The fair value of the IPR&D was determined, with the assistance of a third-party valuation firm, using an income approach based on a forecast of expected future cash flows.

Expected future cash flows utilize significant assumptions such as assumed revenue projections and discount rate.

Omniome, Inc.

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The potential outcomes are discounted to present value at a discount rate equal to the sum of the term-matched risk-free-interest rate plus PacBio’s credit spread.

On September 20, 2023, we achieved the commercial milestone in connection with the acquisition of Omniome.

Financial Instruments for additional information on amounts paid and shares issued to former Omniome securityholders during the year ended December 31, 2023.

Total consideration transferred for the acquisition is as follows (in thousands):

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Operating lease right-of-use assets, net

In-process research and development ("IPR&D")

In-process research and development 400,000

Goodwill 390,665

Other assets, non-current

Deferred income tax liability ( 91,814 )

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Pro forma total revenue

$ 130,513 $ 78,893

Pro forma net (loss) income

$ ( 278,451 ) $ 17,510

Pro forma net (loss) income per share - basic and diluted

$ ( 1.27 ) $ 0.09

Our consolidated financial statements include the results of operations for Omniome beginning September 20, 2021.

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Intangible assets

Goodwill 19,309

Other assets, non-current

Deferred income tax liability ( 2,672 )

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There can be no assurances that the in-development sequencing systems will continue to be developed, be successfully developed or become available for commercial sale.

In consideration of the non-refundable payments received from Invitae pursuant to the Original Agreement of $ 23.5 million, we will provide Invitae with credits in connection with Invitae’s anticipated purchase of certain currently available and in-development sequencing systems (instruments and consumables).

In consideration of the non-refundable payments received from Invitae pursuant to the Original Agreement of $ 23.5 million, we will provide Invitae with credits in connection with Invitae’s anticipated purchase of certain currently sequencing systems (instruments, consumables and service contracts).

The credits will expire on June 30, 2025 (“Credit Expiration Date”).

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We and Invitae may terminate the Amended and Restated Agreement if the other party remains in material breach of the Amended and Restated Agreement following a cure period to remedy the material breach.

The Amended and Restated Agreement is deemed a contract modification and accounted for on a prospective basis in accordance with ASC Topic 606.

We will recognize proportionate amounts of the transaction price, including payments made by Invitae to us pursuant to the Original Agreement, in revenue as the remaining performance obligations are satisfied, which is when Invitae places purchase orders for certain currently available and in-development sequencing platforms and the associated goods are delivered.

The Amended and Restated Agreement was deemed a contract modification and accounted for on a prospective basis in accordance with ASC Topic 606.

We will recognize proportionate amounts of the transaction price, including payments made by Invitae to us pursuant to the Original Agreement, in revenue as the remaining performance obligations are s atisfied, which is when Invitae places purchase orders for certain sequencing platforms and the associated goods or services are delivered.

Any remaining unused credits will be recognized when they expire.

During the year ended December 31, 2022, Invitae purchased certain currently available instruments, for which $ 3.7 million of revenue was recognized as product revenue on the Consolidated Statements of Operations and Comprehensive (Loss) Income under the terms of the Amended and Restated Agreement.

As of December 31, 2022, $ 21.4 million of deferred revenue, current, is recorded on the Consolidated Balance Sheet relating to all future performance obligations under the Amended and Restated Agreement.

Invitae purchased certain instruments and consumables under the terms of the Amended and Restated Agreement, for which $ 10.5 million and $ 3.7 million of revenue was recognized as product revenue during the years ended December 31, 2023 and 2022, respectively, on the consolidated statements of operations and comprehensive loss.

As of December 31, 2023, $ 8.0 million of deferred revenue, current, and $ 2.9 million of deferred revenue, non-current, is recorded on the consolidated balance sheet relating to all future performance obligations under the Amended and Restated Agreement.

TERMINATION OF MERGER WITH ILLUMINA

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Up to the full $ 52.0 million of Continuation Advances paid to us were repayable without interest to Illumina if, within two years of March 31, 2020, we entered into, or consummated a Change of Control Transaction or raised at least $ 100 million in a single equity or debt financing (that may have multiple closings), with the amount repayable dependent on the amount raised by us.

Resulting from the issuance and sale of $ 900 million of 1.50 % Convertible Senior Notes due February 15, 2028 , $ 52.0 million of Continuation Advances were paid without interest to Illumina in February 2021 and recorded a non-operating expense in the Consolidated Statements of Operations and Comprehensive (Loss) Income for the year ended December 31, 2021.

FINAN CIAL INSTRUMENTS

non-operating expense in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021.

FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

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The following table sets forth the fair value of our financial assets and liabilities that were measured on a recurring basis as of December 31, 2023 and December 31, 2022, respectively:

December 31, 2022

December 31, 2021

(in thousands)

December 31, 2023 December 31, 2022

(in thousands) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Cash and cash equivalents:

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government & agency securities — 109,739 — 109,739 — 21,000 — 21,000

Treasury security

Total cash and cash equivalents 70,172 109,739 — 179,911 137,636 187,453 — 325,089

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Total assets measured at fair value $ 72,894 $ 561,244 $ — $ 634,138 $ 140,858 $ 634,682 $ — $ 775,540

Contingent consideration

Contingent consideration - Omniome acquisition $ — $ — $ — $ — $ — $ — $ 172,094 $ 172,094

Contingent consideration - Apton acquisition $ — $ — $ 19,550 $ 19,550 $ — $ — $ — $ —

Total liabilities measured at fair value $ — $ — $ 19,550 $ 19,550 $ — $ — $ 172,094 $ 172,094

We classify contingent consideration, which was incurred in connection with the acquisition of Omniome, within Level 3 as factors used to develop the estimate of fair value include unobservable inputs that are not supported by market activity and are significant to the fair value.

We estimate the fair value of the contingent consideration liability by discounting the probability-weighted outcomes to present value using an estimate of our borrowing rate and the risk-free rate.

The potential outcomes of milestone achievement dates are within the period from June 30, 2023 to June 30, 2025.

