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Item 7. Management’s Discussion and Analysis

2025-02-20 compared with 2024-02-23 · 96 added, 176 removed, 178 unchanged (60% of the section changed)

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You should carefully read the section entitled “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from these forward-looking statements.

We are a leading genomics company—one that sits at the intersection of diagnostics and data science, pairing decades of genomic expertise with an ability to interpret clinical data at scale.

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 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

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.

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

See Note 1, “ Organization and Description of Business ” included within this Annual Report for further information.

Factors Affecting Our Operating Performance

We believe several important factors have impacted, and will continue to impact, our performance and results of operations.

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Risk Factors ” for more information.

Number of resulted tests

A test is resulted once the appropriate workflow is completed and details are provided to the ordered patients or healthcare professional for reviews, which corresponds to the timing of our revenue recognition.

We believe the number of resulted tests in any period is important and useful to our investors because it directly correlates with long-term patient relationships and the size of our genomic database.

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 volume drives database diversity and enables potential identification of variants of unknown significance and population-specific insights.

The number of exome and genome tests resulted and the mix of test results 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, which corresponds to the timing of our revenue recognition.

We believe the number of resulted exome and genome tests in any period is important and useful to our investors because it directly correlates with long-term patient relationships and the size of our genomic database.

During the year ended December 31, 2024, we resulted 74,547 exome and genome tests, which represented 33% of all test results, compared to the year ended December 31, 2023, in which we resulted 49,439 exome and genome tests, which represented 22% of all test results.

Success Obtaining and Maintaining Reimbursement

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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.

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 including commercial and Medicaid.

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.

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.

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

If we fail to expand and maintain broad adoption of, and coverage and reimbursement for, our tests, our ability to generate revenue and our future business prospects may be adversely affected.

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Investment in Platform Innovation to Support Commercial Growth

We are seeking to leverage and deploy our platforms to develop a pipeline of future disease-specific research and diagnostic and therapeutic products and services.

We have limited experience in the development or commercialization of clinical or research products in connection with our database and platform.

We operate in a rapidly evolving and highly competitive industry.

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

COVID-19 Impact

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.

The CARES Act was a stimulus bill that, among other things, provided assistance to qualifying businesses and individuals and included funding for the healthcare system.

We received $5.4 million in 2020 as part of the stimulus, comprised of $2.6 million received under the Provider Relief Fund (the “PRF”), and $2.8 million received under the Employee Retention Credit (the “ERC”).

In 2021, we received an additional $5.6 million under the PRF.

Funds provided under the PRF to healthcare providers are not loans and will not be required to be repaid;

however, as a condition to receiving these payments, providers must agree to certain terms and conditions and submit sufficient documentation demonstrating that the funds are being used for healthcare-related expenses or lost revenue attributable to the COVID-19 pandemic.

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 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 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

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, 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

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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, and self-pay patients.

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.

The amount of revenue recognized for diagnostic testing services depends on a number of factors, such as resulted test volumes, 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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Cost of 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

The cost of services reflect the aggregate costs incurred in performing services, which include expenses for reagents and laboratory supplies, compensation expenses 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 information technology costs associated with delivery services.

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

The cost of services are recorded as the services are performed.

We expect the cost of services to generally increase in line with the anticipated growth in diagnostic testing volume and services we provide under our collaboration service agreements.

We expect the cost of services to generally increase in absolute dollars with the anticipated growth in diagnostic testing volume and services we provide under our collaboration service agreements.

However, we expect the cost per test to decrease over the long term due to the efficiencies we may gain from improved utilization of our laboratory capacity, automation, and other value engineering initiatives.

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These costs are principally associated with our efforts to develop the software we use to analyze data and process customer orders.

These costs primarily consist of personnel-related expenses (comprising salaries and benefits), stock-based compensation for employees performing research and development, innovation and product development activities, costs of reagents and laboratory supplies, costs of consultants and third-party services, equipment and related depreciation expenses, non-capitalizable software development costs, research funding to our research partners as part of research and development agreements and allocated facility and information technology costs associated with genomics medical research.

These costs primarily consist of compensation expenses for employees performing research and development, innovation and product development activities, costs of reagents and laboratory supplies, costs of consultants and third-party services, equipment and related depreciation expenses, non-capitalizable software development costs, research funding to our research partners as part of research and development agreements and allocated facility and information technology costs associated with genomics medical research.

