INVITAE CORP, 10-Q filed on 5/11/2020
Quarterly Report
v3.20.1
Cover Page - shares
3 Months Ended
Mar. 31, 2020
May 01, 2020
Cover [Abstract]    
Entity Registrant Name Invitae Corp  
Document Type 10-Q  
Document Period End Date Mar. 31, 2020  
Current Fiscal Year End Date --12-31  
Document Quarterly Report true  
Document Transition Report false  
Title of 12(b) Security Common Stock, $0.0001 par value per share  
Trading Symbol NVTA  
Security Exchange Name NYSE  
Entity Incorporation, State or Country Code DE  
Entity Central Index Key 0001501134  
Entity File Number 001-36847  
Amendment Flag false  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   125,012,944
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Entity Tax Identification Number 27-1701898  
Entity Address, Address Line One 1400 16th Street  
Entity Address, City or Town San Francisco  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 94103  
City Area Code 415  
Local Phone Number 374-7782  
v3.20.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 90,220 $ 151,389
Marketable securities 204,388 240,436
Accounts receivable 37,734 32,541
Prepaid expenses and other current assets 25,085 18,032
Total current assets 357,427 442,398
Property and equipment, net 41,085 37,747
Operating lease assets 37,588 36,640
Restricted cash 6,343 6,183
Intangible assets, net 163,378 125,175
Goodwill 177,432 126,777
Other assets 7,635 6,681
Total assets 790,888 781,601
Current liabilities:    
Accounts payable 25,982 10,321
Accrued liabilities 88,793 64,814
Operating lease obligations 5,125 4,870
Finance lease obligations 1,370 1,855
Total current liabilities 121,270 81,860
Operating lease obligations, net of current portion 42,767 42,191
Finance lease obligations, net of current portion 1,019 1,155
Convertible senior notes, net 272,387 268,755
Deferred tax liability 10,250 0
Other long-term liabilities 17,062 8,000
Total liabilities 464,755 401,961
Commitments and contingencies (Note 8)
Stockholders’ equity:    
Common stock 10 10
Accumulated other comprehensive income (loss) 1,294 (9)
Additional paid-in capital 1,182,033 1,138,316
Accumulated deficit (857,204) (758,677)
Total stockholders’ equity 326,133 379,640
Total liabilities and stockholders’ equity $ 790,888 $ 781,601
v3.20.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenue:    
Total revenue $ 64,248 $ 40,553
Cost of revenue 40,422 21,254
Research and development 55,668 17,994
Selling and marketing 42,120 24,193
General and administrative 23,822 13,319
Loss from operations (97,784) (36,207)
Other income, net 4,708 638
Interest expense (5,451) (2,108)
Net loss $ (98,527) $ (37,677)
Net loss per share, basic and diluted (in dollars per share) $ (0.99) $ (0.47)
Shares used in computing net loss per share, basic and diluted 99,632 79,369
Test revenue    
Revenue:    
Total revenue $ 63,078 $ 39,619
Other revenue    
Revenue:    
Total revenue $ 1,170 $ 934
v3.20.1
Condensed Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]    
Net loss $ (98,527) $ (37,677)
Other comprehensive income:    
Unrealized income on available-for-sale marketable securities, net of tax 1,303 13
Comprehensive loss $ (97,224) $ (37,664)
v3.20.1
Condensed Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Common stock:
Accumulated other comprehensive income (loss):
Additional paid-in capital:
Accumulated deficit:
Restatement adjustment
Additional paid-in capital:
Balance, beginning of period at Dec. 31, 2018   $ 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 or issuable 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)  
Balance, beginning of period at Dec. 31, 2019 379,640 10 (9) 1,138,316 (758,677)  
Balance, beginning of period (Immaterial error related to classification of Indemnification from acquisition) at Dec. 31, 2019           $ (10,387)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Unrealized income on available-for-sale marketable securities, net of tax     1,303      
Common stock issued on exercise of stock options, net       1,145    
Common stock issued pursuant to exercises of warrants       27    
Common stock issued or issuable pursuant to business combinations       42,453    
Stock-based compensation expense       10,479    
Net loss (98,527)       (98,527)  
Balance, end of period at Mar. 31, 2020 $ 326,133 $ 10 $ 1,294 $ 1,182,033 $ (857,204)  
v3.20.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities:    
Net loss $ (98,527) $ (37,677)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 6,056 3,286
Stock-based compensation 29,278 5,223
Amortization of debt discount and issuance costs 3,632 0
Remeasurements of liabilities associated with business combinations (3,367) (130)
Other (659) 388
Changes in operating assets and liabilities, net of businesses acquired:    
Accounts receivable (5,167) 2,596
Prepaid expenses and other current assets (7,053) (3,365)
Other assets 602 1,019
Accounts payable 13,085 (307)
Accrued expenses and other liabilities (240) 601
Net cash used in operating activities (62,360) (28,366)
Cash flows from investing activities:    
Purchases of marketable securities 0 (20,781)
Proceeds from sales of marketable securities 12,532 0
Proceeds from maturities of marketable securities 24,965 6,000
Acquisition of businesses, net of cash acquired (32,199) 0
Purchases of property and equipment (3,831) (2,764)
Other (667) 0
Net cash provided by (used in) investing activities 800 (17,545)
Cash flows from financing activities:    
Proceeds from public offerings of common stock, net 0 184,490
Proceeds from issuance of common stock, net 1,172 2,107
Finance lease principal payments (621) (477)
Net cash provided by financing activities 551 186,120
Net increase (decrease) in cash, cash equivalents and restricted cash (61,009) 140,209
Cash, cash equivalents and restricted cash at beginning of period 157,572 118,164
Cash, cash equivalents and restricted cash at end of period 96,563 258,373
Supplemental cash flow information of non-cash investing and financing activities:    
Purchases of property and equipment in accounts payable and accrued liabilities 3,956 2,389
Common stock issued for acquisition of businesses 42,453 416
Consideration payable for acquisition of businesses 5,773 0
Operating lease assets obtained in exchange for lease obligations, net $ 2,131 $ 1,617
v3.20.1
Organization and description of business
3 Months Ended
Mar. 31, 2020
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 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. We offer genetic testing across multiple clinical areas, including hereditary cancer, cardiology, neurology, pediatrics, metabolic conditions and rare diseases. To augment our offering and realize our mission, we have acquired multiple assets including four businesses in 2017 which expanded our suite of genome management offerings and facilitated our entry into prenatal and perinatal genetic testing, and three businesses in 2019 to advance our Non-Invasive Prenatal Screen ("NIPS") offering at lower costs, further enhance our genetic variant interpretation and expand our ability to scale and deliver genetic information. In 2020, we acquired Orbicule BV operating under the name "Diploid" ("Diploid") to enable us to quickly diagnose genetic disorders using artificial intelligence, as well as Genelex Solutions, LLC ("Genelex") and YouScript Incorporated ("YouScript") to bring pharmacogenetic testing and integrated clinical decision support to Invitae. 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, 2019. The results for the three months ended March 31, 2020 are not necessarily indicative of the results expected for the full fiscal year or any other periods.
v3.20.1
Summary of significant accounting policies
3 Months Ended
Mar. 31, 2020
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 judgments, 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 current facts, 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 judgments, estimates and assumptions. We evaluate our estimates on an ongoing basis.
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 consolidated statements of operations. Our revenue from significant customers as a percentage of our total revenue was as follows:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Medicare
 
