Document and Entity Information - USD ($) $ in Millions	12 Months Ended
Document and Entity Information - USD ($) $ in Millions	Dec. 31, 2023	Feb. 23, 2024	Jun. 30, 2023
Document and Entity Information
Document Type	10-K
Document Annual Report	true
Document Transition Report	false
Document Period End Date	Dec. 31, 2023
Entity File Number	001-37478
Entity Registrant Name	NATERA, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	01-0894487
Entity Address, Address Line One	13011 McCallen Pass
Entity Address, Address Line Two	Building A Suite 100
Entity Address, City or Town	Austin
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	78753
City Area Code	650
Local Phone Number	980-9190
Title of 12(b) Security	Common Stock, par value $0.0001 per share
Trading Symbol	NTRA
Security Exchange Name	NASDAQ
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
ICFR Auditor Attestation Flag	true
Document Financial Statement Error Correction [Flag]	false
Entity Shell Company	false
Entity Public Float			$ 5,260
Entity Common Stock, Shares Outstanding		120,757,877
Entity Central Index Key	0001604821
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	FY
Amendment Flag	false
Auditor Name	Ernst & Young LLP
Auditor Location	San Mateo, California
Auditor Firm ID	42

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2023	Dec. 31, 2022
Current assets:
Cash, cash equivalents and restricted cash	$ 642,095	$ 466,091
Short-term investments	236,882	432,301
Accounts receivable, net of allowance of $6,481 in 2023 and $3,830 in 2022	278,289	244,385
Inventory	40,759	35,406
Prepaid expenses and other current assets, net	60,524	33,634
Total current assets	1,258,549	1,211,817
Property and equipment, net	111,210	92,453
Operating lease right-of-use assets	56,537	71,874
Other assets	15,403	18,330
Total assets	1,441,699	1,394,474
Current liabilities:
Accounts payable	14,998	31,148
Accrued compensation	45,857	44,010
Other accrued liabilities	149,405	144,214
Deferred revenue, current portion	16,612	10,777
Short-term debt financing	80,402	80,350
Total current liabilities	307,274	310,499
Long-term debt financing	282,945	281,653
Deferred revenue, long-term portion	19,128	20,001
Operating lease liabilities, long-term portion	67,025	76,577
Total liabilities	676,372	688,730
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock, $0.0001 par value: 750,000 shares authorized at both December 31, 2023 and 2022; 119,581 and 111,255 shares issued and outstanding at December 31, 2023 and 2022, respectively	11	11
Additional paid in capital	3,145,837	2,664,730
Accumulated deficit	(2,377,436)	(1,942,635)
Accumulated other comprehensive loss	(3,085)	(16,362)
Total stockholders' equity	765,327	705,744
Total liabilities and stockholders' equity	$ 1,441,699	$ 1,394,474

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2023	Dec. 31, 2022
Consolidated Balance Sheets
Allowances on accounts receivable	$ 6,481	$ 3,830
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	750,000,000	750,000,000
Common stock, shares issued	119,581,000	111,255,000
Common stock, shares outstanding	119,581,000	111,255,000

Consolidated Statements of Operations and Comprehensive Loss - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2023	Dec. 31, 2022	Dec. 31, 2021
Revenues
Total revenues	$ 1,082,571	$ 820,222	$ 625,486
Cost and expenses
Research and development	320,678	316,415	264,208
Selling, general and administrative	618,307	588,591	511,034
Total cost and expenses	1,528,816	1,361,262	1,093,660
Loss from operations	(446,245)	(541,040)	(468,174)
Interest expense	(12,638)	(9,319)	(8,305)
Interest and other income, net	24,353	3,538	5,381
Loss before income taxes	(434,530)	(546,821)	(471,098)
Income tax expense	(271)	(978)	(618)
Net loss	(434,801)	(547,799)	(471,716)
Unrealized gain (loss) on available-for-sale securities, net of tax	13,277	(14,075)	(6,546)
Comprehensive loss	$ (421,524)	$ (561,874)	$ (478,262)
Net Loss per Share
Basic (in dollars per share)	$ (3.78)	$ (5.57)	$ (5.21)
Diluted (in dollars per share)	$ (3.78)	$ (5.57)	$ (5.21)
Weighted-average number of shares used in computing basic and diluted net loss per share:
Basic (in shares)	114,997	98,408	90,558
Diluted (in shares)	114,997	98,408	90,558
Product
Revenues
Total revenues	$ 1,068,522	$ 797,307	$ 580,080
Cost and expenses
Cost of revenues	588,564	453,632	315,195
Licensing and other
Revenues
Total revenues	14,049	22,915	45,406
Cost and expenses
Cost of revenues	$ 1,267	$ 2,624	$ 3,223

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Common stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit	Total
Balance at Dec. 31, 2020	$ 9	$ 1,411,286	$ 4,259	$ (929,318)	$ 486,236
Balance (in shares) at Dec. 31, 2020	86,223,000
Issuance of common stock upon exercise of stock options		11,816			11,816
Issuance of common stock upon exercise of stock options (in shares)	1,165,000
Issuance of common stock under employee stock purchase plan		13,550			13,550
Issuance of common stock under employee stock purchase plan (in shares)	186,000
Issuance of common stock for IPR&D		30,601			30,601
Issuance of common stock for IPR&D (in shares)	274,000
Vesting of restricted stock units (in shares)	2,117,000
Stock based compensation		115,219			115,219
Unrealized gain (loss) on available-for sale securities			(6,546)		(6,546)
Cumulative-effect adjustment upon adoption		(82,876)		6,198	(76,678)
Issuance of common stock for public offering, net	$ 1	550,821			550,822
Issuance of common stock for public offering, net (in shares)	5,175,000
Net loss				(471,716)	(471,716)
Balance at Dec. 31, 2021	$ 10	2,050,417	(2,287)	(1,394,836)	653,304
Balance (in shares) at Dec. 31, 2021	95,140,000
Issuance of common stock upon exercise of stock options		6,411			6,411
Issuance of common stock upon exercise of stock options (in shares)	828,000
Issuance of common stock under employee stock purchase plan		13,037			13,037
Issuance of common stock under employee stock purchase plan (in shares)	437,000
Issuance of common stock for IPR&D		9,290			9,290
Issuance of common stock for IPR&D (in shares)	225,000
Vesting of restricted stock units (in shares)	1,480,000
Stock based compensation		152,384			152,384
Unrealized gain (loss) on available-for sale securities			(14,075)		(14,075)
Issuance of common stock for public offering, net	$ 1	433,191			433,192
Issuance of common stock for public offering, net (in shares)	13,145,000
Net loss				(547,799)	(547,799)
Balance at Dec. 31, 2022	$ 11	2,664,730	(16,362)	(1,942,635)	$ 705,744
Balance (in shares) at Dec. 31, 2022	111,255,000				111,255,000
Issuance of common stock upon exercise of stock options		3,892			$ 3,892
Issuance of common stock upon exercise of stock options (in shares)	298,000
Issuance of common stock under employee stock purchase plan		15,128			15,128
Issuance of common stock under employee stock purchase plan (in shares)	392,000
Issuance of common stock for IPR&D	$ 336	14,435			14,435
Vesting of restricted stock units (in shares)	2,401,000
Stock based compensation		192,437			192,437
Issuance of common stock for bonuses		19,774			19,774
Issuance of common stock for bonuses (in shares)	349,000
Unrealized gain (loss) on available-for sale securities			13,277		13,277
Issuance of common stock for public offering, net		235,441			235,441
Issuance of common stock for public offering, net (in shares)	4,550,000
Net loss				(434,801)	(434,801)
Balance at Dec. 31, 2023	$ 11	$ 3,145,837	$ (3,085)	$ (2,377,436)	$ 765,327
Balance (in shares) at Dec. 31, 2023	119,581,000				119,581,000

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2023	Dec. 31, 2022	Dec. 31, 2021
Operating activities:
Net loss	$ (434,801)	$ (547,799)	$ (471,716)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	24,097	16,702	11,254
Expensed in-process research and development	2,679	9,290	35,604
Non-cash lease expense	14,519	13,770	10,926
Stock-based compensation	191,808	152,384	115,219
Premium amortization and discount accretion on investment securities	1,087	4,837	7,814
(Gain) loss on investments		906	(46)
Foreign exchange adjustment	265	(2)	(11)
Amortization of debt discount and issuance cost	1,292	1,259	1,227
Non-cash interest expense	52	302	94
Changes in operating assets and liabilities:
Accounts receivable	(33,904)	(122,311)	(43,509)
Inventory	(5,353)	(8,497)	(6,878)
Operating lease right-of-use assets	8,354	622
Prepaid expenses and other assets	(26,072)	(1,202)	(3,182)
Accounts payable	(15,458)	5,462	19,222
Accrued compensation	21,619	3,069	10,569
Operating lease liabilities	(12,448)	(9,999)	(10,296)
Other accrued liabilities	10,347	47,650	32,682
Deferred revenue	4,962	2,056	(44,209)
Net cash used in operating activities	(246,955)	(431,501)	(335,236)
Investing activities:
Purchases of investments	(98,303)	(86,947)	(876,095)
Proceeds from sale of investments		248,482	187,580
Proceeds from maturity of investments	306,000	216,500	532,910
Purchases of property and equipment, net	(39,199)	(47,697)	(41,030)
Cash paid for acquisition of an asset			(8,558)
Net cash provided by (used in) investing activities	168,498	330,338	(205,193)
Financing activities:
Proceeds from exercise of stock options	3,892	6,411	11,816
Proceeds from issuance of common stock under employee stock purchase plan	15,128	13,037	13,550
Proceeds from public offering, net of issuance cost	235,441	433,192	550,822
Proceeds from Credit Line		30,000
Net cash provided by financing activities	254,461	482,640	576,188
Net change in cash, cash equivalents and restricted cash	176,004	381,477	35,759
Beginning cash, cash equivalents and restricted cash	466,091	84,614	48,855
Ending cash, cash equivalents and restricted cash	642,095	466,091	84,614
Supplemental disclosure of cash flow information:
Cash paid for income taxes	295	549	283
Cash paid for interest	11,346	8,060	7,077
Non-cash investing and financing activities:
Purchases of property and equipment in accounts payable and accruals	1,582	$ (1,940)	$ 5,173
Issuance of common stock for IPR&D milestone	14,435
Issuance of common stock for bonuses	19,774
Stock-based compensation included in capitalized software development costs	$ 629

Description of Business

12 Months Ended

Dec. 31, 2023

Description of Business

Description of Business

1. Description of Business

Natera, Inc. (the “Company”) was formed in the state of California as Gene Security Network, LLC in November 2003 and incorporated in the state of Delaware in January 2007. The Company is a diagnostics company with proprietary molecular and bioinformatics technology that it is applying to change the management of disease worldwide. The Company’s cell-free DNA (“cfDNA”) technology combines its novel molecular assays, which reliably measure many informative regions across the genome from samples as small as a single cell, with its statistical algorithms which incorporate data available from the broader scientific community to identify genetic variations covering a wide range of serious conditions with high accuracy and coverage. The Company focuses on applying its technology to three main areas of healthcare – women’s health, oncology and organ health. In the women’s health space, the Company develops and commercializes non- or minimally- invasive tests to evaluate risk for, and thereby enable early detection of, a wide range of genetic conditions, such as Down syndrome. In oncology, the Company commercializes, among others, a personalized blood-based DNA test to detect molecular residual disease and monitor for disease recurrence across a broad range of cancer types. The Company’s third area of focus is organ health, with tests to assess kidney, heart, and lung transplant rejection as well as genetic testing for chronic kidney disease. The Company operates laboratories in Austin, Texas and San Carlos, California certified under the Clinical Laboratory Improvement Amendments (“CLIA”) providing a host of cell-free DNA-based molecular testing services. The Company determines its operating segments based on the way it organizes its business to make operating decisions and assess performance. The Company operates one segment, the development and commercialization of molecular testing services, applying its proprietary technology in the fields of women’s health, oncology and organ health.

The Company’s key product offerings include its Panorama Non-Invasive Prenatal Test (“Panorama”) that screens for chromosomal abnormalities of a fetus as well as in twin pregnancies, typically with a blood draw from the mother; Horizon Carrier Screening (“Horizon”) to determine carrier status for a large number of severe genetic diseases that could be passed on to the carrier’s children; its Signatera molecular residual disease test (“Signatera”)to detect circulating tumor DNA in patients previously diagnosed with cancer to assess molecular residual disease, monitor for recurrence, and evaluate treatment response; and its Prospera test, to assess organ transplant rejection in patients who have undergone kidney, heart, or lung transplantation. All testing is available principally in the United States. The Company also offers its Panorama test to customers outside of the United States, primarily in Europe. The Company also offers Constellation, a cloud-based software platform that enables laboratory customers to gain access through the cloud to the Company’s algorithms and bioinformatics in order to validate and launch their own tests based on the Company’s technology.