Research and development costs are generally expensed as incurred and certain non-refundable advanced payments provided to our research partners are expensed as the related activities are performed.

We generally expect our research and development expenses to continue to increase as we innovate and expand the application of our platforms.

We generally expect our research and development expenses to continue to increase in absolute dollars as we innovate and expand the application of our platforms.

However, we expect research and development expenses to decrease as a percentage of revenue in the long term, although the percentage may fluctuate from period to period due to the timing and extent of our development and commercialization efforts and fluctuations in our compensation-related charges.

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 for us.

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 expenses primarily consist of compensation expenses for employees performing commercial sales, account management, marketing, and certain genetic counseling services.

Selling and marketing costs are expensed as incurred.

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General and Administrative Expenses

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.

General and administrative expenses primarily consist of compensation expenses 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.

General and administrative costs are expensed as incurred.

We generally expect our general and administrative expenses to continue to increase in absolute dollars as we increase headcount and incur costs associated with operating as a public company, including expenses related to legal, accounting, and regulatory matters, maintaining compliance with requirements of Nasdaq and of the SEC, director and officer insurance premiums.

We generally expect our general and administrative expenses to continue to increase in absolute dollars as we increase headcount and incur costs associated with operating as a public company, including expenses related to legal, accounting, and regulatory matters, and maintaining compliance with requirements of Nasdaq and of the SEC.

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.

Results of Operations

Comparison of the Years Ended December 31, 2024 and 2023

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Cost of services 111,053 112,560 (1,507) (1) %

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

Gross profit 194,397 90,006 104,391 116 %

Research and development 45,722 58,266 (12,544) (22) %

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Loss from operations (23,213) (180,596) 157,383 (87) %

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

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

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

Non-operating (expenses) income, net

Change in fair value of warrants and contingent liabilities (13,370) 1,170 (14,540) NM

Interest (expense) income, net (3,032) 1,114 (4,146) NM

Other (expense) income, net (13,014) 1,619 (14,633) NM

Total non-operating (expense) income, net (29,416) 3,903 (33,319) NM

Loss before income taxes (52,629) (176,693) 124,064 (70) %

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Net loss $ (52,286) $ (175,767) $ 123,481 (70) %

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.

NM – Not Meaningful

Total revenue increased by $102.9 million, or 51%, to $305.5 million for the year ended December 31, 2024, from $202.6 million for the year ended December 31, 2023.

Diagnostic test revenue increased by $106.5 million, or 54%, to $302.2 million for the year ended December 31, 2024, from $195.7 million for the year ended December 31, 2023.

The increase was attributable to a $109.2 million increase in exome and genome test revenue and an increase in other panel revenue of $5.0 million, which was partially offset by a $2.7 million decrease in hereditary cancer test revenue and a $5.0 million decrease in legacy Sema4 revenues.

The increase in exome and genome revenue was driven by a 51% increase in test volume coupled with higher reimbursement rates resulting from lower denial rates and improved collections.

Full year and fourth quarter 2024 revenues includes $6.8 million of discrete benefit in connection with a multi-year appeal recovery from a single third-party payor.

The fourth quarter benefit is composed of $5.8 million to exome genome revenues and $1.0 million to other test lines.

Other revenue, representing revenue from biopharma and/or data partnership, decreased by $3.6 million, or 52%, to $3.3 million for the year ended December 31, 2024, from $6.9 million for the year ended December 31, 2023.

The decrease reflected lower revenue from a partnership program which ended in 2024.

Gross profit increased by $104.4 million for the year ended December 31, 2024, driven by a combination of a favorable shift in volume mix to higher margin whole exome and genome tests, an improvement in exome average reimbursement rates and continued cost per test leverage.

Research and Development

Research and development expenses decreased by $12.5 million, or 22%, to $45.7 million for the year ended December 31, 2024, from $58.3 million for the year ended December 31, 2023.

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.

The decrease was primarily attributable to costs incurred in the prior year from the now discontinued Legacy Sema4 business, which included restructuring costs associated with headcount reduction actions and accelerated amortization for capitalized software no longer in use.

Selling and Marketing

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.