A decrease in the probability of an earlier scenario within this range would result in a decrease in the fair value of the liability.

We classify contingent consideration, which was incurred in connection with the acquisition of Apton, within Level 3 as factors used to develop the estimate of fair value include unobservable inputs that are not supported by market activity and are significant to the fair value.

Estimates and assumptions used in the Monte Carlo simulation include risk-adjusted forecasted revenues for products and services leveraging Apton's technology and an estimated credit spread.

We estimate the fair value of the contingent consideration liability based on the simulated revenue of the Company through the 5 -year anniversary of the closing date of the acquisition.

As of December 31, 2023, the key input used in the determination of the fair value included projected revenues of the Company relating to the high-throughput short-read products and services leveraging Apton's technology.

A decrease in the projected revenues would result in a decrease in the fair value of the liability.

The discount rates used are the sum of the U.S.

risk-free rate and the estimated subordinated credit spread for B- and B credit rating, which ranges from 10.1 % to 10.5 %.

risk-free rate and the estimated subordinated credit spread for B- credit rating, which ranges from 7.8 % to 8.2 %.

Changes in our estimated subordinated credit spread can result in changes in the fair value of the contingent consideration liability, where a lower credit spread may result in an increased liability valuation.

On September 20, 2023, we achieved the commercial milestone in connection with the acquisition of Omniome.

Consequently, former Omniome securityholders were entitled to receive as milestone consideration, among other things, an aggregate of approximately $ 100.9 million in cash and approximately 9.0 million shares of our common stock, representing $ 95.9 million divided by the volume-weighted average of the trading prices of our common stock for the twenty trading days ending with and including the trading day that was two days

immediately prior to the achievement of the milestone.

The $ 95.9 million represents the $ 100.0 million that was to be paid in shares of our common stock offset by $ 4.1 million attributable to stock options issued by PacBio in replacement of Omniome’s unvested options as part of the transaction, pursuant to the terms of the Omniome merger agreement.

Following the achievement of the commercial milestone, $ 101.3 million of the contingent consideration, which includes certain payroll taxes, was paid during the year ended December 31, 2023.

Additionally, 8,988,391 shares were issued at a value of $ 84.8 million to the former Omniome securityholders.

As a result of the achievement of the milestone, the contingent consideration liability incurred in connection with the acquisition of Omniome was no longer considered a Level 3 liability at December 31, 2023.

There were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis for the year ended December 31, 2023, and our valuation techniques did not change compared to the prior year.

Changes in the estimated fair value of the contingent consideration liability for the year ended December 31, 2023 were as follows:

(in thousands)

(in thousands) Level 3

Beginning balance as of December 31, 2022 $ 172,094

Additions 18,450

Change in estimated fair value 15,060

Achievement of milestone ( 186,054 )

Ending balance as of December 31, 2023 $ 19,550

Changes to the fair value are recorded as the Change in fair value of contingent consideration in the Consolidated Statement of Operations and Comprehensive (Loss) Income.

Changes to the fair value are recorded as the Change in fair value of contingent consideration in the consolidated statement of operations and comprehensive loss.

For the year ended December 31, 2023, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and our valuation techniques did not change compared to the prior year.

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December 31, 2023

(in thousands)

(in thousands) Amortized

Cash and cash equivalents:

Cash and money market funds $ 70,172 $ — $ — $ 70,172

Commercial paper

government & agency securities 109,786 13 ( 60 ) 109,739

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December 31, 2022

(in thousands)

(in thousands) Amortized

Cash and cash equivalents:

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The following table summarizes the contractual maturities of our cash equivalents and available-for-sale investments, excluding money market funds, as of December 31, 2023:

(in thousands)

(in thousands) Fair Value

Due in one year or less $ 465,181

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Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.

Investment income included in other income, net on the consolidated statement of operations and comprehensive loss was $ 32.8 million and $ 9.2 million for the years ended December 31, 2023 and 2022, respectively.

BALANCE SHEET COMPONENTS

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Computer equipment 19,528 18,438

Software 6,628 6,879

Furniture and fixtures 3,594 3,426

Construction in progress 1,343 4,698

Total 111,226 106,568

Accumulated depreciation ( 74,794 ) ( 64,988 )

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Goodwill and intangible Assets

As of December 31, 2022 and 2021, the goodwill balance was $ 410.0 million.

As of December 31, 2023 and 2022, the goodwill balance was $ 462.3 million and $ 410.0 million, respectively.

Goodwill preliminarily increased by $ 52.3 million, due to the Apton acquisition, of which $ 11.3 million relates to a deferred income tax liability.

Goodwill is reviewed for impairment at least annually during the second quarter, or more frequently if an event occurs indicating the potential for impairment.

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Acquired Intangible Assets

Intangible assets include acquired IPR&D of $ 400 million as a result of the Omniome acquisition in September 2021.

Intangible assets include acquired IPR&D of $ 55.0 million as a result of the Apton acquisition in August 2023.

As of December 31, 2023, the research and development project had not been completed or abandoned and, therefore, the IPR&D intangible asset is not currently subject to amortization.

During the year ended December 31, 2023, acquired IPR&D of $ 400.0 million as a result of the Omniome acquisition in September 2021 was completed and became subject to amortization.

IPR&D is reviewed for impairment at least annually, or more frequently if an event occurs indicating the potential for impairment.

We performed our annual assessment for IPR&D impairment in the fourth quarter of 2022, noting no impairment.

We performed our annual assessment for IPR&D impairment in the third quarter of 2023, noting no impairment.

In addition to IPR&D, we had the following acquired definite-lived intangible assets as of December 31, 2023 (in thousands, except years):

(in years) Gross

Amount Accumulated

Amortization Net

Developed technology 15 $ 411,179 $ ( 9,195 ) $ 401,984

Customer relationships 2 360 ( 360 ) —

Amortization expense of intangibles was $ 0.9 million and $ 0.4 million for the years ended December 31, 2022 and 2021, respectively.

We had no amortization expense of intangibles for the year ended December 31, 2020.

