Personalis, Inc. 10-Q

Item 1. Financial Statements PERSONALIS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except share and per share data) March 31, December 31, 2022 2021 Assets Current assets Cash and cash equivalents $ 91,586 $ 105,585 Short-term investments 174,954 181,479 Accounts receivable, net 13,519 18,468 Inventory and other deferred costs 8,065 5,610 Prepaid expenses and other current assets 5,904 7,089 Total current assets 294,028 318,231 Property and equipment, net 30,600 19,650 Operating lease right-of-use assets 51,727 53,822 Other long-term assets 4,292 4,825 Total assets $ 380,647 $ 396,528 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 12,275 $ 9,221 Accrued and other current liabilities 24,108 18,110 Contract liabilities 3,461 3,982 Total current liabilities 39,844 31,313 Long-term operating lease liabilities 52,364 52,797 Other long-term liabilities 1,724 2,117 Total liabilities 93,932 86,227 Commitments and Contingencies (Note 9) Stockholders’ equity Preferred stock, $ 0.0001 par value — 10,000,000 shares authorized; none issued — — Common stock, $ 0.0001 par value — 200,000,000 shares authorized; 45,250,087 and 44,904,512 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively 5 4 Additional paid-in capital 562,889 557,558 Accumulated other comprehensive loss ( 875 ) ( 166 ) Accumulated deficit ( 275,304 ) ( 247,095 ) Total stockholders’ equity 286,715 310,301 Total liabilities and stockholders’ equity $ 380,647 $ 396,528 See notes to condensed consolidated financial statements. 4 PERSONALIS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Three Months Ended March 31, 2022 2021 Revenue $ 15,227 $ 20,881 Costs and expenses Cost of revenue 10,949 13,454 Research and development 17,098 9,496 Selling, general and administrative 15,486 10,421 Total costs and expenses 43,533 33,371 Loss from operations ( 28,306 ) ( 12,490 ) Interest income 144 95 Interest expense ( 59 ) — Other income (expense), net 19 ( 12 ) Loss before income taxes ( 28,202 ) ( 12,407 ) Provision for (benefit from) income taxes 7 ( 3 ) Net loss $ ( 28,209 ) $ ( 12,404 ) Net loss per share, basic and diluted $ ( 0.63 ) $ ( 0.29 ) Weighted-average shares outstanding, basic and diluted 44,995,752 42,265,596 See notes to condensed consolidated financial statements. 5 PERSONALIS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited) (in thousands) Three Months Ended March 31, 2022 2021 Net loss $ ( 28,209 ) $ ( 12,404 ) Other comprehensive income (loss), net of tax Foreign currency translation adjustment ( 8 ) 2 Change in unrealized loss on available-for-sale debt securities ( 701 ) ( 29 ) Comprehensive loss $ ( 28,918 ) $ ( 12,431 ) See notes to condensed consolidated financial statements. 6 PERSONALIS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) For the Three Months Ended March 31, 2022 and 2021 (in thousands, except share data) Accumulated Additional Other Total Common Stock Paid-In Comprehensive Accumulated Stockholders' Shares Amount Capital Income (Loss) Deficit Equity Balance—December 31, 2020 39,105,548 $ 4 $ 376,788 $ 22 $ ( 181,869 ) $ 194,945 Proceeds from follow-on equity offering, net of offering costs 4,542,500 — 161,916 — — 161,916 Proceeds from exercise of stock options 114,026 — 933 — — 933 Restricted stock units vested 36,587 — — — — — Stock-based compensation — — 3,057 — — 3,057 Foreign currency translation adjustment — — — 2 — 2 Unrealized loss on available-for-sale debt securities — — — ( 29 ) — ( 29 ) Net loss — — — — ( 12,404 ) ( 12,404 ) Balance—March 31, 2021 43,798,661 $ 4 $ 542,694 $ ( 5 ) $ ( 194,273 ) $ 348,420 Balance—December 31, 2021 44,904,512 $ 4 $ 557,558 $ ( 166 ) $ ( 247,095 ) $ 310,301 Proceeds from exercise of stock options 279,205 1 515 — — 516 Restricted stock units vested 66,370 — — — — — Stock-based compensation — — 4,816 — — 4,816 Foreign currency translation adjustment — — — ( 8 ) — ( 8 ) Unrealized loss on available-for-sale debt securities — — — ( 701 ) — ( 701 ) Net loss — — — — ( 28,209 ) ( 28,209 ) Balance—March 31, 2022 45,250,087 $ 5 $ 562,889 $ ( 875 ) $ ( 275,304 ) $ 286,715 See notes to condensed consolidated financial statements. 7 PERSONALIS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Three Months Ended March 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 28,209 ) $ ( 12,404 ) Adjustments to reconcile net loss to net cash used in operating activities Stock-based compensation expense 4,816 3,057 Depreciation and amortization 1,774 1,523 Noncash operating lease cost 2,096 372 Amortization of premium on short-term investments 347 496 Other 43 7 Changes in operating assets and liabilities Accounts receivable 4,949 ( 1,703 ) Inventory and other deferred costs ( 2,455 ) 61 Prepaid expenses and other assets 1,720 63 Accounts payable 1,132 ( 2,175 ) Accrued and other current liabilities 3,398 2,471 Contract liabilities ( 522 ) ( 2,797 ) Operating lease liabilities ( 24 ) ( 354 ) Other long-term liabilities ( 422 ) ( 360 ) Net cash used in operating activities ( 11,357 ) ( 11,743 ) Cash flows from investing activities: Purchases of available-for-sale debt securities ( 59,702 ) ( 114,056 ) Proceeds from maturities of available-for-sale debt securities 65,175 26,892 Proceeds from sales of available-for-sale debt securities — 5,059 Purchases of property and equipment ( 8,634 ) ( 439 ) Net cash used in investing activities ( 3,161 ) ( 82,544 ) Cash flows from financing activities: Proceeds from public offerings, net of underwriting discounts and commissions — 162,258 Payments of costs related to public offerings — ( 342 ) Proceeds from exercise of equity awards 515 933 Net cash provided by financing activities 515 162,849 Effect of exchange rates on cash, cash equivalents and restricted cash 4 2 Net change in cash, cash equivalents and restricted cash ( 13,999 ) 68,564 Cash, cash equivalents, and restricted cash, beginning of period 107,375 68,525 Cash, cash equivalents and restricted cash, end of period $ 93,376 $ 137,089 Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets: Cash and cash equivalents $ 91,586 $ 137,089 Restricted cash, included in other long-term assets 1,790 — Total cash, cash equivalents and restricted cash $ 93,376 $ 137,089 See notes to condensed consolidated financial statements. 8 PERSONALIS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Company and Nature of Business Personalis, Inc. (the “Company”) was incorporated in Delaware on February 21, 2011 and began operations in September 2011. The Company formed a wholly owned subsidiary, Personalis (UK) Ltd., in August 2013 and a wholly owned subsidiary, Shanghai Personalis Biotechnology Co., Ltd., which is referred to as “Personalis (Shanghai) Ltd” herein, in October 2020. The Company is a provider of advanced genetic tests for cancer. The Company also provides sequencing and data analysis services to support population sequencing initiatives. The Company’s genetic tests for cancer are sold primarily to pharmaceutical companies, biopharmaceutical 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. In June 2020, the Company began partnering with a clinical genomics and life sciences company headquartered in China to expand business operations into China. The Company operates and manages its business as one reportable operating segment, which is the sale of sequencing and data analysis services. 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 service and 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 . Note 2. Summary of Significant Accounting Policies Basis of Presentation The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The condensed consolidated financial statements include the accounts of Personalis, Inc. and its wholly owned subsidiaries, Personalis (UK) Ltd. and Personalis (Shanghai) Ltd. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year ending December 31, 2022. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The estimates include, but are not limited to, useful lives assigned to long-lived assets, discount rates for lease accounting, the valuation of stock options, the valuation of stock-based awards, and provisions for income taxes and contingencies. 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 On August 14, 2020, the Company completed a follow-on equity offering in which it issued and sold 6,578,947 shares of its common stock at a public offering price of $ 19.00 per share. The Company received net proceeds of $ 117.5 million after deducting underwriting discounts and commissions. The Company also incurred $ 0.4 million of offering costs, including legal, accounting, printing and other offering-related costs. On January 29, 2021, the Company completed a follow-on equity offering in which it issued and sold 3,950,000 shares of its common stock at a public offering price of $ 38.00 per share. The Company received net proceeds of $ 141.1 million after deducting underwriting discounts and commissions. The underwriters of the offering exercised their option to purchase an additional 592,500 shares shortly thereafter, resulting in additional net proceeds of $ 21.2 million after deducting underwriting discounts and commissions. The Company also incurred $ 0.3 million of offering costs, including legal, accounting, printing and other offering-related costs. On December 30, 2021, the Company entered into an At-the-Market Sales Agreement (the “Sales Agreement”) with BTIG, LLC (“BTIG”) under which it may offer and sell its common stock having aggregate sales proceeds of up to $ 100.0 million from time to time through BTIG as its sales agent. 