Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes and other financial information included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the sections titled “Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and in Part I, Item 1A, “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and elsewhere in this Annual Report on Form 10-K.

Overview

We develop, market, and sell advanced cancer genomic tests and services. Our services are used by pharmaceutical companies for translational research, biomarker discovery, the development of personalized cancer therapies, and for clinical trials. Our tests are used by physicians to detect residual or recurrent cancer in patients, monitor cancer response to therapy, and uncover insights for therapy selection. We also provide whole exome and whole genome sequencing services for other diagnostic companies and population sequencing initiatives.

Today, our products are routinely used by many of the largest oncology-focused pharmaceutical companies for analysis of patient samples in their clinical trials and drug development programs. Our advanced genomic sequencing and analytics also support the development of personalized neoantigen therapies for cancer and other next-generation cancer immunotherapies. For example, we are providing genomic testing to Moderna, Inc. ("Moderna") in its ongoing clinical trials evaluating a personalized cancer therapy. In addition, we partner with diagnostics companies by providing our advanced tumor profiling and analysis capabilities as an input to their products. More recently, we launched new diagnostic offerings for the clinical setting and, in November 2023, entered into an agreement with Tempus to commercialize our NeXT Personal Dx test. We have also pursued non-cancer related business opportunities, specifically within the population sequencing market, by providing whole genome sequencing ("WGS") services under contract with the U.S. Department of Veterans Affairs Million Veteran Program ("VA MVP").

We are working with a growing number of leading cancer centers and world-class academic research institutions to build and publish the clinical evidence-base to support our products and our key indications, as well as to obtain reimbursement coverage from Medicare and other payors. Because of the ultra-high analytical sensitivity of our technology, we are primarily focusing on three indications: breast cancer, lung cancer, and immunotherapy (IO) monitoring. We have collaborations with Cancer Research UK, University College London, and the Francis Crick Institute (the TRACERx study); Institut Curie; The Royal Marsden; the Vall d'Hebron Institute of Oncology (VHIO); the University of California, San Diego; Duke University; Vanderbilt University and Johns Hopkins University (the PREDICT study); the Dana-Farber Cancer Institute; the University of Texas M.D. Anderson Cancer Center; University Medical Center Hamburg-Eppendorf (also known as UKE); and Criterium and the Academic Breast Cancer Consortium, that will focus on building the evidence-base for our technology and these indications.

Our work in oncology is underpinned by our experience and capacity for next-generation sequencing at scale. We have the capacity to sequence and analyze over 350 trillion bases of DNA per week in our facility. We believe that our capacity is already larger than most cancer genomics companies, and we continue to build automation and other infrastructure to scale further as demand increases. To date, we have sequenced approximately 500,000 human samples, of which approximately 200,000 were whole human genomes.

2024 Highlights

Total revenue of $84.6 million increased 15%, or $11.1 million, during 2024 compared to 2023, primarily driven by higher revenue from pharma tests. Revenue from pharma tests was $50.9 million in 2024 compared to $31.9 million in 2023, an increase of 60%. This increase was partially offset by lower revenue from enterprise sales, which declined $6.4 million, or 20%.

Key business accomplishments and financial updates in 2024 and early 2025 include:

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Received Medicare coverage for NeXT Dx, our comprehensive tumor profiling test and we are currently seeking Medicare coverage for our separate liquid biopsy molecular residual disease ("MRD") test, Next Personal Dx.

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Delivered 3,285 total molecular tests in 2024, compared with 177 tests in the prior year.

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Announced a new publication validating our NeXT Personal test, an ultra-sensitive, tumor-informed circulating tumor DNA (ctDNA) assay for detecting MRD, monitoring therapy response, and detecting recurrence in patients diagnosed with solid tumor cancers.

The analytical validation study was published in Oncotarget on March 14, 2024.

The test demonstrated a detection threshold of 1.67 parts per million (PPM) of ctDNA with 100% analytical specificity; enabling an ultra-sensitive range leading to early cancer detection.

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Multiple clinical data results demonstrating the clinical performance of NeXT Personal were presented at the American College of Clinical Oncology meeting in Chicago. Key presentations include:

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Compelling early-stage breast cancer detection results presented by Dr. Isaac Garcia-Murillas and team (Institute of Cancer Research, London) and Prof. Nicolas Turner and team (Royal Marsden NHS Foundation Trust UK). In this study, they found:

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NeXT Personal enabled earlier detection of recurrence, with a ~15-month lead time over imaging.

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100% of patients that recurred were detected with NeXT Personal and 100% of patients that were ctDNA negative on longitudinal testing were cancer-free.

A presentation by Dr. Rodrigo Toledo of the Vall d’Hebron Institute of Oncology (VHIO) highlighted the importance of NeXT Personal’s use for immunotherapy monitoring. This data showed:

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Baseline levels and the changes in levels of ctDNA detected by NeXT Personal predict therapy response and clinical outcomes for late-stage cancer patients receiving immunotherapy.

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NeXT Personal had an average lead time for detecting cancer progression of 81 days over imaging.

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Highlighted clinical performance of NeXT Personal at the European Society of Medical Oncology (ESMO) Congress 2024 in Barcelona, Spain:

Significant results from the TRACERx study presented by Professor Charles Swanton of University College London and the Francis Crick Institute with an expanded study cohort of non-small cell lung cancer (NSCLC) patients with strong detection rates for residual cancer in the challenging landmark period (first 10 to 120 days immediately after surgery).

Compelling data for late-stage cancer patients on immunotherapy presented by Dr. Rodrigo Toledo of the Vall d’Hebron Institute of Oncology that accurately linked significant decreases in ctDNA levels in response to immunotherapy to longer overall survival than patients who did not respond well.

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Commenced NeXT Personal Dx commercialization efforts with Tempus.

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Expanded Tempus collaboration to the biopharma industry, which enables Tempus to market NeXT Personal to Tempus' pharmaceutical and biotech customers who wish to bundle MRD testing with other Tempus offerings in a given study.

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Executed a cross-license agreement with Myriad Genetics, Inc. covering patent estates for tumor-informed approaches to detect MRD.

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Entered into an agreement with Foresight Diagnostics Inc. to settle and dismiss pending claims of intellectual property infringement by licensing our patents. Foresight agreed to pay a low single-digit tiered royalty on sales covered by the patents.

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Raised approximately $35.0 million in net financing proceeds from Tempus, consisting of $18.4 million from Tempus’ exercise of all its common stock warrants, at an average price of $2.00 per share, and $16.6 million net of expenses, from Tempus' purchase of common stock at a price of $5.07 per share.

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Raised an additional $30.1 million in net proceeds from selling common stock under our At-The-Market ("ATM") program at a weighted-average price of $4.61 per share.

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Advanced business strategy with investment of $50.0 million from Merck and extended collaboration with Moderna.

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Received a new task order in the amount of $7.5 million from the VA MVP.

Factors Affecting Our Performance

We believe there are several important factors that we expect to impact our operating performance and results of operations, including:

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The continued development of the market for genomic-based tests. Our performance depends on the willingness of pharmaceutical companies, enterprise customers, and oncologists to continue to seek more comprehensive molecular information to develop more efficacious cancer therapies.

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The adoption of ultra-sensitive MRD testing. We are pioneering the ultra-sensitive MRD testing market with the belief that an ultra-sensitive approach will lead to earlier intervention and the ability to better trust that a negative MRD patient is likely cancer-free. There are no assurances that the market will value ultra-sensitive testing over other ways to monitor cancer and look for recurrence and disease.

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Increasing adoption of our products and solutions by existing bio-pharma customers. Our performance depends on our ability to retain and broaden adoption with existing customers. Because our technology is novel, some customers begin using our products by initiating pilot studies involving a small number of samples to gain experience with our service. As a result, historically a significant portion of our revenue has come from existing customers. We believe that our ability to convert initial pilots into larger orders from existing customers has the potential to drive substantial long-term revenue. We expect there may be some variation in the number of samples they choose to test each quarter.

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Adoption of our products and solutions by new customers. While new customers initially may not account for significant revenue, we believe that they have the potential to grow substantially over the long term as they gain confidence in our service. Our ability to engage new customers is critical to our long-term success. Our publications, posters and presentations at scientific conferences lead to engagement at the scientific level with potential customers who often make the initial decision to gain experience with our products. Accessing these new customers through scientific engagement and marketing to gain initial buy-in is critical to our success and gives us the opportunity to demonstrate the utility of our products.