Total $ 411,539 $ ( 9,555 ) $ 401,984

Amortization expense of intangibles was $ 8.3 million, $ 0.9 million and $ 0.4 million for the years ended December 31, 2023, 2022, and 2021, respectively.

For the years ended December 31, 2023, 2022, and 2021 amortization expense of intangibles in cost of revenue was $ 2.0 million, $ 0.7 million, and $ 0.3 million, respectively.

For the years ended December 31, 2023, 2022, and 2021, amortization expense of intangibles in operating expenses was $ 6.3 million, $ 0.2 million, and $ 0.1 million, respectively.

Amortization of intangible assets is included within our cost of revenue if the costs and expenses related to the intangible assets are attributable to revenue generating activities.

Amortization expense for intangible assets that are not directly related to sales generating activities are amortized to operating expenses.

For developed technology intangible assets that are utilized in both revenue generating activities and in research and development activities, we allocate the amortization expense between cost of revenue and operating expenses.

The definite-lived intangible assets are amortized using the straight-line method over their estimated useful lives.

The estimated future amortization expense of acquisition-related intangible assets with definite lives is estimated as follows (in thousands):

2024 $ 27,412

2029 and thereafter 264,924

Total $ 401,984

Accrued Expenses

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Warranty accrual 4,681 1,651

Other 2,216 1,045

Accrued expenses $ 45,708 $ 32,596

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At the time revenue is recognized, an accrual is established for estimated warranty costs based on historical experience as well as anticipated product performance.

We periodically review the warranty reserve for adequacy and adjust the warranty accrual, if necessary, based on actual experience and estimated costs to be incurred.

We periodically review the warranty reserve for adequacy and adjust the warranty accrual, if necessary, based on actual experience and estimated

costs to be incurred.

Warranty expense is recorded as a component of cost of product revenue.

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As of December 31, 2023, we had a total of $ 21.9 million of deferred revenue, $ 16.3 million of which was recorded as deferred revenue, current and primarily relates to future performance obligations under the Amended and Restated Agreement with Invitae, as described in Note 3.

Invitae Collaboration .

The deferred revenue, non-current balance of $ 1.8 million primarily relates to deferred service contract revenues and is scheduled to be recognized in the next 6 years.

Invitae Collaboration , as well as deferred service contract revenues.

The deferred revenue, non-current balance of $ 5.6 million primarily relates to future performance obligations under the Amended and Restated Agreement with Invitae and deferred service contract revenues and is scheduled to be recognized in the next 5 years.

The deferred revenue, non-current balance includes $ 2.9 million that was reclassified from deferred revenue, current to deferred revenue, non-current following receipt of a non-cancellable order from Invitae during the year ended December 31, 2023 for partial utilization of the available credits, which is expected to be recognized in revenue after 12 months from December 31, 2023.

Revenue recorded in the year ended December 31, 2023 includes $ 18.9 million of previously deferred revenue that was included in deferred revenue, current as of December 31, 2022.

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Payments are made in equal monthly installments including principal and interest.

As of December 31, 2022, the carrying value of term loans outstanding was $ 2.3 million.

The related long-term portion of $ 0.5 million was recorded as part of other liabilities, non-current and the short-term portion of $ 1.8 million was recorded as part of other liabilities, current on the Consolidated Balance Sheet.

The interest expense was $ 0.6 million for the year ended December 31, 2022, which was included as part of interest expense in the Consolidated Statement of Operations and Comprehensive (Loss) Income.

As of December 31, 2023, the carrying value of term loans outstanding was $ 0.5 million, recorded as part of other liabilities, current on the consolidated balance sheet.

The interest expense was $ 0.3 million for the year ended December 31, 2023, which was included as part of interest expense in the consolidated statements of operations and comprehensive loss.

As of December 31, 2023, the future principal payments remaining on term loans was the following:

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Short-term loan 490 1,842

Other 4,121 1,753

Other liabilities, current $ 8,326 $ 7,233

CONVERTIBLE SENIOR NOTES

On February 9, 2021, we entered into an investment agreement (the “Investment Agreement”) with SB Northstar LP (the “Purchaser”), a subsidiary of SoftBank Group Corp., relating to the issuance and sale to the Purchaser of $ 900 million in aggregate principal amount of our 1.50 % Convertible Senior Notes (the “Notes”).

2030 Convertible Senior Notes

In June 2023, we entered into a privately negotiated exchange agreement with a holder of our outstanding 1.50 % Convertible Senior Notes due 2028 (the “2028 Notes”), pursuant to which we issued $ 441.0 million in aggregate principal amount of our 1.375 % Convertible Senior Notes due 2030 (the “2030 Notes”) in exchange for $ 441.0 million principal amount of the 2028 Notes (the “Exchange Transaction”), pursuant to exemptions from registration under the Securities Act of 1933, as amended, and the rules and regulations thereunder.

The 2030 Notes were issued on June 30, 2023.

The 2030 Notes are governed by an indenture (the “2030 Indenture”) between the Company and U.S.

Bank Trust Company, National Association, as trustee.

The 2030 Notes bear interest at a rate of 1.375 % per annum.

Interest on the 2030 Notes is payable semi-annually in arrears on June 15 and December 15, commencing on December 15, 2023.

The 2030 Notes will mature on December 15, 2030, subject to earlier conversion, redemption or repurchase.

The 2030 Notes are convertible at the option of the holder at any time until the second scheduled trading day prior to the maturity date, including in connection with a redemption by the Company.

The 2030 Notes are convertible into shares of our common stock based on an initial conversion rate of 46.5116 shares of common stock per $1,000 principal amount of the 2030 Notes (which is equal to an initial conversion price of $ 21.50 per share of common stock), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions.

Upon conversion of the 2030 Notes, we may elect to settle such conversion obligation in shares of our common stock, cash or a combination of shares of our common stock and cash.

On or after June 20, 2028, the 2030 Notes will be redeemable by the Company in the event that the closing sale price of our common stock has been at least 150 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide the redemption notice at a redemption price of 100 % of the principal amount of such 2030 Notes, plus accrued and unpaid interest up to, but excluding, the redemption date.