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2023

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”).

Some items in the prior period financial statements were reclassified to conform to the current presentation.

Liquidity Matters

The Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows for the near future. The Company had a net loss of $434.8 million for the year ended December 31, 2023 and an accumulated deficit of $2.4 billion as of December 31, 2023. As of December 31, 2023, the Company had $642.1 million in cash, cash equivalents, and restricted cash, $236.9 million in marketable securities, $80.4 million of outstanding balance of the Credit Line (as defined in Note 10, Debt) including accrued interest, and $287.5 million outstanding principal balance of its 2.25% Convertible Senior Notes (the “Convertible Notes”). The Company is required to maintain a minimum of at least $150.0 million in its UBS accounts as collateral for its Credit Line which is classified as short-term investments in the consolidated balance sheet. As of December 31, 2023, the Company had $20.0 million remaining available on the Credit Line.

While the Company has introduced multiple products that are generating revenues, these revenues have not been sufficient to fund all operations and business plans. Accordingly, the Company has funded the portion of operating costs that exceeds revenues through a combination of equity issuances, debt issuances, and other financings.

The Company continues to invest in the development and commercialization of its existing and future products and, consequently, it will need to generate additional revenues to achieve future profitability and may need to raise additional equity or debt financing. If the Company raises additional funds by issuing equity securities, its stockholders will experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and requires significant debt service payments, which diverts resources from other activities. Additional financing may not be available when necessary, or in amounts or on terms acceptable to the Company. If the Company is unable to obtain additional financing, it may be required to delay or slow its investment in the development and commercialization of its products and significantly scale back its business and operations.

In September 2023, the Company completed an underwritten equity offering and sold 4,550,000 shares of its common stock at a price of $55 per share to the public. Before estimated offering expenses of $0.4 million, the Company received proceeds of approximately $235.8 million net of the underwriting discount. In November 2022, the Company completed an underwritten equity offering and sold 13,144,500 shares of its common stock at a price of $35 per share to the public. Before estimated offering expenses of $0.5 million, the Company received proceeds of approximately $433.2 million net of the underwriting discount. In July 2021, the Company completed an underwritten equity offering and sold 5,175,000 shares of its common stock at a price of $113 per share to the public. Before offering expenses of $0.4 million, the Company received proceeds of $551.2 million net of the underwriting discount.

On September 10, 2021, the Company entered into an agreement with a third party for an asset acquisition where the acquired asset was in-process research and development primarily in exchange for an equity consideration payment. In addition, pursuant to the agreement, certain employees of the third party became employees of the Company. The third party was a biotechnology company focused on oncology. The total upfront acquisition consideration amounts to $35.6 million composed of the issuance of 276,346 shares of the Company's common stock with a fair value of $30.9 million, approximately $3.9 million of cash consideration, assumed net liabilities of $0.2 million, as well as $0.6 million of acquisition related legal and accounting costs directly attributable to the acquisition of the asset. The Company accounted for the transaction as an asset acquisition as substantially all of the estimated fair value of the gross assets acquired was concentrated in a single identified in-process research and development asset (“IPR&D”) thus satisfying the requirements of the screen test in ASU 2017-01. The estimated fair value of the acquired workforce was not significant. The Company concluded the acquired IPR&D has no alternative-future use and accordingly expensed approximately $35.6 million, on the day the transaction closed as research and development expense, which is reflected in its consolidated statement of operations.

Further, additional consideration aggregating up to approximately $35.0 million was estimated to be paid via issuance of an estimated 269,547 additional Natera common shares, consistent with the registration statement filed with the SEC on September 10, 2021, upon achievement of defined milestones relating to product development, commercial launch and continued employment of certain selling shareholders, each of which was revalued at each reporting date and amount of compensation expense was adjusted accordingly and reported in research and development expenses. In

November 2022, the terms of the payment for any remaining consideration were modified, resulting in $10.0 million of consideration paid in December 2022 and $15.0 million of consideration paid in March 2023, with such consideration primarily consisting of Natera common stock.

Based on the Company’s current business plan, the Company believes that its existing cash and marketable securities will be sufficient to meet its anticipated cash requirements for at least 12 months after February 28, 2024.

Principles of Consolidation

The accompanying consolidated financial statements include all the accounts of the Company and its subsidiaries. The Company established a subsidiary that operates in the state of Texas to support the Company’s laboratory and operational functions. The Company established a subsidiary that operates in Canada following the acquisition of the IPR&D asset. All intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles (GAAP) in the United States requires management to make estimates and assumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Significant items subject to such estimates include the allowance for doubtful accounts, the operating right-of-use assets and the associated lease liabilities, the average useful life for property and equipment including impairment estimates, deferred revenues associated with unsatisfied performance obligations, accrued liability for potential refund requests, stock-based compensation, the fair value of options, income tax uncertainties, and the expected consideration to be received from contracts with customers, insurance payors, and patients. These estimates and assumptions are based on management's best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors, including contractual terms and statutory limits; however, actual results could differ from these estimates and could have an adverse effect on the Company's financial statements.

Cash, Cash Equivalents, and Restricted Cash

Cash, cash equivalents, and restricted cash consist of cash, liquid demand deposits, and money market funds. Highly liquid investments purchased with an original maturity of three months or less are also considered cash equivalents. Restricted cash as of December 31, 2023 and 2022 was immaterial.

Investments

Investments consist primarily of debt securities such as U.S. Treasuries, U.S. agency and municipal bonds. Management determines the appropriate classification of securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company generally classifies its entire investment portfolio as available-for-sale. The Company views its available-for-sale portfolio as available for use in current operations. Accordingly, the Company classifies all investments as short-term, irrespective of maturity date. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity.

The Company classifies its investments as Level 1 or 2 within the fair value hierarchy. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets that the Company has the ability to access. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. The Company holds Level 2 securities which are initially valued at the transaction price and subsequently valued by a third-party service provider using inputs other than quoted prices that are observable either directly or indirectly, such as yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures. The Company performs certain procedures to corroborate the fair value of these holdings.

Available-for-sale debt securities. The amended guidance from ASU 2016-13 requires the measurement of expected credit losses for available-for-sale debt securities held at the reporting date over the remaining life based on historical experience, current conditions, and reasonable and supportable forecasts. The Company evaluated its investment portfolio under the available-for-sale debt securities impairment model guidance and determined the Company’s investment portfolio is composed of low-risk, investment grade securities and thus have not recorded an expected credit loss for its investment portfolio. Further, gross unrealized losses on available for sale securities were not material at December 31, 2023.

Accounts Receivable

Trade accounts receivable and other receivables. The allowance for doubtful accounts for trade accounts receivable is based on the Company’s assessment of the collectability of accounts related to its clinics and laboratory partner customers. The Company regularly reviews the allowance by considering factors such as historical experience, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. See Note 6, Balance Sheet Components, for a roll-forward of the allowance for doubtful accounts related to trade accounts receivable for years ended December 31, 2023, 2022, and 2021. The Company recognizes revenue under ASC 606 and applies a constraint to the estimated variable consideration such that it is not probable that a significant reversal will occur. When assessing the total consideration expected to be received from insurance carriers and patients, a certain percentage of revenues is further constrained for estimated refunds. After applying the ASC 606 constraint, the Company assessed for credit losses and determined an incremental credit loss was not needed given the payors from whom such receivables are collectible and the relatively short duration over which the majority of receivables are collected. Accordingly, the Company currently does not have an incremental credit loss reserve nor allowance for doubtful accounts against accounts receivable for insurance and patient payors due to the average selling price calculations which incorporate these risks as net receivables are recorded.

Inventory

Inventory is recorded at the lower of cost or net realizable value, determined on a first-in, first-out basis. Inventory consists entirely of supplies, which are consumed when providing its test reports, and therefore, the Company does not maintain any finished goods inventory. The Company enters into inventory purchases commitments so that it can meet future delivery schedules based on forecasted demand for its tests.

The Company uses judgment to analyze and determine if the composition of its inventory is obsolete, slow-moving or unsalable and frequently reviews such determinations. A write down of specifically identified unusable, obsolete, slow-moving or known unsalable inventory in the period is first recognized by using a number of factors including product expiration dates and scrapped inventory. Any write-down of inventory to net realizable value establishes a new cost basis and will be maintained even if certain circumstances suggest the inventory is recoverable in subsequent periods. Costs associated with the write-down of inventory are recorded to cost of revenue on our consolidated statements of operations. The Company makes assumptions about future demand, market conditions and the release of new products that may supersede older products. However, if actual market conditions are less favorable than anticipated, additional inventory write-downs may be required.

The following is a roll-forward of the inventory reserve for the years ended December 31, 2023 and 2022.


	December 31,
	2023		2022

	(in thousands)
Beginning balance	$	748	$	988
Write-offs		(2,175)		(240)
Net additions to reserve		2,299		—
Ending balance	$	872	$	748

Property and Equipment

Property and equipment, including purchased and internally developed software, are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which are generally three to five years determined by the classification of the property and equipment class in accordance with the Company’s fixed asset policy. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the assets or the remaining term of the lease, whichever is shorter. The Company periodically reviews the useful lives assigned to property and equipment placed in service in accordance with the Company’s fixed asset policy and changes the estimates of useful lives to reflect the results of such reviews.

Capitalized Software Held for Internal Use

The Company capitalizes salaries and related costs of employees and consultants who devote time to the development of internal-use software development projects. Capitalization begins during the application development stage, once the preliminary project stage has been completed, which includes successful validation and approval from management. If a project constitutes an enhancement to previously developed software, the Company assesses whether the enhancement is significant and creates additional functionality to the software, thus qualifying the work incurred for capitalization. Once the project is available for general release, capitalization ceases and the Company estimates the useful life of the asset and begins amortization. The Company periodically assesses whether triggering events are present to review internal-use software for impairment. Changes in estimates related to internal-use software would increase or decrease operating expenses or amortization recorded during the reporting period.

The Company amortizes its internal-use software over the estimated useful lives of three years. The net book value of capitalized software held for internal use was $8.7 million and $5.9 million as of December 31, 2023 and 2022, respectively. Amortization expense for amounts previously capitalized for the years ended December 31, 2023, 2022, and 2021, was $2.4 million, $0.2 million, and $1.1 million, respectively.

Impairment of Long-lived Assets

The Company evaluates its long-lived assets for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The Company then compares the carrying amounts of the assets with the future net undiscounted cash flows expected to be generated by such asset. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s fair value determined using discounted estimates of future cash flows.

Operating Lease Right-of-Use Assets

The Company determines if an arrangement is or contains a lease at inception and classify each lease as operating or financing. Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments made during the lease term, net of any tenant improvement allowance. 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 committed lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, which includes significant assumptions made including the Company’s estimated credit rating, annual percentage yields from corporate debt financings of companies of similar size and credit rating over a loan term approximating the remaining term of each lease, and government bond yields for terms approximating the remaining term of each lease in countries where the leased assets are located. Certain leases include payments of operating expenses that are dependent on the landlord’s estimate, and these variable payments are therefore excluded from the lease payments used to determine the operating lease right-of-use asset and lease liability. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise any such options. Operating lease right-of-use assets are adjusted for prepaid lease payments, lease incentives and initial direct costs incurred. Lease expense is recognized on a straight-line basis over the expected lease term.

The Company elected to not apply the recognition requirements of Topic 842 to short-term leases with terms of 12 months or less. For short-term leases, lease payments are recognized as operating expenses on a straight-line basis over the lease term.

Accumulated Other Comprehensive Income (Loss)

Comprehensive loss and its components encompass all changes in equity other than those with stockholders, and include net loss, unrealized gains and losses on available-for-sale marketable securities, and foreign currency translation adjustments.


	December 31,
	2023		2022

	(in thousands)
Beginning balance	$	(16,362)	$	(2,287)
Net unrealized gain (loss) on available-for-sale securities, net of tax and foreign currency translation adjustment		13,277		(14,075)
Ending balance	$	(3,085)	$	(16,362)

Revenue Recognition

The Company recognizes revenue under, ASC 606, using the following five step process:

●

Identification of a contract, or contracts, with a customer;

●

Identification of the performance obligations in the contract;

●

Determination of the transaction price;

●

Allocation of the transaction price to the performance obligations in the contract; and

●

Revenue recognition when, or as, the performance obligations are satisfied

The Company uses the most likely amount method of estimating variable consideration. The total consideration which the Company expects to collect in exchange for the Company’s products is an estimate and may be fixed or variable, and is primarily based on historical cash collections for tests delivered, as adjusted for current expectations. Current expectations of cash collections factor in changes in reimbursement rate trends, past events not expected to recur, and future known changes such as anticipated contractual pricing changes or changes to insurance coverage. For insurance carriers and product types with similar reimbursement characteristics, the Company uses a portfolio approach to estimate variable consideration. The Company also applies a constraint to the estimated variable consideration when it assesses it is probable that a significant reversal in the amount of cumulative revenue may occur in future periods.