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Obtaining coverage and reimbursement status of our diagnostic tests. Building our clinical laboratory business is subject to a number or reimbursement challenges and we may not be able to establish the medical necessity of our tests (coverage) or payment rates that cover our costs (reimbursement).

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Our revenue and cost are affected by the volume of samples we receive from customers from period to period. The timing and size of sample shipments received after orders have been placed is variable. Since sample shipments can be large, and are often received from a third party, the timing of arrival can be difficult to predict over the short term. Although our long-term performance is not affected, we see quarter-to-quarter volatility due to these factors. Samples arriving later than expected may not be processed in the quarter proposed and result in revenue the following quarter. Since many of our customers request defined turnaround times, we employ project managers to coordinate and manage the complex process from sample receipt to sequencing and delivery of results.

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Investment in product innovation to support growth. Investment in research and development, including the development of new products and capabilities is critical to establish and maintain our leading position. We have invested significantly in our NeXT platform, introducing new products and additional capabilities. We are also collaborating with KOLs to support the clinical utility of our products. We believe this work is critical to gaining customer adoption and expect our investments in these efforts to continue.

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Leverage our operational infrastructure. We have invested significantly in our sample processing capabilities and commercial infrastructure. With our current operating model and infrastructure, we can increase our production and commercialize new generations of our products. We expect to grow our revenue and spread our costs over a larger volume of services.

Components of Operating Results

Revenue

We derive our revenue primarily from sales of genomic testing services to the following five customer types:

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Pharma tests and services includes sales of testing services and data analytics for clinical trials and research to pharmaceutical companies in support of their drug development programs.

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Enterprise sales includes sales of tumor profiling and diagnostic tests directly to another business as an input to their products. Revenue from our partnership with Natera to provide advanced tumor analysis for use in Natera's MRD test currently makes up substantially all of the revenue in this category.

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Population sequencing includes sales of genomic sequencing services and data analytics to support large-scale genetic research programs. All of the revenue in this category is from our partnership with the VA MVP.

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Clinical diagnostic includes sales of comprehensive tumor profiling test that is used to help select therapy for a cancer patient and identify potential clinical trials for a patient, and sales of ultra-sensitive, tumor-informed diagnostic tests, ordered by healthcare providers for cancer patients. Revenue in this category is derived from Medicare and private insurance reimbursements.

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Other includes sales of genomic tests and analytics to universities and non-profits.

Our ability to increase revenue will depend on our ability to further increase sales to these groups of customers and expand our customer base within each group. To do this, we are developing a growing set of state-of-the-art services and products; advancing our operational infrastructure; building our regulatory credentials; focusing our marketing efforts on large pharmaceutical companies; building and publishing the clinical evidence-base to support our products and services in our key indications, pursuing reimbursement coverage from Medicare and other payors; and seeking additional partnerships. We market to biopharma customers and doctors through a small

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direct sales force. In late 2023, we entered into an agreement with Tempus to co-commercialize NeXT Personal Dx in the clinical diagnostics market and will be leveraging Tempus' significantly larger sales force as a key vector to grow our clinical diagnostic business. In late 2024, we expanded our collaboration partnership with Tempus to enable Tempus to market and sell NeXT Personal to Tempus' pharmaceutical and biotech customers who wish to bundle MRD testing with other Tempus offerings in a given study.

We have one reportable segment which is providing advanced cancer genomic tests for precision oncology and personalized testing. Most of our revenue to date has been derived from sales in the United States.

Costs and Expenses

Cost of Revenue

Cost of revenue consists of raw materials costs, personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), laboratory supplies and consumables, depreciation and maintenance on equipment, and allocated facilities and information technology (“IT”) costs. We expect variability in our gross margins over the medium-term due to fluctuations in customer mix and volume, investments in newer sequencing platforms and new capabilities such as automation of laboratory workflows, processing of diagnostic tests for the clinical market while we work to secure reimbursement, and costs related to our Fremont facility. Over the long-term, we anticipate higher gross margins as growing revenue leads to economies of scale.

Research and Development Expenses

Research and development expenses consist of costs incurred for the research and development of our services and products and costs related to conducting studies and collaborations with partners to validate the clinical utility of our offerings. The expenses primarily consist of personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits); laboratory supplies and consumables; costs of processing samples for research, product development, collaborations and studies; depreciation and maintenance on equipment; and allocated facilities and IT costs. We include in research and development expenses the costs to further develop software we use to operate our laboratory, analyze the data it generates, and automate our operations.

We expense our research and development costs in the period in which they are incurred. We expect research and development expenses to remain consistent in the short-term since the completion of our reductions in workforce in 2023.

Selling, General and Administrative Expenses

Selling expenses consist of personnel costs (salaries, commissions, bonuses, stock-based compensation, payroll taxes, and benefits), customer support expenses, direct marketing expenses, and market research. Our general and administrative expenses include costs for our executive, accounting, finance, legal, and human resources functions. These expenses consist of personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), corporate insurance, audit and legal expenses, consulting costs, and allocated facilities and IT costs. We expense all selling, general and administrative costs as incurred.

Selling, general and administrative expenses have decreased since the completion of our reductions in workforce in 2023. But we expect them to increase over the medium term as we commercialize our clinical diagnostic offerings.

Lease Impairment

We recognized an impairment loss for operating lease right-of-use assets as a result of the change in use of our Menlo Park facility during the third quarter of 2023.

Restructuring and Other Charges

Restructuring and other charges consists of charges in connection with our reductions in workforce and charges in connection with the closure of our China operations.

Interest Income and Interest Expense

Interest income consists primarily of interest earned on our cash, cash equivalents and short-term investments. Interest expense is the recognition of imputed interest on noninterest bearing loans.

Other Income (Expense), Net

In connection with our November 2023 agreement with Tempus, we issued two warrants to Tempus to purchase, in the aggregate, up to 9,218,800 shares of our common stock (the “Tempus Warrants”). Other income (expense), net consists primarily of a noncash loss related to the remeasurement and settlement of the Tempus Warrants. Other income (expense), net also includes foreign currency exchange gains and losses.

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Trend Financial Information

The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the notes thereto in Item 8 of Part II, “Financial Statements and Supplementary Data”. Historical results are not necessarily indicative of future results.

Year Ended December 31,

Costs and expenses

Lease impairment — 5,565 — — —

Restructuring and other charges — 8,077 — — —

December 31,

(in thousands)

Results of Operations

This section discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.

Revenue

The following table shows revenue by customer type (in thousands, except percentages):

Year Ended December 31,

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The following table shows customers that made up at least 10% of total revenue in each year presented:

Year Ended December 31,

VA MVP * 13%

Moderna, Inc. 28% *

* Less than 10% of revenue

Pharma tests and services

The primary driver for the increase in pharma tests and services revenue in 2024 was due to increases in revenue from one of our personalized cancer therapy customers that ramped up clinical trial patient enrollments. Revenue from this customer increased $20.0 million in 2024 compared with the prior year. Revenue from this customer is expected to decline over the next few quarters until this customer is ready to commercialize its personalized cancer therapy program, or until other projects increase in size.

Enterprise sales

Revenue from enterprise sales decreased in 2024 due to lower average selling prices. The number of samples we processed for Natera increased by over 7%, but such increase was offset by lower selling prices.

We launched a reduced-cost version of our exome product offering for Natera near the end of the first quarter of 2024 to support their requirement for an overall reduction in price. Our agreement with Natera included minimum volume commitments through the end of 2024. We amended our agreement with Natera during the fourth quarter of 2024 to extend minimum volume commitments through the second quarter of 2025.

Population sequencing

Revenue recognized each period from population sequencing is impacted by timing of our fulfillment of samples under each annual task order. The decrease in revenue in 2024 was due to a decrease in the number of samples we processed in addition to a small decline in selling prices. Our annual task orders received in 2024 and 2023 were $7.5 million and $7.5 million, respectively. Our contract with the VA MVP does not include specific testing turnaround times. Therefore, we may modulate the volume of samples processed from the VA MVP to accommodate sample volumes from other customers, which can vary from period to period. We anticipate fulfilling the new task order received in September 2024 during the first three quarters of 2025.

Clinical diagnostic

Clinical diagnostic revenue is generated from Medicare and private insurance payors, In January 2024, we received a Medicare coverage determination for NeXT Dx, our ultra-comprehensive tumor genomic profiling assay. The revenue of $0.8 million in 2024 was mainly due to an increase in NeXT Dx tests reimbursed by Medicare. We delivered a total of 3,285 molecular cancer tests in 2024.

