Cover Page - USD ($) $ in Billions	12 Months Ended
Cover Page - USD ($) $ in Billions	Dec. 31, 2019	Feb. 24, 2020	Jun. 28, 2019
Cover page.
Entity Registrant Name	Invitae Corporation
Document Type	10-K
Document Annual Report	true
Document Transition Report	false
Document Period End Date	Dec. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--12-31
Entity Central Index Key	0001501134
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	27-1701898
Title of 12(b) Security	Common Stock, $0.0001 par value per share
Trading Symbol	NVTA
Security Exchange Name	NYSE
Entity File Number	001-36847
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Amendment Flag	false
Entity Interactive Data Current	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	Yes
Entity Shell Company	false
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
Entity Public Float			$ 2.1
Entity Common Stock, Shares Outstanding		98,961,385
Documents Incorporated by Reference	Items 10 (as to directors and Section 16(a) Beneficial Ownership Reporting Compliance), 11, 12, 13 and 14 of Part III incorporate by reference information from the registrant’s proxy statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the registrant’s 2020 Annual Meeting of Stockholders.

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 151,389	$ 112,158
Marketable securities	240,436	13,727
Accounts receivable	32,541	26,296
Prepaid expenses and other current assets	18,032	13,258
Total current assets	442,398	165,439
Property and equipment, net	37,747	27,886
Operating lease assets	36,640
Restricted cash	6,183	6,006
Intangible assets, net	125,175	30,469
Goodwill	126,777	50,095
Other assets	6,681	3,064
Total assets	781,601	282,959
Current liabilities:
Accounts payable	10,321	7,812
Accrued liabilities	64,814	26,563
Operating lease obligation	4,870
Finance lease obligation	1,855
Finance lease obligation		1,937
Total current liabilities	81,860	36,312
Operating lease obligation, net of current portion	42,191
Finance lease obligation, net of current portion	1,155
Finance lease obligation, net of current portion		1,375
Debt	0	74,477
Convertible senior notes, net	268,755	0
Other long-term liabilities	8,000	8,956
Total liabilities	401,961	121,120
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.0001 par value: 20,000 shares authorized; 125 and 3,459 shares issued and outstanding as of December 31, 2019 and 2018, respectively	0	0
Common stock, $0.0001 par value: 400,000 shares authorized; 98,796 and 75,481 shares issued and outstanding as of December 31, 2019 and 2018, respectively	10	8
Accumulated other comprehensive loss	(9)	(5)
Additional paid-in capital	1,138,316	678,548
Accumulated deficit	(758,677)	(516,712)
Total stockholders’ equity	379,640	161,839
Total liabilities and stockholders’ equity	$ 781,601	$ 282,959

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, authorized (in shares)	20,000,000	20,000,000
Preferred stock, issued (in shares)	125,000	3,459,000
Preferred stock, outstanding (in shares)	125,000	3,459,000
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, authorized (in shares)	400,000,000	400,000,000
Common stock, issued (in shares)	98,796,000	75,481,000
Common stock, outstanding (in shares)	98,796,000	75,481,000

Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Total revenue	$ 216,824	$ 147,699	$ 68,221
Cost of revenue	118,103	80,105	50,142
Research and development	141,526	63,496	46,469
Selling and marketing	122,237	74,428	53,417
General and administrative	79,070	52,227	39,472
Loss from operations	(244,112)	(122,557)	(121,279)
Other expense, net	(3,891)	(2,568)	(303)
Interest expense	(12,412)	(7,030)	(3,654)
Net loss before taxes	(260,415)	(132,155)	(125,236)
Income tax benefit	(18,450)	(2,800)	(1,856)
Net loss	$ (241,965)	$ (129,355)	$ (123,380)
Net loss per share, basic and diluted (in dollars per share)	$ (2.66)	$ (1.94)	$ (2.65)
Shares used in computing net loss per share, basic and diluted	90,859	66,747	46,512
Test revenue
Total revenue	$ 212,473	$ 144,560	$ 65,169
Other revenue
Total revenue	$ 4,351	$ 3,139	$ 3,052

Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Statement of Comprehensive Income [Abstract]
Net loss	$ (241,965)	$ (129,355)	$ (123,380)
Other comprehensive income (loss):
Unrealized income (loss) on available-for-sale marketable securities, net of tax	(4)	166	(171)
Comprehensive loss	$ (241,969)	$ (129,189)	$ (123,551)

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common stock:	Accumulated other comprehensive loss:	Additional paid-in capital:	Accumulated deficit:
Balance, beginning of period at Dec. 31, 2016		$ 4	$ 0	$ 374,288	$ (275,218)
Increase (Decrease) in Stockholders' Deficit
Unrealized income (loss) on available-for-sale marketable securities, net of tax			(171)
Common stock issued in private placement, net				68,896
Common stock issued in connection with public offering, net		1
Common stock issued on exercise of stock options, net				1,706
Common stock issued pursuant to exercises of warrants				1,381
Common stock issued pursuant to employee stock purchase plan				2,635
Common stock issued pursuant to business combinations				50,808
Warrants issued pursuant to loan agreement				740
Stock-based compensation expense				18,832
Other				1,272
Net loss	$ (123,380)				(123,380)
Balance, end of period at Dec. 31, 2017	121,794	5	(171)	520,558	(398,598)
Increase (Decrease) in Stockholders' Deficit
Unrealized income (loss) on available-for-sale marketable securities, net of tax			166
Common stock issued in connection with public offering, net		3		112,438
Common stock issued on exercise of stock options, net				2,741
Common stock issued pursuant to exercises of warrants				6,539
Common stock issued pursuant to employee stock purchase plan				3,231
Common stock issued pursuant to business combinations				6,455
Warrants issued pursuant to loan agreement				383
Common stock issued pursuant to securities purchase agreement				5,353
Stock-based compensation expense				20,850
Net loss	(129,355)				(129,355)
Balance, end of period at Dec. 31, 2018	161,839	8	(5)	678,548	(516,712)
Increase (Decrease) in Stockholders' Deficit
Unrealized income (loss) on available-for-sale marketable securities, net of tax			(4)
Common stock issued in connection with public offering, net		2		204,024
Common stock issued on exercise of stock options, net				3,456
Common stock issued pursuant to exercises of warrants				181
Common stock issued pursuant to employee stock purchase plan				5,833
Common stock issued pursuant to business combinations				133,942
Equity component of convertible senior notes, net				75,488
Stock-based compensation expense				36,844
Net loss	(241,965)				(241,965)
Balance, end of period at Dec. 31, 2019	$ 379,640	$ 10	$ (9)	$ 1,138,316	$ (758,677)

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash flows from operating activities:
Net loss	$ (241,965)	$ (129,355)	$ (123,380)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	16,206	13,540	9,181
Stock-based compensation	75,948	20,850	19,221
Amortization of debt discount and issuance costs	4,416	0	0
Impairment losses	0	2,925	0
Income tax benefit	(18,450)	(2,800)	(1,856)
Benefit from income taxes	(18,535)	(2,862)	(1,856)
Debt extinguishment costs	(8,926)	(5,266)	0
Other	1,095	1,168	2,214
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable	(6,131)	(5,291)	(1,963)
Prepaid expenses and other current assets	(4,979)	(1,445)	(641)
Other assets	2,026	(163)	(185)
Accounts payable	1,558	(417)	(535)
Accrued expenses and other liabilities	16,297	3,564	(37)
Net cash used in operating activities	(145,053)	(92,220)	(97,981)
Cash flows from investing activities:
Purchases of marketable securities	260,917	9,680	101,867
Proceeds from sales of marketable securities	0	19,965	0
Proceeds from maturities of marketable securities	34,500	32,458	68,768
Acquisition of businesses, net of cash acquired	(33,846)	0	2,821
Purchases of property and equipment	(20,047)	(5,970)	(6,675)
Other	0	(1,000)	0
Net cash provided by (used in) investing activities	(280,310)	35,773	(36,953)
Cash flows from financing activities:
Proceeds from public offerings of common stock, net of issuance costs	204,024	112,441	0
Proceeds from issuance of common stock, net	9,470	17,511	74,619
Proceeds from issuance of convertible senior notes, net	339,900	0	0
Proceeds from issuance of debt, net	0	93,909	39,661
Payments of debt extinguishment costs	(10,638)	(4,609)	0
Loan payments	(75,000)	(60,000)	(30,457)
Finance lease principal payments	(2,075)
Finance lease principal payments		(2,100)	(2,952)
Other	(910)	0	0
Net cash provided by financing activities	464,771	157,152	80,871
Net increase (decrease) in cash, cash equivalents and restricted cash	39,408	100,705	(54,063)
Cash, cash equivalents and restricted cash at beginning of period	118,164	17,459	71,522
Cash, cash equivalents and restricted cash at end of period	157,572	118,164	17,459
Supplemental cash flow information:
Interest paid	4,731	6,231	2,852
Supplemental cash flow information of non-cash investing and financing activities:
Equipment acquired through finance leases	1,892	0	6,789
Purchases of property and equipment in accounts payable and accrued liabilities	2,422	510	200
Amounts related to co-development agreement in other assets and accrued liabilities	0	2,000	0
Warrants issued pursuant to 2017 Loan Agreement	0	383	740
Common stock issued for acquisition of businesses	108,573	6,445	50,808
Consideration payable for acquisition of businesses	21,449	0	13,276
Common stock issued to settle assumed liabilities	0	$ 0	$ 1,272
Operating lease assets obtained in exchange for lease obligations, net	$ 4,261

