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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-03-16 · 143 added, 465 removed, 211 unchanged (74% of the section changed)

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We are focused on delivering personalized and actionable health insights to inform diagnosis, direct treatment and improve drug discovery.

We believe we are well-positioned to accelerate the use of genomics and leverage large-scale clinical data to enable

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precision medicine as the standard of care.

We believe we are well-positioned to accelerate the use of genomics and leverage large-scale clinical data to enable precision medicine as the standard of care.

Our initial focus is in pediatric and rare diseases, two areas in which we believe we have competitive advantage and can deliver on our vision today.

Corporate History Overview

Legacy Sema4 was established out of the Mount Sinai Health System and commenced operations as a commercial entity on June 1, 2017.

Mount Sinai Genomics, Inc.

d/b/a as Sema4 (“Legacy Sema4”) was established out of the Mount Sinai Health System and commenced operations as a commercial entity on June 1, 2017.

Legacy Sema4 derived the majority of its revenue from diagnostic testing services, which primarily related to reproductive and women’s health and somatic tumor testing.

In addition, between May 2020 through March 31, 2022, Legacy Sema4 provided COVID-19 diagnostic testing services.

Business Combination

On July 22, 2021, Legacy Sema4 completed the Business Combination with CMLS, received net cash proceeds of $510 million, and CMLS changed its name to Sema4 Holdings.

The Business Combination was accounted for as a reverse recapitalization with Legacy Sema4 as the accounting acquirer and CMLS as the acquired company for accounting purposes.

Legacy GeneDx

Legacy GeneDx was founded in 2000 by scientists from the National Institutes of Health and, prior to the Acquisition by the Company, was a wholly-owned subsidiary of OPKO Health, Inc.

Legacy GeneDx derived its revenue primarily from diagnostic testing services, including revenue related to exome sequencing and whole genome sequencing.

On April 29, 2022, Sema4 Holdings acquired Legacy GeneDx from OPKO for an upfront payment of $150 million in cash, and 80 million shares of Class A common stock, subject to adjustment, with up to an additional $150 million revenue-based milestones (payable in cash or up to 30.9 million shares of Class A common stock at our discretion).

Our results of operations include the results of operations of Legacy GeneDx from the date of acquisition.

For more information, see “—Acquisition of Legacy GeneDx” below.

New Strategic Direction for GeneDx and Legacy Sema4 Business Exits

On August 11, 2022, our board of directors approved a restructuring plan that contemplated exiting Legacy Sema4’s somatic tumor testing services and the closing of the laboratory in Branford, CT, which we completed as of December 31, 2022.

In connection with the plan, we also eliminated approximately 250 positions.

On November 14, 2022, we announced our plan to pursue a new strategic direction focused on our exome and whole genome sequencing business coupled with our Centrellis data platform.

As part of our strategic realignment, on November 11, 2022, our board of directors approved our exit from Legacy Sema4’s reproductive and women’s health testing business, which includes carrier screening, noninvasive prenatal, and other ancillary reproductive testing offerings.

We exited the operations of the reproductive and women’s health testing services during the first quarter of 2023.

As a result of this business exit, we eliminated approximately 500 positions, and ceased operations at the Stamford, CT laboratory.

The combined reductions in workforce eliminated approximately 32.5% of our workforce in 2022.

Our go-forward testing services will be consolidated and performed out of our Gaithersburg, MD laboratory which was primarily used for our pediatric and rare disease testing services.

Effective January 9, 2023, Sema4 Holdings Corp.

changed its name to GeneDx Holdings Corp.

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GeneDx, LLC (formerly, GeneDx, Inc.) (“Legacy GeneDx”), which derives its revenue primarily from diagnostic testing services, including revenue related to exome sequencing and whole genome sequencing, was acquired by us on April 29, 2022 (the “Acquisition”).

The diagnostic testing services businesses of Legacy Sema4 were discontinued as of the end of the first quarter of 2023, and our continuing operations now include the combination of the Legacy GeneDx diagnostic testing services business with the data and information business of Legacy Sema4.

Additional information on Legacy GeneDx and Legacy Sema4 can be found in the consolidated financial statements in Note 1, “ Organization and Description of Business ” included within this Annual Report.

Factors Affecting Our Performance

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Reimbursement by a payor may depend on several factors, including a payor’s determination that a test is appropriate, medically necessary, cost-effective, and has received prior authorization.

The commercial success of our current and future products, if approved, will depend on the extent to which our customers receive coverage and adequate reimbursement from third-party payors.

Since each payor makes its own decision as to whether to establish a policy or enter into a contract to provide coverage for our tests, as well as the amount it will reimburse us for a test, seeking these approvals is a time-consuming and costly process.

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As a result, we may be required to refund payments already received, and our revenues may be subject to retroactive adjustment as a result of these factors among others.

In particular, the Legacy Sema4 business recently entered into a settlement agreement with one of its third-party payors in order to settle the claims related to coverage and billing matters allegedly resulting in the overpayments by the payor to the Legacy Sema4 business including those related to multi-gene tests, such as carrier screening services the “Disputed Claims”).

Under the settlement agreement, the total settlement amount is $42 million, to be paid by us 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 payment of $15 million was made on December 30, 2022.

In consideration for the payments, the payor has agreed to provide releases of the Disputed Claims, which releases will become effective on or about April 1, 2023.

For more information regarding this matter, see Note 4, “Revenue Recognition” to our audited consolidated financial statements included within this Annual Report.

We expect to continue to focus our resources on increasing the adoption of, and expanding coverage and reimbursement for, our current and any future tests we may develop or acquire.

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We also rely upon third-party service providers for data storage and workflow management.

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Increasing adoption of our services by existing and new customers

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If we are unsuccessful in developing additional services, our growth potential may be impaired.

Key Performance Indicators

We use the following key financial and operating metrics to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions.

These key financial and operating metrics should be read in conjunction with the following discussion of our results of operations and financial condition together with our consolidated financial statements and the related notes and other financial information included elsewhere in this report.

The principal focus of our commercial operations is to offer our diagnostic tests through both our direct sales force and laboratory distribution partners.

Test volume correlates with genomic database size and long-term patient relationships.

Thus, test volumes drive database diversity and enable potential identification of variants of unknown significance and population-specific insights.

The number of tests resulted and the mix of test results, with a focus on driving whole exome and whole genome sequencing, are key indicators that we use to assess the operational efficiency of our business.

Once the appropriate workflow is completed, the test is resulted and details are provided to ordered patients or healthcare professionals for reviews.

During the year ended December 31, 2022, we resulted 528,876 tests in our laboratories, 121,214 of which were processed by Legacy GeneDx compared to the period ended December 31, 2021, in which we resulted approximately 709,942 tests in Legacy Sema4 laboratories.

This decrease in resulted volume from 2021 to 2022 largely resulted from the Company’s decision to discontinue COVID-19, somatic oncology and reproductive health testing in 2022, which was partially offset by inclusion of volumes from GeneDx’s laboratory following the closing of the Acquisition of GeneDx as further discussed below.

Acquisition of Legacy GeneDx

In January 2022, we and our wholly-owned subsidiaries, Orion Merger Sub I, Inc.

(“Merger Sub I”) and Orion Merger Sub II, LLC (“Merger Sub II”) entered into an Agreement and Plan of Merger and Reorganization (as amended, the “Acquisition Merger Agreement”), with GeneDx, Inc., a New Jersey corporation (“Legacy GeneDx”)

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and a wholly-owned subsidiary of OPKO, GeneDx Holding 2, Inc.

(“Holdco”), and OPKO to acquire 100% of Legacy GeneDx (the “Acquisition”).

Subject to the terms and conditions of the Acquisition Merger Agreement, we agreed to pay consideration to OPKO for the Acquisition of (i) $150 million in cash at the closing of the Acquisition, subject to certain adjustments as provided in the Acquisition Merger Agreement, (ii) 80 million shares of our Class A common stock to be issued at the closing of the Acquisition and (iii) up to $150 million payable following the closing of the Acquisition, if certain revenue-based milestones were 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/or shares of our 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 our sole discretion.

