GeneDx Holdings Corp. 10-K

Item 8. Financial Statements and Supplementary Data 96 Table of Content Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of GeneDx Holdings Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of GeneDx Holdings Corp. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Adoption of ASU 2016-02 As discussed in Note 2 to the consolidated financial statements, effective January 1, 2022, the Company changed its method of accounting for leases due to the adoption of ASU 2016-02, Leases. 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. 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 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/ ERNST & YOUNG LLP We have served as the Company’s auditor since 2018. New York, New York March 16, 2023 Auditor Firm Id: No. 42 Auditor Name: Ernst & Young LLP Auditor Location: New York, New York, United States 109 Table of Content GeneDx Holdings Corp. Consolidated Balance Sheets (in thousands, except share and per share amounts) December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 123,933 $ 400,569 Restricted cash 13,470 — Accounts receivable, net 42,634 26,509 Due from related parties 708 54 Inventory, net 13,665 33,456 Prepaid expenses 11,822 19,154 Other current assets 6,390 3,802 Total current assets 212,622 483,544 Property and equipment, net 51,527 62,719 Intangible assets, net 186,650 — Operating lease right-of-use assets 32,758 — Long-term restricted cash 900 900 Other assets 6,485 6,930 Total assets $ 490,942 $ 554,093 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 46,017 $ 44,693 Accrued expenses 38,861 20,108 Due to related parties 3,593 2,623 Contract liabilities 40 473 Current portion of lease liabilities 6,121 — Other current liabilities 49,665 33,387 Total current liabilities 144,297 101,284 Long-term debt, net of current portion 6,250 11,000 Long-term lease liabilities 60,013 — Other liabilities 22,000 21,907 Deferred taxes 2,659 — Warrant liability 418 21,555 Earn-out contingent liability 1,600 10,244 Total liabilities 237,237 165,990 Commitments and contingencies (Note 10) Stockholders’ Equity: Preferred Stock, $ 0.0001 par value: 1,000,000 shares authorized at December 31, 2022 and December 31, 2021; 0 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively — — Class A common stock, $ 0.0001 par value: 1,000,000,000 shares authorized, 388,511,138 shares issued and outstanding at December 31, 2022 and $ 0.0001 par value: 380,000,000 shares authorized, 242,647,604 shares issued and outstanding at December 31, 2021 38 24 Additional paid-in capital 1,378,088 963,520 Accumulated deficit ( 1,124,421 ) ( 575,441 ) Total stockholders’ equity 253,705 388,103 Total liabilities and stockholders’ equity $ 490,942 $ 554,093 The accompanying notes are an integral part of these consolidated financial statements. 110 Table of Content GeneDx Holdings Corp. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share and share amounts) Year Ended December 31, 2022 2021 2020 Revenue Diagnostic test revenue (including related party revenue of $ 2,209 , $ 90 and $ 285 for the years ended December 31, 2022, 2021, and 2020, respectively) $ 227,334 $ 205,100 $ 175,351 Other revenue (including related party revenue of $ 353 , $ 232 and $ 3 for the years ended December 31, 2022, 2021, and 2020, respectively) 7,360 7,095 3,971 Total revenue 234,694 212,195 179,322 Cost of services (including related party expenses of $ 4,169 , $ 3,975 and $ 2,189 for the years ended December 31, 2022, 2021, and 2020, respectively) 261,444 228,797 175,296 Gross (loss) profit ( 26,750 ) ( 16,602 ) 4,026 Research and development 86,203 105,162 72,700 Selling and marketing 134,913 112,738 63,183 General and administrative 203,329 205,988 100,742 Related party expenses 6,312 5,659 9,395 Impairment loss 210,145 — — Loss from operations ( 667,652 ) ( 446,149 ) ( 241,994 ) Other income (expense): Change in fair market value of warrant and earn-out contingent liabilities 70,229 198,401 — Interest income 2,541 79 506 Interest expense ( 3,207 ) ( 2,835 ) ( 2,474 ) Other income, net 57 5,114 2,622 Total other income, net 69,620 200,759 654 Loss before income taxes ( 598,032 ) ( 245,390 ) ( 241,340 ) Income tax benefit 49,052 — — Net loss and comprehensive loss $ ( 548,980 ) $ ( 245,390 ) $ ( 241,340 ) Weighted average shares outstanding, Class A common stock 337,819,680 108,077,439 5,131 Basic and diluted net loss per share, Class A common stock $ ( 1.63 ) $ ( 2.27 ) $ ( 47,036 ) The accompanying notes are an integral part of these consolidated financial statements. 111 Table of Content GeneDx Holdings Corp. Consolidated Statement of Stockholders’ Equity (Deficit) (in thousands, except share amounts) Redeemable Convertible Preferred Stock Class A Common Stock Class B Common Stock Shares Amount Shares Par Value Shares Par Value Additional paid-in capital Accumulated deficit Total stockholders’ equity (deficit) Balance at December 31, 2019 147,038,267 $ 217,115 124 $ — — $ — $ — $ ( 88,711 ) $ ( 88,711 ) Net loss — — — — — — — ( 241,340 ) ( 241,340 ) Common stock issued pursuant to stock option exercises — — — — 130,557 — — — — Issuance of Preferred Series C, net of issuance costs 24,496,946 117,324 — — — — — — — Balance at December 31, 2020 171,535,213 $ 334,439 124 $ — 130,557 $ — $ — $ ( 330,051 ) $ ( 330,051 ) Net loss — — — — — — — ( 245,390 ) ( 245,390 ) Common stock issued pursuant to stock option exercises — — 995,526 — 1,253,179 — 1,783 — 1,783 Conversion of Preferred into Common Stock ( 171,535,213 ) ( 334,439 ) 148,543,062 15 — — 104,517 — 104,532 Conversion of Class B Common Stock into Class A Common Stock — — 1,309,320 — ( 1,383,736 ) — ( 744 ) — ( 744 ) Net equity infusion from the Business Combination — — 90,333,562 9 — — 510,742 — 510,751 Stock based compensation modification reclassification — — — — — — 304,837 — 304,837 Stock-based compensation expense — — — — — — 42,385 — 42,385 Vested restricted stock units converted to common stock — — 1,466,010 — — — — — — Balance at December 31, 2021 — $ — 242,647,604 $ 24 — $ — $ 963,520 $ ( 575,441 ) $ 388,103 112 Table of Content Net loss — — — — — — — ( 548,980 ) $ ( 548,980 ) Common stock issued pursuant to stock option exercises — — 11,021,636 1 — — 2,947 — 2,948 Stock based compensation expense — — — — — — 41,975 — 41,975 Shares issued for PIPE, net of issuance costs — — 50,000,000 5 — — 197,654 — 197,659 Shares issued for acquisition (1) — — 80,000,000 8 — — 171,992 — 172,000 Vested restricted stock units converted to common stock — — 4,841,898 — — — — — — Balance at December 31, 2022 — $ — 388,511,138 $ 38 — $ — $ 1,378,088 $ ( 1,124,421 ) $ 253,705 The accompanying notes are an integral part of these consolidated financial statements. 113 Table of Content GeneDx Holdings Corp. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2022 2021 2020 Operating activities Net loss $ ( 548,980 ) $ ( 245,390 ) $ ( 241,340 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 59,309 21,807 11,734 Stock-based compensation expense 41,975 219,421 120,231 Change in fair value of warrant and contingent liabilities ( 70,229 ) ( 198,401 ) — Income tax benefit ( 49,124 ) — — Provision for excess and obsolete inventory 1,125 2,129 — Non-cash lease expense 2,225 1,555 2,400 Loss on extinguishment of debt — 301 — Impairment loss 210,145 — — Amortization of debt issuance costs 518 66 — Change in operating assets and liabilities, net of effects from purchase of business: Accounts receivable 5,527 5,535 ( 10,611 ) Inventory 2,350 ( 10,624 ) ( 8,979 ) Prepaid expenses and other current assets 11,130 ( 14,250 ) 2,498 Due to/from related parties 317 1,433 ( 442 ) Other assets ( 2 ) ( 1,861 ) 1,175 Accounts payable and accrued expenses 34,459 25,916 14,805 Contract liabilities ( 433 ) ( 1,310 ) ( 559 ) Other current liabilities ( 19,467 ) 3,239 15,960 Net cash used in operating activities $ ( 319,155 ) $ ( 190,434 ) $ ( 93,128 ) Investing activities Purchase of business, net of cash acquired $ ( 127,004 ) $ — $ — Purchases of property and equipment ( 7,156 ) ( 9,400 ) ( 24,094 ) Development of internal-use software assets ( 7,166 ) ( 11,386 ) ( 7,880 ) Net cash used in investing activities $ ( 141,326 ) $ ( 20,786 ) $ ( 31,974 ) Financing activities Proceeds from issuance of Series C redeemable convertible preferred stock, net of issuance costs $ — $ — $ 117,324 Proceeds from PIPE issuance 197,659 350,000 — Proceeds from equity infusion from the merger, net of redemptions — 442,684 — Legacy Sema4 Shareholder payout — ( 230,665 ) — Payment of transaction costs — ( 51,760 ) — Stock Appreciation Rights payout — ( 3,795 ) — Repayment of long-term debt — ( 8,741 ) — Exercise of stock options 2,948 1,271 — Proceeds from long-term debt — — 15,928 Long-term debt principal payments — ( 1,000 ) ( 186 ) Debt issuance costs — ( 537 ) — Finance lease principal payments ( 3,292 ) ( 3,728 ) ( 4,010 ) Net cash provided by financing activities $ 197,315 $ 493,729 $ 129,056 Net (decrease) increase in cash, cash equivalents and restricted cash $ ( 263,166 ) $ 282,509 $ 3,954 Cash, cash equivalents and restricted cash, at beginning of year 401,469 118,960 115,006 114 Table of Content Cash, cash equivalents and restricted cash, at end of year $ 138,303 $ 401,469 $ 118,960 Supplemental disclosures of cash flow information Cash paid for interest $ 1,932 $ 2,751 $ 1,745 Cash paid for taxes $ 1,241 $ 349 $ — Stock consideration paid for purchase of business $ 172,000 $ — $ — Purchases of property and equipment in accounts payable and accrued expenses $ — $ 761 $ 447 Software development costs in accounts payable and accrued expenses $ 461 $ 1,149 $ 1,473 Debt issuance costs incurred but unpaid $ — $ 1,000 $ — The accompanying notes are an integral part of these consolidated financial statements. 115 Table of Content GeneDx Holdings Corp. Notes to Consolidated Financial Statements 1. Organization and Description of Business GeneDx Holdings Corp. (“GeneDx Holdings”) (formerly, Sema4 Holdings Corp. (“Sema4 Holdings”)) through its subsidiaries Sema4 OpCo, Inc., formerly Mount Sinai Genomics Inc., a Delaware corporation (“Legacy Sema4”) and GeneDx, LLC, provides genomics-related diagnostic and information services and pursues genomics medical research. GeneDx utilizes an integrated portfolio of laboratory processes, software tools and informatics capabilities to process DNA-containing samples, analyze information about patient-specific genetic variation and generate test reports for clinicians and their patients. GeneDx provides a variety of genetic diagnostic tests, and screening solutions, and information with a focus on pediatrics, rare diseases for children and adults, and hereditary cancer screening. GeneDx Holdings’ operating subsidiaries primarily serve healthcare professionals who work with their patients and bills third-party payors across the United States. On July 22, 2021 (the “Closing Date”), CM Life Sciences, Inc. (“CMLS”) completed the acquisition of Legacy Sema4, pursuant to that certain Agreement and Plan of Merger (as amended, the “Business Combination Merger Agreement”), dated February 9, 2021. On the Closing Date, S-IV Sub, Inc. merged with and into the Legacy Sema4, with Legacy Sema4 surviving the merger as a wholly-owned subsidiary of CMLS (the “Business Combination Merger” and, together with the other transactions contemplated by the Business Combination Merger Agreement, the “Business Combination”). In connection with the consummation of the Business Combination, CMLS changed its name to “Sema4 Holdings Corp.” and Legacy Sema4 changed its name to “Sema4 OpCo, Inc.” All equity securities of Legacy Sema4 were converted into the right to receive the applicable portion of the merger consideration. The Business Combination Merger was accounted for as a reverse recapitalization with Legacy Sema4 as the accounting acquirer and CMLS as the acquired company for accounting purposes. The shares and net loss per common share, prior to the Business Combination Merger, have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination Merger (1 share of Legacy Sema4 Class A common stock for 123.8339 shares of Sema4 Holdings Class A common stock (the “Class A common stock”) (the “Conversion Ratio”). Prior to the Business Combination Merger, shares of CMLS Class A common stock, CMLS’s public warrants, and CMLS’s public units were traded on the Nasdaq Capital Market under the ticker symbols “CMLF”, “CMFLW”, and “CMLFU” respectively. On July 23, 2021, shares of Sema4 Holdings Class A common stock and Sema4 Holdings’ public warrants began trading on the Nasdaq Global Select Market (the “Nasdaq”) under the ticker symbols “SMFR” and “SMFRW,” respectively. In addition, on April 29, 2022, the Company consummated the transactions contemplated by that certain Agreement and Plan of Merger, dated as of January 14, 2022 (as amended, the “ Acquisition Merger Agreement”), by and among the Company and GeneDx, Inc. (“Legacy GeneDx”), a New Jersey corporation and wholly-owned subsidiary of OPKO Health, Inc. (“OPKO”), GeneDx Holding 2, Inc., which held 100 % of Legacy GeneDx (“Holdco2”), at the Effective Time (as defined in the Acquisition Merger Agreement) and OPKO, which provided for, among other things, the acquisition of Legacy GeneDx from OPKO. After giving effect to the mergers and the other transactions contemplated by the Acquisition Merger Agreement (the “Acquisition”), Legacy GeneDx was converted into a Delaware limited liability company and became the Company’s wholly-owned indirect subsidiary. See Note 3, “Business Combination,” for additional details regarding the Business Combination and Acquisition. On January 9, 2023, Sema4 Holdings Corp. changed its name to GeneDx Holdings Corp. Upon the name change, the Company’s Class A common stock and public warrants are listed on the Nasdaq under the symbols “WGS” and “WGSWW,” respectively. Unless otherwise stated herein or unless the context otherwise requires, references in these notes to the “Company,” or “GeneDx” refer to (i) Legacy Sema4 prior to the consummation of the Business Combination; and 116 Table of Content (ii) GeneDx Holdings and its subsidiaries following the consummation of the Business Combination (including, following the consummation of the Acquisition, Legacy GeneDx). 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company’s historical financial information includes costs of certain services historically provided by Icahn School of Medicine at Mount Sinai (“ISMMS”) pursuant to the Transition Services Agreement (“TSA”). These financial statements consolidate the operations and accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of audited consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the audited consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. The Company bases these estimates on current facts, historical and anticipated results, trends and various other assumptions that it believes are reasonable in the circumstances, including assumptions as to future events. These estimates include, but are not limited to, the transaction price for certain contracts with customers, potential or actual claims for recoupment from third-party payors, the capitalization of software costs, the valuation of stock-based awards, inventory, earn-out contingent liabilities and earn-out Restricted Stock Units (“RSUs”). Actual results could differ materially from those estimates, judgments and assumptions. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The majority of the Company’s cash, cash equivalents and restricted cash are uninsured with account balances in excess of the Federal Deposit Insurance Company limits. On March 14, 2023, we announced full access to our capital with now 100% of the Company’s cash, cash equivalents and marketable securities held in institutions designated as systematically important financial institutions. The Company’s cash and cash equivalents are deposited with high-quality financial institutions. The Company has balances in financial institutions that exceed federal depository insurance limits. Management believes these financial institutions are financially sound and, accordingly, that minimal credit risk exists. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company assesses both the customer and, if applicable, the third party payor that reimburses the Company on the customer’s behalf when evaluating concentration of credit risk. Significant customers and payors are those that represent more than 10% of the Company’s total annual revenues or accounts receivable balance at each respective balance sheet date. The significant concentrations of accounts receivable as of December 31, 2022 and 2021 were primarily from large managed care insurance companies. There was no individual customer that accounted for 10% or more of revenue or accounts receivable for any of the years presented. The Company does not require collateral as a means to mitigate customer credit risk. 117 Table of Content For each significant payor group, revenue as a percentage of total revenues and accounts receivable as a percentage of total accounts receivable are as follows: Revenue Accounts Receivable Year Ended December 31, As of December 31, 2022 2021 2020 2022 2021 Payor group A (1) * 22 % 27 % * 15 % Payor group B (2) 30 % 13 % 14 % 14 % * Payor group D * * * * 15 % Payor group E 15 % * * 14 % * __________________ * less than 10% (1) This payor group represented less than 10% of the Company’s total revenues in 2022 due primarily to a reversal of revenue related to certain overpayments previously made by this payor. Refer to Note 4, “Revenue Recognition.” (2) This payor group includes multiple individual plans and the Company calculates and presents the aggregated value from all plans, which is consistent with the Company’s portfolio approach used in accounting for diagnostic test revenue. The Company is subject to a concentration of risk from a limited number of suppliers for certain reagents and laboratory supplies. One supplier accounted for approximately 5 %, 7 % and 11 % of purchases for the years ended December 31, 2022, 2021 and 2020, respectively. Another supplier accounted for approximately 12 %, 11 % and 10 % of purchases for the years ended December 31, 2022, 2021 and 2020, respectively. This risk is managed by maintaining a target quantity of surplus stock. Alternative suppliers are available for some or all of these reagents and supplies. Impact of COVID-19 Beginning in April 2020, the Company’s diagnostic test volumes decreased significantly as compared to the prior year as a result of the initial outbreak of the COVID-19 pandemic and the related limitations and priorities across the healthcare system. In response, beginning in May 2020, the Company entered into several service agreements with state governments and healthcare institutions to provide testing for the presence of COVID-19 variants. Test volumes have since improved to what would, at this time, be considered normalized market conditions. A COVID-19 resurgence in the United States could however have a material impact on the Company’s consolidated results of operations, cash flows and financial condition. In March 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law which was a stimulus bill that, among other things, provided assistance to qualifying businesses and individuals and included funding for the healthcare system. During 2020, as part of the stimulus provided by the CARES Act, the Company received $ 5.4 million, comprised of $ 2.6 million received under the Provider Relief Fund (“PRF”) distribution and $ 2.8 million received under the Employee Retention Credit (“ERC”) distribution which was recorded in other current liabilities within the consolidated balance sheets as of December 31, 2022 and December 31, 2021. During 2021, the Company received an additional $ 5.6 million under the PRF distribution, which was recognized in other income in the consolidated statements of operations and comprehensive loss. Additionally, under the CARES Act, the Company deferred payment of U.S. social security taxes in 2020. As a result, $ 3.8 million of employer payroll tax payments were initially deferred as of December 31, 2020 with $ 1.9 million paid in both December 2021 and December 2022 with no remaining liability as of December 31, 2022. Following the Company’s announcement that it would discontinue COVID-19 testing services by March 31, 2022, the Company no longer provides COVID-19 testing services. During the year ended December 31, 2022, the Company wrote off an accounts receivable balance of $ 0.4 million related to COVID-19 testing services. 118 Table of Content Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist of amounts invested in money market funds. Carrying values of cash equivalents approximate fair value due to the short-term nature of these instruments. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the consolidated balance sheets that sum to the total of the same amounts shown on the consolidated statements of cash flows (in thousands): As of December 31, 2022 2021 2020 Cash and cash equivalents $ 123,933 $ 400,569 $ 108,132 Restricted cash 14,370 900 10,828 Total $ 138,303 $ 401,469 $ 118,960 Restricted cash as of December 31, 2022 includes $ 13.5 million held in escrow as restricted cash related to the closing of the Acquisition of Legacy GeneDx. The escrow amount is to be held for a period of 12 months following the closing date of the Acquisition as a fund for OPKO’s indemnification obligations pursuant to the Acquisition Merger Agreement. In addition, restricted cash, non-current, as of December 31, 2022 consists of money market deposit accounts that secure an irrevocable standby letter of credit that serves as collateral for security deposit operating leases (see Note 9, “Leases” ). Accounts Receivable Accounts receivable consists of amounts due from customers and third-party payors for services performed and reflect the consideration to which the Company expects to be entitled in exchange for providing those services. Accounts receivable is estimated and recorded in the period the related revenue is recorded. During the years ended December 31, 2022 and 2021, the Company did not record provisions for doubtful accounts. The Company did no t write off any accounts receivable balances for the years ended December 31, 2022 and 2021, and $ 0.2 million of accounts receivable was written off for the year ended December 31, 2020. Inventory, net Inventory, net, which primarily consists of finished goods such as testing supplies and reagents, is capitalized when purchased and expensed when used in performing services. Inventory is stated at the lower of cost or net realizable value. Cost is determined using actual costs on a first-in, first-out basis. The Company periodically performs obsolescence assessments and writes off any inventory that is no longer usable. Any write-down of inventory to net realizable value creates a new cost basis. During the fourth quarter of 2022, the Company identified indicators of impairment specifically with the planned exit and discontinuance of testing for Legacy Sema4. Certain inventory testing supplies and reagents have been or are being liquidated or disposed of rather than used to produce revenue. As a result, the Company recorded a $ 22.5 million impairment charge within impairment loss in the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2022. There was no impairment loss recorded for the years ended December 31, 2021 and December 31, 2020. Additionally, in the normal course of business the Company recorded a reserve offsetting inventory in the consolidated balance sheets, for excess and obsolete inventory of $ 1.1 million and $ 2.1 million for the years ended December 31, 2022 and December 31, 2021, respectively. Property and Equipment, net Property and equipment, net are stated at cost less accumulated depreciation and amortization. Equipment includes assets under finance lease. Improvements are capitalized, while maintenance and repairs are expensed as incurred. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the consolidated balance sheets and any resulting gain or loss is reflected in the consolidated statements of operations and comprehensive loss in the period realized. 119 Table of Content Finance leases and leasehold improvements are amortized straight-line over the shorter of the term of the lease or the estimated useful life. All other property and equipment assets are depreciated using the straight-line method over the estimated useful life of the asset, which ranges from three to five years . The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset or asset group may not be recoverable. An impairment loss is recognized when the total estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is assessed using discounted cash flows or other appropriate measures of fair value. During the fourth quarter of 2022, the Company identified indicators that it is more likely than not that the fair value of certain asset groups was less than their carrying value, see Note 6, “Property and Equipment, net.” Business Combinations The Company accounts for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. The tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values as of the business combination date, including identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. The Company bases the estimated fair value of identifiable intangible assets acquired in a business combination on third-party valuations that use information and assumptions provided by the Company’s management, which consider estimates of inputs and assumptions that a market participant would use. Any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets acquired and liabilities assumed is recorded as goodwill. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, estimated cost savings, cash flows, discount rates, estimated useful lives and probabilities surrounding the achievement of contingent milestones could result in different purchase price allocations and amortization expense in current and future periods. Goodwill In accordance with ASC 350, Intangibles-Goodwill and Other (“ASC 350”), the Company’s goodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Under ASC 350, the Company will perform annual impairment reviews of goodwill during the fourth fiscal quarter or more frequently if business factors indicate. In the fourth quarter of 2022, the Company identified indicators of impairment that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value and as a result goodwill was fully written off with $ 174.5 million recorded within impairment loss in the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2022, see Note 18, “Goodwill and Intangible Assets.” There was no goodwill for the years ended December 31, 2021 and December 31, 2020. Intangible Assets Amortizable intangible assets include trade names and trademarks, developed technology and customer relationships acquired as part of business combinations. Intangible assets acquired through our business combinations in the second quarter of 2022 are amortized on a straight line basis. All intangible assets subject to amortization are reviewed for impairment in accordance with ASC 360, Property, Plant and Equipment. There were no impairment losses recorded on intangible assets for any periods presented. Capitalized Software The Company capitalizes certain costs incurred related to the development of our software applications for internal use during the application development state. If a project constitutes an enhancement to existing software, the Company assesses whether the enhancement creates additional functionality to the software, thus qualifying the work incurred for capitalization. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred. Once the project is available for general release, capitalization ceases and we estimate the useful life of the asset and begin amortization. 120 Table of Content Capitalized software costs are amortized using the straight-line method over an estimated useful life of three years . Capitalized software is reviewed for impairment whenever events or changes in circumstances may indicate that the carrying amount of an asset may not be recoverable. In the fourth quarter of 2022, the Company identified indicators of impairment that the carrying value of the capitalized software may not be recoverable. As a result, certain costs previously capitalized were written down with $ 8.7 million recorded within cost of services, research and development and general and administrative expenses in the Company’s consolidated statements of operations and comprehensive loss. Cloud Computing The Company capitalizes certain costs incurred during the application development stage and all costs incurred during the preliminary project and post-implementation stages are expensed as incurred. Amortization begins when the cloud computing arrangement is ready for its intended use and is calculated on a straight-line basis over the fixed noncancellable periods plus renewal periods the Company deems it reasonably certain to exercise. During the year ended December 31, 2022, $ 0.3 million of implementation costs are capitalized and recorded in other current and non-current assets for amortization. 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 in an orderly transaction between market participants at the measurement date. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. The following hierarchy lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market: Level 1 : Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. Level 2 : Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active or model-derived valuations whose significant inputs are observable. Level 3 : Unobservable inputs that are significant to the measurement of fair value but are supported by little to no market data. The Company’s financial assets and liabilities consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, and long-term debt. The Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the relatively short-term nature of these accounts. The Company’s loan from the Connecticut Department of Economic and Community Development is classified within level 2 of the fair value hierarchy. As of December 31, 2022, this loan is recorded at its carrying value of $ 11.0 million in the consolidated balance sheet. The fair value is $ 4.9 million, which is estimated based on discounted cash flows using the yields of similar debt instruments of other companies with similar credit profiles. Warrant Liability As of the consummation of the Merger in July 2021, there were 21,995,000 warrants to purchase shares of Class A common stock outstanding, including 14,758,333 public warrants and 7,236,667 private placement warrants. As of December 31, 2022 and 2021, there were 21,994,972 warrants to purchase shares of Class A common stock outstanding, including 14,758,305 public warrants and 7,236,667 private placement warrants outstanding. Each warrant expires five years after the Business Combination or earlier upon redemption or liquidation, and entitles the holder to purchase one share of Class A common stock at an exercise price of $ 11.50 per share, subject to adjustment, at any time commencing on September 4, 2021. 