INVITAE CORP, 10-Q filed on 5/7/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
Apr. 26, 2019
Document And Entity Information [Abstract]    
Entity Registrant Name Invitae Corp  
Entity Central Index Key 0001501134  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company true  
Entity Ex Transition Period true  
Trading Symbol NVTA  
Entity Common Stock, Shares Outstanding   89,840,831
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
v3.19.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 252,502 $ 112,158
Marketable securities 28,714 13,727
Accounts receivable 23,700 26,296
Prepaid expenses and other current assets 16,569 13,258
Total current assets 321,485 165,439
Property and equipment, net 25,757 27,886
Operating lease assets 37,290  
Restricted cash 5,871 6,006
Intangible assets, net 29,156 30,469
Goodwill 50,095 50,095
Other assets 6,845 3,064
Total assets 476,499 282,959
Current liabilities:    
Accounts payable 9,867 7,812
Accrued liabilities 25,354 26,563
Operating lease obligations 4,419  
Finance lease obligations 1,960  
Finance lease obligations   1,937
Total current liabilities 41,600 36,312
Operating lease obligations, net of current portion 42,634  
Finance lease obligations, net of current portion 875  
Finance lease obligations, net of current portion   1,375
Debt 74,828 74,477
Other long-term liabilities 150 8,956
Total liabilities 160,087 121,120
Commitments and contingencies (Note 8)
Stockholders’ equity:    
Common stock 9 8
Accumulated other comprehensive income (loss) 8 (5)
Additional paid-in capital 870,784 678,548
Accumulated deficit (554,389) (516,712)
Total stockholders’ equity 316,412 161,839
Total liabilities and stockholders’ equity $ 476,499 $ 282,959
v3.19.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Revenue:    
Total revenue $ 40,553 $ 27,671
Cost of revenue 21,254 18,076
Research and development 17,994 15,366
Selling and marketing 24,193 18,924
General and administrative 13,319 11,780
Loss from operations (36,207) (36,475)
Other income, net 638 1,647
Interest expense (2,108) (1,292)
Net loss $ (37,677) $ (36,120)
Net loss per share, basic and diluted (in dollars per share) $ (0.47) $ (0.66)
Shares used in computing net loss per share, basic and diluted (in shares) 79,369 54,382
Test revenue    
Revenue:    
Total revenue $ 39,619 $ 27,053
Other revenue    
Revenue:    
Total revenue $ 934 $ 618
v3.19.1
Condensed Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement of Comprehensive Income [Abstract]    
Net loss $ (37,677) $ (36,120)
Other comprehensive income:    
Unrealized income on available-for-sale marketable securities, net of tax 13 11
Comprehensive loss $ (37,664) $ (36,109)
v3.19.1
Condensed Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Common stock:
Accumulated other comprehensive income (loss):
Additional paid-in capital:
Accumulated deficit:
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cumulative effect of accounting change         $ 11,241
Balance, beginning of period at Dec. 31, 2017   $ 5 $ (171) $ 520,558 (398,598)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Unrealized income on available-for-sale marketable securities, net of tax     11    
Common stock issued on exercise of stock options, net       22  
Common stock issued pursuant to exercises of warrants       169  
Warrants issued pursuant to loan agreement       383  
Stock-based compensation expense       4,393  
Other       67  
Net loss $ (36,120)       (36,120)
Balance, end of period at Mar. 31, 2018 101,960 5 (160) 525,592 (423,477)
Balance, beginning of period at Dec. 31, 2018 161,839 8 (5) 678,548 (516,712)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Common stock issued   1   184,490  
Unrealized income on available-for-sale marketable securities, net of tax     13    
Common stock issued on exercise of stock options, net       2,019  
Common stock issued pursuant to exercises of warrants       88  
Common stock issued pursuant to business combinations       416  
Stock-based compensation expense       5,223  
Net loss (37,677)       (37,677)
Balance, end of period at Mar. 31, 2019 $ 316,412 $ 9 $ 8 $ 870,784 $ (554,389)
v3.19.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities:    
Net loss $ (37,677) $ (36,120)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 3,286 3,433
Stock-based compensation 5,223 4,393
Remeasurements of liabilities associated with business combinations (130) 1,093
Other 388 32
Changes in operating assets and liabilities:    
Accounts receivable 2,596 (224)
Prepaid expenses and other current assets (3,365) (1,156)
Other assets 1,019 (2,548)
Accounts payable (307) (1,574)
Accrued expenses and other liabilities 601 (231)
Net cash used in operating activities (28,366) (32,902)
Cash flows from investing activities:    
Purchases of marketable securities (20,781) (225)
Proceeds from sales of marketable securities 0 19,965
Proceeds from maturities of marketable securities 6,000 2,078
Purchases of property and equipment (2,764) (1,871)
Net cash provided by (used in) in investing activities (17,545) 19,947
Cash flows from financing activities:    
Proceeds from public offerings of common stock, net of issuance costs 184,490 0
Proceeds from issuance of common stock 2,107 191
Proceeds from debt financing 0 19,792
Finance lease principal payments (477)  
Finance lease principal payments   (638)
Net cash provided by financing activities 186,120 19,345
Net increase in cash, cash equivalents and restricted cash 140,209 6,390
Cash, cash equivalents and restricted cash at beginning of period 118,164 17,459
Cash, cash equivalents and restricted cash at end of period 258,373 23,849
Supplemental cash flow information of non-cash investing and financing activities:    
Purchases of property and equipment in accounts payable and accrued liabilities 2,389 658
Investment in privately-held company in other assets and accrued liabilities 0 1,125
Warrants issued pursuant to loan and security agreement 0 383
Deferred offering costs included in accounts payable and accrued liabilities 0 263
Common stock issued for acquisition of businesses 416 $ 0
Lease assets obtained in exchange for lease obligations, net $ 1,617  
v3.19.1
Organization and description of business
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and description of business Organization and description of business
Invitae Corporation ("Invitae," “the Company," "we," "us," and "our") was incorporated in the State of Delaware on January 13, 2010, as Locus Development, Inc. and changed its name to Invitae Corporation in 2012. We utilize an integrated portfolio of laboratory processes, software tools and informatics capabilities to process DNA-containing samples, analyze information about patient-specific genetic variation and generate test reports for clinicians and their patients. Our headquarters and main production facility is located in San Francisco, California. We currently have more than 20,000 genes in production and provide a variety of diagnostic tests that can be used in multiple indications. Our tests include genes associated with hereditary cancer, neurological disorders, cardiovascular disorders, pediatric disorders, metabolic disorders and other hereditary conditions. In addition, and as a result of the acquisitions of Good Start Genetics (“Good Start”) in August 2017 and CombiMatrix Corporation (“CombiMatrix”) in November 2017, our services also include screening and testing in reproductive health, including preimplantation and carrier screening for inherited disorders, prenatal diagnosis, miscarriage analysis and pediatric developmental disorders. To complement these offerings, in the first quarter of 2019, we introduced our Non-invasive Prenatal Screen. Invitae operates in one segment.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018. The results for the three months ended March 31, 2019 are not necessarily indicative of the results expected for the full fiscal year or any other periods.
v3.19.1
Summary of significant accounting policies
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Summary of significant accounting policies Summary of significant accounting policies
Principles of consolidation
Our unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base these estimates on historical and anticipated results, trends and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. Actual results could differ materially from those estimates and assumptions.
Significant estimates and assumptions made by management include the determination of:
revenue recognition (See Note 3, “Revenue, accounts receivable and deferred revenue” for further information);
the fair value of assets acquired and liabilities assumed for business combinations;
the fair value of goodwill and intangible assets;
the recoverability of long-lived assets;
our incremental borrowing rate used to calculate our lease obligations;
stock-based compensation expense and the fair value of awards issued; and
income tax uncertainties.
Concentrations of credit risk and other risks and uncertainties
Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, marketable securities and accounts receivable. Our cash and cash equivalents are held by financial institutions in the United States. Such deposits may exceed federally insured limits.
Significant customers are those that represent 10% or more of our total revenue presented on the statements of operations. For the significant customer, revenue as a percentage of total revenue were as follows:
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Medicare
 