21
%
 
22
%

Cash, cash equivalents and restricted cash
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,
2020
 
December 31,
2019
Cash and cash equivalents
$
90,220

 
$
151,389

Restricted cash
6,343

 
6,183

Total cash, cash equivalents and restricted cash
$
96,563

 
$
157,572


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 $13.3 million and $6.6 million as of March 31, 2020 and December 31, 2019, respectively, and was recorded in prepaid expenses and other current assets on our consolidated balance sheets.
Fair value of financial instruments
Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities, finance leases and liabilities associated with business combinations. 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 our finance leases approximate their fair values. Liabilities associated with business combinations are recorded at their estimated fair value.
Prior period reclassifications
We have reclassified certain amounts in prior periods to conform with current presentation.
Immaterial correction of an error
We determined the historical classification of certain acquisition-related obligations as equity and the subsequent measurement of such obligations was inappropriate and instead should have been classified as liabilities and subsequently measured at fair value with changes recognized in other income, net. We determined that the impact of the error to previously issued financial statements was not material and have corrected the immaterial error in the current period financial statements. The impact of this correction was an increase to other long-term liabilities of $10.1 million, a corresponding decrease to additional paid-in capital of $10.4 million and an increase to other income, net of $0.3 million.
Recent accounting pronouncements
We evaluate all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board ("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 adopted accounting pronouncements
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 became effective for us beginning in the first quarter of 2020 and was adopted using a modified retrospective approach, with certain exceptions. The adoption of Topic 326 did not have a material impact on our consolidated financial statements as credit losses are not expected to be significant.
As part of our adoption of Topic 326, we assess our accounts receivables for expected credit losses at each reporting period by disaggregating by payer type and further by portfolios of customers with similar characteristics, such as customer type and geographic location. We then review each portfolio for expected credit losses based on historical payment trends as well as forward looking data and current economic trends. If a credit loss is determined, we record a reduction to our accounts receivable balance with a corresponding general and administrative expense.
In accordance with Topic 326, we no longer evaluate whether our available-for-sale debt securities in an unrealized loss position are other than temporarily impaired. Instead, we assess whether such unrealized loss positions are credit-related. Our expected loss allowance methodology for these securities is developed by reviewing the extent of the unrealized loss, the issuers’ credit ratings and any changes in those ratings, as well as reviewing current and future economic market conditions and the issuers’ current status and financial condition. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income through an allowance account. Unrealized gains and losses that are not credit-related are included in accumulated other comprehensive income (loss).
v3.20.1
Revenue, accounts receivable and deferred revenue
3 Months Ended
Mar. 31, 2020
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, a patient or an insurance carrier. Other revenue consists principally of revenue recognized under collaboration and genome network agreements and is accounted for under the provisions provided in ASC 606, Revenue from Contracts with Customers.
The following table includes our revenues as disaggregated by payer category (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Test revenue:
 
 
 
Institutions
$
13,497

 
$
8,154

Patient - direct
5,791

 
3,741

Patient - insurance
43,790

 
27,724

Total test revenue
63,078

 
39,619

Other revenue
1,170

 
934

Total revenue
$
64,248

 
$
40,553


We recognize revenue related to billings based on estimates of the amount that will ultimately be realized. 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 the following increases to revenue and decreases to our loss from operations and basic and diluted net loss per share (in millions, except per share amounts):
 
Three Months Ended March 31,
 
2020
 
2019
Revenue
$
1.4

 
$
0.4

Loss from operations
$
(1.4
)
 
$
(0.4
)
Net loss per share, basic and diluted
$
(0.01
)
 
$
(0.01
)