The Acquisition closed on April 29, 2022.

Our net loss for the year ended December 31, 2022 includes the results of operations of Legacy GeneDx from the date of acquisition.

Concurrently with the execution of the Acquisition Merger Agreement, we entered into subscription agreements with certain institutional investors, pursuant to, and on the terms and subject to the conditions of which, these investors collectively subscribed for 50 million shares of our Class A common stock for an aggregate purchase price equal to $200 million (the “Acquisition PIPE Investment”).

The Acquisition PIPE Investment was consummated substantially concurrently with the closing of the Acquisition.

Russia and Ukraine Conflict

During the first quarter of 2022, Russia commenced a military invasion of Ukraine, and the ensuing conflict has created disruption in the region and around the world.

We continue to utilize Ukraine-based contractors as of December 31, 2022.

To date, this has not had a material effect on our operations, and we have taken additional measures in securing and monitoring data and remote access.

We continue to closely monitor the ongoing conflict and related sanctions, which could impact our business, financial results and results of operations in the future.

COVID-19 Impact

During the year ended December 31, 2022, we resulted 73,408 COVID-19 tests, compared to the year ended December 31, 2021, in which we resulted 418,053 COVID-19 tests.

During 2023, our test volumes improved to what would, at this time, be considered normalized market conditions.

In March 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), was signed into law.

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We have concluded it is probable that all terms and conditions associated with the funds received under the PRF distribution have been met.

As a result, we recorded the funds received under the PRF in other income in the statements of operations and comprehensive loss during the periods in which we received the funds.

As a result, we recorded the funds received under the PRF in other expense (income), net in the statements of operations and comprehensive loss during the periods in which we received the funds.

Funds provided under the ERC are refundable tax credits for 50% of qualified wages paid to employees during the pandemic.

A company is eligible for the ERC (1) its operations have been fully or partially suspended because of COVID-19 or (2) its gross receipts in a calendar quarter in 2020 declined by more than 50% from the same period in 2019.

At the time of applying for the ERC, we concluded that it was reasonably possible the eligibility requirements would be met;

however, due to a change in circumstances, we are re-evaluating our position.

As such, we deferred

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the recognition of the funds received under the ERC and recorded the proceeds in other current liabilities on the audited consolidated balance sheets.

Recent Developments

Effective January 9, 2023 Sema4 Holdings Corp.

changed its name to GeneDx Holdings Corp.

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.

On March 14, 2023, we announced that 100% of our cash, cash equivalents, and restricted cash now resides at a designated systematically important financial institution.

Components of Results of Operations

During the periods discussed below, we derived the majority of our revenue from genetic and genomic diagnostic testing services.

We recognized revenue from collaboration service agreements with biopharma companies and other third parties pursuant to which we provide health information and patient identification support services.

The Legacy GeneDx business provided genetic and genomic diagnostic testing related to pediatrics, rare disease and hereditary cancer screening.

The Legacy Sema4 diagnostics business provided reproductive and women’s health testing and screening, as well as somatic tumor testing.

As discussed above, we discontinued Legacy Sema4’s COVID-19 testing services as of March 31, 2022 and no longer provide such testing services.

We also discontinued Legacy Sema4’s somatic tumor profiling business as of December 31, 2022 and we ceased the operations of Legacy Sema4’s reproductive and women’s health testing services during the first quarter of 2023.

We recognize revenue when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration which we expect to be entitled to in exchange for those goods or services.

At the time of applying

for the ERC, we concluded that it was reasonably possible the eligibility requirements would be met;

however, due to a change in circumstances, we re-evaluated our position and concluded that the funds received under the ERC needed to be repaid.

In 2022, we deferred the recognition of the funds received under the ERC and repaid them in July 2023.

Key Performance Indicators

The principal focus of our commercial operations is to offer our diagnostic tests through both our direct sales force and laboratory distribution partners.

Test volume correlates with genomic database size and long-term patient relationships.

Thus, test volumes drive database diversity and enable potential identification of variants of unknown significance and population-specific insights.

Once the appropriate workflow is completed, the test is resulted and details are provided to ordered patients or healthcare professionals for reviews.

During the year ended December 31, 2023, we resulted 222,934 tests, all of which were processed by the Legacy GeneDx laboratory compared to the period ended December 31, 2022, in which we resulted 528,876 tests in our Legacy GeneDx and Legacy Sema4 laboratories.

This volume decrease from 2022 to 2023 was primarily attributed to our decision to terminate our Legacy Sema4 reproductive health and somatic oncology testing activities in 2022, and was partially offset by the addition of volumes from Legacy GeneDx’s laboratory subsequent to the closing of the Acquisition.

Key Components of Results of Operations

Diagnostic Test Revenue

We primarily generate revenue from performing diagnostic testing services for three groups of customers:

healthcare professionals working with patients with third-party insurance coverage or without third-party insurance coverage, institutional clients such as hospitals, clinics, state governments and reference laboratories, or self-pay patients.

Customers are billed upon delivery of test results.

The majority of our revenue is derived from genetic and genomic diagnostic testing services for three groups of customers:

The amount of revenue recognized for diagnostic testing services depends on a number of factors, such as contracted rates with our customers and third-party insurance providers, insurance reimbursement policies, payor mix, historical collection experience, price concessions and other business and economic conditions and trends.

To date, the majority of our diagnostic test revenue has been earned from orders received for patients with third-party insurance coverage.

The discontinued Legacy Sema4 diagnostics business previously provided reproductive and women’s health testing and screening, as well as somatic tumor testing.

Our ability to increase our diagnostic test revenue will depend on our ability to increase our market penetration, obtain contracted reimbursement coverage from third-party payors, enter into contracts with institutions, and increase our reimbursement rate for tests performed.

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Other Revenue

We generate revenue from health information and patient identification support services under both short-term and long-term project-based collaboration and service agreements with third parties.

We also generate revenue from collaboration service agreements with biopharma companies and other third parties, pursuant to which we provide health information and patient identification support services.

Certain of these contracts provide non-refundable payments, which we record as contract liabilities, and variable payments based upon the achievement of certain milestones during the contract term.

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Cost of Services

The cost of services reflect the aggregate costs incurred in performing services.

These costs include expenses for reagents and laboratory supplies, personnel-related expenses (comprising salaries and benefits) and stock-based compensation for employees directly involved in revenue generating activities, shipping and handling fees, costs of third-party reference lab testing and phlebotomy services, if any, and allocated genetic counseling, facility and IT costs associated with delivery services.

The cost of services reflect the aggregate costs incurred in performing services, which include expenses for reagents and laboratory supplies, personnel-related expenses (comprising salaries and benefits) and stock-based compensation for employees directly involved in revenue generating activities, shipping and handling fees, costs of third-party reference lab testing and phlebotomy services, if any, and allocated genetic counseling, facility and IT costs associated with delivery

Allocated costs include depreciation of laboratory equipment, facility occupancy, and information technology costs.

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Selling and Marketing Expenses

Selling and marketing expenses primarily consist of personnel-related expenses (comprising salaries and benefits) and stock-based compensation for employees performing commercial sales, account management, marketing, and allocation of genetic counseling services.

Allocated genetic counseling service cost for Legacy Sema4 is recorded as general and administrative expenses, as the activities are not expected to support selling and marketing expenses of Legacy Sema4.

Selling and marketing costs are expensed as incurred.

We generally expect our selling and marketing expenses will continue to increase in absolute dollars as we expand our commercial sales and marketing and counseling teams and increase marketing activities.

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expect selling and marketing expenses to decrease as a percentage of revenue in the long term, subject to fluctuations from period to period due to the timing and magnitude of these expenses.

However, we expect selling and marketing expenses to decrease as a percentage of revenue in the long term, subject to fluctuations from period to period due to the timing and magnitude of these expenses.

General and Administrative Expenses

General and administrative expenses primarily consist of personnel-related expenses (comprising salaries and benefits) and stock-based compensation for employees in executive leadership, legal, finance and accounting, human resources, information technology, and other administrative functions.