22
%
 
16
%
Our significant customer and its related accounts receivable balance as a percentage of total accounts receivable was as follows:
 
March 31, 2019
 
December 31, 2018
Medicare
21
%
 
21
%

Cash, cash equivalents and restricted cash
We consider all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market funds.
Restricted cash consists primarily of money market funds that serve as collateral for security deposits for our facility leases and sublease agreements and collateral for a credit card agreement at one of our financial institutions.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the statements of cash flows (in thousands):
 
March 31,
 
2019
 
2018
Cash and cash equivalents
$
252,502

 
$
18,443

Restricted cash
5,871

 
5,406

Total cash, cash equivalents and restricted cash
$
258,373

 
$
23,849


Accounts receivable
We receive payment for our tests from partners, patients, institutional customers and third-party payers. See Note 3, “Revenue, accounts receivable and deferred revenue” for further information.
Inventory
We maintain test reagents and other consumables primarily used in sample collection kits which are valued at the lower of cost or net realizable value. Cost is determined using actual costs on a first-in, first-out basis. Our inventory was $8.8 million and $8.3 million as of March 31, 2019 and December 31, 2018, respectively, and was recorded in prepaid expenses and other current assets on our consolidated balance sheets.
Business combinations
The tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values as of the business combination date, including identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. We base the estimated fair value of identifiable intangible assets acquired in a business combination on independent valuations that use information and assumptions provided by our management, which consider our estimates of inputs and assumptions that a market participant would use. Any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets acquired and liabilities assumed is recorded to goodwill. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, cash flows,
discount rates, estimated useful lives and probabilities surrounding the achievement of contingent milestones could result in different purchase price allocations and amortization expense in current and future periods.
In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity, we recognize a liability equal to the fair value of the contingent payments we expect to make as of the acquisition date. We remeasure this liability each reporting period and record changes in the fair value as a component of operating expenses.
Transaction costs associated with acquisitions are expensed as incurred in general and administrative expenses. Results of operations and cash flows of acquired companies are included in our operating results from the date of acquisition.
Goodwill
In accordance with ASC 350, Intangibles-Goodwill and Other (“ASC 350”), our goodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Under ASC 350, we perform annual impairment reviews of our goodwill balance during the fourth fiscal quarter. In testing for impairment, we compare the fair value of our consolidated single reporting unit to its carrying value including the goodwill of that unit. If the carrying value, including goodwill, exceeds the reporting unit’s fair value, we will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized cannot exceed the total amount of goodwill allocated to the reporting unit.
We have not incurred any goodwill impairment losses in any of the periods presented.
Fair value of financial instruments
Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities, finance leases and debt. The carrying amounts of certain of these financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued and other current liabilities approximate their current fair value due to the relatively short-term nature of these accounts. Based on borrowing rates available to us, the carrying value of finance leases and debt approximates their fair values.
Revenue recognition
We recognize revenue when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. All revenues are generated from contracts with customers.
Test revenue is generated primarily from the sale of tests that provide analysis and associated interpretation of the sequencing of parts of the genome.
Other revenue consists primarily of revenue from genome network subscription services which is recognized on a straight-line basis over the subscription term, and revenue from collaboration agreements.
Cost of revenue
Cost of revenue reflects the aggregate costs incurred in delivering the genetic testing results to clinicians and includes expenses for personnel-related costs including stock-based compensation, materials and supplies, equipment and infrastructure expenses associated with testing and allocated overhead including rent, equipment depreciation, amortization of acquired intangibles and utilities.
Net loss per share
Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury stock method. Potentially dilutive securities, consisting of convertible preferred stock, options to purchase common stock, common stock warrants, and RSUs, are considered to be common stock equivalents and were excluded from the calculation of diluted net loss per share because their effect would be antidilutive for all periods presented.
Recent accounting pronouncements
We evaluate all Accounting Standards Updates (“ASUs”) issued by the FASB for consideration of their applicability. ASUs not included in the disclosures in this report were assessed and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements.
Recently issued accounting pronouncements not yet adopted
In June 2016, FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) which requires measurement and recognition of expected credit losses for financial assets. This guidance will become effective for us beginning in the first quarter of 2020 and must be adopted using a modified retrospective approach, with certain exceptions. We are currently evaluating the effect that adoption of this ASU will have on our consolidated financial statements.
Recently adopted accounting pronouncements – Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and in July 2018 issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements (the foregoing ASUs collectively referred to as “Topic 842”). Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for all leases at the commencement date and also make expanded disclosures about leasing arrangements.
On January 1, 2019, we adopted Topic 842 using the modified retrospective approach in accordance with Topic 842. Adoption of Topic 842 had a material impact on our consolidated balance sheets, but did not have an impact on our consolidated statements of operations. Prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under previous lease guidance, ASC 840: Leases. We elected the package of practical expedients permitted under the transition guidance which, among other things, allowed us to carry forward the historical classification of leases in place as of January 1, 2019.
The effect of the adoption of Topic 842 on our consolidated balance sheet as of January 1, 2019 was as follows (in thousands):
 
 
December 31, 2018
 
Adjustments Due to the Adoption of Topic 842
 
January 1, 2019
Property and equipment, net
 
$
27,886

 
$
(5,159
)
 
$
22,727

Operating lease assets
 
$

 
$
36,711

 
$
36,711

Other assets
 
$
3,064

 
$
5,159

 
$
8,223

Accrued liabilities
 
$
26,563

 
$
(490
)
 
$
26,073

Operating lease obligations
 
$

 
$
4,697

 
$
4,697

Operating lease obligations, net of current portion
 
$

 
$
41,279

 
$
41,279

Other long-term liabilities
 
$
8,956

 
$
(8,775
)
 