Upon the occurrence of a Fundamental Change (as defined in the 2030 Indenture), the holders of the 2030 Notes may require that we repurchase all or part of the principal amount of the 2030 Notes at a purchase price equal to 100 % of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date, and all unpaid interest from the fundamental change repurchase date thereon, but excluding, the maturity date.

The 2030 Indenture includes customary “events of default,” which may result in the acceleration of the maturity of the 2030 Notes under the 2030 Indenture.

The 2030 Indenture also includes customary covenants for convertible notes of this type.

To the extent we elect, the sole remedy for an event of default relating to our failure to comply with certain of our reporting obligations shall, for the first 360 calendar days after the occurrence of such an event of default, consist exclusively of the right to receive additional interest on the 2030 Notes at a rate equal to (i) 0.25 % per annum of the principal amount of the 2030 Notes outstanding for each day during the first 180 calendar days of the 360 -day period after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived) and (ii) 0.50 % per annum of the principal amount of the 2030 Notes outstanding for each day from, and including, the 181 st calendar day to, and including, the 360 th calendar day after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived as provided for in the 2030 Indenture).

On the 361 st day after such event of default (if the event of default relating to our failure to comply with its obligations is not cured or waived prior to such 361 st day), the 2030 Notes shall be subject to acceleration as provided for in the 2030 Indenture.

The 2030 Notes are accounted for in accordance with the authoritative guidance for convertible debt instruments that may be settled in cash upon conversion.

Under ASU 2020-06, the guidance requires that debt with an embedded conversion feature is accounted for in its entirety as a liability and no portion of the proceeds from the issuance of the convertible debt instrument is accounted for as attributable to the conversion feature unless the conversion feature is required to be accounted for separately as an embedded derivative or the conversion feature results in a substantial premium.

The conversion feature of the 2030 Notes is not accounted for as an embedded derivative because it is considered to be indexed to our common stock, and the 2030 Notes were not issued at a substantial premium;

therefore, the 2030 Notes are accounted for in their entirety as a

Because we may elect to settle any conversions entirely in shares, and because settlement in shares is the default settlement method, the liability is classified as non-current.

The requirement to repurchase the 2030 Notes, including unpaid interest to the maturity date in the event of a Fundamental Change, is considered a put option for certain periods requiring bifurcation under ASC 815 – Derivatives and Hedging.

However, given the low probability of such a Fundamental Change occurring during the applicable periods, the value of the embedded derivative is immaterial.

The additional interest feature in the event of our failure to comply with certain reporting obligations is also considered an embedded derivative requiring bifurcation under ASC 815.

However, due to the nature and terms of the reporting obligations, the value of the embedded derivative is immaterial.

The Exchange Transaction was accounted for as an extinguishment driven by the change in fair value of the embedded conversion option.

We recorded a loss on extinguishment of debt of approximately $ 2.0 million in connection with the Exchange Transaction during the year ended December 31, 2023, which represents the difference between the fair value and the principal amount of the 2030 Notes of the debt at the modification date, plus unamortized debt issuance costs of $ 1.5 million related to the respective portion of the 2028 Notes.

We incurred issuance costs related to the 2030 Notes of approximately $ 7.3 million, which were recorded as debt issuance costs and are presented as a reduction to the 2030 Notes on our consolidated balance sheets and are amortized to interest expense using the effective interest method over the term of the 2030 Notes, resulting in an effective interest rate of 1.6 %.

We also paid accrued but unpaid interest of $ 2.5 million on the 2028 Notes in connection with the Exchange Transaction on June 30, 2023.

We did not receive any cash proceeds from the Exchange Transaction.

In exchange for issuing the 2030 Notes pursuant to the Exchange Transaction, we received and cancelled the exchanged 2028 Notes.

Following the closing of the Exchange Transaction, $ 459.0 million in aggregate principal amount of 2028 Notes remained outstanding with terms unchanged.

The net carrying amount of the liability for the 2030 Notes is included as convertible senior notes, net, non-current in the consolidated balance sheets as follows (in thousands):

Principal amount $ 441,000 $ —

Unamortized debt premium $ 524 $ —

Unamortized debt issuance costs $ ( 6,907 ) $ —

Net carrying amount $ 434,617 $ —

Interest expense for the 2030 Notes for the years ended December 31, 2023, 2022, and 2021 was as follows:

Years Ended December 31,

(in thousands) 2023 2022 2021

Contractual interest expense $ 3,032 $ — $ —

Amortization of debt issuance costs 463 — —

Total interest expense $ 3,495 $ — $ —

As of December 31, 2023, the estimated fair value (Level 2) of the 2030 Notes was $ 410.5 million.

The fair value of the 2030 Notes is estimated using a binomial lattice model that is primarily affected by the trading price of our common stock, market interest rates and volatility.

2028 Convertible Senior Notes

On February 9, 2021, we entered into an investment agreement (the “Investment Agreement”) with SB Northstar LP (the “Purchaser”), a subsidiary of SoftBank Group Corp., relating to the issuance and sale to the Purchaser of $ 900.0 million in aggregate principal amount of the 2028 Notes.

The 2028 Notes were issued on February 16, 2021.

As discussed above, in June 2023 we completed an exchange of $ 441.0 million in aggregate principal amount of our 2028 Notes for $ 441.0 million aggregate principal amount of the 2030 Notes, leaving approximately $ 459.0 million in aggregate principal amount of 2028 Notes outstanding.

The 2028 Notes are governed by an indenture (the “2028 Indenture”) between the Company and U.S.

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The 2028 Notes bear interest at a rate of 1.50 % per annum.

Interest on the Notes is payable semi-annually in arrears on February 15 and August 15 and commenced on August 15, 2021.

Interest on the

2028 Notes is payable semi-annually in arrears on February 15 and August 15 and commenced on August 15, 2021.

The 2028 Notes will mature on February 15, 2028, subject to earlier conversion, redemption, or repurchase.

The 2028 Notes are convertible at the option of the holder at any time until the second scheduled trading day prior to the maturity date, including in connection with a redemption by the Company.