Costs and Expenses

The following table shows costs and expenses (in thousands, except percentages):

Year Ended December 31,

Restructuring and other charges — 8,077 (8,077 ) *

* Not meaningful

Cost of revenue

The increase in cost of revenue in 2024 was primarily due to higher revenue levels (revenue increased 15% over the same period). Cost of revenue increased at a lesser rate as compared to the corresponding revenue increases primarily because of lower labor costs resulting from prior workforce reductions and operational efficiencies. Specific components of the increase were a $4.0 million increase in direct material costs due to support higher revenue levels, a $2.1 million increase in allocated facilities and equipment costs (mainly due to moving our laboratory from our Menlo Park facility to our Fremont facility in the third quarter of 2023), partially offset by a

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$2.8 million decrease in labor costs and a $0.7 million decrease in shared laboratory costs due to greater usage of our laboratory capacity for R&D projects.

Research and development

The decrease in research and development expenses in 2024 was primarily due to cost savings from our workforce reductions in 2023 and lower sample processing costs for product development, collaborations, and clinical evidence generation.

Specific components of the decrease include a $6.3 million decrease in personnel-related costs driven by our workforce reductions, a $4.7 million decrease in allocated facilities costs (primarily due to a reduction in R&D usage of our facilities relative to other functions, as well as lower facilities costs in general), and a $4.9 million decrease in sample processing costs incurred in our laboratory for product development, collaborations, and clinical evidence generation.

Selling, general and administrative

The decrease in selling, general and administrative expenses was primarily due to lower professional outside services expenses and cost savings from our workforce reductions in 2023.

Specific components of the decrease were a $3.1 million decrease in professional outside services, a $2.9 million decrease in personnel-related costs driven by our workforce reductions, and a $0.5 million decrease in office equipment costs; partially offset by a $1.4 million increase in allocated facilities costs, $1.0 million increase in other outside services and office expenses and a $0.6 million increase in other marketing costs, including trade shows expenses.

Lease impairment

During the third quarter of 2023, we completed the move of our laboratory operations from our Menlo Park facility to our Fremont facility and began actively marketing the Menlo Park space for sublease. Accordingly, we evaluated the ongoing value of the operating lease right-of-use asset associated with the Menlo Park facility. Based on this evaluation, we determined that the right-of-use asset with a carrying amount of $6.7 million was no longer recoverable and was impaired and wrote it down to its estimated fair value of $1.1 million, which resulted in a noncash impairment loss of $5.6 million. Estimated fair value was based on expected future sublease cash flows (with the assistance of a third-party real estate broker), net of brokerage commissions and estimated tenant incentives, discounted at a market rate of return on similar assets. The estimation of fair value also included expected downtime prior to the commencement of a future sublease.

Restructuring and other charges

We reduced our workforce during the first quarter of 2023 and the fourth quarter of 2023 to reduce our cash burn and increase operating efficiencies, which combined affected about 100 employees. We also closed our China operations. The $8.1 million in restructuring and other charges recognized in 2023 is comprised of $7.5 million in one-time employee termination benefits (including costs related to termination of our former China employees) and $0.6 million of other noncash charges (primarily asset disposals and impairments in connection with the closure of our China operations).

Interest Income, Interest Expense and Other Income (Expense), Net

The following table shows interest income and expense, and other income (expense), net (in thousands, except percentages):

Year Ended December 31,

Interest income and interest expense

The decrease in interest income was due to lower average investment balances in 2024, partially offset by increased yields on our investments. Interest expense is the recognition of imputed interest on noninterest bearing loans.

Other income (expense), net

In connection with our November 2023 agreement with Tempus, we issued two warrants to purchase, in the aggregate, up to 9,218,800 shares of our common stock ("Tempus Warrants") at an average exercise price of $2.00 per share. If Tempus acquired any shares of common stock directly from us other than by exercising the warrants, then the total number of shares issuable upon exercise of the warrants would have been reduced by such shares. Because the number of shares issuable upon settlement were subject to adjustment, the warrants were classified as liability instruments while outstanding and were subject to remeasurement at each balance

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sheet date, with changes in fair value recognized as other income (expense), net. In August 2024, Tempus exercised in full the Tempus Warrants for $18.4 million in cash; as such there will be no further noncash gains or losses associated with the Tempus Warrants going forward.

Prior to the exercise, we recognized noncash losses of $18.3 million as a result of increases in the fair value of the Tempus Warrants in other income (expense), net in the consolidated statements of operations during the year ended December 31, 2024.

The initial fair value at the time of issuance of the warrants of $6.9 million exceeded the total proceeds received from Tempus of $6.0 million, which resulted in a loss of $0.9 million. In addition, we recognized noncash losses of $3.1 million as a result of increases in the fair value of the Tempus Warrants after the issuance date in 2023. The increase in fair value, plus the immediate loss of $0.9 million, resulted in a $4.0 million expense, which was recognized in other income (expense), net in the consolidated statements of operations during the year ended December 31, 2023.

Separately, upon dissolution of our China entity (Personalis (Shanghai) Ltd) during the first quarter of 2024, we reclassified an accumulated foreign currency translation loss of $0.2 million to other income (expense), net.

Liquidity and Capital Resources

The following table presents selected financial information (in thousands):

December 31,

Cash and cash equivalents, and short-term investments $ 185,009 $ 114,179

From our inception through December 31, 2024, we have funded our operations primarily from net proceeds from issuance of redeemable convertible preferred stock, IPO, follow-on equity offerings, At-the-Market ("ATM") facility (see Note 2, Summary of Significant Accounting Policies for additional information), Tempus exercising warrants and purchasing additional shares under an investment agreement, and Merck purchasing shares under an investment agreement (see Note 8, "Related Party Transactions" in our consolidated financial statements for additional information), as well as debt financings. As of December 31, 2024, we had cash and cash equivalents of $91.4 million and short-term investments of $93.6 million.

We have incurred net losses since our inception. We anticipate that our current cash and cash equivalents and short-term investments are sufficient to fund our near-term capital and operating needs for at least the next 12 months.

We have based these future funding requirements on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of lower demand for our services or other risks described in this Annual Report on Form 10-K, we may seek to sell additional common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing. We filed a sales agreement prospectus supplement in December 2024, pursuant to which we may offer and sell up to $50.0 million of shares of our common stock through our ATM facility. The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. Additional capital may not be available on reasonable terms, or at all.

Our short-term investments portfolio is primarily invested in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. Our investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.

Cash Flows

Year Ended December 31,

The $11.1 million decrease in cash used in operating activities in 2024 was primarily due to lower operating expenses, particularly lower payroll expenses as a result of our workforce reductions in 2023 and higher gross margin, due to a combination of higher revenue levels and higher gross margin percentage. These increases in operating cash flow were partially offset by changes in working capital. Notably, during the first half of 2023 we received significant customer deposits in connection with our agreement with Moderna to support its ongoing clinical trials project for development of a personalized cancer therapy and the customer deposit did not repeat in 2024. We also paid more in rent in 2024 as compared to 2023 for our Fremont headquarters due to the end of a free rent period plus escalating rent payments. Furthermore, we paid more to vendors in 2024 as compared to 2023 due to timing of vendor shipments and billings.

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The $48.2 million decrease in cash provided by investing activities in 2024 was due to increase in investments of our cash into short-term investments by $17.8 million and reduction in maturities of our short-term investments by $40.0 million, partially offset by a $9.3 million reduction in capital expenditures.

The $103.6 million increase in cash provided by financing activities was driven by $50 million from Merck purchasing shares under an investment agreement, $36.2 million from Tempus exercising warrants and purchasing additional shares under an investment agreement, $26.6 million higher net proceeds from sales of common stock under our ATM facility, and $2.1 million lower repayments of loans; partially offset by $1.2 million payments of costs associated with the Tempus and Merck investments, and $0.6 million lower proceeds from our employee incentive plans. In addition, we received $6.0 million in proceeds from the issuance of Tempus Warrants and $3.4 million from loans in 2023, which did not occur in 2024.

Material Cash Requirements

Our material cash requirements in the short- and long-term consist primarily of variable costs of revenue, operating expenditures, capital expenditures, property leases, and other. We plan to fund our material cash requirements with our existing cash and cash equivalents and short-term investments, which amounted to $185.0 million as of December 31, 2024, as well as anticipated cash receipts from customers. To fund our material cash requirements in the short-term and long-term, we may also seek to sell additional common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing.