$
181


The adjustments due to the adoption of Topic 842 primarily relate to the recognition of operating and finance lease right-of-use assets and operating lease liabilities. Finance lease assets are recorded within other assets on our consolidated balance sheet and were $5.2 million as of implementation of Topic 842 on January 1, 2019 and $4.8 million as of March 31, 2019.
Under Topic 842, we determine if an arrangement is a lease at inception primarily based on the determination of the party responsible for directing the use of an underlying asset within a contract. Operating leases are included in operating lease assets and operating lease obligations in our consolidated balance sheets. Lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use our incremental borrowing rate based on the information available at the lease commencement date which includes significant assumptions made by us including our estimated credit rating. Operating lease right-of-use assets also include any lease payments made prior to the lease commencement date and exclude any lease incentives paid or payable at the lease commencement date. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term.
As allowed under Topic 842, we elected to not apply the recognition requirements of Topic 842 to short-term leases, that is, leases with terms of 12 months or less which do not include an option to purchase the underlying asset that we are reasonably certain to exercise. For short-term leases, we recognize lease payments as operating expenses on a straight-line basis over the lease term.
As a result of our election of the package of practical expedients permitted under the Topic 842 transition guidance, for assets related to facilities leases we elected to account for lease and non-lease components, such as common area maintenance charges, as a single lease component.
We did not identify any material embedded leases with the adoption of Topic 842 and therefore the implementation of Topic 842 primarily focused on the treatment of our previously identified leases.
v3.19.1
Revenue, accounts receivable and deferred revenue
3 Months Ended
Mar. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue, accounts receivable and deferred revenue Revenue, accounts receivable and deferred revenue
Test revenue is generated from sales of diagnostic tests to three groups of customers: institutions, such as hospitals, clinics and partners; patients who pay directly; and patients’ insurance carriers. Amounts billed and collected, and the timing of collections, vary based on whether the payer is an institution, an insurance carrier or a patient. Other revenue consists principally of revenue recognized under collaboration and genome network agreements.
The following table includes our revenues as disaggregated by payer category (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Test revenue:
 
 
 
Institutions
$
8,154

 
$
7,231

Patient - direct
3,741

 
2,850

Patient - insurance
27,724

 
16,972

Total test revenue
39,619

 
27,053

Other revenue
934

 
618

Total revenue
$
40,553

 
$
27,671


We recognize revenue related to billings based on estimates of the amount that will ultimately be realized. The estimate of the transaction price of test revenue is based on many factors such as length of payer relationship, historical payment patterns, changes in contract provisions and insurance reimbursement policies. Cash collections for certain diagnostic tests delivered may differ from rates originally estimated. As a result of new information, we updated our estimate of the amounts to be recognized for previously delivered tests which resulted in an additional $0.4 million of test revenue for the three months ended March 31, 2019. This change in estimate decreased our loss from operations by $0.4 million and decreased basic and diluted net loss per share by approximately $0.01 for the three months ended March 31, 2019.
Accounts receivable
The majority of our accounts receivable represents amounts billed to institutions (e.g., hospitals, clinics, partners) and estimated amounts to be collected from third-party insurance payers for diagnostic test revenue recognized. Also included is amounts due under the terms of collaboration and genome network agreements for diagnostic testing and data aggregation reporting services provided and proprietary platform access rights transferred.
Deferred revenues
We record deferred revenues when cash payments are received or due in advance of our performance related to one or more performance obligations. The amounts deferred to date primarily consist of consideration received pertaining to the estimated exercise of certain re-requisition rights. In order to comply with loss contract rules, our re-requisition rights revenue deferral is no less than the estimated cost of fulfilling its related obligations. We recognize revenue related to re-requisition rights as the rights are exercised or expire unexercised, which is generally within 90 days of initial deferral.
v3.19.1
Business combinations
3 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Business combinations Business combinations
Good Start Genetics
In August 2017, we acquired 100% of the fully diluted equity of Good Start, a privately held molecular diagnostics company focused on preimplantation and carrier screening for inherited disorders. As of December 31, 2018, we had a hold-back amount payable for remaining common stock to be issued upon the resolution of outstanding claims from Good Start customers of approximately $1.5 million, of which $0.7 million was settled during the three months ended March 31, 2019
v3.19.1
Goodwill and intangible assets
3 Months Ended
Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and intangible assets Goodwill and intangible assets
Goodwill
There were no changes in the carrying amounts of goodwill during the three months ended March 31, 2019.
Intangible Assets
The following table presents details of our finite-lived intangible assets as of March 31, 2019 and December 31, 2018 (in thousands):
 
March 31, 2019
 
December 31, 2018
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted
Average
Useful Life
(in Years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted
Average
Useful Life
(in Years)
Customer relationships
$
23,763

 
$
(3,374
)
 
$
20,389

 
10.0
 
$
23,763

 
$
(2,783
)
 
$
20,980

 
10.0
Developed technology
11,963

 
(4,111
)
 
7,852

 
4.8
 
11,963

 
(3,482
)
 
8,481

 
4.8
Non-compete agreement
286

 
(129
)
 
157

 
5.0
 
286

 
(114
)
 
172

 
5.0
Trade name
576

 
(364
)
 
212

 
2.7
 
576

 
(329
)
 
247

 
2.7
Patent licensing agreement
496

 
(45
)
 
451

 
15.0
 
496

 
(37
)
 
459

 
15.0
Favorable leases
247

 
(152
)
 
95

 
2.2
 
247

 
(117
)
 
130

 
2.2
 
$
37,331

 
$
(8,175
)
 
$
29,156

 
 
 
$
37,331

 
$
(6,862
)
 
$
30,469

 
 


Acquisition-related intangibles included in the above table are finite-lived and are carried at cost less accumulated amortization. Customer relationships are being amortized on an accelerated basis, in proportion to estimated cash flows. All other acquisition-related intangibles are being amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are realized. Amortization expense was $1.3 million for each of the three months ended March 31, 2019 and 2018. Amortization expense is recorded to cost of revenue, research and development, sales and marketing and general and administrative expense.
The following table summarizes our estimated future amortization expense of intangible assets with finite lives as of March 31, 2019 (in thousands):
2019 (remainder of year)
$
3,935

2020
5,525

2021
5,829

2022
4,124

2023
3,111

Thereafter
6,632

Total estimated future amortization expense
$
29,156

v3.19.1
Balance sheet components
3 Months Ended
Mar. 31, 2019
Balance Sheet Related Disclosures [Abstract]  
Balance sheet components Balance sheet components
Property and equipment, net
Property and equipment consisted of the following (in thousands):
 