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 9 sold through BTI G under the Sales Agreement. The Company is not obligated to make any sales of common stock under the Sales Agreement. No shares of the Company’s common stock have been offered or sold under the Sales Agreement. Concentration of Credit Risk and Other Risks and Uncertainties The Company is subject to credit risk from its portfolio of cash and cash equivalents. The Company’s cash and cash equivalents are deposited with high-quality financial institutions. Deposits at these institutions may, at times, exceed federally insured limits. Management believes these financial institutions are financially sound and, accordingly, that minimal credit risk exists. The Company also invests in investment ‑ grade debt instruments and has policy limits for the amount it can invest in any one type of security, except for securities issued or guaranteed by the U.S. government. The goals of the Company’s investment policy are as follows: preservation of principal; liquidity of investments sufficient to meet cash flow requirements; avoidance of inappropriate concentration and credit risk; competitive after ‑ tax rate of returns; and fiduciary control of cash and investments. Under its investment policy, the Company limits the amounts invested in such securities by credit rating, maturity, investment type, and issuer. As a result, management believes that these financial instruments do not expose the Company to any significant concentrations of credit risk. The Company purchases various reagents and sequencing materials from sole source suppliers. Any extended interruption in the supply of these materials could result in the Company’s inability to secure sufficient materials to conduct business and meet customer demand. The Company routinely assesses the creditworthiness of its customers and does not require collateral. The Company has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company maintains an allowance for doubtful accounts, which was $ 0.1 million as of March 31, 2022 and December 31, 2021. The Company had no bad debt expense for the periods presented. Significant customers are those that represent more than 10% of the Company’s total revenue in each period or accounts receivable balance at each respective balance sheet date. For each significant customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows: Revenue Accounts Receivable Three Months Ended March 31, March 31, 2022 December 31, 2021 2022 2021 Natera, Inc. 27 % * 17 % 39 % U.S. Department of Veterans Affairs Million Veteran Program (the “VA MVP”) 23 % 63 % * * Pfizer Inc. 11 % 12 % 18 % * AbbVie Inc. * * 18 % 18 % Merck & Co., Inc. * * 14 % 15 % * Less than 10 % of revenue or accounts receivable 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”). Revenue Recognition The revenue guidance provides a five-step framework through which revenue is recognized when control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that the Company concludes are within the scope of Topic 606, management performs the following five steps: (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract(s); (iii) determines the transaction price, including whether there are any constraints on variable consideration; (iv) allocates the transaction price to the performance obligations; and (v) recognizes revenue when (or as) the Company satisfies a performance obligation. At contract inception, once a contract is determined to be within the scope of the new revenue standard, the Company assesses whether individual goods or services promised within each contract are distinct and, therefore, represent separate performance obligations. The Company derives revenue from sequencing and data analysis services to support the development of next-generation cancer therapies and to support large-scale genetic research programs. The Company’s contracts are in the form of a combination of signed agreements, statements of work, and/or purchase orders. Under Topic 606, 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. 10 The sequencing and data analysis services are accounted for as one performance obligation under Topic 606. The Company recognizes revenue from such services at the point in time when control of the test results is transferred to the customer. The Company has elected to exclude all sales and value added taxes from the measurement of the transaction price. Sequencing and data analysis services are based on a fixed price per test . Payment terms and conditions vary by contract and customer. The Company’s standard payment terms are less than 90 days from the invoice date. In instances where the timing of the Company’s revenue recognition differs from the timing of its invoicing, the Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised services to the customer will be one year or less. After assessing each of its revenue-generating arrangements to determine whether a significant financing component exists, the Company concluded that a significant financing component does not exist in any of its arrangements. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s services and to provide payment protection for the Company. Practical Expedients and Exemptions As a practical expedient, the Company recognizes the incremental costs of obtaining contracts, such as sales commissions, as an expense when incurred since the amortization period of the asset the Company otherwise would have recognized is one year or less. Sales commissions are recorded within selling, general and administrative expenses in the condensed consolidated statements of operations. Cost of Revenue Cost of revenue consists of raw materials costs, personnel costs (salaries, bonuses, benefits, payroll taxes, and stock-based compensation), laboratory supplies and consumables, depreciation and maintenance on equipment, and allocated facilities and information technology (“IT”) costs. Research and Development Expenses 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), laboratory supplies and consumables, costs of processing samples for research purposes, depreciation and maintenance on equipment, and allocated facilities and IT costs. Stock-Based Compensation 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. The Company determines the grant-date fair value of options using the Black-Scholes option-pricing model, except for certain performance-based awards for which an alternative valuation method may be used. The Company determines the fair value of restricted stock unit awards using the closing market price of the Company’s common stock on the date of grant. The grant-date fair value of awards is amortized over the employees’ requisite service period on a straight-line basis, or the non-employees’ vesting period as the goods are received or services rendered. 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. Inputs used in Black-Scholes option-pricing models to measure fair value of options are summarized as follows: Expected Term. The expected term is calculated using the simplified method, which is available if there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting tranche for awards with graded vesting. The midpoint of the vesting date and the contractual expiration date is used as the expected term under this method. For awards with multiple vesting tranches, the assumed period for each tranche is computed separately and then averaged together to determine the expected term for the award. 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 the Company did not have sufficient trading history for its common stock. For purposes of identifying these peer companies, the Company considered the industry, stage of development, size, and financial leverage of potential comparable companies. For each grant, the Company measured historical volatility over a period equivalent to the expected term. Risk-Free Interest Rate. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of a stock award. Expected Dividend Rate. The Company has no t paid and does not anticipate paying any dividends in the near future. Accordingly, the Company has estimated the dividend yield to be zero . 11 Cash and Cash Equivalents Cash equivalents consist of highly liquid investments with maturities at the time of purchase of three months or less. Cash equivalents include bank demand deposits and money market accounts that invest primarily in cash, U.S. Treasury bills, notes, and other obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, and repurchase agreements secured by such obligations or cash. Cash equivalents also include commercial paper, which are marketable debt securities recorded at fair value and accounted for in the same manner as other marketable debt securities described below. Short-term Investments The Company’s investments in marketable debt securities are classified as available-for-sale and recorded at fair value. Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. Short-term investments primarily consist of U.S. agency bonds, commercial paper, corporate bonds, asset-backed securities, U.S. treasuries, and non-U.S. Government notes. Unrealized gains and losses are included in accumulated other comprehensive income (loss) in stockholders’ equity. Any discount or premium arising at purchase is accreted or amortized to interest income or expense. Realized gains and losses and declines in fair value, if any, judged to be other than temporary are reported in other income (expense), net. 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. The Company periodically evaluates whether declines in fair values of its investments below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs. Factors considered include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of the marketable security, duration and severity of the decline in value, and management’s strategy and intentions for holding the marketable security. To date, the Company has not recorded any impairment charges on its marketable securities related to other-than-temporary declines in market value. Fair Value Measurements Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. Observable inputs reflect market data obtained from independent sources while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques used to measure fair value is briefly summarized as follows: Level 1 — Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets and liabilities. Level 2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following: • Quoted prices for similar assets and liabilities in active markets. • Quoted prices for identical or similar assets or liabilities in markets that are not active. • Observable inputs other than quoted prices that are used in the valuation of the asset or liability (e.g., interest rate and yield curve quotes at commonly quoted intervals). • Inputs that are derived principally from or are corroborated by observable market data by correlation or other means. Level 3 — Unobservable inputs for the assets or liabilities (i.e., supported by little or no market activity). Level 3 inputs include management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. 