Influence of COVID-19
Our test volumes began decreasing significantly in the second half of March 2020 as a result of COVID-19 and related limitations and priorities across the healthcare system. While it is too early to predict the full impact COVID-19 will have on our business, we expect it to have a material impact on our financial results for at least the next quarter and for the foreseeable future.
 Approximately 8% of our workforce as of March 31, 2020 was impacted by a reduction in force in April 2020 in an initiative to manage costs and cash burn that resulted in one-time costs in the second quarter of 2020 of $3.8 million. In addition, effective May 2020, we have reduced the salaries of our named executive officers by approximately 20%.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law which was a stimulus bill intended to bolster the economy, among other things, and provide assistance to qualifying businesses and individuals. The CARES Act included an infusion of funds into the healthcare system, and in April 2020, we received $3.8 million as a part of this initiative. This payment will be recognized in our consolidated statement of operations in April 2020. At this time, we are not certain of the availability, extent or impact of any future relief provided under the CARES Act.
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 are 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 revenue
We record deferred revenue 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 prepayments related to our consumer direct channel as well as 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 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.
v3.20.1
Business combinations
3 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
Business combinations Business combinations
Singular Bio
In June 2019, we acquired 100% of the fully diluted equity of Singular Bio Inc. ("Singular Bio"), a privately held company developing single molecule detection technology, for approximately $57.3 million, comprised of $53.9 million in the form of 2.5 million shares of our common stock and the remainder in cash.
Our purchase price allocation for the acquisition is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to our deferred tax liability assumed in connection with the acquisition as the short period tax return has not yet been filed. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
We granted approximately $90.0 million of RSUs under our 2015 Stock Incentive Plan as inducement awards to new employees who joined Invitae in connection with our acquisition of Singular Bio. $45.0 million of the RSUs are time-based and vest in three equal installments in December 2019, June 2020, and December 2020, subject to the employee's continued service with us ("Time-based RSUs") and $45.0 million of the RSUs are performance-based RSUs ("PRSUs") that vest upon the achievement of certain performance conditions over a period of approximately 12 months from the date of acquisition, subject to the employee's continued service with us. Since the number of awards granted is based on a 30-day volume weighted-average share price with a fixed dollar value, these Time-based RSUs and PRSUs are liability-classified and the fair value will be estimated at each reporting period based on the number of shares that are expected to be issued at each reporting date and our closing stock price, which combined are categorized as Level 3 inputs. Therefore, fair value of the RSUs and PRSUs and the number of shares to be issued will not be fixed until the awards vest.
During the three months ended March 31, 2020, we recorded research and development stock-based compensation expense of $7.6 million related to the Time-based RSUs and $11.2 million related to the PRSUs based on our evaluations of the probability of achieving performance conditions. As of March 31, 2020, the Time-based RSUs and PRSUs had a total fair value of $43.1 million and $44.4 million, respectively, based on a total estimated issuance of 6.2 million shares and expectation of the achievement of the performance conditions. As of March 31, 2020, 0.8 million of the Time-based RSUs had vested and none of these PRSUs had vested.
Jungla
In July 2019, we acquired 100% of the equity interest of Jungla Inc. ("Jungla"), a privately held company developing a platform for molecular evidence testing in genes, for approximately $59.0 million, comprised of $44.9 million in the form of shares of our common stock and the remainder in cash. We agreed to pay a portion of the cash and issue approximately 0.2 million shares of our common stock after a 12-month period, subject to a hold back to satisfy indemnification obligations that may arise.
We may be required to pay contingent consideration based on achievement of post-closing development milestones. As of the acquisition date, the fair value of this contingent consideration was $10.7 million including cash and common stock. The milestones are expected to be completed within two years. The material factors that may impact the fair value of the contingent consideration, and therefore, this liability, are the probabilities and timing of achieving the related milestones and the discount rate we used to estimate the fair value. Significant changes in any of the probabilities of success would result in a significant change in the fair value, which will be estimated at each reporting date with changes reflected as a general and administrative expense.
Our purchase price allocation for the acquisition is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to our deferred tax liability assumed in connection with the acquisition as the short period tax return has not yet been filed. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
As of March 31, 2020, we had a stock payable liability of $2.7 million which represents the hold-back obligation to issue 0.2 million shares subject to indemnification claims that may arise in connection with our acquisition of Jungla. This liability is adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input, with the change recorded in other income, net.
Clear Genetics
In November 2019, we acquired 100% of the equity interest of Clear Genetics Inc. ("Clear Genetics"), a developer of software for providing genetic services at scale, for approximately $50.1 million. Of the cash and stock purchase price consideration issued, $0.2 million of cash and approximately 0.4 million shares of our common stock are subject to a 12-month hold back to satisfy indemnification obligations that may arise.
Our purchase price allocation for the acquisition is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to our deferred tax liability assumed in connection with the acquisition as the short period tax return has not yet been filed. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
As of March 31, 2020, we had a stock payable liability of $5.7 million which represents the hold-back obligation to issue 0.4 million shares subject to indemnification claims that may arise in connection with our acquisition of Clear Genetics. This liability is adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input, with the change recorded in other income, net.
Diploid
In March 2020, we acquired 100% of the equity interest of Diploid, a developer of artificial intelligence software capable of diagnosing genetic disorders using sequencing data and patient information, for approximately $82.3 million in cash and shares of our common stock. Of the stock purchase price consideration issued, approximately 0.4 million shares are subject to a hold-back to satisfy indemnification obligations that may arise. We included the financial results of Diploid in our consolidated financial statements from the acquisition date, which were not material for the three months ended March 31, 2020.
The following table summarizes the purchase price recorded as a part of the acquisition of Diploid (in thousands):
 
Purchase Price
Cash transferred
$
32,323

Hold-back consideration - common stock
7,538

Common stock transferred
42,453

Total
$
82,314


Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by us. While we believe that our estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired and liabilities assumed, and the resulting amount of goodwill. The following table summarizes the fair values of assets acquired and liabilities assumed through our acquisition of Diploid at the date of acquisition (in thousands):
Cash
$
124

Accounts receivable
26

Developed technology
41,789

Total identifiable assets acquired
41,939

Accounts payable
(30
)
Deferred tax liability
(10,250
)
Net identifiable assets acquired
31,659