March 31, 2019
 
December 31, 2018
Leasehold improvements
$
13,063

 
$
13,034

Laboratory equipment
23,384

 
22,149

Equipment under capital lease

 
7,129

Computer equipment
4,911

 
4,723

Software
2,597

 
2,594

Furniture and fixtures
784

 
784

Automobiles
20

 
20

Construction-in-progress
5,151

 
1,962

Total property and equipment, gross
49,910

 
52,395

Accumulated depreciation and amortization
(24,153
)
 
(24,509
)
Total property and equipment, net
$
25,757

 
$
27,886


Depreciation expense was $1.6 million and $2.1 million for the three months ended March 31, 2019 and 2018, respectively.
Accrued liabilities
Accrued liabilities consisted of the following (in thousands):
 
March 31, 2019
 
December 31, 2018
Accrued compensation and related expenses
$
9,251

 
$
7,917

Liabilities associated with business combinations
5,910

 
6,460

Liability associated with co-development agreement

 
2,000

Deferred revenue
1,155

 
761

Other
9,038

 
9,425

Total accrued liabilities
$
25,354

 
$
26,563


Other long-term liabilities
Other long-term liabilities consisted of the following (in thousands):
 
March 31, 2019
 
December 31, 2018
Lease incentive obligation, non-current
$

 
$
3,280

Deferred rent, non-current

 
5,495

Other non-current liabilities
150

 
181

Total other long-term liabilities
$
150

 
$
8,956

v3.19.1
Fair value measurements
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair value measurements Fair value measurements
 
Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The authoritative guidance establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity.
The three-level hierarchy for the inputs to valuation techniques is summarized as follows:
Level 1—Observable inputs such as quoted prices (unadjusted) for identical instruments in active markets.
Level 2—Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-derived valuations whose significant inputs are observable.
Level 3—Unobservable inputs that reflect the reporting entity’s own assumptions.
The following tables set forth the fair value of our consolidated financial instruments that were measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 (in thousands):
 
March 31, 2019
 
Amortized
Cost
 
Unrealized
 
Estimated
Fair Value
 
 
 
 
 
 
 
 
Gains
 
Losses
 
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 

 
 

 
 

Money market funds
$
233,062

 
$

 
$

 
$
233,062

 
$
233,062

 
$

 
$

Certificates of deposit
300

 

 

 
300

 

 
300

 

Commercial paper
28,406

 
8

 

 
28,414

 

 
28,414

 

Total financial assets
$
261,768

 
$
8

 
$

 
$
261,776

 
$
233,062

 
$
28,714

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration
 
 
 
 
 
 
$
5,154

 

 

 
$
5,154

Total financial liabilities
 
 
 
 
 
 
$
5,154

 

 

 
$
5,154

 
March 31, 2019
Reported as:
 

Cash equivalents
$
227,191

Restricted cash
5,871

Marketable securities
28,714

Total cash equivalents, restricted cash, and marketable securities
$
261,776

 
 
Accrued liabilities
$
5,154


 
December 31, 2018
 
Amortized
Cost
 
Unrealized
 
Estimated
Fair Value
 
 
 
 
 
 
 
 
Gains
 
Losses
 
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 

 
 

 
 

Money market funds
$
93,934

 
$

 
$

 
$
93,934

 
$
93,934

 
$

 
$

Certificates of deposit
300

 

 

 
300

 

 
300

 

Commercial paper
10,908

 

 
(1
)
 
10,907

 

 
10,907

 

U.S. treasury notes
9,990

 

 

 
9,990

 
9,990

 

 

U.S. government agency securities
6,001

 

 
(4
)
 
5,997

 

 
5,997

 

Total financial assets
$
121,133

 
$

 
$
(5
)
 
$
121,128

 
$
103,924

 
$
17,204

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration
 
 
 
 
 
 
$
4,998

 

 

 
$
4,998

Total financial liabilities
 
 
 
 
 
 
$
4,998

 

 

 
$
4,998

 
December 31, 2018
Reported as:
 

Cash equivalents
$
101,395

Restricted cash
6,006

Marketable securities
13,727

Total cash equivalents, restricted cash, and marketable securities
$
121,128

 
 
Accrued liabilities
$
4,998


There were no transfers between Level 1, Level 2 and Level 3 during the periods presented. The total fair value of investments with unrealized losses at March 31, 2019 was nil. None of the available-for-sale securities held as of March 31, 2019 has been in a continuous unrealized loss position for more than one year. We have not identified any other-than-temporary declines in market value and thus have not recorded any impairment charges on our financial assets during the three months ended March 31, 2019. 
At March 31, 2019, the remaining contractual maturities of available-for-sale securities ranged from zero to three months.
 
 Our certificates of deposit, commercial paper, and debt securities of U.S. government agency entities are classified as Level 2 as they are valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, interest rate curves, reported trades, broker/dealer quotes and reference data.
As of March 31, 2019, we had a contingent obligation of $5.0 million of our common stock calculated using a 30-day trailing average share price to the former owners of AltaVoice in conjunction with our acquisition of AltaVoice in January 2017. The amount of the contingent obligation was dependent upon 2017 and 2018 revenue attributable to AltaVoice. Since revenue attributable to AltaVoice for the combined period of 2017 and 2018 was greater than the $10 million contingent milestone, in April 2019 we issued 0.2 million shares of our common stock to the former owners of AltaVoice which had a fair value on the date of issuance of $5.2 million.
The fair value of our outstanding debt is estimated using the net present value of future debt payments, discounted at an interest rate that is consistent with market interest rates, which is a Level 2 input. The estimated fair value of our outstanding debt at March 31, 2019 and December 31, 2018 approximated the carrying values.
v3.19.1
Commitments and contingencies
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and contingencies Commitments and contingencies
Leases
Operating leases
In 2015, we entered into a lease agreement for our headquarters and main production facility in San Francisco, California which commenced in 2016. This lease expires in July 2026 and we may renew the lease for an additional ten years. This optional period was not considered reasonably certain to be exercised and therefore we determined the lease term to be a ten-year period expiring in 2026. In connection with the execution of the lease, we provided a security deposit of approximately $4.6 million which is included in restricted cash in our consolidated balance sheets. We also have other operating leases for office and laboratory space in California and Massachusetts.
As of March 31, 2019, the weighted-average remaining lease term for our operating leases was 6.5 years and the weighted-average discount rate used to determine our operating lease liability was 11.5%. Cash payments included in the measurement of our operating lease liabilities were $2.4 million for the three months ended March 31, 2019.
The components of lease costs, which were included in cost of revenue, research and development, selling and marketing and general and administrative expenses on our consolidated statements of operations were as follows (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Operating lease costs
$
2,517

 
$
2,440

Sublease income
(43
)
 
(39
)
Total operating lease costs
2,474

 
2,401

Finance lease costs
420

 
509

Total lease costs
$
2,894

 
$
2,910


Future minimum payments under non-cancelable operating leases as of March 31, 2019 are as follows (in thousands):
2019 (remainder of year)
$
7,391