Organization and description of business	12 Months Ended
Organization and description of business	Dec. 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 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 provided our entry into prenatal and perinatal genetic testing. To complement these, in the first quarter of 2019, we introduced our Non-invasive Prenatal Screen ("NIPS") and to advance this offering, in June 2019, we acquired Singular Bio, Inc. ("Singular Bio") to lower costs associated with NIPS. In July 2019, we acquired Jungla Inc. ("Jungla") to further enhance our genetic variant interpretation and in November 2019, to expand our ability to scale and deliver genetic information, we acquired Clear Genetics, Inc. ("Clear Genetics"). Invitae operates in one segment.

Summary of significant accounting policies

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Summary of significant accounting policies

Principles of consolidation

Our 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.

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 and liabilities associated with business combinations;


•	the impairment assessment of goodwill and intangible assets;


•	valuation of our 2.00% convertible senior notes due 2024 issued in September 2019 ("Convertible Senior Notes");


•	the recoverability of long-lived assets;


•	our incremental borrowing rates used to calculate our lease balances;


•	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 for each year presented on the statements of operations. Revenue for significant customers as a percentage of total revenue were as follows:



	Year Ended December 31,
Customers	2019		2018		2017
Medicare	25	%	22	%	13	%

No customers represented more than 10% of accounts receivable as of December 31, 2019, and Medicare represented 21% of accounts receivable as of December 31, 2018.

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, U.S. treasury notes and government agency securities.

Restricted cash consists primarily of money market funds that secure irrevocable standby letters of credit that serve as collateral for security deposits for our facility leases.

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):



	December 31, 2019		December 31, 2018
Cash and cash equivalents	$	151,389	$	112,158
Restricted cash	6,183		6,006
Total cash, cash equivalents and restricted cash	$	157,572	$	118,164

Marketable securities

All marketable securities have been classified as “available-for-sale” and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its marketable debt securities at the time of purchase and reevaluates such designation at each balance sheet date. Short-term marketable securities have maturities one year or less at the balance sheet date. Unrealized gains and losses are excluded from earnings and are reported as a component of other comprehensive loss. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in other expense, net. The cost of securities sold is based on the specific-identification method. Interest on marketable securities is included in other expense, net.

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 $6.6 million and $8.3 million as of December 31, 2019 and 2018, respectively, and was recorded in prepaid expenses and other current assets in our consolidated balance sheets.

Business combinations

We apply Accounting Standards Codification ("ASC") 805, Business Combinations, or ASC 805, which requires recognition of assets acquired, liabilities assumed, and contingent consideration at their fair value on the acquisition date with subsequent changes recognized in earnings; requires acquisition-related expenses and restructuring costs to be recognized separately from the business combination and expensed as incurred; requires in-process research and development to be capitalized at fair value as an indefinite-lived intangible asset until completion or abandonment; and requires that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes.

We account for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. The tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values as of the business combination date, including identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. 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, estimated cost savings, cash flows, discount rates, estimated useful lives and probabilities surrounding the achievement of contingent milestones could result in different purchase price allocations and amortization expense in current and future periods.

In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under 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.

Intangible assets

Amortizable intangible assets include trade names, non-compete agreements, developed technology and customer relationships acquired as part of business combinations. Customer relationships are amortized on an accelerated basis, utilizing free cash flows, over periods ranging from five to 11 years. All other intangible assets subject to amortization are amortized using the straight-line method over their estimated useful lives ranging from two to 15 years. All intangible assets subject to amortization are reviewed for impairment in accordance with ASC 360, Property, Plant and Equipment.

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 or more frequently if business factors indicate. In testing for impairment, we compare the fair value of our 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 that reporting unit. We did not incur any goodwill impairment losses in any of the periods presented.

In-process research and development

Intangible assets related to in-process research and development costs (“IPR&D”) are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. If and when development is complete, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time. During this period, the assets will not be amortized but will be tested for impairment on an annual basis and between annual tests if we become aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts.

During the fourth quarter and if business factors indicate more frequently, we perform an assessment of the qualitative factors affecting the fair value of our IPR&D projects. If the fair value exceeds the carrying value, there is no impairment. Impairment losses on indefinite-lived intangible assets are recognized based solely on a comparison of the fair value of an asset to its carrying value, without consideration of any recoverability test. We have not identified any such impairment losses to date.

Leases

Under ASC 842, Leases, we determine if an arrangement is a lease at inception. Operating leases are included in operating lease assets and operating lease obligations in our consolidated balance sheets. Finance leases are included in other assets and finance 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 assets and liabilities are recognized at commencement based on the present value of lease payments over the lease term. We generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments. The operating lease asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease which are recognized when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease terms, or in some cases, the useful life of the underlying asset.

Property and equipment, net

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight‑line method over the estimated useful lives of the assets, generally between three and seven years. Leasehold improvements are amortized using the straight‑line method over the shorter of the estimated useful life of the asset or the term of the lease. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in the statements of operations in the period realized.

The estimated useful lives of property and equipment are as follows:



Furniture and fixtures	7 years
Automobiles	7 years
Laboratory equipment	5 years
Computer equipment	3 years
Software	3 years
Leasehold improvements	Shorter of lease term or estimated useful life

Long‑lived assets

We review long‑lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognized when the total estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is assessed using discounted cash flows or other appropriate measures of fair value. There were no long-lived asset impairment losses recorded for any period presented.

Fair value of financial instruments

Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities, finance leases, debt and convertible senior notes. 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 approximate 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 it expects to be entitled to in exchange for those goods or services. All revenues are generated from contracts with customers. We utilize the following practical expedients and exemptions:


•	Certain information about remaining performance obligations is not disclosed because the underlying contracts have an original expected duration of one year or less,


•	Costs to obtain or fulfill a contract are expensed when incurred because the amortization period would have been one year or less, and


•	No adjustments to promised consideration were made for financing as we expect, at contract inception, that the period between the transfer of a promised good or service and when the customer pays for that good or service will be one year or less.

Test revenue

The majority of our revenue is generated from genetic testing services that provide analysis and associated interpretation of the sequencing of parts of the genome. Test orders are placed under signed requisitions, and we often enter into contracts with institutions (e.g., hospitals, clinics, partners) and insurance companies that include pricing provisions under which such tests are billed. Billing terms are generally net thirty to sixty days.

While the transaction price of diagnostic tests is originally established either via contract or pursuant to our standard list price, we often provide concessions for tests billed to insurance carriers, and therefore the transaction price for patient insurance-billed tests is considered to be variable and revenue is recognized based on an estimate of the consideration to which we will be entitled at an amount for which it is probable that a reversal of cumulative consideration will not occur. Making these estimates requires significant judgments based upon such factors as length of payer relationship, historical payment patterns, changes in contract provisions and insurance reimbursement policies. These judgments are reviewed quarterly and updated as necessary.

In connection with some diagnostic test orders, we offer limited re-requisition rights (“Re-Requisition Rights”) that are considered distinct at contract inception, and therefore certain diagnostic test orders contain two performance obligations, the performance of the original test and the Re-Requisition Rights. When Re-Requisition Rights are granted, we allocate the transaction price to each performance obligation based on the relative estimated standalone selling prices. In order to comply with loss contract rules, the allocations are adjusted, if necessary, to ensure the amount deferred for Re-Requisition Rights is no less than the estimated cost of fulfilling our related obligations.