When assessing the total consideration expected to be received from insurance carriers and patients, a certain percentage of revenues is further constrained for estimated refunds.

See Note 3, Revenue Recognition, for detailed discussions of product revenues, licensing and other revenues, and how the five steps described above are applied.

Cost of Product Revenues

The components of our cost of product revenues are material and service costs, impairment charges associated with testing equipment, personnel costs, including stock-based compensation expense, equipment and infrastructure expenses associated with testing samples, electronic medical records, order and delivery systems, shipping charges to transport samples, costs incurred from third party test processing fees, and allocated overhead such as rent, information technology costs, equipment depreciation and utilities. Costs associated with Whole Exome Sequencing (“WES”) are also included, as well as labor costs, relating to our Signatera CLIA offering. Costs associated with performing tests are recorded when the test is accessioned.

Cost of Licensing and Other Revenues

The components of our cost of licensing and other revenues are material costs associated with test kits sold to clients using Constellation, the Company’s cloud software product clients, development and support services relating to our strategic partnership agreements, and other costs.

Research and Development

The Company records research and development costs in the period incurred. Research and development costs consist of personnel costs, including stock-based compensation expense, contract services, cost of materials utilized in performing tests, costs of clinical trials and allocated facilities and related overhead expenses.

Advertising Costs

The Company expenses advertising costs as incurred. The Company incurred advertising costs of $1.1 million, $1.8 million, and $2.2 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Product Shipment Costs

The Company expenses product shipment costs in cost of product revenues in the accompanying statements of operations. Shipping and handling costs for the years ended December 31, 2023, 2022, and 2021 were $42.2 million, $36.0 million, and $22.0 million, respectively.

Income Taxes

Income taxes are recorded in accordance with Financial Accounting Standards Board ASC Topic 740, Income Taxes ("ASC 740"), which provides for deferred taxes using an asset and liability approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Tax benefits are recognized when it is more likely than not that a tax position will be sustained during an audit. Deferred tax assets are reduced by a valuation allowance if current evidence indicates that it is considered more likely than not that these benefits will not be realized. See further discussion in Note 12, Income Taxes.

Stock-Based Compensation

Stock-based compensation related to stock options, restricted stock units (“RSUs”), performance-based awards, market-based awards, and stock purchase rights under an Employee Stock Purchase Plan (“ESPP”) granted to the Company’s employees is measured at the grant date based on the fair value of the award. The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective awards. If awards have both a service condition and performance or market condition, then a graded attribution method is used to recognize expense. No compensation cost is recognized when the requisite service has not been met and the awards are therefore forfeited.

Employee stock-based compensation expense is calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates. Non-employee stock-based compensation expense is not adjusted for estimated forfeitures up until the occurrence of the actual forfeiture of the associated awards.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options issued to employees and non-employees. The fair value of stock option awards is recognized as compensation expense on a straight-line basis over the requisite service period in which the awards are expected to vest and forfeitures are estimated based on historical trends at the time of grant and revised as necessary.

Stock option awards that include a service condition and a performance condition are considered expected to vest when the performance condition is probable of being met. The Black-Scholes model considers several variables and assumptions in estimating the fair value of stock-based awards. These variables include the per share fair value of the underlying common stock, exercise price, expected term, risk-free interest rate, expected annual dividend yield and the expected stock price volatility over the expected term. For all stock options granted, we calculate the expected term based on the weighted average actual terms of stock option awards. Prior to January 1, 2023, the Company determined expected volatility using the historical volatility of the stock price of similar publicly traded peer companies, and beginning January 1, 2023, the Company utilized the historical volatility of its common stock over the expected term of the award. The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award.

For stock options and performance-based awards that vest upon meeting performance conditions or market conditions in combination with performance conditions, the Company derives the requisite service period from the grant date to the date it is probable that the vesting conditions will be met.

For stock options with market conditions, the Company derives the requisite service period using the Monte Carlo simulation model. For stock options and RSUs that vest upon meeting performance conditions or market conditions in combination with performance conditions, the Company derives the requisite service period from the grant date to the date it is probable that the vesting conditions will be met.

The Monte Carlo simulation model is used to estimate the fair value of market-based condition awards. The model requires the input of the Company's expected stock price volatility, the expected term of the awards, and a risk-free interest rate. See further discussion on the valuation assumptions used under Note 9.

The Company determines the fair value of RSUs based on the closing price of our stock price, which is listed on Nasdaq, at the date of the grant.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, excluding shares subject to repurchase and without consideration of potentially dilutive securities. Diluted net loss per share is computed by giving effect to all potentially dilutive common shares outstanding for the period. For purposes of this computation, outstanding common stock options, and restricted stock units are considered to be common share equivalents. Common share equivalents are excluded from the computation in periods in which they have an anti-dilutive effect, unless the consideration of any one of them gives a dilutive effect.

Fair Value

The Company discloses the fair value of financial instruments for financial assets and liabilities for which the value is practicable to estimate. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

Related Party Transactions

On December 6, 2021, the Company participated along with certain other investors in the series B financing of MyOme, Inc. (“MyOme”), and purchased preferred shares and warrants in exchange for a cash payment of approximately $4.0 million, which represents 5.25% of MyOme on a fully diluted basis. The Company does not hold a seat on MyOme’s board of directors. The Company’s investment in MyOme is recorded at cost and no impairment was identified as of December 31, 2023. The following are the Company’s related persons and the basis of each such related person’s relationship with MyOme:

●

Matthew Rabinowitz, the Company’s executive chairman and co-founder, is the chairman of the board and founder of MyOme, and a beneficial holder of approximately 28.6% of the outstanding shares of MyOme on a fully dilutive basis;

●

Jonathan Sheena, the Company’s co-founder and a member of the Company’s board of directors, is a stockholder and a member of the board of directors of Myome;

●

Daniel Rabinowitz, the Company’s Secretary and Chief Legal Officer, is a stockholder of MyOme; and

●

Roelof Botha, the Lead Independent Director of the Company’s board of directors, is a managing member of Sequoia Capital. Certain funds affiliated with Sequoia Capital also participated in MyOme’s series B financing.

None of the related party investments in MyOme by our executives and directors noted above were at the behest of the Company nor funded by the Company.

In February 2024, the Company entered into a collaboration and commercialization agreement (the "Collaboration Agreement") with MyOme pursuant to which the parties will partner to offer certain genetic testing services to be developed and funded solely by MyOme and overseen by a joint steering committee. In connection with the Collaboration Agreement, the Company received a 10-year warrant to purchase 3,058,485 shares of MyOme's common stock at a strike price of $0.25 per share, which will vest upon a MyOme liquidity event (as defined in MyOme's certificate of incorporation). Subject to the Company's achievement of certain commercialization milestones, the Company may receive additional warrants to purchase MyOme's Series B Preferred Stock. To the extent the genetic testing services are successfully commercialized, the Company will owe certain royalty payments to MyOme.

Risk and Uncertainties

Financial instruments that potentially subject the Company to credit risk consist of cash, cash equivalents, and restricted cash, accounts receivable and investments. The Company limits its exposure to credit loss by placing its cash in financial institutions with high credit ratings. The Company's cash may consist of deposits held with banks that may at times exceed federally insured limits. The Company performs evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any one institution.

For the years ended December 31, 2023, 2022, and 2021, there were no customers exceeding 10% of total revenues on an individual basis. As of December 31, 2023 and 2022, there were no customers with an outstanding balance exceeding 10% of net accounts receivable.

For the years ended December 2023, 2022, and 2021, approximately 12.8%, 11.2%, and 5.1%, respectively, of total revenue were paid by Medicare on behalf of multiple customers. For the years ended December 2023 and 2022, approximately 13.9% and 14.1%, respectively, of accounts receivable expected to be paid by Medicare on behalf of multiple customers.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) under its accounting standard codifications or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed below, the Company believes that the impact of accounting standards updates recently issued that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

New Accounting Pronouncements Not Yet Adopted

In March 2020, ASU 2020-04, Reference Rate Reform (Topic 848) was issued which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. The Company does not expect adoption of this standard to have a material impact on its consolidated financial statements.

In November 2023, ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, was issued which requires disclosure of incremental segment information on an interim and annual basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal periods beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact of the guidance on the consolidated financial statements.

In December 2023, ASU 2023-09, Income Taxes - Improvements to Income Tax Disclosures, was issued, which requires enhanced disclosures in connection with an entity's effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. The amendments are effective for annual periods beginning after December 15, 2024. The Company does not expect the adoption of the amendments to have a significant impact on its consolidated financial statements.

Revenue Recognition

12 Months Ended

Dec. 31, 2023

Revenue Recognition

Revenue Recognition

3. Revenue Recognition

The Company recognizes revenues when, or as, performance obligations in the contracts are satisfied, in the amount reflecting the expected consideration to be received from the goods or services transferred to the customers.

Product Revenues

Product revenues are derived by performing genetic testing services and the Company’s performance obligation is complete when test results are delivered to a clinic or patient, who are considered the customer for such services as further discussed below.

Additionally, the Company enters into agreements with pharmaceutical companies to utilize the Company’s Signatera tests typically to study new cancer treatments or to validate the outcomes of clinical trials for which the pharmaceutical companies are identified as customers. Such arrangements generally involve performing whole exome sequencing (“WES”) services and the testing of patient samples to detect cancer mutations using its Signatera test. In addition to performing Signatera tests, these agreements typically include certain activities to fulfill the contract, such as customer data setup and management and ongoing reporting. Each test result is billable to customers upon delivery and the personalized cancer profile also makes each test distinct within the context of the contract as customers can exercise control over the test results upon delivery. Accordingly, the Company recognizes the test processing revenue as individual test results are delivered to customers.

For certain contracts with pharmaceutical companies where the Company is developing a companion diagnostic test in addition to performing regular testing services, revenue is primarily recognized proportionally as services are performed and/or tests are delivered.

A performance obligation represents a promise in a contract to transfer a distinct good or service to a customer, which represents a unit of accounting in accordance with ASC 606. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once the Company has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. A portion of the consideration should be allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company evaluates its contracts with laboratory partners and patients and identifies the performance obligations in those contracts, which are the delivery of the test results.

The total consideration which the Company expects to collect in exchange for the Company’s products is an estimate and may be fixed or variable. Consideration includes reimbursement from both patients and insurance carriers, adjusted for variable consideration related to disallowed cases, percent of patient responsibility collected, refunds and doubtful accounts, and is estimated using the most likely method. For insurance carriers and product types with similar reimbursement characteristics, the Company uses a portfolio of relevant historical data to estimate variable consideration and total collections for the Company’s products. The Company constrains the estimated variable consideration when it assesses it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods. The consideration expected from laboratory partners usually includes a fixed amount, but it can be variable depending on the volume of tests performed, and the Company determines the variable consideration using the expected value approach. For laboratory partners and patients, the Company allocates the total consideration to a single performance obligation, which is the delivery of the test results to the customers.

When assessing the total consideration expected to be received from insurance carriers and patients, a certain percentage of revenues is further constrained for estimated refunds.

The Company enters into contracts with insurance carriers with primarily payment terms related to tests provided to the patients who have health insurance coverage. Insurance carriers are considered as third-party payers on behalf of the patients, and the patients are considered as the customers who receive genetic test services. Tests may be billed to insurance carriers, patients, or a combination of insurance carriers and patients. Further, the Company sells tests to a number of domestic and international laboratory partners and identifies the laboratory partners as customers provided that there is a test services agreement between the two parties.

The Company generally bills an insurance carrier, a laboratory partner or a patient upon delivery of test results. The Company also bills patients directly for out-of-pocket costs involving co-pays and deductibles that they are responsible for. The Company generally collects approximately 90% of tests billed to insurance carriers, laboratory distribution partners, and directly to patients within 9 months with the remaining collections generally taking an additional 6 months. The Company may or may not get reimbursed for the full amount billed. Further, the Company may not get reimbursed at all for tests performed if such tests are not covered under the insurance carrier’s reimbursement policies or the Company is not a qualified provider to the insurance carrier, or if the tests were not previously authorized.