The Notes are convertible into shares of our common stock based on an initial conversion rate of 22.9885 shares of common stock per $ 1,000 principal amount of the Notes (which is equal to an initial conversion price of $ 43.50 per share), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions.

Upon conversion of the Notes, we may elect to settle such conversion obligation in shares, cash or a combination of shares and cash.

The 2028 Notes are convertible into shares of our common stock based on an initial conversion rate of 22.9885 shares of common stock per $1,000 principal amount of the 2028 Notes (which is equal to an initial conversion price of $ 43.50 per share of common stock), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions.

Upon conversion of the 2028 Notes, we may elect to settle such conversion obligation in shares of our common stock, cash or a combination of shares of our common stock and cash.

On or after February 20, 2026, the 2028 Notes will be redeemable by the Company in the event that the closing sale price of our common stock has been at least 150 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide the redemption notice at a redemption price of 100 % of the principal amount of such 2028 Notes, plus accrued and unpaid interest up to, but excluding, the redemption date.

With certain exceptions, upon a change of control of the Company or the failure of our common stock to be listed on certain stock exchanges (a “Fundamental Change”), the holders of the Notes may require that we repurchase all or part of the principal amount of the Notes at a purchase price of par plus unpaid interest up to, but excluding, the maturity date.

Upon the occurrence of a Fundamental Change (as defined in the 2028 Indenture), the holders of the 2028 Notes may require that we repurchase all or part of the principal amount of the 2028 Notes at a purchase price of par plus unpaid interest up to, but excluding, the maturity date.

The 2028 Indenture includes customary “events of default,” which may result in the acceleration of the maturity of the 2028 Notes under the 2028 Indenture.

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However, due to the nature and terms of the reporting obligations, the value of the embedded derivative is immaterial.

We incurred issuance costs related to the Notes of approximately $ 4.5 million, which were recorded as debt issuance cost and are presented as a reduction to the Notes on our Consolidated Balance Sheets and are amortized to interest expense using the effective interest method over the term of the Notes, resulting in an effective interest rate of 1.6 %.

As of December 31, 2022, the net carrying amount of the liability for the Notes is recorded as convertible senior notes, net in the Consolidated Balance Sheets as follows (in thousands):

We incurred issuance costs related to the 2028 Notes of approximately $ 4.5 million, which were recorded as debt issuance cost and are presented as a reduction to the 2028 Notes on our consolidated balance sheets and

are amortized to interest expense using the effective interest method over the term of the 2028 Notes, resulting in an effective interest rate of 1.6 %.

The net carrying amount of the liability for the 2028 Notes is included as convertible senior notes, net, non-current in the consolidated balance sheets as follows (in thousands):

Principal amount $ 459,000 $ 900,000

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(in thousands)

2024 $ 12,082

Total undiscounted operating lease payments 46,731

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The weighted-average remaining lease term for our operating leases as of December 31, 2023 was 3.8 years.

Cash paid for amounts included in the present value of operating lease liabilities was $ 11.2 million and $ 8.2 million for the years ended December 31, 2022 and 2021, respectively, and were included in operating cash flow.

Cash paid for amounts included in the present value of operating lease liabilities was $ 12.1 million and $ 11.2 million for the years ended December 31, 2023 and 2022, respectively, and were included in operating cash flows.

Operating Lease Costs

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We also enter and have entered into indemnification agreements with our directors and officers that may require us to indemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by applicable law.

In addition, we may have obligations to hold harmless and indemnify third parties involved with our fundraising efforts and their respective affiliates, directors, officers, employees, agents or other representatives against any and all losses, claims, damages and liabilities related to claims arising against such parties pursuant to the terms of agreements entered into between such third parties and us in connection with such fundraising efforts.

connection with such fundraising efforts.

To the extent that any such indemnification obligations apply to the lawsuits described above, any associated expenses incurred are included within the related accrued litigation expense amounts.

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Purchase Commitments

In the normal course of business, we enter into agreements to purchase goods or services or license intellectual property, certain of which are not cancelable without penalty.

In the normal course of business, we enter into agreements to purchase goods or services or license intellectual property, certain of which are not cancellable without penalty.

For those agreements with variable terms, we do not estimate the total obligation beyond any minimum quantities or pricing as of the reporting date.

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We are responsible for providing certain materials to allow our Supplier to perform its obligations under the contract.

We paid our Supplier a deposit of $ 9.0 million in November 2022 and will pay an additional deposit of $ 6.0 million in 2023, for a total of $ 15.0 million (the “Deposit”).

We paid our Supplier a deposit of $ 9.0 million in November 2022 and an additional deposit of $ 6.0 million in 2023, for a total of $ 15.0 million (the “Deposit”).

The Deposit is fully refundable to us, in accordance with the Supply Agreement, if we meet the minimum volume purchase commitment for the applicable year.

As of December 31, 2022, $ 9.0 million related to the Deposit was included in other long-term assets in the Consolidated Balance Sheets, as we believe it is probable the minimum volume purchase commitment level will be achieved.

We are subject to income taxes in the United States and certain states in which we operate, and we use estimates in determining our provisions for income taxes.

As of December 31, 2023, $ 3.0 million related to the Deposit was included in prepaid expenses and other current assets in the consolidated balance sheets and $ 12.0 million related to the Deposit was included in other long-term assets in the consolidated balance sheets, as we believe it is probable the minimum volume purchase commitment level will be achieved.

We are subject to income taxes both in the United States and certain foreign jurisdictions in which we operate, and we use estimates in determining our provisions for income taxes.

Significant management judgement is required in determining our provision for income taxes, deferred tax assets and liabilities, and valuation allowances recorded against net deferred tax assets in accordance with U.S.

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We account for Global Intangible Low-taxed Income as a period cost.

During the years ended December 31, 2022, 2021, and 2020 (loss) income before taxes from U.S.

operations were ($ 315.7 ) million, ($ 275.4 ) million, and $ 28.9 million, respectively, and income before taxes from foreign operations was $ 1.8 million, $ 0.8 million, and $ 0.6 million, respectively.