General and administrative expenses primarily consist of personnel-related expenses (comprising salaries, billing and benefits) and stock-based compensation for employees in executive leadership, legal, finance and accounting, human resources, information technology, and other administrative functions.

In addition, these expenses include office occupancy and information technology costs.

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We expect these expenses to decrease as a percentage of revenue in the long term as revenue increases, although the percentage may fluctuate from period to period due to fluctuations in our compensation-related charges.

Related Party Expenses

Related party expenses consist of amounts due to ISMMS for expenses under our Transition Services Agreement with ISMMS (the “ISMMS TSA”) which expired at the end of the first quarter of 2021, and other service agreements.

In addition, Legacy GeneDx and OPKO entered into a Transition Services Agreement dated as of April 29, 2022 (the “OPKO TSA”), pursuant to which OPKO agreed to provide, at cost, certain services in support of the Acquisition of the Legacy GeneDx business through December 31, 2022, subject to certain limited exceptions, in order to facilitate the transactions contemplated by the Acquisition Merger Agreement.

Additional information can be found in the audited financial statements in Note 7, “Related Party Transactions” included within this Annual Report.

We generally expect related party expenses to decrease as we establish our own internal and external resources to fulfill the administrative and other services we have historically procured from ISMMS and following the expiration of the OPKO TSA.

Interest Income

Interest income consists of interest earned on money market funds.

Interest Expense

Interest expense consists of interest costs incurred related to our finance leases and our long-term debt arrangements, including unused line fee and the amortization of deferred transaction costs related to the loan and security agreement originally entered into with Silicon Valley Bank that provides a $125 million revolving credit facility described elsewhere in this report.

No amounts have been drawn under the revolving credit facility as of December 31, 2022.

Other Income, Net

Other income, net primarily consists of funding received under the CARES Act.

We recognized $5.6 million of additional funding received under the CARES Act during the year ended December 31, 2021 and the amount is included in other income, net for the year ended December 31, 2021.

Results of Operations

A discussion regarding our financial condition and results of consolidated operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 and for the year ended December 31, 2021 compared to the year ended December 31, 2020 is presented below.

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Comparison of the Years Ended December 31, 2023 and 2022

The following table sets forth our results of operations for the periods presented:

The following table sets forth our results of operations for the periods presented (in thousands):

Year Ended December 31,

(in thousands)

2023 2022 $ Change % Change

Diagnostic test revenue $ 195,654 $ 227,334 $ (31,680) (14) %

$ 227,334 $ 205,100

Other revenue 6,912 7,360 (448) (6) %

Total revenue 202,566 234,694 (32,128) (14) %

234,694 212,195

Cost of services 112,560 261,444 (148,884) (57) %

261,444 228,797

(26,750) (16,602)

Gross profit (loss) 90,006 (26,750) 116,756 (436) %

Research and development 58,266 86,203 (27,937) (32) %

86,203 105,162

Selling and marketing 60,956 122,075 (61,119) (50) %

134,913 112,738

General and administrative 133,755 216,167 (82,412) (38) %

203,329 205,988

Related party expenses

Impairment loss 10,402 210,145 (199,743) (95) %

Other operating expenses, net 7,223 6,312 911 14 %

Loss from operations (180,596) (667,652) 487,056 (73) %

(667,652) (446,149)

Other income (expense):

Non-operating income (expenses), net

Change in fair market value of warrant and earn-out contingent liabilities 1,170 70,229 (69,059) (98) %

Interest income

Interest expense

(3,207) (2,835)

Interest income (expense), net 1,114 (666) 1,780 (267) %

Other income, net 1,619 57 1,562 2740 %

Total other income (expense), net

69,620 200,759

Total non-operating income, net 3,903 69,620 (65,717) (94) %

Loss before income taxes (176,693) (598,032) 421,339 (70) %

(598,032) (245,390)

Income tax provision

Net loss and comprehensive loss

$ (548,980) $ (245,390)

Year Ended December 31, 2021 to 2022

2022 2021 $ %

(dollars in thousands)

Diagnostic test revenue $ 227,334 $ 205,100 $ 22,234 11 %

Other revenue 7,360 7,095 265 4 %

Total revenue $ 234,694 $ 212,195 $ 22,499 11 %

Total revenue increased by $22.5 million, or 11%, to $234.7 million for the year ended December 31, 2022, from $212.2 million for the year ended December 31, 2021.

Diagnostic test revenue increased by $22.2 million, or 11%, to $227.3 million for the year ended December 31, 2022, from $205.1 million for the year ended December 31, 2021.

The increase was primarily attributable to the inclusion of $114.9 million of Legacy GeneDx diagnostics revenue from the date of Acquisition, partially offset by a decrease of $92.6 million from Legacy Sema4’s diagnostics business.

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For the year ended December 31, 2022, Legacy Sema4 diagnostic testing revenue decreased by $92.6 million to $112.5 million compared to $205.1 million for the year ended December 31, 2021.

This decrease in diagnostic testing revenue was primarily due to a combination of the cessation of COVID-19 operations in the first quarter of 2022 resulting in a year over year decline in revenue recognized of $18.9 million, increases in third-party payor denials on both somatic oncology and women’s health testing resulting in $44.1 million of lower reimbursement, and significant reversals in the amount of cumulative revenue recognized of $54.0 million in connection with establishment of liabilities and reserves for actual and potential recoupment of payments previously made by third-party payors.

These decreases in revenue recognized were partially offset by increased volume of 13.4 % within the Legacy Sema4 women’s health and oncology testing lines that resulted in increased revenue of $24.4 million compared to the year ended December 31, 2021.

Other revenue increased by $ 0.3 million, or 4%, to $7.4 million for the year ended December 31, 2022, from $7.1 million for the year ended D ecember 31, 2021.

The increase was primarily attributable to the inclusion of $1.5 million of Legacy GeneDx collaboration services activities from the date of the Acquisition, partially offset by a decrease of $1.2 million from Legacy Sema4’s biopharma business.

Cost of Services

Year Ended December 31, 2021 to 2022

2022 2021 $ %

(dollars in thousands)

Cost of services $ 261,444 $ 228,797 $ 32,647 14 %

Cost of services increased by $32.6 million, or 14%, to $261.4 million for the year ended December 31, 2022, from $228.8 million for the year ended December 31, 2021.

The increase was primarily driven by the inclusion of $67.5 million of Legacy GeneDx cost of services from the time of the Acquisition, partially offset by a $34.4 million decrease in Legacy Sema4 cost of services, primarily driven by a decrease in stock-based compensation along with lower activity due to the exit of the Company’s somatic tumor and COVID-19 testing businesses.

Research and Development

Year Ended December 31, 2021 to 2022

2022 2021 $ %

(dollars in thousands)

Income tax benefit 926 49,052 (48,126) (98) %

Net loss $ (175,767) $ (548,980) $ 373,213 (68) %

Total revenue decreased by $32.1 million, or 14%, to $203 million for the year ended December 31, 2023, from $234.7 million for the year ended December 31, 2022.

Diagnostic test revenue decreased by $31.7 million, or 14%, to $195.7 million for the year ended December 31, 2023, from $227.3 million for the year ended December 31, 2022.

The decrease was attributable to lower revenues from the now discontinued Legacy Sema4 business, partially offset by an increase in diagnostic test revenue from Legacy GeneDx driven by an increase in whole exome and genome sequencing test volumes.

In addition, the prior period only reflected Legacy GeneDx’s revenue following the closing of the Acquisition.

Other revenue decreased by $0.4 million , or 6%, to $6.9 million for the year ended December 31, 2023, from $7.4 million for the year ended December 31, 2022 due to lower revenues from the now discontinued Legacy Sema4 business.

Gross Profit (Loss)

Gross profit increased by $116.8 million for the year ended December 31, 2023, driven by a combination of lower cost of services from the now discontinued Legacy Sema4 business and improved margins from Legacy GeneDx.