Product revenue is recognized in an amount equal to the total consideration (as described above) expected to be received at a point in time when the test results are delivered. Approximately 90% of cash collections attributable to such product revenue occurs within 9 months with the remaining collections generally taking an additional 6 months. During this time, management routinely reassesses its estimates of actual to expected cash collections, which are based on historical collection rates and adjusted for current information and trends. To the extent cash collections for tests delivered in prior periods are trending higher than expectations, the Company will increase revenue recognized when sufficient evidence is obtained to conclude the additional revenue will not result in a reversal of revenue in a future period. If cash collections for tests delivered in prior periods are trending below expectations, the Company will reduce revenue to the amount expected to be collected based on the latest information and expectations. Increases or decreases to the amount of cash expected to be collected for tests delivered in prior periods are recognized in product revenue with a corresponding

impact to accounts receivable during the period such determination is made. During the years ended December 31, 2023, 2022 and 2021, the Company increased revenue by a net of $5.3 million, $19.5 million and $12.5 million, respectively, for changes in estimate that increased revenue for tests delivered in prior periods that were fully collected, which increased revenue and decreased net loss by a corresponding amount and decreased loss per share by $0.05, $0.20 and $0.14, respectively.

Product revenue is constrained via refunds estimated to be paid to insurance carriers. Such refunds are recognized in accrued liabilities until they are either paid to the respective insurance carrier or it is determined the refund will not ultimately be paid, at which time the related accrual is reduced with a corresponding increase to revenue. During the year ended December 31, 2023, 2022 and 2021, the reserves for refunds to insurance carriers were reduced and product revenue increased by $13.1 million, $5.8 million and $5.7 million, respectively, for amounts the Company determined would not be refunded to insurance carriers. The increased revenue and corresponding decreased net loss resulted in a decreased loss per share by $0.11, $0.06 and $0.06 for the year ended December 31, 2023, 2022 and 2021, respectively.

Licensing and Other Revenues

The Company recognizes licensing revenues from its cloud-based distribution service offering, Constellation, by granting licenses to its licensees to use certain of the Company’s proprietary intellectual properties and cloud-based software and IVD kits. The Company also recognizes revenues from its strategic collaboration agreements, such as those with BGI Genomics Co., Ltd. and Foundation Medicine, Inc. The Company recognizes licensing revenue through agreements with pharmaceutical companies in support of potential clinical trials managed by the pharmaceutical companies. Other revenues include data sales, patient referral services and royalties.

Constellation

The laboratory partners with whom the Company enters into a licensing arrangement represent the licensees and are identified as customers. The licensees do not have the right to possess the Company’s software, but rather receive services through the cloud software. These arrangements often include: (i) the delivery of the services through the cloud software, (ii) the necessary support and training, and (iii) the IVD kits to be consumed as tests are processed. The Company does not consider the software as a service, the support or the training as being distinct in the context of such arrangements, and therefore they are combined as a single performance obligation. The software, support and training are delivered simultaneously to the licensees over the term of the arrangement.

The Company bills the majority of licensees, who process the tests in their laboratories, a fixed price for each test processed. Licensing revenues are recognized as the performance obligations are satisfied (i.e., upon the delivery of each test) and reported in licensing and other revenues in the Company’s statements of operations and comprehensive loss.

Qiagen

In March 2018, the Company entered into a License, Development and Distribution Agreement (the “Qiagen Agreement”) with Qiagen under which the Company granted Qiagen a license to develop, manufacture, distribute and commercialize NGS-based genetic testing assays and sequencing systems utilizing such assays, which incorporate the Company’s proprietary technology. Effective in March 2020, the Company terminated the Qiagen Agreement. Subsequently, in March 2021, the Company and Qiagen signed a Termination and Settlement Agreement where the Company agreed to refund a net $10.0 million as a result of the termination. The remaining $28.6 million of deferred revenue was recognized as licensing and other revenue in the first quarter of 2021.

BGI Genomics

In February 2019, the Company entered into a License Agreement (the “BGI Genomics Agreement”) with BGI Genomics to develop, manufacture, and commercialize NGS-based genetic testing assays for clinical and commercial use. The BGI Genomics Agreement has a term of ten years and expires in February 2029. Pursuant to the BGI Genomics Agreement, the Company licensed its intellectual property to and provided development services for BGI. Following completion of development services, the Company began providing assay interpretation services over the term of the

agreement. Revenue associated with the development services performance obligation was recognized over time using the input method, based on costs incurred to perform the development services, since the level of costs incurred over time best reflect the transfer of development services. Revenue associated with the assay interpretation services will be recognized upon delivery of these services. Funds received in advance are recorded as deferred revenue and will be recognized as the related services are delivered.

In accordance with ASC 340-40, any incremental costs incurred to obtain a contract with a customer are required to be capitalized and amortized over the period in which the goods and services are transferred to the customer. The incremental costs incurred in connection with the BGI Genomics arrangement are not material on an accumulated basis and therefore have not been capitalized but have been expensed as incurred.

The initial transaction price was primarily comprised of license and milestone fees. The Company constrains the estimated variable consideration when it assesses it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods. Certain milestone and license fees were constrained and not included in the transaction price due to the uncertainties of research and development. The Company re-evaluates the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur. The allocation of the transaction price was performed based on standalone selling prices, which are based on estimated amounts that the Company would charge for a performance obligation if it were sold separately.

According to the BGI Genomics Agreement, the Company is entitled to a total of $50.0 million, comprised of upfront technology license fees, prepaid royalties relating to future sales of licensed products and performance of assay interpretation services, and milestone payments. Due to uncertainties in achieving certain milestones, $6.0 million of the $50.0 million was constrained. A net of $44.0 million has been collected by the Company in cash, which includes $20.0 million in prepaid royalties.

The Company concluded that the license is not a distinct performance obligation as it does not have a stand-alone value to BGI Genomics apart from the related development services. Therefore, license and related development services, for each of the NIPT and Oncology products, representing two separate performance obligations, to which $24.0 million of transaction consideration was allocated. Of this amount, $0.1 million, $8.0 million and $0.6 million were recognized in the years ended December 31, 2023, 2022 and 2021, respectively. This performance obligation was fully satisfied in March 2023 and no further related amounts will be recognized as revenue.

As of December 31, 2023, the Company's performance obligation to provide ongoing NIPT assay interpretation services was removed. Therefore, the Company now has a single remaining performance obligation related to Oncology assay interpretation services, to which $20.0 million of transaction consideration was allocated and prepaid by BGI Genomics. During the year ended December 31, 2023, the Company recognized $1.5 million related to oncology assay interpretation services, of which $1.2 million was recognized against deferred royalties. The Company did not recognize revenue in 2022 and 2021. The Company currently has $18.8 million in deferred revenue as of December 31, 2023.

As required by the BGI Genomics Agreement, in June 2019 the Company prepaid $6.0 million to BGI Genomics for future sequencing services and $4.0 million for future sequencing equipment. These advance payments are for equipment and services to be received in future periods, which was assessed as a standalone transaction that did not reduce revenue, aggregated to $10.0 million and was originally recorded in long-term advances on the Company’s Consolidated Balance Sheet and will be periodically assessed for impairment. During the year ended December 31, 2023, $5.1 million in equipment and services was received, which brought the remaining advanced payments to $4.9 million, with $3.1 million recorded in prepaid expenses and other current assets and $1.8 million recorded in other assets.

Foundation Medicine, Inc.

In August 2019, the Company entered into a License and Collaboration Agreement (the “Foundation Medicine Agreement”) with Foundation Medicine to develop and commercialize personalized circulating tumor DNA monitoring assays, for use by biopharmaceutical and clinical customers who order Foundation Medicine’s FoundationOne CDx. The Foundation Medicine Agreement has an initial term of five years, expiring in August 2024, with automatic renewals

thereafter for successive one-year terms, unless the Foundation Medicine Agreement is earlier terminated in accordance with its terms. Natera and Foundation Medicine will share the revenues generated from both biopharmaceutical and clinical customers in accordance with the terms of the Foundation Medicine Agreement.

Pursuant to the Foundation Medicine Agreement, the Company will provide development services that are required to customize its proprietary Signatera test to work with Foundation Medicine’s FoundationOne CDx in conjunction with granting the use of the Company’s intellectual property. Following completion of those development services, the Company is currently providing assay testing services over the term of the agreement. The intellectual property has been licensed to Foundation Medicine for the customized test. In addition, the Company is responsible for delivering clinical study plans in order to demonstrate efficacy of the customized test which commenced in the second quarter of 2021. Revenues associated with each of the performance obligations are recognized over time using the input method, based on costs incurred to perform the development services, since the level of costs incurred over time best reflect the transfer of development services. Revenue associated with the assay testing services will be recognized upon delivery of these services. Funds received in advance are recorded as deferred revenue and will be recognized as the related services are delivered.

The initial transaction price was primarily comprised of license and milestone fees. The Company constrains the estimated variable consideration when it assesses it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods. Certain milestone fees were constrained and not included in the transaction price due to the uncertainties of research and development. The Company re-evaluates the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur. The allocation of the transaction price was performed based on standalone selling prices, which are based on estimated amounts that the Company would charge for a performance obligation if it were sold separately.

The Company is entitled to a total of $32.0 million, comprised of upfront technology license fees, prepaid royalties relating to future sales of licensed products and performance of assay interpretation services, and milestone payments. $7.7 million is constrained due to uncertainties in achieving certain milestones. A net of $24.3 million has been collected by the Company in cash, which includes $5.0 million of prepaid royalties.

The Company concluded that the license is not a distinct performance obligation as it does not have a stand-alone value to Foundation Medicine apart from the related development services. Therefore, license and related development services, for Oncology products, represent a single performance obligation, to which $19.3 million of transaction consideration was allocated. Of this amount, $0.2 million, $3.5 million, and $8.0 million were recognized in the years ended December 31, 2023, 2022 and 2021, respectively. This performance obligation was fully satisfied in March 2023 and no further related amounts will be recognized as revenue.

Royalties related to assay interpretation services represent separate performance obligations for Oncology products, to which $5.0 million of transaction consideration was allocated and prepaid by Foundation Medicine. During the years ended December 31, 2023, 2022, and 2021, the Company recognized $1.0 million, $0.4 million and $0.4 million, respectively, related to oncology assay interpretation services. The Company currently has $3.2 million in deferred revenue as of December 31, 2023.

Disaggregation of Revenues

The following table shows disaggregation of revenues by payer types:


	Year Ended December 31,
	2023		2022		2021

	(in thousands)
Insurance carriers	$	954,155	$	690,754	$	492,563
Laboratory partners		98,891		94,910		100,019
Patients		29,525		34,558		32,904
Total revenues	$	1,082,571	$	820,222	$	625,486

The following table presents total revenues by geographic area based on the location of the Company’s payers:


	Year ended December 31,
	2023		2022		2021

	(in thousands)
United States	$	1,047,636	$	785,849	$	590,872
Americas, excluding U.S.		4,908		3,705		4,047
Europe, Middle East, India, Africa		22,811		16,640		20,429
Asia Pacific and Other		7,216		14,028		10,138
Total	$	1,082,571	$	820,222	$	625,486

The following table summarizes the Company’s beginning and ending balances of accounts receivable and deferred revenues:


	Balance at		Balance at
	December 31,		December 31,
	2023		2022

	(in thousands)
Assets:
Accounts receivable	$	278,289	$	244,385
Liabilities:
Deferred revenue, current portion	$	16,612	$	10,777
Deferred revenue, long-term portion		19,128		20,001
Total deferred revenues	$	35,740	$	30,778

The following table shows the changes in the balance of deferred revenues during the period:


	Balance at		Balance at
	December 31,		December 31,
	2023		2022

	(in thousands)
Beginning balance	$	30,778	$	28,722
Increase in deferred revenues		35,573		28,978
Reclasses from deferred revenues to other short-term liabilities		(522)		(337)
Revenue recognized during the period that was included in deferred revenues at the beginning of the period		(10,564)		(8,782)
Revenue recognized from performance obligations satisfied within the same period		(19,525)		(17,803)
Ending balance	$	35,740	$	30,778

During the year ended December 31, 2023, revenue recognized that was included in the deferred revenue balance at the beginning of the period totaled $10.6 million with approximately $1.3 million related to BGI Genomics and Foundation Medicine, and the remaining $9.3 million related to genetic testing services. During the year ended December 31, 2023, $19.5 million was recognized as deferred revenue and later earned as revenue in the same period with approximately $1.2 million related to BGI Genomics and Foundation Medicine, and the remaining $18.3 million related to genetic testing services. The current portion of deferred revenue includes $13.7 million from genetic testing services, $1.7 million from Foundation Medicine and $1.2 million from the BGI Genomics agreement. The non-current portion of deferred revenue includes $17.6 million from the BGI Genomics agreement and $1.5 million from Foundation Medicine.