2020
9,616

2021
9,738

2022
9,661

2023
8,901

Thereafter
25,716

Future non-cancelable minimum operating lease payments
71,023

Less: minimum payments to be received from non-cancelable subleases
(131
)
Total future non-cancelable minimum operating lease payments, net
70,892

Less: imputed interest
(23,839
)
Total operating lease liabilities
47,053

Less: current portion
(4,419
)
Operating lease obligations, net of current portion
$
42,634


Finance leases
We have entered into various finance lease agreements to obtain laboratory equipment. The terms of our finance leases are generally three years with a weighted-average remaining lease term of 1.4 years as of March 31, 2019 and are typically secured by the underlying equipment. The weighted-average discount rate used to determine the finance lease liability was 6.2%. The portion of the future payments designated as principal repayment was classified as a finance lease obligation on our consolidated balance sheets. Cash payments included in the measurement of our finance lease liabilities were $0.5 million for the three months ended March 31, 2019.
Future payments under finance leases at March 31, 2019 are as follows (in thousands):
2019 (remainder of year)
$
1,560

2020
1,394

2021
21

Total finance lease obligations
2,975

Less: interest
(140
)
Present value of net minimum finance lease payments
2,835

Less: current portion
(1,960
)
Finance lease obligations, net of current portion
$
875


Debt financing
In November 2018, we entered into a Note Purchase Agreement (the "2018 Note Purchase Agreement") pursuant to which we were eligible to borrow an aggregate principal amount up to $200.0 million over a seven year maturity term which included an initial borrowing of $75.0 million in November 2018. We received net proceeds of $10.3 million after terminating and repaying the balance of our obligations of approximately $64.7 million with our previous lender.
At March 31, 2019, obligations under the 2018 Note Purchase Agreement were $75.0 million which are required to be repaid to the lender in a balloon payment no later than 2025. If we repay prior to the three year anniversary following the initial borrowing, the amount due will be: 117.5% of the principal amount if payment is made within 12 months after the borrowing; 132.5% of the principal amount if payment is made between 12 and 24 months after the borrowing; and 145.0% of the principal amount if payment is made between 24 and 36 months after the borrowing, all less the interest payments we've made since our initial borrowing.
The outstanding principal amount under the 2018 Note Purchase Agreement bears interest at a rate of 8.75% annually. In addition, beginning on January 1, 2020 and continuing until repayment or maturity of any outstanding principal, we will make quarterly payments of 0.5% of our annual net revenues subject to a maximum annual amount of such payments of $1.6 million which will be recognized as interest expense. Through the fixed interest charges and the quarterly revenue payments, we are required to pay total amounts to generate an 11% internal rate of return to the lender on any outstanding principal balances due in a lump-sum upon the repayment or maturity of any outstanding principal. During the three months ended March 31, 2019, the 2018 Note Purchase Agreement bore interest at an average interest rate of 10.6%.
The 2018 Note Purchase Agreement contains quarterly covenants to achieve certain revenue levels as well as additional covenants, including limits on our ability to dispose of assets, undergo a change of control, merge with or acquire other entities, incur debt, incur liens, pay dividends or other distributions to holders of our capital stock, repurchase stock and make investments, in each case subject to certain exceptions. Our obligations under the 2018 Note Purchase Agreement are secured by a security interest in substantially all of our and certain of our subsidiaries’ assets.
Debt discounts, including debt issuance costs, related to the 2018 Note Purchase Agreement of $0.7 million were recorded as a direct deduction from the debt liability and are being amortized to interest expense over the term of the 2018 Note Purchase Agreement. Future estimated payments under the 2018 Note Purchase Agreement as of March 31, 2019 are as follows (in thousands):
2019 (remainder of year)
$
5,013

2020
8,297

2021
8,279

2022
8,279

2023
8,279

Thereafter
89,948

Total remaining payments
128,095

Less: debt discount
(694
)
Less: interest
(52,573
)
Total debt
$
74,828


Interest expense related to our debt financings was $2.0 million and $1.2 million for the three months ended March 31, 2019 and 2018, respectively.
Other commitments
In the normal course of business, we enter into various purchase commitments primarily related to service agreements and laboratory supplies. At March 31, 2019, our total future payments under noncancelable unconditional purchase commitments having a remaining term of over one year were $5.6 million.
Guarantees and indemnifications
As permitted under Delaware law and in accordance with our bylaws, we indemnify our directors and officers for certain events or occurrences while the officer or director is or was serving in such capacity. The maximum amount of potential future indemnification is unlimited; however, we maintain director and officer liability insurance. This insurance allows the transfer of the risk associated with our exposure and may enable us to recover a portion of any future amounts paid. We believe the fair value of these indemnification agreements is minimal. Accordingly, we did not record any liabilities associated with these indemnification agreements at March 31, 2019 or December 31, 2018.
Contingencies
We were not a party to any material legal proceedings at March 31, 2019, or at the date of this report. We may from time to time become involved in various legal proceedings arising in the ordinary course of business, and the resolution of any such claims could be material.
v3.19.1
Stockholders' equity
3 Months Ended
Mar. 31, 2019
Equity [Abstract]  
Stockholders' equity Stockholders’ equity
Shares Outstanding
Shares of convertible preferred and common stock were as follows (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Convertible preferred stock:
 
 
 
Shares outstanding, beginning of period
3,459

 
3,459

Conversion into common stock
(3,334
)
 

Shares outstanding, end of period
125

 
3,459

 
 
 
 
Common stock:
 
 
 
Shares outstanding, beginning of period
75,481

 
53,597

Common stock issued in connection with public offering
10,350

 

Common stock issued on exercise of stock options, net
260

 
11

Common stock issued pursuant to vesting of RSUs
121

 
66

Common stock issued pursuant to exercises of warrants
15

 
28

Common stock issued pursuant to business combinations
40

 

Common stock issued upon conversion of preferred stock
3,334

 