The gross profit performance from Legacy GeneDx reflected favorable volume mix shift to higher margin whole exome and genome tests, and lower average cost per test associated with these tests.

In addition, the prior year only reflected Legacy GeneDx’s results following the closing of the Acquisition in April 2022.

Research and Development

Research and development expenses decreased by $27.9 million, or 32%, to $58.3 million for the year ended December 31, 2023, from $86.2 million for the year ended December 31, 2022.

The decrease was primarily driven by a decrease of $45.4 million in stock-based compensation expense year-over-year which was primarily due to the reversal of stock-based compensation expense by $11.3 million based on forfeiture of unvested equity awards upon termination of our executives.

This decrease was offset by the inclusion of $13.1 million of Legacy GeneDx’s research and development costs from the time of the Acquisition.

Selling and Marketing

Year Ended December 31, 2021 to 2022

2022 2021 $ %

(dollars in thousands)

Selling and marketing $ 134,913 $ 112,738 $ 22,175 20 %

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Selling and marketing expenses increased by $22.2 million, or 20%, to $134.9 million for the year ended December 31, 2022, from $112.7 million for the year ended December 31, 2021.

The increase was primarily attributable to the inclusion of Legacy GeneDx’s selling and marketing expenses of $34.2 million from the time of the Acquisition and intangible asset amortization of $3.3 million, partially offset by a $15.3 million decrease in Legacy Sema4 selling and marketing expenses.

The decrease in Legacy Sema4 selling and marketing expenses was primarily driven by a decrease in stock based compensation of $22.3 million, which was offset by an increase in restructuring expenses of $7.9 million due to restructuring activities in 2022.

General and Administrative

Year Ended December 31, 2021 to 2022

2022 2021 $ %

(dollars in thousands)

General and administrative $ 203,329 $ 205,988 $ (2,659) (1) %

General and administrative expenses decreased by $2.7 million, or 1%, to $203.3 million for the year ended December 31, 2022, from $206.0 million for the year ended Dec ember 31, 2021.

The decrease was primarily attributable to a $34.7 million decrease in Legacy Sema4 general and administrative expenses, which was partially offset by the inclusion of GeneDx general and administrative expenses of $25.9 million from the time at Acquisition and $6.1 million in intangible asset amortization.

The decrease in Legacy Sema4 expenses was primarily driven by a decrease in stock-based compensation of $90.1 million which is primarily due to forfeiture of unvested equity awards upon termination of our executives .

The decrease was partially offset by restructuring expenses of $7.3 million due to restructuring activities in 2022 associated to the Legacy Sema4.

There was also an increase of $25.2 million in outside consulting expenses, $3.9 million increase in insurance expenses, and an $10.0 million increase in software related expenses.

Related Party Expenses

Year Ended December 31, 2021 to 2022

2022 2021 $ %

(dollars in thousands)

Related party expenses $ 6,312 $ 5,659 $ 653 12 %

Related party expenses increased by $0.7 million, or 12%, to $6.3 million for the year ended December 31, 2022, from $5.7 million for the year ended December 31, 2021.

The increase was primarily attributable to fees related to supporting certain services pursuant to the TSA with OPKO as a result of the Acquisition of Legacy GeneDx and an increase in information technology related services provided by ISMMS.

Interest Income

Year Ended December 31, 2021 to 2022

2022 2021 $ %

(dollars in thousands)

Interest income $ 2,541 $ 79 $ 2,462 3116 %

Interest income for the year ended December 31, 2022 was due to increases in the average cash balances held in our interest-bearing and money market deposit accounts and increases in interest rates.

Interest Expense

Year Ended December 31, 2021 to 2022

2022 2021 $ %

(dollars in thousands)

Interest expense $ 3,207 $ 2,835 $ 372 13 %

Interest expense increased by $0.4 million, or 13%, to $3.2 million for the year ended December 31, 2022, from $2.8 million for the year ended December 31, 2021.

The increase was driven by the unused line fee and amortization of deferred transaction costs related to the loan and security agreement originally entered into with Silicon Valley Bank at the end of 2021.

Other Income, Net

Year Ended December 31, 2021 to 2022

2022 2021 $ %

(dollars in thousands)

Other income, net $ 57 $ 5,114 $ (5,057) (99) %

Other income, net increased by $5.1 million or 99% to less than $0.1 million for the year ended December 31, 2022, from $5.1 million for the year ended December 31, 2021.

The decrease in other income, net was primarily attributable to the $5.6 million in funding that we received and recognized as other income under the CARES Act in the first quarter of 2021, partially offset by $0.3 million in penalties related to an early repayment of debt.

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Comparison of the Years Ended December 31, 2021 and 2020

The following table sets forth our results of operations for the periods presented:

Year Ended December 31,

(in thousands)

Diagnostic test revenue

$ 205,100 $ 175,351

Other revenue

Total revenue

212,195 179,322

Cost of services

228,797 175,296

Gross (loss) profit

(16,602) 4,026

Research and development

105,162 72,700

Selling and marketing

112,738 63,183

General and administrative

205,988 100,742

Related party expenses

Loss from operations

(446,149) (241,994)

Other income (expense):

Change in fair market value of warrant and earn-out contingent liabilities 198,401 —

Interest income

Interest expense

(2,835) (2,474)

Other income, net

Total other income (expense), net

Loss before income taxes

(245,390) (241,340)

Net loss and comprehensive loss

(245,390) (241,340)

Year Ended December 31, 2020 to 2021

2021 2020 $ %

(dollars in thousands)

Diagnostic test revenue $ 205,100 $ 175,351 $ 29,749 17 %

Other revenue 7,095 3,971 3,124 79 %

Total revenue $ 212,195 $ 179,322 $ 32,873 18 %

Total revenue increased by $32.9 million, or 18%, to $212.2 million for the year ended December 31, 2021, from $179.3 million for the year ended December 31, 2020.

Diagnostic test revenue increased by $29.7 million, or 17%, to $205.1 million for the year ended December 31, 2021, from $175.4 million for the year ended December 31, 2020.

The increase was primarily attributable to a 135% increase in oncology test volumes, a 38% increase in women’s health test volumes and an overall increase in volumes of 31%, partially offset by the change in the mix of tests performed and reduced reimbursement rates.

COVID-19 testing was introduced in May of 2020, which had a lower impact on total test volume during the year ended December 31, 2020, compared to the year ended December 31, 2021 (with COVID-19 test volumes growing 26% year over year) .

Other revenue increased by $3.1 million, or 79%, to $7.1 million for the year ended December 31, 2021, from $4.0 million for the year ended December 31, 2020.

The increase was primarily attributable to growth in

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collaboration service activities due to the execution of third-party contracts which generated $3.7 million more in revenues in 2021 compared to 2020.

This was partially offset by reduced revenues recognized related to an existing third-party contract by $0.8 million.

Cost of Services

Year Ended December 31, 2020 to 2021

2021 2020 $ %

(dollars in thousands)

Cost of services $ 228,797 $ 175,296 $ 53,501 31 %

Cost of services increased by $53.5 million, or 31%, to $228.8 million for the year ended December 31, 2021, from $175.3 million for the year ended December 31, 2020.

The increase was primarily driven by the following cost components:

a $9.7 million increase in stock-based compensation expense primarily driven by the increase in fair value of the liability-classified awards until the Closing Date and an increase in the number of stock-based compensation awards granted;

a $7.9 million increase in personnel-related expenses driven by an increase in average headcount;

a $8.2 million increase in consulting and outside service costs driven by temporary hires contracted to perform COVID-19 testing activities;

a $5.0 million increase in logistical expenses and other lab services as a result of an increase in operations;

a $9.6 million increase in reagents and laboratory supplies expense due primarily to the 32% increase in volumes;

a $2.4 million increase in software expenses due to increased cloud storage and expanded computing capacity requirements from New York City to Stamford, Connecticut for testing data;

a $2.1 million increase in the inventory obsolescence reserve for expiring COVID-19 and certain carrier screening testing kits;

a $2.2 million increase in occupancy expenses;

a $5.1 million increase in depreciation expenses in connection with our laboratory move at the end of 2020, with production activities commencing at the Stamford facility in the first quarter of 2021 and a $1.3 million increase in equipment maintenance and general office expenses.