121 Table of Content The Company may redeem the outstanding public warrants if the price per share of the Class A common stock equals or exceeds $ 18.00 as described below: • in whole and not in part; • at a price of $ 0.01 per public warrant; • upon not less than 30 days’ prior written notice of redemption to each warrant holder; and • if, and only if, the closing price of the Class A common stock equals or exceeds $ 18.00 per share (as adjusted) for any 20 trading days within a 30 -trading day period ending three trading days before sending the notice of redemption to warrant holders. The Company may redeem the outstanding public warrants if the price per share of the common stock equals or exceeds $ 10.00 as described below: • in whole and not in part; • at $ 0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares based on the redemption date and the fair market value of the common stock; • if, and only if, the closing price of the Class A common stock equals or exceeds $ 10.00 per share (as adjusted) for any 20 trading days within the 30 -trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders; and • if the closing price of the common stock for any 20 trading days within a 30 -trading day period ending three trading days before the Company sends notice of redemption to the warrant holders is less than $ 18.00 per share (as adjusted), the private placement warrants must also be concurrently called for redemption on the same terms as the outstanding public warrants, as described above. The private placement warrants were issued to CMLS Holdings, LLC, Mr. Munib Islam, Dr. Emily Leproust and Mr. Nat Turner, and are identical to the public warrants underlying the units sold in the initial public offering, except that (1) the private placement warrants and the common stock issuable upon the exercise of the private placement warrants would not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions, (2) the private placement warrants are exercisable on a cashless basis, (3) the private placement warrants are non-redeemable (except as described above, upon a redemption of warrants when the price per share of Class A common stock equals or exceeds $ 10.00 ) so long as they are held by the initial purchasers or their permitted transferees, and (4) the holders of the private placement warrants and the common stock issuable upon the exercise of the private placement warrants have certain registration rights. If the private placement warrants are held by someone other than the initial purchasers or their permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants. The Company accounts for warrants as liability-classified instruments based on an assessment of the warrant terms and applicable authoritative guidance in accordance with ASC 480-Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815-Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether the warrants meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815. This assessment is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. Contingent Consideration (Legacy GeneDx) In connection with the Acquisition of Legacy GeneDx, up to $ 150 million of contingent payments will be payable to OPKO in cash and/or shares of Company’s Class A common stock with such mix to be determined in the 122 Table of Content Company’s sole discretion, based upon achievement of 2022 and 2023 revenue milestones, pursuant to the Acquisition Merger Agreement (the “Milestone Payments”). If the Company elects to pay in shares of Class A common stock, the Acquisition Merger Agreement provides that the shares issues are to be valued at a fixed $ 4.86 per share for a maximum of 30.9 million shares. Subject to the terms and conditions of the Acquisition Merger Agreement, (a) the first Milestone Payment of $ 112.5 million will become due and payable if the revenue of the Legacy GeneDx group for the fiscal year 2022 equals or exceeds $ 163 million and (b) the second Milestone Payment of $ 37.5 million will become due and payable if the revenue of the Legacy GeneDx group for the fiscal year 2023 equals or exceeds $ 219 million (each of clauses (a) and (b), a “Milestone Event”); provided that 80 % of the Milestone Payment for the first milestone period or the second milestone period, as applicable, will become payable in respect of such period if the Legacy GeneDx group achieves 90 % of the applicable Milestone Event revenue target for such period, which amount will scale on a linear basis up to 100 % of the applicable Milestone Payment at 100 % of the applicable revenue target. The milestone payments would require issuance of shares of Company’s Class A common stock up to 23.2 million shares and 7.7 million shares for the first Milestone Payment and second Milestone Payment, respectively. The fair value of the Milestone Payment is classified within level 3 of the fair value hierarchy. As of December 31, 2022, the fair value of the second Milestone Payment was determined to be $ 1.6 million, which is estimated using a Monte Carlo simulation valuation model and assuming the Company will pay the earn-out in shares. The total liability as of December 31, 2022, is $ 7.6 million, $ 6.0 million of which represents the fair value of the first Milestone Payment which was already earned and is expected to be paid via issuance of shares of Company’s Class A common stock based on the results of 2022. Earn-out contingent liability In connection with the Merger, all Legacy Sema4 stockholders and option holders at that time became entitled to a pro rata share of 19,021,576 earn-out shares and earn-out Restricted Stock Units (“RSUs”). Based on an assessment of the earn-out shares for the Legacy Sema4 stockholders, the Company considered ASC 480 and ASC 815 and accounted for the earn-out shares as a liability. The Company subsequently measures the fair value of the liability at each reporting period and reports the changes in fair value recorded as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss. As for the earn-out RSUs for the Legacy Sema4 option holders, a total of 2.7 million RSUs were granted on December 9, 2021. The vesting of such arrangement is conditioned on the satisfaction of both a service requirement and on the satisfaction of a market-based requirement. The market-based requirement would be achieved if the Company’s stock price is greater than or equal to $ 13 (Triggering Event I), $ 15 (Triggering Event II) and $ 18 (Triggering Event III) during the applicable performance period, based on the volume-weighted average price for a period of at least 20 days out of 30 consecutive trading days. Therefore, the Company accounts for this arrangement in accordance with ASC 718- Compensation — Stock Compensation (“ASC 718”) and stock-compensation expense is recognized over the longer of the expected achievement period for the market-based requirement and the service requirement. The Company recorded $ 0.9 million and $ 0.2 million in relation to the earn-out RSU for the years ended December 31, 2022 and 2021, respectively. In the event that any earn-out RSUs that are forfeited as a result of a failure to achieve the service requirement, the underlying shares will be reallocated on an annual basis to the Legacy Sema4 stockholders and to the Legacy Sema4 option holders who remain employed as of the date of such reallocation. The Company accounts for the re-allocations to Legacy Sema4 option holders as new grants. The fair value of the earn-out RSUs are classified within level 3 of the fair value hierarchy and the estimated fair value is determined using a Monte Carlo valuation analysis. Stock-based Compensation The Company measures stock-based compensation at the grant date based on the fair value of the award and recognizes stock-based compensation expense over the requisite service period for each separate vesting portion of the award on a straight-line basis. Determining the fair value of stock option awards requires judgment, including estimating stock price volatility and expected option life. Restricted stock awards are valued based on the fair value 123 Table of Content of the stock on the grant date. The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awards. The Company issues new shares upon share option exercise and vesting of a restricted share unit. Forfeitures of stock-based compensation are recognized as they occur. Income Taxes Income taxes are accounted for under the asset and liability method and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized. Based on the Company’s historical operating losses, the Company has recorded a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not, based on technical merits, that the position will be sustained upon examination by the appropriate taxing authorities. The amount of tax benefit recognized for an uncertain tax position is the largest that is more than 50 percent likelihood to be realized upon ultimate settlement. The Company records interest and penalties related to tax uncertainties, where appropriate, in income tax expense. Leases Under ASU 2016-02, Leases (ASC 842), the Company determines if an arrangement is or contains a lease at inception. A lease qualifies as a finance lease if any of the following criteria are met at the inception of the lease: (i) there is a transfer of ownership of the leased asset to the Company by the end of the lease term, (ii) the Company holds an option to purchase the leased asset that the Company is reasonably certain to exercise, (iii) the lease term is for a major part of the remaining economic life of the leased asset, (iv) the present value of the sum of lease payments equals or exceeds substantially all of the fair value of the leased asset, or (v) the nature of the leased asset is specialized to the point that it is expected to provide the lessor no alternative use at the end of the lease term. All other leases are classified as operating leases. Right-of-use assets (ROU assets) represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company does not recognize a ROU asset or lease liability for leases with a term of 12 months or less and does not include variable costs, which are based on actual usage, in the measurement of ROU assets and lease liabilities. The ROU assets include any lease payments made prior to the commencement date and initial direct costs incurred and excludes lease incentives received. ROU assets are subsequently assessed for impairment in accordance with the Company’s accounting policy for long-lived assets. All lease liabilities are measured at the present value of the associated payments, discounted using the Company’s incremental borrowing rate determined based on the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for similar term and in a similar economic environment on a collateralized basis, unless there is a rate implicit in the lease that is readily determinable. The Company recognizes lease expense for operating leases on a straight-line basis over the lease term, which may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Variable costs are expensed when the event determining the amount of variable consideration to be paid occurs. Interest expense for finance leases is recognized based on the accretion of the lease liability. The Company has operating and finance lease arrangements with lease and non-lease components. The Company accounts for lease and non-lease components as a single lease component for all leases. In the fourth quarter of 2022, the Company identified indicators of impairment that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value, see Note 9, “Leases” . 124 Table of Content Revenue Recognition The Company adopted Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”), Revenue from Contracts with Customers , on January 1, 2019 using the modified retrospective method applied to contracts which were not completed as of the adoption date. The Company recognizes revenue when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration which the Company expects to be entitled to in exchange for those goods or services. If any changes in customer credit issues are identified which were not assessed at the date of service, provisions for doubtful accounts are recognized and recorded. Diagnostic test revenue The Company’s diagnostic test revenue contracts typically consist of a single performance obligation to deliver diagnostic testing services to the ordering facility or patient and therefore allocation of the contract transaction price is not applicable. Control over diagnostic testing services is generally transferred at a point in time when the customer obtains control of the promised service which is upon delivery of the test. Diagnostic test revenues consist primarily of services reimbursed by third-party insurance payors. Third-party insurance payors include managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges, and employers. In arrangements with third-party insurance payors, the transaction price is stated within the contract, however, the Company accepts payments from third-party payors that are less than the contractually stated price and is therefore variable consideration and the transaction price is estimated. When determining the transaction price, the Company uses a portfolio approach as a practical expedient to account for categories of diagnostic test contracts as collective groups rather than on an individual contract basis. The portfolio consists of major payor classes based on third-party payors. Based on historical collection trends and other analyses, the Company believes that revenue recognized by utilizing the portfolio approach approximates the revenue that would have been recognized if an individual contract approach was used. Estimates of allowances for third-party insurance payors that impact the estimated transaction price are based upon the pricing and payment terms specified in the related contractual agreements. Contractual pricing and payment terms in third-party insurance agreements are generally based upon predetermined rates per diagnosis, per diem rates or discounted fee-for-service rates. In addition, for third-party payors in general, the estimated transaction price is impacted by factors such as historical collection experience, contractual provisions and insurance reimbursement policies, payor mix, and other relevant information for applicable payor portfolios. For institutional clients, the customer is the institution. The Company determines the transaction price associated with services rendered in accordance with the contractual rates established with each customer. Payment terms and conditions vary by contract and customer, however standard payment terms are generally less than 60 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. Other revenue The Company enters into both short-term and long-term project-based collaboration and service agreements with customers. Certain of these contracts include a license to directly access the Company’s intellectual property or participation by the Company on joint steering committees with the customer, which was considered to be immaterial in the context of the contract. The Company concludes that the goods and services transferred to our customers pursuant to these agreements generally comprise a single performance obligation on the basis that such goods and services are not distinct within the context of the contract. This is because the goods and services are highly interdependent and interrelated such that the Company would not be able to fulfill its underlying promise to our customers by transferring each good or service independently. 