Other

 
8

Shares outstanding, end of period
89,601

 
53,710


2018 Sales Agreement
In August 2018, we entered into a Common Stock Sales Agreement (the “2018 Sales Agreement”) with Cowen and Company, LLC (“Cowen”), under which we may offer and sell from time to time at our sole discretion shares of our common stock through Cowen as our sales agent, in an aggregate amount not to exceed $75.0 million. Cowen may sell the shares by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act of 1933, including without limitation sales made directly on The New York Stock Exchange, and also may sell the shares in privately negotiated transactions, subject to our prior approval. Per the terms of the
agreement, Cowen receives a commission equal to 3% of the gross proceeds of the sales price of all shares sold through it as sales agent under the 2018 Sales Agreement. In March 2019, we amended the 2018 Sales Agreement to increase the aggregate amount of our common stock to be sold under this agreement not to exceed $175.0 million. During 2018, we sold a total of 4.3 million shares of common stock under the 2018 Sales Agreement for aggregate gross proceeds of $61.1 million and net proceeds of $58.9 million. No shares of our common stock were sold under this agreement during 2019.
Public offerings
In March 2019, we sold, in an underwritten public offering, an aggregate of 10.4 million shares of our common stock at a price of $19.00 per share, for gross proceeds of $196.7 million and net proceeds of $184.5 million.
In April 2018, we sold, in an underwritten public offering, an aggregate of 12.8 million shares of our common stock at a price of $4.50 per share, for gross proceeds of $57.5 million and net proceeds of $53.5 million.
Private placement
In August 2017, in a private placement to certain accredited investors, we issued 5.2 million shares of common stock at a price of $8.50 per share, and 3.5 million shares of our Series A convertible preferred stock at a price of $8.50 per share, for gross proceeds of approximately $73.5 million and net proceeds of $68.9 million. The Series A preferred stock is convertible into common stock on a one-for-one basis, subject to adjustment for events such as stock splits, combinations and the like. During the three months ended March 31, 2019, 3.3 million shares of Series A convertible preferred stock were converted to 3.3 million shares of common stock.
v3.19.1
Stock incentive plans
3 Months Ended
Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock incentive plans Stock incentive plans
Stock incentive plans
In 2010, we adopted the 2010 Incentive Plan (the “2010 Plan”). The 2010 Plan provides for the granting of stock-based awards to employees, directors and consultants under terms and provisions established by our Board of Directors. Under the terms of the 2010 Plan, options may be granted at an exercise price not less than fair market value. For employees holding more than 10% of the voting rights of all classes of stock, the exercise prices for incentive and nonstatutory stock options must be at least 110% of fair market of the common stock on the grant date, as determined by our Board of Directors. The terms of options granted under the 2010 Plan may not exceed ten years.
In January 2015, we adopted the 2015 Stock Incentive Plan (the “2015 Plan”), which became effective upon the closing of our initial public offering (“IPO”). Shares outstanding under the 2010 Plan were transferred to the 2015 Plan upon effectiveness of the 2015 Plan. The 2015 Plan provides for automatic annual increases in shares available for grant, beginning on January 1, 2016 through January 1, 2025. In addition, shares subject to awards under the 2010 Plan that are forfeited or terminated will be added to the 2015 Plan. The 2015 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, stock units, stock appreciation rights and other forms of equity compensation, all of which may be granted to employees, including officers, non-employee directors and consultants. Additionally, the 2015 Plan provides for the grant of cash-based awards.
Options granted generally vest over a period of four years. Typically, the vesting schedule for options granted to newly hired employees provides that 1/4 of the award vests upon the first anniversary of the employee’s date of hire, with the remainder of the award vesting monthly thereafter at a rate of 1/48 of the total shares subject to the option. All other options typically vest in equal monthly installments over the four-year vesting schedule.
RSUs generally vest over a period of three years. Typically, the vesting schedule for RSUs provides that 1/3 of the award vests upon each anniversary of the grant date.
Activity under the 2010 Plan and the 2015 Plan is set forth below (in thousands, except per share amounts and years):
 
Shares Available For Grant
 
Stock Options Outstanding
 
Weighted-Average Exercise Price Per Share
 
Weighted-Average Remaining Contractual Life (Years)
 
Aggregate Intrinsic Value
Balances at December 31, 2018
118

 
3,855

 
$
8.54

 
6.8
 
$
9,927

Additional shares reserved
3,019

 

 
 
 
 
 
 
Options cancelled
10

 
(10
)
 
9.59

 
 
 
 
Options exercised

 
(260
)
 
7.77

 
 
 
 
RSUs granted
(265
)
 

 
 
 
 
 
 
RSUs cancelled
31

 

 
 
 
 
 
 
Balances at March 31, 2019
2,913

 
3,585

 
$
8.60

 
6.7
 
$
53,154

Options exercisable at March 31, 2019
 
 
2,651

 
$
8.41

 
6.3
 
$
39,794

Options vested and expected to vest at March 31, 2019
 
 
3,477

 
$
8.58

 
6.6
 
$
51,593


 
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of our common stock for stock options that were in-the-money.
The weighted-average fair value of RSUs granted was $14.45 and $7.81 in the three months ended March 31, 2019 and 2018, respectively.  
The total grant-date fair value of options to purchase common stock vested was $1.1 million and $1.8 million in the three months ended March 31, 2019 and 2018, respectively.
The intrinsic value of options to purchase common stock exercised was $3.3 million and $0.1 million in the three months ended March 31, 2019 and 2018, respectively.
The following table summarizes RSU activity for the three months ended March 31, 2019:
 
Number of Shares
 
Weighted- Average Grant Date Fair Value Per Share
Balance at December 31, 2018
4,031

 
$
8.35

RSUs granted
265

 
$
14.45

RSUs vested
(121
)
 
$
6.50

RSUs cancelled
(31
)
 
$
8.51

Balance at March 31, 2019
4,144

 
$
8.79


 
 2015 employee stock purchase plan
In January 2015, we adopted the 2015 Employee Stock Purchase Plan (the “ESPP”), which became effective upon the closing of the IPO. Employees participating in the ESPP may purchase common stock at 85% of the lesser of the fair market value of common stock on the purchase date or last trading day preceding the offering date. At March 31, 2019, cash received from payroll deductions pursuant to the ESPP was $2.0 million.
The ESPP provides for automatic annual increases in shares available for grant, beginning on January 1, 2016 and continuing through January 1, 2025. At March 31, 2019, a total of 1.0 million shares of common stock were reserved for issuance under the ESPP.
 Stock-based compensation
We use the grant date fair value of our common stock to value both employee and non-employee options when granted. We revalue non-employee options each reporting period using the fair market value of our common stock as of the last day of each reporting period.
No stock options were granted in either three-month period ended March 31, 2019 or 2018 and no stock options granted to non-employees vested in either period.
The following table summarizes stock-based compensation expense for the three months ended March 31, 2019 and 2018 included in the consolidated statements of operations (in thousands): 
 
Three Months Ended March 31,
 
2019
 
2018
Cost of revenue
$
651

 
$
491

Research and development
1,805

 
1,483

Selling and marketing
1,243

 
1,048

General and administrative
1,524

 
1,371

Total stock-based compensation expense
$
5,223

 
$
4,393


 
At March 31, 2019, unrecognized compensation expense related to unvested stock options, net of estimated forfeitures, was $3.5 million, which we expect to recognize on a straight-line basis over a weighted-average period of 1.6 years. Unrecognized compensation expense related to RSUs at March 31, 2019, net of estimated forfeitures, was $22.4 million, which we expect to recognize on a straight-line basis over a weighted-average period of 2.0 years. As of March 31, 2019, there was no capitalized stock-based employee compensation.
v3.19.1
Net loss per share
3 Months Ended
Mar. 31, 2019
Earnings Per Share [Abstract]  
Net loss per share Net loss per share
The following table presents the calculation of basic and diluted net loss per share for the three months ended March 31, 2019 and 2018 (in thousands, except per share amounts):
 