Variable costs of revenue. From time to time in the ordinary course of business, we enter into agreements with vendors for the purchase of raw materials, laboratory supplies and consumables to be used in the sequencing of customer samples. However, we generally do not have binding and enforceable purchase orders beyond the short term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project. We currently expect spending in this area to remain similar to the levels in 2024 to support expected higher levels of revenue.

Operating expenditures. Our primary use of cash relates to employee compensation, spend on professional services, spend related to research and development projects, and other costs related to our research and development, selling, general and administrative functions. We currently expect our spending in these areas to remain similar to the levels in 2024. On a long-term basis, we manage future cash requirements relative to our long-term business plans.

Capital expenditures. Capital expenditures are expected to increase from 2024 levels as we expect to expand NeXT Personal Dx capacity. Going forward, our capital expenditures are expected to consist primarily of laboratory equipment and computer equipment. We currently expect capital expenditures to be approximately $8.0 million in 2025 and between $7 million to $10 million in each of the years 2026 and 2027.

Property leases. Our noncancelable operating lease payments were $70.5 million as of December 31, 2024. The timing of these future payments, by year, can be found in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 7, “Leases.”

Other. As of December 31, 2024, we have an outstanding noninterest bearing loan that was used to finance the purchase of equipment for our laboratory. We owe a total of $1.8 million, of which the majority is payable in 2025. Further discussion of this loan can be found in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 6, “Loans.”

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We believe that the assumptions and estimates associated with revenue recognition, leases, and common stock warrants have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

Revenue Recognition

We generate our revenue from the sale of genomic testing services. We agree to provide services to our customers through a contract, which may be in the form of a combination of a signed agreement, statement of work and/or a purchase order.

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We have evaluated the performance obligations contained in contracts with customers to determine whether any of the performance obligations are distinct, such that the customers can benefit from the obligations on their own, and whether the obligations can be separately identifiable from other obligations in the contract. For the significant majority of our contracts to date, the customer orders a specified quantity of sequencing and the delivery of each test to the customer is accounted for as one performance obligation.

Fees for our genomic testing services are predominantly based on a fixed price per sample. The fixed prices identified in the arrangements only change if a pricing amendment is agreed with a customer. In limited cases we provide our customers a discount if samples received above a certain volume are purchased. In such cases, the discount applies prospectively. We have analyzed such discounts if they represent a material right provided to a customer. We have concluded that such discounts generally do not represent a material right provided to a customer since they are not deemed to be incremental to the pricing offered to the customer or are not enforceable options to acquire additional goods. As a result, these discounts do not constitute a material right and do not meet the definition of a separate performance obligation, except in limited instances. We do not offer retrospective discounts or rebates.

Leases

Lease liabilities are recognized at the present value of the fixed lease payments, reduced by landlord incentives, using a discount rate based on our current borrowing rate at the lease commencement date (the incremental borrowing rate), unless the rate implicit in the lease is readily determinable.

In August 2021, we entered into a 13.5-year lease for our corporate headquarters in Fremont, California. We estimated our incremental borrowing rate as the rate implicit in the lease was not readily determinable. To determine the incremental borrowing rate, we estimated our credit rating by comparing certain financial ratios and metrics of the Company to those of other issuers with publicly-available credit ratings from Standard & Poor’s (S&P). We then adjusted yields from publicly traded corporate bonds of companies of similar size and credit rating over a term approximating the term of our lease for the nature of the collateral. In September 2022, the lease commencement date for our facility in Fremont, California was delayed from the original intended date due to delays in the completion of the work necessary for us to move into the facility, which resulted in a reassessment of the lease term. Our concluded incremental borrowing rate for this remeasured lease was 10.5%, which resulted in a lease liability and right-of-use asset of $31.8 million.

Common Stock Warrants

In November 2023, we entered into an agreement with Tempus to commercialize NeXT Personal Dx in the clinical diagnostics market. In connection with this agreement, we issued to Tempus two warrants to purchase, in the aggregate, up to 9,218,800 shares of our common stock. In August 2024, Tempus exercised the warrants in full to purchase 9,218,800 shares of Personalis common stock for $18.4 million in cash, at an average exercise price of $2.00 per share.

The Tempus Warrants included a provision under which the total number of shares issuable upon settlement were subject to adjustment. Consequently, prior to the exercise, the Tempus Warrants were classified as liability instruments while outstanding and subject to remeasurement at each balance sheet date, with changes in fair value recognized as other income (expense), net in the consolidated statements of operations. Fair values of the warrants were estimated using the Black-Scholes option-pricing model. Estimating fair value using the Black-Scholes option-pricing model requires a number of assumptions. Changes in the assumptions can materially affect the fair value and ultimately how much other income (or expense) is recognized. The inputs generally require analysis to develop.

•

Expected Term—The expected term assumption represents the contractual period of each of the two warrants.

•

Expected Volatility—Expected volatility was based on the Company's actual historical volatility over the expected terms of the warrants.

•

Expected Dividend Yield—The Black-Scholes option-pricing valuation model calls for a single expected dividend yield as an input. We currently have no history or expectation of paying cash dividends on our common stock.

•

Risk-Free Interest Rate—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 warrants.

Recent Accounting Pronouncements

See the sections titled “Summary of Significant Accounting Policies—Recent Accounting Pronouncements” in Note 2 to our consolidated financial statements for additional information.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

As a “smaller reporting company”, we are not required to provide the information under this item.

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Item 8. Financial Statements and Supplementary Data.

PERSONALIS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Consolidated Balance Sheets 70

Consolidated Statements of Operations 71

Consolidated Statements of Comprehensive Loss 72

Consolidated Statements of Stockholders’ Equity 73

Consolidated Statements of Cash Flows 74

Notes to Consolidated Financial Statements

Note 1. Company and Nature of Business 75

Note 2. Summary of Significant Accounting Policies 75

Note 3. Revenue 81

Note 4. Balance Sheet Details 82

Note 5. Fair Value Measurements 83

Note 6. Loans 84

Note 7. Leases 85

Note 8. Related Party Transactions 86

Note 9. Restructuring and Other Charges 89

Note 10. Stock-Based Compensation 89

Note 11. Segment and Geographic Information 93

Note 12. Commitments and Contingencies 94

Note 13. Basic and Diluted Net Loss Per Common Share 94

Note 14. Income Taxes 95

Note 15. Subsequent Events 97

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PERSONALIS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

December 31,

Assets

Current assets

Inventory and other deferred costs 5,939 10,474

Prepaid expenses and other current assets 3,927 4,361

Liabilities and Stockholders’ Equity

Current liabilities

Short-term warrant liability — 5,085

Long-term operating lease liabilities 34,882 38,321

Long-term warrant liability — 4,942

Commitments and contingencies (Note 12)

Stockholders’ equity

Accumulated other comprehensive loss (23 ) (222 )

Total liabilities and stockholders’ equity $ 270,268 $ 225,099

(1) Includes related party accounts receivable of $2.5 million as of December 31, 2024.

(2) Includes related party liabilities of $1.7 million as of December 31, 2024.

(3) Includes related party liabilities of $1.2 million as of December 31, 2024.

See notes to consolidated financial statements.

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PERSONALIS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

Year Ended December 31,

Costs and expenses

Lease impairment — 5,565

Restructuring and other charges — 8,077

Interest expense (24 ) (110 )

Provision for income taxes 18 83

Net loss per share, basic and diluted $ (1.37 ) $ (2.25 )

(1) Includes related party revenue of $2.0 million for the year ended December 31, 2024.

(2) Includes related party sales and marketing expenses of $0.5 million for the year ended December 31, 2024.

(3) Includes related party other expense of $18.3 million in connection with the change in fair value of Tempus Warrants for the year ended December 31, 2024.

See notes to consolidated financial statements.

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PERSONALIS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

Year Ended December 31,

Other comprehensive income (loss), net of tax

Changes in foreign currency translation adjustments:

Change during period (35 ) 19

Net changes in foreign currency translation adjustments 164 19

Change in unrealized gain on available-for-sale debt securities 35 671

See notes to consolidated financial statements.