- Definition

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 9
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-9

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 10
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-10

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 15
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-15

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 12
-Subparagraph (a)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-12

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 12
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-12

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 12
-Subparagraph (c)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-12

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 12
-Subparagraph (d)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-12

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 12
-Subparagraph (e)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-12

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 13
-Subparagraph (b)(2)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-13

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Name Accounting Standards Codification
-Topic 606
-Publisher FASB
-URI https://asc.fasb.org//606/tableOfContent

+ Details

Fair Value Measurements

12 Months Ended

Dec. 31, 2023

Fair Value Measurements

Fair Value Measurements

4. Fair Value Measurements

The Company's financial assets and liabilities carried at fair value are comprised of investment assets that include money market and investments.

The fair value accounting guidance requires that assets and liabilities be carried at fair value and classified in one of the following three categories:

Level I: Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access.

Level II: Observable market-based inputs or unobservable inputs that are corroborated by market data, such as quoted prices, interest rates, and yield curves; and

Level III: Inputs that are unobservable data points that are not corroborated by market data.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

The following table represents the fair value hierarchy for the Company’s financial assets and financial liabilities measured at fair value on a recurring basis:


	December 31, 2023								December 31, 2022
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total

	(in thousands)
Financial Assets:
Cash, cash equivalents and restricted cash⁽¹⁾		642,095		—		—		642,095		466,091		—		—		466,091
U.S. Treasury securities		200,418		—		—		200,418		346,057		—		—		346,057
Corporate bonds and notes		—		—		—		—		—		23,529		—		23,529
Municipal securities		—		36,464		—		36,464		—		62,715		—		62,715
Total financial assets	$	842,513	$	36,464	$	—	$	878,977	$	812,148	$	86,244	$	—	$	898,392

(1)

Cash equivalents includes money market deposits, liquid demand deposits, and other liquid investments with original maturity dates less than three months.

Fair Value of Short-Term and Long-Term Debt:

As of December 31, 2023, the estimated fair value of the total principal outstanding and accrued interest of the Credit Line, which are not presented at fair value on the Consolidated Balance Sheets for both December 31, 2023 and 2022, was $80.4 million, and was based upon observable Level 2 inputs, including the interest rate based on the 30-day Secured Overnight Financing Rate (“SOFR”) average, plus 0.5%.

As of December 31, 2023, the estimated fair value of the Convertible Notes, which are not presented at fair value on the Consolidated Balance Sheets as of December 31, 2023 and 2022, was $491.8 million and $358.4 million, respectively, was based upon observable Level 2 inputs, including pricing information from recent trades of the Convertible Notes. See Note 10, Debt, for additional details.

- 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

Financial Instruments

12 Months Ended

Dec. 31, 2023

Financial Instruments

Financial Instruments

5. Financial Instruments

The Company elected to invest a portion of its cash assets in conservative, income earning, and liquid investments. Cash, cash equivalents, restricted cash and investments, which are classified as available-for-sale securities, consisted of the following:


	December 31, 2023								December 31, 2022
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Loss)		Estimated Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Loss)		Estimated Fair Value

	(in thousands)
Cash, cash equivalents and restricted cash⁽²⁾		642,095		—		—		642,095		466,091		—		—		466,091
U.S. Treasury securities⁽¹⁾		201,522		14		(1,118)		200,418		358,385		—		(12,328)		346,057
Corporate bonds and notes⁽¹⁾		—		—		—		—		24,045		—		(516)		23,529
Municipal securities⁽¹⁾		38,091		—		(1,627)		36,464		65,973		1		(3,259)		62,715
Total	$	881,708	$	14	$	(2,745)	$	878,977	$	914,494	$	1	$	(16,103)	$	898,392

Classified as:
Cash, cash equivalents and restricted cash⁽²⁾							$	642,095							$	466,091
Short-term investments								236,882								432,301
Total							$	878,977							$	898,392

(1)

Per the Company’s investment policy, all debt securities are classified as short-term investments irrespective of holding period.

(2)

Cash equivalents includes liquid demand deposits, money market funds, and other liquid investments having an original maturity of less than three months.

The Company invests in U.S. Treasuries, U.S. agency and high quality municipal bonds which mature at par value and are all paying their coupons on schedule. The Company has therefore concluded there is currently no other than temporary impairment of its investments and will continue to recognize unrealized gains and losses in other comprehensive income (loss). The Company did not sell any investments in the year ending December 31, 2023. $248.5 million of investments were sold in the year ended December 31, 2022 resulting in a gross realized losses upon sales of investments of $0.9 million. The Company uses the specific investment identification method to calculate realized gains and losses and amounts reclassified out of other comprehensive income to net income. As of December 31, 2023, the Company had 19 investments in an unrealized loss position in its portfolio. Gross unrealized losses were not material as of December 31, 2023. As of December 31, 2022, gross unrealized losses were primarily due to declines in the value of fixed rate instruments as interest rates in the broader market increased, and were not indictive of a decline in the credit worthiness of the underlying issuers. Accordingly, the Company did not record a credit loss reserve as of December 31, 2022.

The following table presents debt securities available-for-sale that were in an unrealized loss position as of December 31, 2023, aggregated by major security type and length of time in a continuous loss position. There were no debt securities available-for-sale in an unrealized loss position for less than 12 months as of December 31, 2023.


		Total
		Fair Value		Unrealized Loss

	(in thousands)
U.S. Treasury securities		$	78,908	$	(1,118)
Corporate bonds and notes			—		—
Municipal securities			36,464		(1,627)
Total		$	115,372	$	(2,745)

The following table summarizes the Company’s portfolio of available-for-sale securities by contractual maturity as of December 31, 2023:


	December 31, 2023
	Amortized Cost		Fair Value

	(in thousands)
Less than or equal to one year	$	216,548	$	215,095
Greater than one year but less than five years		23,065		21,787
Total	$	239,613	$	236,882

Balance Sheet Components

12 Months Ended

Dec. 31, 2023

Balance Sheet Components

Balance Sheet Components

6. Balance Sheet Components

Allowance for Doubtful Accounts

The following is a roll-forward of the allowances for doubtful accounts related to trade accounts receivable for the years ended December 31, 2023, 2022 and 2021:


	December 31,
	2023		2022		2021

	(in thousands)
Beginning balance	$	3,830	$	2,429	$	4,220
Provision for doubtful accounts		2,645		1,770		(156)
Write-offs		6		(369)		(1,635)
Total	$	6,481	$	3,830	$	2,429

Property and Equipment, net

The Company’s property and equipment consisted of the following:


		December 31,		December 31,
	Useful Life	2023		2022

		(in thousands)
Machinery and equipment	3-5 years	$	85,626	$	66,262
Computer equipment	3 years		1,850		1,308
Purchased and capitalized software held for internal use	3 years		11,636		5,464
Leasehold improvements	Lesser of useful life or lease term		38,999		29,747
Construction-in-process			29,392		25,370
			167,503		128,151
Less: Accumulated depreciation and amortization			(56,293)		(35,698)
Total Property and Equipment, net		$	111,210	$	92,453

The Company’s property and equipment are mostly located in the United States.

During the years ended December 31, 2023, 2022, and 2021, depreciation expense of $22.7 million, $16.7 million, $11.3 million was recorded, respectively. The Company did not incur any material impairment charges during the years ended December 31, 2023, 2022, and 2021.

As of December 31, 2023, 2022, and 2021, the Company’s consolidated balance sheets included $5.5 million, $4.7 million, and $3.5 million, respectively, of capitalized cloud-based implementation costs recorded as other assets within the Company’s consolidated balance sheets. These balances primarily consist of capitalized implementation costs

related to the enterprise resource planning system which the Company implemented in 2022. Accumulated amortization associated with these assets was $2.5 million, $0.9 million, and $1.5 million as of December 31, 2023, 2022, and 2021, respectively. The net book value of these capitalized cloud-based implementation was $3.0 million, $3.8 million, and $2.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Accrued Compensation

The Company’s accrued compensation consisted of the following:


	December 31,		December 31,
	2023		2022

	(in thousands)
Accrued paid time off	$	3,121	$	2,930
Accrued commissions		10,522		11,821
Accrued bonuses		24,651		20,426
Other accrued compensation		7,563		8,833
Total accrued compensation	$	45,857	$	44,010

Other Accrued Liabilities

The Company’s other accrued liabilities consisted of the following:


	December 31,		December 31,
	2023		2022

	(in thousands)
Reserves for refunds to insurance carriers	$	23,245	$	18,948
Accrued charges for third-party testing		14,823		17,036
Testing and laboratory materials from suppliers		11,229		13,281
Marketing and corporate affairs		10,085		8,943
Legal, audit and consulting fees		43,897		36,710
Accrued shipping charges		3,646		485
Sales and income tax payable		3,731		4,319
Accrued third-party service fees		7,111		6,631
Clinical trials and studies		12,126		23,301
Operating lease liabilities, current portion		11,621		7,639
Property and equipment purchases		4,316		1,821
Other accrued interest		1,078		1,078
Other accrued expenses		2,497		4,022
Total other accrued liabilities	$	149,405	$	144,214

Reserves for refunds to insurance carriers include overpayments from and amounts to be refunded to insurance carriers, and additional amounts that the Company estimates for potential refund requests during the period. When and if these previously accrued amounts are no longer required based on actual refunds requested, any remaining reserve amounts are released. When the Company releases these previously accrued amounts, they are recognized as product revenues in the statements of operations and comprehensive loss.

The following table summarizes the reserve balance and activities for refunds to insurance carriers for the years ended December 31, 2023 and 2022:


	December 31,		December 31,
	2023		2022

	(in thousands)
Beginning balance	$	18,948	$	17,210
Additional reserves		14,974		23,717
Refunds to carriers		(1,583)		(1,800)
Reserves released to revenue		(9,094)		(20,179)
Ending balance	$	23,245	$	18,948

Leases

12 Months Ended

Dec. 31, 2023

Leases.

Leases

7. Leases

Operating Leases

In September 2015, the Company entered into a long-term lease agreement for laboratory and office space totaling approximately 94,000 square feet in Austin, Texas. The original lease term was 132 months beginning in December 2015 and expiring in November 2026 with monthly payments beginning in December 2016. In December 2021, the Company entered into an amendment of the Austin lease agreement which extended the lease of the current premises through March 2033. The amendment also includes two additional office spaces (the “First Expansion Premises” and the “Second Expansion Premises”). The First Expansion Premises consists of 32,500 rentable square feet and commenced in February 2022. The Second Expansion Premises consists of 65,222 rentable square feet and commenced in September 2022. The terms of the First and Second Expansion Premises expire in March 2033.

In October 2016, the Company entered into a lease directly with its landlord for laboratory and office spaces at its facilities located in San Carlos, California. The Company currently occupies approximately 136,000 square feet comprised of two office spaces (the “First Space” and the “Second Space”). The First Space covers approximately 88,000 square feet, and the Second Space totals approximately 48,000 square feet. In January 2021, the Company entered into an amendment of the lease to extend the term for 48 months to October 2027. The combined annual rent for the First Space and Second Space will be $9.3 million commencing in October 2023.

The Company entered into a lease agreement commencing June 2018 for its cord blood tissue storage facility in Tukwila, Washington that covers approximately 10,000 square feet. The lease term is 62 months and expired in July 2023. The Company had the option to extend this lease for five years, and the fair market rent upon renewal was not determinable. However, since the Company sold its business related to cord blood and tissue storage in September 2019, the Company has subleased the facility and did not exercise its option to renew the facility upon expiration.

The Company entered into a lease agreement in November 2020 to lease 11,395 square feet of space located in South San Francisco, California over a 36-month term. The premises are used for general office, laboratory and research use. The annual lease payment starts at $0.9 million and increases annually commencing in December 2021. In December 2022, the Company exercised the renewal option of the South San Francisco lease agreement. In January 2023, the Company entered in an amendment to extend the lease term of the South San Francisco premises by three years, through November 2026.

The Company entered into a lease agreement in September 2023 to lease 16,319 square feet of space located in Pleasanton, California over a 60-month term. The premises will be used for laboratory and research use and commenced in December 2023. The annual lease payment starts at $0.5 million and increases annually.

As part of the IPR&D asset acquisition in September 2021, the Company inherited a 24-month lease for 7,107 square feet of laboratory space in Canada. The annual lease payment starts at $0.2 million and expired in August 2023.

The Company has also historically entered into leases of individual workspaces and storage spaces at various locations on both a month-to-month basis without an established lease term, and more recently for certain locations, has committed to terms approximating one to five years. For the facilities without a committed lease term, the Company has elected to not recognize them as right-of-use assets on the consolidated balance sheets as they are all considered short-term leases. For individual workspaces where the committed lease term exceeds one year, the Company has recorded a right-of-use asset on the consolidated balance sheets.