We look to transfer of control in assessing timing of recognition of revenue in connection with each performance obligation. In general, revenue in connection with diagnostic tests is recognized upon delivery of the underlying clinical report or when the report is made available on our web portal. Outstanding performance obligations pertaining to orders received but for which the underlying report has not been issued are generally satisfied within a thirty-day period. Revenue in connection with Re-Requisition Rights is recognized as the rights are exercised or expire unexercised, which is generally within ninety days of initial deferral.

Other revenue

We also enter into collaboration and genome network contracts. Collaboration agreements provide customers with diagnostic testing and related data aggregation reporting services that are provided over the contract term. Collaboration revenue is recognized as the testing and reporting services are delivered to the customer. Genome network offerings consist of subscription services related to a proprietary software platform designed to connect patients, clinicians, advocacy organizations, researchers and therapeutic developers to accelerate the understanding, diagnosis and treatment of hereditary disease. Such services are recognized on a straight-line basis over the subscription periods.

Amounts due under collaboration and genome network agreements are typically billable on net thirty-day terms.

Cost of revenue

Cost of revenue reflects the aggregate costs incurred in delivering the genetic testing results to clinicians and patients 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.

Income taxes

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Significant judgment is required in determining the net valuation allowance which includes our evaluation of all available evidence including past operating results, estimates on future taxable income and acquisition-related tax assets and liabilities. As of December 31, 2019, we recorded a full valuation allowance on our net deferred tax assets because we expect that it is more likely than not that our deferred tax assets will not be realized in the foreseeable future.

Stock-based compensation

We measure stock-based payment awards made to employees and directors based on the estimated fair values of the awards and recognize the compensation expense over the requisite service period. We use the Black-Scholes option-pricing model to estimate the fair value of stock option awards and employee stock purchase plan (“ESPP”) purchases. The fair value of restricted stock unit (“RSU”) awards with time-based vesting terms is based on the grant date share price. We grant performance-based restricted stock unit (“PRSU”) awards to certain employees which vest upon the achievement of certain performance conditions, subject to the employees’ continued service relationship with us. The probability of vesting is assessed at each reporting period and compensation cost is adjusted based on this probability assessment. We recognize such compensation expense on an accelerated vesting method.

Stock-based compensation expense for awards without a performance condition is recognized using the straight-line method. Stock-based compensation expense is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. As such, our stock-based compensation is reduced for estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

We account for stock issued in connection with business combinations based on the fair value of our common stock on the date of issuance.

Advertising

Advertising expenses are expensed as incurred. We incurred advertising expenses of $9.9 million, $0.6 million and $0.6 million during the years ended December 31, 2019, 2018 and 2017, respectively.

Comprehensive loss

Comprehensive loss is composed of two components: net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to gains and losses that under U.S. GAAP are recorded as an element of stockholders’ equity, but are excluded from net loss. Our other comprehensive income (loss) consists of unrealized gains or losses on investments in available-for-sale securities.

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 preferred stock, options to purchase common stock, common stock warrants, shares of common stock pursuant to ESPP, common stock issuable in connection with our Convertible Senior Notes, RSUs and PRSUs, 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.

Prior period reclassifications

We have reclassified certain amounts in prior periods to conform with current presentation.

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 impact of the adoption of this standard on our consolidated financial statements.

Recently adopted accounting pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. We have early adopted this ASU effective for the year ended December 31, 2019.

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 this 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. 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 $5.6 million as of December 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, or in some cases, the useful life of the underlying asset.

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.

Prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under previous lease guidance, ASC 840: Leases. Under ASC 840, we rented facilities under operating lease agreements and recognized related rent expense on a straight-line basis over the term of the applicable lease agreement. Some of the lease agreements contained rent holidays, scheduled rent increases, lease incentives, and renewal options. Rent holidays and scheduled rent increases were included in the determination of rent expense recorded over the lease term. Lease incentives were recognized as a reduction of rent expense on a straight-line basis over the term of the lease. Renewals were not assumed in the determination of the lease term unless they were deemed to be reasonably assured at the inception of the lease. We recognized rent expense beginning on the date we obtained the legal right to use and control the leased space.

On January 1, 2018, we adopted the provisions of ASC Topic 606 using the modified retrospective method. From adoption to date, we have recognized all our revenue from contracts with customers within the scope of Topic 606. In connection with the adoption, we recognized the cumulative effect of initially applying this standard as an adjustment to retained earnings on the date of adoption. Comparative information prior to the date of adoption has not been restated and continues to be reported under the accounting standards in effect for those periods.

Under ASC 605, test revenue was recognized when persuasive evidence of an arrangement existed; delivery had occurred or services had been rendered; the fee was fixed or determinable; and collectability was reasonably assured. The criterion for whether the fee was fixed or determinable and whether collectability was reasonably assured were based on management’s judgments. When evaluating collectability, in situations where contracted reimbursement coverage did not exist, we considered whether we had sufficient history to reliably estimate a payer’s individual payment patterns. For most customers, we had not been able to demonstrate a predictable pattern of collectability, and therefore recognized revenue when payment was received. For customers who had demonstrated a consistent pattern of payment of tests billed at appropriate amounts, we recognized revenue at estimated realizable amounts upon delivery of test results.

Revenue, accounts receivable and deferred revenue

12 Months Ended

Dec. 31, 2019

Revenue from Contract with Customer [Abstract]

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.

The following table includes our revenue as disaggregated by payer category (in thousands):



	Year Ended December 31,
	2019		2018		2017 ⁽¹⁾
Test revenue:
Institutions	$	41,049	$	34,618	$	17,238
Patient - direct	17,597		13,589		5,638
Patient - insurance	153,827		96,353		42,293
Total test revenue	212,473		144,560		65,169
Other revenue	4,351		3,139		3,052
Total revenue	$	216,824	$	147,699	$	68,221


⁽¹⁾2017 amounts are presented as originally reported based upon the accounting standards in effect for that period.

We recognize revenue related to billings based on estimates of the amount that will ultimately be realized. Cash collections for certain 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):



	Year Ended December 31,
	2019			2018
Revenue	$	4.1		$	4.5
Loss from operations	$	(4.1	)	$	(4.5	)
Net loss per share, basic and diluted	$	(0.05	)	$	(0.07	)

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.

Business combinations

12 Months Ended

Dec. 31, 2019

Business Combinations [Abstract]

Business combinations

Singular Bio

In June 2019, we acquired 100% of the fully diluted equity of 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.

Prior to the acquisition, we entered into a co-development agreement with Singular Bio whereby we paid Singular Bio $3.0 million for a 12-month right of first refusal and an opportunity to conduct due diligence on its business. As of January 2019, we made all required payments under the terms of this agreement.

In connection with the acquisition, all of Singular Bio's equity awards that were outstanding and unvested prior to the acquisition became fully vested per the terms of the merger agreement. The acceleration of vesting required us to allocate the fair value of the equity attributable to pre-combination service to the purchase price and the remainder was considered our post-combination expense. We recognized post-combination expense related to the acceleration of unvested equity of $3.2 million and we also incurred transaction costs of $1.5 million related to the acquisition of Singular Bio; both of these charges were recorded as general and administrative expense during the year ended December 31, 2019. We included the financial results of Singular Bio in our consolidated financial statements from the acquisition date, which were not material for the year ended December 31, 2019.

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 at the date of acquisition (in thousands):



Cash	$	4,988
Property and equipment	303
In-process research and development	29,988
Total identifiable assets acquired	35,279
Current liabilities assumed	(479		)
Deferred tax liability	(3,950		)
Net identifiable assets acquired	30,850
Goodwill	26,461
Total purchase price	$	57,311

Based on the guidance provided in ASC 805, we accounted for the acquisition of Singular Bio as a business combination in which we determined that 1) Singular Bio 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 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.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Singular Bio resulted in the recognition of $26.5 million of goodwill which we believe consists primarily of technological expertise and capabilities within nucleic acid analysis and the ability to utilize the technology outside NIPS. Goodwill created as a result of the acquisition of Singular Bio is not deductible for tax purposes.