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PERSONALIS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

Accumulated

Additional Other Total

Common Stock Paid-In Comprehensive Accumulated Stockholders'

Shares Amount Capital Income (Loss) Deficit Equity

Proceeds from exercise of stock options 8 — — — — —

Restricted stock units vested 839,194 — — — — —

Foreign currency translation adjustment — — — 19 — 19

Unrealized gain on available-for-sale debt securities — — — 671 — 671

Proceeds from exercise of stock options 80,998 — 200 — — 200

Restricted stock units vested 601,285 — — — — —

Foreign currency translation adjustment — — — 164 — 164

Unrealized gain on available-for-sale debt securities — — — 35 — 35

See notes to consolidated financial statements

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PERSONALIS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended December 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities

Noncash charges related to liability classified Tempus Warrants 18,274 4,027

Amortization of discount on short-term investments (2,667 ) (2,000 )

Noncash restructuring and other charges — 3,605

Noncash lease impairment expense — 5,565

Changes in operating assets and liabilities

Inventory and other deferred costs 4,425 (1,934 )

Prepaid expenses and other assets 1,139 3,748

Accrued and other current liabilities (2) (2,401 ) 742

Operating lease liabilities (3,505 ) 894

Other long-term liabilities (2) 1,200 (10 )

Net cash used in operating activities (45,150 ) (56,258 )

Cash flows from investing activities:

Purchases of available-for-sale debt securities (121,708 ) (103,945 )

Proceeds from maturities of available-for-sale debt securities 88,000 127,955

Purchases of property and equipment (1,603 ) (10,911 )

Proceeds from sales of property and equipment 242 —

Net cash (used in) provided by investing activities (35,069 ) 13,099

Cash flows from financing activities:

Proceeds from issuance of Tempus Warrants — 6,000

Proceeds from exercise of Tempus Warrants 18,438 —

Proceeds from sale of common stock under Tempus Investment Agreement 17,745 —

Proceeds from sale of common stock under Merck Investment Agreement 50,000 —

Payment of costs related to Tempus and Merck Investment Agreements (1,230 ) —

Proceeds from loans — 3,438

Proceeds from issuance of common stock under equity incentive plans 770 1,344

Net cash provided by financing activities 114,672 11,031

Net change in cash, cash equivalents and restricted cash 34,431 (32,144 )

Cash, cash equivalents and restricted cash, beginning of period 58,774 90,918

Cash, cash equivalents and restricted cash, end of period $ 93,205 $ 58,774

Restricted cash, included in other long-term assets 1,790 1,790

Total cash, cash equivalents and restricted cash $ 93,205 $ 58,774

Supplemental cash flow information:

Cash paid for income taxes, net of refunds $ 38 $ 64

(1) Includes a change in related party receivable of $2.0 million for the year ended December 31, 2024.

(2) Includes a change in related party payable and accruals of $0.7 million for the year ended December 31, 2024.

See notes to consolidated financial statements.

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PERSONALIS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Company and Nature of Business

Personalis, Inc. (the "Company" or "Personalis") develops, markets, and sells advanced cancer genomic tests and services. The services are used by pharmaceutical companies for translational research, biomarker discovery, the development of personalized cancer therapies, and for clinical trials. The tests are used by physicians to detect residual or recurrent cancer in patients, monitor cancer response to therapy, and uncover insights for therapy selection. The Company also provides whole exome and whole genome sequencing services for other diagnostic companies and population sequencing initiatives. The principal markets for the Company’s tests and services are in the United States and Europe.

The Company is expanding its business model to offer genomic tests directly to cancer patients in a clinical setting. However, revenue generated from clinical customers was not significant for any periods presented in these consolidated financial statements.

The Company was incorporated in Delaware in February 2011 and began operations in September 2011. The Company formed a wholly owned subsidiary, Personalis (UK) Ltd., in August 2013 and a wholly owned subsidiary, Shanghai Personalis Biotechnology Co., Ltd., which is referred to as “Personalis (Shanghai) Ltd” herein, in October 2020. During the first half of 2023, the Company terminated its operations in China and the Company completed the process of dissolving the Personalis (Shanghai) Ltd entity in February 2024. Refer to Note 9, Restructuring and Other Charges, for further information. The Company operates and manages its business as one reportable operating segment, which is providing advanced cancer genomic tests and services for precision oncology applications, personalized testing, and other tests.

The Company has incurred losses to date and expects to incur additional losses for the foreseeable future. The Company continues to invest the majority of its resources in the development and growth of its business, including investments in product development and sales and marketing efforts. The Company’s activities have been financed to date primarily through the sale of its equity securities and cash from operations.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding annual reporting. The consolidated financial statements include the accounts of Personalis, Inc. and its wholly owned subsidiaries, Personalis (UK) Ltd. and Personalis (Shanghai) Ltd. All intercompany balances and transactions have been eliminated in consolidation. Upon dissolution of Personalis (Shanghai) Ltd during the first quarter of 2024, an accumulated foreign currency translation adjustment of $0.2 million was reclassified from accumulated other comprehensive loss to net loss within other income (expense), net.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The estimates include, but are not limited to, revenue recognition, useful lives assigned to long-lived assets, discount rates for lease accounting, the valuation of stock options, the valuation of common stock warrants, provisions for income taxes, and fair value of lease right-of-use assets. Actual results could differ from these estimates, and such differences could be material to the Company’s consolidated financial position and results of operations.

At-the-Market Equity Offerings

In December 2021, the Company entered into an At-the-Market ("ATM") Sales Agreement with BTIG, LLC (“BTIG”), as amended in December 2023 (the “Sales Agreement”), under which it was permitted to offer and sell its common stock from time to time through BTIG as its sales agent. BTIG agreed to use commercially reasonable efforts to sell the Company’s common stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company agreed to pay BTIG a commission of up to 3% of the gross sales proceeds of any common stock sold through BTIG under the Sales Agreement. The Company was not obligated to make any sales of common stock under the Sales Agreement.

The Company issued and sold 6,660,731 and 1,935,214 shares of its common stock at a weighted-average price of $4.61 and $1.85 per share under the Sales Agreement and received $30.1 million and $3.5 million in proceeds, net of commissions, during 2024 and 2023, respectively.

In December 2024, the Company entered into an Amended and Restated At-the-Market Sales Agreement (the “Amended Sales Agreement”) with Piper Sandler & Co. (“Piper”) and BTIG. The Amended Sales Agreement amends and restates the Sales Agreement with BTIG, previously entered into in December 2021, as amended in December 2023, to add Piper as a sales agent (Piper and BTIG,

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together, the “Sales Agents”), among certain other changes. The Sales Agents have agreed to use commercially reasonable efforts to sell the Company’s common stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company will pay the applicable Sales Agent a commission of up to 3% of the gross sales proceeds of any common stock sold through such Sales Agent under the Amended Sales Agreement. The Company is not obligated to make any sales of common stock under the Amended Sales Agreement.

Concentration of Credit Risk and Other Risks and Uncertainties

The Company is subject to credit risk from its portfolio of cash and cash equivalents. The Company’s cash and cash equivalents are deposited with high-quality financial institutions. Deposits at these institutions may, at times, exceed federally insured limits. Management believes these financial institutions are financially sound and, accordingly, that minimal credit risk exists.

The Company also invests in investment‐grade debt instruments and has policy limits for the amount it can invest in any one type of security, except for securities issued or guaranteed by the U.S. government. The goals of the Company’s investment policy are as follows: preservation of principal; liquidity of investments sufficient to meet cash flow requirements; avoidance of inappropriate concentration and credit risk; competitive after‐tax rate of returns; and fiduciary control of cash and investments. Under its investment policy, the Company limits the amounts invested in such securities by credit rating, maturity, investment type, and issuer. As a result, management believes that these financial instruments do not expose the Company to any significant concentrations of credit risk.

The Company purchases various reagents and sequencing materials from sole-source suppliers. Any extended interruption in the supply of these materials could result in the Company’s inability to secure sufficient materials to conduct business and meet customer demand.

The Company routinely assesses the creditworthiness of its customers and does not require collateral. Historically, the Company has not experienced significant credit losses from accounts receivable. Multiple customers have provided more than 10% of total revenue in the periods presented, or accounted for more than 10% of accounts receivable at each respective balance sheet date, as follows:

Revenue Accounts Receivable

Year Ended December 31, December 31,

VA MVP * 13% * *

Moderna, Inc. 28% * * *

Merck & Co., Inc. * * 31% *

Pfizer Inc. * * 25% *

* Less than 10% of revenue or accounts receivable

Revenue Recognition

The Company applies the revenue recognition guidance in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, (“ASC Topic 606”).

The Company derives revenue from the sale of genomic testing services. Contracts are in the form of a combination of signed agreements, statements of work, and/or purchase orders. The Company accounts for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and it is probable that the Company will collect substantially all of the consideration to which it will be entitled.

The genomic testing services are the only distinct services that meet the definition of a performance obligation and are accounted for as one performance obligation. Revenue is recognized at a point in time when test results are transferred to the customer. The Company has elected to exclude all sales and value added taxes from the measurement of the transaction price.