12 Inventory and Other Deferred Costs Inventory, consisting of supplies used in the Company’s genomic analysis contracts, are valued at the lower of cost or net realizable value. Cost is determined using actual costs, on a first-in, first-out basis. Other deferred costs relate to work in process for costs incurred on genomic analysis contracts that have not been completed or recognized as revenue. Other deferred costs represent materials used in sequencing services, labor, and overhead allocations. Leases The Company 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. All other leases are categorized as operating leases. As of March 31, 2022, the Company had no finance leases. Certain lease contracts include obligations to pay for other services, such as maintenance. The Company elected to account for these other services as a component of the lease (i.e., the Company elected the practical expedient not to separate lease and non-lease components). 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 or lease prepayments reclassified from “Other long-term assets” upon lease commencement. Lease assets are presented as “Operating lease right-of-use assets” as a long-term asset. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease. The Company has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from leases with a term of 12 months or less. Lease payments are recognized as an expense on a straight-line basis over the lease term. 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. Recent Accounting Pronouncements New Accounting Pronouncements Not Yet 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 is currently evaluating the impact of the new guidance on its consolidated f inancial statements and related disclosures. The Company will adopt the new guidance in the first quarter of 2023 by means of a cumulative-effect adjustment to opening retained earnings . Note 3. Revenue The following table presents revenue disaggregated by customer type (in thousands): Three Months Ended March 31, 2022 2021 VA MVP $ 3,501 $ 13,210 All other customers 11,726 7,671 Total revenue $ 15,227 $ 20,881 Revenue from countries outside of the United States, based on the billing addresses of customers, represented approximately 18 % and 8 % of the Company’s revenue for the three months ended March 31, 2022 and 2021. Contract Assets and Liabilities Contract assets as of March 31, 2022 and December 31, 2021 were immaterial. The Company’s contract liabilities consist of customer deposits in excess of revenue recognized and are presented as current liabilities in the condensed consolidated balance sheets. 13 The balance of contract liabilities was $ 3.5 million and $ 4.0 million as of March 31, 2022 and December 31, 2021, respectively. Revenue recognized for the three months ended March 31, 2022 and 2021 that were included in the contract liability balance at the beginning of each reporting period were $ 2.5 million and $ 9.5 million, respectively. Revenue allocated to remaining performance obligations represent contracted revenue that has not yet been recognized (“contracted not recognized revenue”), which include VA MVP contract liabilities and amounts that will be invoiced and recognized as revenue in future periods. Contracted not recognized revenue was $ 4.1 million as of March 31, 2022, which the Company expects to recognize as revenue within the next three months . The Company has elected the optional exemption that allows for the exclusion of contracts with an original expected duration of one year or less. Note 4. Balance Sheet Details Inventory and other deferred costs consist of the following (in thousands): March 31, December 31, 2022 2021 Raw materials $ 4,818 $ 4,081 Other deferred costs 3,247 1,529 Total inventory and other deferred costs $ 8,065 $ 5,610 Property and equipment. Depreciation and amortization expense for the three months ended March 31, 2022 and 2021 was $ 1.8 million and $ 1.5 million, respectively. Accumulated depreciation and amortization was $ 20.8 million and $ 19.0 million as of March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, respectively, and is included in other long-term assets. Accrued and other current liabilities consist of the following (in thousands): March 31, December 31, 2022 2021 Accrued compensation $ 13,141 $ 10,673 Operating lease liabilities 4,137 3,728 Accrued liabilities 3,212 883 