We recorded an income tax benefit of $4.0 million in June 2019 due to net deferred tax liabilities assumed in connection with our acquisition of Singular Bio which provided a future source of income to support the realization of our deferred tax assets and resulted in a partial release of our valuation allowance.

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 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 year ended December 31, 2019, we recorded research and development stock-based compensation expense of $14.7 million related to the Time-based RSUs and $24.4 million related to the PRSUs based on our evaluation of the probability of achieving performance conditions. As of December 31, 2019, the Time-based RSUs and PRSUs had a total fair value of $41.9 million and $42.6 million, respectively, based on a total estimated issuance of 5.2 million shares and expectation of the achievement of the performance conditions. As of December 31, 2019, 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, 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 incurred $0.8 million of transaction costs related to the acquisition of Jungla which were recorded as general and administrative expense during the year ended December 31, 2019.

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, $9.6 million of which would be in the form of shares of our common stock, priced at the time of milestone achievement, and the remainder in cash. The milestones are expected to be completed within two years from the date of the acquisition. 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 is estimated at each reporting date with changes reflected as a general and administrative expense. As of December 31, 2019, the fair value of the contingent consideration was $11.3 million.

In connection with the acquisition, a portion of Jungla's equity awards that were outstanding and unvested prior to the acquisition became fully vested per the terms of the merger agreement. The acceleration of vesting required us to allocate the fair value of the equity attributable to pre-combination service to the purchase price and the remaining amount was considered our post-combination expense. In July 2019, we recognized post-combination expense related to the acceleration of unvested equity of $2.9 million, which was recorded as general and administrative expense. We included the financial results of Jungla in our consolidated financial statements from the acquisition date, which were not material for the year ended December 31, 2019.

The following table summarizes the purchase price and post-combination expense recorded as a part of the acquisition of Jungla in July 2019 (in thousands):



	Purchase Price		Post-combination Expense
Cash transferred	$	13,261	$	2,151
Hold-back consideration - cash	270		253
Hold-back consideration - common stock	4,574		—
Contingent consideration	10,158		542
Common stock transferred	30,753		—
Total	$	59,016	$	2,946

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 at the date of acquisition (in thousands):



Cash	$	289
Developed technology	44,140
Total identifiable assets acquired	44,429
Accounts payable	(8		)
Deferred tax liability	(8,700		)
Net identifiable assets acquired	35,721
Goodwill	23,295
Total purchase price	$	59,016

Based on the guidance provided in ASC 805, we accounted for the acquisition of Jungla as a business combination in which we determined that 1) Jungla 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 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 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 Jungla's functional molecular platform. The fair value of the developed technology was estimated using an income approach with an estimated useful life of ten years.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Jungla resulted in the recognition of $23.3 million of goodwill which we believe consists primarily of technological expertise related to large-scale molecular and genomic technologies and the ability to expand the use of these into other areas of our business. Goodwill created as a result of the acquisition of Jungla is not deductible for tax purposes.

We recorded an income tax benefit of $8.7 million in July 2019 due to net deferred tax liabilities assumed in connection with our acquisition of Jungla which provided a future source of income to support the realization of our deferred tax assets and resulted in a partial release of our valuation allowance.

Pro forma financial information (unaudited)

The unaudited pro forma financial information in the table below summarizes the combined results of operations for Invitae, Singular Bio and Jungla as though the companies had been combined as of January 1, 2018. The pro forma amounts have been adjusted for:


•	transaction expenses incurred by Singular Bio, Jungla and us,


•	the impacts of the co-development agreement between Singular Bio and us,


•	the historical interest expense incurred by Singular Bio on its debt and debt-like items,


•	compensation expense recognized in relation to the equity awards granted in connection with the acquisition of Singular Bio,


•	amortization expense resulting from the developed technology acquired through the acquisition of Jungla,


•	post-combination expense,


•	income tax benefits resulting from the deferred tax liabilities acquired, and


•	the 2.5 million and 1.4 million shares of our common stock issued upon the closing of the Singular Bio and Jungla transactions, respectively.

The following unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved as if the acquisitions had taken place as of January 1, 2018 (in thousands, except per share data):



	Year Ended December 31,
	2019											2018
	Invitae			Singular Bio		Jungla			Total			Invitae			Singular Bio			Jungla			Total
Revenue	$	216,824		$	—	$	—		$	216,824		$	(147,699	)	$	—		$	—		$	(147,699	)
Net loss	$	(241,965	)	$	39,752	$	(8,571	)	$	(210,784	)	$	(129,355	)	$	(2,003	)	$	(5,016	)	$	(136,374	)
Shares	90,859			1,160		735			92,754			66,747			2,499			1,366			70,612
Basic and diluted net loss per share	$	(2.66	)						$	(2.27	)	$	(1.94	)							$	(1.93	)

Clear Genetics

In November 2019, we acquired 100% of the equity interest of 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.

In connection with the acquisition, a portion of Clear Genetics' equity awards that were outstanding and unvested prior to the acquisition became fully vested per the terms of the merger agreement. The acceleration of vesting required us to allocate the fair value of the equity attributable to pre-combination service to the purchase price and the remaining amount was considered our post-combination expense. In November 2019, we recognized post-combination expense related to the acceleration of unvested equity of $0.6 million, which was recorded as general and administrative expense. We included the financial results of Clear Genetics in our consolidated financial statements from the acquisition date, which were not material for the year ended December 31, 2019. We incurred $0.4 million of transaction costs related to the acquisition of Clear Genetics which were recorded as general and administrative expense during the year ended December 31, 2019.

The following table summarizes the purchase price and post-combination expense recorded as a part of the acquisition of Clear Genetics in November 2019 (in thousands):



	Purchase Price		Post-combination Expense
Cash transferred	$	24,645	$	542
Hold-back consideration - cash	196		98
Hold-back consideration - common stock	7,294		—
Common stock transferred	17,927		—
Total	$	50,062	$	640

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 Clear Genetics at the date of acquisition (in thousands):



Cash	$	599
Accounts receivable	114
Developed technology	28,293
Total identifiable assets acquired	29,006
Other current liabilities	(70		)
Deferred tax liability	(5,800		)
Net identifiable assets acquired	23,136
Goodwill	26,926
Total purchase price	$	50,062

Based on the guidance provided in ASC 805, we accounted for the acquisition of Clear Genetics as a business combination in which we determined that 1) Clear Genetics 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 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 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 Clear Genetics' patient support technology platform. The fair value of the developed technology was estimated using an income approach with an estimated useful life of eight years.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Clear Genetics resulted in the recognition of $26.9 million of goodwill which we believe relates primarily to expansion of the acquired technology into all realms of genetic testing. Goodwill created as a result of the acquisition of Clear Genetics is not deductible for tax purposes.

We recorded an income tax benefit of $5.8 million in November 2019 due to net deferred tax liabilities assumed in connection with our acquisition of Clear Genetics which provided a future source of income to support the realization of our deferred tax assets and resulted in a partial release of our valuation allowance.

Goodwill and intangible assets

12 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and intangible assets

Goodwill

The changes in the carrying amounts of goodwill were as follows (in thousands):



Balance as of December 31, 2018	$	50,095
Goodwill acquired - Singular Bio	26,461
Goodwill acquired - Jungla	23,295
Goodwill acquired - Clear Genetics	26,926
Balance as of December 31, 2019	$	126,777

Intangible assets

The following table presents details of our acquired intangible assets as of December 31, 2019 (in thousands):



	Cost		Accumulated Amortization			Net		Weighted-Average Useful Life (in Years)	Weighted-Average Estimated Remaining Useful Life (in Years)
Customer relationships	$	23,763	$	(5,141	)	$	18,622	10.0	7.6
Developed technology	84,396		(8,476		)	75,920		8.6	8.0
Non-compete agreement	286		(172		)	114		5.0	2.0
Trade name	576		(480		)	96		2.7	0.5
Patent licensing agreement	496		(70		)	426		15.0	12.9
Favorable leases	247		(238		)	9		2.2	0.1
In-process research and development	29,988		—			29,988		n/a	n/a
	$	139,752	$	(14,577	)	$	125,175	8.9	7.9

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 $7.7 million, $5.0 million, and $1.8 million for the years ended December 31, 2019, 2018 and 2017, respectively. Intangible assets are carried at cost less accumulated amortization. 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 December 31, 2019 (in thousands):