Selling and marketing expenses increased by $6.4 million, or 11%, to $67.4 million for the year ended December 31, 2024, from $61.0 million for the year ended December 31, 2023.

The increase reflects our investment to support growth in our commercial team as well as incremental variable billing and selling cost

General and Administrative

General and administrative expenses decreased by $32.6 million, or 24%, to $101.1 million for the year ended December 31, 2024, from $133.8 million for the year ended December 31, 2023 .

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.

The decrease was attributable to lower current period expenses related to professional services, software and information technology related costs, insurance costs, fixed asset depreciation and personnel-related costs from the now discontinued Legacy Sema4 business.

Impairment Loss

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See Note 5, “ 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.

Other operating expenses, net were $3.4 million for the year ended December 31, 2024, reflecting related party expenses.

Other operating expenses, net were $7.2 million for the year ended December 31, 2023 and included related party expenses of $5.3 million and a non-cash charge of $3.6 million to reserve for obsolete Legacy Sema4 inventory, partially offset by a gain of $1.7 million to recognize the sale of certain assets of Legacy Sema4.

Non-Operating (Expense) Income, Net

Non-operating expense, net of $29.4 million for the year ended December 31, 2024 primarily reflected a legal settlement, net of insurance, of $12.8 million, a non-cash charge of $10.1 million associated with the exercise of the Perceptive warrant and a non-cash charge of $3.3 million to account for the increase in fair value of our warrant liabilities.

Net interest expense for the year ended December 31, 2024 was $3.0 million.

Non-operating income, net of $3.9 million for the year ended December 31, 2023, primarily reflected non-cash benefits of $1.2 million to account for the decrease in fair value of our warrants and contingent liabilities and $2.8 million for a principal loan forgiveness under the amendment to the Connecticut Department of Economic and Community Development (“DECD”) loan, partially offset by $1.0 million in contract termination costs associated with the now discontinued Legacy Sema4 business.

Net interest income for the year ended December 31, 2023 was $1.1 million.

See Note 4, “ Fair Value Measurement ”, Note 8, “ Long-Term Debt ” and Note 10, “ Purchase Commitments and Contingencies ” to our consolidated financial statements for further information.

Reconciliation of Non-GAAP Financial Measures

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

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

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

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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.

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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Cost of services 111,053 112,560

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

Gross Margin 44 % (11) %

194,397 90,006

Depreciation and amortization expense $ 4,047 $ 4,350

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Adjusted gross margin

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(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) :

Adjusted Net Income (Loss)

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

We believe adjusted net income (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 income (loss) for the years ended December 31, 2024 and 2023 (in thousands) :

Year Ended December 31,

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Impairment loss (1)

10,402 210,145

Transaction, acquisition and business integration costs (2)

Restructuring costs (2)

Change in fair market value of financial liabilities (4)

Change in fair value of warrants and contingent liabilities (3)

13,370 (1,170)

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

Other income, net

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

Gain on debt forgiveness (5)

Adjusted net income (loss) $ 6,716 $ (126,257)

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(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.

(1) Represents the impairment of certain capital and right-of-use asset leases.

(2) Represents costs incurred for restructuring activities, which include severance, and in the prior period, third-party consulting costs.

(3) 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.

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

(5) Represents principal loan forgiveness under the amendment to the DECD loan.

(6) For the year ended December 31, 2024, represents a legal settlement for a certain litigation matter.

See Note 10, “ Purchase Commitments and Contingencies ” to our consolidated financial statements for further information.

For the year ended December 31, 2023, represents contract termination costs associated with the now discontinued Legacy Sema4 business.

Liquidity and Capital Resources

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 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.

As of December 31, 2024 , our existing cash and cash equivalents and available-for-sale marketable securities were $141.2 million.

We believe 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.

Nevertheless, we may also seek additional funding in the future through the sale of common or preferred equity or convertible debt securities, by entering into other credit facilities or other forms of third-party funding, or other debt financing or by disposing of assets or businesses.

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

As of December 31, 2024, approximately $102 million of securities remained available under this registration statement.

Further, we have entered into a sales agreement (the “Sales Agreement”) with TD Securities (USA) LLC (“TD Cowen”) pursuant to which we may, but are not obligated to, offer and sell, from time to time, shares of our Class A common stock with an aggregate offering price up to $75.0 million through TD Cowen, as sales agent, subject to the terms and conditions described in the Sales Agreement and SEC rules and regulations (our “ATM offering”).