Loans—current portion (Note 6) 1,836 1,806 Employee ESPP contributions 1,217 517 Accrued taxes 535 121 Customer deposits 30 382 Total accrued and other current liabilities $ 24,108 $ 18,110 14 Note 5. Fair Value Measurements The following tables show the Company’s financial assets measured at fair value on a recurring basis and the level of inputs used in such measurements as of March 31, 2022 and December 31, 2021 (in thousands): March 31, 2022 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Fair Value Level Assets Cash and cash equivalents: Cash $ 2,829 $ — $ — $ 2,829 Money market funds 20,048 — — 20,048 Level 1 Commercial paper 55,198 2 ( 3 ) 55,197 Level 2 Corporate debt securities 8,511 3 ( 1 ) 8,513 Level 2 U.S. government securities 4,999 — — 4,999 Level 2 Total cash and cash equivalents 91,585 5 ( 4 ) 91,586 Short-term investments: Asset-backed securities 5,005 — ( 2 ) 5,003 Level 2 Commercial paper 31,352 — ( 51 ) 31,301 Level 2 Corporate debt securities 7,203 — ( 10 ) 7,193 Level 2 Non-U.S. government securities 3,021 — ( 9 ) 3,012 Level 2 U.S. agency securities 19,701 — ( 150 ) 19,551 Level 2 U.S. government securities 109,589 1 ( 696 ) 108,894 Level 2 Total short-term investments 175,871 1 ( 918 ) 174,954 Total assets measured at fair value $ 267,456 $ 6 $ ( 922 ) $ 266,540 December 31, 2021 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Fair Value Level Assets Cash and cash equivalents: Cash $ 6,094 $ — $ — 6,094 Money market funds 49,488 — — 49,488 Level 1 Commercial paper 50,005 — ( 2 ) 50,003 Level 2 Total cash and cash equivalents 105,587 — ( 2 ) 105,585 Short-term investments: Asset-backed securities 75,787 — ( 154 ) 75,633 Level 2 Commercial paper 18,068 — ( 2 ) 18,066 Level 2 Corporate debt securities 18,059 — ( 7 ) 18,052 Level 2 U.S. agency securities 19,738 — ( 35 ) 19,703 Level 2 U.S. government securities 50,040 — ( 15 ) 50,025 Level 2 Total short-term investments 181,692 — ( 213 ) 181,479 Total assets measured at fair value $ 287,279 $ — $ ( 215 ) $ 287,064 Realized gains or losses on marketable debt securities are immaterial for the periods presented. No security has been in an unrealized loss position for 12 months or greater. The Company determined that it did have the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery. As of March 31, 2022, the Company does not consider any of its marketable debt securities to be other-than-temporarily impaired. The Company’s marketable debt securities at March 31, 2022 have maturities due in one year or less, except for debt securities with an aggregate cost basis of $ 22.4 million and fair value of $ 22.0 million that have maturities ranging from 13 to 18 months . 15 Note 6. Loans Equipment and Software Loans In April 2021, the Company entered into a payment agreement with a financing entity to finance the purchase of $ 2.4 million of internal use software licenses and related software maintenance from a vendor. The financing entity and vendor are not related. The Company is obligated to repay the financed amount in three equal payments of $ 0.8 million in May 2021, May 2022, and May 2023. The payment agreement is noninterest bearing and the Company concluded that such interest rate ( zero ) did not represent fair and adequate compensation to the financing entity for the use of the related funds. Accordingly, the Company approximated the rate at which it could obtain financing of a similar nature from other sources at the date of the transaction. 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 condensed consolidated statements of operations over the life of the payment agreement. In April 2021, the Company entered into another payment agreement, with the same financing entity, to finance the purchase of $ 3.1 million of certain computer hardware and related hardware maintenance. The Company is required to pay three equal payments of $ 1.0 million in July 2021, June 2022, and June 2023. The nature of this agreement and resulting accounting treatment are the same as the payment agreement described in the preceding paragraph. The total initial present value of the payment agreements was $ 5.2 million and presented as proceeds from loans in the condensed consolidated statements of cash flows. Such proceeds were used to purchase equipment, software, and related maintenance and are reflected as cash outflows in the investing and operating activities sections in the condensed consolidated statements of cash flows. Repayments are presented as financing cash outflows in the condensed consolidated statements of cash flows. Interest expense for the three months ended March 31, 2022 was $ 0.1 million. Amounts outstanding under the payment agreements are as follows (in thousands): March 31, December 31, 2022 2021 Principal $ 3,714 $ 3,714 Less: unamortized discount ( 162 ) ( 220 ) Total carrying amount 3,552 3,494 Less: current portion (included in accrued and other current liabilities) ( 1,836 ) ( 1,806 ) Long-term portion (included in other long-term liabilities) $ 1,716 $ 1,688 