Goodwill
50,655

Total purchase price
$
82,314


Based on the guidance provided in ASC 805, Business Combinations, we accounted for the acquisition of Diploid as a business combination in which we determined that 1) Diploid was a business which combines inputs and processes to create outputs, and 2) substantially all of the fair value of gross assets acquired was not concentrated in a single identifiable asset or group of similar identifiable assets.
Our purchase price allocation for the acquisition is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to our deferred tax liability assumed in connection with the acquisition. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
We measured the identifiable assets and liabilities assumed at their acquisition date fair values separately from goodwill. The intangible asset acquired is developed technology related to Diploid's artificial intelligence technology platform. The fair value of the developed technology was estimated using an income approach with an estimated useful life of nine years. As of the acquisition date, we recorded a stock payable liability of $7.5 million to represent the hold-back obligation to issue 0.4 million shares subject to indemnification claims that may arise. This liability is adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input. As of March 31, 2020, the value of this liability was $5.8 million with the change recorded in other income, net.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Diploid resulted in the recognition of $50.7 million of goodwill which we believe relates primarily to expansion of the acquired technology to apply to new areas of genetic testing. Goodwill created as a result of the acquisition of Diploid is not deductible for tax purposes.
As part of our acquisition of Diploid, we intend to grant approximately $5.0 million of RSUs under our 2015 Stock Incentive Plan as inducement awards to new employees who joined Invitae in connection with the acquisition. As of March 31, 2020, the terms of these awards were still being finalized and therefore had not been granted.
v3.20.1
Goodwill and intangible assets
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and intangible assets Goodwill and intangible assets
Goodwill
The changes in the carrying amounts of goodwill were as follows (in thousands):
Balance as of December 31, 2019
$
126,777

Goodwill acquired - Diploid
50,655

Balance as of March 31, 2020
$
177,432


Intangible assets
The following table presents details of our intangible assets (in thousands):
 
March 31, 2020
 
December 31, 2019
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(in Years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(in Years)
Customer relationships
$
23,763

 
$
(5,841
)
 
$
17,922

 
10.0
 
$
23,763

 
$
(5,141
)
 
$
18,622

 
10.0
Developed technology
126,185

 
(11,291
)
 
114,894

 
8.7
 
84,396

 
(8,476
)
 
75,920

 
8.6
Non-compete agreement
286

 
(186
)
 
100

 
5.0
 
286

 
(172
)
 
114

 
5.0
Trade name
576

 
(519
)
 
57

 
2.7
 
576

 
(480
)
 
96

 
2.7
Patent licensing agreement
496

 
(79
)
 
417

 
15.0
 
496

 
(70
)
 
426

 
15.0
Favorable leases
247

 
(247
)
 

 
2.2
 
247

 
(238
)
 
9

 
2.2
In-process research and development
29,988

 

 
29,988

 
n/a
 
29,988

 

 
29,988

 
n/a
 
$
181,541

 
$
(18,163
)
 
$
163,378

 
8.9
 
$
139,752

 
$
(14,577
)
 
$
125,175

 
8.9


Acquisition-related intangibles included in the above table are finite-lived, other than in-process research and development which has an indefinite life, 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 finite-lived 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 $3.6 million and $1.3 million for the three months ended March 31, 2020 and 2019, respectively. 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, 2020 (in thousands):
2020 (remainder of year)
$
13,568

2021
18,426

2022
16,721

2023
15,708

2024
15,430

Thereafter
53,537

Total estimated future amortization expense
$
133,390


v3.20.1
Balance sheet components
3 Months Ended
Mar. 31, 2020
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, 2020
 
December 31, 2019
Leasehold improvements
$
21,422

 
$
18,352

Laboratory equipment
26,983

 
24,873

Computer equipment
6,476

 
5,995

Software
2,611

 
2,611

Furniture and fixtures
1,277

 
1,198

Automobiles
58

 
58

Construction-in-progress
10,239

 
10,795

Total property and equipment, gross
69,066

 
63,882

Accumulated depreciation and amortization
(27,981
)
 
(26,135
)
Total property and equipment, net
$
41,085

 
$
37,747


Depreciation expense was $2.0 million and $1.6 million for the three months ended March 31, 2020 and 2019, respectively.
Accrued liabilities
Accrued liabilities consisted of the following (in thousands):
 
March 31, 2020
 
December 31, 2019
Accrued compensation and related expenses
$
18,927

 
$
16,440

Compensation and other liabilities associated with business combinations
55,789

 
30,560

Deferred revenue
1,460

 
1,429

Other
12,617

 
16,385

Total accrued liabilities
$
88,793

 
$
64,814


v3.20.1
Fair value measurements
3 Months Ended
Mar. 31, 2020
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 (in thousands):
 
March 31, 2020
 
Amortized
Cost
 
Unrealized
 
Estimated
Fair Value
 
 
 
 
 
 
 
 
Gains
 
Losses
 
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 

 
 

 
 

Money market funds
$
32,653

 
$

 
$

 
$
32,653

 
$
32,653

 
$

 
$

Certificates of deposit
300

 

 

 
300

 

 
300

 

U.S. treasury notes
137,937

 
1,157

 

 
139,094

 
139,094

 

 

U.S. government agency securities
64,857

 
137

 

 
64,994

 

 
64,994

 

Total financial assets
$
235,747

 
$
1,294

 
$

 
$
237,041

 
$
171,747

 
$
65,294

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock payable liability
 
 
 
 
 
 
$
14,362

 
$

 
$

 
$
14,362

Contingent consideration
 
 
 
 
 
 
11,200

 

 

 
11,200

Total financial liabilities
 
 
 
 
 
 
$
25,562

 
$

 
$

 
$
25,562

 
March 31, 2020
Reported as:
 

Cash equivalents
$
26,310

Restricted cash
6,343

Marketable securities
204,388

Total cash equivalents, restricted cash, and marketable securities
$
237,041

 
 