For the year ended December 31, 2023, the Company recorded noncash activities of $2.1 million primarily related to additional right-of-use assets primarily as a result of the Pleasanton, California lease. For the year ended December 31, 2022, the Company recorded noncash activities of $22.1 million primarily related to additional right-of-use assets of which $20.1 million was a result of the first and second Austin expansion premises.

The operating lease right-of-use assets are classified as noncurrent assets in the balance sheet. The corresponding lease liabilities are separated into current and long-term portions for the years ending December 31, 2023 and 2022 as follows:


	December 31,		December 31,
	2023		2022

	(in thousands)
Operating lease liabilities, current portion included in other accrued liabilities	$	11,621	$	7,639
Operating lease liabilities, long-term portion		67,025		76,577
Total operating lease liabilities	$	78,646	$	84,216

The initial recognition of the operating lease liabilities was measured as the present value of the future minimum lease payments using a discount rate determined as of January 1, 2019. The operating right-of-use assets was calculated as the operating lease liabilities discounted at the present value, less the amount of unamortized tenant improvement allowance and deferred rent. The discount rate used was the Company’s incremental borrowing rate given that the implicit rate to each lease was not readily determinable. In accordance with ASC 842, the incremental borrowing rate was estimated as the annual percentage yield resulting from a corporate debt financing over a loan term approximating the remaining term of each lease, with the effect of certain credit risk rating. As of December 31, 2023, the weighted-average remaining lease term was 6.69 years and the weighted-average discount rate was 6.8%.

The Company continues to recognize lease expense on a straight-line basis. The lease expense includes the amortization of the right-of-assets with the associated interest component estimated by applying the effective interest method. Total lease expense recognized in the statements of operations and comprehensive loss were $14.5 million, $13.8 million, and $10.9 million for the years ended December 31, 2023, 2022, and 2021, respectively. Cash paid for amounts in the measurement of operating lease liabilities totaled $12.4 million, $9.4 million, and $10.3 million for the years ended December 31, 2023, 2022, and 2021, respectively.

The present value of the future minimum lease payments under all non-cancellable operating leases as of December 31, 2023 is as follows:


	Operating Leases
	(in thousands)
Year ending December 31:
2024	$	16,554
2025		16,899
2026		17,263
2027		14,223
2028		6,590
2029 and thereafter		27,924
Total future minimum lease payments		99,453
Less: imputed interest		(20,807)
Operating lease liabilities	$	78,646

Commitments and Contingencies

12 Months Ended

Dec. 31, 2023

Commitments and Contingencies

Commitments and Contingencies

8. Commitments and Contingencies

Legal Proceedings

The Company is involved in legal matters, including investigations, subpoenas, demands, disputes, litigation, requests for information, and other regulatory or administrative actions or proceedings, including those with respect to intellectual property, testing and test performance, billing, reimbursement, marketing, short seller and media allegations, employment, and other matters.

An independent committee of the Company’s board of directors initiated and has completed an internal investigation into the allegations made in a March 2022 short seller report, with the assistance of the law firm of WilmerHale LLP. WilmerHale had access to company executives, personnel, records, communications, and documents. Based on the investigation, the independent committee, on behalf of the board, has concluded that the allegations of wrongdoing against the Company in the report were unfounded.

The Company is responding to ongoing regulatory and governmental investigations, subpoenas and inquiries, and contesting its current legal matters, but cannot provide any assurance as to the ultimate outcome with respect to any of the foregoing. There are many uncertainties associated with these matters. Such matters may cause the Company to incur costly litigation and/or substantial settlement charges, divert management attention, result in adverse judgments, fines, penalties, injunctions or other relief, and may result in loss of customer or investor confidence regardless of their merit or ultimate outcome. In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could adversely affect gross margins in future periods. If any of the foregoing were to occur, the Company's business, financial condition, results of operations, cash flows, prospects, or stock price could be adversely affected.

The Company assesses legal contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements. When evaluating legal contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation or other matters may be unsupported, exaggerated or unrelated to possible outcomes, and as such are not meaningful indicators of its potential liability. Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. During the periods presented, the Company does not believe there are such matters that will have a material effect on its financial condition.

Intellectual Property Litigation Matters.

The Company has been involved in two patent litigations against CareDx, Inc. (“CareDx”) in the United States District Court for the District of Delaware (“CareDx Patent Cases”). In the first CareDx Patent Case, CareDx alleged, in a complaint filed jointly with the Board of Trustees of the Leland Stanford Junior University (“Stanford”) in March 2019 and amended in March 2020, that the Company infringed three patents (the “CareDx Patents”). The complaint sought unspecified damages and injunctive relief. In September 2021, the Court granted the Company’s motion for summary judgment, finding all three CareDx Patents invalid. This finding was affirmed on appeal by the United States Court of Appeals for the Federal Circuit. CareDx’s petition for rehearing by the Federal Circuit, and its subsequent petition for certiorari to the United States Supreme Court, were both denied. In the second CareDx Patent Case, the Company alleged, in suits filed in January 2020 and May 2022, infringement by CareDx of certain of the Company’s patents, seeking unspecified damages and injunctive relief. In January 2024, after trial, the jury returned a verdict in favor of the Company, finding both asserted patents valid and one patent infringed by CareDx. The jury awarded damages to the Company for lost profits and past royalties totaling $96.3 million.

In January 2020, the Company filed suit against ArcherDX, Inc. (“ArcherDX”) in the United States District Court for the District of Delaware. In January 2021, the Company named an additional Archer DX entity, ArcherDx LLC, and Invitae Corp. (“Invitae”) as defendants. The Company alleged, among other things, that certain ArcherDX products, including the Personalized Cancer Monitoring (“PCM”) test, infringed three of the Company’s patents (the “ArcherDX Case”) and sought unspecified monetary damages and injunctive relief. Following a jury trial in May 2023 and a bench trial in June 2023, all three asserted patents were found to be valid and infringed by ArcherDX and Invitae, and the jury awarded damages totaling $19.35 million to the Company. In November 2023, the Court granted in part the Company’s motion for a permanent injunction against the PCM test, which the defendants have appealed. In February 2024, Invitae and ArcherDX filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of New Jersey, resulting in an automatic bankruptcy stay in the case.

The Company is the subject of a lawsuit filed against it by Ravgen, Inc. (“Ravgen”) in June 2020 in the United States District Court for the Western District of Texas, alleging infringement of two Ravgen patents and seeking monetary damages and injunctive relief. In January 2024, after trial, the jury returned a verdict of non-willful infringement by the Company and found damages of $57 million. The Company intends to appeal certain of the rulings. In addition, various parties, including the Company, have filed petitions challenging the validity of the asserted patents with the United States Patent and Trademark Office, all of which were instituted for review, and some of which were decided in favor of upholding the challenged claims. The petitions filed by the Company and certain others remain pending.

In October 2020, the Company filed suit against Genosity Inc. (“Genosity”), in the United States District Court for the District of Delaware, alleging that various Genosity products infringe one of the Company’s patents and seeking unspecified monetary damages and injunctive relief. The case has been stayed pending the entry of a final judgment in the ArcherDX Case, in which the subject patent is also asserted. In February 2024, Genosity filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of New Jersey.

The Company filed suits against Inivata, Inc. and Inivata Ltd. (collectively “Inivata”) in the United States District Court for the District of Delaware in January 2021 and December 2022, alleging that certain of Inivata’s oncology products infringe certain of the Company’s patents and seeking unspecified monetary damages and injunctive relief. The two suits have been consolidated. Inivata has filed a motion to dismiss the Company’s complaint with respect to one patent, which motion is currently pending before the Court. Trial is currently set for October 2025.

The Company is the subject of lawsuits filed against it by Invitae in the United States District Court of the District of Delaware alleging, in complaints filed in May and November of 2021, infringement of three patents and seeking monetary damages and injunctive relief. The parties have filed cross-motions for summary judgment, which motions are currently pending before the Court. In February 2024, subsequent to Invitae’s voluntary Chapter 11 petition described above, the Court granted Invitae’s request to suspend the trial. A status conference is currently set for March 2024.

In July 2023, the Company filed suit against NeoGenomics Laboratories, Inc. (“NeoGenomics”) in the United States District Court for the Middle District of North Carolina (the “District Court”), alleging infringement of certain Natera patents by NeoGenomics’ commercialization of the RaDaR test. The complaint seeks monetary damages and

injunctive relief. In December 2023, the Court denied NeoGenomics’ motion to dismiss the complaint, and granted the Company’s motion for preliminary injunction. The injunction went into effect as of January 12, 2024. NeoGenomics filed a motion to modify and stay the injunction, which was denied by the District Court and will be heard on appeal by the Federal Circuit Court of Appeals in March 2024. NeoGenomics has also filed a petition challenging the validity of one of the asserted patents with the United States Patent and Trademark Office.

Other Litigation Matters.

CareDx filed suit against the Company in April 2019 in the United States District Court for the District of Delaware, alleging false advertising, and related claims based on statements describing studies that concern the Company’s technology and CareDx’s technology, seeking unspecified damages and injunctive relief. The Company filed a counterclaim against CareDx in the United States District Court for the District of Delaware, alleging false advertising, unfair competition and deceptive trade practices and seeking unspecified damages and injunctive relief. In March 2022, after trial, the jury returned a verdict that the Company was liable to CareDx and found damages of $44.9 million. The jury also returned a verdict against CareDx, finding that CareDx had engaged in false advertising. In July 2023, the Court granted in part the Company’s motion for judgment as a matter of law requesting that the Court set aside the portions of the jury verdict adverse to the Company, ruling that CareDx is not entitled to any damages. The jury verdict of false advertising by CareDx remains in place. Both parties have filed notices of appeal.

In May 2021, Guardant. Inc. (“Guardant”) filed suit against the Company in the United States District Court of the Northern District of California alleging false advertising and related claims and seeking unspecified damages and injunctive relief. Also in May 2021, the Company filed suit against Guardant in the Western District of Texas, alleging false advertising and related claims. The Company has voluntarily dismissed its Texas suit against Guardant and has asserted the claims from the Texas action as counterclaims in the California action, seeking unspecified damages and injunctive relief. In August 2021, Guardant moved to dismiss the Company’s counterclaims, which motion was denied in all material respects. Both parties filed cross-motions for summary judgment, which were granted in part and denied in part. Trial is currently anticipated to be scheduled for 2024.

In November 2021, a purported class action lawsuit was filed against the Company in the United States District Court for the Northern District of California, by a patient alleging various causes of action relating to the Company’s patient billing and seeks, among other relief, class certification, injunctive relief, restitution and/or disgorgement, attorneys’ fees, and costs. In May 2023, the Court granted the Company’s motion to dismiss the lawsuit, and the case was dismissed without prejudice. In July 2023, the plaintiff filed analogous claims in the Superior Court of California, County of San Mateo, and subsequently filed an amended claim with an additional plaintiff. Based on the additional plaintiff, the case was transferred back to the United States District Court for the Northern District of California.

In February 2022, two purported class action lawsuits were filed against the Company in the United States District Court for the Northern District of California. Each suit was filed by an individual patient alleging various causes of action related to the marketing of Panorama and seeking, among other relief, class certification, monetary damages, attorneys’ fees, and costs. These matters have been consolidated. The Company filed a motion to dismiss the consolidated lawsuit, which resulted in the plaintiffs filing an amended complaint in April 2023.

In March 2022, a purported class action lawsuit was filed against the Company and certain of its management in the Supreme Court of the State of New York, County of New York, asserting claims under Sections 11, 12, and 15 of the Securities Act of 1933. The complaint alleges, among other things, that the Company failed to disclose certain information regarding its Panorama test. The complaint seeks, among other relief, monetary damages, attorneys’ fees, and costs. This matter has been dismissed and the claims raised in this matter have been included in the lawsuit discussed below.

A purported class action lawsuit was filed against the Company and certain of its management in the United States District Court for the Western District of Texas, asserting claims under Sections 10(b) and 20(a) of the Securities Act of 1934 and Rule 10b-5 thereunder. The complaint, filed in April 2022 and amended in October 2022 (to include, among others, the claims raised in the lawsuit discussed in the preceding paragraph), alleges, among other things, that the management defendants made materially false or misleading statements, and/or omitted material information that was

required to be disclosed, about certain of the Company’s products and operations. The complaint seeks, among other relief, monetary damages, attorneys’ fees, and costs. The Company filed a motion to dismiss this lawsuit, which was granted in part and denied in part.

In each of October 2023 and January 2024, shareholder derivative complaints were filed in the United States District Court for the Western District of Texas and the United States District Court for the District of Delaware, respectively, against the Company as nominal defendant and certain of the Company’s management. Each complaint alleges, among other things, that the management defendants made materially false or misleading statements, and/or omitted material information that was required to be disclosed, about certain of the Company’s products and operations. Each complaint seeks, among other relief, monetary damages, attorneys’ fees, and costs.