Standard payment terms are typically 90 days or less from the invoice date, but may vary. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised services to the customer will be one year or less. After assessing each of its revenue-generating arrangements to determine whether a significant financing component exists, the Company concluded that a significant financing component does not exist in any of its arrangements. The primary purpose of the Company's invoicing terms is to provide customers with simplified and predictable ways of purchasing services and to provide payment protection for the Company.

Practical Expedients and Exemptions

As a practical expedient, the Company recognizes the incremental costs of obtaining contracts, such as sales commissions, as an expense when incurred since the amortization period of the asset the Company otherwise would have recognized is one year or less. Sales commissions are recorded within selling, general and administrative expenses in the consolidated statements of operations.

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Cost of Revenue

Cost of revenue consists of raw materials costs, personnel costs (salaries, bonuses, benefits, payroll taxes, and stock-based compensation), laboratory supplies and consumables, depreciation and maintenance on equipment, and allocated facilities and information technology (“IT”) costs.

Research and Development Expenses

The Company charges research and development costs to expenses as incurred, including lab and automation development costs. The expenses primarily consist of personnel costs (salaries, bonuses, benefits, payroll taxes, and stock-based compensation); laboratory supplies and consumables; costs of processing samples for research, product development, collaborations, and studies; depreciation and maintenance on equipment; and allocated facilities and IT costs.

Stock-Based Compensation

The Company measures and recognizes compensation cost for all share-based awards, including stock options, restricted stock awards ("RSAs"), restricted stock unit awards ("RSUs"), performance stock awards ("PSAs") and employee stock purchases related to the Employee Stock Purchase Plan ("ESPP"). For options granted to employees, non-employees, and directors, stock-based compensation is measured at grant date based on the fair value of the award. The Company determines the grant-date fair value of options using the Black-Scholes option-pricing model, except for certain performance-based awards for which an alternative valuation method may be used. The Company determines the fair value of restricted stock unit awards using the closing market price of the Company’s common stock on the date of grant. Grant-date fair value of awards is amortized over the employees’ requisite service period on a straight-line basis, or the non-employees’ vesting period as the goods are received or services rendered. Forfeitures are accounted for as they occur. The Company’s 2019 ESPP is deemed to be a compensatory plan and therefore is included in stock-based compensation expense.

Inputs used in Black-Scholes option-pricing models to measure fair value of options are summarized as follows:

Expected Term. The expected term is calculated using the simplified method, which is available if there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting tranche for awards with graded vesting. The midpoint of the vesting date and the contractual expiration date is used as the expected term under this method. For awards with multiple vesting tranches, the assumed period for each tranche is computed separately and then averaged together to determine the expected term for the award.

Expected Volatility. The Company used an average historical stock price volatility of its own stock price as well as a peer group of publicly traded companies to be representative of its expected future stock price volatility, as sufficient trading history for the Company's common stock does not yet exist. For purposes of identifying these peer companies, the Company considered the industry, stage of development, size, and financial leverage of potential comparable companies. For each grant, the Company measured historical volatility over a period equivalent to the expected term.

Risk-Free Interest Rate. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of a stock award.

Expected Dividend Rate. The Company has not paid and does not anticipate paying any dividends in the near future. Accordingly, estimated dividend yield is zero.

Foreign Currency Translation

The Company considers the functional currencies of its foreign subsidiaries to be the local currency. Assets and liabilities recorded in foreign currencies are translated at the exchange rate as of the balance sheet date, and costs and expenses are translated at average exchange rates in effect during the period. Equity transactions are translated using historical exchange rates. The effects of foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in the consolidated balance sheets.

Comprehensive Loss

Comprehensive loss includes all changes in equity (net assets) during the period from nonowner sources. Comprehensive loss consists of net loss, cumulative translation adjustments, and unrealized gains or losses on available-for-sale debt securities.

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Income Taxes

The Company uses the asset and liability method under ASC Topic 740, Income Taxes, ("ASC Topic 740"), in accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax expenses or benefits are the result of changes in the deferred tax assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets where it is more likely than not that the deferred tax assets will not be realized.

ASC Topic 740 clarifies the accounting for uncertainty in income taxes recognized in the financial statements. ASC Topic 740 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon audit, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. ASC Topic 740 also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the consolidated statements of operations. Accrued interest and penalties are included within the related liability line in the consolidated balance sheets.

Undistributed earnings of foreign subsidiaries are assumed to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with original maturities at the time of purchase of three months or less. Cash equivalents include bank demand deposits and money market accounts that invest primarily in cash, U.S. Treasury bills, notes, and other obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, and repurchase agreements secured by such obligations or cash. Cash equivalents also include commercial paper and U.S. Treasury bills, which are marketable debt securities recorded at fair value and accounted for in the same manner as other marketable debt securities described below.

Restricted Cash

Restricted cash includes cash pledged as collateral for a standby letter of credit related to a property lease. The letter of credit is required to be maintained throughout the term of the lease. If the date of availability or disbursement is less than one year, restricted cash is reported within prepaid expenses and other current assets on the consolidated balance sheets. If the date of availability or disbursement is longer than one year and the balances are maintained under an agreement that legally restricts the use of such funds, restricted cash is reported within other assets on the consolidated balance sheets. As of December 31, 2024, no amount has been drawn under the letter of credit. As of December 31, 2024 and 2023, the Company had restricted cash balances of $1.8 million.

Short-term Investments

Investments in marketable debt securities are classified as available-for-sale and recorded at fair value. Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year are also classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. Short-term investments primarily consist of U.S. Treasury notes, U.S. Treasury bills, commercial paper, corporate debt securities, and U.S. government agency bonds.

Any discount or premium arising at purchase is accreted or amortized to interest income or expense. Unrealized gains and losses are included within accumulated other comprehensive income (loss) in the consolidated statements of stockholders’ equity. Realized gains and losses are reported within other income (expense), net in the consolidated statements of operations. Accrued interest is excluded from both the fair value and amortized cost basis of debt securities and included in prepaid expenses and other current assets in the consolidated balance sheets. When securities are sold, any associated unrealized gain or loss initially recorded as a separate component of stockholders’ equity is reclassified out of stockholders’ equity on a specific-identification basis and recorded in earnings for the period. If an available-for-sale debt security's fair value is less than its amortized cost basis, the Company evaluates whether the decline is the result of a credit loss, in which case an impairment is recorded through an allowance for credit losses.

Fair Value Measurements

Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. Observable inputs reflect market data obtained from independent sources while unobservable inputs reflect market assumptions made by the reporting entity.

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The three-level hierarchy for the inputs to valuation techniques used to measure fair value is briefly summarized as follows:

Level 1 — Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets and liabilities.

Level 2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

•

Quoted prices for similar assets and liabilities in active markets.

•

Quoted prices for identical or similar assets or liabilities in markets that are not active.

•

Observable inputs other than quoted prices that are used in the valuation of the assets or liabilities (e.g., interest rate and yield curve quotes at commonly quoted intervals).

•

Inputs that are derived principally from or are corroborated by observable market data by correlation or other means.

Level 3 — Unobservable inputs for the assets or liabilities (i.e., supported by little or no market activity). Level 3 inputs include management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Certain of the Company’s financial instruments, including cash and cash equivalents, accounts payable, accrued expenses and other current liabilities are carried at cost, which approximates their fair value because of their short-term nature.

Accounts Receivable, Net

Trade accounts receivable are recorded at the invoiced amount and are noninterest bearing. The Company maintains an allowance for credit losses, consisting of known specific troubled accounts as well as an amount based on overall estimated potential uncollectible accounts receivable based on historical experience and review of their current credit quality. Expected credit losses are recorded as part of selling, general and administrative expenses in the consolidated statements of operations.

Inventory and Other Deferred Costs

Inventory consists of raw materials and supplies used to fulfill customer contracts and the Company's research and development activities, and is valued at the lower of cost or net realizable value. Cost is determined using actual costs, on a first-in, first-out basis. Other deferred costs relate to materials consumed and work performed on customer orders that have yet to be completed and recognized as revenue and cost of revenue. Other deferred costs are also comprised of direct labor and overhead costs incurred.

Property and Equipment, Net

Property and equipment are recorded at cost, less accumulated depreciation and amortization, and are depreciated on a straight-line basis over the estimated useful lives of the related assets, which is generally three to five years for computer equipment, two years for software, three years for furniture and equipment, and five years for machinery and equipment. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. Upon retirement or sale, the cost and related accumulated depreciation and amortization are removed from the consolidated balance sheet, and the resulting gain or loss is reflected in the consolidated statements of operations. Maintenance and repairs that are not considered improvements and do not extend the useful lives of the assets are charged to expense as incurred.