Accrued liabilities
$
8,500

Other long-term liabilities
$
17,062


 
December 31, 2019
 
Amortized
Cost
 
Unrealized
 
Estimated
Fair Value
 
 
 
 
 
 
 
 
Gains
 
Losses
 
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 

 
 

 
 

Money market funds
$
39,396

 
$

 
$

 
$
39,396

 
$
39,396

 
$

 
$

Certificates of deposit
300

 

 

 
300

 

 
300

 

U.S. treasury notes
150,627

 

 
(15
)
 
150,612

 
150,612

 

 

U.S. government agency securities
193,302

 
6

 

 
193,308

 

 
193,308

 

Total financial assets
$
383,625

 
$
6

 
$
(15
)
 
$
383,616

 
$
190,008

 
$
193,608

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration
 
 
 
 
 
 
$
11,300

 

 

 
$
11,300

Total financial liabilities
 
 
 
 
 
 
$
11,300

 

 

 
$
11,300

 
December 31, 2019
Reported as:
 

Cash equivalents
$
136,997

Restricted cash
6,183

Marketable securities
240,436

Total cash equivalents, restricted cash, and marketable securities
$
383,616

 
 
Accrued liabilities
$
3,300

Other long-term liabilities
$
8,000


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, 2020 was nil. None of the available-for-sale securities held as of March 31, 2020 has been in a continuous unrealized loss position for more than one year. Interest income generated from our investments was $1.0 million and $0.6 million during the three months ended March 31, 2020 and 2019, respectively.
 
Our certificates of deposit 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.
Stock payable liabilities relate to certain indemnification hold-backs resulting from business combinations that are settled in shares of our common stock. We elected to account for these liabilities using the fair value option due to the inherent nature of the liabilities and the changes in value of the underlying shares that will ultimately be issued to settle the liabilities. The estimated fair value of these liabilities is classified as Level 3 and determined based upon the number of shares that are issuable to the sellers and the quoted closing price of our common stock as of the reporting date. The number of shares that will ultimately be issued is subject to adjustment for indemnified claims that existed as of the closing date for each acquisition. Changes in the number of shares issued and share price can significantly affect the estimated fair value of the liabilities. During the three months ended March 31, 2020, the change in fair value related to stock payable liabilities recorded to other income, net was $3.4 million.
As of March 31, 2020, we had contingent obligations of $11.2 million of our common stock to the former owners of Jungla in conjunction with our acquisition of Jungla in July 2019. The amount of the contingent obligation is dependent upon achievement of certain post-close development milestones. We estimated the fair value of the contingent consideration as $10.7 million at the acquisition date in July 2019 using a discounted cash flow technique based on estimated achievement of the post-close milestones and discount rates which were Level 3 inputs not supported by market activity. These inputs can significantly affect the estimated fair value of the
contingent consideration. The value of the liability is subsequently remeasured to fair value at each reporting date with changes recorded as general and administrative expense.
v3.20.1
Commitments and contingencies
3 Months Ended
Mar. 31, 2020
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 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, Massachusetts and New York. We expect to enter into new leases and modifying existing leases as we support continued growth of our operations.
As of March 31, 2020, the weighted-average remaining lease term for our operating leases was 6.3 years and the weighted-average discount rate used to determine our operating lease liability was 11.6%. Cash payments included in the measurement of our operating lease liabilities were $2.7 million for the three months ended March 31, 2020.
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,
 
2020
 
2019
Operating lease costs
$
2,615

 
$
2,517

Sublease income

 
(43
)
Total operating lease costs
2,615

 
2,474

Finance lease costs
484

 
420

Total lease costs
$
3,099

 
$
2,894


Future minimum payments under non-cancelable operating leases as of March 31, 2020 are as follows (in thousands):
2020 (remainder of year)
$
7,770

2021
10,671

2022
10,631

2023
10,424

2024
10,560

Thereafter
18,459

Future non-cancelable minimum operating lease payments
68,515

Less: imputed interest
(20,623
)
Total operating lease liabilities
47,892

Less: current portion
(5,125
)
Operating lease obligations, net of current portion
$
42,767


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 2.0 years as of March 31, 2020 and are typically secured by the underlying equipment. The weighted-average discount rate used to determine our finance lease liability was 5.7%. The portion of the future payments designated as principal repayment was classified as a finance lease obligation on our consolidated balance sheets. Finance lease assets are recorded within other assets on our consolidated balance sheet and were $5.1 million and $5.6 million as of March 31, 2020
and December 31, 2019, respectively. Cash payments included in the measurement of our finance lease liabilities were $0.7 million and $0.5 million for the three months ended March 31, 2020 and 2019, respectively.
Future payments under finance leases at March 31, 2020 are as follows (in thousands):
2020 (remainder of year)
$
1,306

2021
611

2022
611

Total finance lease obligations
2,528

Less: interest
(139
)
Present value of net minimum finance lease payments
2,389

Less: current portion
(1,370
)
Finance lease obligations, net of current portion
$
1,019


