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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-28 · 493 added, 386 removed, 955 unchanged (48% of the section changed)

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You should review the sections titled “Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and in Part I, Item 1A, “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and elsewhere in this Annual Report on Form 10-K.

We develop and market advanced cancer genomic tests and analytics.

Our tests and analytics are used by pharmaceutical companies for translational research, biomarker discovery, the development of personalized cancer therapies, and we expect in the near future, for clinical trial enrollment.

Our advanced tests are used by physicians to detect cancer recurrence, monitor cancer evolution, and uncover insights for therapy selection.

We also provide sequencing and data analysis services to support population sequencing initiatives.

We develop, market, and sell advanced cancer genomic tests and services.

Our services are used by pharmaceutical companies for translational research, biomarker discovery, the development of personalized cancer therapies, and for clinical trials.

Our tests are used by physicians to detect residual or recurrent cancer in patients, monitor cancer response to therapy, and uncover insights for therapy selection.

We also provide whole exome and whole genome sequencing services for other diagnostic companies and population sequencing initiatives.

Today, our products are routinely used by many of the largest oncology-focused pharmaceutical companies for analysis of patient samples in their clinical trials and drug development programs.

Our advanced genomic sequencing and analytics also support the development of personalized cancer vaccines and other next-generation cancer immunotherapies.

Our advanced genomic sequencing and analytics also support the development of personalized neoantigen therapies for cancer and other next-generation cancer immunotherapies.

For example, we are providing genomic testing to Moderna, Inc.

("Moderna") in its ongoing clinical trials evaluating a personalized cancer vaccine.

("Moderna") in its ongoing clinical trials evaluating a personalized cancer therapy.

In addition, we partner with diagnostics companies by providing our advanced tumor profiling and analysis capabilities as an input to their products.

More recently, we launched new diagnostic offerings for the clinical setting and, in November 2023, entered into an agreement with Tempus AI, Inc.

(formerly known as Tempus Labs, Inc., and referred to herein as "Tempus") to commercialize NeXT Personal Dx in the clinical diagnostics market.

Finally, we have also pursued non-cancer related business opportunities, specifically within the population sequencing market, by providing whole genome sequencing ("WGS") services under contract with the U.S.

More recently, we launched new diagnostic offerings for the clinical setting and, in November 2023, entered into an agreement with Tempus to commercialize our NeXT Personal Dx test.

We have also pursued non-cancer related business opportunities, specifically within the population sequencing market, by providing whole genome sequencing ("WGS") services under contract with the U.S.

Department of Veterans Affairs Million Veteran Program ("VA MVP").

As part of one of our new strategies for 2023 and beyond, we are working with a growing number of leading cancer centers and world-class academic research institutions to build and publish the clinical evidence-base to support our products and our key indications, as well as to obtain reimbursement coverage from Medicare and other payors.

Because of the ultra-high analytical sensitivity of our technology, we are initially focusing on three indications:

We are working with a growing number of leading cancer centers and world-class academic research institutions to build and publish the clinical evidence-base to support our products and our key indications, as well as to obtain reimbursement coverage from Medicare and other payors.

Because of the ultra-high analytical sensitivity of our technology, we are primarily focusing on three indications:

breast cancer, lung cancer, and immunotherapy (IO) monitoring.

We have collaborations with Cancer Research UK, University College London, and the Francis Crick Institute (the TRACERx study);

Institut Curie;

The Royal Marsden;

the Vall d'Hebron Institute of Oncology (VHIO);

the University of California, San Diego;

Duke University;

Vanderbilt University and Johns Hopkins University (the PREDICT study);

the Dana-Farber Cancer Institute;

the University of Texas M.D.

Anderson Cancer Center;

University Medical Center Hamburg-Eppendorf (also known as UKE);

and Criterium and the Academic Breast Cancer Consortium, that will focus on building the evidence-base for our technology and these indications.

If the key opinion leaders ("KOLs") we are collaborating with have a positive experience using our products, we are optimistic this will support broader use of our products by other KOLs, as well as clinicians in the future.

Our work in oncology is underpinned by our experience and capacity for next-generation sequencing at scale.

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We believe that our capacity is already larger than most cancer genomics companies, and we continue to build automation and other infrastructure to scale further as demand increases.

To date, we have sequenced more than 385,000 human samples, of which more than 175,000 were whole human genomes.

To date, we have sequenced approximately 500,000 human samples, of which approximately 200,000 were whole human genomes.

2024 Highlights

Total revenue increased 13%, or $8.4 million, during 2023 compared to 2022, primarily driven by higher revenue from enterprise sales and pharma tests.

Revenue from enterprise sales was $31.7 million in 2023 compared to $26.6 million in 2022, an increase of 19%.

Total revenue of $84.6 million increased 15%, or $11.1 million, during 2024 compared to 2023, primarily driven by higher revenue from pharma tests.

Revenue from pharma tests was $50.9 million in 2024 compared to $31.9 million in 2023, an increase of 60%.

This increase was partially offset by lower revenue from enterprise sales, which declined $6.4 million, or 20%.

Key business accomplishments and financial updates in 2024 and early 2025 include:

• Received Medicare coverage for NeXT Dx.

• Amended Natera agreement to extend volume commitments through the end of 2024.

• Signed key partnership agreement with Tempus to commercialize NeXT Personal Dx in clinics or with oncologists.

• Established a partnership with Myriad to market ImmunoID NeXT.

• Completed the NeXT Personal Dx (LDT) early access launch.

• Presented compelling early-stage lung cancer clinical MRD data with TRACERx for NeXT Personal.

• Signed commercial agreement with Moderna to leverage NeXT platform in personalized mRNA cancer vaccine clinical trials.

• Reduced cash burn through headcount reduction of nearly 50%, resulting in an estimated $35 million in annual cost savings.

Continued efforts to reduce expenses across the board.

• Received Medicare coverage for NeXT Dx, our comprehensive tumor profiling test and we are currently seeking Medicare coverage for our separate liquid biopsy molecular residual disease ("MRD") test, Next Personal Dx.

• Delivered 3,285 total molecular tests in 2024, compared with 177 tests in the prior year.

• Announced a new publication validating our NeXT Personal test, an ultra-sensitive, tumor-informed circulating tumor DNA (ctDNA) assay for detecting MRD, monitoring therapy response, and detecting recurrence in patients diagnosed with solid tumor cancers.

o The analytical validation study was published in Oncotarget on March 14, 2024.

o The test demonstrated a detection threshold of 1.67 parts per million (PPM) of ctDNA with 100% analytical specificity;

enabling an ultra-sensitive range leading to early cancer detection.

• Multiple clinical data results demonstrating the clinical performance of NeXT Personal were presented at the American College of Clinical Oncology meeting in Chicago.

Key presentations include:

o Compelling early-stage breast cancer detection results presented by Dr.

Isaac Garcia-Murillas and team (Institute of Cancer Research, London) and Prof.

Nicolas Turner and team (Royal Marsden NHS Foundation Trust UK).

In this study, they found:

▪ NeXT Personal enabled earlier detection of recurrence, with a ~15-month lead time over imaging.

▪ 100% of patients that recurred were detected with NeXT Personal and 100% of patients that were ctDNA negative on longitudinal testing were cancer-free.

o A presentation by Dr.

Rodrigo Toledo of the Vall d’Hebron Institute of Oncology (VHIO) highlighted the importance of NeXT Personal’s use for immunotherapy monitoring.

This data showed:

▪ Baseline levels and the changes in levels of ctDNA detected by NeXT Personal predict therapy response and clinical outcomes for late-stage cancer patients receiving immunotherapy.

▪ NeXT Personal had an average lead time for detecting cancer progression of 81 days over imaging.

• Highlighted clinical performance of NeXT Personal at the European Society of Medical Oncology (ESMO) Congress 2024 in Barcelona, Spain:

o Significant results from the TRACERx study presented by Professor Charles Swanton of University College London and the Francis Crick Institute with an expanded study cohort of non-small cell lung cancer (NSCLC) patients with strong detection rates for residual cancer in the challenging landmark period (first 10 to 120 days immediately after surgery).

o Compelling data for late-stage cancer patients on immunotherapy presented by Dr.

Rodrigo Toledo of the Vall d’Hebron Institute of Oncology that accurately linked significant decreases in ctDNA levels in response to immunotherapy to longer overall survival than patients who did not respond well.

• Commenced NeXT Personal Dx commercialization efforts with Tempus.

• Expanded Tempus collaboration to the biopharma industry, which enables Tempus to market NeXT Personal to Tempus' pharmaceutical and biotech customers who wish to bundle MRD testing with other Tempus offerings in a given study.

• Executed a cross-license agreement with Myriad Genetics, Inc.

covering patent estates for tumor-informed approaches to detect MRD.

• Entered into an agreement with Foresight Diagnostics Inc.

to settle and dismiss pending claims of intellectual property infringement by licensing our patents.

Foresight agreed to pay a low single-digit tiered royalty on sales covered by the patents.

• Raised approximately $35.0 million in net financing proceeds from Tempus, consisting of $18.4 million from Tempus’ exercise of all its common stock warrants, at an average price of $2.00 per share, and $16.6 million net of expenses, from Tempus' purchase of common stock at a price of $5.07 per share.

• Raised an additional $30.1 million in net proceeds from selling common stock under our At-The-Market ("ATM") program at a weighted-average price of $4.61 per share.

• Advanced business strategy with investment of $50.0 million from Merck and extended collaboration with Moderna.

• Received a new task order in the amount of $7.5 million from the VA MVP.

Factors Affecting Our Performance

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Our performance depends on the willingness of pharmaceutical companies, enterprise customers, and oncologists to continue to seek more comprehensive molecular information to develop more efficacious cancer therapies.

• Increasing adoption of our products and solutions by existing customers.

• The adoption of ultra-sensitive MRD testing.

We are pioneering the ultra-sensitive MRD testing market with the belief that an ultra-sensitive approach will lead to earlier intervention and the ability to better trust that a negative MRD patient is likely cancer-free.

There are no assurances that the market will value ultra-sensitive testing over other ways to monitor cancer and look for recurrence and disease.

• Increasing adoption of our products and solutions by existing bio-pharma customers.

Our performance depends on our ability to retain and broaden adoption with existing customers.

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Accessing these new customers through scientific engagement and marketing to gain initial buy-in is critical to our success and gives us the opportunity to demonstrate the utility of our products.

• Obtaining coverage and reimbursement status of our diagnostic tests.

Building our clinical laboratory business is subject to a number or reimbursement challenges and we may not be able to establish the medical necessity of our tests (coverage) or payment rates that cover our costs (reimbursement).

• Our revenue and cost are affected by the volume of samples we receive from customers from period to period.

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Components of Operating Results

We derive our revenue from sales of advanced sequencing and analytics to the following four customer types:

We derive our revenue primarily from sales of genomic testing services to the following five customer types:

• Pharma tests and services includes sales of testing services and data analytics for clinical trials and research to pharmaceutical companies in support of their drug development programs.

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All of the revenue in this category is from our partnership with the VA MVP.

• Clinical diagnostic includes sales of comprehensive tumor profiling test that is used to help select therapy for a cancer patient and identify potential clinical trials for a patient, and sales of ultra-sensitive, tumor-informed diagnostic tests, ordered by healthcare providers for cancer patients.

Revenue in this category is derived from Medicare and private insurance reimbursements.

• Other includes sales of genomic tests and analytics to universities and non-profits.

This category also includes sales of diagnostics tests ordered by healthcare providers for cancer patients, which was insignificant for periods presented.

Our ability to increase revenue will depend on our ability to further increase sales to these groups of customers, expand our customer base within each group, and expand our business in the clinical diagnostics market.

Our ability to increase revenue will depend on our ability to further increase sales to these groups of customers and expand our customer base within each group.

To do this, we are developing a growing set of state-of-the-art services and products;

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focusing our marketing efforts on large pharmaceutical companies;

building and publishing the clinical evidence-base to support our products and our key indications, as well as to obtain reimbursement coverage from Medicare and other payors;

and seeking additional partnerships such

as ours with Natera.

We sell through a small direct sales force.

In late 2023, we entered into an agreement with Tempus to commercialize NeXT Personal Dx in the clinical diagnostics market and will be leveraging Tempus' significantly larger sales force.

We have one reportable segment from the sale of sequencing and data analysis services.

building and publishing the clinical evidence-base to support our products and services in our key indications, pursuing reimbursement coverage from Medicare and other payors;

and seeking additional partnerships.

We market to biopharma customers and doctors through a small

direct sales force.

In late 2023, we entered into an agreement with Tempus to co-commercialize NeXT Personal Dx in the clinical diagnostics market and will be leveraging Tempus' significantly larger sales force as a key vector to grow our clinical diagnostic business.

In late 2024, we expanded our collaboration partnership with Tempus to enable Tempus to market and sell NeXT Personal to Tempus' pharmaceutical and biotech customers who wish to bundle MRD testing with other Tempus offerings in a given study.

We have one reportable segment which is providing advanced cancer genomic tests for precision oncology and personalized testing.

Most of our revenue to date has been derived from sales in the United States.

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Cost of revenue consists of raw materials costs, personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), laboratory supplies and consumables, depreciation and maintenance on equipment, and allocated facilities and information technology (“IT”) costs.

We expect variability in our gross margins over the medium-term due to fluctuations in customer mix and volume, investments in newer sequencing platforms and new capabilities such as automation of laboratory workflows, processing of diagnostic tests for the clinical market while we work to secure reimbursement, and costs related to our new Fremont facility.

Over the long-term, we anticipate higher gross margins as growing revenue leads to economies of scale.