125 Table of Content Certain of these contracts include non-refundable upfront payments and variable payments based upon the achievement of certain milestones or fixed monthly payments during the contract term. Non-refundable upfront payments received prior to the Company performing performance obligation are recorded as a contract liability upon receipt. Milestone payments are included in the transaction price only when it is probable that doing so will not result in a significant reversal of cumulative revenue recognized when the uncertainty associated with the milestone is subsequently resolved. For longer-term contracts, the Company does not account for a significant financing component since a substantial amount of the consideration promised by the customer is variable and the amount or timing of that consideration varies on the basis of a future event that is not substantially within the control of either party. The Company satisfies its performance obligation generally over time if the customer simultaneously receives and consumes the benefits provided by the Company’s services as the Company performs those services. The Company recognizes revenue over time using an input measure based on costs incurred on the basis that this measure best reflects the pattern of transfer of control of the services to the customer. In some contracts, the Company subcontracts certain services to other parties for which the Company is ultimately responsible. Costs incurred for such subcontracted services are included in the Company’s measure of progress for satisfying its performance obligation and are recorded in cost of services in the consolidated statements of operations and comprehensive loss. Changes in the total estimated costs to be incurred in measuring the Company’s progress toward satisfying its performance obligation may result in adjustments to cumulative revenue recognized at the time the change in estimate occurs. Segment Information Historically, the Company operated in one segment. During 2022, with the Acquisition of Legacy GeneDx, the change in Chief Operating Decision Maker (“CODM”) and the announced exit from the majority of the Legacy Sema4 diagnostics operations, the Company’s CODM began to evaluate the Company’s business separately for GeneDx, inclusive of Legacy GeneDx and Legacy Sema4 data revenues and associated costs and corporate support costs, and the existing Legacy Sema4 diagnostics business during the fourth quarter of 2022. As a result, the Company has concluded that two reportable segments exist and have been presented for 2022. The majority of the Company’s operations for 2021 and 2022 are included in the Legacy Sema4 segment and the majority of the GeneDx segment for 2022 was resultant from the 2022 Acquisition, and thus did not exist within the Company’s consolidated results for 2021 and 2020. As a result, the Company has not presented segments for 2021 and 2020. See Note 17, “ Segment Reporting ”, for 2022 segment disclosures. Emerging Growth Company The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. As such, the Company is eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including reduced reporting and extended transition periods to comply with new or revised accounting standards for public business entities. The Company has elected to avail itself of this exemption and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . Recently Adopted Accounting Pronouncements The Company adopted ASU No. 2016-02, Leases (ASC 842) on January 1, 2022 using the modified retrospective method. The Company also elected to use the package of practical expedients permitted under the transition guidance which allows for the carry forward of historical lease classification for existing leases on the adoption date and does not require the assessment of existing lease contracts to determine whether the contracts contain a lease or initial direct costs. Prior periods were not retrospectively adjusted. The adoption of this standard as of January 1, 2022, resulted in the recognition of operating lease ROU assets in the amount of $ 39.2 million and operating lease liabilities in the amount of $ 42.2 million. The adoption did not have material impact on finance leases. The adoption did not have material impact on the consolidated statements of operations and comprehensive loss or cash flows. 126 Table of Content In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance, which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The Company adopted ASU 2021-10 effective January 1, 2022. The Company did not receive any such grants during the year ended December 31, 2022. Recently Issued Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The new credit losses standard changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, contract assets recognized as a result of applying ASC 606, loans and certain other instruments, entities will be required to use a new forward looking “expected loss” model that generally will result in earlier recognition of credit losses than under today’s incurred loss model. As an emerging growth company, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, with early adoption permitted. Application of the amendments is through a cumulative-effect adjustment to the opening retained earnings as of the beginning of the first reporting period in which the guidance is effective. The guidance was adopted by the Company as of January 1, 2023. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures. 3. Business Combination As discussed in Note 1, on July 22, 2021, the Company consummated the Business Combination and received net cash proceeds of $ 510.0 million. Pursuant to the Business Combination, the following occurred: • Holders of 10,188 shares of CMLS’s Class A common stock sold in its initial public offering (the “public shares”) exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the proceeds from CMLS’s initial public offering (the “IPO”), which was approximately $ 10.00 per share, or $ 101,880 in aggregate. • Each share of CMLS’s Class B common stock was automatically converted into common stock of the Company. • Each share of the Legacy Sema4 Class B common stock was converted into 1 /100th of a share of Legacy Sema4 Class A common stock and each share of Legacy Sema4 common stock and preferred stock was canceled and received a portion of the merger consideration, resulting in certain Legacy Sema4 stockholders receiving $ 230,665,220 of cash and the Legacy Sema4 stockholders receiving an aggregate of 178,336,298 shares of common stock of the Company. • Pursuant to subscription agreements entered into on February 9, 2021, certain investors agreed to subscribe for an aggregate of 35,000,000 newly-issued shares of common stock at a purchase price of $ 10.00 per share for an aggregate purchase price of $ 350,000,000 (the “PIPE Investment”). Concurrently with the closing of the Business Combination, the Company consummated the PIPE Investment. • After giving effect to the Merger, the redemption of public shares and the conversion of the CMLS Class B common stock as described above, and the consummation of the PIPE Investment, there were 240,190,402 shares of the Company’s common stock issued and outstanding. The Company recorded $ 51.8 million of transaction costs which consist of direct, incremental legal, professional, accounting, and other third-party fees that were directly related to the execution of the Merger in additional paid-in capital. Upon consummation of the Merger, $ 9.0 million of the transaction costs relates to costs incurred by Legacy Sema4 and reclassed to offset against equity from prepaid expense and other current assets. 127 Table of Content Legacy GeneDx Acquisition As discussed in Note 1, on April 29, 2022, the Company completed the Acquisition of Legacy GeneDx. At the closing of the Acquisition, the Company paid OPKO cash consideration of $ 140.5 million (net of transaction expenses and other customary purchase price adjustments) and issued to OPKO 80 million shares of the Company’s Class A common stock ($ 172 million based on the closing date share price of $ 2.15 per share). A portion of this cash ($ 13.4 million) and share consideration ( 8.3 million shares) will be held in escrow for 12 months following the closing date of the Acquisition. In addition, up to $ 150 million is payable following the closing of the Acquisition, if certain revenue-based milestones are achieved for each of the fiscal years ending December 31, 2022 and December 31, 2023. These milestone payments, if and to the extent earned under the terms of the Acquisition Merger Agreement, will be satisfied through the payment and/or issuance of a combination of cash and shares of the Company’s Class A common stock (valued at a fixed $ 4.86 per share, subject to adjustment for stock splits and similar changes), with such mix to be determined in the Company’s sole discretion. As of the acquisition date, the fair value of the earn-out was determined to be $ 52.0 million and was included in the aggregate purchase price of $ 364.5 million. Concurrently with the closing of the Acquisition, the Company also issued and sold in private placement 50,000,000 shares of the Company’s Class A common stock to certain institutional investors for aggregate gross proceeds of $ 200 million (the “Acquisition PIPE Investment”). The following table presents the net purchase price and the fair values of the assets and liabilities of GeneDx on a preliminary basis (in thousands): Cash and cash equivalents $ — Accounts receivables 21,651 Inventory 6,210 Prepaid expenses 4,671 Other current assets 320 Property and equipment 29,509 Other non-current assets 6,464 Trade names and trademarks 50,000 Developed technology 48,000 Customer relationships 98,000 Accounts payable and accrued expenses ( 12,862 ) Other current liabilities ( 15,781 ) Deferred tax liabilities ( 51,779 ) Long-term lease liabilities ( 5,798 ) Fair value of net assets acquired 178,605 Goodwill (1) 185,871 Aggregate purchase price $ 364,476 (1) Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. see Note 18, “Goodwill and Intangible Assets” for more detail. The amounts above represent the preliminary fair value estimates and the Company has identified certain adjustments during the measurement period that are primarily related to the Legacy GeneDx accrued expenses that do not represent GeneDx’s assumed liabilities. These measurement period adjustments are reflected in the goodwill balance and shown in Note 18, “Goodwill and Intangible Assets.” Further adjustments may be made as the Company obtains additional information during the remaining measurement period and finalizes its fair value 128 Table of Content estimates. Specifically, the Company is still in the process of reviewing and finalizing the net working capital adjustment with OPKO. Upon final agreement, the Company may have further adjustments. Increases or decreases in the estimated fair values of the net assets acquired may impact the Company’s consolidated statements of operations and comprehensive loss in future periods. The Company expects that the values assigned to the assets acquired and liabilities assumed will be finalized during the one-year measurement period following the Acquisition closing date. For the year ended December 31, 2022, $ 12.1 million of Legacy GeneDx Acquisition-related costs are reflected within general and administrative expenses in the Company’s consolidated statements of operations and comprehensive loss. These costs include third-party professional firms’ services related to due diligence, advisory and legal services. The Company’s consolidated results include $ 116.4 million of revenue and $( 25.9 ) million of pretax loss for the year ended December 31, 2022 from Legacy GeneDx. Pro forma financial information The pro forma information below gives effect to the Acquisition as if it had been completed on January 1, 2021 (“the pro forma acquisition date”). The pro forma information is not necessarily indicative of the Company’s revenue results had the Acquisition been completed on the pro forma acquisition date, nor is it necessarily indicative of the Company’s future results. The pro forma revenue information reflects Legacy GeneDx’s historic revenue and does not include any additional revenue opportunities following the Acquisition. The purchase price allocations for the assets acquired and liabilities assumed are based on preliminary valuations and are subject to change as the Company obtains additional information during the acquisition measurement period. Increases or decreases in the estimated fair values of the net assets acquired may impact the Company’s consolidated statements of operations and comprehensive loss in future periods. The Company expects that the values assigned to the assets acquired and liabilities assumed will be finalized during the one-year measurement period following the Acquisition closing date. The pro forma revenues and net loss include the following adjustments based on the Company’s preliminary analysis and are subject to change as additional analysis is performed: • revised amortization expense resulting from the acquired intangible assets, • historical intercompany revenue recognized by Legacy GeneDx with OPKO or other related parties, • income tax benefits resulting from the deferred tax liabilities acquired, and • revised stock based compensation reflecting the inducement awards issued to the Legacy GeneDx employees. December 31, 2022 (in thousands) 2021 (in thousands) Pro forma revenues $ 282,959 $ 326,720 Pro forma net loss $ ( 613,199 ) $ ( 252,506 ) For year ended December 31, 2022 and 2021 pro forma revenues combine the Company and Legacy GeneDx and included Legacy GeneDx revenue of $ 165.2 million and $ 118.3 million, respectively. 129 Table of Content 4. Revenue Recognition Disaggregated revenue The following table summarizes the Company’s disaggregated revenue (in thousands): Year Ended December 31, 2022 2021 2020 Diagnostic test revenue: Patients with third-party insurance $ 173,624 $ 169,576 $ 138,153 Institutional customers 46,124 31,717 35,200 Self-pay patients 7,586 3,807 1,998 Total diagnostic test revenue 227,334 205,100 175,351 Other revenue 7,360 7,095 3,971 Total $ 234,694 $ 212,195 $ 179,322 Reassessment of variable consideration Subsequent changes to the estimate of the transaction price, determined on a portfolio basis when applicable, are generally recorded as adjustments to revenue in the period of the change. The Company updates estimated variable consideration quarterly. For the year ended December 31, 2022, a change in estimate included a decrease in revenue related to a payor, as further disclosed in the “—Certain payor matters” below, for tests in which the performance obligation of delivering the test results was met in prior periods. The decrease was further offset by other upward adjustments made for tests in which the performance obligation of delivering the test results was met in prior periods related to other payors. During 2022, the Company recorded $ 54.0 million to decrease revenue resulting from changes in the estimated transaction price due to contractual adjustments, obtaining updated information from payors and patients that was unknown at the time the performance obligation was met and potential and actual settlements with third party payors. As described in more detail below, third-party payors may decide to deny payment or seek to recoup payments for tests performed by the Company for a number of reasons and, as a result, the Company may be required to refund payments previously received, and the Company’s revenues may be subject to retroactive adjustment as a result. The Company processes requests for recoupment from third-party payors in the ordinary course of its business and reflects in the Company’s transaction price estimations. See “—Certain payor matters” below for further details regarding an ongoing matter related to certain overpayments the Company allegedly received from a third-party payor; the Company has established certain liabilities and reversed certain of its previously recorded revenue as a result of this matter and other potential settlements with payors. Certain payor matters As noted above, third-party payors, including government programs, may decide to deny payment or seek to recoup payments for tests performed by the Company that they contend were improperly billed, not medically necessary or against their coverage determinations, or for which they believe they have otherwise overpaid, including as a result of their own error. As a result, the Company may be required to refund payments already received, and the Company’s revenues may be subject to retroactive adjustment as a result of these factors among others, including without limitation, differing interpretations of billing and coding guidance, and changes by government agencies and payors in interpretations, requirements, policies and/or “conditions of participation” in various programs. The Company processes requests for recoupment from third-party payors in the ordinary course of its business, and it is likely that the Company will continue to do so in the future. If a third-party payor denies payment for testing or recoups money from the Company in a later period, reimbursement and the associated recognition of revenue for the Company’s testing services could decline. 130 Table of Content As an integral part of the Company’s billing compliance program the Company instituted a third-party review of billing claims and compliance practices, and initiated improvements including implementing a package of new billing compliance policies and procedures and strengthening the Company’s billing compliance team. From time to time, the Company may have an obligation to reimburse Medicare, Medicaid, and third-party payors for overpayments regardless of fault. Settlements with third-party payors for retroactive adjustments due to audits, reviews, or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing services. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor, the Company’s historical settlement activity (if any), and the Company’s assessment of the probability a significant reversal of cumulative revenue recognized will occur when the uncertainty is subsequently resolved. Estimated settlements are adjusted in future periods as such adjustments become known (that is, if new information becomes available), or as years are settled or are no longer subject to such audits, reviews, and investigations. Throughout 2022, the Company was engaged in discussions with one of its third-party payors (the “Payor”) regarding certain overpayments. On December 30, 2022, the Company entered into a settlement agreement with the Payor in order to settle the claims related to coverage and billing matters allegedly resulting in the overpayments by the Payor to the Company (the “Disputed Claims”). Under the settlement agreement, $ 42.0 million is to be paid by the Company to the Payor in a series of installments over the next four years with the final installment payment scheduled to be on or before June 30, 2026. The first installment payment of $ 15.0 million was made on December 31, 2022. In consideration for these payments, the Payor has agreed to provide releases of the Disputed Claims, which releases become effective on or about April 1, 2023. As a result of this matter, and in connection with a review of certain billing policies and procedures undertaken by management, the Company considered the need to establish reserves for potential recoupments of payments previously made by third-party payors. As of December 31, 2022, $ 39.0 million has been accrued. See Note 16, “Supplemental Financial Information.” The Company uses estimates, judgments, and assumptions to assess whether it is probable that a significant reversal in the amount of cumulative revenue may occur in future periods, based upon information presently available. These estimates are subject to change. In addition, as discussed above, the Company has made certain adjustments to its estimated variable consideration as result of this matter and other potential settlements with payors. Remaining performance obligations Due to the long-term nature of collaboration service agreements, the Company’s obligations pursuant to such agreements represent partially unsatisfied performance obligations as of December 31, 2022. The revenues under existing service agreements with original expected durations of more than one year are estimated to be approximately $ 6.8 million. The Company expects to recognize the majority of this revenue over the next 2.5 years. Costs to fulfill contracts Costs associated with fulfilling the Company’s performance obligations pursuant to its collaboration service agreements include costs for services that are subcontracted to ISMMS. Amounts are generally prepaid and then expensed in line with the pattern of revenue recognition. Prepayment of amounts prior to the costs being incurred are recognized on the balance sheets as current or non-current asset based upon forecasted performance. As of December 31, 2022 and 2021, the Company had outstanding deferred costs to fulfill contracts of $ 0.3 million and $ 1.8 million, respectively. At each period, all outstanding deferred costs were recorded as other current assets. Amortization of deferred costs was $ 1.5 million, $ 1.4 million and $ 0.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. The amortization of these costs is recorded in cost of services of the consolidated statements of operations and comprehensive loss. 131 Table of Content 5. Fair Value Measurements The following tables set forth the fair value of financial instruments that were measured at fair value on a recurring basis (in thousands): December 31, 2022 Total Level 1 Level 2 Level 3 Financial Assets: Money market funds $ 16,901 $ 16,901 $ — $ — Total financial assets $ 16,901 $ 16,901 $ — $ — Financial Liabilities: Public warrant liability $ 280 $ 280 $ — $ — Private warrant liability 138 — 138 — Earn-out contingent liability — — — — Contingent consideration based on milestone achievement 7,619 — — 7,619 Total financial liabilities $ 8,037 $ 280 $ 138 $ 7,619 December 31, 2021 Total Level 1 Level 2 Level 3 Financial Assets: Money market funds $ 385,370 $ 385,370 $ — $ — Total financial assets $ 385,370 $ 385,370 $ — $ — Financial Liabilities: Public warrant liability $ 14,463 $ 14,463 $ — $ — Private warrant liability 7,092 — 7,092 — Earn-out contingent liability 10,244 — — 10,244 Total financial liabilities $ 31,799 $ 14,463 $ 7,092 $ 10,244 Of the $ 123.9 million cash and cash equivalents presented on the consolidated balance sheets, $ 16.9 million is in money market funds and is classified within Level 1 of the fair value hierarchy as the fair value is based on quoted prices in active markets. The Company’s outstanding warrants include publicly-traded warrants (the “Public Warrants”) which were originally issued in the IPO and warrants sold in a private placement to CMLS Holdings LLC (the “Private Warrants”). The Company evaluated its warrants under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and concluded that they do not meet the criteria to be classified in stockholders’ equity. Since the Public Warrants and Private Warrants meet the definition of a derivative under ASC 815, the Company recorded these warrants as non-current liabilities on the balance sheet at fair value upon the closing of the Business Combination, with subsequent changes in their respective fair values recognized in other income (expense), net on the consolidated statements of operations and comprehensive loss at each reporting date. The Public Warrants are classified within Level 1 of the fair value hierarchy as they are traded in active markets. The Private Warrants are classified within Level 2 of the fair value hierarchy as management determined the fair value of each Private Warrant is the same as that of a Public Warrant because the terms are substantially the same. For the year ended December 31, 2022, a gain of $ 21.1 million was recorded within the change in the change in fair market value of warrant and earn-out contingent liabilities in the consolidated statements of operations and comprehensive loss based on re-measurement performed as of the period end date. 132 Table of Content The earn-out contingent liabilities include the Company’s contingent obligation to issue earn-out shares for Legacy Sema4 stockholders (“Earn-out Shares”) as well as the Company’s contingent obligation to make an additional Milestone Payment of up to $ 150 million, up to 30.9 million shares of its Class A common stock, or a combination of cash and shares at our discretion, to OPKO if certain revenue-based milestones are achieved for each of the fiscal years ended December 31, 2022 and December 31, 2023. As of December 31, 2022, the first milestone was met and is anticipated to be paid by the Company issuing approximately 23.2 million shares of Class A common stock, which is determined to be approximately $ 6 million in fair value as of December 31, 2022. The Earn-out Shares are accounted for as a liability and required remeasurement at each reporting date. The estimated fair value of the total Earn-out Shares as of December 31, 2022 is determined based on a Monte Carlo simulation valuation model. The fair value of the earn-out contingent liability is sensitive to the expected volatility for the Company and the Company’s Class A common stock price which is sensitive to changes in the forecasts of earnings and/or the relevant operating metrics. The expected volatility for the Company is based on the historical volatility of selected guideline companies, the historical volatility of the Company, and the implied volatility of the Company’s call options . The key assumptions utilized in determining the Earn-out Shares valuation as of December 31, 2022 and December 31, 2021 were as follows: December 31, 2022 December 31, 2021 Stock price $ 0.26 $ 4.46 Expected volatility 107.5 % 62.5 % Expected term (in years) 0.6 1.6 Risk-free interest rate 4.76 % 0.58 % The fair value determined and recorded as of December 31, 2022 and December 31, 2021 was zero and $ 10.2 million, respectively. During the year ended December 31, 2022 a gain of $ 10.2 million was recorded within the change in fair market value of warrant and earn-out contingent liabilities in the consolidated statements of operations and comprehensive loss based on re-measurement performed as of the period end date. The Milestone Payments contingent liability represents additional acquisition consideration to pay up to $ 150 million, up to 30.9 million shares of the Company’s Class A common stock or a combination of cash and shares at the Company’s discretion based on the achievement of Legacy GeneDx revenue-based milestones in fiscal years 2022 and 2023. Subject to the terms and conditions of the Acquisition Merger Agreement, (a) the first Milestone Payment representing 75 % of the aggregate became due as the Legacy GeneDx group’s revenue exceeded $ 163 million for the year ended December 31, 2022 and (b) the second Milestone Payment representing the final 25 % will become due and payable if the revenue of the Legacy GeneDx group for the fiscal year 2023 equals or exceeds $ 219 million; provided that 80 % of the Milestone Payment will become payable in respect of such period if the Legacy GeneDx group achieves 90 % of the applicable Milestone Event revenue target, which amount will scale on a linear basis up to 100 % of the applicable Milestone Payment at 100 % of the applicable revenue target. Each Milestone Payment will be satisfied through the payment and/or issuance of a combination of cash and shares of the Company’s Class A common stock (valued at a fixed $ 4.86 per share), with such mix to be determined at the Company’s sole discretion. Settlement of the first Milestone Payment is expected to be paid via issuance of shares of Company’s Class A common stock based on the results of 2022. The Company recorded the fair value of the Milestone Payments for $ 7.6 million as of December 31, 2022, of which $ 6.0 million has been earned and is presented as current liabilities in the consolidated balance sheets. For the year ended December 31, 2022, a gain of $ 38.9 million was recorded in the change in fair market value of warrant and earn-out contingent liabilities in the consolidated statements of operations and comprehensive loss based on re-measurement performed as of the period end date. The fair value of the remaining earn-out was determined based on a Monte Carlo simulation valuation model and the key assumptions include revenue projections, revenue volatility of 25 %, the Company’s expectation to settle the liability in shares and share price of $ 0.26 per share. 133 Table of Content The earn-out contingent liabilities are categorized as Level 3 of the fair value hierarchy as the Company utilizes unobservable inputs in estimating the fair value. There were no transfers between Level 1, Level 2 and Level 3 during the periods presented. 6. Property and Equipment Property and equipment consisted of the following (in thousands): As of December 31, 2022 2021 Laboratory equipment $ 41,255 $ 28,552 Equipment under finance leases 21,384 21,384 Leasehold improvements 35,561 21,905 Capitalized software 32,171 25,693 Building under finance lease 6,276 6,276 Construction in-progress 3,386 940 Computer equipment 9,177 6,634 Furniture, fixtures and other equipment 3,777 3,241 Total property and equipment 152,987 114,625 Less: accumulated depreciation and amortization ( 101,460 ) ( 51,906 ) Property and equipment, net $ 51,527 $ 62,719 For the years ended December 31, 2022, 2021 and 2020, depreciation and amortization expense was $ 50.0 million, $ 21.8 million and $ 11.7 million, respectively, which included software amortization expense of $ 15.4 million, $ 5.6 million and $ 3.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. For intangible amortization, see Note 18, “Goodwill and Intangible Assets.” For the year ended December 31, 2022, the Company accelerated depreciation and amortization charge of $ 24.0 million due to the change in the Company’s useful lives on certain fixed assets that are related to the business exit activity. Depreciation and amortization expense is included within the statements of operations and comprehensive loss as follows (in thousands): Year Ended December 31, 2022 2021 2020 Cost of services $ 31,328 $ 14,094 $ 9,055 Research and development 14,960 5,819 1,040 Selling and marketing 4 3 — General and administrative 3,667 1,891 1,639 Total depreciation and amortization expenses $ 49,959 $ 21,807 $ 11,734 7. Related Party Transactions Related party revenues Related party revenues primarily include diagnostic testing revenues generated by GeneDx from BioReference Laboratories, Inc. (“BRLI”), which is a subsidiary of OPKO. The prices charged represent market rates. Revenue recorded from this contract was $ 1.7 million for the year ended December 31, 2022. 134 Table of Content Related party expenses On June 1, 2017, the Company signed a contribution and funding agreement and other agreements with ISMMS, whereby ISMMS contributed certain assets and liabilities related to the Company’s operations, provided certain services to the Company, and also committed to funding the Company up to $ 55.0 million in future capital contributions in exchange for equity in the Company, of which $ 55.0 million was drawn as of December 31, 2019. Following the transaction, the Company commenced operations and began providing the services and performing research. For years ended December 31, 2021 and 2020, the Company incurred certain costs with ISMMS. Expenses recognized under the TSA totaled $ 1.4 million and $ 7.2 million for the years ended December 31, 2021 and 2020, respectively, and are presented within related party expenses in the consolidated statements of operations and comprehensive loss. The Company did not incur any costs under the TSA in the year ended December 31, 2022. The Company did not have any TSA payables due to ISMMS of as of December 31, 2022 and 2021. The ISMMS TSA expired on March 28, 2021. Expenses recognized pursuant to other service arrangements with ISMMS totaled $ 7.4 million, $ 7.0 million and $ 4.