As of December 31, 2024, approximately $26.8 million of capacity remained available under this ATM offering.

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, 2024 and December 31, 2023.

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.

We anticipate fulfilling such commitments with our existing cash and cash equivalents and available-for-sale marketable securities or through additional capital raised to finance our operations.

Our future minimum payments under non-cancellable operating lease and finance lease agreements were $62.3 million and $31.9 million, respectively as of December 31, 2024.

The timing of these future payments, by year, can be found in our consolidated financial statements in Note 9, “ Leases ”, included within this Annual Report.

As discussed above, 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.

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 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.

As discussed in the notes to our consolidated financial statements, in 2022, we entered into an agreement with one of our third-party payors to settle for $42.0 million claims related to coverage and billing matters allegedly resulting in overpayments by the

payor to Legacy Sema4.

As of December 31, 2024, remaining payments due to the payor were $12.0 million.

For more information regarding this matter, see Note 3, “ Revenue Recognition ” included within this Annual Report.

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Operating Activities

Net cash used in operating activities during the year ended December 31, 2024 was $28.5 million, driven by lower cash expenditures in the current year as compared with the prior year, which reflected improved gross margin profitability, as well as the realization of cost savings from the exited Legacy Sema4 business and previously executed cost reduction initiatives.

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.

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 a deferred income tax benefit of $49.1 million.

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.

Investing Activities

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.

Net cash used in investing activities during the year ended December 31, 2024 was $30.1 million which included purchases of marketable securities of $66.3 million and $5.5 million in purchases of property and equipment, partially offset by $41.7 million in proceeds from the sales and maturities of marketable securities.

Net cash used in investing activities during the year ended December 31, 2023 was $43.7 million, which included purchases of marketable securities of $47.7 million, $12.1 million in consideration held in escrow paid for the 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.

Financing Activities

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, 2024 was $44.2 million, which included $46.5 million in proceeds from our ATM offering, net of issuance costs, partially offset by $2.7 million of finance lease payments and $0.5 million of principal payments on the DECD loan.

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 term loan facility with Perceptive (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.

Recent Accounting Pronouncements

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

Loss of Smaller Reporting Company Status

As the market value of our shares of Class A common stock held by non-affiliates was between $250.0 million and $700.0 million as of June 28, 2024 (the last business day of our most recently completed second fiscal quarter) and our revenue for the year ended December 31, 2023 was more than $100.0 million, we continue to be deemed an accelerated filer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of December 31, 2024.

However, we are no longer a “smaller

reporting company” and will no longer be eligible to rely on the scaled disclosure exemptions available to smaller reporting companies starting with our first Quarterly Report on Form 10-Q in 2025.

JOBS Act Accounting Election

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.

We have elected to use this extended transition period and, as a result, our financial statements may not be comparable to companies that comply with public company effective dates.

We also intend to rely on other exemptions provided by the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

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.

Critical Accounting Policies and Estimates

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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.

Intangible Assets

Amortizable intangible assets include trade names and trademarks, developed technology and customer relationships acquired as part of business combinations.

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

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

Stock-based compensation for all employee and non-employee stock-based awards, including restricted stock units, is measured at fair value on the date of grant and recognized over the service period.

The fair value of restricted stock units are calculated based on the fair value of our common stock on the date of grant, while the fair value of stock options are calculated using a Black-Scholes option-pricing 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 stock-based compensation expense is recognized.

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

The volatility is estimated based on analysis of historical share prices of a peer group of public companies, the historical share prices of the Company, and the implied volatility of the Company’s call options.

The expected term of the Company’s options has been determined utilizing the “simplified” method as the awards granted are qualified as “plain-vanilla” options.

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

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.

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.

We reduce deferred tax assets, if necessary, by a valuation allowance if it is more likely than not that we will not realize some or all of our deferred tax assets.

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.

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 Jumpstart Our Business Startups Act (the “JOBS Act”).

We have elected to use this extended transition period and, as a result, our financial statements may not be comparable to companies that comply with public company effective dates.

We also intend to rely on other exemptions provided by the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

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