Income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21 % to pretax income or loss as follows:

During the years ended December 31, 2023, 2022, and 2021 income/(loss) before taxes from U.S.

operations were ($ 318.9 ) million, ($ 315.7 ) million, and ($ 275.4 ) million, respectively, and income/(loss) before taxes from foreign operations was $ 0.7 million, $ 1.8 million, and $ 0.8 million, respectively.

Provision (Benefit) for Income Taxes

The provision (benefit) for income taxes consists of the following (in thousands):

Years ended December 31,

2023 2022 2021

Total Current $ — $ — $ —

Federal ( 9,956 ) — ( 83,742 )

State ( 1,468 ) — ( 9,907 )

Foreign — — —

Total Deferred ( 11,424 ) — ( 93,649 )

(Benefit) Provision for Income Taxes $ ( 11,424 ) $ — $ ( 93,649 )

Income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pretax loss as follows:

Years ended December 31,

2023 2022 2021

Statutory tax rate 21.0 % 21.0 % 21.0 %

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Change in valuation allowance ( 20.0 ) ( 25.1 ) ( 4.9 )

Tax credits 2.0 2.2 2.5

Share-based compensation ( 2.1 ) ( 2.2 ) 10.9

Merger Expenses ( 0.1 ) — ( 0.9 )

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

Other ( 0.2 ) ( 0.4 ) ( 0.1 )

Total 3.6 % ( 0.1 ) % 34.0 %

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

Significant components of our deferred tax assets for federal and state income taxes are as follows (in thousands):

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Accruals and reserves 16,872 13,830

Cancellation of indebtedness income and interest expense 14,907 4,587

Share-based compensation 18,584 17,117

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Total deferred tax assets:

116,776 108,515

Intangibles ( 109,488 ) ( 98,931 )

Fixed assets ( 548 ) ( 1,262 )

Operating lease right-of-use assets ( 7,491 ) ( 9,157 )

Total deferred tax liabilities ( 117,527 ) ( 109,350 )

Net deferred tax assets

At December 31, 2022, we maintained a full valuation allowance against all of our deferred tax assets that totaled $ 445.6 million, including net operating loss carryforwards and research and development credits of $ 400.6 million and $ 71.5 million, respectively.

Deferred tax liabilities, net $ ( 751 ) $ ( 835 )

At December 31, 2023, we maintained a valuation allowance against our net deferred tax assets which totaled $ 525.7 million, including net operating loss carryforwards and research and development credits of $ 435.5 million and $ 83.9 million, respectively.

A valuation allowance is recorded when it is more likely than not that all or some portion of the deferred income tax assets will not be realized.

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In evaluating our ability to recover our deferred income tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred income tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations.

A deferred income tax benefit of $ 11.4 million for the year ended December 31, 2023, is related to the release of the valuation allowance for deferred tax assets due to the recognition of deferred tax liabilities in connection with the Apton acquisition.

We maintain a valuation allowance on the net deferred tax assets of our U.S.

entities as we have concluded that it is more likely than not that we will not realize our deferred tax assets.

Accordingly, this benefit from income taxes is reflected on our Consolidated Statements of Operations and Comprehensive (Loss) Income for the year ended December 31, 2022.

For the year ended December 31, 2022, our valuation allowance increased to $ 445.6 million, primarily because of an increase in our net operating losses, credits, and capitalized research and experimental expenses that were fully offset by a valuation allowance.

For the year ended December 31, 2021, our valuation allowance increased to $ 366.9 million, primarily because of an increase in our net operating losses, credits, and acquisition of deferred tax assets that were fully offset by a valuation allowance.

As of December 31, 2022, we had a net operating loss carryforward for federal income tax purposes of approximately $ 1,573.8 million, of which $ 774.9 million will begin to expire in 2024 if not utilized.

Accordingly, this benefit from income taxes is reflected on our consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.

For the year ended December 31, 2023, the Company's valuation allowance increased to $ 525.7 million, primarily because of an increase in our net operating losses, credits, and capitalized research and experimental expenses that were fully offset by a valuation allowance.

For the year ended December 31, 2022, the Company's valuation allowance increased to $ 445.6 million, primarily because of an increase in our net operating losses, credits, and capitalized research and experimental expenses that were fully offset by a valuation allowance.

As of December 31, 2023, we had a net operating loss carryforward for federal income tax purposes of approximately $ 1,709.3 million, of which $ 788.1 million is subject to expiration beginning in 2024.

We had a total state net operating loss carryforward of approximately $ 1,171.8 million, which are subject to annual expirations.

Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change of ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions.

Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions.

The annual limitations may result in the expiration of net operating losses and credits before utilization.

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Balance as of December 31, 2020 $ 5,954

Decrease in balance related to tax positions taken in prior year

Increase in balance related to tax positions taken during current year

Balance as of December 31, 2020

Increase in balance related to tax positions taken in prior year 189

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Balance as of December 31, 2022 10,410

Our practice is to recognize interest and penalties related to income tax matters in income tax expense.

As of both December 31, 2022 and 2021, we had no accrued interest or penalties due to our net operating losses available to offset any tax adjustment.

Increase in balance related to tax positions taken in prior year 2,044

Increase in balance related to tax positions taken during current year 2,100

Balance as of December 31, 2023 $ 14,554

Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

As of December 31, 2023 and 2022, we had no accrued interest or penalties due to our net operating losses available to offset any tax adjustment.

If total unrecognized tax benefits were realized in the future, it would not result in any tax benefit as we currently have a full valuation allowance.

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federal and state income tax purposes, the statute of limitations currently remains open for the years ending December 31, 2020 to present and December 31, 2019 to present, respectively.

In addition, all of the net operating losses and research and development credit carryforwards that may be utilized in future years may be subject to examination.

In addition, all the net operating losses and research and development credit carryforwards that may be utilized in future years may be subject to examination.

We are not currently under examination by income tax authorities in any jurisdiction.

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We paid a commission equal to 6 % of the gross proceeds from the sale of shares of our common stock.

The total net proceeds to us from the offering after deducting the underwriting discount were approximately $ 93.9 million, excluding approximately $ 0.3 million of offering expenses.