Construction-in-process assets consist primarily of laboratory equipment and computer equipment that have not yet been placed in service. These assets are stated at cost and are not depreciated. Once the assets are placed into service, assets are reclassified to the appropriate asset class based on their nature and depreciated in accordance with the useful lives above. The Company periodically assesses the useful lives of the assets to determine whether events or circumstances may indicate that a revision to the useful life is warranted.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets, including operating lease right-of-use assets, annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such events or circumstances arise, the Company will compare the carrying amount of the asset group comprising the long-lived assets to the estimated future undiscounted cash flows expected to be generated by the asset group. If the estimated aggregate undiscounted cash flows are less than the carrying amount of the asset group, an impairment charge is recorded as the amount by which the carrying amount of the asset group exceeds the fair value of the assets, as based on the expected discounted future cash flows attributable to those assets. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. During the year ended December 31, 2023, the Company recorded a lease impairment charge of $5.6 million related to one of its right-of-use assets. Refer to Note 7, Leases, for more details. There were no impairments of long-lived assets during the years ended December 31, 2024.

Leases

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The Company determines if an arrangement includes a lease at inception and categorizes leases with contractual terms longer than 12 months as either operating or finance leases. Finance leases are generally those leases that allow the Company to substantially utilize or pay for the entire asset over its estimated life. All other leases are categorized as operating leases. As of December 31, 2024, the Company had no finance leases.

Certain lease contracts include obligations to pay for other services, such as maintenance. The Company elected to account for these other services as a component of the lease (i.e., the Company elected the practical expedient not to separate lease and non-lease components).

Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on the Company’s current borrowing rate at the lease commencement date, adjusted for various factors including level of collateralization and term (the “incremental borrowing rate”), unless the rate implicit in the lease is readily determinable. The current portion of lease liabilities is included in “Accrued and other current liabilities.” At the lease commencement date, lease assets are recognized based on the initial present value of the fixed lease payments plus any direct costs from executing the leases and any lease prepayments. Lease assets are presented as “Operating lease right-of-use assets” as a long-term asset. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.

The Company has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from leases with a term of 12 months or less. Fixed lease payments are recognized as an expense on a straight-line basis over the lease term. Variable lease costs are amounts owed by the Company to a lessor that are not fixed, such as reimbursement for common area maintenance, operating expenses, utilities, or other costs that are subject to fluctuation from period to period. The Company has also elected to include expenses related to leases with a term of one month or less in the short-term lease cost disclosure.

Warrant Liability

Changes in fair value of liability classified warrants are recognized within other income (expense), net in the consolidated statements of operations. Warrant liabilities are classified as short-term or long-term based on their remaining contractual periods. Cash proceeds in connection with the issuance of warrants for the Company's common stock are presented as financing activities in the consolidated statements of cash flows.

Segments

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer ("CEO"). The Company has determined that it operates in one operating and reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. See Note 11, Segment and Geographic Information, for additional information.

Recent Accounting Pronouncements

New Accounting Pronouncements Adopted

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. The Company adopted the new guidance retrospectively in fiscal year 2024.

New Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which modifies the rules on income tax disclosures to require disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses ("ASU 2024-03"), which requires the disclosure of additional information related to certain costs and expenses, including amounts of inventory purchases, employee compensation, and depreciation and amortization included in each income statement line item on an interim and annual basis. ASU 2024-03 also requires disclosure of the total amount of selling expenses and the Company's definition of selling expenses. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. Although the new standard requires comparative disclosures for all periods presented, entities will be permitted to begin applying the guidance prospectively. Therefore, comparative disclosures are not required for reporting periods beginning before the effective date. Entities can elect to apply the new standard retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the impact that adoption of ASU 2024-03 will have on its financial statement disclosures.

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Note 3. Revenue

The Company disaggregates revenue by the following five customer types:

•

Pharma tests and services includes sales of testing services and data analytics for clinical trials and research to pharmaceutical companies in support of their drug development programs. Contracts typically contemplate a single project and involve a range of tests and analytics to fulfill the requirements of each particular project.

•

Enterprise sales includes sales of tumor profiling and diagnostic tests directly to another business as an input to their products. The Company is typically contracted to deliver specified tests and analytics in high volume over time. Revenue from the Company's partnership with Natera to provide advanced tumor analysis for use in Natera's MRD test makes up substantially all of the revenue in this category.

•

Population sequencing includes sales of genomic sequencing services and data analytics to support large-scale genetic research programs. The Company is typically contracted to perform whole genome sequencing and provide data that can be used for analysis across a large volume of samples. All of the revenue within this category is from the Company's partnership with the VA MVP.

•

Clinical diagnostic includes sales of ultra-sensitive, tumor-informed diagnostics tests, ordered by healthcare providers for cancer patients, that can detect cancer recurrence earlier and aids in treatment decision-making. Revenue is derived from Medicare and private insurance reimbursements.

•

Other includes sales of genomic tests and analytics to universities and non-profits. Other also includes sales of diagnostics tests ordered by healthcare providers for cancer patients, which was insignificant for periods presented.

The following table presents the Company's revenue disaggregated by customer type (in thousands):

Year Ended December 31,

Clinical diagnostic 759 38

Contract Assets and Liabilities

The opening and closing balances of receivables and contract liabilities from contracts with customers are shown below (in thousands). Contract assets were immaterial for all periods presented.

December 31,

Opening balances:

Short-term contract liabilities $ 3,288 $ 1,264

Long-term contract liabilities (included in other long-term liabilities) 3,928 —

Closing balances:

Short-term contract liabilities $ 3,100 $ 3,288

Long-term contract liabilities (included in other long-term liabilities) — 3,928

Remaining Performance Obligations

Amounts collected in advance of services being provided are deferred as contract liabilities in the consolidated balance sheets. The associated revenue is recognized, and the contract liability is reduced, as the services are subsequently performed. Remaining

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Performance Obligations ("RPO") are comprised mainly of contract liabilities, and to a lesser extent, unbilled service revenue from non-cancellable contracts for which the Company has not invoiced and has an obligation to perform, and for which revenue has not yet been recognized in the financial statements. As of December 31, 2024, amounts related to unfulfilled services under contracts with an original expected duration of more than one year was $1.3 million. The Company expects to recognize the entire amount of $1.3 million in the next 12 months. Revenue recognized that was included in the contract liability balance at the beginning of each reporting period was $4.7 million and $0.4 million for the years ended December 31, 2024 and 2023, respectively.

Note 4. Balance Sheet Details

Inventory and other deferred costs consist of the following (in thousands):

December 31,

Total inventory and other deferred costs $ 5,939 $ 10,474

Property and equipment, net consists of the following (in thousands):

December 31,

Less: accumulated depreciation and amortization (46,038 ) (37,668 )

Depreciation and amortization expense for the years ended December 31, 2024 and 2023 was $10.9 million and $11.3 million, respectively.

Accrued and other current liabilities consist of the following (in thousands):

December 31,

Market Development Fees received from Tempus (Note 8) 1,400 —

Employee ESPP contributions 301 311

Accrued and other current liabilities 2,019 1,407

Total accrued and other current liabilities $ 21,629 $ 23,941

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Note 5. Fair Value Measurements

The following tables show financial assets and liabilities measured at fair value on a recurring basis and the level of inputs used in such measurements as of December 31, 2024 and 2023 (in thousands):

Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Fair Value Level

Assets

Cash and cash equivalents:

Short-term investments:

Corporate debt securities 498 — — 498 Level 2

U.S. agency securities 2,330 — — 2,330 Level 2

Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Fair Value Level

Assets

Cash and cash equivalents:

U.S. government securities 1,983 — — 1,983 Level 2

Short-term investments:

Commercial paper 495 — — 495 Level 2

U.S. agency securities 1,976 — — 1,976 Level 2

The amortized costs and fair value of marketable debt securities (excluding cash and money market funds), by contractual maturity, at December 31, 2024 are as follows (in thousands):

Amortized Cost Fair Value

No security has been in a continuous unrealized loss position for more than 12 months and the Company does not consider any of its marketable debt securities to be impaired.