Research and Development

Year Ended December 31, 2020 to 2021

2021 2020 $ %

(dollars in thousands)

Research and development $ 105,162 $ 72,700 $ 32,462 45 %

Research and development expenses increased by $32.5 million, or 45%, to $105.2 million for the year ended December 31, 2021, from $72.7 million for the year ended December 31, 2020.

The increase was primarily attributable to the following cost components:

a $20.5 million increase in stock-based compensation expense driven by the increase in fair value of the liability-classified awards until the Closing Date and an increase in the number of stock-based compensation awards granted;

a $0.9 million increase in software expenses due to increased cloud storage;

a $0.3 million increase in personnel-related expenses driven by an increase in average headcount a $4.8 million increase in depreciation expenses;

a $3.6 million increase in expenses for reagents, laboratory supplies and laboratory software for research and development;

and a $2.2 million increase in consulting fees.

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Selling and Marketing

Year Ended December 31, 2020 to 2021

2021 2020 $ %

(dollars in thousands)

The decrease was primarily attributable to lower current year costs from the now discontinued Legacy Sema4 business, which included a $4.3 million decrease in stock compensation

expense resulting from forfeitures of unvested equity awards by terminated employees.

In addition, the prior year only reflected Legacy GeneDx’s research and development costs following the closing of the Acquisition in April 2022.

Selling and Marketing

Selling and marketing expenses increased by $49.6 million, or 78%, to $112.7 million for the year ended December 31, 2021, from $63.2 million for the year ended December 31, 2020.

The increase was primarily attributable to the following cost components:

an $17.3 million increase in stock-based compensation expense driven by the increase in fair value of the liability-classified awards until the Closing Date and an increase in the number of stock-based compensation awards granted;

a $19.6 million increase in personnel-related expenses driven by increased headcount;

a $4.1 million increase in consulting service expenses mainly to support revenue cycle transformation initiatives;

a $3.2 million increase in information technology-related expenses;

a $1.8 million increase in other administrative and office expenses;

a $2.0 million increase in travel and business expenses due to the lifting of COVID-19 travel restrictions and a $1.5 million increase in counseling services.

General and Administrative

Year Ended December 31, 2020 to 2021

2021 2020 $ %

(dollars in thousands)

Selling and marketing expenses decreased by $61.1 million, or 50%, to $61.0 million for the year ended December 31, 2023, from $122.1 million for the year ended December 31, 2022.

The decrease was primarily attributable to lower current year costs from the now discontinued Legacy Sema4 business, including a $6.7 million decrease in stock compensation expense resulting from forfeitures of unvested equity awards by terminated employees.

In addition, the prior year only reflected Legacy GeneDx’s selling and marketing costs following the closing of the Acquisition in April 2022.

This decrease was partially offset by higher Legacy GeneDx costs, in line with the increase in post-Acquisition revenue.

General and Administrative

General and administrative expenses increased by $105.3 million, or 104%, to $206.0 million for the year ended December 31, 2021, from $100.7 million for the year ended December 31, 2020.

The increase was primarily attributable to the following cost components:

a $51.7 million increase in stock-based compensation expense driven by the increase in fair value of the liability-classified awards until the Closing Date and an increase in the number of stock-based compensation awards granted;

a $21.1 million increase in professional services incurred mainly in connection with the Business Combination;

a $20.0 million increase in personnel-related expenses driven by an increase in average headcount including executive headcount;

a $5.0 million increase in software expenses due to increased cloud storage requirements;

a $7.0 million increase in insurance expenses driven by the commencement of director’s insurance policy;

and a $0.8 million increase in capital taxes as a result of the Business Combination.

These increases were partially offset by a $0.4 million decrease in occupancy and depreciation expenses in connection with our laboratory move from New York City to Stamford, Connecticut.

Related Party Expenses

Year Ended December 31, 2020 to 2021

2021 2020 $ %

(dollars in thousands)

Related party expenses $ 5,659 $ 9,395 $ (3,736) (40) %

Related party expenses decreased by $3.7 million, or 40%, to $5.7 million for the year ended December 31, 2021, from $9.4 million for the year ended December 31, 2020.

The decrease was primarily attributable to the following cost components:

a $3.2 million decrease in rent and facility expenses driven by a reduction of office and lab space leased from ISMMS pursuant to the TSA which ended in the first quarter of 2021;

and a $0.5 million decrease in fees associated with information technology support pursuant to the TSA with ISMMS.

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Interest Income

Year Ended December 31, 2020 to 2021

2021 2020 $ %

(dollars in thousands)

Interest income $ 79 $ 506 $ (427) (84) %

Interest income decreased by $0.4 million, or 84%, to $0.1 million for the year ended December 31, 2021, from $0.5 million for the year ended December 31, 2020.

The decrease was due to declines in interest rates on money market fund accounts.

Interest Expense

Year Ended December 31, 2020 to 2021

2021 2020 $ %

(dollars in thousands)

Interest expense $ 2,835 $ 2,474 $ 361 15 %

Interest expense increased by $0.4 million, or 15%, to $2.8 million for the year ended December 31, 2021, from $2.5 million for the year ended December 31, 2020.

The increase was driven by new capital lease obligations for our Stamford laboratory facility which commenced operations in 2021 as well as the unused line fee and the amortization of deferred transaction costs related to the loan and security agreement originally entered into with Silicon Valley Bank at the end of 2021.

Other Income, Net

Year Ended December 31, 2020 to 2021

2021 2020 $ %

(dollars in thousands)

Other income, net $ 5,114 $ 2,622 $ 2,492 95 %

Other income, net increased by $2.5 million or 95% to $5.1 million for the year ended December 31, 2021, from $2.6 million for the year ended December 31, 2020.

The increase in other income, net was primarily attributable to the $5.6 million in funding that we received and recognized as other income under the CARES Act in the first quarter of 2021, partially offset by $0.3 million in penalties related to an early repayment of debt.

This is compared to $2.6 million in funding received in 2020.

General and administrative expenses decreased by $82.4 million, or 38%, to $133.8 million for the year ended December 31, 2023, from $216.2 million for the year ended December 31, 2022 .

The decrease was primarily attributable to lower current year cost from the now discontinued Legacy Sema4 business and a $25.0 million reduction of stock compensation expense in the current period resulting from forfeitures of unvested equity awards by employees terminated in connection with fiscal 2023 headcount reduction actions.

In addition, the prior year only reflected Legacy GeneDx’s general and administrative costs following the closing of the Acquisition in April 2022.

The decrease was partially offset by $4.0 million of accelerated depreciation recorded in the current year to write-down the remaining assets at the two closed Legacy Sema4 labs.

Impairment Loss

The non-cash charge of $10.4 million for the year ended December 31, 2023 reflected the impairment of certain capital and right-of-use asset leases.

See Note 6, “ Property and Equipment, net ” to our consolidated financial statements for further information.

The non-cash charge of $210.1 million for the year ended December 31, 2022 reflected the impairment of goodwill and other charges associated with the now discontinued Legacy Sema4 business.

Other Operating Expenses, Net

Other operating expenses, net were $7.2 million for the year ended December 31, 2023 and included related party expenses of $6.0 million and non-cash charges of $3.6 million to reserve for obsolete Legacy Sema4 inventory, partially offset by a current year gain of $1.7 million recognized on the sale of certain assets sold as a result of an auction.

Other operating expenses, net were $6.3 million for the year ended December 31, 2022 primarily reflected related party expenses.

Non-Operating Income, Net

Non-operating income, net, decreased by $65.7 million, due to the significant decline in fair value of our warrant and earn-out contingent liabilities taken in the prior year and $1.0 million of contract termination costs in the current year associated with the now discontinued Legacy Sema4 business.