Director and Officer Indemnifications

As permitted under Delaware law, and as set forth in the Company’s Amended and Restated Certificate of Incorporation and its Amended and Restated Bylaws, the Company indemnifies its directors, executive officers, other officers, employees and other agents for certain events or occurrences that may arise while in such capacity. The maximum potential future payments the Company could be required to make under this indemnification is unlimited; however, the Company has insurance policies that may limit its exposure and may enable it to recover a portion of any future amounts paid. Assuming the applicability of coverage, the willingness of the insurer to assume coverage, and subject to certain retention, loss limits and other policy provisions, the Company believes any obligations under this indemnification would not be material, other than standard retention amounts for securities related claims. However, no assurances can be given that the covering insurers will not attempt to dispute the validity, applicability, or amount of coverage without expensive litigation against these insurers, in which case the Company may incur substantial liabilities as a result of these indemnification obligations.

Third-Party Payer Reimbursement Audits

From time to time, the Company receives recoupment requests from third-party payers for alleged overpayments. The Company disagrees with the contentions of pending requests and/or has recorded an estimated reserve for the alleged overpayments if probable and estimable.

Contractual Commitments

The following table sets forth the material unconditional purchase obligations and contractual commitments as of December 31, 2023 with a remaining term of at least one year:


Party	Total Commitments		Expiry Date
		(in thousands)
Laboratory instruments supplier	$	9,400	December 2024
Material suppliers		20,709	March 2028
Application service providers		12,571	March 2026
Cloud platform service provider		40,000	December 2028
Other material suppliers		11,853	Various
Total	$	94,533

Stock-Based Compensation

12 Months Ended

Dec. 31, 2023

Stock-Based Compensation

Stock-Based Compensation

9. Stock-Based Compensation

Equity Plans

2015 Equity Incentive Plan

General. The Company’s board of directors adopted its 2015 Equity Incentive Plan (the “2015 Plan”), in June 2015. The Company’s 2015 Plan replaced all of its prior stock plans.

Share Reserve. The initial number of shares of the Company’s common stock available for issuance under the 2015 Plan was 3,451,495 shares. The number of shares reserved for issuance under the 2015 Plan will be increased automatically on the first business day of each fiscal year, commencing in 2016, by a number equal to the least of:

●

3,500,000 shares;

●

4% of the shares of common stock outstanding on the last business day of the prior fiscal year; or

●

the number of shares determined by the Company’s board of directors.

Stock options vest as determined by the compensation committee. In general, they will vest over a four-year period following the date of grant. Stock options expire at the time determined by the compensation committee but in no event more than ten years after they are granted. These awards generally expire earlier if the participant's service terminates earlier.

Restricted Shares and Stock Units. Restricted shares and stock units (collectively “RSUs”) may be awarded under the 2015 Plan in return for any lawful consideration, and participants who receive RSUs generally are not required to pay cash for their awards. These awards may be subject to vesting. Vesting may be based on length of service, the attainment of performance-based milestones or a combination of both, as determined by the compensation committee. Further, RSUs may be granted and immediately vested in lieu of certain obligations.

The Company also periodically awards phantom stock units, under a separate incentive arrangement, to certain international personnel, which are settled in cash upon vesting and accounted for as liability-based awards with no impact to the shares available for grant.

Employee Stock Purchase Plan

General. The Company’s 2015 Employee Stock Purchase Plan (the “ESPP”), was adopted by its board of directors in June 2015 and its stockholders approved it in June 2015. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code.

Share Reserve. The Company has 3,772,225 shares available for issuance under the Plan as of December 31, 2023, a number that is automatically increased on the first business day of each fiscal year of the Company during the term of the ESPP by the least of (i) 1% of the total number of shares of common stock actually issued and outstanding on the last business day of the prior fiscal year, (ii) 880,000 shares of common stock (subject to the ESPP), or (iii) a number of shares of common stock determined by the Company’s board of directors. The number of shares reserved under the 2015 ESPP will automatically be adjusted in the event of a stock split, stock dividend or a reverse stock split (including an adjustment to the per-purchase period share limit).

Purchase Price. Employees may purchase each share of common stock under the 2015 ESPP at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of the six-month offering periods. An employee’s payroll deductions under the ESPP are limited to 15% of the compensation, and up to a maximum of 5,000 shares may be purchased during any offering period. A participant shall not be granted an option under the ESPP if such option would permit the participant’s rights to purchase stock to accrue at a rate exceeding $25,000 fair market value of stock for each calendar year in which such option is outstanding at any time.

Offering Periods. Each offering period will last a number of months determined by the compensation committee, not to exceed 27 months. A new offering period will begin periodically, as determined by the compensation committee. Offering periods may overlap or may be consecutive. Unless otherwise determined by the compensation committee, two offering periods of six months' duration will begin in each year on May 1 and November 1.

Stock Options and Restricted Stock Units

The following table summarizes option and RSU activity during the year ended December 31, 2023:


	Outstanding Options
					Weighted-
			Weighted-		Average
	Shares		Average		Remaining	Aggregate
	Available for	Number of	Exercise		Contractual	Intrinsic
	Grant	Shares	Price		Life	Value
(in thousands, except for contractual life and exercise price)					(in years)
Balance at December 31, 2022	3,263	5,300	$	21.11	4.84	$	131,385
Additional shares authorized	3,500	—	$	—
Options granted	(499)	499	$	44.27
Options exercised	—	(298)	$	13.09
RSUs granted	(6,096)
RSUs forfeited/cancelled	934
Balance at December 31, 2023	1,102	5,501	$	23.65	4.36	$	231,133
Exercisable at December 31, 2023		4,509	$	13.97	3.49	$	221,758
Vested and expected to vest at December 31, 2023		5,435	$	23.12	4.31	$	230,521

The total intrinsic value of stock options exercised during the years ended December 31, 2023, 2022, and 2021 were $14.7 million, $26.9 million, and $97.0 million, respectively.

The weighted-average grant date fair value of options granted during the years ended December 31, 2023, 2022, and 2021 were $27.31, $34.00, and $48.97 per share, respectively.

The total fair value of stock options vested during the years ended December 31, 2023, 2022, and 2021 were $57.5 million, $49.0 million, and $46.0 million, respectively.

Performance-based Awards

The Company grants certain senior-level executives performance stock options and units which vest based on either market and time-based service conditions or performance and time-based service conditions, which are referred to herein as performance-based awards. The Company assessed the performance-based awards with the appropriate valuation method and has recognized the applicable stock-based compensation expense.

The Company has recognized $54.2 million in stock-based compensation for performance-based awards for the year ended December 31, 2023 compared to $48.2 million for the year ended December 31, 2022. Performance-based awards with market conditions and a fair value estimated using a Monte Carlo simulation model were granted in the year ended December 31, 2021, with no such awards granted in the years ended December 31, 2023 and 2022. The following inputs were used to estimate the fair value of performance-based awards granted with market conditions using a Monte Carlo simulation model:


	December 31,			December 31,			December 31,
	2023			2022			2021
Risk-free interest rate		—	%		—	%		0.80	%	—	1.52	%
Expected dividend yield		—	%		—	%					—	%
Expected volatility		—	%		—	%					60	%
Expected term (years)		—			—			7.25		—	10.00

Restricted Stock Units

The following table summarizes unvested RSU for the year ended December 31, 2023:


		Weighted-
		Average
	Number of	Grant Date
	Shares	Fair Value
	(in thousands)
Balance at December 31, 2022	6,836	$	57.12
Granted	6,096	$	44.90
Vested	(2,750)	$	57.74
Cancelled/Forfeited	(934)	$	49.54
Balance at December 31, 2023	9,248	$	49.50

Stock-Based Compensation Expense

The following table presents stock-based compensation expense recorded for equity classified awards in the statement of operations and comprehensive loss:


	Year ended December 31,
	2023						2022						2021
	Employee		Non-Employee		Total		Employee		Non-Employee		Total		Employee		Non-Employee		Total

	(in thousands)
Cost of revenues	$	11,665	$	87	$	11,752	$	7,905	$	—	$	7,905	$	4,811	$	—	$	4,811
Research and development		63,445		2,881		66,326		44,655		1,890		46,545		24,507		1,361		25,868
Selling, general and administrative		112,236		1,494		113,730		97,379		555		97,934		84,368		172		84,540
Total	$	187,346	$	4,462	$	191,808	$	149,939	$	2,445	$	152,384	$	113,686	$	1,533	$	115,219

Additionally, the stock-based compensation expense for liability classified awards for the years ended December 31, 2023, 2022, and 2021 was $0.8 million, $0.6 million, and $0.4 million, respectively. As of December 31, 2023, approximately $331.5 million of unrecognized compensation expense, adjusted for estimated forfeitures, related to unvested option awards and RSUs will be recognized over a weighted-average period of approximately 2.4 years.

Valuation of Stock Option Grants

The Company utilizes Black-Scholes option pricing model when estimating the fair value of stock options. The following valuation assumptions were applied to options.


	Year ended December 31,
	2023					2022					2021
Expected term (years)	5.20		—	6.11		5.12		—	10.00		5.11		—	10.00
Expected volatility	67.75	%	—	70.07	%	55.91	%	—	62.30	%	55.33	%	—	63.30	%
Expected dividend rate				—	%				—	%				—	%
Risk-free interest rate	3.41	%	—	4.80	%	1.62	%	—	4.16	%	0.81	%	—	1.67	%

As of December 31, 2023, there were no options outstanding held by non-employees. Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock option is earned and the services are rendered. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services rendered.

Debt

12 Months Ended

Dec. 31, 2023

Debt

Debt

10. Debt

Credit Line Agreement

In September 2015, the Company entered into a credit line with UBS (the “Credit Line”) providing for a $50.0 million revolving line of credit which was fully drawn down in 2016. The Credit Line was amended in July 2017 and bears interest at 30-day LIBOR plus 1.10%. The interest rate was subsequently changed to the 30-day SOFR average, plus 1.21%. The SOFR rate is variable. The interest rate as of December 31, 2023 was 5.84%. The Credit Line was subsequently increased from $50.0 million to $150.0 million in 2020. In November 2022, the Company drew down $30.0 million from the $100.0 million available from the Credit Line. The Credit Line is secured by a first priority lien and security interest in the Company’s money market and marketable securities held in its managed investment account with UBS. The Company is required to maintain a minimum of at least $150.0 million in its UBS accounts as collateral which is classified as short-term investments in the consolidated balance sheet. UBS has the right to demand full or partial payment of the Credit Line obligations and terminate the Credit Line, in its discretion and without cause, at any time. In June 2023, the Credit Line decreased from $150.0 million to $100.0 million. In October 2023, the interest rate for the Credit Line was subsequently changed to the 30-day SOFR average, plus 0.5%. As of December 31, 2023, the Company has drawn down a total of $80.0 million and there is $20.0 million remaining and available on the Credit Line.

For the years ended December 31, 2023, 2022, and 2021, the Company recorded interest expense of $4.9 million, $1.6 million, and $0.6 million, respectively. Interest payments totaling $4.9 million, $1.6 million, and $0.6 million had been made on the Credit Line during the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023, and the total principal amount outstanding including accrued interest was $80.4 million.

Convertible Notes

In April 2020, the Company issued $287.5 million aggregate principal amount of Convertible Notes due 2027 in a private placement offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Convertible Notes are senior, unsecured obligations of the Company and bear interest at a rate of 2.25% per year, payable in cash semi-annually. The Convertible Notes mature in May 2027, unless earlier converted, repurchased or redeemed in accordance with their terms. Upon conversion, the Convertible Notes are convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election.

The Company received net proceeds from the Convertible Notes of $278.3 million, after deducting the initial purchasers’ discounts and debt issuance costs. The Company used approximately $79.2 million of the net proceeds from the Convertible Notes offering to repay its obligations under the 2017 Term Loan with OrbiMed in 2020.

The holders of the Convertible Notes may convert all or a portion of their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding February 1, 2027 in multiples of $1,000 principal amount, under any the following circumstances:

●

During any fiscal quarter commencing after September 30, 2020 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day.

●

During the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of Convertible Notes for each trading day of that five-day consecutive trading

period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day.

●

If the Company calls any or all of the Convertible Notes for redemption at any time prior to the close of business on the second business day prior to the redemption date.

●

Upon the occurrence of certain distributions.

●

Upon the occurrence of specified corporate transactions.

The first circumstance has been met as of December 31, 2023. However, there were no conversions for the period ending December 31, 2023.