 
Three Months Ended March 31,
 
2019
 
2018
Net loss
$
(37,677
)
 
$
(36,120
)
Shares used in computing net loss per share, basic and diluted
79,369

 
54,382

Net loss per share, basic and diluted
$
(0.47
)
 
$
(0.66
)

 
The following common stock equivalents have been excluded from diluted net loss per share for the three months ended March 31, 2019 and 2018 because their inclusion would be anti-dilutive (in thousands): 
 
March 31,
 
2019
 
2018
Shares of common stock subject to outstanding options
3,585

 
4,075

Shares of common stock subject to outstanding warrants
596

 
2,019

Shares of common stock subject to outstanding RSUs
4,144

 
2,424

Shares of common stock pursuant to ESPP
178

 
327

Shares of common stock underlying Series A convertible preferred stock
125

 
3,459

Total shares of common stock equivalents
8,628

 
12,304

v3.19.1
Geographic information
3 Months Ended
Mar. 31, 2019
Segments, Geographical Areas [Abstract]  
Geographic information Geographic information
Revenue by country is determined based on the billing address of the customer. The following presents revenue by country for the three months ended March 31, 2019 and 2018 (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
United States
$
37,645

 
$
25,907

Canada
965

 
1,008

Rest of world
1,943

 
756

Total revenue
$
40,553

 
$
27,671


 
All long-lived assets at March 31, 2019 and December 31, 2018, were located in the United States.
v3.19.1
Summary of significant accounting policies (Policies)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Principles of consolidation Principles of consolidationOur unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of estimates Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base these estimates on historical and anticipated results, trends and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. Actual results could differ materially from those estimates and assumptions.
Significant estimates and assumptions made by management include the determination of:
revenue recognition (See Note 3, “Revenue, accounts receivable and deferred revenue” for further information);
the fair value of assets acquired and liabilities assumed for business combinations;
the fair value of goodwill and intangible assets;
the recoverability of long-lived assets;
our incremental borrowing rate used to calculate our lease obligations;
stock-based compensation expense and the fair value of awards issued; and
income tax uncertainties.
Concentrations of credit risk and other risks and uncertainties Concentrations of credit risk and other risks and uncertaintiesFinancial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, marketable securities and accounts receivable. Our cash and cash equivalents are held by financial institutions in the United States. Such deposits may exceed federally insured limits.
Cash cash equivalents and restricted cash Cash, cash equivalents and restricted cash
We consider all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market funds.
Restricted cash consists primarily of money market funds that serve as collateral for security deposits for our facility leases and sublease agreements and collateral for a credit card agreement at one of our financial institutions.
Accounts receivable Accounts receivableWe receive payment for our tests from partners, patients, institutional customers and third-party payers.
Inventory InventoryWe maintain test reagents and other consumables primarily used in sample collection kits which are valued at the lower of cost or net realizable value. Cost is determined using actual costs on a first-in, first-out basis.
Business combinations Business combinations
The tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values as of the business combination date, including identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. We base the estimated fair value of identifiable intangible assets acquired in a business combination on independent valuations that use information and assumptions provided by our management, which consider our estimates of inputs and assumptions that a market participant would use. Any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets acquired and liabilities assumed is recorded to goodwill. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, cash flows,
discount rates, estimated useful lives and probabilities surrounding the achievement of contingent milestones could result in different purchase price allocations and amortization expense in current and future periods.
In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity, we recognize a liability equal to the fair value of the contingent payments we expect to make as of the acquisition date. We remeasure this liability each reporting period and record changes in the fair value as a component of operating expenses.
Transaction costs associated with acquisitions are expensed as incurred in general and administrative expenses. Results of operations and cash flows of acquired companies are included in our operating results from the date of acquisition.
Goodwill GoodwillIn accordance with ASC 350, Intangibles-Goodwill and Other (“ASC 350”), our goodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Under ASC 350, we perform annual impairment reviews of our goodwill balance during the fourth fiscal quarter. In testing for impairment, we compare the fair value of our consolidated single reporting unit to its carrying value including the goodwill of that unit. If the carrying value, including goodwill, exceeds the reporting unit’s fair value, we will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized cannot exceed the total amount of goodwill allocated to the reporting unit.
Fair value of financial instruments Fair value of financial instrumentsOur financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities, finance leases and debt. The carrying amounts of certain of these financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued and other current liabilities approximate their current fair value due to the relatively short-term nature of these accounts. Based on borrowing rates available to us, the carrying value of finance leases and debt approximates their fair values.
Revenue recognition and cost of revenue Revenue recognition
We recognize revenue when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. All revenues are generated from contracts with customers.
Test revenue is generated primarily from the sale of tests that provide analysis and associated interpretation of the sequencing of parts of the genome.
Other revenue consists primarily of revenue from genome network subscription services which is recognized on a straight-line basis over the subscription term, and revenue from collaboration agreements.
Cost of revenue
Cost of revenue reflects the aggregate costs incurred in delivering the genetic testing results to clinicians and includes expenses for personnel-related costs including stock-based compensation, materials and supplies, equipment and infrastructure expenses associated with testing and allocated overhead including rent, equipment depreciation, amortization of acquired intangibles and utilities.
Net loss per share Net loss per shareBasic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury stock method. Potentially dilutive securities, consisting of convertible preferred stock, options to purchase common stock, common stock warrants, and RSUs, are considered to be common stock equivalents and were excluded from the calculation of diluted net loss per share because their effect would be antidilutive for all periods presented.
Recent accounting pronouncements Recent accounting pronouncements
We evaluate all Accounting Standards Updates (“ASUs”) issued by the FASB for consideration of their applicability. ASUs not included in the disclosures in this report were assessed and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements.
Recently issued accounting pronouncements not yet adopted
In June 2016, FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) which requires measurement and recognition of expected credit losses for financial assets. This guidance will become effective for us beginning in the first quarter of 2020 and must be adopted using a modified retrospective approach, with certain exceptions. We are currently evaluating the effect that adoption of this ASU will have on our consolidated financial statements.
Recently adopted accounting pronouncements – Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and in July 2018 issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements (the foregoing ASUs collectively referred to as “Topic 842”). Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for all leases at the commencement date and also make expanded disclosures about leasing arrangements.
On January 1, 2019, we adopted Topic 842 using the modified retrospective approach in accordance with Topic 842. Adoption of Topic 842 had a material impact on our consolidated balance sheets, but did not have an impact on our consolidated statements of operations. Prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under previous lease guidance, ASC 840: Leases. We elected the package of practical expedients permitted under the transition guidance which, among other things, allowed us to carry forward the historical classification of leases in place as of January 1, 2019.
The effect of the adoption of Topic 842 on our consolidated balance sheet as of January 1, 2019 was as follows (in thousands):
 