	Amount
2020	$	13,479
2021	13,783
2022	12,078
2023	11,065
2024	10,787
Thereafter	33,995
Total estimated future amortization expense	$	95,187

Balance sheet components

12 Months Ended

Dec. 31, 2019

Balance Sheet Related Disclosures [Abstract]

Balance sheet components

Property and equipment, net

Property and equipment consisted of the following (in thousands):



	December 31,
	2019			2018
Leasehold improvements	$	18,352		$	13,034
Laboratory equipment	24,873			22,149
Equipment under capital lease	—			7,129
Computer equipment	5,995			4,723
Software	2,611			2,594
Furniture and fixtures	1,198			784
Automobiles	58			20
Construction-in-progress	10,795			1,962
Total property and equipment, gross	63,882			52,395
Accumulated depreciation and amortization	(26,135		)	(24,509		)
Total property and equipment, net	$	37,747		$	27,886

Depreciation expense was $7.1 million, $8.5 million and $7.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Accrued liabilities

Accrued liabilities consisted of the following (in thousands):



	December 31,
	2019		2018
Accrued compensation and related expenses	$	16,440	$	7,917
Deferred revenue	1,429		761
Compensation and other liabilities associated with business combinations	30,560		6,460
Liability associated with co-development agreement	—		2,000
Other	16,385		9,425
Total accrued liabilities	$	64,814	$	26,563

Other long-term liabilities

Other long-term liabilities consisted of the following (in thousands):



	December 31,
	2019		2018
Lease incentive obligation, non-current	$	—	$	3,280
Deferred rent, non-current	—		5,495
Liabilities associated with business combinations, non-current	8,000		—
Other non-current liabilities	—		181
Total other long-term liabilities	$	8,000	$	8,956

Fair value measurements

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

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):



	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		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



	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		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 December 31, 2019 was $150.6 million. None of the available-for-sale securities held as of December 31, 2019 has been in a material continuous unrealized loss position for more than one year. At December 31, 2019, unrealized losses on available-for-sale investments are not attributed to credit risk and are considered to be temporary. We believe it is more likely than not that investments in an unrealized loss position will be held until maturity or the recovery of the cost basis of the investment. To date, we have not identified any other-than-temporary declines in market value and thus has not recorded any impairment charges on our financial assets other than on an investment in a private company during 2018 of $2.9 million. Interest income generated from our investments was $5.2 million and $1.5 million during the years ended December 31, 2019 and 2018, respectively.

At December 31, 2019, the remaining contractual maturities of available-for-sale securities ranged from three to 12 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 December 31, 2019, we had contingent obligations of $11.3 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.

As of December 31, 2018, 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 $10.0 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 to settle this contingent obligation.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Commitments and contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

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 in for office and laboratory space in California and Massachusetts. We expect to enter into new leases and modifying existing leases as we support continued growth of our operations.

As of December 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 11.8%. Cash payments included in the measurement of our operating lease liabilities were $10.2 million for the year ended December 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):



	Year Ended December 31,
	2019			2018			2017
Operating lease costs	$	10,329		$	9,648		$	8,709
Sublease income	(173		)	(156		)	(157		)
Total operating lease costs	10,156			9,492			8,552
Finance lease costs	1,546			1,820			1,590
Total lease costs	$	11,702		$	11,312		$	10,142

Future minimum payments under non-cancelable operating leases as of December 31, 2019 are as follows (in thousands):



2020	$	10,156
2021	10,183
2022	10,131
2023	9,912
2024	10,035
Thereafter	18,238
Future non-cancelable minimum operating lease payments	68,655
Less: imputed interest	(21,594		)
Total operating lease liabilities	47,061
Less: current portion	(4,870		)
Operating lease obligations, net of current portion	$	42,191

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 December 31, 2019 and are typically secured by the underlying equipment. The weighted-average discount rate used to determine our finance lease liability was 5.5%. 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 $2.1 million for the year ended December 31, 2019.

Future payments under finance leases at December 31, 2019 are as follows (in thousands):



2020	$	1,963
2021	608
2022	609
Total finance lease obligations	3,180
Less: interest	(170		)
Present value of net minimum finance lease payments	3,010
Less: current portion	(1,855		)
Finance lease obligations, net of current portion	$	1,155

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 expense, net in our statement of operations during the year ended December 31, 2019.

Interest expense related to our debt financings, excluding the impact of our Convertible Senior Notes, was $5.7 million, $6.7 million and $3.5 million for the years ended December 31, 2019, 2018 and 2017, 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.

In accounting for the issuance of the Convertible Senior Notes, we separated the notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature using the effective interest method. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized to interest expense over the five-year term of the Convertible Senior Notes. The equity component of $75.5 million, net of issuance costs, was recorded in additional paid-in capital on our consolidated balance sheet and will not be re-measured as long as it continues to meet the conditions for equity classification.

We received net proceeds of $339.9 million from the sale of the Convertible Senior Notes after deducting commissions and offering expenses. These transaction costs were allocated to the liability and equity components based on their relative fair values. The transaction costs attributable to the liability component are amortized to interest expense over the term of the Convertible Senior Notes under the effective interest method, and the transaction costs attributable to the equity component were netted with the equity component in stockholder's equity.

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). The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. In addition, upon the occurrence of certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder that elects to convert its Convertible Senior Notes in connection with such a corporate event or notice of redemption.

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 December 31, 2019, 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 December 31, 2019 consisted of the following (in thousands):



Outstanding principal	$	350,000
Unamortized debt discount and issuance costs	(81,245		)
Net carrying amount, liability component	$	268,755

As of December 31, 2019, the fair value of the Convertible Senior Notes was $319.0 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 recorded $6.5 million of interest expense related to the Convertible Senior Notes during the year ended December 31, 2019.

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 December 31, 2019 or 2018.

Other commitments

In the normal course of business, we enter into various purchase commitments primarily related to service agreements and laboratory supplies. At December 31, 2019, our total future payments under noncancelable unconditional purchase commitments having a remaining term of over one year were as follows (in thousands):



	Amount
2020	$	3,278
2021	1,064
2022	41
Total	$	4,383

Contingencies

We were not a party to any material legal proceedings at December 31, 2019, or at the date of this report. We may from time to time become involved in various legal proceedings and claims arising in the ordinary course of business, and the resolution of any such claims could be material.

Stockholders' equity

12 Months Ended

Dec. 31, 2019

Equity [Abstract]

Stockholders’ equity

Shares outstanding

Shares of convertible preferred and common stock were as follows (in thousands):



	Year Ended December 31,
	2019		2018	2017
Convertible preferred stock:
Shares outstanding, beginning of period	3,459		3,459	—
Convertible preferred stock issued in private placement	—		—	3,459
Conversion into common stock	(3,334	)	—	—
Shares outstanding, end of period	125		3,459	3,459

Common stock:
Shares outstanding, beginning of period	75,481		53,597	41,144
Common stock issued in private placement	—		—	5,188
Common stock issued in connection with public offering	11,136		17,103	—
Common stock issued on exercise of stock options, net	468		351	387
Common stock issued pursuant to vesting of RSUs	2,683		1,369	925
Common stock issued pursuant to exercises of warrants	31		1,099	232
Common stock issued pursuant to employee stock purchase plan	455		566	379
Common stock issued pursuant to business combinations	5,208		1,022	5,176
Common stock issued pursuant to securities purchase agreement	—		374	—
Common stock issued upon conversion of preferred stock	3,334		—	—
Other	—		—	166
Shares outstanding, end of period	98,796		75,481	53,597

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 could 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 to an amount 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 at an average price of $14.13 per share, for aggregate gross proceeds of $61.1 million and net proceeds of $58.9 million. During the year ended December 31, 2019, we sold a total of 0.8 million shares of common stock under the 2018 Sales Agreement at an average price of $25.71 per share, for gross proceeds of $20.2 million and net proceeds of $19.5 million.

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 year ended December 31, 2019, 3.3 million shares of Series A convertible preferred stock were converted to 3.3 million shares of common stock.