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.
In September 2019, we settled our obligations under the 2018 Note Purchase Agreement in full for $85.7 million, which included repayment of principal of $75.0 million, accrued interest of $2.4 million, and prepayment fees of $8.9 million which were recorded as debt extinguishment costs in other income (expense), net in our statement of operations during the three months ended September 30, 2019.
Interest expense related to our debt financings, excluding the impact of our Convertible Senior Notes, was nil and $2.0 million for the three months ended March 31, 2020 and 2019, respectively.
Convertible Senior Notes
In September 2019, we issued, at par value, $350.0 million aggregate principal amount of 2.00% Convertible Senior Notes due 2024 in a private offering. The Convertible Senior Notes are our senior unsecured obligations and will mature on September 1, 2024, unless earlier converted, redeemed or repurchased. The Convertible Senior Notes bear cash interest at a rate of 2.0% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020.
Upon conversion, the Convertible Senior Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. Our current intent is to settle the principal amount of the Convertible Senior Notes in cash upon conversion, with any remaining conversion value being delivered in shares of our common stock. The initial conversion rate for the Convertible Senior Notes is 33.6293 shares of our common stock per $1,000 principal amount of the Convertible Senior Notes (equivalent to an initial conversion price of approximately $29.74 per share of common stock).
If we undergo a fundamental change (as defined in the indenture governing the Convertible Senior Notes), the holders of the Convertible Senior Notes may require us to repurchase all or any portion of their Convertible Senior Notes for cash at a repurchase price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased plus accrued and unpaid interest to, but excluding, the redemption date.
The Convertible Senior Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding March 1, 2024, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the Convertible Senior Notes on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call any or all of the Convertible Senior Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after
March 1, 2024 until the close of business on the business day immediately preceding the maturity date, holders may convert their Convertible Senior Notes at any time, regardless of the foregoing circumstances. As of March 31, 2020, none of the above circumstances had occurred and therefore the Convertible Senior Notes could not have been converted.
We may not redeem the Convertible Senior Notes prior to September 6, 2022. We may redeem for cash all or any portion of the Convertible Senior Notes, at our option, on or after September 6, 2022 and on or before the 30th scheduled trading day immediately before the maturity date if the last reported sale price of the Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
The Convertible Senior Notes as of March 31, 2020 consisted of the following (in thousands):
Outstanding principal
$
350,000

Unamortized debt discount and issuance costs
(77,613
)
Net carrying amount, liability component
$
272,387


As of March 31, 2020, the fair value of the Convertible Senior Notes was $310.8 million. The estimated fair value of the Convertible Senior Notes, which are classified as Level 2 financial instruments, was determined based on the estimated or actual bid prices of the Convertible Senior Notes in an over-the-counter market. We recognized $5.4 million of interest expense related to the Convertible Senior Notes during the three months ended March 31, 2020.
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, 2020, our total future payments under noncancelable unconditional purchase commitments having a remaining term of over one year were $9.2 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, 2020 or December 31, 2019.
Contingencies
We were not a party to any material legal proceedings at March 31, 2020, or at the date of this report. We are and may from time to time become involved in various legal proceedings and claims arising in the ordinary course of business. While we believe any such claims are unsubstantiated, and we believe we are in compliance with applicable laws and regulations applicable to our business, the resolution of any such claims could be material.
v3.20.1
Stockholders' equity
3 Months Ended
Mar. 31, 2020
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,
 
2020
 
2019
Convertible preferred stock:
 
 
 
Shares outstanding, beginning of period
125

 
3,459

Conversion into common stock

 
(3,334
)
Shares outstanding, end of period
125

 
125

 
 
 
 
Common stock:
 
 
 
Shares outstanding, beginning of period
98,796

 
75,481

Common stock issued in connection with public offering

 
10,350

Common stock issued on exercise of stock options, net
178

 
260

Common stock issued pursuant to vesting of RSUs
426

 
121

Common stock issued pursuant to exercises of warrants
142

 
15

Common stock issued pursuant to business combinations
2,378

 
40

Common stock issued upon conversion of preferred stock

 
3,334

Shares outstanding, end of period
101,920

 
89,601


v3.20.1
Stock incentive plans
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [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 the fair market value of our common stock. 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 our 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. In June 2019, we amended and restated the 2015 Plan to create a pool of shares to be awarded solely as a material inducement to employees.
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, with certain awards that include a portion that vests immediately upon grant. In June 2019, we granted Time-based RSUs in connection with the acquisition of Singular Bio which vest in three equal installments over a period of 18 months and PRSUs that vest based on the achievement of performance conditions; see further details in Note 4, "Business combinations."
Under our management incentive compensation plan, in July 2019 we granted PRSUs to our executive officers as well as other specified senior level employees based on the level of achievement of a specified 2019
revenue goal. One-third of the 0.8 million shares that were ultimately awarded under this plan vested during the three months ended March 31, 2020 and the remaining awards will continue to vest over a period of two years.
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, 2019
5,444

 
3,542

 
$
9.49

 
6.1
 
$
24,966

Additional shares reserved
4,552

 

 
 
 
 
 
 
Options exercised

 
(178
)
 
6.44

 
 
 
 
RSUs and PRSUs granted(1)
(1,223
)
 

 
 
 
 
 
 
RSUs and PRSUs cancelled
232

 

 
 
 
 
 
 
Balances at March 31, 2020
9,005

 
3,364

 
$
9.66

 
5.9
 
$
15,430

Options exercisable at March 31, 2020
 
 
2,954

 
$
8.98

 
5.6
 
$
14,187

Options vested and expected to vest at March 31, 2020
 
 
3,311

 
$
9.56

 
5.9
 
$
15,290


(1)
Includes the changes in the Time-based RSUs and PRSUs granted as a part of the Singular Bio acquisition in June 2019 which are based on a fixed dollar value. The number of shares issued will be variable until the awards vest. See further details in Note 4, "Business combinations."

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 total grant-date fair value of options to purchase common stock vested was $0.7 million and $1.1 million in the three months ended March 31, 2020 and 2019, respectively. The intrinsic value of options to purchase common stock exercised was $2.3 million and $3.3 million in the three months ended March 31, 2020 and 2019, respectively.
The following table summarizes RSU activity, which includes the changes in Time-based RSUs and PRSUs granted in connection with our acquisition of Singular Bio (in thousands, except per share data):
 
Number of Shares
 
Weighted- Average Grant Date Fair Value Per Share
Balance at December 31, 2019
8,885

 
$
15.17

RSUs granted
218

 
$
17.89

Time-based RSUs and PRSUs granted - Singular Bio (1)
1,005

 
$
13.67

RSUs vested
(426
)
 
$
18.00

RSUs cancelled
(232
)
 
$
20.27

Balance at March 31, 2020
9,450

 
$
14.82


 (1)
Includes the changes in the Time-based RSUs and PRSUs granted as a part of the Singular Bio acquisition in June 2019 which are based on a fixed dollar value. The number of shares issued will be variable until the awards vest. The weighted-average grant date fair value per share reflects the fair value pricing of the full award. See further details in Note 4, "Business combinations."