 
December 31, 2018
 
Adjustments Due to the Adoption of Topic 842
 
January 1, 2019
Property and equipment, net
 
$
27,886

 
$
(5,159
)
 
$
22,727

Operating lease assets
 
$

 
$
36,711

 
$
36,711

Other assets
 
$
3,064

 
$
5,159

 
$
8,223

Accrued liabilities
 
$
26,563

 
$
(490
)
 
$
26,073

Operating lease obligations
 
$

 
$
4,697

 
$
4,697

Operating lease obligations, net of current portion
 
$

 
$
41,279

 
$
41,279

Other long-term liabilities
 
$
8,956

 
$
(8,775
)
 
$
181


The adjustments due to the adoption of Topic 842 primarily relate to the recognition of operating and finance lease right-of-use assets and operating lease liabilities. Finance lease assets are recorded within other assets on our consolidated balance sheet and were $5.2 million as of implementation of Topic 842 on January 1, 2019 and $4.8 million as of March 31, 2019.
Under Topic 842, we determine if an arrangement is a lease at inception primarily based on the determination of the party responsible for directing the use of an underlying asset within a contract. Operating leases are included in operating lease assets and operating lease obligations in our consolidated balance sheets. Lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use our incremental borrowing rate based on the information available at the lease commencement date which includes significant assumptions made by us including our estimated credit rating. Operating lease right-of-use assets also include any lease payments made prior to the lease commencement date and exclude any lease incentives paid or payable at the lease commencement date. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term.
As allowed under Topic 842, we elected to not apply the recognition requirements of Topic 842 to short-term leases, that is, leases with terms of 12 months or less which do not include an option to purchase the underlying asset that we are reasonably certain to exercise. For short-term leases, we recognize lease payments as operating expenses on a straight-line basis over the lease term.
As a result of our election of the package of practical expedients permitted under the Topic 842 transition guidance, for assets related to facilities leases we elected to account for lease and non-lease components, such as common area maintenance charges, as a single lease component.
We did not identify any material embedded leases with the adoption of Topic 842 and therefore the implementation of Topic 842 primarily focused on the treatment of our previously identified leases.
v3.19.1
Summary of significant accounting policies (Tables)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Summary of significant customers as percentage of total revenue and total accounts receivable 10% or more of our total revenue presented on the statements of operations. For the significant customer, revenue as a percentage of total revenue were as follows:
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Medicare
 
22
%
 
16
%
Our significant customer and its related accounts receivable balance as a percentage of total accounts receivable was as follows:
 
March 31, 2019
 
December 31, 2018
Medicare
21
%
 
21
%
Summary of restrictions on cash and cash equivalents The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the statements of cash flows (in thousands):
 
March 31,
 
2019
 
2018
Cash and cash equivalents
$
252,502

 
$
18,443

Restricted cash
5,871

 
5,406

Total cash, cash equivalents and restricted cash
$
258,373

 
$
23,849

Schedule of cash and cash equivalents The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the statements of cash flows (in thousands):
 
March 31,
 
2019
 
2018
Cash and cash equivalents
$
252,502

 
$
18,443

Restricted cash
5,871

 
5,406

Total cash, cash equivalents and restricted cash
$
258,373

 
$
23,849

Summary of effect of the adoption of Topic 842 The effect of the adoption of Topic 842 on our consolidated balance sheet as of January 1, 2019 was as follows (in thousands):
 
 
December 31, 2018
 
Adjustments Due to the Adoption of Topic 842
 
January 1, 2019
Property and equipment, net
 
$
27,886

 
$
(5,159
)
 
$
22,727

Operating lease assets
 
$

 
$
36,711

 
$
36,711

Other assets
 
$
3,064

 
$
5,159

 
$
8,223

Accrued liabilities
 
$
26,563

 
$
(490
)
 
$
26,073

Operating lease obligations
 
$

 
$
4,697

 
$
4,697

Operating lease obligations, net of current portion
 
$

 
$
41,279

 
$
41,279

Other long-term liabilities
 
$
8,956

 
$
(8,775
)
 
$
181

v3.19.1
Revenue, accounts receivable and deferred revenue (Tables)
3 Months Ended
Mar. 31, 2019
Revenue from Contract with Customer [Abstract]  
Schedule of disaggregated revenue by payer category The following table includes our revenues as disaggregated by payer category (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Test revenue:
 
 
 
Institutions
$
8,154

 
$
7,231

Patient - direct
3,741

 
2,850

Patient - insurance
27,724

 
16,972

Total test revenue
39,619

 
27,053

Other revenue
934

 
618

Total revenue
$
40,553

 
$
27,671

v3.19.1
Goodwill and intangible assets (Tables)
3 Months Ended
Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of finite-lived intangible assets The following table presents details of our finite-lived intangible assets as of March 31, 2019 and December 31, 2018 (in thousands):
 
March 31, 2019
 
December 31, 2018
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted
Average
Useful Life
(in Years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted
Average
Useful Life
(in Years)
Customer relationships
$
23,763

 
$
(3,374
)
 
$
20,389

 
10.0
 
$
23,763

 
$
(2,783
)
 
$
20,980

 
10.0
Developed technology
11,963

 
(4,111
)
 
7,852

 
4.8
 
11,963

 
(3,482
)
 
8,481

 
4.8
Non-compete agreement
286

 
(129
)
 
157

 
5.0
 
286

 
(114
)
 
172

 
5.0
Trade name
576

 
(364
)
 
212

 
2.7
 
576

 
(329
)
 
247

 
2.7
Patent licensing agreement
496

 
(45
)
 
451

 
15.0
 
496

 
(37
)
 
459

 
15.0
Favorable leases
247

 
(152
)
 
95

 
2.2
 
247

 
(117
)
 
130

 
2.2
 
$
37,331

 
$
(8,175
)
 
$
29,156

 
 
 
$
37,331

 
$
(6,862
)
 
$
30,469

 
 
Summary of estimated future amortization expense of intangible assets with finite lives The following table summarizes our estimated future amortization expense of intangible assets with finite lives as of March 31, 2019 (in thousands):
2019 (remainder of year)
$
3,935

2020
5,525

2021
5,829

2022
4,124

2023
3,111

Thereafter
6,632

Total estimated future amortization expense
$
29,156

v3.19.1
Balance sheet components (Tables)
3 Months Ended
Mar. 31, 2019
Balance Sheet Related Disclosures [Abstract]  
Schedule of Property and equipment Property and equipment consisted of the following (in thousands):
<
 
March 31, 2019
 
December 31, 2018
Leasehold improvements
$
13,063

 
$
13,034

Laboratory equipment
23,384

 
22,149

Equipment under capital lease

 
7,129

Computer equipment
4,911

 
4,723

Software
2,597

 
2,594

Furniture and fixtures
784

 
784

Automobiles
20

 
20

Construction-in-progress
5,151

 
1,962

Total property and equipment, gross
49,910

 
52,395

Accumulated depreciation and amortization
(24,153
)