Common stock warrants

As of December 31, 2019, we had outstanding warrants to purchase common stock as follows:



Warrant	Issuance Date	Expiration Date	Exercise Price Per Share		Number of Shares of Common Stock Underlying Warrants
Warrants issued in exchange for CombiMatrix Series F warrants	November 2017	March 2021	$	5.95	377,735
Warrants issued to lender under a 2017 loan agreement	March 2017	March 2027	$	10.27	116,845
Warrants issued to lender under 2017 loan agreement - 2018 amendment	March 2018	March 2028	$	7.02	85,482
					580,062

The exercise price of warrants issued in exchange for CombiMatrix Series F warrants was determined pursuant to the terms of the acquisition. The CombiMatrix Series D warrants expired during the year ended December 31, 2018. The exercise price of the warrants issued to the lender under the 2017 Loan Agreement was the closing price of Invitae's common stock on the date of the agreements.

Stock incentive plans

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

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. 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. These PRSUs will vest beginning in 2020 over a period of two years and may range from 0% to 115% of the target amount of 1.0 million shares. As of December 31, 2019, these PRSUs had a fair value of $18.0 million based on an estimated issuance of 0.8 million shares and expectation of achievement of the performance conditions, of which $6.5 million was recorded as stock-based compensation expense during the year ended December 31, 2019. No PRSUs were granted during the years ended December 31, 2018 and 2017.

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
Balance at December 31, 2018	118		3,855		$	8.54	6.8	$	9,927
Additional shares reserved	13,019		—
Options granted	(193	)	193		$	24.16
Options cancelled	38		(38	)	$	13.24
Options exercised	—		(468	)	$	7.38
RSUs and PRSUs granted⁽¹⁾	(7,785	)	—
RSUs and PRSUs cancelled	247		—
Balance at December 31, 2019	5,444		3,542		$	9.49	6.1	$	24,966
Options exercisable at December 31, 2019			3,019		$	8.77	5.8	$	22,399
Options vested and expected to vest at December 31, 2019			3,474		$	9.38	6.1	$	24,682

⁽¹⁾ Includes the Time-based RSUs and PRSUs granted as a part of the Singular Bio acquisition 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 weighted-average fair value of options to purchase common stock granted was $14.52, $4.87 and $5.82 in the years ended December 31, 2019, 2018 and 2017, respectively.

The total grant-date fair value of options to purchase common stock vested was $4.3 million, $5.9 million and $6.9 million in the year ended December 31, 2019, 2018, and 2017, respectively.

The intrinsic value of options to purchase common stock exercised was $6.3 million, $1.7 million and $2.1 million in the years ended December 31, 2019, 2018 and 2017, respectively.

The following table summarizes RSU activity, which includes the Time-based RSUs and PRSUs granted in connection with our acquisition of Singular Bio and PRSUs granted related to our management incentive compensation plan (in thousands, except per share data):



	Number of Shares		Weighted-Average Grant Date Fair Value Per Share
Balance at December 31, 2018	4,031		$	8.35
RSUs granted	1,599		$	20.98
Time-based RSUs and PRSUs granted - Singular Bio ⁽¹⁾	5,231		$	16.16
PRSUs granted	955		$	22.62
RSUs vested	(2,684	)	$	13.25
RSUs cancelled	(247	)	$	11.97
Balance at December 31, 2019	8,885		$	15.17

⁽¹⁾ The Time-based RSUs and PRSUs granted as a part of the Singular Bio acquisition in June 2019 are based on a fixed dollar value. The number of shares issued and weighted-average grant date fair value per share will be variable until the awards vest. 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 December 31, 2019, cash received from payroll deductions pursuant to the ESPP was $1.0 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 December 31, 2019, a total of 0.6 million shares of common stock are reserved for issuance under the ESPP.

Stock-based compensation

We use the grant date fair value of our common stock to value options when granted. In determining the fair value of stock options and ESPP purchases, we use the Black-Scholes option-pricing model and, for stock options, the assumptions discussed below. Each of these inputs is subjective and its determination generally requires significant judgment. The fair value of RSU and PRSU awards is based on the grant date share price. Compensation cost is recognized as expense on a straight-line basis over the vesting period for options and RSUs and on an accelerated basis for PRSUs.

Expected term—The expected term represents the period that our stock-based awards are expected to be outstanding and is determined using the simplified method (based on the midpoint between the vesting date and the end of the contractual term).

Expected volatility—We estimate expected volatility based on the historical volatility of our common stock over a period equal to the expected term of stock option grants and RSUs and over the expected six-month term ESPP purchase periods.

Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.

Dividend yield—We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.

The fair value of share-based payments for stock options granted to employees and directors was estimated on the date of grant using the Black-Scholes option-pricing model based on the following assumptions:



	Year Ended December 31,
	2019	2018	2017
Expected term (in years)	6.0	6.0	6.0
Expected volatility	64.2%	59.6%	72.6%
Risk-free interest rate	2.6%	2.8%	2.0%

The fair value of shares purchased pursuant to the ESPP is estimated using the Black‑Scholes option pricing model. For the years ended December 31, 2019, 2018 and 2017, the weighted-average grant date fair value per share for the ESPP was $6.05, $3.26 and $2.51, respectively.

The fair value of the shares purchased pursuant to the ESPP was estimated using the following assumptions:



	Year Ended December 31,
	2019	2018	2017
Expected term (in years)	0.5	0.5	0.5
Expected volatility	66.3%	71.7%	52.5%
Risk-free interest rate	2.0%	2.1%	1.2%

The following table summarizes stock-based compensation expense for the years ended December 31, 2019, 2018 and 2017, included in the consolidated statements of operations (in thousands):



	Year Ended December 31,
	2019		2018		2017
Cost of revenue	$	4,563	$	2,960	$	2,093
Research and development	52,450		7,017		6,158
Selling and marketing	7,641		4,887		3,956
General and administrative	11,294		5,986		7,014
Total stock-based compensation expense	$	75,948	$	20,850	$	19,221

At December 31, 2019, unrecognized compensation expense related to unvested stock options, net of estimated forfeitures, was $3.2 million, which we expect to recognize on a straight-line basis over a weighted-average period of 2.0 years. Unrecognized compensation expense related to RSUs, including PRSUs, at December 31, 2019, net of estimated forfeitures, was $85.2 million, which we expect to recognize on a straight-line basis over a weighted-average period of 1.1 years.

Income taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income taxes

We recorded a benefit for income taxes in the years ended December 31, 2019, 2018 and 2017. The components of net loss before taxes by U.S. and foreign jurisdictions are as follows (in thousands):



	Year Ended December 31,
	2019			2018			2017
United States	$	260,531		$	132,194		$	124,108
Foreign	(116		)	(39		)	1,128
Total	$	260,415		$	132,155		$	125,236

The components of the provision for income taxes are as follows (in thousands):



	Year Ended December 31,
	2019			2018			2017
Current:
Federal	$	—		$	—		$	—
Foreign	85			62			—
Total current benefit for income taxes	85			62			—
Deferred:
Federal	(16,011		)	(2,862		)	(1,704		)
State	(2,524		)	—			(152		)
Total deferred benefit for income taxes	(18,535		)	(2,862		)	(1,856		)
Total income tax benefit	$	(18,450	)	$	(2,800	)	$	(1,856	)

The following table presents a reconciliation of the tax expense computed at the statutory federal rate and our tax expense for the periods presented:



	Year Ended December 31,
	2019		2018		2017
U.S. federal taxes at statutory rate	21.0	%	21.0	%	34.0	%
State taxes (net of federal benefit)	3.7	%	5.2	%	3.3	%
Stock-based compensation	1.3	%	(0.7	)%	(1.1	)%
Research and development credits	—	%	2.7	%	—	%
Non-deductible expenses	(1.6	)%	(0.6	)%	—	%
Foreign tax differential	—	%	—	%	(0.3	)%
Other	—	%	—	%	—	%
Change in valuation allowance	(17.3	)%	(25.5	)%	(34.4	)%
Change in deferred—Tax Reform	—	%	—	%	(39.0	)%
Change in valuation allowance—Tax Reform	—	%	—	%	39.0	%
Total	7.1	%	2.1	%	1.5	%

The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets are as follows (in thousands):



	As of December 31,
	2019			2018
Deferred tax assets:
Net operating loss carryforwards	$	173,182		$	76,972
Tax credits	—			15
Revenue recognition differences	3,070			47,650
Leasing Liabilities	11,626			—
Accruals and other	16,621			7,262
Gross deferred tax assets	204,499			131,899
Valuation allowance	(145,318		)	(121,954		)
Total deferred tax assets	59,181			9,945
Deferred tax liabilities:
Amortization and depreciation	(31,037		)	(9,945		)
Convertible Senior Notes	(17,720		)	—
Leasing Assets	(10,424		)	—
Total deferred tax liabilities	(59,181		)	(9,945		)
Net deferred tax assets	$	—		$	—

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes included among other items, a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%. Although the Tax Act was generally effective January 1, 2018, GAAP required recognition of the tax effects of new legislation during the reporting period that includes the enactment date, which was December 22, 2017. As a result of the lower corporate tax rate enacted as part of the Tax Act, during 2017, the Company recorded a provisional estimate to reduce deferred tax assets by $48.8 million offset by a corresponding reduction in the valuation allowance resulting in no net impact to our income tax benefit or expense.