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. These amounts are included in either cost of services or related party expenses on the consolidated statements of operations and comprehensive loss depending on the particular activity to which the costs relate. Payables due to ISMMS for the other service arrangements were $ 2.4 million and $ 2.6 million as of December 30, 2022 and 2021, respectively. These amounts are included within due to related parties on the Company’s consolidated balance sheets. Additionally, the Company incurred $ 1.7 million in purchases of diagnostic testing kits and materials for the year ended December 31, 2022 from an affiliate of a member of the Board of Directors who has served in the role since July 2021. The prices paid represent market rates. Payables due were $ 0.4 million as of December 31, 2022. GeneDx and OPKO entered into a Transition Services Agreement dated as of April 29, 2022 (the “OPKO TSA”) pursuant to which OPKO has agreed to provide, at cost, certain services in support of the Acquisition of the GeneDx business through December 31, 2022, subject to certain limited exceptions, in order to facilitate the transactions contemplated by the Acquisition Merger Agreement, including human resources, information technology support, and finance and accounting. The Company recognized $ 1.3 million and in costs for the year ended December 31, 2022, respectively. As of December 31, 2022, $ 0.4 million was unpaid and included in due to related parties in consolidated balance sheets. The Company also recorded $ 1.3 million of receivables from OPKO related to the Acquisition closing working capital adjustment. This amount is presented as other current assets in consolidated balance sheets as of December 31, 2022. Total related party costs are included within cost of services and related party expenses in the consolidated statements of operations and comprehensive loss as follows (in thousands): Year Ended December 31, 2022 2021 2020 Costs of services $ 4,169 $ 3,975 $ 2,189 Related party expenses 6,312 5,659 9,395 Total related party costs $ 10,481 $ 9,634 $ 11,584 8. Long-Term Debt Loan and Security Agreement (the “SVB Agreement”) On November 15, 2021, the Company and Sema4 OpCo (together, the “Borrower”) entered into the SVB Agreement with Silicon Valley Bank (“SVB”). The SVB Agreement provides for a Revolver up to an aggregate principal amount of $ 125.0 million, including a sublimit of $ 20.0 million for Letters of Credit (as such terms are defined in the SVB Agreement). The outstanding principal amount of any Advance (as such term is defined in the 135 Table of Content SVB Agreement) will bear interest at a floating rate per annum equal to the greater of (1) 4.00 % and (2) the Prime Rate plus the Prime Rate Margin. The Revolver will mature on November 15, 2024. The obligations under the SVB Agreement are secured by a first priority perfected security interest in substantially all of the Company’s assets except for (i) Governmental Collection Accounts (as defined in the SVB Agreement), (ii) more than 65 % of the presently existing and thereafter arising issued and outstanding shares of capital stock owned by Borrowers in a Foreign Subsidiary (as such term is defined in the SVB Agreement) and (iii) intellectual property pursuant to the terms of the SVB Agreement. The SVB Agreement contains affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, and dividends and other distributions. The SVB Agreement requires the Borrower to comply with certain financial covenants if Liquidity (as such term is defined in the SVB Agreement) falls below $ 135.0 million. These financial covenants include (i) a minimum Adjusted Quick Ratio (as such term is defined in the SVB Agreement) and (ii) the achievement of certain minimum revenue targets. On a monthly basis, the Borrowers would be required to maintain a minimum Adjusted Quick Ratio of greater than or equal to 1.25 to 1.0. The Borrower must also maintain certain trailing six-month minimum revenue targets through maturity if outstanding borrowings under the Revolver exceed $ 50.0 million. The SVB Agreement also includes customary events of default, including failure to pay principal, interest or certain other amounts when due, material inaccuracy of representations and warranties, violation of covenants, certain bankruptcy and insolvency events, certain undischarged judgments, material invalidity of guarantees or grant of security interest, material adverse change, and involuntary delisting from the Nasdaq Stock Market, in certain cases subject to certain thresholds and grace periods. If one or more events of default occurs and continues beyond any applicable cure period, SVB may, without notice or demand to the Borrower, terminate its commitment to make further loans and declare all of the obligations of the Borrowers under the SVB Agreement to be immediately due and payable. The Company is in compliance with all covenants as of December 31, 2022. No amounts have been drawn under the SVB Agreement as of December 31, 2022. On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. On March 14, 2023, Silicon Valley Bridge Bank, N.A., a new bank that is regulated by the Office of the Comptroller of the Currency, announced that it had assumed all loan positions, including as lender, issuing bank, administrative and any other function that was formerly performed by SVB, and that all commitments to advance under existing credit agreements will be honored in accordance with and pursuant to the terms thereof. 2016 Funding Commitment In April 2016, ISMMS received a $ 5.0 million loan funding commitment (the “DECD Loan Agreement”) from the Connecticut Department of Economic and Community Development (“DECD”) to support the Genetic Sequencing Laboratory Project in Branford, Connecticut (the “Project”). The DECD made a commitment to offer a total of $ 9.5 million in loan funding for leasehold improvements, construction, equipment, research and development, and administrative expenses over a period of ten years at an annual interest rate of 2.0 % (collectively, “Phase 1” and “Phase 2” of funding for the Project). On June 1, 2017, as part of the Spin-out, ISMMS assigned both the agreement underlying the Project and the DECD Loan Agreement to Sema4 OpCo, Inc. (“OpCo”). ISMMS guaranteed the Company’s obligation to repay the DECD. In June 2018, the Company amended the existing $ 9.5 million DECD Loan Agreement (the “2018 Amended DECD Loan Agreement”) with the DECD by increasing the total loan commitment to $ 15.5 million at the same fixed annual interest rate of 2.0 % for a term of 10 years from the date the new funds are disbursed (“Phase 3” of funding for the Project). The terms of the Amended DECD Loan Agreement require the Company to make interest-only payments through July 2023 and principal and interest payments commencing in August 2023 through July 2028. 136 Table of Content In addition, under the terms of the 2018 Amended DECD Loan Agreement, the DECD provided the Company with the ability to seek partial principal loan forgiveness of up to $ 12.3 million in the aggregate, contingent upon the Company achieving job creation and retention milestones. The outstanding loan balance from the DECD was $ 11.0 million at December 31, 2021, following the achievement of the Phase 1 funding milestone. In January 2023, the Company amended the 2018 Amended DECD Loan Agreement, which resulted in agreeing to pay $ 2.0 million in principal, obtaining $ 2.75 million in debt forgiveness for achieving its Phase 2 job milestone, and agreeing to two new forgiveness milestone targets for Phase 3 (eligible for $ 2 million in forgiveness) and the Final Phase (eligible for $ 1 million in forgiveness) (the “2022 Amended DECD Loan Agreement”). Upon execution of this amendment in January 2023, we have paid the $ 2.0 million in principal and received $ 2.75 million in debt forgiveness, both of which were classified as current liabilities as of December. The terms of the 2022 Amended DECD Loan Agreement require the Company to make interest-only payments through July 2024 and principal and interest payments commencing in August 2024 through July 2029 at the same fixed annual interest rate of 2.0 %. As of December 31, 2022, the long-term debt matures as follows (in thousands): 2023 $ 4,750 2024 497 2025 1,211 2026 1,234 2027 1,260 Thereafter 2,048 Total maturities of long-term debt 11,000 Less: Current portion of long-term debt ( 4,750 ) Total long-term debt, net of current portion $ 6,250 Debt due to the DECD is collateralized by providing a security interest in certain machinery and equipment the Company holds at its Stamford headquarters, as defined in a separate security agreement. The DECD Security Agreement provides a security for the payment and performance of meeting the Company’s obligations to the DECD until the obligations have been fully satisfied. 9. Leases Lease Accounting The Company adopted ASC 842 on January 1, 2022 on a modified retrospective basis. As a result, the Company’s lease disclosures as of and for the year ended December 31, 2022 are reported under ASC 842. Comparative financial information as of and for the years ended December 31, 2021 and 2022 have not been restated and continues to be reported under ASC 840, the lease accounting standard in effect for that period. The Company enters into contracts in the normal course of business and assesses whether any such contracts contain a lease. The Company determines if an arrangement is a lease at inception if it conveys the right to control the identified asset for a period of time in exchange for consideration. The Company classifies leases as operating or financing in nature. All lease liabilities are measured at the present value of the associated payments, discounted using the Company’s incremental borrowing rate determined based on the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for similar term and in a similar 137 Table of Content economic environment on a collateralized basis, unless there is a rate implicit in the lease that is readily determinable. Operating Leases The Company's operating lease arrangements are principally for office space and laboratory facilities. The Company’s headquarter lease was initially entered into via sub-lease agreements with ISMMS and a third party and they will expire in 2034. We also entered into a separate lease with a third party for space in the same building as our headquarters and that lease expires in 2029. The agreements include escalating rent and rent-free period provisions. Pursuant to the terms of the lease agreement, the Company was required to have issued an irrevocable standby letter of credit to the lessor for $ 0.9 million, which was included in restricted cash, non-current on the consolidated balance sheets as of December 31, 2021 and 2022. The Company identified impairment indicators with respect to certain office space which was determined to be excess. The Company performed quantitative analysis as of December 31, 2022. The fair value was determined primarily based on estimating sublease income for the lease and discount rate. The Company utilized third party information in the estimation process. Based on the analysis, the Company recorded an impairment charge of $ 10.0 million. In April 2019, the Company entered into a sublease agreement to rent a building to be used for office and laboratory facility (the “Stamford Lease”) for a base term of 325 months, expiring in October 2046. The Company has the option to renew the lease at the end of the initial base term for either one period of 10 years, or two periods of 5 years. There is also an early termination option in which the Company may cancel the lease after the 196 th month with cancellation fees. At inception of the Stamford Lease, the value of the land was determined to be more than 25 % of the total value and therefore the building is accounted for as a finance lease and the land as an operating lease. In January 2020, the Company entered into a lease agreement which expanded the Company’s existing laboratory facility in Branford, Connecticut. The lease commenced in February 2020 with a 10 year term. The lease includes escalating rent fees over the lease term. In April 2022, the Company acquired an operating lease for office space and laboratory operations in Gaithersburg, Maryland, in connection with the Acquisition. The lease includes a base term of 9 years remaining from the date of acquisition and an escalating rent provision. In July 2022, the Company executed a lease agreement to extend the lease term of existing office spaces in New York, New York, commencing in September 2022 for a period of 13 months. Finance Leases The Company enters into various finance lease agreements to obtain laboratory equipment that contain bargain purchase commitments at the end of the lease term. The leases are secured by the underlying equipment. As discussed above, the Company also leases a building used for office and laboratory space in which the building is accounted for as a finance lease and the land is as an operating lease. The interest rate used for the Stamford Lease is 13.1 %, which is used to measure the operating and finance lease liability. During the prior year, the Company accounted for finance leases under ASC 840 as capital leases. As of December 31, 2021, the finance lease obligations of $ 3.4 million and $ 18.4 million were included in other current liabilities and other liabilities, respectively on the consolidated balance sheets. The tables below present financial information associated with the Company’s leases. This information is presented as of, and for the year ended, December 31, 2022 because, the Company adopted the ASC 842 using a transition method that does not require application to periods prior to adoption (in thousands). 138 Table of Content Classification December 31, 2022 Assets Operating lease assets Operating lease right-of-use assets $ 32,758 Finance lease assets Property and Equipment, net 8,604 Total lease assets $ 41,362 Liabilities Current Operating Short-term lease liabilities $ 2,409 Finance Short-term lease liabilities 3,712 Non-current Operating Long-term lease liabilities $ 44,468 Finance Long-term lease liabilities 15,545 Total lease liabilities $ 66,134 Lease cost Year ended December 31, 2022 Operating lease cost Operating lease cost $ 6,044 Short-term lease cost 1,131 Variable lease cost 1,111 Total operating lease cost $ 8,286 Finance lease cost Depreciation and amortization of leased assets $ 5,518 Interest on lease liabilities $ 2,152 Total finance lease cost $ 7,670 Total lease cost $ 15,956 139 Table of Content Future minimum lease payments under non-cancellable leases as of December 31, 2022 are as follows: Maturity of lease liabilities Operating leases Finance leases Total 2023 $ 4,597 $ 3,729 8,326 2024 5,521 2,763 8,284 2025 5,952 2,451 8,403 2026 6,103 2,003 8,106 2027 6,251 2,045 8,296 Thereafter 51,640 47,839 99,479 Total 80,064 60,830 $ 140,894 Less: imputed interest ( 33,187 ) ( 41,573 ) $ ( 74,760 ) Present value of lease liabilities $ 46,877 $ 19,257 $ 66,134 Other information related to leases as of and for the year ended December 31, 2022 are as follows: December 31, 2022 Weighted-average remaining lease term (years) Operating leases 12.2 Finance leases 19.0 Weighted-average discount rate Operating leases 6.9 % Finance leases 11.2 % Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 4,183 Operating cash flows from finance leases 2,225 Financing cash flows from finance lease 3,292 10. Commitments and Contingencies Purchase Obligations The following sets forth purchase obligations as of December 31, 2022 with a remaining term of at least one year (in thousands): Contractual Obligations 2023 2024 2025 Total Commitments Software provider $ 5,561 $ 2,436 $ 257 $ 8,254 Equipment provider 179 182 139 $ 500 $ 5,740 $ 2,618 $ 396 $ 8,754 The Company enters into contracts with suppliers to purchase materials needed for diagnostic testing. These contracts generally do not require multi-year purchase commitments. 140 Table of Content Contingencies The Company is a party to various actions and claims arising in the normal course of business. The Company does not believe that the outcome of these matters will have a material effect on the Company’s consolidated financial position, results of operations or cash flows. However, no assurance can be given that the final outcome of such proceedings will not materially impact the Company’s consolidated financial condition or results of operations. Except as described below, the Company was not a party to any material legal proceedings as of December 31, 2022, nor is it a party to any material legal proceedings as of the date of issuance of these audited consolidated financial statements. On September 7, 2022, a shareholder class action lawsuit was filed in the United States District Court for the District of Connecticut against the Company and certain of the Company’s current and former officers. The complaint purports to bring suit on behalf of stockholders who purchased the Company’s publicly traded securities between March 14, 2022 and August 15, 2022. Following the appointment of a lead plaintiff, an amended complaint was filed on January 30, 2023. As amended, the complaint purports to allege that defendants made false and misleading statements about the Company’s business, operations and prospects in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and seeks unspecified compensatory damages, fees and costs. The Company believes the allegations and claims made in the complaint are without merit. On February 7, 2023, a stockholder commenced a lawsuit in the Delaware Court of Chancery. The suit is brought as a class action on behalf of stockholders of CMLS who did not redeem their shares in connection with the Business Combination. The suit names as defendants all directors of CMLS at the time of the transaction, including directors who continue to serve on the Company’s Board of Directors, as well as CMLS Holdings LLC. The Company is not named as a defendant. The complaint alleges that the July 2, 2021 proxy statement mailed to CMLS stockholders in connection with the transaction contained false and misleading statements, and purports to assert a claim of breach of fiduciary duty against all individual defendants, and a similar claim against CMLS Holdings LLC and certain individuals for breach of fiduciary duty as control persons. The suit seeks to recover unspecified damages on behalf of the alleged class, among other relief. The Company believes the allegations and claims made in the complaint are without merit. The Company is subject to certain claims for advancement and indemnification by the individual defendants in this proceeding. Defined Contribution Plan Substantially all of the Company’s employees in the U.S. are eligible to participate in the defined contribution plan the Company sponsors. The defined contribution plan allows employees to contribute a portion of their compensation in accordance with specified guidelines. The Company, at its discretion, makes matching contributions. The Company contributed $ 9.8 million, $ 8.0 million and $ 5.5 million for the years ended December 31, 2022, 2021 and 2020, respectively. 