 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, 2020, cash received from payroll deductions pursuant to the ESPP was $3.4 million. At March 31, 2020, a total of 1.6 million shares of common stock were reserved for issuance under the ESPP.
 Stock-based compensation
The following table summarizes stock-based compensation expense included in the consolidated statements of operations (in thousands): 
 
Three Months Ended March 31,
 
2020
 
2019
Cost of revenue
$
861

 
$
651

Research and development
22,204

 
1,805

Selling and marketing
1,823

 
1,243

General and administrative
4,390

 
1,524

Total stock-based compensation expense
$
29,278

 
$
5,223


v3.20.1
Net loss per share
3 Months Ended
Mar. 31, 2020
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 (in thousands, except per share amounts):
 
Three Months Ended March 31,
 
2020
 
2019
Net loss
$
(98,527
)
 
$
(37,677
)
Shares used in computing net loss per share, basic and diluted
99,632

 
79,369

Net loss per share, basic and diluted
$
(0.99
)
 
$
(0.47
)

 
The following common stock equivalents have been excluded from diluted net loss per share because their inclusion would be anti-dilutive (in thousands): 
 
Three Months Ended March 31,
 
2020
 
2019
Shares of common stock subject to outstanding options
3,478

 
3,759

Shares of common stock subject to outstanding warrants
489

 
609

Shares of common stock subject to outstanding RSUs
5,703

 
4,130

Shares of common stock subject to outstanding PRSUs
3,988

 

Shares of common stock pursuant to ESPP
368

 
213

Shares of common stock underlying Series A convertible preferred stock
125

 
2,465

Shares of common stock subject to convertible senior notes exercise
11,770

 

Total shares of common stock equivalents
25,921

 
11,176


v3.20.1
Geographic information
3 Months Ended
Mar. 31, 2020
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 (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
United States
$
59,806

 
$
37,645

Canada
1,219

 
965

Rest of world
3,223

 
1,943

Total revenue
$
64,248

 
$
40,553


v3.20.1
Subsequent events
3 Months Ended
Mar. 31, 2020
Subsequent Events [Abstract]  
Subsequent events Subsequent events
YouScript and Genelex
In March 2020, we entered into definitive agreements for 100% of the capital stock of YouScript, a privately held clinical decision support analytics platform, and Genelex, a privately held pharmacogenetic testing company. These transactions were subject to certain closing conditions which were satisfied in April 2020 at which point the transactions were consummated. At the closing of the transaction with YouScript, we issued an aggregate of 1.8 million shares of our common stock and approximately $23.6 million in cash to former securityholders of YouScript. Up to approximately $1.4 million in cash and 0.5 million additional shares of our common stock are subject to a hold-back to satisfy indemnification obligations that may arise following the closing of our acquisition of YouScript. At the closing of the transaction with Genelex, we issued an aggregate of 0.8 million shares and to former securityholders of Genelex. Up to 0.1 million of additional shares are subject to a hold back to satisfy indemnification obligations that may arise following the closing of our acquisition of Genelex. We would also become obligated pursuant to the terms of the Genelex acquisition agreement to issue additional shares of common stock to the former securityholders of Genelex if, within a specified period following the closing, Genelex achieves a certain product milestone, in which case we would thereafter issue to the former securityholders of Genelex shares of our common stock with a value equal to a portion of the gross revenues actually received by us for that product and similar products during an earn-out period of up to four years. Given the timing of the closing of these transactions, we are currently in the process of valuing the assets acquired and liabilities assumed. As a result, we are not yet able to provide the amounts to be recognized as of the acquisition dates for the major classes of assets acquired and liabilities assumed and other related disclosures. We expect to disclose this and other related information in our Form 10-Q for the quarter ending June 30, 2020.
Public offering
In April 2020, we issued, in an underwritten public offering, an aggregate of 20.4 million shares of our common stock at a price of $9.00 per share, for gross proceeds of $184.0 million and net proceeds of approximately $173.0 million after deducting underwriting discounts and commissions and offering expenses.
v3.20.1
Summary of significant accounting policies (Policies)
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Basis of presentation
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, 2019. The results for the three months ended March 31, 2020 are not necessarily indicative of the results expected for the full fiscal year or any other periods.   
Principles of consolidation
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
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, 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 current facts, 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 judgments, estimates and assumptions. We evaluate our estimates on an ongoing basis.
Concentrations of credit risk and other risks and 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 consolidated statements of operations.
Inventory
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.
Fair value of financial instruments
Fair value of financial instruments
Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities, finance leases and liabilities associated with business combinations. 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 our finance leases approximate their fair values. Liabilities associated with business combinations are recorded at their estimated fair value.
Prior period reclassifications
Prior period reclassifications
We have reclassified certain amounts in prior periods to conform with current presentation.
Recent accounting pronouncements
Recent accounting pronouncements
We evaluate all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board ("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 adopted accounting pronouncements
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 became effective for us beginning in the first quarter of 2020 and was adopted using a modified retrospective approach, with certain exceptions. The adoption of Topic 326 did not have a material impact on our consolidated financial statements as credit losses are not expected to be significant.
As part of our adoption of Topic 326, we assess our accounts receivables for expected credit losses at each reporting period by disaggregating by payer type and further by portfolios of customers with similar characteristics, such as customer type and geographic location. We then review each portfolio for expected credit losses based on historical payment trends as well as forward looking data and current economic trends. If a credit loss is determined, we record a reduction to our accounts receivable balance with a corresponding general and administrative expense.
In accordance with Topic 326, we no longer evaluate whether our available-for-sale debt securities in an unrealized loss position are other than temporarily impaired. Instead, we assess whether such unrealized loss positions are credit-related. Our expected loss allowance methodology for these securities is developed by reviewing the extent of the unrealized loss, the issuers’ credit ratings and any changes in those ratings, as well as reviewing current and future economic market conditions and the issuers’ current status and financial condition. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income through an allowance account. Unrealized gains and losses that are not credit-related are included in accumulated other comprehensive income (loss).
v3.20.1
Summary of significant accounting policies (Tables)
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Summary of significant customers as percentage of total revenue and total accounts receivable Our revenue from significant customers as a percentage of our total revenue was as follows:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Medicare
 
21
%
 
22
%

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,
2020
 
December 31,
2019
Cash and cash equivalents
$
90,220

 
$
151,389

Restricted cash
6,343

 
6,183

Total cash, cash equivalents and restricted cash
$
96,563

 
$
157,572


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,
2020
 
December 31,
2019
Cash and cash equivalents
$
90,220

 
$
151,389

Restricted cash
6,343

 
6,183

Total cash, cash equivalents and restricted cash
$
96,563

 
$
157,572


v3.20.1
Revenue, accounts receivable and deferred revenue (Tables)
3 Months Ended
Mar. 31, 2020
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,
 
2020
 
2019
Test revenue:
 
 
 
Institutions
$
13,497

 
$
8,154

Patient - direct
5,791

 
3,741

Patient - insurance
43,790

 
27,724

Total test revenue
63,078

 
39,619

Other revenue
1,170

 
934

Total revenue
$
64,248

 
$
40,553


Schedule of change in estimate As a result of new information, we updated our estimate of the amounts to be recognized for previously delivered tests which resulted in the following increases to revenue and decreases to our loss from operations and basic and diluted net loss per share (in millions, except per share amounts):
 
Three Months Ended March 31,
 
2020
 
2019
Revenue
$
1.4

 
$
0.4

Loss from operations
$
(1.4
)
 
$
(0.4
)
Net loss per share, basic and diluted
$
(0.01
)
 
$
(0.01
)

v3.20.1
Business combinations (Tables)
3 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
Summary of purchase price and post-combination expense
The following table summarizes the purchase price recorded as a part of the acquisition of Diploid (in thousands):
 
Purchase Price
Cash transferred
$
32,323

Hold-back consideration - common stock
7,538

Common stock transferred
42,453

Total
$
82,314


Summary of fair values of assets acquired and liabilities assumed The following table summarizes the fair values of assets acquired and liabilities assumed through our acquisition of Diploid at the date of acquisition (in thousands):
Cash
$
124

Accounts receivable
26

Developed technology
41,789

Total identifiable assets acquired
41,939

Accounts payable
(30
)
Deferred tax liability
(10,250
)
Net identifiable assets acquired
31,659

Goodwill
50,655

Total purchase price
$
82,314


v3.20.1
Goodwill and intangible assets (Tables)
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Summary of goodwill
The changes in the carrying amounts of goodwill were as follows (in thousands):
Balance as of December 31, 2019
$
126,777

Goodwill acquired - Diploid
50,655

Balance as of March 31, 2020
$
177,432


Schedule of intangible assets
The following table presents details of our intangible assets (in thousands):
 
March 31, 2020
 
December 31, 2019
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(in Years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(in Years)
Customer relationships
$
23,763

 
$
(5,841
)
 
$
17,922

 
10.0
 
$
23,763

 
$
(5,141
)
 
$
18,622

 
10.0
Developed technology
126,185

 
(11,291
)
 
114,894

 
8.7
 
84,396

 
(8,476
)
 
75,920

 
8.6
Non-compete agreement
286

 
(186
)
 
100

 
5.0
 
286

 
(172
)
 
114

 
5.0
Trade name
576

 
(519
)
 
57

 
2.7
 
576

 
(480
)
 
96

 
2.7
Patent licensing agreement
496

 
(79
)
 
417

 
15.0
 
496

 
(70
)
 
426

 
15.0
Favorable leases
247

 
(247
)
 

 
2.2
 
247

 
(238
)
 
9

 
2.2
In-process research and development
29,988

 

 
29,988

 
n/a
 
29,988

 

 
29,988

 
n/a
 
$
181,541

 
$
(18,163
)
 
$
163,378

 
8.9
 
$
139,752

 
$
(14,577
)
 
$
125,175

 
8.9

Schedule of intangible assets
The following table presents details of our intangible assets (in thousands):
 
March 31, 2020
 
December 31, 2019
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(in Years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(in Years)
Customer relationships
$
23,763

 
$
(5,841
)
 
$
17,922

 
10.0
 
$
23,763

 
$
(5,141
)
 
$
18,622

 
10.0
Developed technology
126,185

 
(11,291
)
 
114,894

 
8.7
 
84,396

 
(8,476
)
 
75,920

 
8.6
Non-compete agreement
286

 
(186
)
 
100

 
5.0
 
286

 
(172
)
 
114

 
5.0
Trade name
576

 
(519
)
 
57

 
2.7
 
576

 
(480
)
 
96

 
2.7
Patent licensing agreement
496

 
(79
)
 
417

 
15.0
 
496

 
(70
)
 
426

 
15.0
Favorable leases
247

 
(247
)
 

 
2.2
 
247

 
(238
)
 
9

 
2.2
In-process research and development
29,988

 

 
29,988

 
n/a
 
29,988

 

 
29,988

 
n/a
 
$
181,541

 
$
(18,163
)
 
$
163,378

 
8.9
 
$
139,752