This decrease was partially offset by interest income in the current year due to higher interest rates associated with money market funds we invested in with proceeds from our public offering of Class A common stock in the first quarter of 2023 and the principal loan forgiveness of $2.8 million under the amendment to the Connecticut Department of Economic and Community Development (“DECD”) loan.

See Note 9, “Long-Term Debt” to our consolidated financial statements for further information.

Reconciliation of Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance.

In addition to our results determined in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP” or “GAAP”), we believe the following non-GAAP measures are useful in evaluating our operating performance.

We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes.

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In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.

A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial

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measure stated in accordance with GAAP.

Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP.

Investors are encouraged to review the related GAAP financial measures

and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

Non-GAAP financial measures have limitations as analytical tools and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP.

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Year Ended December 31,

2022 2021 2020

Revenue $ 202,566 $ 234,694

Cost of services 112,560 261,444

Gross (Loss) Profit

(26,750) (16,602) 4,026

(11) % (8) % 2 %

Gross Profit (Loss) 90,006 (26,750)

Gross Margin 44 % (11) %

Depreciation and amortization expense $ 4,350 $ 31,328

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Restructuring expense (1)

Labor costs due to laboratory move (2)

COVID-19 costs (3)

Adjusted Gross Profit

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__________________

(1) Represents costs incurred for restructuring activities, which include severance packages offered to impacted employees and third party consulting costs incurred during 2022.

(2) Represents labor costs in respect of laboratory employees' time spent to support our laboratory move from New York City to Stamford, Connecticut in 2020.

During the move, our laboratory employees dedicated their time to re-validating and re-establishing instruments and equipment, rebuilding interface, obtaining a CLIA license, and other tasks to make sure the move was done correctly.

For GAAP purposes we included these activities in Cost of Services.

However, as the laboratory move and effort spent by our employees are one-time activities, we adjusted our Gross Profit to reflect management’s view of our normal operations.

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(3) Represents labor costs in respect laboratory employees’ downtime.

During the second quarter of 2020, we did not reduce the workforce in our laboratory due to the COVID-19 pandemic.

However, we suffered significantly due to the decrease in volume in Women's Health and other products.

Accordingly, we have adjusted our Gross Profit to reflect the management-assessed impact from the decrease in productivity of existing laboratory employees due to the COVID-19 pandemic in the second quarter of 2020.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we define as net loss adjusted for interest expense (income), net, depreciation and amortization, stock-based compensation expenses, transaction costs, other (income) expense, net, COVID-19 costs, impairment loss, restructuring and business exit related charges, acquisition costs and change in fair market value of warrant and earn-out contingent liabilities.

We believe Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain factors that may vary from company to company for reasons unrelated to overall operating performance.

The following is a reconciliation of our net loss to Adjusted EBITDA for the years ended December 31, 2022, 20 21 , and 2020 (in thousands) :

(1) Represents costs incurred for restructuring activities, which include severance to impacted employees and costs incurred in connection with these activities.

Adjusted Net Loss

Adjusted net loss is a non-GAAP financial measure that we define as net loss adjusted for depreciation and amortization, stock-based compensation expenses, transaction costs, other (income) expense, net, impairment loss, restructuring and business exit related charges, acquisition costs and change in fair market value of warrant and earn-out contingent liabilities.

We believe Adjusted net loss is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain factors that may vary from company to company for reasons unrelated to overall operating performance.

The following is a reconciliation of our net loss to Adjusted net loss for the years ended December 31, 2023 and 2022 (in thousands) :

Year Ended December 31,

2022 2021 2020

Net loss $ (175,767) $ (548,980)

Interest expense (income), net (1)

666 2,756 1,968

Income tax benefit (49,052) — —

Depreciation and amortization 33,734 59,309

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Impairment loss (1)

Restructuring and other business exit transaction costs (3)

Transaction, acquisition and business acquisition costs (4)

10,402 210,145

Other (income) expense, net (5)

(57) (5,291) (2,622)

COVID-19 costs (6)

Change in fair market value of warrant and earn-out contingent liabilities (7)

Transaction, acquisition and business integration costs (2)

Restructuring costs (3)

Change in fair market value of financial liabilities (4)

(1,170) (70,229)

Adjusted EBITDA $ (316,977) $ (199,602) $ (106,850)

Gain on sale of assets (5)

Provision for excess and obsolete inventory associated with Legacy Sema4 3,634 —

Other income, net

Adjusted net loss $ (126,257) $ (268,591)

__________________

(1) Represents the total of interest expense related to our finance leases and interest-bearing loans and interest income on money market funds.

(2) Represents impairment charge incurred in connection with the business exit activities and discontinuance of testing for Legacy Sema4.

(3) Represents costs incurred for restructuring and business exit activities, which include severance packages offered to impacted employees and third party consulting costs incurred during 2022.

Certain professional service costs incurred in connection with the business exit are also included..

(4) For fiscal year 2021, represents professional service costs incurred in connection with pursuing the business combination transaction that did not meet the requirement for capitalization.

For fiscal year 2022, this represents professional service costs incurred in connection with the Legacy GeneDx Acquisition transaction, which include due diligence, legal and business integration costs.

(5) For the fiscal years ended December 31, 2020 and 2021, primarily consists of funding received under the CARES Act Provider Relief Fund.

(6) Represents labor costs in respect laboratory employees’ downtime.

During the second quarter of 2020, we did not reduce the workforce in our laboratory due to the COVID-19 pandemic.

However, we suffered significantly due to the decrease in volume in Women's Health and other products.

(7) For the years ended December 31, 2022 and 2021, represents the change in fair market value of the liabilities associated with our public warrants, private placement warrants and the earn-out shares issuable under the terms of the merger agreement for our business combination.

(1) For fiscal year 2023, represents the impairment of certain capital and right-of-use asset leases.

For fiscal year 2022, represents impairment charge incurred in connection with the business exit activities and discontinuance of testing for Legacy Sema4.

(2) For fiscal year 2022, represents costs incurred in connection with the Legacy GeneDx Acquisition, which include due diligence and legal costs.

(3) Represents costs incurred for restructuring activities, which include severance for impacted employees and costs incurred in connection with these activities.

(4) Represents the change in fair market value of the liabilities associated with our public warrants, private placement warrants, Perceptive warrants and the earn-out shares that were issuable under the terms of the merger agreement for our business combination.

(5) Represents a current year gain recognized on the sale of certain assets sold as a result of an auction.

Liquidity and Capital Resources

On July 22, 2021, we completed the Business Combination with CMLS, consummated the related private placement financing the “Business Combination PIPE Investment”), and received net cash proceeds of $510 million.

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On November 15, 2021, we entered into a loan and security agreement (the “SVB Agreement”,) with Silicon Valley Bank (“SVB”,) whereby SVB agreed to provide a $125 million revolving credit facility with a maturity date of November 15, 2024.

No amounts were drawn as of December 31, 2022.

Advances under the 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 an applicable margin.

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 agent and any other function that was formerly performed by SVB, and that all commitments to advance under existing credit agreements would be honored in accordance with and pursuant to the terms thereof.

On April 29, 2022, upon the closing of the Acquisition, we received gross proceeds of $200 million from the issuance of 50 million shares of our Class A common stock pursuant to the Acquisition PIPE Investment.

On April 29, 2022, upon the closing of the Acquisition, we received gross proceeds of $200 million from the issuance of 1.5 million shares of our Class A common stock pursuant to a related private placement (the “Acquisition PIPE Investment”).

The gross proceeds were partially used to pay for the cash consideration of the Acquisition and transaction costs incurred in connection with the Acquisition.

On January 31, 2023, we announced the closing of an underwritten public offering and a concurrent registered direct offering of shares of our Class A common stock.

The total gross proceeds are expected to be approximately $150 million, including proceeds from the issuance of the additional shares in the direct offering.

See “-Recent Developments’ above.

Management believes that our cash and cash equivalents provide us with sufficient liquidity for at least twelve months from the filing date of this Annual Report.