Note 7. Leases In February 2015, the Company entered into a noncancelable operating lease for approximately 31,280 square feet of space used for its current laboratory and corporate headquarters. In April 2020, the Company extended the term of the lease through November 30, 2027 . The lease includes an option to extend the term for a period of three years with rent payments equal to then current fair market rent for the space. The Company determined the extension option is not reasonably certain to be exercised. The lease contains a leasehold improvement incentive and escalating rent payments. In May 2021, the Company amended the lease to expand the premises subject to the lease to include an additional 14,710 square feet of space (the “Expansion Lease”). The Expansion Lease expires on December 31, 2022 and has no option to extend the term . In August 2019, the Company entered into a noncancelable operating lease for a co-located data center space. The lease expires on August 31, 2022 and includes an option to extend the term for a period of three years immediately following the expiration of the term with rent payments to be negotiated upon such a renewal. The Company determined the extension option is not reasonably certain to be exercised. In April 2020, the lease was modified to increase the data center space available for the Company’s use for the remainder of the lease term. In August 2021, the Company entered into a noncancelable operating lease for approximately 100,000 square feet of space in Fremont, California to be used as the Company’s future corporate headquarters and expanded laboratory facility. The lease term is 13.5 years and commences in June 2022. The Company gained early access to the premises upon entering the lease for the purpose of constructing and installing tenant improvements, for which the landlord has agreed to contribute up to approximately $ 15.5 million ($ 0.9 million of which has been received through March 31, 2022). Such contributions become payable only upon approval by the landlord of applications for payment and are accounted for as lease incentives once the Company has incurred costs and the amounts qualify for reimbursement by the landlord. The lease incentives are then recognized prospectively over the remainder of the lease term. The lease expires on November 30, 2035 and includes two options to extend the term for a period of five-years per option with rent payments equal to then current fair market rent for the space. The Company determined the extension options are not reasonably certain to be exercised. The lease also contains escalating rent payments. The Company also has a noncancelable operating lease for approximately 5,100 square feet of space in Shanghai, China used for its China operations, which expires on June 30, 2024 , as well as various other short-term leases. 16 Components of lease cost were as follows (in thousands): Three Months Ended March 31, 2022 2021 Lease cost Operating lease cost $ 2,174 $ 652 Short-term lease cost 29 70 Variable lease cost 261 229 Total lease cost $ 2,464 $ 951 As of March 31, 2022, the Company’s operating leases had a weighted-average remaining lease term of 12.1 years and a weighted-average discount rate of 6.6 %. The Company’s discount rates are based on estimates of its incremental borrowing rate, as the discount rates implicit in the leases cannot be readily determined. Future lease payments under operating leases as of March 31, 2022 were as follows (in thousands): Amount 2022 (remaining nine months) $ 2,931 2023 6,196 2024 6,803 2025 7,001 2026 7,217 2027 and thereafter 53,527 Total future minimum lease payments 83,675 Less: imputed interest ( 27,174 ) Present value of future minimum lease payments 56,501 Less: current portion of operating lease liability ( 4,137 ) Long-term operating lease liabilities $ 52,364 Cash paid for operating lease liabilities, included in cash flows from operating activities in the condensed consolidated statements of cash flows, for the three months ended March 31, 2022 and 2021, was $ 0.9 million and $ 0.6 million, respectively. Note 8. Stock-Based Compensation Shares of common stock reserved for issuance under the Company’s equity incentive plans were as follows: March 31, 2022 Outstanding stock awards 6,784,962 Reserved for future award grants 4,708,084 Reserved for future ESPP 1,032,393 Total common stock reserved for stock awards 12,525,439 Stock Option Activity A summary of the Company’s stock option activity (excluding performance-based stock option activity summarized further below) under the 2011 Plan, 2019 Plan, and Inducement Plan for the three months ended March 31, 2022 is as follows: Outstanding Options (in thousands, except share and per share data) Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Balance—December 31, 2021 5,002,419 $ 10.66 6.89 $ 28,308 Options granted 52,391 10.59 Options exercised ( 279,205 ) 1.85 Options cancelled ( 55,252 ) 14.52 Balance—March 31, 2022 4,720,353 $ 11.13 6.91 $ 8,043 Options vested and exercisable as of March 31, 2022 2,985,922 $ 7.61 5.94 $ 7,432 17 The weighted-average grant date fair value of options granted was $ 6.59 and $ 28.21 per share for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the unrecognized stock-based compensation cost of unvested options was $ 15.9 million, which is expected to be recognized over a weighted-average period of 2.2 years. 