11. Stock-Based Compensation Stock Incentive Plans The Company’s 2017 Equity Incentive Plan (the “2017 Plan”), as amended in February 2018, allowed the grant of options, restricted stock awards, stock appreciation rights and restricted stock units. No options granted under the 2017 Plan are exercisable after 10 years from the date of grant, and option awards generally vest over a four-year period. The 2017 Plan was terminated in connection with the adoption of the Company's 2021 Equity Incentive Plan (the "2021 Plan"). Any awards granted under the 2017 Plan that remained outstanding as of the Closing Date and were converted into awards with respect to the Company’s Class A common stock in connection with the consummation of the Business Combination continue to be subject to the terms of the 2017 Plan and applicable award agreements, except for a modification of the repurchase provision, which is discussed further below. 141 Table of Content On July 22, 2021, in connection with the Business Combination, the 2021 Plan became effective and 32,734,983 authorized shares of common stock were reserved for issuance thereunder. This Plan will be administered by the Compensation Committee of the Company’s Board of Directors, including determination of the vesting, exercisability and payment of the awards to be granted under this Plan. No awards granted under the 2021 Plan are exercisable after 10 years from the date of grant, and the awards granted under the 2021 Plan generally vest over a four-year period on a graded vesting basis. As of December 31, 2022, there was an aggregate of 9,648,510 shares available for grants of stock options or other awards under the 2021 Plan. Employee Stock Purchase Plan The 2021 Employee Stock Purchase Plan (the “2021 ESPP”) became effective in connection with the Business Combination. The 2021 ESPP authorizes the issuance of shares of common stock pursuant to purchase rights granted to employees. A total of 4,804,011 shares of common stock have been reserved for future issuance under the 2021 ESPP. On each January 1 of each of 2022 through 2031, the aggregate number of shares of common stock reserved for issuance under the 2021 Plan may be increased automatically by the number of shares equal to one percent ( 1 %) of the total number of shares of all classes of common stock issued and outstanding on the immediately preceding December 31. The Company did not make any grants of purchase rights under the 2021 ESPP during the year ended December 31, 2022. Stock Option Activity Under the 2017 Plan, the Company had a call option to repurchase awards for cash from the plan participants upon termination of the participant’s employment or consulting agreement (the “2017 Plan Call Option”). The options granted under the 2017 plan were accounted for as liability awards due to the 2017 Plan Call Option. The Company had a history of repurchase practice and the intention to repurchase the vested options. Therefore, the fair value of the liability awards was remeasured at each reporting period until the stockholder bears the risks and rewards of equity ownership for a reasonable period of time, which the Company concludes is at least six months . Upon consummation of the Business Combination, the Company’s Board of Directors waived the Company’s right under the 2017 Plan Call Option to repurchase awards for cash from the plan participants upon termination of the participant’s employment or consulting agreement. As such, the Company modified the liability awards to equity awards and reclassified the modification date fair value of the awards to stockholders’ equity in the consolidated financial statements as of July 22, 2021. All stock options granted under the 2021 Plan are accounted for as equity awards. The following summarizes the stock option activity, which reflects the conversion of the options granted under the 2017 Plan into awards with respect to the Company Class A common stock in connection with the consummation of the Business Combination (in thousands, except share and per share amounts): 142 Table of Content Stock Options Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value Balance at December 31, 2021 30,905,543 $ 1.24 6.80 $ 109,887 Options granted 13,347,197 $ 2.28 Options exercised ( 11,021,636 ) $ 0.27 Options forfeited and canceled ( 6,868,297 ) $ 3.80 Balance at December 31, 2022 26,362,807 $ 1.51 6.08 $ 775,842 Options exercisable at December 31, 2022 15,157,018 $ 1.02 4.02 $ 803,370 Non-vested options outstanding at the end of the year was 11,205,789 with weighted average grant-date fair value of $ 2.17 . The weighted-average grant-date fair value of options granted and total fair value of the options with tranches vested was $ 1.55 and $ 24.5 million for the year ended December 31, 2022, respectively. The weighted-average grant-date fair value of options forfeited and canceled was $ 4.92 for the year ended December 31, 2022. The aggregate intrinsic value of exercised options was $ 18.1 million, $ 17.1 million and $ 0.6 million in the years ended December 31, 2022, 2021 and 2020, respectively, and is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the exercise date. The total payments for share-based liabilities were $ 0.1 million and $ 0.3 million in the years ended December 31, 2021 and 2020, respectively, while no payments were made in the year ended December 31, 2022. The fair value of the stock option awards for the period ended December 31, 2022, and as of December 31, 2021, and 2020 were estimated using the Black-Scholes option pricing model with the following assumptions: 2022 2021 2020 Expected volatility 65.20 %- 90.00 % 49.60 %- 67.70 % 65.80 % Weighted-average expected volatility 75.00 % 66.15 % 65.80 % Expected term (in years) 5.48 - 6.18 5.00 - 6.06 0.50 – 1.49 Risk-free interest rate 1.65 %- 3.38 % 0.71 %- 1.26 % 0.10 % Dividend yield — — — Fair value of Class A common stock $ 0.99 -$ 3.45 $ 7.62 -$ 11.60 $ 5.49 We estimated a volatility factor for the Company’s options based on analysis of historical share prices of a peer group of public companies. We did not rely on the volatility of the Company’s common stock because of its limited trading history. We estimated the expected term of options granted using the “simplified method,” which is the mid-point between the vesting date and the ending date of the contractual term. We did not rely on the historical holding periods of the Company’s options due to the limited availability of exercise data. We used a risk-free interest rate based on the U.S. Treasury yield curve in effect for bonds with maturities consistent with the expected term of the option. Restricted Stock Units (RSU) The Company issued time-based RSUs to employees under the 2021 Plan. The RSUs automatically convert to common stock on a one -for-one basis as the awards vest. The Company measures the value of RSUs at fair value based on the closing price of the underlying common stock on the grant date. The RSUs granted generally vest over a four year vesting period from the grant date, however, the Company also granted certain RSUs with vesting term 143 Table of Content beginning 12 months from the grant date and vesting immediately on the grant date. The following table summarizes the activity related to the Company's time-based RSUs: Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value Per Unit Balance at December 31, 2021 12,589,558 7.64 Restricted Stock Units granted 29,004,515 $ 1.63 Restricted Stock Units vested ( 4,841,898 ) $ 6.46 Restricted Stock Units forfeited ( 8,535,177 ) $ 5.51 Balance at December 31, 2022 28,216,998 $ 2.36 The total fair value of RSUs vested for the year ended December 31, 2022 was $ 33.7 million. Additionally, the Company issued 126,980 RSUs subject to both service and performance based vesting conditions to the Executive Chairman of the Company. The grant date was established during the second quarter period and vesting of the RSUs will be based on the achievement of performance goals established for calendar year 2022. As of December 31, 2022, these RSUs were all forfeited due to the established performance goals not being achieved. Earn-out RSUs The grant date fair value determined for Triggering Event I, II and III was $ 1.82 , $ 1.39 and $ 0.94 per unit, respectively. At year-end, any re-allocated RSUs due to the Legacy Sema4 option holders’ forfeiture activities were accounted for as new grants and the fair value determined for Triggering Event I, II and III was $ 0 , $ 0 and $ 0 per unit, respectively. Based on the grant date fair value, the Company expects to record total expense related to the Earn-out RSU Awards of $ 3.5 million. The Company expects to recognize the stock-compensation cost over the longer of the derived service period or service period. Stock Appreciation Rights (SAR) Activity The Company historically granted SAR to one employee and one consultant with exercise condition of a liquidation event. As a result of the Business Combination, settlement of the outstanding vested SARs in exchange for a cash payment and to cancel the outstanding unvested SARs was agreed upon and an expense of $ 3.8 million related to the vested SAR was recognized by the Company. There were no outstanding SARs as of December 31, 2022. Stock-Based Compensation Expense Stock-based compensation expense is included within the consolidated statements of operations and comprehensive loss as follows (in thousands): Year Ended December 31, 2022 2021 2020 Cost of services $ 5,080 $ 22,567 $ 12,942 Research and development 1,755 47,183 26,650 Selling and marketing 6,498 29,110 11,755 General and administrative 28,642 120,561 68,884 Total stock-based compensation expense $ 41,975 $ 219,421 $ 120,231 As of December 31, 2022, unrecognized stock-based compensation cost related to the unvested portion of the Company’s stock options was $ 12.7 million, which is expected to be recognized on a graded-vesting basis over a weighted-average period of 1.7 years. As of December 31, 2022, unrecognized stock-based compensation cost 144 Table of Content related to the Company’s RSUs was $ 34.5 million, which is expected to be recognized on a graded-vesting basis over a weighted-average period of 1.7 years. 12. Common Stock There were 388,511,138 shares and 242,647,604 shares of GeneDx Holdings Class A common stock issued and outstanding as of December 31, 2022 and 2021, respectively. Each share of common stock entitles the holder to one vote and to receive dividends when and if declared by the board of directors of the Company. No dividends have been declared through December 31, 2022. 13. Income Taxes The components of income before incomes taxes consisted of the following (in thousands): Year Ended December 31, 2022 2021 2020 Foreign $ 104 $ — $ — Domestic ( 598,136 ) ( 245,390 ) ( 241,340 ) Total ( 598,032 ) ( 245,390 ) ( 241,340 ) Year Ended December 31, 2022 2021 2020 Current Federal $ — $ — $ — State and Local — — — Foreign 72 — — Total Current $ 72 $ — $ — Deferred Federal $ ( 40,828 ) $ — $ — State and Local ( 8,296 ) — — Foreign — — — Total Deferred ( 49,124 ) — — Total Tax Expense $ ( 49,052 ) $ — $ — For the years ended December 31, 2022, 2021 and 2020, the Company recorded a total income tax benefit of $ 49,052 , $ 0 , $ 0 , respectively. Accordingly, the effective tax rate for the Company for the years ended December 31, 2022, 2021 and 2020 was 8.2 %, 0 %, 0 %, respectively. A reconciliation of the anticipated income tax expense/ 145 Table of Content (benefit) computed by applying the statutory federal income tax rate of 21% to loss before income taxes to the amount reported in the statement of operations and comprehensive loss is as follows (in thousands): Year Ended December 31, 2022 2021 2020 U.S. federal taxes at statutory rate 21.0 % 21.0 % 21.0 % State taxes (net of federal benefit) 1.4 10.5 2.1 Research and development tax credits 0.3 0.7 0.6 Non-deductible stock-based compensation ( 1.0 ) ( 11.3 ) ( 7.8 ) 162(m) Limitation — ( 5.7 ) — Permanent Items 0.5 ( 0.2 ) — Unrealized fair market value gain on warrants 1.7 17.0 — Goodwill Impairment ( 6.1 ) — — Change in valuation allowance ( 9.6 ) ( 32.0 ) ( 15.9 ) Effective tax rate 8.2 % — % — % The tax effects of temporary differences and carryforwards that give rise to significant portions of the net deferred tax assets were as follows (in thousands): As of December 31, 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 199,426 $ 132,075 Stock-based compensation 13,379 12,311 Accrued compensation 2,233 4,170 Transaction costs — 416 Research and development credits 8,600 7,285 Leases 12,971 1,443 Unearned revenue 10 145 Deferred employer taxes 133 932 Interest expense 7 372 Property and equipment 4,039 608 Obsolete inventory reserve 5,889 655 Accrued expenses 10,142 — Section 174 amortization 23,193 — Other 941 51 Total deferred tax assets 280,963 160,463 Valuation allowance ( 226,644 ) ( 155,668 ) Deferred tax assets, net of valuation allowance 54,319 4,795 Deferred tax liabilities: ROU asset ( 8,589 ) — Capitalized software ( 141 ) ( 4,795 ) Intangible amortization ( 48,248 ) — Total deferred tax liabilities ( 56,978 ) ( 4,795 ) Net deferred tax liability after valuation allowance $ ( 2,659 ) $ — 146 Table of Content As of December 31, 2022, the Company had the following tax net operating loss carryforwards available to reduce future federal and state taxable income, and tax credit carryforwards available to offset future federal and Connecticut income taxes (in thousands): Amount Expiration period Tax net operating loss carryforwards: Federal (pre-2018 net operating losses) $ 33,056 2036-2037 Federal (post-2017 net operating losses) $ 656,536 No expiration State and Local $ 974,006 2028-2042 State and Local $ 42,314 No expiration Tax credit carryforwards: Federal research and development $ 6,943 2038-2040 Connecticut research and experimental $ 1,542 2035-2036 Connecticut research and development $ 555 No expiration The Company had the following deferred tax valuation allowance balances (in thousands): Year Balance at the Beginning of Period Additions Write-Offs/Other Balance at the End of Period 2022 $ 155,668 70,976 — $ 226,644 2021 $ 58,264 97,404 — $ 155,668 2020 $ 20,082 38,182 — $ 58,264 The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also provides for the elective deferral of the deposit and payment of the employer share of Social Security taxes for the period beginning March 27, 2020 and ending December 31, 2020. Under the CARES Act, 50% percent of the employer portion of Social Security tax is to be remitted no later than December 31, 2021, with the remaining 50% to be remitted no later than December 31, 2022. The Company has evaluated the effect of the elective deferral on its income tax positions and determined that the corresponding deduction related to the employer portion of Social Security tax is not deductible in the year ended December 31, 2020, resulting in a nominal deferred tax asset. The Company continues to evaluate the potential effects the CARES Act may have on its operations and consolidated financial statements in future periods. Future realization of the tax benefits of existing temporary differences and carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of December 31, 2022, 2021, and 2020 the Company performed an evaluation to determine whether a valuation allowance was needed. Based on the Company’s analysis, which considered all available evidence, both positive and negative, the Company determined that it is more likely than not that a significant portion of its deferred tax assets will not be realized. Accordingly, the Company maintained a partial valuation allowance as of December 31, 2022 and a full valuation allowance as of December 31, 2021 and 2020. The valuation allowance increased by $ 71.0 million in 2022, $ 97.4 million in 2021 and $ 38.1 million in 2020 primarily due to the increase in net operating loss carryforwards, research and development tax credits, accrued compensation expenses, stock-based compensation, lease liability, Section 174 amortization and accrued expenses. Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. Generally, an ownership change occurs when certain shareholders increase their aggregated 147 Table of Content ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically three years). The Company has not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since becoming a “loss corporation” as defined in Section 382. Future changes in stock ownership, which may be outside of the Company’s control, may trigger an ownership change. In addition, future equity offerings or acquisitions that have an equity component of the purchase price could result in an ownership change. If an ownership change has occurred or does occur in the future, utilization of the NOL carryforwards or other tax attributes may be limited. ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements by prescribing a model for recognizing, measuring, and disclosing uncertain tax positions. Unrecognized income tax benefits represent income tax positions taken on income tax returns but not yet recognized in the financial statements. As of December 31, 2022, 2021 and 2020, the Company had nominal gross unrecognized tax benefits which, if recognized, would not impact the effective tax rate due to the Company’s valuation allowance position. Due to the uncertainties associated with any examinations that may arise with the relevant tax authorities, it is not possible to reasonably estimate the impact of any significant increase or decrease to the unrecognized tax benefits within the next twelve months. A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020 is as follows (in thousands): As of December 31, 2022 2021 2020 Unrecognized tax benefits – January 1 $ 537 $ 537 $ 374 Gross increases – tax positions in current period 181 — 163 Unrecognized tax benefits – December 31 $ 718 $ 537 $ 537 To the extent penalties and interest would be assessed on any underpayment of income tax, the Company’s policy is that such amounts would be accrued and classified as a component of income tax expense in the financial statements. As of December 31, 2022, 2021 and 2020, the Company has accrued interest or penalties related to uncertain tax positions of less than $ 0.1 million, $ 0 , and $ 0 respectively. The Company files U.S federal and multiple state income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending federal or state income tax examinations. As a result of the Company’s net operating loss carryforwards, the Company’s federal and state statutes of limitations remain open from 2016 and forward until the net operating loss carryforwards are utilized or expire prior to utilization. 148 Table of Content 14. Net Loss per Share Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except for share and per share amounts): Year Ended December 31, 2022 2021 2020 Numerator: Net loss attributable to common stockholders $ ( 548,980 ) $ ( 245,390 ) $ ( 241,340 ) Denominator: Denominator for basic and diluted earnings per share-weighted-average common shares 337,819,680 108,077,439 5,131 Basic and diluted loss per share $ ( 1.63 ) $ ( 2.27 ) $ ( 47,036 ) As a result of the Merger, the Company has retroactively adjusted the weighted-average number of shares of common stock outstanding prior to the Merger by multiplying them by the conversion ratio of 123.8339 used to determine the number of shares of common stock into which they converted. The common stock issued as a result of the redeemable convertible preferred stock conversion upon closing of the Merger was included in the basic and diluted loss per share calculation on a prospective basis. Prior to the consummation of the Merger, the Company applied the two-class method to calculate its basic and diluted net loss per share of common stock, as there were outstanding Class B common stock and redeemable convertible preferred stock that were participating securities. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. As the securities were all converted into the Company’s Class A common stock upon consummation of the Merger, all outstanding Legacy Sema4 Class B common stock has been retroactively converted to the Company’s Class A common stock. The following tables summarize the outstanding shares of potentially dilutive securities that were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been anti-dilutive: Year Ended December 31, 2022 2021 2020 Outstanding options and RSUs 54,579,805 35,519,867 32,339,971 Outstanding warrants 21,994,972 21,994,972 — Outstanding earn-out shares 18,228,934 16,351,897 — Outstanding earn-out RSUs 792,642 2,669,679 — Redeemable convertible preferred stock (on an if-converted basis) — — 157,618,388 Total 95,596,353 76,536,415 189,958,359 15. Restructuring Costs During the year ended December 31, 2022, the Company’s Compensation Committee of the Board of Directors approved by written consents, dated February 17, 2022, May 2, 2022 and August 11, 2022, a restructuring plan which was fully executed by management and restructuring charges were incurred and recorded in connection therewith, including an exit of the Company’s somatic tumor testing business. These costs include severance packages offered to the employees impacted by the plan, third party consulting costs, and costs related to closing 149 Table of Content the Company’s laboratory in Branford, CT. The plan resulted in the Company eliminating approximately 250 positions. Additionally, on November 14, 2022, the Company announced its plan to pursue a new strategic direction focused on the Company’s pediatric and rare disease testing business coupled with the Company’s Centrellis data platform. The Company’s strategic realignment was unanimously approved by the board of directors on November 11, 2022 included exiting its reproductive and women’s health testing business, which included carrier screening, noninvasive prenatal, and other ancillary reproductive testing offerings. The Company ceased accepting samples for these tests on December 14, 2022 and notified its customers impacted by the decision immediately. The Company expects to exit the operations of the reproductive and women’s health testing services by the end of the first quarter of 2023. As a result of this announcement, the Company expects to eliminate approximately 500 positions, and to cease operations at its Stamford, CT laboratory. When combined with the Company’s prior reductions in force during 2022, the exit will result in the elimination of approximately 32.5 % of its workforce. The table below provides certain information concerning restructuring activity during the year ended December 31, 2022 (in thousands): Reserve Balance at December 31, 2021 Charged to Costs and Expenses Payments and Other Reserve Balance at December 31, 2022 Severance $ — $ 19,239 $ ( 14,469 ) $ 4,770 Others — 4,922 ( 4,669 ) 253 Total $ — $ 24,161 $ ( 19,138 ) $ 5,023 The Company may incur additional expenses not currently contemplated due to events associated with the reduction in force. The charges that the Company expects to incur in connection with the reduction in force are estimates and subject to a number of assumptions, and actual results may differ materially. 16. Supplemental Financial Information Accrued expenses consisted of the following (in thousands): As of December 31, 2022 2021 Accrued purchases $ 20,314 19,758 Reserves for refunds to insurance carriers 17,001 — Other 1,546 350 Total $ 38,861 $ 20,108 Other current liabilities consisted of the following (in thousands): As of December 31, 2022 2021 Accrued bonus $ 8,429 $ 13,561 Accrued payroll 3,905 7,013 Accrued benefits 1,529 1,057 Accrued commissions 1,656 2,826 Accrued Severance 4,770 — Current portion of long-term debt 4,750 — Indemnification liabilities 13,470 — Current portion of the contingent consideration liabilities 6,019 — Other (1) 5,137 8,930 Total current other liabilities $ 49,665 $ 33,387 150 Table of Content (1) The 2021 amount includes $ 3.4 million that was separately disclosed under current portion of capital lease obligations on the consolidated balance sheets in the prior year. 17. Segment Reporting The Company’s business is aligned with how the chief operating decision maker ("CODM") reviews performance and makes decisions in managing the Company. As of December 31, 2022, the Company has identified two reportable segments: (i) GeneDx inclusive of Legacy GeneDx and Legacy Sema4 data revenues and associated costs and (ii) Legacy Sema4 diagnostics. The GeneDx segment primarily provides pediatric and rare disease diagnostics with a focus on whole exome and genome sequencing and, to a lesser extent data and information services. The Legacy Sema4 diagnostics segment provided reproductive and women’s health and somatic oncology diagnostic testing and screening products. Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance. The CODM evaluates segment performance based on revenue and adjusted gross margin. Prior to the acquisition of Legacy GeneDx in April 2022, the Company had one segment which is characterized as “Legacy Sema4” in the table below. Prior to the date of the acquisition, consolidated results were the same as the results of this segment and therefore 2021 and 2020 have not been presented below. (in thousands) GeneDx Legacy Sema4 Total Fiscal Year Ended December 31, 2022: Revenue $ 122,234 $ 112,460 $ 234,694 Adjusted cost of services 74,213 148,897 223,110 Adjusted gross margin (loss) 48,021 ( 36,437 ) 11,584 Reconciliations: Depreciation and amortization 2,440 28,888 31,328 Stock-based compensation 680 4,400 5,080 Restructuring charges 129 1,797 1,926 Gross margin (loss) $ 44,772 $ ( 71,522 ) $ ( 26,750 ) The following table summarizes the Company’s disaggregated revenue (in thousands): Year Ended December 31, 2022 GeneDx Legacy Sema4 Consolidated Diagnostic test revenue: Patients with third-party insurance $ 72,890 $ 100,734 $ 173,624 Institutional customers 40,754 5,370 $ 46,124 Self-pay patients 1,230 6,356 7,586 Total diagnostic test revenue 114,874 112,460 227,334 Other revenue 7,360 — 7,360 Total $ 122,234 $ 112,460 $ 234,694 Management manages assets on a total company basis, not by reporting segment. The CODM does not regularly review any asset information by reporting segment and, accordingly, the Company does not report asset information by reporting segment. 151 Table of Content 18. Goodwill and Intangible Assets As discussed in Note 3, Business Combinations, upon the acquisition of GeneDx in April 2022, the Company recorded initial goodwill of $181.5 million through its preliminary purchase allocation. The purchase price allocation for acquired businesses may be modified for up to one year from the date of acquisition if additional facts or circumstances lead to changes in our preliminary purchase accounting estimates. The measurement period is still open as of December 31, 2022. The changes in the carrying amounts of goodwill were as follows (in thousands): December 31, 2022 Balance as of December 31, 2021 $ — Additions 185,871 Measurement period adjustments ( 11,412 ) Impairment charges ( 174,459 ) Balance as of December 31, 2022 $ — During the fourth quarter of 2022, the Company identified indicators that it was more likely than not that the fair value of the GeneDx reporting unit was less than its carrying value. The factors contributing to the indicators include, but are not limited to, significant decline in the Company’s stock price coupled with lower than anticipated business financial performance of the Legacy Sema4 business. The Company performed quantitative analysis as of December 31, 2022 to determine the fair value of the GeneDx reporting unit. The fair value was determined through estimating the Company’s discounted future cash flows expected to be generated. Significant assumptions inherent in the valuation are employed and include, but are not limited to, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry. Based on the analysis, the Company concluded that the reporting unit’s carrying value was greater than the fair value. Accordingly, an impairment charge totaling $ 174.5 million was recognized. The following table reflects the fair values and remaining useful lives of the acquired intangible assets identified based on the Company’s preliminary purchase accounting assessments for the GeneDx acquisition (in thousands): Gross Carrying Amount Accumulated Amortization Net Carrying Value Weighted-Average Amortization Period (in years) Tradenames and trademarks $ 50,000 $ ( 2,083 ) $ 47,917 15.3 Developed Technology 48,000 ( 4,000 ) 44,000 7.3 Customer Relationships 98,000 ( 3,267 ) 94,733 19.3 $ 196,000 $ ( 9,350 ) $ 186,650 Amortization expense for tradenames and trademarks and developed technology of $ 6.1 million was recorded in general and administrative for the year ended December 31, 2022 within the consolidated statements of operations and comprehensive loss. Amortization expense for customer relationships of $ 3.3 million was recorded in selling and marketing for the year ended December 31, 2022 within the consolidated statements of operations and comprehensive loss. The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of December 31, 2022 (in thousands): 152 Table of Content 2023 $ 14,025 2024 14,025 2025 14,025 2026 14,025 2027 14,025 Thereafter 116,525 Total estimated future amortization expense $ 186,650 19. Subsequent Events Name Change Effective January 2023, the Company changed its name from “Sema4 Holdings Corp.” to “GeneDx Holdings Corp.” Offerings In January 2023, the Company raised approximately $ 150.0 million in gross proceeds from the sale of an aggregate 328,571,429 shares of its Class A common stock in an underwritten public offering and the sale of 100,000,000 shares of its Class A common stock shares directly to institutional investors affiliated with a member of our board of directors, in a concurrent registered direct offering. Both transactions were executed at $ 0.35 per share. 77,663,376 shares in the direct offering were issued and the remaining 22,336,624 shares are subject to stockholder approval to satisfy Nasdaq requirements with respect to the issuance of such shares of Class A common stock. The net offering proceeds received after deducting underwriters' discounts and commissions payable by the Company were approximately $ 137.6 million. As part of the underwritten offering, the Company granted the underwriter a 30 -day option to purchase up to an additional 49,285,714 shares of Class A common stock at the same price. On January 27, 2023, the underwriter partially exercised the option to purchase an additional 185,000 shares of Class A common stock. Additional net proceeds of $ 7.6 million are expected to be received during the second quarter of 2023 once the issuance of the remaining 22,336,624 shares receives stockholder approval and the Company issues such shares. 153 Table of Content Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None.