On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, during 2017, we recorded a provisional estimate which resulted in a $48.8 million reduction in deferred tax assets and in the fourth quarter of 2018, we completed our analysis of the impact of the Tax Act and determined that no material adjustments were required to the provisional amounts previously recorded.

We established a full valuation allowance against our deferred tax assets due to the uncertainty surrounding realization of such assets. Our valuation allowance increased by $23.4 million, $26.3 million, and $2.0 million during the years ended December 31, 2019, 2018 and 2017, respectively.

As of December 31, 2019, we had net operating loss carryforwards of approximately $705.9 million and $388.9 million available to reduce future taxable income, if any, for Federal and state income tax purposes, respectively. Of the $705.9 million, $285.1 million will begin to expire in 2030 while $420.8 million have no expiration date. The state net operating loss carryforwards will begin to expire in 2030.

As of December 31, 2019, we had research and development credit carryforwards of approximately $15.3 million and $11.7 million available to reduce our future tax liability, if any, for Federal and state income tax purposes, respectively. The Federal credit carryforwards begin to expire in 2030. California credit carryforwards have no expiration date.

Internal Revenue Code ("IRC") section 382 places a limitation (the “Section 382 limitation” or “annual limitation”) on the amount of taxable income that can be offset by net operating loss carryforwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. Similar provisions exist for states. In addition, and as a result of the acquisitions of Good Start Genetics and CombiMatrix in 2017 and Singular Bio, Jungla and Clear Genetics in 2019, tax loss carryforwards from acquired entities are also subject to the Section 382 limitation due to the change in control in the acquired entities in the current year.

As a result of equity issued in connection with our acquisitions, we performed a section 382 analysis with respect to our legacy operating loss and credit carryforwards. We concluded while an ownership change occurred as defined under IRC section 382, none of our legacy carryforwards would expire unused solely as a result of annual limitations imposed on the use of the carryforwards under IRC sections 382 and 383.

As of December 31, 2019, we had unrecognized tax benefits of $27.0 million, which primarily relates to research and development credits, none of which would currently affect our effective tax rate if recognized due to the Company’s deferred tax assets being fully offset by a valuation allowance. Unrecognized tax benefits are not expected to change in the next 12 months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):



	Year ended December 31,
	2019		2018		2017
Unrecognized tax benefits, beginning of period	$	16,375	$	10,561	$	7,791
Gross increases—current period tax positions	10,311		5,686		2,552
Gross increases—prior period tax positions	299		128		218
Unrecognized tax benefits, end of period	$	26,985	$	16,375	$	10,561

Our policy is to include penalties and interest expense related to income taxes as a component of tax expense. We have not accrued interest and penalties related to the unrecognized tax benefits reflected in the financial statements for the years ended December 31, 2019, 2018 and 2017.

Our major tax jurisdictions are the United States and California. All of our tax years will remain open for examination by the Federal and state tax authorities for three and four years, respectively, from the date of utilization of the net operating loss or research and development credit. We do not have any tax audits pending.

Net loss per share

12 Months Ended

Dec. 31, 2019

Earnings Per Share [Abstract]

Net loss per common share

Net loss per share

The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):



	Year ended December 31,
	2019			2018			2017
Net loss	$	(241,965	)	$	(129,355	)	$	(123,380	)
Shares used in computing net loss per share, basic and diluted	90,859			66,747			46,512
Net loss per share, basic and diluted	$	(2.66	)	$	(1.94	)	$	(2.65	)

The following common stock equivalents have been excluded from diluted net loss per share because their inclusion would be anti-dilutive (in thousands):



	Year Ended December 31,
	2019	2018	2017
Shares of common stock subject to outstanding options	3,662	4,028	4,485
Shares of common stock subject to outstanding warrants	592	1,513	343
Shares of common stock subject to outstanding RSUs	5,293	3,476	2,067
Shares of common stock subject to outstanding PRSUs	1,860	—	41
Shares of common stock pursuant to ESPP	239	294	146
Shares of common stock underlying Series A convertible preferred stock	702	3,459	1,421
Shares of common stock subject to Convertible Senior Notes exercise	3,612	—	—
Total shares of common stock equivalents	15,960	12,770	8,503

Geographic information

12 Months Ended

Dec. 31, 2019

Segments, Geographical Areas [Abstract]

Geographic information

Revenue by country is determined based on the billing address of the customer and is summarized as follows (in thousands):



	Year Ended December 31,
	2019		2018		2017
United States	$	202,550	$	138,239	$	62,446
Canada	4,356		4,206		3,226
Rest of world	9,918		5,254		2,549
Total revenue	$	216,824	$	147,699	$	68,221

As of December 31, 2019 and 2018, all long-lived assets were located in the United States.

Selected quarterly data (unaudited)

12 Months Ended

Dec. 31, 2019

Quarterly Financial Information Disclosure [Abstract]

Selected quarterly data (unaudited)

The following table summarizes our quarterly financial information for 2019 and 2018 (in thousands, except per share amounts):



	Three Months Ended
	March 31, 2019			June 30, 2019			September 30, 2019			December 31, 2019
Revenue	$	40,553		$	53,475		$	56,511		$	66,285
Cost of revenue	$	21,254		$	28,006		$	32,120		$	36,723
Loss from operations	$	(36,207	)	$	(51,886	)	$	(76,983	)	$	(79,036	)
Net loss⁽¹⁾	$	(37,677	)	$	(48,676	)	$	(78,707	)	$	(76,905	)
Net loss per share, basic and diluted⁽²⁾	$	(0.47	)	$	(0.54	)	$	(0.82	)	$	(0.79	)

	Three Months Ended
	March 31, 2018			June 30, 2018			September 30, 2018			December 31, 2018
Revenue	$	27,671		$	37,306		$	37,366		$	45,356
Cost of revenue	$	18,076		$	20,447		$	20,441		$	21,141
Loss from operations	$	(36,475	)	$	(30,068	)	$	(30,110	)	$	(25,904	)
Net loss⁽¹⁾	$	(36,120	)	$	(31,671	)	$	(31,723	)	$	(29,841	)
Net loss per share, basic and diluted⁽²⁾	$	(0.66	)	$	(0.47	)	$	(0.45	)	$	(0.40	)

___________________________________________________________________


⁽¹⁾	Includes $8.9 million and $5.3 million of debt extinguishment costs during the three months ended September 30, 2019 and December 31, 2018, respectively. See Note 8, "Commitments and contingencies" for further information.

⁽²⁾

Net loss per share is computed independently for each of the quarters presented. Therefore, the sum of quarterly net loss per share information may not equal annual net loss per share.

Summary of significant accounting policies (Policies)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Principles of consolidation

Our 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.

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 and liabilities associated with business combinations;


•	the impairment assessment of goodwill and intangible assets;


•	valuation of our 2.00% convertible senior notes due 2024 issued in September 2019 ("Convertible Senior Notes");


•	the recoverability of long-lived assets;


•	our incremental borrowing rates used to calculate our lease balances;


•	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 for each year presented on the statements of operations.

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, U.S. treasury notes and government agency securities.

Restricted cash consists primarily of money market funds that secure irrevocable standby letters of credit that serve as collateral for security deposits for our facility leases.

Marketable securities

All marketable securities have been classified as “available-for-sale” and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its marketable debt securities at the time of purchase and reevaluates such designation at each balance sheet date. Short-term marketable securities have maturities one year or less at the balance sheet date. Unrealized gains and losses are excluded from earnings and are reported as a component of other comprehensive loss. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in other expense, net. The cost of securities sold is based on the specific-identification method. Interest on marketable securities is included in other expense, net.