Tempus Warrants

The Black-Scholes option-pricing model was used to estimate fair value of the warrants issued to Tempus at the date of issuance, November 28, 2023, and at each subsequent balance sheet date prior to their exercises in full in August 2024. Assumptions used are listed below, which are Level 3 fair value inputs. Expected term is equal to the remaining contractual periods of each of the two warrants. Expected volatility was based on the Company's actual historical volatility over the expected terms of the warrants. The risk-free interest

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rate was based on the U.S. Treasury yield curve over the expected term of the warrants. Refer to Note 8, Related Party Transactions, for further information about the warrants issued to Tempus.

Expected term (in years) 1.00 - 2.00

Risk-free interest rate 4.23 - 4.79%

Dividend yield –%

Total fair value of Tempus Warrants (in thousands) $ 10,027

The following table sets forth a summary of the changes in fair value of the Company's Level 3 financial instruments (in thousands):

Year ended December 31,

Beginning balance $ 10,027 $ —

Initial fair value of warrant liabilities upon issuance —- 6,942

Derecognition of warrant liabilities due to exercise in full (28,301 ) —

Ending balance $ — $ 10,027

Note 6. Loans

Amounts outstanding under loans are as follows (in thousands):

December 31,

Less: unamortized discount — (24 )

Long-term portion (included in other long-term liabilities) $ 103 $ 1,234

Equipment and Software Loans

In April 2021, the Company entered into a secured payment agreement with a financing entity to finance the purchase of $2.4 million of internal use software licenses and related software maintenance from a vendor. The financing entity and vendor are not related. The Company repaid the financed amount in three equal payments of $0.8 million in May 2021, May 2022, and May 2023. The payment agreement was noninterest bearing and the Company concluded that such interest rate (zero) did not represent fair and adequate compensation to the financing entity for the use of the related funds. Accordingly, the Company approximated the rate at which it could obtain financing of a similar nature from other sources at the date of the transaction. The resulting imputed interest rate was 7% and was used to establish the present value of the payment agreement. The discount is recognized as an interest expense in the consolidated statements of operations over the life of the payment agreement.

The Company entered into two more secured payment agreements in April 2021 and July 2022, with the same financing entity, to finance the purchase of $3.1 million of computer hardware and related hardware maintenance and $1.3 million of internal use software licenses and related ongoing support, respectively. The Company repaid the financed amount in three equal payments of $1.0 million in July 2021, June 2022, and June 2023 for the first agreement, and two equal payments of $0.4 million in September 2022 and September 2023 for the second agreement. The third payment of $0.4 million for the second agreement, which was supposed to be paid in September 2024, was settled in January 2025. As of December 31, 2024, this amount was included in the accrued and other current liabilities in the consolidated balance sheets. The nature of these agreements and resulting accounting treatment are the same as the payment agreement described in the preceding paragraph, except the imputed interest rate was 9% for the July 2022 agreement.

The total initial present value of the payment agreements was $6.4 million and presented as proceeds from loans in the financing activities section of the consolidated statements of cash flows. Such proceeds were used to purchase equipment, software, and related maintenance and are reflected as cash outflows in the investing and operating activities sections. Repayments of $2.2 million, comprised of $0.8 million related to April 2021 internal use software license agreement, $1.0 million related to April 2021 computer hardware agreement, and $0.4 million related to July 2022 internal use software license agreement, were presented as financing cash outflows during the year ended December 31, 2023 in the consolidated statements of cash flows. Imputed noncash interest expense was immaterial and $0.1 million for the year ended December 31, 2024 and 2023, respectively.

Lab Equipment Loan

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In November 2023, the Company purchased lab equipment from one of its main vendors for $3.4 million. Extended payment terms were provided to the Company through a financial solutions partner of the vendor. Terms included a 30% down payment and 24 equal monthly payments for the remaining balance, with such monthly payments commencing in January 2024 and the last payment due in January 2026, and no interest or financing charges. Title for the lab equipment transferred immediately upon delivery to the Company. The financial solutions partner retains a security interest until payoff is complete at the end of 2025. The purchase price for the lab equipment was equal to the cash price and thus the impact of imputing interest would have been de minimis.

The total financed amount of $3.4 million was presented as proceeds from loans in the financing activities section of the consolidated statements of cash flows during the year ended December 31, 2023. Such amounts were used to purchase lab equipment and are reflected as purchases of property and equipment in the investing activities section of the consolidated statements of cash flows during the year ended December 31, 2023. Repayments, including both the down payment and future monthly payments, were $1.0 million and $1.1 million during the years ended December 31, 2023 and 2024, respectively, are presented as financing cash outflows in the consolidated statements of cash flows.

Note 7. Leases

In 2021, the Company entered into a noncancelable operating lease for approximately 100,000 square feet in Fremont, California used for laboratory operations and its corporate headquarters. The lease term is 13.5 years and commenced in October 2022. The Company gained early access to the premises for the purpose of constructing and installing tenant improvements, for which the landlord contributed $15.1 million. Such contributions were accounted for as lease incentives and are recognized as reductions to lease expense over the lease term. The lease expires at the end of March 2036 and includes two options to extend the term for a period of five-years per option at market rates. The Company determined the extension options are not reasonably certain to be exercised. The lease includes escalating rent payments.

The Company has a noncancelable operating lease expiring in November 2027 for 31,280 square feet in Menlo Park, California previously used for laboratory operations and its former corporate headquarters. The lease includes escalating rent payments. In 2021, the Company expanded the leased premises by an additional 14,710 square feet of space (the “Expansion Lease”). The Expansion Lease expired at the end of December 2022 and was not extended. The Company moved all laboratory operations to the Fremont facility during the third quarter of 2023 and recorded a $5.6 million impairment loss in its consolidated statements of operations during the year ended December 31, 2023 for operating lease right-of-use assets as a result of the change in use of the Menlo Park office as mentioned below. The Company is actively marketing the vacated Menlo Park space for sublease.

The Company has noncancelable operating leases for data center space expiring between 2025 and 2026. The leases include renewal options that the Company determined are not reasonably certain to be exercised. During 2023, the data center operator agreed to terminate a portion of the lease at no cost. The Company remeasured the remaining lease liability and derecognized $0.6 million of operating lease liabilities and right-of-use assets.

The Company had an operating lease for laboratory space in Shanghai, China that was terminated early upon both parties' approval during 2023. The early termination did not result in any material penalties or charges in the Company's consolidated statements of operations. Separately, the Company also has various other short-term leases.

As of December 31, 2024 and 2023, operating leases had a weighted-average remaining lease term of 9.9 years and 10.4 years, respectively and a weighted-average discount rate of 10.6% and 10.5%, respectively. Discount rates are based on estimates of the Company's incremental borrowing rate, as the discount rates implicit in the leases cannot be readily determined. Future lease payments under operating leases as of December 31, 2024 were as follows (in thousands):

Amount

Total future minimum lease payments 70,488

Less: imputed interest (27,910 )

Present value of future minimum lease payments 42,578

Long-term operating lease liabilities $ 34,882

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Cash paid for operating lease liabilities, included in cash flows from operating activities in the consolidated statements of cash flows, for the years ended December 31, 2024 and 2023 was $8.1 million, and $6.0 million, respectively. Right-of-use assets obtained in exchange for new operating lease liabilities during the years ended December 31, 2024 and 2023 were zero and $1.3 million, respectively.

Components of lease cost were as follows (in thousands):

Year Ended December 31,

Lease cost

Lease Impairment

As mentioned above, the Company completed the move of its laboratory operations from its Menlo Park facility to its Fremont facility and began actively marketing the Menlo Park space for sublease during 2023. Accordingly, the Company evaluated the ongoing value of the operating lease right-of-use asset associated with the Menlo Park facility. Based on this evaluation, the Company determined that the right-of-use asset with a carrying amount of $6.7 million was no longer recoverable and was impaired and wrote it down to its estimated fair value of $1.1 million, which resulted in a noncash impairment loss of $5.6 million in its consolidated statements of operations during the year ended December 31, 2023. Estimated fair value was based on expected future sublease cash flows (with the assistance of a third-party real estate broker), net of brokerage commissions and estimated tenant incentives, discounted at a market rate of return on similar assets. The estimation of fair value also included expected downtime prior to the commencement of a future sublease.

Note 8. Related Party Transactions

The Company determined that Tempus and Merck Sharp & Dohme LLC ("Merck") arerelated parties because they own more than 10% of the Company's common stock.

Tempus

Tempus acquired its ownership stake in August 2024 by exercising the Tempus Warrants and purchasing additional shares under the Investment Agreement (defined below).

PSNL US Equity

PSNL · 10-K · period ended 2024-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

PSNL US Equity☆

PSNL · 10-K · period ended 2024-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

PSNL US Equity