The Convertible Notes are convertible into shares of the Company’s common stock, par value $0.0001 per share, at an initial conversion rate of 25.7785 shares of common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $38.79 per share of common stock, convertible to 7,411,704 shares of common stock. The conversion rate and corresponding conversion price are subject to adjustment upon the occurrence of certain events but will not be adjusted for any accrued or unpaid interest. The holders of the Convertible Notes who redeem their Convertible Notes in connection with a make-whole fundamental change are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a fundamental change, the holders of the Convertible Notes may require the Company to repurchase for cash all or a portion of their Convertible Notes at a price equal to 100% of the principal amount, plus any accrued and unpaid interest.

The Company may not redeem the Convertible Notes prior to May 2024, and no sinking fund is provided for the Convertible Notes. The Company may redeem for cash all or any portion of the Convertible Notes, at the Company’s option, on or after May 2024, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending on the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed plus accrued and unpaid interest.

Upon adoption of ASU 2020-06, the Company reallocated all of the debt discount to long-term debt financing. The debt discount is amortized to interest expense using the effective interest method, computed to be 2.72%, over the life of the Convertible Notes or approximately its seven-year term. The outstanding Convertible Notes balance is summarized in the following table:


	December 31,
	2023		2022

	(in thousands)
Long-Term Debt
Outstanding Principal	$	287,500	$	287,500
Unamortized debt discount and debt issuance cost		(4,555)		(5,847)
Net carrying amount	$	282,945	$	281,653

The following table presents total interest expense recognized related to the Convertible Notes during the years as follows:



	December 31,
	2023			2022		2021

	(in thousands)
Cash interest expense
Contractual interest expense	$	6,469	$	6,469	$	6,469
Non-cash interest expense
Amortization of debt discount and debt issuance cost		1,292		1,259		1,227
Total interest expense	$	7,761	$	7,728	$	7,696

Stockholders' Equity

12 Months Ended

Dec. 31, 2023

Stockholders' Equity

Stockholders' Equity

11. Stockholders’ Equity

As of December 31, 2023, the Company had 50,000,000 authorized shares of its preferred stock, of which no shares were issued and outstanding; and 750,000,000 authorized shares of its common stock, at $0.0001 par value, and there were approximately 119,581,000 shares of common stock issued and outstanding.

In September 2023, the Company completed an underwritten equity offering and sold 4,550,000 shares of its common stock at a price of $55 per share to the public. Before estimated offering expenses of $0.4 million, the Company received proceeds of approximately $235.8 million net of the underwriting discount.

In November 2022, the Company completed an underwritten equity offering and sold 13,144,500 shares of its common stock at a price of $35 per share to the public. Before offering expenses of $0.5 million, the Company received proceeds of $433.2 million net of the underwriting discount.

On September 10, 2021, the Company entered into an agreement with a third party for an asset acquisition where the acquired asset was in-process research and development primarily in exchange for an equity consideration payment. The total upfront acquisition consideration amounts to $35.6 million composed of the issuance of 276,346 shares of the Company's common stock with a fair value of $30.9 million, approximately $3.9 million of cash consideration, assumed net liabilities of $0.2 million, as well as $0.6 million of acquisition related legal and accounting costs directly attributable to the acquisition of the asset. In November 2022, the remaining consideration was modified, resulting in a $10.0 million milestone payment primarily made in the form of the Company’s common stock in December 2022 and a remaining $15.0 million milestone payment made in March 2023 primarily in the Company’s common stock.

In July 2021, the Company completed an underwritten equity offering and sold 5,175,000 shares of its common stock at a price of $113 per share to the public. Before offering expenses of $0.4 million, the Company received proceeds of $551.2 million net of the underwriting discount.

- Definition

The entire disclosure for equity.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 505
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 13
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481112/505-10-50-13

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 505
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-Paragraph 13
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-URI https://asc.fasb.org//1943274/2147481112/505-10-50-13

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
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-URI https://asc.fasb.org//1943274/2147481112/505-10-50-14

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
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-Subparagraph (a)
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-URI https://asc.fasb.org//1943274/2147481062/946-235-50-2

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 235
-Name Accounting Standards Codification
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-URI https://asc.fasb.org//1943274/2147481062/946-235-50-2

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
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Reference 7: http://www.xbrl.org/2003/role/disclosureRef
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Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Topic 505
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-Paragraph 1
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Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Topic 235
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-Name Accounting Standards Codification
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(e)(1))
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480678/235-10-S99-1

Reference 10: http://fasb.org/us-gaap/role/ref/legacyRef
-Topic 505
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org//505/tableOfContent

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
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Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Topic 505
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-Subparagraph (g)
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-URI https://asc.fasb.org//1943274/2147481112/505-10-50-13

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Topic 505
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 13
-Subparagraph (i)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481112/505-10-50-13

Reference 14: http://www.xbrl.org/2003/role/disclosureRef
-Topic 505
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-Name Accounting Standards Codification
-Section 50
-Paragraph 14
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Reference 15: http://www.xbrl.org/2003/role/disclosureRef
-Topic 505
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Reference 16: http://www.xbrl.org/2003/role/disclosureRef
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Reference 18: http://www.xbrl.org/2003/role/disclosureRef
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Reference 19: http://www.xbrl.org/2003/role/disclosureRef
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+ Details

Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

12. Income Taxes

The Company's effective tax rates for the years ended December 31, 2023, 2022, and 2021 differ from the U.S. federal statutory rate as follows:


	December 31,
	2023				2022				2021

	(in thousands, except percentages)
U.S. federal taxes (benefit) at statutory rate	$	(91,251)	21.00	%	$	(114,832)	21.00	%	$	(98,931)	21.00	%
State tax expense		(13,492)	3.10	%		(21,676)	3.96	%		(29,206)	6.20	%
Research and development credits		(10,837)	2.49	%		(7,024)	1.28	%		(9,193)	1.95	%
Stock-based compensation		(6,422)	1.48	%		3,949	(0.72)	%		(46,128)	9.79	%
Foreign tax		(106)	0.02	%		332	(0.06)	%		167	(0.04)	%
Nondeductible officers' compensation		8,651	(1.99)	%		4,883	(0.89)	%		24,387	(5.18)	%
Acquisition costs		563	(0.13)	%		3,226	(0.59)	%		8,901	(1.89)	%
Other		(3,397)	0.79	%		1,964	(0.36)	%		344	(0.05)	%
Change in valuation allowance		116,562	(26.82)	%		130,156	(23.80)	%		150,277	(31.90)	%
Provision for income taxes	$	271	(0.06)	%	$	978	(0.18)	%	$	618	(0.13)	%

During the years ended December 31, 2023, 2022, and 2021, the Company recorded total income tax expense of $0.3 million, $1.0 million and $0.6 million, respectively.

The total provision for income taxes includes foreign withholding and state income tax expense.

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as net operating loss and tax credit carryforwards. The components of the net deferred income tax assets are as follows:


	December 31,
	2023		2022

	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	399,287	$	358,109
Research and development tax credit carryforwards		67,035		52,319
Capitalized research costs		95,923		59,128
Reserves and accruals		34,898		22,781
Lease Liabilities		19,339		21,000
Stock-based compensation		29,005		23,814
Other		9,449		9,162
Total deferred tax assets before valuation allowance		654,936		546,313
Less: valuation allowance		(639,510)		(526,235)
Total deferred tax assets after valuation allowance		15,426		20,078
Deferred tax liabilities:
Fixed Assets		(1,524)		(1,219)
Right-of-use lease assets		(13,902)		(18,859)
Total deferred tax liabilities		(15,426)		(20,078)
Net deferred tax assets	$	—	$	—

The Company established a full valuation allowance against its net deferred tax assets in 2023 and 2022 due to the uncertainty surrounding realization of these assets. The valuation allowance increased to $639.5 million as of 2023 from $526.2 million as of 2022 due to current year losses and credits claimed.

As of December 31, 2023, the Company had federal, state, and foreign net operating loss (“NOLs”) carryforwards of approximately $1.6 billion, $1.1 billion, and $3.8 million, respectively, which begin to expire in 2027, 2024, and 2027, respectively, if not utilized. Approximately $1.3 billion of federal net operating loss included above can be carried forward indefinitely.

The Company also had federal research and development credit carryforwards of approximately $64.3 million, which begin to expire in 2027, and state research and development credit carryforwards of approximately $36.7 million, which begin to expire in 2031. Realization is dependent on generating sufficient taxable income prior to expiration of the loss and credit carryforwards.

Federal, state and foreign tax laws impose substantial restrictions on the utilization of NOLs and credit carryforwards in the event of an "ownership change" for tax purpose, as defined in Section 382 of the Internal Revenue Code. Accordingly, the Company's ability to utilize these carryforwards may be limited as the result of such ownership change. Such a limitation could result in limitation in the use of the NOLs in future years and possibly a reduction of the NOLs available.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:


	December 31,
	2023		2022		2021

	(in thousands)
Balance at beginning of year	$	23,844	$	17,514	$	11,500
Additions based on tax positions related to the current year		7,034		6,301		6,017
Additions (reductions) for tax positions of prior years		34		29		(3)
Balance at end of year	$	30,912	$	23,844	$	17,514

During the years ended December 31, 2023, 2022, and 2021, the amount of unrecognized tax benefits increased $7.1 million, $6.3 million, and $6.0 million, respectively, due to additional research and development credits generated during the year. As of December 31, 2023, 2022, and 2021, the total amount of unrecognized tax benefits was $30.9 million, $23.8 million, and $17.5 million, respectively. The reversal of the uncertain tax benefits would not affect the Company's effective tax rate to the extent that it continues to maintain a full valuation allowance against its deferred tax assets.

The Company is subject to U.S. federal, state, and foreign income taxes. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations, and require significant judgment to apply. The Company is subject to U.S. federal, state and local tax examinations by tax authorities for all prior tax years since incorporation. The Company does not anticipate significant changes to its current uncertain tax positions through December 31, 2023.

The Company recognizes any interest and/or penalties related to income tax matters as a component of income tax expense. As of December 31, 2023, there were no accrued interest and penalties related to uncertain tax positions.

In 2021, the OECD announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax. These rules broadly call for the taxation of large multinational corporations at a minimum rate of 15%. We continue to evaluate the enacted and pending legislation to implement these rules in the non-U.S. tax jurisdictions we operate in but do not currently believe the impact to be material.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 13
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480990/946-20-50-13

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 235
-SubTopic 10
-Name Accounting Standards Codification
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(h)(2))
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480678/235-10-S99-1

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org//740/tableOfContent

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 14
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482685/740-10-50-14

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 21
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482685/740-10-50-21

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 270
-Name Accounting Standards Codification
-Section 50
-Paragraph 1
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482526/740-270-50-1

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 17
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482685/740-10-50-17

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section S99
-Paragraph 1
-Subparagraph (SAB TOPIC 6.I.5.Q1)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479360/740-10-S99-1

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section S99
-Paragraph 2
-Subparagraph (SAB Topic 11.C)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479360/740-10-S99-2

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 30
-Name Accounting Standards Codification
-Section 50
-Paragraph 2
-Subparagraph (a)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482603/740-30-50-2

+ Details

Net Loss per Share

12 Months Ended

Dec. 31, 2023

Net Loss per Share

Net Loss per Share

13. Net Loss per Share

The Convertible Notes are convertible by the holders as of December 31, 2023. Upon conversion, the Company has the option to pay cash, issue shares of common stock, or any combination thereof for the aggregate amount due upon conversion. If converted, the value of the shares issued to settle the Convertible Notes would exceed the Convertible Note principal by $118.5 million based on the closing price of the Company’s common stock as of December 31, 2023. Since the Company is in a net loss position in the periods presented, the shares which would be issued upon conversion of the Convertible Notes are excluded from the net loss per share calculation as it would have an antidilutive effect. As such, the 7.4 million shares underlying the conversion option of the Convertible Notes have been excluded from the calculation of diluted earnings per share. If converted, the Company does not intend to settle the obligation in cash.

The following table shows the potentially dilutive common stock equivalents that were excluded from the computations of diluted net loss per share as their effect would be anti-dilutive, as of December 31, 2023, 2022, and 2021:


	December 31,
	2023	2022	2021

	(in thousands)
Options to purchase common stock	5,501	5,300	5,898
Performance-based awards and restricted stock units	9,248	6,836	3,988
Employee stock purchase plan	88	90	33
Convertible Note	7,411	7,411	7,411
Earnouts for development with acquired Canadian entity	—	361	353
	22,248	19,998	17,683

Subsequent Events

12 Months Ended

Dec. 31, 2023

Subsequent Events

Subsequent Events

14. Subsequent Events

In January 2024, the Company acquired from Invitae Corp. certain assets relating to Invitae’s non-invasive prenatal screening and carrier screening business. The Company has made an upfront payment in the amount of $10 million to Invitae. In addition, the transaction includes $42.5 million in potential milestone payments.

Summary of Significant Accounting Policies (Policies)