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We expense our research and development costs in the period in which they are incurred.

We expect research and development expenses to decrease as a result of our reductions in workforce initiated in 2023 and our closure of operations in China.

We expect research and development expenses to remain consistent in the short-term since the completion of our reductions in workforce in 2023.

Selling, General and Administrative Expenses

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We expense all selling, general and administrative costs as incurred.

Selling, general and administrative expenses have decreased significantly since the completion of our first quarter 2023 reduction in workforce.

We expect expenses to remain around this lower level over the next couple of years.

Selling, general and administrative expenses have decreased since the completion of our reductions in workforce in 2023.

But we expect them to increase over the medium term as we commercialize our clinical diagnostic offerings.

Lease Impairment

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Restructuring and Other Charges

Restructuring and other charges consists of charges in connection with our two reductions in workforce initiated in 2023 and charges in connection with the closure of our China operations.

Restructuring and other charges consists of charges in connection with our reductions in workforce and charges in connection with the closure of our China operations.

Interest Income and Interest Expense

Interest income consists primarily of interest earned on our cash and cash equivalents and short-term investments.

Interest income consists primarily of interest earned on our cash, cash equivalents and short-term investments.

Interest expense is the recognition of imputed interest on noninterest bearing loans.

Other Income (Expense), Net

Other income (expense), net consists primarily of charges related to the issuance and remeasurement of warrants to Tempus during the year ended December 31, 2023.

Otherwise, other income (expense), net consists primarily of foreign currency exchange gains and losses.

In connection with our November 2023 agreement with Tempus, we issued two warrants to Tempus to purchase, in the aggregate, up to 9,218,800 shares of our common stock (the “Tempus Warrants”).

Other income (expense), net consists primarily of a noncash loss related to the remeasurement and settlement of the Tempus Warrants.

Other income (expense), net also includes foreign currency exchange gains and losses.

Trend Financial Information

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Interest expense

Loss on debt extinguishment

Other income (expense), net (3)

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Weighted-average shares outstanding, basic and diluted

(1) Includes related party revenue of $2.0 million for the year ended December 31, 2024.

(2) Includes related party sales and marketing expenses of $0.5 million for the year ended December 31, 2024.

(3) Includes related party other expense of $18.3 million in connection with the change in fair value of Tempus Warrants for the year ended December 31, 2024.

(in thousands)

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Results of Operations

This section generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.

Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 , filed with the SEC on February 23, 2023, which is incorporated by reference herein.

The following table shows revenue by customer type (in thousands):

Years Ended December 31,

This section discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.

The following table shows revenue by customer type (in thousands, except percentages):

Year Ended December 31,

Pharma tests and services (1)

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Population sequencing

Clinical diagnostic

Total revenue

(1) Includes related party revenue of $2.0 million for the year ended December 31, 2024.

The following table shows customers that made up at least 10% of total revenue in each year presented:

Year Ended December 31,

Merck & Co., Inc.

Moderna, Inc.

* Less than 10% of revenue

Pharma tests and services

Revenue from pharma tests and services increased 8%, or $2.4 million, in 2023.

Growth from new customers drove the revenue increase.

Notably, three customers that were either new in 2023 or 2022, accounted for an increase of $3.8 million in revenue as these customers selected our advanced genomic tests for their clinical trials and research projects.

Additionally, revenue from one of our customers developing personalized cancer therapies increased by $2.3 million.

Those increases were partially offset by decreases in revenue from multiple customers due to non-recurring projects and variability in timing and spending levels on clinical trial projects in general.

The primary driver for the increase in pharma tests and services revenue in 2024 was due to increases in revenue from one of our personalized cancer therapy customers that ramped up clinical trial patient enrollments.

Revenue from this customer increased $20.0 million in 2024 compared with the prior year.

Revenue from this customer is expected to decline over the next few quarters until this customer is ready to commercialize its personalized cancer therapy program, or until other projects increase in size.

Enterprise sales

Revenue from enterprise sales increased 19%, or $5.1 million, in 2023.

This was due to an increase in the volume of samples we tested for Natera, partially offset by lower selling prices.

The number of samples we processed for Natera increased by over 55% in 2023.

We amended our agreement with Natera during the fourth quarter of 2023 to extend minimum volume commitments through the end of 2024.

Previously, Natera's volume commitments extended only through the first quarter of 2024.

In addition, we plan to introduce a lower-cost version of our exome product offering for Natera in the first half of 2024 in order to support their price requirements, and we expect our total revenue from Natera in 2024 to decline, due to the lower prices.

Revenue from enterprise sales decreased in 2024 due to lower average selling prices.

The number of samples we processed for Natera increased by over 7%, but such increase was offset by lower selling prices.

We launched a reduced-cost version of our exome product offering for Natera near the end of the first quarter of 2024 to support their requirement for an overall reduction in price.

Our agreement with Natera included minimum volume commitments through the end of 2024.

We amended our agreement with Natera during the fourth quarter of 2024 to extend minimum volume commitments through the second quarter of 2025.

Population sequencing

Population sequencing revenue is made up entirely of sales to the VA MVP.

The increase in revenue was driven by an increase in samples we tested, which offset a nearly 50% reduction in selling prices in 2023 as compared to 2022.

Revenue recognized each period is also impacted by timing of our fulfillment of samples under each annual task order.

Our annual task orders received in 2023, 2022, and 2021 were $7.5 million, $10.0 million, and $9.7 million, respectively.

Revenue recognized each period from population sequencing is impacted by timing of our fulfillment of samples under each annual task order.

The decrease in revenue in 2024 was due to a decrease in the number of samples we processed in addition to a small decline in selling prices.

Our annual task orders received in 2024 and 2023 were $7.5 million and $7.5 million, respectively.

Our contract with the VA MVP does not include specific testing turnaround times.

Therefore, we have the ability to modulate the volume of samples processed from the VA MVP up or down to complement sample volumes from other customers, which can vary from period to period.

As of the end of 2023, our remaining unfulfilled task orders amounted to $7.4 million, which we expect to recognize as revenue within the next 12 months.

Therefore, we may modulate the volume of samples processed from the VA MVP to accommodate sample volumes from other customers, which can vary from period to period.

We anticipate fulfilling the new task order received in September 2024 during the first three quarters of 2025.

Clinical diagnostic

Clinical diagnostic revenue is generated from Medicare and private insurance payors, In January 2024, we received a Medicare coverage determination for NeXT Dx, our ultra-comprehensive tumor genomic profiling assay.

The revenue of $0.8 million in 2024 was mainly due to an increase in NeXT Dx tests reimbursed by Medicare.

We delivered a total of 3,285 molecular cancer tests in 2024.

Costs and Expenses

The following table shows costs and expenses (in thousands, except percentages):

Year Ended December 31,

(in thousands)

Cost of revenue

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Total costs and expenses

* Not meaningful

Cost of revenue

The increase in cost of revenue of 7%, or $3.6 million, was primarily due to higher revenue levels (revenue increased 13% over the same period), partially offset by dedication of more laboratory resources to support sample processing required for clinical evidence generation, which is a non-revenue generating activity and thus reported as R&D expense.

Specific components of the increase were a $4.9 million increase in direct material costs due to higher revenue levels, a $2.0 million increase in facilities and equipment costs (partly due to movement of our laboratory from our prior Menlo Park facility to the new Fremont facility), and a $2.0 million increase in laboratory supplies and consumables (enterprise customer orders require more supplies to process as compared to other customer categories);

partially offset by a $5.3 million decrease in shared laboratory costs due to greater usage of our laboratory capacity for R&D activities.

The increase in cost of revenue in 2024 was primarily due to higher revenue levels (revenue increased 15% over the same period).

Cost of revenue increased at a lesser rate as compared to the corresponding revenue increases primarily because of lower labor costs resulting from prior workforce reductions and operational efficiencies.

Specific components of the increase were a $4.0 million increase in direct material costs due to support higher revenue levels, a $2.1 million increase in allocated facilities and equipment costs (mainly due to moving our laboratory from our Menlo Park facility to our Fremont facility in the third quarter of 2023), partially offset by a

$2.8 million decrease in labor costs and a $0.7 million decrease in shared laboratory costs due to greater usage of our laboratory capacity for R&D projects.

Research and development

Research and development expenses remained flat in 2023 as compared to 2022.

Increases in costs associated with clinical evidence generation and collaborations, and increases in facility costs (as a result of the R&D function moving into our Fremont facility during 2023), were offset by cost savings from our reductions in workforce initiated in 2023.

Specific offsetting components of research and development expense include a $5.0 million increase in sample processing costs incurred in our laboratory for product development, collaborations, and clinical evidence generation, and a $2.2 million increase in facilities costs;

offset by a $7.3 million decrease in personnel-related costs driven by our reductions in workforce.

The decrease in research and development expenses in 2024 was primarily due to cost savings from our workforce reductions in 2023 and lower sample processing costs for product development, collaborations, and clinical evidence generation.

Specific components of the decrease include a $6.3 million decrease in personnel-related costs driven by our workforce reductions, a $4.7 million decrease in allocated facilities costs (primarily due to a reduction in R&D usage of our facilities relative to other functions, as well as lower facilities costs in general), and a $4.9 million decrease in sample processing costs incurred in our laboratory for product development, collaborations, and clinical evidence generation.

Selling, general and administrative

The decrease in selling, general and administrative expenses of 22%, or $14.2 million was primarily due to cost savings from our reductions in workforce initiated in 2023.

Specific components of the decrease were a $11.7 million decrease in personnel-related costs driven by our reductions in workforce, a $5.1 million decrease in facilities costs as a result of the R&D function and additional lab teams moving into our Fremont facility and consequently receiving a share of such facility costs that were previously allocated to SG&A, and a $1.5 million decrease in professional services;

partially offset by a $2.9 million increase in depreciation of office-related fixtures and furniture (driven by our Fremont headquarters), a $1.0 million increase in software and subscriptions costs, and a $0.2 million increase in marketing costs such as trade shows expenses.

The decrease in selling, general and administrative expenses was primarily due to lower professional outside services expenses and cost savings from our workforce reductions in 2023.

Specific components of the decrease were a $3.1 million decrease in professional outside services, a $2.9 million decrease in personnel-related costs driven by our workforce reductions, and a $0.5 million decrease in office equipment costs;

partially offset by a $1.4 million increase in allocated facilities costs, $1.0 million increase in other outside services and office expenses and a $0.6 million increase in other marketing costs, including trade shows expenses.

Lease impairment

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Restructuring and other charges

During 2023, we initiated two rounds of workforce reductions to reduce our cash burn and increase operating efficiencies.

Combined, our headcount was reduced by almost 50% from 2022 levels.

We reduced our workforce during the first quarter of 2023 and the fourth quarter of 2023 to reduce our cash burn and increase operating efficiencies, which combined affected about 100 employees.

We also closed our China operations.

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Interest Income, Interest Expense and Other Income (Expense), Net

The following table shows interest income and expense, and other income (expense), net (in thousands, except percentages):

Year Ended December 31,

(in thousands)

Interest income

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Interest income and interest expense

The increase in interest income was due to increased yields on our investments.

The decrease in interest income was due to lower average investment balances in 2024, partially offset by increased yields on our investments.

Interest expense is the recognition of imputed interest on noninterest bearing loans.

Other income (expense), net

In connection with our November 2023 agreement with Tempus, we issued two warrants to purchase, in the aggregate, up to 9,218,800 shares of our common stock.

If Tempus acquires any shares of common stock directly from us other than by exercising the warrants, then the total number of shares issuable upon exercise of the warrants will be reduced by such shares.

Because the number of shares issuable upon settlement are subject to adjustment, the warrants are classified as liability instruments and are subject to remeasurement at each balance sheet date, with changes in fair value recognized as other income (expense).

Additionally, since the initial fair value of the warrants of $6.9 million exceeded the total proceeds received from Tempus of $6 million, a loss of $0.9 million was immediately recognized within other income (expense).

Fair value of the warrants increased by $3.1 million as of December 31, 2023.

The increase in fair value, plus the immediate loss of $0.9 million recognized upon issuance, resulted in a $4.0 million expense recognized in other income (expense), net during the year ended December 31, 2023.

During 2022 and 2021, other income (expense), net consisted mainly of foreign currency remeasurements.

In connection with our November 2023 agreement with Tempus, we issued two warrants to purchase, in the aggregate, up to 9,218,800 shares of our common stock ("Tempus Warrants") at an average exercise price of $2.00 per share.

If Tempus acquired any shares of common stock directly from us other than by exercising the warrants, then the total number of shares issuable upon exercise of the warrants would have been reduced by such shares.

Because the number of shares issuable upon settlement were subject to adjustment, the warrants were classified as liability instruments while outstanding and were subject to remeasurement at each balance

sheet date, with changes in fair value recognized as other income (expense), net.

In August 2024, Tempus exercised in full the Tempus Warrants for $18.4 million in cash;

as such there will be no further noncash gains or losses associated with the Tempus Warrants going forward.

Prior to the exercise, we recognized noncash losses of $18.3 million as a result of increases in the fair value of the Tempus Warrants in other income (expense), net in the consolidated statements of operations during the year ended December 31, 2024.

The initial fair value at the time of issuance of the warrants of $6.9 million exceeded the total proceeds received from Tempus of $6.0 million, which resulted in a loss of $0.9 million.

In addition, we recognized noncash losses of $3.1 million as a result of increases in the fair value of the Tempus Warrants after the issuance date in 2023.

The increase in fair value, plus the immediate loss of $0.9 million, resulted in a $4.0 million expense, which was recognized in other income (expense), net in the consolidated statements of operations during the year ended December 31, 2023.