The total net proceeds to us from the offering after

deducting the underwriting discount were approximately $ 93.9 million, excluding approximately $ 0.3 million of offering expenses.

In total, for the year ended December 31, 2021, we issued 29.4 million shares of our common stock through our two underwritten public offerings with an average offering price of $ 6.40 .

The total net proceeds to us from the two offerings, after deducting the underwriting commission and offering expenses, were approximately $ 187.2 million.

In January 2023, we entered into an underwriting agreement, relating to the public offering of 17.5 million shares of our common stock, $ 0.001 par value per share, at a price to the public of $ 10.00 per share.

Under the terms of the underwriting agreement, we also granted the underwriters a 30 -day option to purchase up to an additional 2.6 million shares of our common stock, which was subsequently exercised in full, and the offering, including the sale of shares of common stock subject to the underwriters' option, closed in January 2023.

In total, we sold 20.1 million shares of our common stock.

We paid a commission equal to 5.75 % of the gross proceeds from the sale of shares of our common stock.

The total net proceeds to us from the offering after deducting the underwriting discount were approximately $ 189.7 million, excluding approximately $ 0.5 million of offering expenses.

Private Placement of Common Stock

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(the “Omniome Plan”) allow for the issuance of stock options, restricted units and awards, and performance-based awards.

On August 4, 2020, stockholders approved the 2020 Plan and reserved 11,000,000 shares of our common stock for issuance pursuant to equity awards granted under the 2020 Plan.

On December 2, 2020, the Board of Directors (the “Board”) adopted the Inducement Plan and reserved 2,500,000 shares of our common stock for issuance pursuant to equity awards granted under the Inducement Plan.

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The following table summarizes time-based stock option activity for all of our equity compensation plans for the year ended December 31, 2023 (in thousands, except per share amounts):

Weighted-average

of shares Weighted-average

exercise price

Outstanding at December 31, 2022 14,618 $ 10.60

Granted 419 $ 11.26

Exercised ( 1,119 ) $ 4.74

Canceled ( 910 ) $ 17.71

Outstanding at December 31, 2023 13,008 $ 10.63

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The following table summarizes performance-based stock option activity for all of our equity compensation plans for the year ended December 31, 2023 (in thousands, except per share amounts):

Weighted-average

of shares Weighted-average

exercise price

Outstanding at December 31, 2022 258 $ 4.71

Granted — $ —

Exercised ( 251 ) $ 4.71

Canceled ( 4 ) $ 4.71

Outstanding at December 31, 2023 3 $ 4.74

The performance condition was achieved during the year ended December 31, 2023.

The aggregate intrinsic value of the outstanding options presented in the tables above as of December 31, 2023, totaled $ 31.8 million, and had a weighted-average remaining contractual life of 5.9 years.

The aggregate intrinsic value of outstanding options represents the total pre-tax intrinsic value (i.e.

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The aggregate intrinsic value changes at each reporting date based on the fair market value of our common stock.

The aggregate intrinsic value of the outstanding options presented in the table above as of December 31, 2022, totaled $ 24.7 million, and had a weighted-average remaining contractual life of 6.7 years.

The vested and exercisable options as of December 31, 2023, totaled 10,039,742 shares, had an aggregate intrinsic value of $ 30.0 million, a weighted-average exercise price per share of $ 9.70 , and a weighted-average remaining contractual life of 5.2 years.

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The weighted-average grant-date fair value of all options granted was $ 7.32 in 2023, $ 5.93 in 2022, and $ 18.36 in 2021, each determined by the Black-Scholes option valuation method.

Restricted Stock Units

Restricted Stock Units ("RSU") and Performance Stock Units ("PSU")

Each Restricted Stock Unit (RSU) represents one equivalent share of our common stock to be issued after satisfying the applicable continued service-based vesting criteria over a specified period.

These RSUs are time-based and vest over four years at a rate of 25 % annually.

The fair value for these RSUs is based on the closing price of our common stock on the date of grant.

We measure compensation expense for these RSUs at fair value on the date of grant and recognize the expense over the expected vesting period on a straight-line basis.

The RSUs do not entitle participants to the rights of holders of common stock, such as voting rights, until the shares are issued.

The fair value of these RSUs is

based on the closing price of our common stock on the date of grant.

We measure compensation expense for these RSUs at fair value on the date of grant and recognize the expense over the expected vesting period on a straight-line basis.

RSUs that are expected to vest are net of estimated future forfeitures.

The following table summarizes the RSU activity for the year ended December 31, 2022 (in thousands, except per share amounts):

Weighted-average

RSUs outstanding at December 31, 2021

RSUs released

RSUs forfeited

Unvested RSUs outstanding at December 31, 2022

The total fair value of shares vested related to RSUs during the years ended December 31, 2022, 2021, and 2020 was $ 39.2 million, $ 9.2 million, and $ 6.3 million, respectively.

The weighted-average grant-date fair value of all RSUs granted was $ 10.15 in 2022, $ 35.33 in 2021, and $ 5.18 in 2020.

We issue PSUs for which the number of shares issuable in the third year of the performance period is based on performance relative to specified revenue targets and continued employment through the vesting period.

Maximum achievement of the revenue goal under the PSUs will result in up to 200 % of the target number of shares subject to the PSUs to become eligible to vest, while not meeting the minimum achievement of the revenue goal under PSUs will result in no shares subject to the PSUs becoming eligible to vest.

The following table summarizes the time-based RSUs and PSUs activity for the year ended December 31, 2023 (shares in thousands):

Weighted-average grant date fair value

Restricted Stock Units (RSUs) Performance Stock Units (PSUs) RSU PSU

Outstanding at December 31, 2022 8,535 — $ 15.16 $ —

Granted 7,141 564 9.67 9.43

Vested ( 2,730 ) — 14.41 —

Forfeited ( 1,638 ) ( 23 ) 13.86 9.43

Outstanding at December 31, 2023 11,308 541 $ 12.06 $ 9.43

The total fair value of shares vested related to RSUs and PSUs during the years ended December 31, 2023, 2022, and 2021 was $ 39.3 million, $ 39.2 million, and $ 9.2 million, respectively.