Accounts receivable

We receive payment for our tests from partners, patients, institutional customers and third-party payers.

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.

Business combinations

We apply Accounting Standards Codification ("ASC") 805, Business Combinations, or ASC 805, which requires recognition of assets acquired, liabilities assumed, and contingent consideration at their fair value on the acquisition date with subsequent changes recognized in earnings; requires acquisition-related expenses and restructuring costs to be recognized separately from the business combination and expensed as incurred; requires in-process research and development to be capitalized at fair value as an indefinite-lived intangible asset until completion or abandonment; and requires that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes.

We account for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. The tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values as of the business combination date, including identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. 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, estimated cost savings, cash flows, discount rates, estimated useful lives and probabilities surrounding the achievement of contingent milestones could result in different purchase price allocations and amortization expense in current and future periods.

In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under 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.

Intangible assets and in-process research and development

In-process research and development

Intangible assets related to in-process research and development costs (“IPR&D”) are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. If and when development is complete, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time. During this period, the assets will not be amortized but will be tested for impairment on an annual basis and between annual tests if we become aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts.

During the fourth quarter and if business factors indicate more frequently, we perform an assessment of the qualitative factors affecting the fair value of our IPR&D projects. If the fair value exceeds the carrying value, there is no impairment. Impairment losses on indefinite-lived intangible assets are recognized based solely on a comparison of the fair value of an asset to its carrying value, without consideration of any recoverability test. We have not identified any such impairment losses to date.

Intangible assets

Amortizable intangible assets include trade names, non-compete agreements, developed technology and customer relationships acquired as part of business combinations. Customer relationships are amortized on an accelerated basis, utilizing free cash flows, over periods ranging from five to 11 years. All other intangible assets subject to amortization are amortized using the straight-line method over their estimated useful lives ranging from two to 15 years. All intangible assets subject to amortization are reviewed for impairment in accordance with ASC 360, Property, Plant and Equipment.

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 or more frequently if business factors indicate. In testing for impairment, we compare the fair value of our 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 that reporting unit.

Leases

Under ASC 842, Leases, we determine if an arrangement is a lease at inception. Operating leases are included in operating lease assets and operating lease obligations in our consolidated balance sheets. Finance leases are included in other assets and finance 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 assets and liabilities are recognized at commencement based on the present value of lease payments over the lease term. We generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments. The operating lease asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease which are recognized when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease terms, or in some cases, the useful life of the underlying asset.

Property and equipment, net

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight‑line method over the estimated useful lives of the assets, generally between three and seven years. Leasehold improvements are amortized using the straight‑line method over the shorter of the estimated useful life of the asset or the term of the lease. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in the statements of operations in the period realized.

The estimated useful lives of property and equipment are as follows:



Furniture and fixtures	7 years
Automobiles	7 years
Laboratory equipment	5 years
Computer equipment	3 years
Software	3 years
Leasehold improvements	Shorter of lease term or estimated useful life

Long-lived assets

Long‑lived assets

We review long‑lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognized when the total estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is assessed using discounted cash flows or other appropriate measures of fair value.

Fair value of financial instruments

Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities, finance leases, debt and convertible senior notes. 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 approximate 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 it expects to be entitled to in exchange for those goods or services. All revenues are generated from contracts with customers. We utilize the following practical expedients and exemptions:


•	Certain information about remaining performance obligations is not disclosed because the underlying contracts have an original expected duration of one year or less,


•	Costs to obtain or fulfill a contract are expensed when incurred because the amortization period would have been one year or less, and


•	No adjustments to promised consideration were made for financing as we expect, at contract inception, that the period between the transfer of a promised good or service and when the customer pays for that good or service will be one year or less.

Test revenue

The majority of our revenue is generated from genetic testing services that provide analysis and associated interpretation of the sequencing of parts of the genome. Test orders are placed under signed requisitions, and we often enter into contracts with institutions (e.g., hospitals, clinics, partners) and insurance companies that include pricing provisions under which such tests are billed. Billing terms are generally net thirty to sixty days.

While the transaction price of diagnostic tests is originally established either via contract or pursuant to our standard list price, we often provide concessions for tests billed to insurance carriers, and therefore the transaction price for patient insurance-billed tests is considered to be variable and revenue is recognized based on an estimate of the consideration to which we will be entitled at an amount for which it is probable that a reversal of cumulative consideration will not occur. Making these estimates requires significant judgments based upon such factors as length of payer relationship, historical payment patterns, changes in contract provisions and insurance reimbursement policies. These judgments are reviewed quarterly and updated as necessary.

In connection with some diagnostic test orders, we offer limited re-requisition rights (“Re-Requisition Rights”) that are considered distinct at contract inception, and therefore certain diagnostic test orders contain two performance obligations, the performance of the original test and the Re-Requisition Rights. When Re-Requisition Rights are granted, we allocate the transaction price to each performance obligation based on the relative estimated standalone selling prices. In order to comply with loss contract rules, the allocations are adjusted, if necessary, to ensure the amount deferred for Re-Requisition Rights is no less than the estimated cost of fulfilling our related obligations.

We look to transfer of control in assessing timing of recognition of revenue in connection with each performance obligation. In general, revenue in connection with diagnostic tests is recognized upon delivery of the underlying clinical report or when the report is made available on our web portal. Outstanding performance obligations pertaining to orders received but for which the underlying report has not been issued are generally satisfied within a thirty-day period. Revenue in connection with Re-Requisition Rights is recognized as the rights are exercised or expire unexercised, which is generally within ninety days of initial deferral.

Other revenue

We also enter into collaboration and genome network contracts. Collaboration agreements provide customers with diagnostic testing and related data aggregation reporting services that are provided over the contract term. Collaboration revenue is recognized as the testing and reporting services are delivered to the customer. Genome network offerings consist of subscription services related to a proprietary software platform designed to connect patients, clinicians, advocacy organizations, researchers and therapeutic developers to accelerate the understanding, diagnosis and treatment of hereditary disease. Such services are recognized on a straight-line basis over the subscription periods.

Amounts due under collaboration and genome network agreements are typically billable on net thirty-day terms.

Cost of revenue

Cost of revenue reflects the aggregate costs incurred in delivering the genetic testing results to clinicians and patients 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.

Income taxes

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Significant judgment is required in determining the net valuation allowance which includes our evaluation of all available evidence including past operating results, estimates on future taxable income and acquisition-related tax assets and liabilities. As of December 31, 2019, we recorded a full valuation allowance on our net deferred tax assets because we expect that it is more likely than not that our deferred tax assets will not be realized in the foreseeable future.

Stock-based compensation

We measure stock-based payment awards made to employees and directors based on the estimated fair values of the awards and recognize the compensation expense over the requisite service period. We use the Black-Scholes option-pricing model to estimate the fair value of stock option awards and employee stock purchase plan (“ESPP”) purchases. The fair value of restricted stock unit (“RSU”) awards with time-based vesting terms is based on the grant date share price. We grant performance-based restricted stock unit (“PRSU”) awards to certain employees which vest upon the achievement of certain performance conditions, subject to the employees’ continued service relationship with us. The probability of vesting is assessed at each reporting period and compensation cost is adjusted based on this probability assessment. We recognize such compensation expense on an accelerated vesting method.

Stock-based compensation expense for awards without a performance condition is recognized using the straight-line method. Stock-based compensation expense is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. As such, our stock-based compensation is reduced for estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

We account for stock issued in connection with business combinations based on the fair value of our common stock on the date of issuance.

Advertising

Advertising expenses are expensed as incurred.

Comprehensive loss

Comprehensive loss is composed of two components: net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to gains and losses that under U.S. GAAP are recorded as an element of stockholders’ equity, but are excluded from net loss. Our other comprehensive income (loss) consists of unrealized gains or losses on investments in available-for-sale securities.

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 preferred stock, options to purchase common stock, common stock warrants, shares of common stock pursuant to ESPP, common stock issuable in connection with our Convertible Senior Notes, RSUs and PRSUs, 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.

Prior period reclassifications

We have reclassified certain amounts in prior periods to conform with current presentation.

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 impact of the adoption of this standard on our consolidated financial statements.

Recently adopted accounting pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. We have early adopted this ASU effective for the year ended December 31, 2019.

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 this 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. 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