Accordingly, the consolidated financial statements included in this Annual Report have been prepared on a basis that assumes we will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

Nevertheless, we may also seek additional funding in the future through the sale of common or preferred equity or convertible debt securities, the entry into other credit facilities or another form of third-party funding or by seeking other debt financing.

For example, we have an effective shelf registration statement that we filed with the SEC in August of 2022, registering $300 million shares of our Class A common stock and other securities.

Following the Offerings in January 2023, approximately $150 million of securities remained available under this registration statement.

The Company does not know what impact the ongoing situation at SVB will ultimately have on the SVB Agreement.

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On January 31, 2023, we announced the closing of an underwritten public offering of 9,962,316 shares of our Class A common stock and a concurrent registered direct offering of 2,353,436 shares of our Class A common stock.

On April 17, 2023, we issued the remaining 676,868 shares of our Class A common stock in the registered direct offering.

The total gross proceeds were approximately $150 million.

On October 27, 2023, we entered into a five-year senior secured credit facility with Perceptive Credit Holdings IV, LP that provides for a senior secured delayed draw term loan facility in an aggregate principal amount of up to $75.0 million (the “Perceptive Term Loan Facility”), and received an initial tranche of $50 million under the facility.

In addition, the facility includes an additional tranche of $25.0 million, which will be accessible by us so long as we satisfy certain customary conditions precedent, including a specified revenue milestone.

See Note 9, “Long-Term Debt” to our consolidated financial statements for further information.

Management believes that our cash and cash equivalents and available-for-sale marketable securities provide us with sufficient liquidity for at least twelve months from the filing date of this Annual Report.

Accordingly, our consolidated financial statements included in this Annual Report have been prepared on a basis that assumes we will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

Nevertheless, we may also seek additional funding in the future through the sale of common or preferred equity or convertible debt securities, drawing on the additional $25.0 tranche of the term loan under the Perceptive Term Loan Facility, the entry into other credit facilities or another form of third-party funding or by seeking other debt financing.

We have an effective shelf registration statement that we filed with the SEC in August of 2022, registering $300 million shares of our Class A common stock and other securities.

Following the underwritten and registered direct offerings described above, approximately $150 million of securities remained available under this registration statement.

Material Cash Requirements for Known Contractual Obligations and Commitments

The following is a description of commitments for known and reasonably likely cash requirements as of December 31, 2023 and December 31, 2022.

We anticipate fulfilling such commitments with our existing cash and cash equivalents, which amounted to $123.9 million and $400.6 million as of December 31, 2022 and December 31, 2021, respectively, or through additional capital raised to finance our operations.

We anticipate fulfilling such commitments with our existing cash and cash equivalents and available-for-sale marketable securities, which amounted to $130.1 million and $123.9 million as of December 31, 2023 and December 31, 2022, respectively, or through additional capital raised to finance our operations.

Our future minimum payments under non-cancellable operating lease and finance lease agreements were $66.8 million and $34.3 million, respectively as of December 31, 2023.

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The first installment payment of $15 million was made on December 30, 2022.

The first installment payment of $15 million was made on December 31, 2022 and the second installment of $5 million was made on December 27, 2023.

In consideration for the payments, the payor has agreed to provide releases of the Disputed Claims, which releases will become effective 91 days after the first installment payment was received by the payor.

For more information regarding this matter, see Note 4, “Revenue Recognition” to our audited consolidated financial statements included within this Annual Report.

For more information regarding this matter, see Note 4, “ Revenue Recognition ” included within this Annual Report.

Our future contractual purchase commitments were $3.8 million as of December 31, 2023.

The timing of these future payments, by year, can be found in our consolidated financial statements in Note 10, “Commitments and Contingencies,” included within this Annual Report.

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2022 2021 2020

The timing of these future payments, by year, can be found in our consolidated financial statements in Note 11, “ Purchase Commitments and Contingencies ”, included within this Annual Report.

Year Ended December 31,

(in thousands) 2023 2022

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Operating Activities

Net cash used in operating activities during the year ended December 31, 2022 was $319.2 million, which was primarily attributable to a net loss of $549.0 million, a change in fair value of the warrant and earn-out liabilities of $70.2 million and an income tax benefit of $49.1 million.

Net cash used in operating activities during the year ended December 31, 2023 was $180.1 million which was primarily attributable to a net loss of $175.8 million and unfavorable working capital associated with the wind down of the Legacy Sema4 accounts payable, primarily during the second half of 2023, which was partially offset by the release of a third party payor reserve.

This was partially offset by non-cash depreciation and amortization of $59.3 million, non-cash stock-based compensation expense of $42.0 million, impairment loss of $210.1 million, a provision for excess and obsolete inventory of $1.1 million and non-cash lease expense of $2.2 million.

The net change in our operating assets and liabilities primarily reflected a $2.4 million decrease in inventories, a $34.5 million increase in accounts payable and accrued expenses driven by the payor settlement accrual which was partially offset by timing of vendor payments, a $19.5 million decrease in other current liabilities mainly driven by the payment of 2021 bonuses, offset by the accrual of the 2022 expected payment, a $5.5 million decrease in accounts receivable primarily from self-pay payors and a $11.1 million increase in prepaid expenses and other current assets mainly driven by the amortization of insurance policy premiums.

Net cash used in operating activities during the year ended December 31, 2021 was $190.4 million, which was primarily attributable to a net loss of $245.4 million and a change in fair value of the warrant and earn-out contingent liabilities of $198.4 million, partially offset by non-cash depreciation and amortization of $21.8 million, non-cash stock-based compensation expense of $219.4 million, and a reserve against obsolete inventory of $2.1 million.

The net change in our operating assets and liabilities primarily reflected a $5.5 million decrease in accounts receivable due to a decrease in institutional customer receivables which is in line with the respective revenue stream, a $10.6 million increase in inventories driven by a higher volume of purchases to support increasing testing volumes, a $14.3 million increase in prepaid expenses and other current assets mainly driven by new insurance policy premiums paid during the year, a $25.9 million increase in accounts payable and accrued expenses due to additional volume in the fourth quarter related to COVID-19 testing, resulting in increased related accruals and extended payment terms for large vendors, and a $3.2 million increase in other current liabilities mainly driven increased bonus accruals.

Net cash used in operating activities during the year ended December 31, 2020 was $93.1 million, which was primarily attributable to a net loss of $241.3 million, partially offset by non-cash depreciation and amortization of $11.7 million, non-cash stock-based compensation expense of $120.2 million and a net change in our operating assets and liabilities of $13.8 million.

The net change in our operating assets and liabilities primarily reflected an increase in accounts receivable of $10.6 million driven by a slowdown in collections due to the COVID-19 pandemic, a $9.0 million increase in inventories in preparation for the move of certain laboratory operations to a new location in December 2020, an increase in accounts payable and accrued expenses of $14.8 million due to timing of vendor payments and increased spending during the year related to COVID-19 diagnostic testing and a $16.0 million increase in other current liabilities driven by higher personnel-related accruals due to increased headcount at 2020 year-end as compared to 2019 year-end, as well as an increase in accrued payroll taxes due to the deferral of U.S.

payroll taxes as part of the CARES Act.

Investing Activities

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purchases of property and equipment and $7.2 million related to spend on development of internal-use software assets.

Net cash used in investing activities during the year ended December 31, 2021 was $20.8 million, which was attributable to $9.4 million in purchases of property and equipment and $11.4 million of costs related to development of internal-use software assets.

Net cash used in investing activities during the year ended December 31, 2020 was $32.0 million, which was attributable to $24.1 million in purchases of property and equipment and $7.9 million of costs related to development of internal-use software assets.

Net cash used in investing activities during the year ended December 31, 2023 was $43.7 million which primarily included net purchases of marketable securities of $47.7 million, $12.1 million in consideration held in escrow paid for the Legacy GeneDx Acquisition and $5.3 million in purchases of property and equipment, which was offset partially by $17.8 million in proceeds from maturities of marketable securities and $4.0 million in proceeds from the sale of assets.