The weighted-average grant-date fair value of all RSUs and PSUs granted was $ 9.65 in 2023, $ 10.15 in 2022, and $ 35.33 in 2021.

Employee Stock Purchase Plan

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The price at which the stock is purchased is equal to the lower of 85 % of the fair market value of the common stock at the beginning of an offering period or at the end of a purchase period.

Each offering period will generally end and the shares will be purchased twice yearly on March 1 and September 1.

If the stock price at the end of the purchase period is lower than the stock price at the beginning of the offering period, that offering period will be terminated and a new offering period will come into place.

The ESPP provides for an annual increase to the shares available for issuance at the beginning of each fiscal year equal to the lessor of 2 % of the common shares then outstanding, 4,000,000 shares, or an amount determined by the ESPP’s administrator.

Pursuant to the terms of the then-in-process Merger Agreement with Illumina, offerings under our 2010 ESPP were suspended after the completion of the purchase period ended March 1, 2019.

After the merger with Illumina was terminated in January 2020, we began offerings under the ESPP again starting with the offering period beginning March 1, 2020.

For the years ended December 31, 2022, 2021, and 2020, 1,878,168 shares, 1,913,968 shares, and 834,677 shares of common stock were purchased under the ESPP, respectively.

As of December 31, 2022, 9,932,505 shares of our common stock remain available for issuance under our ESPP.

The ESPP provides for an annual increase to the shares available for issuance at the beginning of each fiscal year equal to the lesser of 2 % of the common shares then outstanding, 4,000,000 shares, or an amount determined by the ESPP’s administrator.

For the years ended December 31, 2023, 2022, and 2021, 1,735,058 shares, 1,878,168 shares, and 1,913,968 shares of common stock were purchased under the ESPP, respectivel y.

As of December 31, 2023, 12,197,447 sh ares of our common stock remain available for issuance under our ESPP.

Share-based Compensation

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Years Ended December 31,

2023 2022 2021

Cost of revenue $ 5,399 $ 4,802 $ 6,126

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We estimated the fair value of employee stock options using the Black-Scholes option pricing model.

The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards.

The fair value of employee stock options is amortized on a straight-line basis over the requisite service period of the awards.

When determining the current share prices underlying the stock options for calculating the grant-date fair value, we reference observable market prices of similar or identical instruments in active markets.

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Years Ended December 31,

2023 2022 2021

Expected term in years 4.9 4.6 2.1 - 4.6

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Years Ended December 31,

2023 2022 2021

Expected term in years 0.5 - 2.0

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As of December 31, 2023, $ 101.9 million of total unrecognized compensation expense related to stock options, restricted stock, and ESPP shares was expected to be recognized over a weighted-average period of 2.2 years.

NET (LOSS) INCOME PER SHARE

Basic net (loss) income per share and diluted net (loss) income per share are presented for the three years presented.

The following table presents the calculation of weighted-average shares of common stock used in the computations of basic and diluted net (loss) income per share amounts presented in the accompanying consolidated statements of operations and comprehensive (loss) income (in thousands, except per share amounts):

NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.

Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding and potential shares assuming the dilutive effect of the convertible senior notes, using the if-converted method, and outstanding equity awards using the treasury stock method.

The following table presents the calculation of the basic and diluted net loss per share amounts presented in the consolidated statements of operations and comprehensive loss (in thousands, except per share amounts):

Years Ended December 31,

Net (loss) income

Weighted-average shares used in computing basic net (loss) income per share

Basic net (loss) income per share

Weighted-average shares used in computing basic net (loss) income per share

weighted-average stock options

weighted-average restricted stock units

weighted-average common stock issuable pursuant to our ESPP

Weighted-average shares used in computing diluted net (loss) income per share

Diluted net (loss) income per share

The following shares issuable upon conversion of convertible senior notes, options outstanding, time-based RSUs, performance-based RSUs, and ESPP shares to purchase common stock were excluded from the computation of diluted net loss per share for the periods presented because the effect of including such shares would have been antidilutive:

2023 2022 2021

Net loss $ ( 306,735 ) $ ( 314,248 ) $ ( 181,223 )

Weighted-average shares used in computing basic net loss per share 253,629 224,550 204,136

Basic net loss per share $ ( 1.21 ) $ ( 1.40 ) $ ( 0.89 )

Weighted-average shares used in computing diluted net loss per share 253,629 224,550 204,136

Diluted net loss per share $ ( 1.21 ) $ ( 1.40 ) $ ( 0.89 )

The following shares issuable upon conversion of the convertible senior notes and outstanding equity awards were excluded from the computation of diluted net loss per share for the periods presented because the effect of including such shares would have been antidilutive (in thousands):

Years Ended December 31,

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Shares issuable upon conversion of convertible senior notes 31,063 20,690 20,690

Options to purchase common stock

RSUs with time-based vesting

RSUs with performance-based vesting

Equity awards 27,246 27,291 21,419

As described in Note 2.

Business Acquisition s , the contingently issuable shares would be due upon the achievement of a milestone.

Business Acquisitions , the contingently issuable shares would be due upon the achievement of a milestone.

Stockholders’ Equity for detailed information on RSUs with time-based vesting and RSUs with performance-based vesting.

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(in thousands) 2023 2022 2021

Americas $ 105,410 $ 69,561 $ 64,521

Europe, Middle East, and Africa 40,658 22,598 30,271

Asia-Pacific 54,453 36,145 35,721

Total $ 200,521 $ 128,304 $ 130,513

A summary of our revenue by category is as follows:

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Total revenue $ 200,521 $ 128,304 $ 130,513

SUBSEQUENT EVENTS

On January 27, 2023, the Company issued and sold an aggregate of 20,125,000 shares of the Company’s common stock at a purchase price of $ 10.00 per share pursuant to an automatic shelf registration statement filed on Form S-3 (File No.

333-249999) with the Securities and Exchange Commission, resulting in aggregate gross proceeds of approximately $ 201.3 million.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data