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 fair value of stock options is recognized on a straight-line basis over the requisite service periods of the awards. The fair value of stock options was estimated using the following weighted-average assumptions: Three Months Ended March 31, 2022 2021 Expected term (in years) 6.00 - 6.08 6.00 - 6.08 Volatility 68.37 - 69.10% 68.06 - 69.27% Risk-free interest rate 1.62 - 2.13% 0.62 - 1.06% Dividend yield – % – % Performance-Based Stock Option Activity No performance-based stock option activity occurred during the three months ended March 31, 2022. As of March 31, 2022, stock options for 421,000 shares with an exercise price of $ 5.10 and a remaining contractual term of 7.96 years remained outstanding. The stock options are fully vested and exercisable and had an intrinsic value of $ 1.3 million as of March 31, 2022. Restricted Stock Units Activity and Valuation A summary of the Company’s RSU activity under the 2019 Plan and Inducement Plan for the three months ended March 31, 2022 is as follows: Unvested Restricted Stock Units (in thousands, except share and per share data) Number of Shares Weighted- Average Grant Date Fair Value Aggregate Fair Value Balance—December 31, 2021 1,679,696 $ 16.35 $ 23,969 RSUs granted 65,895 10.68 RSUs vested ( 66,370 ) 18.65 627 RSUs cancelled ( 35,612 ) 16.53 Balance—March 31, 2022 1,643,609 $ 16.03 $ 13,461 As of March 31, 2022, the unrecognized stock-based compensation cost of unvested RSUs was $ 23.1 million, which is expected to be recognized over a weighted-average period of 2.7 years. ESPP Activity and Valuation During the three months ended March 31, 2022 and 2021, no shares of common stock were purchased under the ESPP. Additionally, no grants for stock purchase rights were made during either period. Stock-Based Compensation Expense The following is a summary of stock-based compensation expense by award type (in thousands): Three Months Ended March 31, 2022 2021 Stock options $ 2,396 $ 2,178 RSUs 2,168 644 ESPP 252 235 Total stock-based compensation expense $ 4,816 $ 3,057 18 The following is a summary of stock-based compensation expense by function (in thousands): Three Months Ended March 31, 2022 2021 Cost of revenue $ 458 $ 288 Research and development 1,341 728 Selling, general and administrative 3,017 2,041 Total stock-based compensation expense $ 4,816 $ 3,057 Note 9 . Commitments and Contingencies Contingencies The Company is subject to claims and assessments from time to time in the ordinary course of business. Accruals for litigation and contingencies are reflected in the condensed 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. Liabilities for estimated losses are accrued if the potential losses from any claims or legal proceedings are considered probable and the amounts can be reasonably estimated. Significant judgment is required in both the determination of probability of loss and the determination as to whether the amount can be reasonably estimated. Accruals are based only on information available at the time of the assessment due to the uncertain nature of such matters. 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. As of March 31, 2022, the Company was not involved in any material legal proceedings. Indemnification In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but that have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. Note 10. Basic and Diluted Net Loss Per Common Share Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. 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 in-the-money stock options and common stock warrants, assumed release of outstanding RSUs, and assumed issuance of common stock under the ESPP using the treasury stock method. The Company incurred net losses in the periods presented, and as a result, potential common shares from stock options, common stock warrants, RSUs, and the assumed release of outstanding shares under the ESPP 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 net loss per common share (in thousands, except share and per share amounts): Three Months Ended March 31, 2022 2021 Net loss $ ( 28,209 ) $ ( 12,404 ) Weighted-average common shares outstanding—basic and diluted 44,995,752 42,265,596 Net loss per common share—basic and diluted $ ( 0.63 ) $ ( 0.29 ) The following table sets forth the potentially dilutive shares excluded from the computation of diluted net loss per common share because their effect was anti-dilutive: Three Months Ended March 31, 2022 2021 Options to purchase common stock 5,141,353 5,301,728 Unvested RSUs 1,643,609 638,998 ESPP 80,805 57,546 Total 6,865,767 5,998,272 19