Separately, upon dissolution of our China entity (Personalis (Shanghai) Ltd) during the first quarter of 2024, we reclassified an accumulated foreign currency translation loss of $0.2 million to other income (expense), net.

Liquidity and Capital Resources

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Working capital

From our inception through December 31, 2023, we have funded our operations primarily from $279.0 million in net proceeds from our follow-on equity offerings in August 2020 and January 2021, $144.0 million in net proceeds from our IPO in June 2019, $89.6 million from issuance of redeemable convertible preferred stock, $3.5 million in net proceeds from our ATM facility (see Note 2, Summary of Significant Accounting Policies), as well as cash from operations and debt financings.

From our inception through December 31, 2024, we have funded our operations primarily from net proceeds from issuance of redeemable convertible preferred stock, IPO, follow-on equity offerings, At-the-Market ("ATM") facility (see Note 2, Summary of Significant Accounting Policies for additional information), Tempus exercising warrants and purchasing additional shares under an investment agreement, and Merck purchasing shares under an investment agreement (see Note 8, "Related Party Transactions" in our consolidated financial statements for additional information), as well as debt financings.

As of December 31, 2024, we had cash and cash equivalents of $91.4 million and short-term investments of $93.6 million.

We have incurred net losses since our inception.

We anticipate that our current cash and cash equivalents and short-term investments, together with cash provided by operating activities, are sufficient to fund our near-term capital and operating needs for at least the next 12 months.

We anticipate that our current cash and cash equivalents and short-term investments are sufficient to fund our near-term capital and operating needs for at least the next 12 months.

We have based these future funding requirements on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of lower demand for our services or other risks described in this Annual Report on Form 10-K, we may seek to sell additional common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing.

We filed a sales agreement prospectus in December 2023 pursuant to which we may offer and sell up to $50.0 million of shares of our common stock through our ATM facility.

The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock.

We filed a sales agreement prospectus supplement in December 2024, pursuant to which we may offer and sell up to $50.0 million of shares of our common stock through our ATM facility.

The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock.

The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations.

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Our investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.

As of December 31, 2023, cash and cash equivalents held by foreign subsidiaries was $1.2 million, most of which was held by our China subsidiary.

During the first half of 2023, we closed our China operations and, in February 2024, we completed the dissolution of the China entity and repatriated all cash that was held at the entity back to our headquarters.

Year Ended December 31,

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Net cash provided by financing activities

The $14.0 million decrease in cash used in operating activities during 2023 as compared to 2022 was primarily due to lower spend on operating expenses (particularly lower payroll expenses after our reductions in workforce initiated in 2023), higher customer deposits received (mostly in connection with our agreement with Moderna to support its ongoing clinical trials evaluating a personalized cancer vaccine), and efficient management of working capital;

partially offset by lower landlord contributions received during 2023 versus 2022 in connection with our Fremont facility build-out.

The $39.4 million decrease in cash provided by investing activities during 2023 as compared to 2022 was due to significantly lower net proceeds from short-term investment maturities, partially offset by a $39.0 million reduction in capital expenditures.

The $9.7 million increase in cash provided by financing activities during 2023 as compared to 2022 was driven by $6 million in proceeds from issuance of warrants to Tempus and $3.5 million in net proceeds from sales of common stock under our ATM facility, both of which did not occur during 2022.

The $11.1 million decrease in cash used in operating activities in 2024 was primarily due to lower operating expenses, particularly lower payroll expenses as a result of our workforce reductions in 2023 and higher gross margin, due to a combination of higher revenue levels and higher gross margin percentage.

These increases in operating cash flow were partially offset by changes in working capital.

Notably, during the first half of 2023 we received significant customer deposits in connection with our agreement with Moderna to support its ongoing clinical trials project for development of a personalized cancer therapy and the customer deposit did not repeat in 2024.

We also paid more in rent in 2024 as compared to 2023 for our Fremont headquarters due to the end of a free rent period plus escalating rent payments.

Furthermore, we paid more to vendors in 2024 as compared to 2023 due to timing of vendor shipments and billings.

The $48.2 million decrease in cash provided by investing activities in 2024 was due to increase in investments of our cash into short-term investments by $17.8 million and reduction in maturities of our short-term investments by $40.0 million, partially offset by a $9.3 million reduction in capital expenditures.

The $103.6 million increase in cash provided by financing activities was driven by $50 million from Merck purchasing shares under an investment agreement, $36.2 million from Tempus exercising warrants and purchasing additional shares under an investment agreement, $26.6 million higher net proceeds from sales of common stock under our ATM facility, and $2.1 million lower repayments of loans;

partially offset by $1.2 million payments of costs associated with the Tempus and Merck investments, and $0.6 million lower proceeds from our employee incentive plans.

In addition, we received $6.0 million in proceeds from the issuance of Tempus Warrants and $3.4 million from loans in 2023, which did not occur in 2024.

Material Cash Requirements

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We plan to fund our material cash requirements with our existing cash and cash equivalents and short-term investments, which amounted to $185.0 million as of December 31, 2024, as well as anticipated cash receipts from customers.

To fund our material cash requirements in the short- and long-term, we may also seek to sell additional common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing.

To fund our material cash requirements in the short-term and long-term, we may also seek to sell additional common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing.

Variable costs of revenue .

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However, we generally do not have binding and enforceable purchase orders beyond the short term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project.

We currently expect spending in this area to increase in 2024 relative to 2023 to support expected higher levels of revenue.

We currently expect spending in this area to remain similar to the levels in 2024 to support expected higher levels of revenue.

Operating expenditures .

Our primary use of cash relates to employee compensation, spend on professional services, spend related to research and development projects, and other costs related to our research and development, selling, general and administrative functions.

We currently expect to decrease our spend in these areas as a result of our workforce reductions initiated in 2023.

We currently expect our spending in these areas to remain similar to the levels in 2024.

On a long-term basis, we manage future cash requirements relative to our long-term business plans.

Capital expenditures .

Capital expenditures are expected to decrease from 2023 levels as we have completed significant laboratory capacity additions.

Capital expenditures are expected to increase from 2024 levels as we expect to expand NeXT Personal Dx capacity.

Going forward, our capital expenditures are expected to consist primarily of laboratory equipment and computer equipment.

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As of December 31, 2024, we have an outstanding noninterest bearing loan that was used to finance the purchase of equipment for our laboratory.

We owe a total of $2.5 million, with half of that amount owed in 2024 and the other half in 2025.

Additionally, we had an outstanding noninterest bearing loan that was used to finance the purchase of internal use software licenses and related ongoing support.

We will make a payment of $0.4 million in September 2024 to pay off this loan.

We owe a total of $1.8 million, of which the majority is payable in 2025.

Further discussion of this loan can be found in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 6, “Loans.”

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Revenue Recognition

We generate our revenue from selling sequencing and data analysis services.

We generate our revenue from the sale of genomic testing services.

We agree to provide services to our customers through a contract, which may be in the form of a combination of a signed agreement, statement of work and/or a purchase order.

We have evaluated the performance obligations contained in contracts with customers to determine whether any of the performance obligations are distinct, such that the customers can benefit from the obligations on their own, and whether the obligations can be separately identifiable from other obligations in the contract.

For the significant majority of our contracts to date, the customer orders a specified quantity of a sequencing;

therefore, the delivery of the ordered quantity per the purchase order is accounted for as one performance obligation.

Our contracts include only one performance obligation—the delivery of the sequencing and data analysis services to the customer.

Fees for our sequencing and data analysis services are predominantly based on a fixed price per sample.

For the significant majority of our contracts to date, the customer orders a specified quantity of sequencing and the delivery of each test to the customer is accounted for as one performance obligation.

Fees for our genomic testing services are predominantly based on a fixed price per sample.

The fixed prices identified in the arrangements only change if a pricing amendment is agreed with a customer.

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We do not offer retrospective discounts or rebates.

Accordingly, all of the transaction price, net of any discounts, is allocated to one performance obligation.

Therefore, upon delivery of the services, there are no remaining performance obligations.

Lease liabilities are recognized at the present value of the fixed lease payments, reduced by landlord incentives, using a discount rate based on our current borrowing rate at the lease commencement date (the incremental borrowing rate), unless the rate implicit in the lease is readily determinable.

In August 2021, we entered into a 13.5-year lease for our new corporate headquarters in Fremont, California.

In August 2021, we entered into a 13.5-year lease for our corporate headquarters in Fremont, California.

We estimated our incremental borrowing rate as the rate implicit in the lease was not readily determinable.

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We then adjusted yields from publicly traded corporate bonds of companies of similar size and credit rating over a term approximating the term of our lease for the nature of the collateral.

Our concluded incremental borrowing rate for this lease was 5.8%, which resulted in a lease liability and right-of-use asset of $44.7 million.

In September 2022, the lease commencement date for our new facility in Fremont, California was delayed from the original intended date due to delays in the completion of the work necessary for us to move into the facility, which resulted in a reassessment of the lease term and consequently a remeasurement of the lease liability and corresponding adjustment to the carrying amount of the right-of-use asset based on an updated incremental borrowing rate.

We estimated our incremental borrowing rate by using the same method described above and concluded that the incremental borrowing rate for the remeasured lease was 10.5%.

The lease reassessment resulted in a $12.9 million reduction to right-of-use assets in 2022.

The increase in our estimated borrowing rate between August 2021 and September 2022 mostly reflects the higher interest rate environment in 2022 as compared to 2021.

In September 2022, the lease commencement date for our facility in Fremont, California was delayed from the original intended date due to delays in the completion of the work necessary for us to move into the facility, which resulted in a reassessment of the lease term.

Our concluded incremental borrowing rate for this remeasured lease was 10.5%, which resulted in a lease liability and right-of-use asset of $31.8 million.

During the third quarter of 2023, we completed the move of our laboratory operations from our Menlo Park facility to our Fremont facility and began actively marketing the Menlo Park space for sublease.

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In connection with this agreement, we issued to Tempus two warrants to purchase, in the aggregate, up to 9,218,800 shares of our common stock.

The Black-Scholes option-pricing model was used to estimate fair value of the warrants issued to Tempus at the date of issuance, November 28, 2023, and at each subsequent balance sheet date.

In August 2024, Tempus exercised the warrants in full to purchase 9,218,800 shares of Personalis common stock for $18.4 million in cash, at an average exercise price of $2.00 per share.

The Tempus Warrants included a provision under which the total number of shares issuable upon settlement were subject to adjustment.

Consequently, prior to the exercise, the Tempus Warrants were classified as liability instruments while outstanding and subject to remeasurement at each balance sheet date, with changes in fair value recognized as other income (expense), net in the consolidated statements of operations.

Fair values of the warrants were estimated using the Black-Scholes option-pricing model.

Estimating fair value using the Black-Scholes option-pricing model requires a number of assumptions.

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Fair Value Measurements

Tempus Agreement

Related Party Transactions

Restructuring and Other Charges

Stock-Based Compensation

Segment and Geographic Information

Commitments and Contingencies

Basic and Diluted Net Loss Per Common Share

Reports of Independent Registered Public Accounting Firms

Subsequent Events

Report of Independent Registered Public Accounting Firm

(BDO USA, P.C., PCAOB ID:

Deloitte & Touche LLP, PCAOB ID:

PERSONALIS, INC.

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(in thousands, except share and per share data)

December 31, 2023

December 31, 2022

Current assets

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Total liabilities and stockholders’ equity

(1) Includes related party accounts receivable of $ 2.5 million as of December 31, 2024.

(2) Includes related party liabilities of $ 1.7 million as of December 31, 2024.

(3) Includes related party liabilities of $ 1.2 million as of December 31, 2024.

See notes to consolidated financial statements.

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Weighted-average shares outstanding, basic and diluted

(1) Includes related party revenue of $ 2.0 million for the year ended December 31, 2024.

(2) Includes related party sales and marketing expenses of $ 0.5 million for the year ended December 31, 2024.

(3) Includes related party other expense of $ 18.3 million in connection with the change in fair value of Tempus Warrants for the year ended December 31, 2024.

See notes to consolidated financial statements.

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Other comprehensive income (loss), net of tax

Foreign currency translation adjustment

Change in unrealized gain (loss) on available-for-sale debt securities

Changes in foreign currency translation adjustments:

Change during period

Reclassification of adjustments to net loss due to dissolution of Personalis (Shanghai) Ltd

Net changes in foreign currency translation adjustments

Change in unrealized gain on available-for-sale debt securities

Comprehensive loss

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Balance—December 31, 2022

Proceeds from follow-on offering, net of offering costs

Proceeds from exercise of stock options

Proceeds from ESPP

Restricted stock units vested

Stock-based compensation

Foreign currency translation adjustment

Unrealized loss on available-for-sale debt securities

Balance—December 31, 2021

Proceeds from sales of common stock under ATM facility, net of commissions

Proceeds from exercise of stock options

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Foreign currency translation adjustment

Unrealized loss on available-for-sale debt securities

Unrealized gain on available-for-sale debt securities

Balance—December 31, 2023

Proceeds from sale of common stock under Merck Investment Agreement, net of issuance costs

Exercise of Tempus Warrants

Proceeds from sale of common stock under Tempus Investment Agreement, net of issuance costs

Proceeds from sales of common stock under ATM facility, net of commissions

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Noncash charges related to liability classified Tempus Warrants

Amortization of premium (discount) on short-term investments

Amortization of discount on short-term investments

Noncash restructuring and other charges

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Proceeds from maturities of available-for-sale debt securities

Proceeds from sales of available-for-sale debt securities

Purchases of property and equipment

Net cash provided by (used in) investing activities

Proceeds from sales of property and equipment

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Proceeds from public offerings, net of underwriting discounts and commissions

Payments of costs related to public offerings

Proceeds from sales of common stock under ATM facility, net of commissions

Proceeds from issuance of Tempus Warrants

Proceeds from exercise of Tempus Warrants

Proceeds from sale of common stock under Tempus Investment Agreement

Proceeds from sale of common stock under Merck Investment Agreement

Payment of costs related to Tempus and Merck Investment Agreements

Proceeds from loans

Repayments of loans

Proceeds from exercise of equity awards

Proceeds from issuance of common stock under equity incentive plans

Net cash provided by financing activities

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Supplemental cash flow information:

Cash paid for interest

Cash paid for income taxes, net of refunds

Acquisition of property and equipment included in accounts payable and accrued liabilities

(1) Includes a change in related party receivable of $ 2.0 million for the year ended December 31, 2024.

(2) Includes a change in related party payable and accruals of $ 0.7 million for the year ended December 31, 2024.

See notes to consolidated financial statements.

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Personalis, Inc.

(the "Company" or "Personalis") develops and markets advanced genomic tests and analytics for precision oncology and personalized testing.

The Company also provides sequencing and data analysis services to support population sequencing initiatives.

Genomic tests are sold primarily to pharmaceutical companies, biopharmaceutical companies, diagnostics companies, universities, non-profits, and government entities, while services for population sequencing initiatives are sold primarily to government entities.

The principal markets for the Company’s services are in the United States and Europe.

(the "Company" or "Personalis") develops, markets, and sells advanced cancer genomic tests and services.

The services are used by pharmaceutical companies for translational research, biomarker discovery, the development of personalized cancer therapies, and for clinical trials.

The tests are used by physicians to detect residual or recurrent cancer in patients, monitor cancer response to therapy, and uncover insights for therapy selection.

The Company also provides whole exome and whole genome sequencing services for other diagnostic companies and population sequencing initiatives.

The principal markets for the Company’s tests and services are in the United States and Europe.

The Company is expanding its business model to offer genomic tests directly to cancer patients in a clinical setting.

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During the first half of 2023, the Company terminated its operations in China and the Company completed the process of dissolving the Personalis (Shanghai) Ltd entity in February 2024.

Refer to Note 9 for further information.

The Company operates and manages its business as one reportable operating segment, which is the sale of sequencing and data analysis services.

Refer to Note 9, Restructuring and Other Charges, for further information.

The Company operates and manages its business as one reportable operating segment, which is providing advanced cancer genomic tests and services for precision oncology applications, personalized testing, and other tests.

The Company has incurred losses to date and expects to incur additional losses for the foreseeable future.

The Company continues to invest the majority of its resources in the development and growth of its business, including investments in product development and studies to prove the clinical validity and utility of the Company's tests.

The Company continues to invest the majority of its resources in the development and growth of its business, including investments in product development and sales and marketing efforts.

The Company’s activities have been financed to date primarily through the sale of its equity securities and cash from operations.

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All intercompany balances and transactions have been eliminated in consolidation.

Upon dissolution of Personalis (Shanghai) Ltd during the first quarter of 2024, an accumulated foreign currency translation adjustment of $ 0.2 million was reclassified from accumulated other comprehensive loss to net loss within other income (expense), net.

Use of Estimates

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Actual results could differ from these estimates, and such differences could be material to the Company’s consolidated financial position and results of operations.

Follow-On and At-the-Market Equity Offerings

In January 2021, the Company completed a follow-on equity offering in which it issued and sold 4,542,500 shares of its common stock at a public offering price of $ 38.00 per share.

The Company received net proceeds of $ 162.3 million after deducting underwriting discounts and commissions.

In December 2021, the Company entered into an At-the-Market ("ATM") Sales Agreement (the “Sales Agreement”) with BTIG, LLC (“BTIG”) under which it may offer and sell its common stock from time to time through BTIG as its sales agent.

The Sales Agreement initially capped the amount of common stock that could be sold under the Sales Agreement to $ 100.0 million.

In December 2023, the Sales Agreement was amended to, among other things, remove the maximum dollar amount of common stock that can be sold under the Sales Agreement.

BTIG will use commercially reasonable efforts to sell the Company’s common stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company may impose).

The Company will pay BTIG a commission of up to 3 % of the gross sales proceeds of any common stock sold through BTIC under the Sales Agreement.

The Company is not obligated to make any sales of common stock under the Sales Agreement.

During 2023, the Company issued and sold 1,935,214 shares of its common stock at a weighted-average price of $ 1.85 per share under the Sales Agreement and received $ 3.5 million in proceeds, net of commissions.

At-the-Market Equity Offerings

In December 2021, the Company entered into an At-the-Market ("ATM") Sales Agreement with BTIG, LLC (“BTIG”), as amended in December 2023 (the “Sales Agreement”), under which it was permitted to offer and sell its common stock from time to time through BTIG as its sales agent.

BTIG agreed to use commercially reasonable efforts to sell the Company’s common stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company may impose).

The Company agreed to pay BTIG a commission of up to 3 % of the gross sales proceeds of any common stock sold through BTIG under the Sales Agreement.

The Company was not obligated to make any sales of common stock under the Sales Agreement.

The Company issued and sold 6,660,731 and 1,935,214 shares of its common stock at a weighted-average price of $ 4.61 and $ 1.85 per share under the Sales Agreement and received $ 30.1 million and $ 3.5 million in proceeds, net of commissions, during 2024 and 2023, respectively.

In December 2024, the Company entered into an Amended and Restated At-the-Market Sales Agreement (the “Amended Sales Agreement”) with Piper Sandler & Co.

(“Piper”) and BTIG.

The Amended Sales Agreement amends and restates the Sales Agreement with BTIG, previously entered into in December 2021, as amended in December 2023, to add Piper as a sales agent (Piper and BTIG,

together, the “Sales Agents”), among certain other changes.

The Sales Agents have agreed to use commercially reasonable efforts to sell the Company’s common stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company may impose).

The Company will pay the applicable Sales Agent a commission of up to 3 % of the gross sales proceeds of any common stock sold through such Sales Agent under the Amended Sales Agreement.

The Company is not obligated to make any sales of common stock under the Amended Sales Agreement.

Concentration of Credit Risk and Other Risks and Uncertainties

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Year Ended December 31,

Moderna, Inc.

Merck & Co., Inc.

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Revenue Recognition

The Company applies the revenue recognition guidance in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”).

The Company derives revenue from the sale of sequencing and data analysis services.

The Company derives revenue from the sale of genomic testing services.

Contracts are in the form of a combination of signed agreements, statements of work, and/or purchase orders.

The Company accounts for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and it is probable that the Company will collect substantially all of the consideration to which it will be entitled.

The sequencing and data analysis services are the only distinct services that meet the definition of a performance obligation and are accounted for as one performance obligation under Topic 606.

The genomic testing services are the only distinct services that meet the definition of a performance obligation and are accounted for as one performance obligation.

Revenue is recognized at a point in time when test results are transferred to the customer.

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The Company charges research and development costs to expenses as incurred, including lab and automation development costs.

The expenses primarily consist of personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits);

The expenses primarily consist of personnel costs (salaries, bonuses, benefits, payroll taxes, and stock-based compensation);

laboratory supplies and consumables;

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Stock-Based Compensation

The Company measures and recognizes compensation cost for all share-based awards, including stock options, restricted stock awards ("RSAs"), restricted stock unit awards ("RSUs"), performance stock awards ("PSAs") and employee stock purchases related to the Employee Stock Purchase Plan ("ESPP").

For options granted to employees, non-employees, and directors, stock-based compensation is measured at grant date based on the fair value of the award.

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Forfeitures are accounted for as they occur.

Additionally, the Company’s 2019 Employee Stock Purchase Plan (the “ESPP”) is deemed to be a compensatory plan and therefore is included in stock-based compensation expense.

The Company’s 2019 ESPP is deemed to be a compensatory plan and therefore is included in stock-based compensation expense.

Inputs used in Black-Scholes option-pricing models to measure fair value of options are summarized as follows:

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Expected Volatility.

The Company used an average historical stock price volatility of a peer group of publicly traded companies to be representative of its expected future stock price volatility, as sufficient trading history for the Company's common stock does not yet exist.

The Company used an average historical stock price volatility of its own stock price as well as a peer group of publicly traded companies to be representative of its expected future stock price volatility, as sufficient trading history for the Company's common stock does not yet exist.

For purposes of identifying these peer companies, the Company considered the industry, stage of development, size, and financial leverage of potential comparable companies.

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Comprehensive loss consists of net loss, cumulative translation adjustments, and unrealized gains or losses on available-for-sale debt securities.

The Company uses the asset and liability method under ASC Topic 740, Income Taxes, in accounting for income taxes.

The Company uses the asset and liability method under ASC Topic 740, Income Taxes , ("ASC Topic 740"), in accounting for income taxes.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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Treasury bills, which are marketable debt securities recorded at fair value and accounted for in the same manner as other marketable debt securities described below.

Restricted Cash

Restricted cash includes cash pledged as collateral for a standby letter of credit related to a property lease.

The letter of credit is required to be maintained throughout the term of the lease.

If the date of availability or disbursement is less than one year, restricted cash is reported within prepaid expenses and other current assets on the consolidated balance sheets.

If the date of availability or disbursement is longer than one year and the balances are maintained under an agreement that legally restricts the use of such funds, restricted cash is reported within other assets on the consolidated balance sheets.

As of December 31, 2024, no amount has been drawn under the letter of credit.

As of December 31, 2024 and 2023, the Company had restricted cash balances of $ 1.8 million.

Short-term Investments

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Treasury notes, U.S.

Treasury bills, commercial paper, and U.S.

Treasury bills, commercial paper, corporate debt securities, and U.S.

government agency bonds.

Any discount or premium arising at purchase is accreted or amortized to interest income or expense.

Unrealized gains and losses are included in accumulated other comprehensive income (loss) in stockholders’ equity.

Realized gains and losses are reported in other income (expense), net.

Unrealized gains and losses are included within accumulated other comprehensive income (loss) in the consolidated statements of stockholders’ equity.

Realized gains and losses are reported within other income (expense), net in the consolidated statements of operations.

Accrued interest is excluded from both the fair value and amortized cost basis of debt securities and included in prepaid expenses and other current assets in the consolidated balance sheets.

When securities are sold, any associated unrealized gain or loss initially recorded as a separate component of stockholders’ equity is reclassified out of stockholders’ equity on a specific-identification basis and recorded in earnings for the period.

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This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

Certain of the Company’s financial instruments, including cash and cash equivalents, accounts payable, accrued expenses and other current liabilities are carried at cost, which approximates their fair value because of their short-term nature.

Accounts Receivable, Net

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The Company maintains an allowance for credit losses, consisting of known specific troubled accounts as well as an amount based on overall estimated potential uncollectible accounts receivable based on historical experience and review of their current credit quality.

Expected credit losses are recorded as selling, general and administrative expenses in the consolidated statements of operations.

Expected credit losses are recorded as part of selling, general and administrative expenses in the consolidated statements of operations.

Inventory and Other Deferred Costs

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Once the assets are placed into service, assets are reclassified to the appropriate asset class based on their nature and depreciated in accordance with the useful lives above.

The Company categorizes leases with contractual terms longer than 12 months as either operating or finance leases.

The Company periodically assesses the useful lives of the assets to determine whether events or circumstances may indicate that a revision to the useful life is warranted .

Impairment of Long-Lived Assets

The Company evaluates long-lived assets, including operating lease right-of-use assets, annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If such events or circumstances arise, the Company will compare the carrying amount of the asset group comprising the long-lived assets to the estimated future undiscounted cash flows expected to be generated by the asset group.

If the estimated aggregate undiscounted cash flows are less than the carrying amount of the asset group, an impairment charge is recorded as the amount by which the carrying amount of the asset group exceeds the fair value of the assets, as based on the expected discounted future cash flows attributable to those assets.

Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

During the year ended December 31, 2023, the Company recorded a lease impairment charge of $ 5.6 million related to one of its right-of-use assets.

Refer to Note 7, Leases, for more details.

There were no impairments of long-lived assets during the years ended December 31, 2024.

The Company determines if an arrangement includes a lease at inception and categorizes leases with contractual terms longer than 12 months as either operating or finance leases.

Finance leases are generally those leases that allow the Company to substantially utilize or pay for the entire asset over its estimated life.

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Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on the Company’s current borrowing rate at the lease commencement date, adjusted for various factors including level of collateralization and term (the “incremental borrowing rate”), unless the rate implicit in the lease is readily determinable.

The current portion of lease liabilities is included in “Accrued and other current liabilities.” Lease assets are recognized based on the initial present value of the fixed lease payments plus any direct costs from executing the leases and any lease prepayments.

The current portion of lease liabilities is included in “Accrued and other current liabilities.” At the lease commencement date, lease assets are recognized based on the initial present value of the fixed lease payments plus any direct costs from executing the leases and any lease prepayments.

Lease assets are presented as “Operating lease right-of-use assets” as a long-term asset.

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Fixed lease payments are recognized as an expense on a straight-line basis over the lease term.

Variable lease costs are amounts owed by us to a lessor that are not fixed, such as reimbursement for common area maintenance, operating expenses, utilities, or other costs that are subject to fluctuation from period to period.

Variable lease costs are amounts owed by the Company to a lessor that are not fixed, such as reimbursement for common area maintenance, operating expenses, utilities, or other costs that are subject to fluctuation from period to period.

The Company has also elected to include expenses related to leases with a term of one month or less in the short-term lease cost disclosure.

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Cash proceeds in connection with the issuance of warrants for the Company's common stock are presented as financing activities in the consolidated statements of cash flows.

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance.

The Company’s CODM is its Chief Executive Officer ("CEO").

The Company has determined that it operates in one operating and reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.

See Note 11, Segment and Geographic Information, for additional information.

Recent Accounting Pronouncements

New Accounting Pronouncements Adopted

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables.

The accounting update also made minor changes to the impairment model for available-for-sale debt securities.

The Company adopted the new guidance as of the beginning of the first quarter of 2023 by means of a cumulative-effect adjustment to opening retained earnings.

The adoption did not have a significant impact on the consolidated financial statements.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ("ASU 2023-07") , which requires an enhanced disclosure of significant segment expenses on an annual and interim basis.

The Company adopted the new guidance retrospectively in fiscal year 2024 .

New Accounting Pronouncements Not Yet Adopted

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

Improvements to Income Tax Disclosures, which enhances transparency about income tax information through improvements to income tax disclosures primarily related to the rate

reconciliation and income taxes paid information.

The guidance will be effective for the Company's annual period ending December 31, 2025.

The Company is currently evaluating the impact of the new guidance on its income tax disclosures.

The Company disaggregates revenue by the following four customer types:

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures ("ASU 2023-09") , which modifies the rules on income tax disclosures to require disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid.

The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions.

The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted.

The Company is currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU No.

2024-03, Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses ("ASU 2024-03") , which requires the disclosure of additional information related to certain costs and expenses, including amounts of inventory purchases, employee compensation, and depreciation and amortization included in each income statement line item on an interim and annual basis.

ASU 2024-03 also requires disclosure of the total amount of selling expenses and the Company's definition of selling expenses.

ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted.

Although the new standard requires comparative disclosures for all periods presented, entities will be permitted to begin applying the guidance prospectively.

Therefore, comparative disclosures are not required for reporting periods beginning before the effective date.

Entities can elect to apply the new standard retrospectively to any or all prior periods presented in the financial statements.

The Company is currently evaluating the impact that adoption of ASU 2024-03 will have on its financial statement disclosures.

The Company disaggregates revenue by the following five customer types:

• Pharma tests and services includes sales of testing services and data analytics for clinical trials and research to pharmaceutical companies in support of their drug development programs.

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All of the revenue within this category is from the Company's partnership with the VA MVP.

• Clinical diagnostic includes sales of ultra-sensitive, tumor-informed diagnostics tests, ordered by healthcare providers for cancer patients, that can detect cancer recurrence earlier and aids in treatment decision-making.

Revenue is derived from Medicare and private insurance reimbursements.

• Other includes sales of genomic tests and analytics to universities and non-profits.

Other also includes sales of diagnostics tests ordered by healthcare providers for cancer patients, which was insignificant for periods presented.

The following table presents revenue disaggregated by customer type (in thousands):

The following table presents the Company's revenue disaggregated by customer type (in thousands):

Year Ended December 31,

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Population sequencing

Clinical diagnostic

Total revenue

Revenue from countries outside of the United States, based on the billing addresses of customers, represented 10 %, 9 %, and 8 % of the Company’s revenue for the years ended December 31, 2023, 2022 and 2021, respectively.

(1) Includes related party revenue of $ 2.0 million for the year ended December 31, 2024.

Contract Assets and Liabilities

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Total contract liabilities

Remaining Performance Obligations

Amounts collected in advance of services being provided are deferred as contract liabilities in the consolidated balance sheets.

The associated revenue is recognized, and the contract liability is reduced, as the services are subsequently performed.

Performance Obligations ("RPO") are comprised mainly of contract liabilities, and to a lesser extent, unbilled service revenue from non-cancellable contracts for which the Company has not invoiced and has an obligation to perform, and for which revenue has not yet been recognized in the financial statements.

As of December 31, 2024, amounts related to unfulfilled services under contracts with an original expected duration of more than one year was $ 1.3 million.

The Company expects to recognize approximately $ 1.8 million of this amount in the next 12 months, and the remaining $ 3.9 million in the 12 months after that.

Revenue recognized that was included in the contract liability balance at the beginning of each reporting period was $ 0.4 million, $ 3.5 million, and $ 19.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.

The Company expects to recognize the entire amount of $ 1.3 million in the next 12 months.

Revenue recognized that was included in the contract liability balance at the beginning of each reporting period was $ 4.7 million and $ 0.4 million for the years ended December 31, 2024 and 2023, respectively.

Balance Sheet Details

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Property and equipment, net

Depreciation and amortization expense for the years ended December 31, 2023, 2022, and 2021 was $ 11.3 million, $ 8.4 million, and $ 6.0 million, respectively.

Restricted cash.

The Company’s restricted cash is pledged as collateral for a standby letter of credit related to a property lease.

The balance of restricted cash was $ 1.8 million as of December 31, 2023 and 2022, and is included in other long-term assets.

Depreciation and amortization expense for the years ended December 31, 2024 and 2023 was $ 10.9 million and $ 11.3 million, respectively.

Accrued and other current liabilities consist of the following (in thousands):

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Loans—current portion (Note 6)

Accrued liabilities

Market Development Fees received from Tempus (Note 8)

Employee ESPP contributions

Customer deposits

Accrued taxes

Accrued and other current liabilities

Total accrued and other current liabilities

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agency securities

government securities

Total cash and cash equivalents

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Commercial paper

Corporate debt securities

agency securities

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Commercial paper

agency securities

government securities

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Total assets measured at fair value

Marketable debt securities at December 31, 2023 have maturities due in less than 12 months.

The amortized costs and fair value of marketable debt securities (excluding cash and money market funds), by contractual maturity, at December 31, 2024 are as follows (in thousands):

December 31, 2024

Amortized Cost

Less than 1 year

No security has been in a continuous unrealized loss position for more than 12 months and the Company does not consider any of its marketable debt securities to be impaired.

Tempus Warrants

The Black-Scholes option-pricing model was used to estimate fair value of the warrants issued to Tempus AI, Inc.

(formerly known as Tempus Labs, Inc., and referred to herein as "Tempus") at the date of issuance, November 28, 2023, and at each subsequent balance sheet date.

The Black-Scholes option-pricing model was used to estimate fair value of the warrants issued to Tempus at the date of issuance, November 28, 2023, and at each subsequent balance sheet date prior to their exercises in full in August 2024.

Assumptions used are listed below, which are Level 3 fair value inputs.

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Expected volatility was based on the Company's actual historical volatility over the expected terms of the warrants.

The risk-free interest rate was based on the U.S.

The risk-free interest

rate was based on the U.S.

Treasury yield curve over the expected term of the warrants.

Refer to Note 8 for further information about the warrants issued to Tempus.

As of November 28, 2023

Refer to Note 8, Related Party Transactions, for further information about the warrants issued to Tempus.

As of December 31,

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102.6 - 108.5 %

102.55 - 108.46 %

Risk-free interest rate

4.23 - 4.79 %

Dividend yield

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The following table sets forth a summary of the changes in fair value of the Company's Level 3 financial instruments (in thousands):

Balance — December 31, 2022

Year ended December 31,

Warrant Liabilities

Beginning balance

Initial fair value of warrant liabilities upon issuance

Change in fair value

Balance — December 31, 2023

Change in fair value—recognized as loss within Other income (expense), net in the consolidated statements of operations

Derecognition of warrant liabilities due to exercise in full

Ending balance

Amounts outstanding under loans are as follows (in thousands):

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The resulting imputed interest rate was 7 % and was used to establish the present value of the payment agreement.

The discount is recognized as interest expense in the consolidated statements of operations over the life of the payment agreement.

The discount is recognized as an interest expense in the consolidated statements of operations over the life of the payment agreement.

The Company entered into two more secured payment agreements in April 2021 and July 2022, with the same financing entity, to finance the purchase of $ 3.1 million of computer hardware and related hardware maintenance and $ 1.3 million of internal use software licenses and related ongoing support, respectively.

The Company is required to pay three equal payments of $ 1.0 million in July 2021, June 2022, and June 2023 for the first agreement, and three equal payments of $ 0.4 million in September 2022, September 2023, and September 2024 for the second agreement.

The Company repaid the financed amount in three equal payments of $ 1.0 million in July 2021, June 2022, and June 2023 for the first agreement, and two equal payments of $ 0.4 million in September 2022 and September 2023 for the second agreement.

The third payment of $ 0.4 million for the second agreement, which was supposed to be paid in September 2024, was settled in January 2025.

As of December 31, 2024, this amount was included in the accrued and other current liabilities in the consolidated balance sheets.

The nature of these agreements and resulting accounting treatment are the same as the payment agreement described in the preceding paragraph, except the imputed interest rate was 9 % for the July 2022 agreement.

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Such proceeds were used to purchase equipment, software, and related maintenance and are reflected as cash outflows in the investing and operating activities sections.

Repayments are presented as financing cash outflows.

Interest expense was $ 0.1 million for the year ended December 31, 2023 and $ 0.2 million for each of the years ended December 31, 2022 and 2021.

Repayments of $ 2.2 million, comprised of $ 0.8 million related to April 2021 internal use software license agreement, $ 1.0 million related to April 2021 computer hardware agreement, and $ 0.4 million related to July 2022 internal use software license agreement, were presented as financing cash outflows during the year ended December 31, 2023 in the consolidated statements of cash flows.

Imputed noncash interest expense was immaterial and $ 0.1 million for the year ended December 31, 2024 and 2023, respectively.

Lab Equipment Loan

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Extended payment terms were provided to the Company through a financial solutions partner of the vendor.

Terms included a 30 % down payment and 24 equal monthly payments for the remaining balance, with such monthly payments commencing in January 2024, and no interest or financing charges.

Terms included a 30 % down payment and 24 equal monthly payments for the remaining balance, with such monthly payments commencing in January 2024 and the last payment due in January 2026, and no interest or financing charges.

Title for the lab equipment transferred immediately upon delivery to the Company.

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The purchase price for the lab equipment was equal to the cash price and thus the impact of imputing interest would have been de minimis.

The total financed amount of $ 3.4 million is presented as proceeds from loans in the financing activities section of the consolidated statements of cash flows.

Such amounts were used to purchase lab equipment and are reflected as cash outflows in the investing activities section.

Repayments, including both the down payment and future monthly payments, are presented as financing cash outflows.

The total financed amount of $ 3.4 million was presented as proceeds from loans in the financing activities section of the consolidated statements of cash flows during the year ended December 31, 2023.

Such amounts were used to purchase lab equipment and are reflected as purchases of property and equipment in the investing activities section of the consolidated statements of cash flows during the year ended December 31, 2023.

Repayments, including both the down payment and future monthly payments, were $ 1.0 million and $ 1.1 million during the years ended December 31, 2023 and 2024, respectively, are presented as financing cash outflows in the consolidated statements of cash flows.

In 2021, the Company entered into a noncancelable operating lease for approximately 100,000 square feet in Fremont, California used for laboratory operations and its corporate headquarters.

The lease term is 13.5 years and commenced in October 2022.

The Company gained early access to the premises for the purpose of constructing and installing tenant improvements, for which the landlord

contributed $ 15.1 million.

The Company gained early access to the premises for the purpose of constructing and installing tenant improvements, for which the landlord contributed $ 15.1 million.

Such contributions were accounted for as lease incentives and are recognized as reductions to lease expense over the lease term.

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The Expansion Lease expired at the end of December 2022 and was not extended .

The Company moved all laboratory operations to the Fremont facility during the third quarter of 2023 and is actively marketing the vacated Menlo Park space for sublease.

The Company moved all laboratory operations to the Fremont facility during the third quarter of 2023 and recorded a $ 5.6 million impairment loss in its consolidated statements of operations during the year ended December 31, 2023 for operating lease right-of-use assets as a result of the change in use of the Menlo Park office as mentioned below.

The Company is actively marketing the vacated Menlo Park space for sublease.

The Company has noncancelable operating leases for data center space expiring between 2025 and 2026 .

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Separately, the Company also has various other short-term leases.

As of December 31, 2023, operating leases had a weighted-average remaining lease term of 10.4 years and a weighted-average discount rate of 10.5 %.

As of December 31, 2024 and 2023, operating leases had a weighted-average remaining lease term of 9.9 years and 10.4 years, respectively and a weighted-average discount rate of 10.6 % and 10.5 %, respectively.

Discount rates are based on estimates of the Company's incremental borrowing rate, as the discount rates implicit in the leases cannot be readily determined.

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Long-term operating lease liabilities

Cash paid for operating lease liabilities, included in cash flows from operating activities in the consolidated statements of cash flows, for the years ended December 31, 2023, 2022, and 2021 was $ 6.0 million, $ 4.4 million, and $ 3.3 million, respectively.

Right-of-use assets obtained in exchange for new operating lease liabilities during the years ended December 31, 2023, 2022, and 2021 were $ 1.3 million, $ 3.1 million, and $ 46.5 million, respectively.

Cash paid for operating lease liabilities, included in cash flows from operating activities in the consolidated statements of cash flows, for the years ended December 31, 2024 and 2023 was $ 8.1 million, and $ 6.0 million, respectively.

Right-of-use assets obtained in exchange for new operating lease liabilities during the years ended December 31, 2024 and 2023 were zero and $ 1.3 million, respectively.

Components of lease cost were as follows (in thousands):

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Total lease cost

During the year ended December 31, 2023, the Company also recorded a $ 5.6 million impairment loss for operating lease right-of-use assets as a result of the change in use of the Menlo Park office.

Lease Impairment

During 2023, the Company completed the move of its laboratory operations from its Menlo Park facility to its Fremont facility and began actively marketing the Menlo Park space for sublease.

As mentioned above, the Company completed the move of its laboratory operations from its Menlo Park facility to its Fremont facility and began actively marketing the Menlo Park space for sublease during 2023.

Accordingly, the Company evaluated the ongoing value of the operating lease right-of-use asset associated with the Menlo Park facility.

Based on this evaluation, the Company determined that the right-of-use asset with a carrying amount of $ 6.7 million was no longer recoverable and was impaired and wrote it down to its estimated fair value of $ 1.1 million, which resulted in a noncash impairment loss of $ 5.6 million.

Estimated fair value was based on expected future sublease cash flows (with the assistance of a third-party real estate broker), net of brokerage commissions and estimated tenant incentives,

discounted at a market rate of return on similar assets.

Estimated fair value was based on expected future sublease cash flows (with the assistance of a third-party real estate broker), net of brokerage commissions and estimated tenant incentives, discounted at a market rate of return on similar assets.

The estimation of fair value also included expected downtime prior to the commencement of a future sublease.

Tempus Agreement

On November 25, 2023, the Company entered into a Commercialization and Reference Laboratory Agreement (the “Tempus Agreement”) with Tempus pursuant to which Tempus will market the Company's Personal Dx test in the United States and the Company will conduct development activities to analytically validate the test in breast cancer, lung cancer and immuno-oncology monitoring indications.

The Company will perform tests ordered by patients through Tempus and the Company will bill such patients or payors.

In consideration of the Company performing development activities, Tempus will pay the Company fees of up to $ 12 million (the "Market Development Fees"), consisting of an activation fee of $ 3 million, a first milestone fee of $ 3 million (upon achievement of a specified clinical validation), and a second milestone fee payable in six quarterly installments totaling $ 6 million (subject to achieving two additional clinical validations).

Related Party Transactions

The Company determined that Tempus and Merck Sharp & Dohme LLC ("Merck") are related parties because they own more than 10 % of the Company's common stock.

Tempus acquired its ownership stake in August 2024 by exercising the Tempus Warrants and purchasing additional shares under the Investment Agreement (defined below).

Overview of Tempus Agreement

In November 2023, the Company entered into a Commercialization and Reference Laboratory Agreement (the “Tempus Agreement”) with Tempus pursuant to which Tempus markets the Company's NeXT Personal Dx test in the United States.

The Company performs tests ordered by patients through Tempus and the Company bills the patients or payors.

The Company compensates Tempus for orders obtained and results delivered on a per-test basis.

The term of the Tempus Agreement is five years, which may be extended for successive one-year terms.

Either party may terminate the Tempus Agreement for convenience upon 30 months' prior written notice.

Under the Tempus Agreement, the Company conducted development activities to analytically validate NeXT Personal Dx in three indications:

breast cancer, lung cancer and immuno-oncology monitoring.

In consideration of the Company performing such development activities, Tempus agreed to pay the Company fees of $ 12.0 million (the "Market Development Fees"), consisting of an activation fee of $ 3.0 million, a first milestone fee of $ 3.0 million (upon achievement of one clinical validation), and a second milestone fee payable in six quarterly installments totaling $ 6.0 million (upon achievement of the two remaining clinical validations).

If the Company does not achieve the second milestone by June 2024, Tempus may withhold installment payments, and Tempus will have the right to terminate the Tempus Agreement or convert it to a non-exclusive arrangement.

Upon termination or conversion, the Company will refund to Tempus fees received other than the activation fee, subject to certain reductions.

The Company will compensate Tempus for the fair market value of order requisition services (Tempus will enable its base of ordering providers to order the Personalis test and provide specimen collection and procurement support) and results delivery services (Tempus will provide results delivery services from test completion to report delivery) on a per-test basis.

In addition, the parties will perform co-promotion activities and the Company will compensate Tempus for the fair market value of promotional and commercialization services provided by Tempus in an amount up to $ 9.6 million.

The Tempus Agreement also grants Tempus access to initial and longitudinal genomic data derived from performance of the tests and Tempus will have the right to use such data.

The Company has achieved all three clinical validations, thus both milestones have been met.

Separately, the parties are performing co-promotion activities and the Company is compensating Tempus for promotional and commercialization services through the end of 2026 in an amount up to $ 9.6 million.

The Tempus Agreement also granted Tempus access to initial and longitudinal genomic data derived from performance of the tests and Tempus will have the right to use such data.

If Tempus licenses such data to a third party and Tempus recognizes revenue from such license, Tempus will pay the Company a percentage of its gross revenues attributable to such license that is in the range of 10 to 20 percent.

Such revenue share shall be payable during the term of the agreement and for 10 years thereafter.

Additionally, in consideration of Tempus' obligations to the Company under the agreement, on November 28, 2023, the Company issued warrants to Tempus.

See "Tempus Warrants" section further below for discussion.

Pursuant to the agreement, the Company will not allow another third party to market the test in such indications and Tempus will not market another tumor-informed molecular residual disease test for use in such indications (whether its own or that of a third party), in each case subject to certain exceptions.

These exclusivity obligations terminate on December 31, 2027, to the extent they do not expire earlier.

Pursuant to the Tempus Agreement, the Company will not allow another third party to market the test in such indications and Tempus will not market another tumor-informed molecular residual disease test for use in such indications (whether its own or that of a third party), in each case subject to certain exceptions.

These exclusivity obligations terminate on December 31, 2027, to the extent they

do not expire earlier.

In addition, each party has the right to convert the Tempus Agreement to a non-exclusive arrangement upon the occurrence of certain specified events.

The term of the Tempus Agreement is five years, which may be extended for successive one-year terms.

Either party may terminate the Tempus Agreement for convenience upon 18 months prior written notice.

Tempus may terminate the agreement if the Company does not achieve the second milestone by a specified date.

Impact of Tempus Agreement on the Consolidated Financial Statements

The Company had achieved the first clinical validation milestone at the time of entering the Tempus Agreement and was therefore entitled to Market Development Fees of $ 6 million, consisting of the first milestone fee of $ 3 million and the activation fee of $ 3 million.

These proceeds of $ 6 million were received in 2023 and allocated to the Tempus Warrants (described below).

Except for receipt of the proceeds and issuance of the warrants, there were no other activities under the Tempus Agreement that impacted the Company's consolidated balance sheets or consolidated statements of operations for periods presented.

Additionally, as partial consideration of Tempus' obligations to the Company under the Tempus Agreement, the Company issued warrants to Tempus.

See "Tempus Warrants" section below.

Tempus Warrants

In consideration of Tempus’ obligations to Personalis under the agreement, on November 28, 2023, the Company issued to Tempus (1) a warrant to purchase up to 4,609,400 shares of Personalis common stock at an exercise price per share of $ 1.50 , with an expiration date of December 31, 2024 (the “First Warrant”), and (2) a warrant to purchase up to 4,609,400 shares of Personalis common stock at an exercise price per share of $ 2.50 , with an expiration date of December 31, 2025 (the “Second Warrant” and, together with the First Warrant, the “Tempus Warrants”).

The Tempus Warrants are exercisable for cash at any time prior to the applicable expiration date, may be net exercised in certain circumstances, and will be automatically net exercised in connection with a change of control of Personalis if the value ascribed to the consideration to be paid for one share of common stock is greater than the applicable exercise price.

In consideration of Tempus’ obligations to Personalis under the Tempus Agreement, on November 28, 2023, the Company issued to Tempus (1) a warrant to purchase up to 4,609,400 shares of Personalis common stock at an exercise price per share of $ 1.50 , with an expiration date of December 31, 2024 (the “First Warrant”), and (2) a warrant to purchase up to 4,609,400 shares of Personalis common stock at an exercise price per share of $ 2.50 , with an expiration date of December 31, 2025 (the “Second Warrant” and, together with the First Warrant, the “Tempus Warrants”).

The Tempus Warrants were exercisable for cash at any time prior to the applicable expiration date, may be net exercised in certain circumstances, and automatically net exercisable in connection with a change of control of Personalis if the value ascribed to the consideration to be paid for one share of common stock exceeds the applicable exercise price.

If Tempus acquires any shares of common stock directly from the Company other than by exercising the Warrants (any such shares, “Non-Warrant Shares”), then the total number of shares issuable upon exercise of the Tempus Warrants will be reduced by the Non-Warrant Shares on a share-for-share basis, proportionally between the First Warrant and the Second Warrant based on how many shares are then underlying the Warrants.

Subject to limited exceptions, neither the warrants nor any interest therein may be transferred or assigned without the prior written consent of Personalis.

Because the number of shares issuable upon settlement are subject to adjustment if Tempus acquires Non-Warrant Shares, the Tempus Warrants are classified as liability instruments and are subject to remeasurement at each balance sheet date, with changes in fair value recognized as Other Income (Expense) in the consolidated statements of operations.

Since the Tempus Warrants included a provision under which the total number of shares issuable upon settlement were subject to adjustment, the Tempus Warrants were classified as liability instruments while outstanding and subject to remeasurement at each balance sheet date, with changes in fair value recognized as other income (expense), net in the consolidated statements of operations.

Fair value of the two warrants were estimated at the date of issuance, November 28, 2023, using the Black-Scholes option-pricing model.

Since the initial fair value of $ 6.9 million exceeded the total proceeds from Tempus of $ 6 million, a loss of $ 0.9 million was immediately recognized within Other Income (Expense).

Since the initial fair value of $ 6.9 million exceeded the total proceeds from Tempus of $ 6.0 million, a loss of $ 0.9 million was immediately recognized within other income (expense), net.

None of the remaining Market Development Fees of $ 6.0 million were allocated to the warrants as such proceeds are contingent upon the Company achieving additional clinical validation milestones.

See Note 5 Fair Value Measurements for discussion of inputs used in the measurement of the Tempus Warrants as well as the remeasurement at December 31, 2023.

Fair value of the Tempus Warrants increased by $ 3.1 million as of December 31, 2023.

The increase in fair value, plus the immediate loss of $ 0.9 million recognized upon issuance, resulted in a $ 4.0 million expense recognized in Other Income (Expense) in the consolidated statements of operations during the year ended December 31, 2023.

Fair values of the warrants were estimated using the Black-Scholes option-pricing model.

See Note 5, Fair Value Measurements for discussion of inputs used in the measurements of the Tempus Warrants and the resulting noncash losses recognized in the consolidated statements of operations.

After the issuance of warrants in November 2023, f air value of the Tempus Warrants increased by $ 3.1 million as of December 31, 2023.

The increase in fair value, plus the immediate loss of $ 0.9 million recognized upon issuance, resulted in a $ 4.0 million expense recognized in other income (expense), net in the consolidated statements of operations during the year ended December 31, 2023.

Prior to the exercise of Tempus Warrants in August 2024, the Company recognized a charge of $ 18.3 million due to the increase in fair value of Tempus Warrants, which was recorded in other income (expense), net in the consolidated statements of operations during the year ended December 31, 2024.

In August 2024, concurrently with the execution of the Tempus Investment Agreement (described below), Tempus exercised in full the Tempus Warrants to purchase 9,218,800 shares of Personalis common stock for $ 18.4 million in cash, at an average exercise price of $ 2.00 per share, which is presented as financing cash flows in the consolidated statements of cash flows for the year ended December 31, 2024.

The fair value of Tempus Warrants at the time of exercise was $ 28.3 million based on intrinsic value of Company's common stock at a per share price of $ 3.07 , which is the difference between the last reported closing price of the common stock and its average exercise price at the time of exercise.

Investment Agreement with Tempus

In August 2024, the Company entered into an investment agreement (the "Tempus Investment Agreement") with Tempus under which the Company issued and sold 3,500,000 shares of common stock at a price per share of $ 5.07 , representing the last reported closing price of the common stock.

The Company received $ 17.7 million of cash from the sale of the shares and incurred $ 1.1 million of issuance costs directly related to the sale, which are presented as financing cash flows in the consolidated statements of cash flows for the year ended December 31, 2024.

Impact of Tempus Agreement on the Financial Statements

The Company had achieved the first clinical validation milestone at the time of entering the Tempus Agreement and was therefore entitled to Market Development Fees of $ 6.0 million, consisting of the first milestone fee of $ 3.0 million and the activation fee of $ 3.0 million.

These proceeds of $ 6.0 million were received in 2023 and treated as consideration for the Tempus Warrants.

These proceeds were presented as financing cash inflows in the consolidated statements of cash flows during the year ended December 31, 2023.

The remainder of Market Development Fees—$ 6.0 million, payable in six quarterly installments—are recorded as a liability when received and offset against promotional fees as they are paid by the Company to Tempus.

As of December 31, 2024, $ 3.0 million of such $ 6.0 million Market Development Fees have been received.

Amounts of transactions with Tempus during each income statement period presented, along with amounts due from or to Tempus as of the balance sheet date, follows (in thousands):

Income Statement

December 31, 2024

Orders and results delivery fees and net promotional fees—Selling, general and administrative expenses

Noncash loss from remeasurement of Tempus Warrants—Other income (expense), net

Balance Sheet

December 31, 2024

Accrued and other current liabilities:

Unamortized Market Development Fees

Accrued payable to Tempus

Total accrued and other current liabilities

Other long-term liabilities:

Unamortized Market Development Fees

Total other long-term liabilities

Merck Sharp & Dohme LLC

Investment Agreement with Merck

On December 19, 2024, the Company entered into an investment agreement (the "Merck Investment Agreement") with Merck under which the Company issued and sold 14,044,943 shares of common stock at a price per share of $ 3.56 , representing the last reported closing price of the common stock.

The Company received $ 50.0 million of cash from the sale of the shares and incurred $ 0.3 million of issuance costs directly related to the sale, which are presented as financing cash flows in the consolidated statements of cash flows for the year ended December 31, 2024.

Pursuant to the terms of the Merck Investment Agreement, the Company agreed to reserve $ 10.0 million of the proceeds to open an ISO-certified laboratory in a region outside of the United States, with such region mutually agreed upon by the Company and Merck.

This cash was not legally restricted under the Merck Investment Agreement and therefore included in cash and cash equivalents as of December 31, 2024.

Before Merck became a related party in December 2024, the Company entered into a Master Service Agreement (the “Master Agreement”), in June 2017, as amended from time to time, with Merck for the performance of DNA and RNA sequencing analysis and data interpretation services, as well as synthesis and/or analysis of chemical compounds, genetic material and related samples for preclinical research purposes.

In February 2024, the Company entered into an amendment whereby Merck engaged the Company to provide clinical laboratory services in connection with Merck's clinical studies.

After Merck became a related party in December 2024, the Company invoiced $ 2.0 million for genomic testing services, pursuant to the terms of the Master Agreement and recorded as revenue in its consolidated statement of operations.

As of December 31, 2024, $ 2.5 million was outstanding as a receivable from Merck and included in accounts receivable in the consolidated balance sheets.

Restructuring and Other Charges

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Restructuring liability balance—December 31, 2023

Costs paid or otherwise settled

Restructuring liability balance—December 31, 2024

Restructuring

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The workforce reduction affected nearly 100 employees and was substantially completed during the first quarter of 2023.

The Company recognized $ 3.1 million in one-time employee termination benefits in connection with the reduction in workforce, comprising separation pay and healthcare benefits payable in cash, all of which were paid by the end of the second quarter of 2023.

The Company recognized $ 3.1 million in one-time employee termination benefits in connection with the reduction in workforce in its consolidated statements of operations during the year ended December 31, 2023, comprising separation pay and healthcare benefits payable in cash, all of which were paid by the end of the second quarter of 2023.

In December 2023, the Company initiated a second reduction in workforce to further reduce operating costs and improve operating efficiency.

The workforce reduction affected approximately 60 employees and will be completed during the first quarter of 2024 .

The Company recognized $ 4.0 million in one-time employee termination benefits in connection with the reduction in workforce, comprising separation pay and healthcare benefits payable in cash.

Approximately $ 3.1 million of such expenses were unpaid as of December 31, 2023 and are expected to be paid during the first quarter of 2024.

The Company does not expect to incur any material additional costs in connection with the second reduction in workforce.

The Company recognized $ 4.0 million in one-time employee termination benefits in connection with the reduction in workforce in its consolidated statements of operations during the year ended December 31, 2023, comprising separation pay and healthcare benefits payable in cash.

The Company paid $ 3.1 million of such expenses were paid during the first quarter of 2024.

Closure of China Operations

During the first half of 2023, the Company terminated its operations in China with the objective of streamlining international operations and reducing operating costs.

The disposal does not qualify for reporting as a discontinued operation because it does not represent a strategic shift that has or will have a major effect on our operations and financial results.

The disposal did not qualify for reporting as a discontinued operation because it did not represent a strategic shift that would have a major effect on our operations and financial results.

The Company completed the process of dissolving the Personalis (Shanghai) Ltd entity in February 2024.

Expenses of $ 0.9 million were recognized in connection with closure activities, of which $ 0.3 million was related to one-time employee termination benefits for the Company's 12 former employees located in China and were payable in cash.

Expenses of $ 0.9 million were recognized in connection with closure activities in the Company's consolidated statements of operations during the year ended December 31, 2023, of which $ 0.3 million was related to one-time employee termination benefits for the Company's 12 former employees located in China and were payable in cash.

Substantially all of the terminations were completed during the first quarter of 2023, along with the related cash outlays.

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In 2011, the Company established its 2011 Equity Incentive Plan (the “2011 Plan”) that provided for the granting of stock options to employees and nonemployees of the Company.

Under the 2011 Plan, the Company had the ability to issue incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, and restricted stock unit awards (“RSUs”).

Under the 2011 Plan, the Company had the ability to issue incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), stock appreciation rights ("SARs"), RSAs, and RSUs.

Options under the 2011 Plan could be granted for periods of up to 10 years.

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The Company’s board of directors adopted and the Company’s stockholders approved the 2019 Equity Incentive Plan (the “2019 Plan”) in May 2019 and June 2019, respectively.

The 2019 Plan became effective in June 2019 in connection with the Company’s IPO, and no further grants were made under the 2011 Plan.

Shares reserved and remaining available for issuance under the 2011 Plan were added to the 2019 Plan reserve upon its effectiveness.

The 2019 Plan provides for the grant of ISOs, NSOs, stock appreciation rights, restricted stock awards, RSUs, performance-based stock awards, and other forms of equity compensation.

Additionally, the 2019 Plan provides for the grant of performance cash awards.

The 2019 Plan became effective in June 2019 in connection with the Company’s IPO, and serves as the successor to the 2011 Plan.

Pursuant to the 2019 Plan, 7,440,524 shares of common stock were initially reserved for grant, including any shares that were reserved and available for issuance under the 2011 Plan at the time the 2019 Plan became effective, and any shares that become available upon forfeiture or repurchase by the Company under the 2011 Plan, will be reserved for future issuance.

No further grants were made under the 2011 Plan after the adoption of 2019 Plan.

The 2019 Plan provides for the grant of ISOs, NSOs, SARs, RSAs, RSUs, PSAs, performance cash awards, and other forms of equity compensation.

ISOs may be granted only to the Company’s employees and to any of the Company’s parent or subsidiary corporation’s employees.

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Options under the 2019 Plan may be granted for periods of up to 10 years.

In addition, the number of shares of the Company's common stock available for grant and issuance shall be increased on January 1 of each calendar year during the term of the Plan by the lesser of (i) five percent ( 5 %) of the number of shares of the common stock issued and outstanding on each December 31 immediately prior to the date of increase, or (ii) such number of shares determined by the Board.

2020 Inducement Plan

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The Inducement Plan was adopted without stockholder approval, as permitted by the Nasdaq Stock Market rules.

The Inducement Plan provides for the grant of equity-based awards, including NSOs, stock appreciation rights, restricted stock awards, RSUs, performance-based stock awards, and other forms of equity compensation, and its terms are substantially similar to the stockholder-approved 2019 Plan.

The Inducement Plan provides for the grant of equity-based awards, including NSOs, SARs, RSAs, RSUs, PSAs, and other forms of equity compensation, and its terms are substantially similar to the stockholder-approved 2019 Plan.

In accordance with relevant Nasdaq Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employees or non-employee directors of the Company (or following such individuals’ bona fide period of non-employment with the Company), as an inducement material to the individuals' entry into employment with the Company.

These Awards must be approved by either a majority of the Company’s independent directors or the Company’s compensation committee, provided such committee comprises solely independent directors (the “Independent Compensation Committee”) in order to comply with the exemption from the stockholder approval requirement for inducement grants provided under the Nasdaq Marketplace Rules.

Pursuant to the Inducement Plan, the aggregate number of shares of Common Stock that may be issued will not exceed 1,000,000 shares.

2019 Employee Stock Purchase Plan

The Company’s board of directors adopted and the Company’s stockholders approved the 2019 Employee Stock Purchase Plan (the “ESPP”) in May 2019 and June 2019, respectively.

Pursuant to the ESPP, 250,000 shares of common stock were initially reserved for future issuance.

In addition, on each January 1 for the first ten calendar years after the first offering date, the aggregate number of common stock reserved for issuance under the ESPP shall be increased automatically by the number of shares equal to the lesser of (i) one percent ( 1 %) of the total number of outstanding shares of common stock on the immediately preceding December 31, or (ii) 500,000 shares of common stock.

Subject to any plan limitations, the ESPP allows eligible employees to contribute, normally through payroll deductions, up to 15 % of their earnings for the purchase of the Company’s common stock at a discounted price per share.

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Balance—December 31, 2024

Options granted

Options exercised

Options forfeited or expired

Balance—December 31, 2023

Options vested and exercisable as of December 31, 2024

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Valuation of Stock Options

The Company estimated the fair value of stock options (excluding performance-based stock options discussed below) using the Black-Scholes option-pricing model.

The Company estimated the fair value of stock options using the Black-Scholes option-pricing model.

F air value of stock options is recognized as compensation expense on a straight-line basis over the requisite service periods of the awards.

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78.47 - 79.31 %

67.97 - 69.90 %

Risk-free interest rate

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3.47 - 4.66 %

0.62 - 1.39 %

Dividend yield

Performance-Based Stock Option Activity

Performance-based stock options granted to the Company's then Chief Executive Officer in 2020, and vested in the same year due to fulfillment of the performance condition, expired at the end of 2023.

During 2020, the Company granted 421,000 PSAs to the Company's then CEO which were vested in the same year due to fulfillment of the performance condition.

These PSAs expired at the end of 2023.

During 2024, the Company granted 271,500 PSAs to the executive leadership team.

Vesting of the PSAs is based upon attainment of certain Medicare reimbursement coverages by the end of 2025 and subject to continuous service by the executives.

Fair value was estimated using the Black-Scholes option-pricing model.

Total grant-date fair value of the PSAs was $ 0.3 million.

A summary of the Company’s performance-based stock option activity for the years ended December 31, 2024 and 2023 is as follows:

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Balance—December 31, 2022

No activities

Balance—December 31, 2021

No activities

Balance—December 31, 2022

Options expired

Balance—December 31, 2023

Options granted

Balance—December 31, 2024

Options vested and exercisable as of December 31, 2024

RSU Activity and Valuation

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Balance—December 31, 2024

RSUs forfeited

Balance—December 31, 2023

The Company grants RSUs to employees to receive shares of the Company’s common stock.

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69.23 - 84.88 %

55.92 - 74.88 %

Risk-free interest rate

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5.14 - 5.51 %

0.04 - 0.06 %

Dividend yield

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$ 0.33 - $ 0.91

$ 6.30 - $ 8.21

Stock-based Compensation Expense

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Year Ended December 31,

Stock options

Service-based stock options

Performance-based stock options

Total stock-based compensation expense

Segment and Geographic Information

The Company operates in one reportable segment, which is providing advanced cancer genomic tests for precision oncology and personalized testing.

The Company develops, markets, and sells these tests to pharmaceutical companies, biopharmaceutical companies, diagnostic companies, universities, non-profits, and government entities.

It derives revenue primarily in the United States from the sale of genomic testing services and manages its business activities on a consolidated basis.

The Company does not have intra-entity sales or transfers.

The Company’s CODM is its CEO , who reviews consolidated operating results, accompanied by disaggregated information about net revenues by customer types, as presented below, to make decisions about allocating resources and assessing performance for the entire Company.

Consolidated net loss is used to monitor actual performance compared to plans and forecasts.

The CODM assesses performance based on revenue growth which is reported on the consolidated statements of operations.

The accounting policies of the segment are the same as those described in the summary of significant accounting policies.

The measure of segment assets is reported on the consolidated balance sheet as total assets.

Substantially all of the Company’s long-lived assets are located in the United States.

The Company attributes revenues to geographic region based on the billing addresses of customers.

The following table presents net revenues by geographic region:

Year Ended December 31,

United States

The following table provides information about reported segment revenue, segment loss, and significant segment expenses (in thousands):

Year Ended December 31,

Payroll and related costs

Lab supplies and outside services

Facility costs

Professional services

Repairs and maintenance

Lease impairment

Restructuring and other charges

Change in fair value of the Tempus Warrants

Depreciation and amortization

Other segment items (a)

Interest income

Segment and consolidated net loss

(a) Other segment items included in segment net loss include materials cost related to cost of revenue, marketing expenses, office expenses, foreign currency exchange gain and losses, and other overhead expenses.

Commitments and Contingencies

Contingencies

On August 2, 2022, the Company filed a complaint in the U.S.

District Court for the District of Colorado (the "District Court") against Foresight Diagnostics Inc.

(“Foresight”) for patent infringement.

The complaint is based on the Company’s U.S.

10,450,611 (the “’611 Patent”), entitled “Personalized Genetic Testing,” our U.S.

11,299,783 (the “’783 Patent”), entitled “Methods and Systems For Genetic Analysis,” and our U.S.

11,384,394 (the “’394 Patent”), entitled “Methods and Systems for Genetic Analysis.” The ‘611 Patent was granted on October 22, 2019, and relates to methods for personalized genetic testing by performance of sequencing assays on biological samples.

The ‘783 Patent was granted on April 12, 2022, and relates to methods for sample processing and data analysis by performance of sequencing assays on biological samples that can aid in the diagnosis, monitoring, treatment, and prevention of one or more diseases.

The ‘394 Patent was granted on July 12, 2022, and relates to methods for sample processing and analysis to aid in the diagnosis, monitoring, treatment, and prevention of disease.

On August 17, 2022, the Company filed an amended complaint for patent infringement against Foresight.

The amended complaint added our U.S.

11,408,033 (the “’033 Patent”), entitled “Methods and Systems for Genetic Analysis.” The ‘033 Patent was granted on August 9, 2022, and relates to methods for sample processing and analysis to aid in the diagnosis, monitoring, treatment, and prevention of disease.

The Company is seeking remedies including injunctive relief, damages and costs.

On October 12, 2022, Foresight filed its answer and counterclaims in the matter, seeking declaratory judgment and alleging that its solid tumor recurrence test does not infringe the Company’s asserted patents and that the claims of our asserted patents are invalid and/or unenforceable.

On November 2, 2022, the Company filed its answer to Foresight’s counterclaims.

The Company intends to vigorously defend against these counterclaims.

Between November 30, 2022 and February 10, 2023, inclusive, Foresight filed four inter partes review petitions with the USPTO, seeking to invalidate the four patents that we are asserting against Foresight in our first patent infringement action.

Also on November 30, 2022, Foresight filed a motion to stay our first patent infringement action in the District Court pending the resolution of the inter partes review proceedings that Foresight has requested.

On January 24, 2023, the District Court granted Foresight’s motion to stay.

On June 13, 2023, the USPTO issued decisions granting inter partes reviews of the '394 and '033 Patents.

On August 8, 2023, the USPTO issued decisions granting inter partes reviews of the '611 and '783 Patents.

On June 26, 2023, the Company filed a second complaint in the District Court against Foresight for patent infringement.

The complaint is based on the Company’s U.S.

11,584,968 (the “’968 Patent”), entitled “Methods For Using Mosaicism in Nucleic Acids Sampled Distal to Their Origin,” our U.S.

11,649,507 (the “’507 Patent”), entitled “Methods for Using Mosaicism in

Nucleic Acids Sampled Distal to Their Origin,” and our U.S.

11,643,685 (the “’685 Patent”), entitled “Methods and Systems For Genetic Analysis.” The ’968 Patent was granted on February 21, 2023, and relates to methods for improving detection and monitoring of human diseases.

The ’507 Patent was granted on May 16, 2023, and relates to methods for detection and monitoring of human disease by providing spatial or developmental localization of mutations within the body which is used in monitoring states of health in tissues of the body.

The ’685 Patent was granted on May 9, 2023, and relates to methods for sample processing and analysis to aid in the diagnosis, monitoring, treatment, and prevention of disease.

The Company is seeking remedies including injunctive relief, damages and costs.

On August 10, 2023, Foresight filed a motion to dismiss the Company’s second complaint.

On August 31, 2023, the Company filed a response to Foresight’s motion and also filed an amended complaint.

On September 6, 2023, the District Court denied Foresight’s motion as moot in light of the Company’s amended complaint.

On September 14, 2023, Foresight filed its answer and counterclaims in the matter, seeking declaratory judgment and alleging that its solid tumor recurrence test does not infringe the Company’s asserted patents in the Company’s second patent infringement action and that the Company’s asserted patents in that action are invalid and/or unenforceable.

On October 5, 2023, the Company filed its answer to Foresight’s counterclaims.

The Company intends to vigorously defend against these counterclaims.

On October 20, 2023, Foresight filed a motion to consolidate the Company’s two patent infringement actions in the District Court, and if consolidated, to maintain the stay as to all of the Company’s asserted patents pending the resolution of the first four inter partes review proceedings and the three additional inter partes review petitions that Foresight has alleged it will file as soon as it is permitted by statute to do so, seeking to invalidate the three patents that the Company is asserting against Foresight in the Company’s second patent infringement action.

The Company filed its opposition to Foresight’s motion to consolidate and stay the infringement actions on November 8, 2023.

On November 22, 2023, Foresight filed its fifth inter partes review petition with the USPTO, seeking to invalidate the ’968 Patent that we are asserting against Foresight in our second patent infringement action.

On January 23, 2024, the District Court granted Foresight’s motion to consolidate and stay our two infringement actions against Foresight.

The USPTO has yet to issue a decision regarding whether it will institute an inter partes review of our ’968 Patent.

Litigation is inherently unpredictable, and, except for events that have already occurred, it is too early in the foregoing proceedings to predict the outcome of these proceedings, or any impact they may have on us.

As such, the estimated financial effect associated with this complaint cannot be made as of the date of filing of this Annual Report on Form 10-K.

Litigation is a significant ongoing expense with an uncertain outcome and may in the future be a material expense for us.

Management believes this investment is important to protect our intellectual property position, even recognizing the uncertainty of the outcome.

The Company is also subject to claims and assessments from time to time in the ordinary course of business.

In June 2024, the Company and Foresight entered into a Settlement and License Agreement (the "S&L Agreement") to settle litigation related to alleged patent infringement by Foresight.

The Company filed complaints against Foresight—one in August 2022 and a second in June 2023—for infringement of certain of the Company's patents relating to detection of MRD.

Foresight filed counterclaims and alleged that its solid tumor recurrence test does not infringe the Company's patents and invalidated two of the Company's patents, and sought to invalidate certain of the Company's other patents, through inter partes review proceedings with the U.S.

Patent Trial and Appeal Board.

Pursuant to the S&L Agreement, Foresight and the Company agreed to dismiss the pending claims of infringement and related defenses and counterclaims, and to end the remaining inter partes review proceedings.

Under the S&L Agreement, the Company granted Foresight a non-exclusive, worldwide license under certain patents of the Company to develop, manufacture, commercialize and otherwise exploit products and services that use whole genome sequencing and a variable content minimal/molecular residual disease panel that utilizes phased variants in consideration for which Foresight agreed to pay the Company a low single-digit tiered royalty on sales of products and services covered by patents licensed by the Company, subject to customary reductions.

The license is perpetual and irrevocable, except in certain limited circumstances, which apply on a patent-by-patent basis.

Upon the occurrence of certain specified change of control events with respect to Foresight, the highest percentage of the royalty tiers is subject to a low single-digit increase and Foresight will pay a one-time fee in the low single-digit millions.

The term of the S&L Agreement runs through expiration of the patents licensed by the Company to Foresight.

The Company is also subject to claims and assessments from time to time in the ordinary course of business, including claims from customers and vendors, pending and potential legal actions for damages, governmental investigations and other matters.

For example, the Company has received, and may in the future continue to receive letters, claims or complaints from others alleging false advertising, intellectual property infringement, and/or violation of employment practices.

Accruals for litigation and loss contingencies are reflected in the consolidated financial statements based on management’s assessment, including the advice of legal counsel, of the expected outcome of litigation or other dispute resolution proceedings and/or the expected resolution of contingencies.

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As additional information becomes available, management reassesses potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company’s consolidated results of operations in a given period.

Except for the matter described in the first four paragraphs of this Note 11, as of December 31, 2023, the Company was not involved in any material legal proceedings.

Except for the matter described in the first two paragraphs of this Note 12, as of December 31, 2024, the Company was not involved in any material legal proceedings.

Indemnification

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However, the Company may record charges in the future as a result of these indemnification obligations.

In accordance with the Company's bylaws and/or pursuant to indemnification agreements entered into with directors, officers and certain employees, the Company has indemnification obligations to its directors, officers and employees for claims brought against these persons arising out of certain events or occurrences while they are serving in such a capacity.

The Company maintains a director and officer liability insurance coverage to reduce its exposure to such obligations, and payments made under these agreements.

To date, there have been no indemnification claims by these directors, officers and employees.

Basic and Diluted Net Loss Per Common Share

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Diluted net loss per common share is computed using net loss and the weighted-average number of common shares outstanding plus potentially dilutive common shares outstanding during the period.

Potentially dilutive common shares include the assumed exercise of outstanding stock options, assumed release of outstanding RSUs, assumed issuance of common stock under the ESPP, and the assumed exercise of Tempus Warrants.

The Company incurred net losses in the periods presented, and as a result, potential common shares from stock options, RSUs, ESPP issuances, and the Tempus Warrants were not included in the diluted shares used to calculate net loss per share, as their inclusion would have been anti-dilutive.

Potentially dilutive common shares include the assumed exercise of outstanding stock options, assumed release of outstanding RSUs, and assumed issuance of common stock under the ESPP.

The Company incurred net losses in the periods presented, and as a result, potential common shares from stock options, RSUs, and ESPP issuances were not included in the diluted shares used to calculate net loss per share, as their inclusion would have been anti-dilutive.

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share amounts):

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Unvested RSUs

In come Taxes

For financial reporting purposes, loss before income taxes includes the following components (in thousands):

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Research and development credit

Warrant revaluation

Effective tax rate

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Capitalized research and development

Property and equipment

Deferred revenue

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The Company had a total state net operating loss carryforward of $ 302.5 million, which will begin to expire in 2031 .

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 (specifically Section 382), as amended, and similar state provisions.

The Company performed a Section 382 analysis through December 31, 2023 and determined that ownership changes occurred in the year 2011 and again in 2020.

The ownership changes identified had no significant impact on federal and state net operating losses.

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

Utilization of some of the federal and state net operating loss and credit carryforwards or other tax attributes, such as research tax credits, are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and similar state provisions.

Under Section 382 of the Code, "change in ownership" generally occurs if one or more stockholders or groups of stockholders who own at least 5 % of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period.

Similar rules may apply under state tax laws.

It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our operating results.

As of December 31, 2024, the Company has federal credits of $ 14.2 million, which will begin to expire in 2031 and state research credits of $ 12.0 million, which have no expiration date.

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Unrecognized Tax Benefits

The Company has incurred net operating losses since inception and does not have any significant unrecognized tax benefits.

The Company has incurred net operating losses since inception and does not have any significant unrecognized tax benefits in the balance sheet.

The Company’s policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for taxes in the consolidated statements of operations.

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During the years ended December 31, 2024 and 2023, no interest or penalties were required to be recognized relating to unrecognized tax benefits.

S ubsequent Events

Equipment and Software Purchases

In January 2025, the Company entered into a $ 2.9 million non-cancellable purchase agreement to acquire certain equipment and related maintenance services.

Under the agreement, the Company is required to make 20 % down payment before the equipment is shipped, with the remaining balance due by January 2026.

Additionally, the Company signed a separate purchase agreement with the same vendor for $ 2.8 million in software services and related support.

Under this agreement, the Company is also required to make three equal payments of $ 1.0 million in January 2026, January 2027 and January 2028 for a 60-month service term beginning from January 2025 to January 2030.

Software Loan

In January 2025, the Company entered into a payment agreement with a financing entity to finance a purchase of $ 2.8 million of internal-use software licenses and related software support services from a vendor.

The financing entity and vendor are not related.

The payment agreement is non-interest bearing and the Company is obligated to repay the financed amount in three installments of $ 0.7 million in February 2025, $ 1.2 million in February 2026 and $ 0.9 million in February 2027.

REPORT OF INDEPENDENT REG ISTERED PUBLIC ACCOUNTING FIRM

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Personalis, Inc.

and subsidiaries (the “Company”) as of December 31, 2023, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the year then ended, 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 the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Personalis, Inc.

and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years then, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

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

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

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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 consolidated 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 consolidated financial statements;

and (2) involved our especially challenging, subjective or complex judgments.

The communication of the 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for Tempus Agreement and Tempus Warrants

As described in Note 8 to the consolidated financial statements, the Company entered into a Commercialization and Reference Laboratory Agreement (the “Tempus Agreement”) with Tempus Labs, Inc.

(“Tempus”) in November 2023.

In connection with the Tempus Agreement, the Company issued warrants to purchase shares of the Company’s common stock to Tempus (“Tempus Warrants”).

As of December 31, 2023, the Company received $6 million of cash proceeds from Tempus.

The Tempus Warrants are classified as liability instruments, and the $6 million of proceeds were allocated to the Tempus Warrants.

We identified the evaluation of (i) the financial statement classification of the Tempus Warrants, and (ii) allocation of the proceeds among the elements of the Tempus Agreement and the Tempus Warrants as a critical audit matter.

Our principal considerations included the existence of accounting complexities related to such evaluation and significant judgments involved in the interpretation of the terms of the agreements and in the application of appropriate accounting guidance.

Auditing these elements required challenging and complex auditor judgment due to the nature and extent of audit effort required, including the extent of specialized skills or knowledge needed.

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

The communication of the 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Transactions

As described in Notes 2 and 3 to the consolidated financial statements, the Company derives revenue from the sale of genomic testing services.

The genomic testing services are the only distinct services that meet the definition of a performance obligation and are accounted for as one performance obligation.

Revenue is recognized at a point in time when test results are transferred to the customer.

The Company’s consolidated revenue was $84.6 million for the year ended December 31, 2024.

We identified the auditing of the occurrence of revenue transactions as a critical audit matter.

Auditing the occurrence of revenue was especially challenging due to the significant audit effort in performing procedures related to the occurrence of revenue transactions, given the significance of revenue, the large volume of transactions, and the evaluation of the sufficiency of audit evidence.

The primary procedures we performed to address this critical audit matter included:

• Reviewing and analyzing:

(i) the terms of the Tempus Agreement and Tempus Warrants, and (ii) the Company’s application of the relevant accounting literature including the allocation of the proceeds received to the Tempus Warrants.

• Utilizing personnel with specialized skills and knowledge to assist in:

(i) evaluating relevant terms of the Tempus Agreement and Tempus Warrants in relation to the appropriate accounting literature, and (ii) assessing the appropriateness of the conclusions reached by the Company.

• Evaluating the occurrence of revenue transactions, on a sample basis, by obtaining and inspecting invoices, customer purchase orders, delivery data from various sources including confirmation of transactions with customers, and cash receipts from customers, where applicable.

/s/ BDO USA, P.C.

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February 27, 2025

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Personalis, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Personalis, Inc.

and subsidiaries (the "Company") as of December 31, 2022, the related consolidated statements of operations, comprehensive loss, stockholder's equity and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

/s/ DELOITTE & TOUCHE LLP

Austin, Texas

February 23, 2023

We began serving as the Company’s auditor in 2018.

In 2023 we became the predecessor auditor.

Changes in and Disagreements with Accou ntants 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 7. Management’s Discussion and Analysis