Net cash used in investing activities during the year ended December 31, 2022 was $141.3 million, which was primarily attributable to the $127 million net of cash spent for the Acquisition of Legacy GeneDx, $7.2 million in purchases of property and equipment and $7.2 million related to spend on development of internal-use software assets.

Financing Activities

Net cash provided by financing activities during the year ended December 31, 2022 was $197.3 million, which was primarily driven by the $197.7 million proceeds from the Acquisition PIPE Investment, net of issuance costs of $2.3 million.

Net cash provided by financing activities during the year ended December 31, 2023 was $186.2 million which was primarily driven by the $143.0 million net proceeds from the underwritten public offering and concurrent registered direct offering, net of issuance costs, and $48.5 million from the Perceptive Term Loan Facility, which was offset partially by the DECD loan payment of $2.0 million and $3.6 million of finance lease payments.

Net cash provided by financing activities during the year ended December 31, 2022 was $197.3 million, which was primarily driven by the $197.7 million net proceeds from the Acquisition PIPE Investment.

Additionally, $2.9 million relates to cash received from exercise of employee stock options, which was offset by $3.3 million of finance lease principal payments.

Net cash provided by financing activities during the year ended December 31, 2021 was $493.7 million, which was attributable to the consummation of our Business Combination including:

$350.0 million from the Business Combination PIPE Investment proceeds;

$442.7 million from an equity infusion from the Business Combination, net of redemptions;

offset by $230.7 million in the cash payments to certain Legacy Sema4 stockholders;

payment of transaction costs of $51.8 million;

and $3.8 million of stock appreciate rights pay-outs.

These amounts were further offset by an $8.7 million repayment of long-term debt and $3.7 million of capital lease principal payments.

Net cash provided by financing activities during the year ended December 31, 2020 was $129.0 million, which was primarily attributable to $117.3 million in net cash proceeds from the issuance of our Series C redeemable convertible preferred stock and $15.9 million in net cash proceeds from the issuance of long-term debt.

These increases were partially offset by $4.0 million in principal payments on our capital lease obligations and $0.2 million in principal payments on our long-term debt obligations.

Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods.

The preparation of these consolidated financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods.

Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

See Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements for further discussion on our accounting policies.

We have identified below our accounting policies that we believe could potentially generate materially different results if we were to change underlying assumptions, estimates and/or judgments.

See Note 2, “ Summary of Significant Accounting Policies ” to our consolidated financial statements for a complete description of each of these critical accounting policies and estimates.

Each of these critical accounting policies could potentially generate materially different results if we were to change underlying assumptions, estimates and/or judgments.

Although actual results may differ from those estimates, we believe the estimates are reasonable and appropriate.

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Our contracts require significant judgments in determining the transaction price and satisfying performance obligations.

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Diagnostic test revenue

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If actual results in the future vary from our estimates, we will adjust these estimates, which could affect revenue and earnings in the period such variances become known.

A 1% decrease or increase in our collection rate from third-party insurance payers within GeneDx, which we believe could be a reasonably likely change, would result in an unfavorable or favorable adjustment to diagnostic test revenue of approximately $9.9 million.

Other revenue

We also recognize revenue from service agreements and collaboration agreements with biopharma companies and other third parties pursuant to which we provide diagnostic testing and related data aggregation reporting services.

We also recognize revenue from collaboration service agreements with biopharma companies and other third parties pursuant to which we health information and patient identification support services.

Certain of these contracts provide non-refundable upfront payments, which we record as contract liabilities, and variable payments based upon the achievement of certain milestones during the contract term.

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The measure of progress is developed using our best estimate of the performance period and the anticipated costs to be incurred to perform such services, including any subcontracted service costs.

Capitalized Internal-Use Software Costs

We capitalize certain costs related to the development of our software applications for internal use.

Capitalization begins during the application development stage, once the preliminary project stage has been completed.

If a project constitutes an enhancement to existing software, we assess 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.

We exercise judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized.

We periodically assess whether triggering events are present which would indicate that the internal-use software is impaired.

To the extent that we change our estimates related to internal-use software, the amount of internal-use software development costs we capitalize and amortize could change in future periods.

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In accordance with ASC 350, Intangibles - Goodwill and Other we do not amortize goodwill but rather test them for impairment.

ASC 350 requires us to perform an impairment review of our goodwill balance at least annually, which we do in the fourth quarter of each year for our single consolidated reporting unit, and whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.

Intangible Assets

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All intangible assets subject to amortization are reviewed for impairment in accordance with ASC 360, Property, Plant and Equipment.

The recoverability test was performed on a company-wide single asset group level.

Contingent consideration based on milestone achievement

We estimate the fair value of the total earn-out shares based on a Monte Carlo simulation valuation model and assuming the Company will pay the earn-out in shares.

Key assumptions include revenue projections, revenue volatility, the Company’s expectation to settle the liability in shares and the share price per share.

Earn-out Contingent Liability

We estimate the fair value of the total earn-out shares based on a Monte Carlo simulation valuation model.

The fair value of the earn-out contingent liability is sensitive to expected volatility estimated based on selected guideline public companies and the Company’s common stock price which is sensitive to changes in the forecasts of earnings and/or the relevant operating metrics.

The model used requires the use of assumptions regarding variables that are complex, subjective and generally require judgment to determine.

The recoverability test is performed on a company-wide single asset group level.

Warrant Liabilities

Our warrant liabilities are recorded on the consolidated balance sheets at fair value on their respective issuance dates, with subsequent changes in respective fair values recognized on the consolidated statements of operations and comprehensive loss at each reporting date.

Our outstanding warrants include publicly-traded warrants (the “Public Warrants”) which were originally issued in the IPO, warrants sold in a private placement to CMLS Holdings LLC (the “Private Warrants”) and warrants issued to Perceptive Credit Holdings IV, LP in connection with the entry into the Perceptive Term Loan Facility (the “Perceptive Warrants”).

The Public Warrants are traded in active markets and the fair value is determined on the basis of quoted market prices.

Management has determined the fair value of each Private Warrant is the same as that of a Public Warrant because the terms are substantially the same.

The estimated fair value of the Perceptive Warrants is determined based on a Modified Black-Scholes valuation model.

The Black-Scholes option-pricing model requires the use of assumptions regarding a number of variables that are complex, subjective and generally require significant judgment to determine.

Changes in the assumptions can materially affect the fair value and ultimately how much income or expense is recognized.

Key assumptions include expected volatility, expected term, and risk-free interest rate.

The expected volatility for us is based on the historical volatility of historical share prices of a peer group of public companies, our historical share prices, and the implied volatility of the call options.

When selecting these comparable companies, we considered the enterprise value, risk profiles, position within the industry, and whether there was sufficient historical share price information to meet the expected exercise period of the Perceptive Warrants.

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

Treasury yield curve in effect at the time of re-measurement.

Stock-Based Compensation

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Treasury yield curve in effect at the time of grant for bonds with maturities consistent with the expected holding periods corresponding with the expected term of the option.

We estimate zero dividend yield as we have not historically paid dividends on common stock and do not anticipate paying dividends in the foreseeable future.

zero dividend yield as we have not historically paid dividends on common stock and do not anticipate paying dividends in the foreseeable future.

We account for income taxes in accordance with ASC Topic 740, “Income Taxes,” under which deferred income taxes are provided for temporary differences between the financial reporting and tax basis of our assets and liabilities.

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In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

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We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.

Recent Accounting Pronouncements

Information on recent accounting pronouncements can be found in Note 2, “ Summary of Significant Accounting Policies ”.

JOBS Act Accounting Election

We are an “emerging growth company” within the meaning of the JOBS Act.

We are an “emerging growth company” within the meaning of the Jumpstart Our Business Startups Act (the “JOBS Act”).

The JOBS Act allows an emerging growth company to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.

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We will remain an emerging growth company until the earliest of (1) September 1, 2025, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Class A common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

Recent Accounting Pronouncements

Information on recent accounting pronouncements can be found in GeneDx’s audited consolidated financial statements in Note 2, “Summary of Significant Accounting Policies”.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis