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

The following is a discussion and analysis of the financial condition of Recursion Pharmaceuticals, Inc. (Recursion, the Company, we, us or our) and the results of operations. This commentary should be read in conjunction with the Consolidated Financial Statements and accompanying notes appearing in Item 8, “Financial Statements.” This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Note About Forward-Looking Statements" in this Annual Report on Form 10-K. You should review the disclosure under the heading "Risk Factors" in this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

Overview

We are a clinical-stage biotechnology company industrializing drug discovery by decoding biology. Central to our mission is the Recursion Operating System (OS), a platform built across diverse technologiesthat enables us to map andnavigate hundreds of billions of biological and chemical relationships within one of the world’s largest proprietary biological and chemical datasets, the Recursion Data Universe. Scaled ‘wet-lab’ biology and chemistry tools are organized into an iterative loop with ‘dry-lab’ computational tools to rapidly translate map-based hypotheses into validated insights and novel chemistry, unconstrained by published literature or human bias. Our focus on novel technologies spanning target discovery through translation, as well as our ability to rapidly iterate between wet lab and dry lab in-house and at scale, differentiates us from other companies in our space. Further, our balanced team of life scientists and computational and technical experts creates an environment where empirical data, statistical rigor and creative thinking are brought to bear on our decisions. To date, we have leveraged our Recursion OS to enable three value drivers: i) an expansive pipeline of internally-developed programs, including several clinical-stage assets, focused on genetically-driven rare diseases and oncology with significant unmet need and market opportunities, in some cases expected to be in excess of $1.0 billion in annual sales; ii) strategic partnerships with leading biopharma companies to map and navigate intractable areas of biology, including fibrosis with Bayer and neuroscience with Roche and Genentech, to identify novel targets and translate potential new medicines to resource-heavy clinical development overseen by our partners; and iii) Induction Labs, a growth engine created to explore new extensions of the Recursion OS both within and beyond therapeutics. We are a biotechnology company scaling more like a technology company.

Recursion finished the fourth quarter of 2021 with a portfolio of clinical stage, preclinical, late discovery and early discovery programs and continued scaling the total number of phenomic experiments to approximately 115 million, the size of its proprietary data universe to approximately 13 petabytes, and the number of biological and chemical relationships to over 200 billion. Data have been generated on the Recursion OS across 38 human cell types, an in-house chemical library of approximately 1.0 million compounds, and an in silico library of 12 billion small molecules, by a growing team of approximately 400 Recursionauts that is balanced between life scientists and computational and technical experts.

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Summary of Business Highlights

Clinical Programs

•Cerebral cavernous malformation (CCM) (REC-994): In March 2022, we enrolled the first patient in our Phase 2 SYCAMORE clinical trial, which is a double-blind, placebo-controlled safety, tolerability and exploratory efficacy study of this drug candidate in 60 subjects with CCM.

•Neurofibromatosis type 2 (NF2) (REC-2282): We plan to initiate our Phase 2/3 POPLAR-NF2 clinical trial, which is a parallel group, two stage, randomized, multicenter study of this drug candidate in the second quarter of 2022.

•Familial adenomatous polyposis (FAP) (REC-4881): We plan to initiate a Phase 2, randomized, double-blind, placebo-controlled study to evaluate safety, pharmacokinetics and efficacy of this drug candidate in the third quarter of 2022.

Preclinical and Discovery Programs

•Clostridium difficile colitis (REC-3964): We made progress in IND-enabling studies for REC-3964 and plan to initiate a Phase 1 study in the second half of 2022.

•Small molecule inhibitor of a target with a novel link to CDK12 biology: A small molecule inhibitor of a novel target not otherwise known to be related to CDK12, discovered using our next generation mapping and navigating technology, has demonstrated robust single-agent and combination activity with olaparib in an HRD-negative ovarian cancer PDX model, achieving 100% complete and durable response.

•Cancer immunotherapy target 'alpha':We expanded the in vivo dataset of target alpha, where a small molecule inhibitor of target alpha, discovered using our next generation mapping and navigating technology, demonstrated robust combination activity with an anti-PD1 therapy in an EMT6 mouse model and achieved 80% complete response.

•Oncology pipeline:We continued to make progress expanding and advancing numerous oncology programs, discovered using our next generation mapping and navigating technology, through scientific milestones including the programs mentioned above as well as programs related to immune checkpoint resistance in STK11-mutant non-small cell lung cancer, small molecule MYC inhibition, cancer immunotherapy target ‘beta,’ hepatocellular carcinoma, ovarian cancer and other indications.

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Roche-Genentech

In December 2021, we announced a transformational collaboration with Roche and Genentech (collectively referred to as Roche) to advance novel potential medicines in neuroscience and an indication in gastrointestinal oncology by mapping complex biology using the Recursion OS. In this collaboration, Recursion received an upfront payment of $150.0 million in January 2022, is eligible for milestones for map-building and data-sharing that could exceed $500.0 million, as well as research and development, commercialization and net sales milestones on up to 40 programs that could exceed $300.0 million per program and mid- to high-single digit tiered royalties on net sales for products commercialized from this work together.

Bayer AG

In December 2021, we announced the expansion of our collaboration with Bayer to include the use of Recursion’s biological mapping and navigating capabilities to discover small molecule drug candidates with the potential to treat fibrotic diseases. In this expanded collaboration, Recursion and Bayer may now work on more than a dozen programs of relevance to fibrotic diseases.

Recursion OS

•Closed Loop Automated Synthesis Suite (CLASS): We began designing CLASS, our automated chemical microsynthesis system, which will further enable novel chemical formulation and profiling across our maps of biology and chemistry.

•Total Observations : In the fourth quarter of 2021, we surpassed the milestone of executing 100 million total phenotypic experiments and producing 1 billion proprietary biological images.

Financing and Operations

We were incorporated in November 2013. On April 20, 2021, we closed our Initial Public Offering (IPO) and issued 27,878,787 shares of Class A common stock at a price of $18.00 per share, raising gross and net proceeds of $501.8 million and $462.4 million, respectively. Prior to our IPO, we had raised approximately $448.9 million in equity financing from investors in addition to $30.0 million in an upfront payment from our collaboration with Bayer AG (Bayer). In December 2021, we announced a collaboration with Roche and received an upfront payment of $150.0 million in January 2022. See Note 18, “Subsequent Events” to the Consolidated Financial Statements for additional information.

We use the capital we have raised to fund operations and investing activities across platform research operations, drug discovery, clinical development, digital and other infrastructure, creation of our portfolio of intellectual property and administrative support. We do not have any products approved for commercial sale and have not generated any revenues from product sales. We had cash, cash equivalents and investments of $516.6 million as of December 31, 2021, which excludes the recent $150.0 million upfront payment associated with our collaboration with Roche. Based on our current operating plan, we believe that our cash, cash equivalents and investments will be sufficient to fund our operations for at least the next twelve months.

Since inception, we have incurred significant operating losses. Our net losses were $186.5 million, $87.0 million and $61.9 million during the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, our accumulated deficit was $400.1 million. We anticipate that our expenses and operating losses will increase substantially over the foreseeable future. The expected increase in expenses will be driven in large part by our ongoing activities, if and as we: continue to advance our platform; continue preclinical development of our current and future product candidates and initiate additional preclinical studies; commence clinical studies of our current and future product candidates; establish our manufacturing capability, including developing our contract development and manufacturing relationships and building our internal manufacturing facilities; acquire and license technologies aligned with our platform; seek regulatory approval of our current and future product candidates; expand our operational, financial and management systems and increase personnel, including personnel to support our preclinical and clinical development, manufacturing and commercialization efforts; continue to develop, grow,

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perfect and defend our intellectual property portfolio; and incur additional legal, accounting, or other expenses in operating our business, including the additional costs associated with operating as a public company.

We anticipate that we will need to raise additional financing in the future to fund our operations, including the commercialization of any approved product candidates. Until such time, if ever, as we can generate significant product revenue, we expect to finance our operations with our existing cash and cash equivalents, any future equity or debt financings and upfront, milestone and royalty payments, if any, received under current or future license or collaboration agreements. We may not be able to raise additional capital on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations and financial condition may be adversely affected.

Components of Operating Results

Revenues

To date, our business has generated revenue from two sources: (i) grant revenue and (ii) operating revenue.

Grant Revenue—We recognize grant revenue in the period in which the revenue is earned in accordance with the associated grant agreement, which is the period in which corresponding reimbursable expenses under the grant agreement are incurred.

Operating Revenue—Operating revenue is primarily generated through research and development agreements derived from strategic alliances. We are entitled to receive variable consideration as certain milestones are achieved. The timing of revenue recognition is not directly correlated to the timing of cash receipts.

Research and Development

Research and development expenses account for a significant portion of our operating expenses. We recognize research and development expenses as they are incurred. Research and development expenses consist of costs incurred in performing activities including:

•costs to develop and operate our platform;

•costs of discovery efforts which may lead to development candidates, including research materials and external research;

•costs for clinical development of our investigational products;

•costs for materials and supplies associated with the manufacture of active pharmaceutical ingredients, investigational products for preclinical testing and clinical trials;

•personnel-related expenses, including salaries, benefits, bonuses and stock-based compensation for employees engaged in research and development functions;

•costs associated with operating our digital infrastructure; and

•other direct and allocated expenses incurred as a result of research and development activities, including those for facilities, depreciation, amortization and insurance.

We monitor research and development expenses directly associated with our clinical assets at the program level to some degree, however, indirect costs associated with clinical development and the balance of our research and development expenses are not tracked at the program or candidate level.

We recognize expenses associated with third-party contracted services as they are incurred. Upon termination of contracts with third parties, our financial obligations are generally limited to costs incurred or committed to date. Any advance payments for goods or services to be used or rendered in future research and product development activities pursuant to a contractual arrangement are classified as prepaid expenses until such goods or services are rendered.

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General and Administrative

The Company expenses general and administrative costs as incurred. General and administrative expenses consist primarily of salaries; employee benefits; stock-based compensation; and outsourced labor for personnel in executive, finance, human resources, legal and other corporate administrative functions. General and administrative expenses also include legal fees for corporate and patent matters; professional fees for accounting, auditing, tax and administrative consulting services, insurance costs, facilities and depreciation expenses.

We expect that our general and administrative expenses will increase in the future to support personnel in research and development and to support our operations as we increase our research and development activities and activities related to the potential commercialization of our drug candidates.

Other Income (loss), net

Other income (loss), net consists of interest earned primarily from investments, interest expense incurred under our loan agreements, gains and losses from investments, changes in the fair value of warrant liabilities and debt extinguishment costs.

Results of Operations

The following table summarizes the Company’s results of operations:

Revenue

Operating expenses

Revenue

The following table summarizes Recursion’s components of revenue:

Revenue

For the years ended December 31, 2021 and 2020, the increase in revenue compared to prior year was due to revenue recognized from our strategic partnership with Bayer entered into in August 2020.

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Research and Development

The following table summarizes Recursion’s components of research and development expense:

Research and development expenses

Significant components of research and development expense include the following allocated by development phase: Platform, which refers primarily to expenses related to screening of product candidates through hit identification; Discovery, which refers primarily to expenses related to hit identification through development of candidates; and Clinical, which refers primarily to expenses related to development of candidates and beyond.

For the years ended December 31, 2021 and 2020, the increase in research and development expenses compared to prior year was due to an increased number of experiments screened on our platform, an increased number of pre-clinical assets being validated and increased clinical costs as studies progressed.

General and Administrative Expenses

The following table summarizes Recursion’s general and administrative expense:

For the years ended December 31, 2021 and 2020, the increase in general and administrative expenses compared to prior year was due to the growth in size of the Company’s operations including an increase in salaries and wages of $16.4 million and $2.7 million, respectively, equipment costs, human resources costs, facilities costs and other administrative costs associated with operating a growth-stage company.

Other loss (income), net

The following table summarizes Recursion’s components of other loss (income), net:

n/m = Not meaningful

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For the year ended December 31, 2021, the increase in expense compared to the prior year was primarily due to an increase in interest expense due to the fair value of the Series A and B warrants. See Note 12, “Stock-Based Compensation” to the Consolidated Financial Statements for additional details on the warrants.

For the year ended December 31, 2020, the increase in expense compared to the prior year was due to a decrease in interest earned on cash and an increase in expense due to the Company’s convertible note and Midcap loan. See Note 7, “Notes Payable” to the Consolidated Financial Statements for additional details on the convertible note.

Liquidity and Capital Resources

Sources of Liquidity

The Company has not yet commercialized any products and does not expect to generate revenue from the sales of any product candidates for at least several years. Cash, cash equivalents and investments totaled $516.6 million as of December 31, 2021 and $262.1 million as of December 31, 2020.

The Company has incurred operating losses and experienced negative operating cash flows and we anticipate that the Company will continue to incur losses for at least the foreseeable future. Recursion’s net loss was $186.5 million, $87.0 million and $61.9 million during the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021 and December 31, 2020, Recursion had an accumulated deficit of $400.1 million and $213.6 million, respectively.

Recursion has financed its operations through the private placements of preferred stock and an IPO. As of December 31, 2021, the Company had received proceeds of $448.9 million from the sale of its preferred stock. The Company received net proceeds of $462.4 million from the IPO. See Note 10, “Common Stock” to the Consolidated Financial Statements for additional details on the IPO.

In October 2020, the Company received a $30.0 million upfront payment from the Company’s strategic partnership with Bayer. In December 2021, the Company announced a collaboration with Roche and received an upfront payment of $150.0 million in January 2022. See Note 18, “Subsequent Events” to the Consolidated Financial Statements for information on an additional upfront payment received in January 2022.

Midcap Credit and Security Agreement

In September 2019, the Company entered into a Credit and Security Agreement with Midcap Financial Trust (Midcap) and the other lenders party thereto (the Midcap loan agreement). The Midcap loan agreement provided for a term loan facility that included an initial tranche of $11.9 million. In July 2021, the Company paid the balance due on the loan outstanding with Midcap. See Note 7, “Notes Payable” to the Consolidated Financial Statements for additional details.

Cash Flows

The following table is a summary of the Consolidated Statements of Cash Flows for each of the periods presented below:

Years ended December 31,

Operating Activities

Cash used in operating activities increased during the years ended December 31, 2021 and 2020 as a result of higher costs incurred for research and development and general and administrative expenses due to the Company’s growth.

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Investing Activities

Cash used in investing activities during the year ended December 31, 2021 primarily consisted of investment purchases of $301.1 million and property and equipment purchases of $39.8 million, which included $17.9 million for the purchase of a Dell EMC supercomputer. The cash outflows were partially offset by proceeds of $69.2 million from the sales and maturities of investments.

Cash used in investing activities during the year ended December 31, 2020 included $2.6 million for the acquisition of Vium, Inc (Vium) and $5.8 million of capital expenditures primarily for the purchase of lab equipment and leasehold improvements. Additionally, the Company purchased other intangible assets for $904 thousand. The cash outflows were partially offset by the proceeds from the note receivable. See Note 3, “Acquisitions” to the Consolidated Financial Statements for additional details on the Vium acquisition.

Cash used in investing activities during the year ended December 31, 2019 included capital expenditures primarily for the purchase of lab equipment.

Financing Activities

Cash provided by financing activities during the year ended December 31, 2021 primarily included $462.4 million of net proceeds from the IPO. Financing cash flows also included an outflow of $12.7 million for the repayment of long-term debt on the Midcap loan.

Cash provided by financing activities during the year ended December 31, 2020 primarily included proceeds from the sale of preferred stock of $239.1 million. Financing cash flows also included $6.4 million of proceeds from the issuance of convertible notes.

Cash provided by financing activities during the year ended December 31, 2019 primarily included proceeds from the sale of preferred stock of $119.9 million. Financing cash flows also included an outflow of $11.2 million for the repayment of long-term debt on the Pacific loan.

Contractual Obligations

The Company’s material cash requirements include the following contractual obligations:

As of December 31, 2021, the Company had $723 thousand of debt outstanding. This balance is related to notes payable for tenant improvement allowances. See Note 7, “Notes Payable” to the Consolidated Financial Statements for additional information.

As of December 31, 2021, the Company had $61.9 million of future lease commitments. See Note 8 “Commitments and Contingencies” to the Consolidated Financial Statements for additional detail on future lease commitments. In addition to leases that have commenced, this amount includes $1.8 million for leases that have been executed but not yet commenced.

As of December 31, 2021, the Company had $61.2 million of future purchase obligations, $36.7 million of which are expected to be payable within the next year. These commitments primarily related to third-party research services, materials and supplies for research and development activities and capital expenditures.

Critical Accounting Estimates and Policies

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

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While our significant accounting policies are described in more detail in the notes to our consolidated financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We have generated revenue from our strategic alliances. Our alliances with strategic collaborators may contain multiple elements, including research and development services, licenses, options to obtain development and commercialization rights, obligations to develop and manufacture preclinical and clinical material and options to obtain additional research and development services, preclinical and clinical material. Such arrangements may provide for various types of payments to us, including upfront fees, funding of research and development services and preclinical and clinical material, technical, development, regulatory and commercial milestone payments, licensing fees, option exercise fees and royalty and milestone payments on product sales. These payments are often not commensurate with the timing of revenue recognition and therefore result in the deferral of revenue recognition.

Our operating revenue has primarily been generated through funded research and development agreements. Revenue for research and development agreements is recognized as the Company satisfies a performance obligation by transferring the promised services to the customer. The Company recognizes revenue over time by measuring the progress toward complete satisfaction of the relevant performance obligation using an appropriate input or output method based on the services promised to the customer. This method of recognizing revenue requires the company to make estimates to determine the progress towards completion. A significant change in these estimates could have a material effect on the timing and amount of revenue recognized in future periods.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our expenses resulting from our obligations under contracts with vendors, clinical research organizations and consultants. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment terms that do not match the periods over which materials or services are provided under such contracts. Our objective is to reflect the appropriate expenses in our financial statements by matching those expenses with the period in which services are performed and efforts are expended. We account for these expenses according to the timing of various aspects of the expenses and determine accrual estimates by taking into account discussion with applicable personnel and outside service providers as to the progress of clinical trials, or the services completed. During the course of a clinical trial, we adjust our clinical expense recognition if actual results differ from estimates. We make estimates of our accrued expenses as of each balance sheet date based on the facts and circumstances known to us at that time. Our clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. Although we do not expect estimates to be materially different from amounts actually incurred, our understanding of the anticipated status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low for any particular period.

Stock-Based Compensation

We measure stock options and other stock-based awards granted to employees, directors and non-employees based on their fair value on the date of grant and recognize the compensation expense over the requisite service period. We recognize the impact of forfeitures on stock-based compensation expenses as forfeitures occur. We generally apply the straight-line method of expense recognition to awards.

The grant date fair value of stock options is estimated using the Black-Scholes option-pricing model, which requires inputs for the expected term, stock price volatility, dividend yield and the risk-free interest rate of the options. If any assumptions used in the Black-Scholes option-pricing model change significantly, stock-compensation for future awards may differ materially compared with the awards granted previously.

Recently Issued and Adopted Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies” to the Consolidated Financial Statements for information regarding recently issued and adopted accounting pronouncements.

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Emerging Growth Company

The Company is an emerging growth company (EGC), as defined by the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). The JOBS Act, among other things, exempts EGCs from compliance with new or revised financial accounting standards until private companies are required to comply. Recursion has elected to use the extended transition period for new or revised financial accounting standards during the period in which we remain an EGC. However, the Company may adopt certain new or revised accounting standards earlier. This could make comparisons of the Company’s financial statements with other public companies difficult because of the potential differences in applicable accounting standards.

Recursion may remain an EGC until the earlier of (1) December 31, 2026; (2) December 31 of the year in which we (a) become a “large accelerated filer;” or (b) have annual gross revenues of $1.07 billion or more; or (3) the date on which we have issued more than $1.0 billion of non-convertible debt over a three-year period.

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

Interest Rate Risk

As of December 31, 2021, Recursion had an investment portfolio with a fair value of $399.4 million which included cash equivalents and available-for-sale investments. See Note 5, “Investments” to the Consolidated Financial Statements for additional details on the portfolio. Recursion’s investment portfolio is subject to interest rate risk and will fall in value if market interest rates increase. The Company does not believe it is materially exposed to changes in interest rates related to the investments and Recursion does not currently use interest rate derivative instruments to manage exposure to interest rate changes of the investments. A hypothetical 100 basis point increase in interest rates relative to interest rates as of December 31, 2021, would have resulted in a reduction in fair value of approximately $780 thousand of the investment portfolio. In addition, a hypothetical 100 basis point decrease in interest rates as of December 31, 2021 would have an insignificant effect on net loss in the ensuing year.

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Item 8. Financial Statements and Supplementary Data.

Recursion Pharmaceuticals, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

December 31,

Assets

Current assets

Accounts receivable 34 156

Other receivables 9,056 —

Other non-current assets 35 650

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

Current liabilities

Accrued expenses and other liabilities 32,333 10,485

Current portion of notes payable 90 1,073

Current portion of lease incentive obligation 1,416 467

Unearned revenue, net of current portion 6,667 16,667

Notes payable, net of current portion 633 11,414

Lease incentive obligation, net of current portion 9,339 2,708

Commitments and contingencies (Note 8)

Stockholders’ equity (deficit)

Accumulated other comprehensive loss (126) —

See the accompanying notes to these consolidated financial statements.

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Recursion Pharmaceuticals, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

Years ended December 31,

Revenue

Operating expenses

Per share data

See the accompanying notes to these consolidated financial statements.

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Recursion Pharmaceuticals, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

Years ended December 31,

Unrealized losses on investments (162) — —

Net realized losses on investments reclassified into net loss 36 — —

Other comprehensive loss (126) — —

See the accompanying notes to these consolidated financial statements.

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Recursion Pharmaceuticals, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

Shares Amount Shares Amount

Vesting of stock options exercised early — — — — 11 — — 11

Stock-based compensation — — — — 1,385 — — 1,385

Vesting of stock options exercised early — — — — 9 — — 9

Stock-based compensation — — — — 4,292 — — 4,292

Other comprehensive loss — — — — — — (126) (126)

See the accompanying notes to these consolidated financial statements.

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Recursion Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Years ended December 31,

Cash flows from operating activities

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

Asset impairment — 874 —

Changes in operating assets and liabilities:

Accounts receivable 114 (5) (27)

Accrued expenses and other current liabilities 12,764 4,123 (798)

Cash flows from investing activities

Acquisition of a business — (2,600) —

Purchase of an intangible asset — (904) —

Purchases of investments (301,137) — —

Sales and maturities of investments 69,191 — —

Proceeds from note receivable — 595 —

Cash flows from financing activities

Proceeds from sale of preferred stock, net of issuance costs — 239,131 119,915

Proceeds from equity incentive plans and warrants 8,437 681 65

Proceeds from long-term debt — — 11,888

Proceeds from convertible notes — 6,400 —

Payments of debt issuance costs — — (275)

Supplemental disclosure of non—cash investing and financing information

Conversion of preferred stock to common stock $ 448,312 $ — $ —

Conversion of convertible notes to equity — 8,071 —

Deferred issuance costs recorded in equity 547 547 —

Accrued property and equipment 7,749 1,400 —

Supplemental disclosure of cash flow information

See the accompanying notes to these consolidated financial statements.

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Recursion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

Note 1. Description of the Business

Recursion Pharmaceuticals, Inc. (Recursion, the Company, we or our) was originally formed as a limited liability

company on November 4, 2013 under the name Recursion Pharmaceuticals, LLC. In September 2016, we converted to a Delaware corporation and changed our name to Recursion Pharmaceuticals, Inc.

Recursion is a biotechnology company that combines automation, artificial intelligence, machine learning, in vivo validation capabilities and a highly cross-functional team to discover novel medicines that expand our collective understanding of biology. Recursion’s rich, relatable database of biological images generated in-house on the Company’s robotics platform enables advanced machine learning approaches to reveal drug candidates, mechanisms of action, novel chemistry and potential toxicity, with the eventual goal of decoding biology and advancing new therapeutics that radically improve people’s lives.

As of December 31, 2021, the Company had an accumulated deficit of $400.1 million. The Company expects to incur substantial operating losses in future periods and will require additional capital to advance its drug candidates. The Company does not expect to generate significant revenue until the Company successfully completes significant drug development milestones with its subsidiaries or in collaboration with third parties, which the Company expects will take a number of years. In order to commercialize its drug candidates, the Company or its partners need to complete clinical development and comply with comprehensive regulatory requirements. The Company is subject to a number of risks and uncertainties similar to those of other companies of the same size within the biotechnology industry, such as the uncertainty of clinical trial outcomes, uncertainty of additional funding and a history of operating losses.

The Company has funded its operations to date through the issuance of convertible preferred stock (see Note 9, “Convertible Preferred Stock” for additional details) and the issuance of Class A common stock in an Initial Public Offering (IPO), which was completed in April 2021 (see Note 10, “Common Stock” for additional details). Recursion will likely be required to raise additional capital. As of December 31, 2021, the Company did not have any unconditional outstanding commitments for additional funding. If the Company is unable to access additional funds when needed, it may not be able to continue the development of its products or the Company could be required to delay, scale back or abandon some or all of its development programs and other operations. The Company’s ability to access capital when needed is not assured and, if not achieved on a timely basis, could materially harm its business, financial condition and results of operations.

The Company believes that the Company’s existing cash, cash equivalents and investments will be sufficient to fund the Company’s operating expenses and capital expenditures for at least the next 12 months.

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP), which requires the Company to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those amounts. Significant estimates and assumptions include the estimated progress towards the satisfaction of performance obligations to record revenue, accrued research and development expenses and the fair value of stock-based awards issued.

Basis of Presentation

The consolidated financial statements include the accounts of Recursion and its majority-owned subsidiaries that the Company controls. Intercompany balances and transactions have been eliminated in consolidation.

In April 2021, the Company completed a 1.5-for-1 forward stock split of common and convertible preferred stock. All shares presented within these consolidated financial statements were adjusted to reflect the forward stock split for all periods presented. See Note 10, “Common Stock” for additional details.

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In April 2021, the Company’s Board of Directors authorized two classes of common stock, Class A and Class B. Certain shares of Class A were exchanged for Class B on a one-for-one basis. The creation and issuance of the Class B common stock did not affect the loss per share for the Class A or Class B shares for any period. The Company presented the 2021 net loss per share amounts as if the authorization and exchange occurred as of the start of the 2021 reporting period. All share amounts presented prior to the authorization are referred to as Class A common stock.See Note 10, “Common Stock” for additional details.

Segment Information

Recursion operates as a single operating segment. The Company’s chief operating decision maker is its chief executive officer, who allocates resources and assesses performance at the consolidated level.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and marketable securities. These financial instruments are primarily held at two U.S. financial institutions that management believes are of high credit quality. Recursion’s primary bank accounts significantly exceed the federally insured limits.

The Company is dependent on third-party suppliers for certain research and development activities including preclinical and clinical testing. In particular, the Company relies and expects to continue to rely on a small number of these suppliers. These activities could be adversely affected by a significant interruption to Recursion’s third-party suppliers including a delay in the Company’s preclinical and clinical testing and the supply of certain consumable products and compounds.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents includes bank deposits held in checking accounts, money market funds, commercial paper, corporate bonds and certificates of deposits with maturities of three months or less at the time of purchase.

The Company is required to maintain a cash balance in a collateralized account to secure the Company’s credit cards. Additionally, the Company holds restricted cash related to an outstanding letter of credit issued by J.P. Morgan, which was obtained to secure certain Company obligations relating to tenant improvements.

Investments

Investments consist primarily of marketable debt securities including corporate debt securities, government debt securities, commercial paper and certificates of deposit. Investments that have a readily determinable fair value are recorded at fair value. Investments in marketable debt securities are classified as available-for-sale and are recorded at fair value with any unrealized holding gains or losses, net of tax, included in accumulated other comprehensive income (AOCI) on the Consolidated Balance Sheet. Once realized, the gains and losses are recognized in earnings and included in other income (loss), net in the Consolidated Statement of Operations. Realized gains and losses on sales of investments are computed using the first-in, first-out method.

The Company reviews investments for declines in fair value below cost basis each quarter or whenever circumstances indicate the cost basis of an asset may not be recoverable and assesses whether the decline was due to credit-related or other factors. The evaluation is based on a number of factors, including the extent to which fair value is below cost basis; adverse conditions related specifically to the security, such as any changes to the credit rating of the security; and the intent to sell, or whether Recursion will more likely than not be required to sell the security before recovery of its amortized cost basis. The assessment of whether a security is impaired could change in the future based on new developments or changes in assumptions related to that particular security.

Property and Equipment

Property and equipment is carried at acquisition cost less accumulated depreciation. The cost of normal, recurring, or periodic repairs and maintenance activities related to property and equipment are expensed as incurred.

Depreciation is computed using the straight-line method based on the estimated useful lives of the assets. The estimated useful lives by asset classification are generally as follows:

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Software/Licenses 3 years

Office Equipment 5 years

Computer Equipment 5 years

Lab Equipment 7 years

Leasehold Improvements Lesser of 15 years or the remainder of the lease

Property and equipment are reviewed for impairment as discussed below under Accounting for the Impairment of Long-Lived Assets.

Accounting for the Impairment of Long-Lived Assets

The Company reviews the carrying amounts of long-lived assets, other than goodwill and intangible assets not subject to amortization, for potential impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In evaluating recoverability, Recursion groups assets and liabilities at the lowest level such that the identifiable cash flows relating to the group are largely independent of the cash flows of other assets and liabilities. The Company then compares the carrying amount of the asset or asset group with the projected undiscounted future cash flows to be generated by the asset or asset group. In the event impairment exists, an impairment charge is recorded as the amount by which the carrying amount of the asset or asset group exceeds the fair value.

Accruals for Research and Development Expenses and Clinical Trials

As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from obligations under contracts with vendors, clinical research organizations and consultants. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment terms that do not match the periods over which materials or services are provided for under such contracts. The Company’s policy is to record these expenses during the period in which services are performed and efforts are expended. The Company determines accrual estimates by taking into account discussion with applicable personnel and outside service providers as to the progress of clinical trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each Consolidated Balance Sheet date based on the facts and circumstances known to it at that time. The actual expenses could be different from the amounts accrued.

Leases

The Company rents facilities under operating lease agreements and recognizes rent expense on a straight-line basis over the term of the lease. Certain lease agreements contain tenant improvement allowances, rent holidays, scheduled rent increases and renewal options. Rent holidays and scheduled rent increases are included in the determination of rent expense. Renewals are generally not included in the determination of the lease term unless they are determined to be reasonably assured at the inception of the lease. The Company recognizes rent expense beginning on the date the Company obtains the legal right to use and control the leased space. Tenant improvement allowances are accounted for as a lease incentive obligation, which is amortized as a reduction to rent expense over the lease term.

Revenue Recognition

Grant Revenue

The Company recognizes grant revenue in the period in which the revenue is earned in accordance with the grant agreement, which is the period in which corresponding reimbursable expenses under the grant agreement are incurred.

During the year ended December 31, 2018, the Company was awarded a grant by the National Institutes of Health, which included potential funding of $1.4 million. Revenue recognized related to this grant during the years ended December 31, 2021, 2020 and 2019 was $178 thousand, $549 thousand and $385 thousand, respectively. As of December 31, 2021, $279 thousand of the potential funding still remained.

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During the year ended December 31, 2017, the Company was awarded a private grant by the Bill and Melinda Gates Foundation. On November 17, 2017, the Bill and Melinda Gates Foundation distributed $546 thousand to the Company pursuant to such grant. Revenue was recognized as qualifying activities were performed. There was no remaining unearned revenue balance related to this grant as of December 31, 2019. Revenue recognized related to grant during the year ended December 31, 2019 was $223 thousand. As of December 31, 2019, there were no remaining amounts related to this grant available for funding.

Operating Revenue

Operating revenue has primarily been generated through funded research and development agreements (see Note 11,“Collaborative Development Contracts” for additional details). Revenue for research and development agreements is recognized as the Company satisfies a performance obligation by transferring the promised services to the customer. The Company recognizes revenue over time by measuring the progress toward complete satisfaction of the relevant performance obligation using an appropriate input or output method based on the services promised to the customer. This method of recognizing revenue requires the company to make estimates to determine the progress towards completion. A significant change in these estimates could have a material effect on the timing and amount of revenue recognized in future periods.

The Company may also provide options in our agreements under which a partner could request that Recursion provide additional services in the future. Recursion evaluates whether these options are material rights at the inception of the agreement. If the Company determines an option is a material right, Recursion will consider the option a separate performance obligation. Historically, the Company has concluded that options granted to license in the future or to provide additional services are not material rights because these items are contingent upon future events that may not occur and are not priced at a significant discount.

Research and Development Expenses

Research and development expenses comprise costs incurred in performing research and development activities, including drug discovery and development studies, external research and the purchase of laboratory supplies. The Company recognizes expenses associated with third-party contracted services based on the completion of activities as specified in the applicable contracts. Upon the termination of contracts with third-parties, the Company’s financial obligations are generally limited to costs incurred or committed to date. Any advance payments for goods or services to be used or rendered in future research and product development activities are classified as prepaid expenses until the goods or services are rendered.

Stock-Based Compensation

The Company issues stock-based awards to employees and non-employees, generally in the form of stock options and restricted stock units (RSUs). Most of the Company’s stock-based awards have been made to employees. Recursion measures compensation expense for equity awards at their grant-date fair value and recognizes compensation expense over the requisite service period, generally on a straight-line basis. For stock-based awards with a performance condition, Recursion recognizes stock-based compensation expense based on the probable outcome of the performance condition. Awards generally vest over four years for employees. Recursion recognizes the impact of forfeitures on stock-based compensation expense as they occur.

The grant date fair value of stock options is estimated using the Black-Scholes option pricing model, which requires inputs for the expected term, stock price volatility, dividend yield and the risk-free interest rate of the options. The expected term is based on the simplified method since the Company does not have sufficient historical exercise data to estimate the expected term. The volatility is based on an average peer historical volatility over the expected term of the option. The expected dividend yield is assumed to be zero as Recursion has never paid dividends and does not have current plans to pay dividends. The risk-free interest rate is based on the rates available at the time of the grant for zero-coupon U.S. government issues with a remaining term equal to the option's expected term.

The grant date fair value of RSUs is determined using the market price of the Company’s common stock at grant date. For stock-based awards with a market condition, the grant date fair value is determined using a Monte Carlo simulation and stock-based compensation expense is recognized using the accelerated attribution method over the implied service period. When a market condition is satisfied in a period before the end of the implied service period, any remaining unrecognized compensation cost is recognized. Stock-based compensation is recorded in research

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and development expense and general and administrative expense based on the role of the employee and non-employee.

Income Taxes

Income taxes are accounted for under the asset and liability method. Provisions for federal, state and foreign income taxes are calculated on reported pretax losses based on current tax laws. Deferred taxes are recognized using enacted tax rates on the future tax consequences of temporary differences, which are the differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and the tax benefits of carryforwards. A valuation allowance is established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized.

For uncertain tax positions, Recursion determines whether the position is more-likely-than-not to be sustained upon examination based on the technical merits of the position. Any tax position that meets the more-likely-than-not recognition threshold is measured and recognized in the Consolidated Financial Statements at the largest amount that is greater than 50% likely of being realized upon ultimate settlement.

Emerging Growth Company

The Company is an emerging growth company (EGC), as defined by the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). The JOBS Act exempts EGCs from being required to comply with new or revised financial accounting standards until private companies are required to comply. Recursion has elected to use the extended transition period for new or revised financial accounting standards, although the Company may adopt certain new or revised accounting standards early. This may make comparisons of the Company’s financial statements with other public companies difficult because of the potential differences in accounting standards used.

Recursion may remain an EGC until the earlier of (1) December 31, 2026; (2) December 31 of the year in which we (a) become a “large accelerated filer;” or (b) have annual gross revenues of $1.07 billion or more; or (3) the date on which we have issued more than $1.0 billion of non-convertible debt over a three-year period.

Recent Accounting Pronouncements

On January 1, 2022, Recursion adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Under Topic 842, lessees are required to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with terms greater than 12 months. The guidance also expanded the disclosure requirements of lease arrangements. The Company will adopt Topic 842 using the modified retrospective method. Recursion elected the following practical expedients when assessing the transition impact: i) not to reassess whether any expired or existing contracts as of the adoption date are or contain leases; ii) not to reassess the lease classification for any expired or existing leases as of the adoption date; and iii) not to reassess initial direct costs for any existing leases as of the adoption date.

Results for reporting periods beginning after December 31, 2021 will be presented in accordance with the standard, while results for prior periods will not be adjusted and will continue to be reported in accordance with Recursion’s historical accounting. The January 1, 2022 adjustment to record lease right-of-use assets and lease liabilities will be $32.9 million and $47.8 million, respectively. The Company does not anticipate any material change to the consolidated statements of income and cash flows.

Note 3. Acquisitions

Acquisition of Vium, Inc.

In July 2020, the Company entered into an asset purchase agreement to purchase 100% of the assets of Vium, Inc. (Vium) for a total cash consideration of $2.6 million. The primary purpose of the acquisition was to obtain Vium’s technology. This was a related party transaction, see Note 17, “Related Party Transactions” for additional details. The acquisition of Vium has been accounted for as a business combination using the acquisition method of accounting.

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The following table summarizes fair values of assets acquired as of the July 2020 acquisition date:

(in thousands)

Property and equipment 14

Technology intangible asset 911

Other intangibles assets 642

Total identifiable net assets 1,799

Total assets acquired $ 2,600

The results of operations of Vium have been included in our Consolidated Statements of Operations since the date the business was acquired and were not significant. The technology intangible asset is being amortized on a straight-line basis over its three-year useful life. The inventory and other intangible assets were fully impaired at the time they were acquired as the Company did not intend to use them.

The goodwill includes the value of potential future technologies as well as the overall strategic benefits provided to the business.

Intangible Asset Acquisition

In December 2020, the Company purchased the Recursion domain name for cash consideration of $904 thousand. The purchase price was capitalized as an intangible asset with an indefinite useful life.

Note 4. Supplemental Financial Information

Property and Equipment

December 31,

Less: Accumulated depreciation (18,737) (9,962)

Depreciation expense on property and equipment was $8.8 million, $4.2 million and $3.5 million during the years ended December 31, 2021, 2020 and 2019, respectively.

For the year ended December 31, 2021, the Company purchased a Dell EMC supercomputer for $17.9 million. The purchase was classified as office equipment in the above table. The construction in progress balance primarily relates to leasehold improvements under construction for several leased locations.

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Accrued Expenses and Other Liabilities

December 31,

Accrued early discovery expenses 2,114 338

Accrued construction 4,665 —

Accrued expense and other liabilities $ 32,333 $ 10,485

Interest Expense, net

Years ended December 31,

For the year ended December 31, 2021, interest expense primarily related to changes in fair value of the Series A and B warrants (see Note 12, “Stock-based Compensation” for additional details on the warrants). The Company also had expenses for the Midcap loan and tenant improvement allowance notes (see Note 7, “Notes Payable” for additional details.) For the year ended December 31, 2020, interest expense included expenses on the Midcap loan, convertible notes and tenant improvement allowance notes (see Note 7, “Notes Payable” for additional details). For the year ended December 31, 2019, interest expense related to outstanding loans. Interest expense was included in “Other income (loss), net” on the Consolidated Statements of Operations.

Note 5. Investments

In August 2021, the Company invested cash in an investment portfolio. The primary objectives of the investment portfolio are to preserve principal, maintain prudent levels of liquidity and obtain investment returns. Recursion’s investment policy limits investments to certain types of debt and money market instruments issued by institutions with investment-grade credit ratings and it places restrictions on maturities and concentration by asset class and issuer.

The following table summarizes the Company’s available-for-sale investments by type of security:

The following table summarizes the classification of the Company’s available-for-sale investments on the Consolidated Balance Sheet:

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(in thousands) December 31, 2021

Cash and cash equivalents $ 167,931

As of December 31, 2021, all of the Company’s available-for-sale investments mature in one year or less.

The Company held a total of 34 positions that were in an unrealized loss position as of December 31, 2021. The unrealized losses were primarily due to changes in interest rates. There were no significant unrealized losses as of December 31, 2021. Realized gains and losses on the Company’s investments were insignificant during year ended December 31, 2021. No impairments were recorded during the year ended December 31, 2021. Realized gains and losses on interest-bearing securities are recorded in Other income, net, in the Consolidated Statements of Income.

The Company did not have an investment portfolio as of December 31, 2020.

Note 6. Goodwill and Intangible Assets

Goodwill

The carrying amount of goodwill was $801 thousand as of December 31, 2021 and 2020. There were no changes to the carrying amount of goodwill during the year ended December 31, 2021. For the year ended December 31, 2020, the goodwill addition related to the purchase of Vium (see Note 3, “Acquisitions” for additional details on the acquisition). No goodwill impairment was recorded during the years ended December 31, 2021 and 2020.

Intangible Assets, Net

The following table summarizes intangible assets:

Amortization expense was $304 thousand and $126 thousand during the years ended December 31, 2021 and 2020, respectively. There was no amortization expense during the year ended December 31, 2019. Amortization expense was included in research and development in the Consolidated Statements of Operations. Amortization expense for the definite-lived intangible asset will be recognized over approximately the next 2 years.

The indefinite-lived intangible asset represents the Recursion domain name that the Company purchased. No indefinite-lived intangible asset impairment charges were recorded during the years ended December 31, 2021 and 2020. There were no indefinite-lived intangible assets on the Consolidated Balance Sheet as of December 31, 2019.

Note 7. Notes Payable

Midcap Financial

In September 2019, the Company entered into a Credit and Security Agreement with Midcap Financial Trust (Midcap) and the other lenders party thereto (the Midcap loan agreement). The Midcap loan agreement provided for a term loan facility that included an initial tranche of $11.9 million. The Company used $11.2 million of the proceeds from the initial tranche to fully repay a previously outstanding term loan with Pacific Western Bank (Pacific). In July 2021, the Company paid the balance due under the Midcap loan agreement of $12.7 million. The Company

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recorded an early extinguishment loss of $996 thousand, which was included in “Other income (loss), net” on the Consolidated Statements of Operations. As of December 31, 2020, the outstanding principal balance under the Midcap loan agreement was $11.9 million.

In 2019, the Company paid fees of approximately $298 thousand in connection with the origination of the Midcap Loan Agreement. These fees were deferred and recorded as a direct deduction from the carrying value of the loan payable and were amortized to interest expense over the expected remaining term of the agreement.

Pacific Western

For the year ended December 31, 2019, the Company recorded an early extinguishment loss of $555 thousand related to the repayment of the Pacific term loan, which was included in “Other income (loss), net” on the Consolidated Statements of Operations.

In May 2018, Pacific issued a standby letter of credit of $3.8 million for the benefit of the Company’s landlord, securing certain Company obligations relating to tenant improvements. This letter of credit was transferred to J.P. Morgan during the year ended December 31, 2021. See Note 2, “Summary of Significant Accounting Policies” for additional details. As of December 31, 2020, the outstanding letter of credit was $3.8 million, for which the Company held $4.0 million of restricted cash as collateral.

Convertible Notes

In March 2020 and April 2020, the Company issued convertible promissory notes for an aggregate principal amount of $6.4 million. Under certain conditions, the principal was convertible into an amount of equity with a fair value that exceeded the amount of the notes’ principal on the conversion date. This feature of the notes was accounted for separately at fair value as a derivative liability. These notes converted to 1,203,231 shares of Series D Preferred Stock in September 2020. Upon conversion of the notes, the Company recorded the $1.6 million fair value of the derivative liability as equity on the Consolidated Balance Sheet. Changes in the fair value of the derivative were recorded in “Other income (loss), net” in the Consolidated Statements of Operations at a loss of $484 thousand during the year ended December 31, 2020.

Notes Payable for Tenant Improvement Allowance

In 2018, the Company borrowed $992 thousand, which was available as part of the Station 41 lease from its landlord for use on tenant improvements (see Note 8, “Commitments and Contingencies” for additional details). Under the terms of the lease, the note will be repaid over a 10-year period at an 8% interest rate.

Notes payable consisted of the following:

December 31,

Current portion of notes payable $ 90 $ 1,073

Long-term portion of notes payable 633 11,615

Less: unamortized issuance costs — (201)

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The following table presents information regarding the Company’s debt principal repayment obligations as of December 31, 2021:

(in thousands) Amount

Total debt principal payments $ 723

Note 8. Commitments and Contingencies

Lease Obligations

The Company has entered into various long-term real estate leases primarily related to office, research and development and operating activities. For the years ended December 31, 2021, 2020 and 2019, total rent expense was $6.4 million, $3.7 million and $3.7 million, respectively. The leases described below are classified as operating leases.

Komas Lease

In August 2016, the Company entered into a new facilities lease, with the right of use and payments beginning in January 2017. The term of the lease is 7 years. This lease includes provisions for escalating rent payments. This lease included an allowance for tenant improvements. In conjunction with the allowance for tenant improvements, the Company recorded a lease incentive obligation of $847 thousand. As of December 31, 2021, the unamortized lease incentive obligation was $252 thousand.

Station 41 Lease

In August 2017, the Company entered into a new facilities lease, with the right of use beginning in December 2017 and payments beginning in June 2018. The term of the lease is 10 years, with onefive-year renewal option. This lease includes provisions for escalating rent payments. This lease included an allowance for tenant improvements of $4.0 million, the full amount of which has been drawn. As of December 31, 2021, the related unamortized lease incentive obligation was $2.4 million.

In 2018, the Company elected to draw a tenant improvement loan of $992 thousand available under the Station 41 lease. This loan is incorporated into and acts to increase the base rent over the remaining life of the lease. The increase in rent includes a charge for interest, which accrues on the principal amount outstanding at a rate equal to 8%. The Company accounts for this additional tenant improvement loan as a note payable on the Consolidated Balance Sheets with the current portion included in the Current Portion of Notes Payable.

In 2019, the Company amended the Station 41 lease to include additional space in the conjoining unit with the right to use the new space beginning in June 2020 for an additional seven years. This amendment for the extra space includes provisions for escalating rent payments.

Milpitas Lease

In August 2019, the Company entered into a new facilities lease, with the right of use and payments beginning in August 2019. The term of the lease is 9 years. This lease includes provisions for escalating rent payments.

Station 56 Lease

In January 2021, the Company entered into a new facilities lease with 91,478 square feet adjacent to the Station 41 lease. The right of use began in August 2021 and the term of the lease is approximately 11 years with a five-year renewal option. This lease includes provisions for escalating rent payments. The lease includes a tenant improvement allowance of up to approximately $10.1 million. As of December 31, 2021, $8.5 million of the tenant improvement allowance had been utilized. This balance has not yet been collected and was recorded on the

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Consolidated Balance Sheet in “Other receivables.” As of December 31, 2021, the related unamortized lease incentive obligation was $8.1 million.

Future Minimum Lease Payments

Future minimum commitments as of December 31, 2021 under the Company’s lease agreements are as follows:

(in thousands) Amount

Total minimum payments $ 60,055

Contract Obligations

As of December 31, 2021, the Company had $61.2 million of future purchase obligations, $36.7 million of which are expected to be payable within the next year. These commitments primarily related to third-party research services, materials and supplies for research and development activities and capital expenditures.

Indemnification

The Company has agreed to indemnify its officers and directors for certain events or occurrences, while the officer or director is or was serving at the Company’s request in such capacity. The Company purchases directors and officers liability insurance coverage that provides for reimbursement to the Company for covered obligations and this is intended to limit the Company’s exposure and enable it to recover a portion of any amounts it pays under its indemnification obligations. The Company had no liabilities recorded for these agreements as of December 31, 2021 and December 31, 2020, as no amounts are probable or estimable.

Employee Agreements

The Company has signed employment agreements with certain key employees pursuant to which, if their employment is terminated following a change of control of the Company, the employees are entitled to receive certain benefits, including accelerated vesting of equity incentives.

Legal Matters

The Company is not currently a party to any material litigation or other material legal proceedings. The Company may, from time to time, be involved in various legal proceedings arising in the normal course of business. An unfavorable resolution of any such matter could materially affect the Company’s future financial position, results of operations or cash flows.

Note 9. Convertible Preferred Stock

The Company has issued preferred stock as part of various financing events. In April 2021, all outstanding shares of convertible preferred stock converted into 115,598,018 shares of Class A common stock as part of the IPO (see Note 10, “Common Stock” for additional details on the IPO). There was no convertible preferred stock outstanding as of December 31, 2021.

No convertible preferred stock was issued during the year ended December 31, 2021. The Company issued 36,898,548 shares of Series D convertible preferred stock for an aggregate purchase price of $245.9 million ($6.71 per purchased share and $5.37 per converted share) during the year ended December 31, 2020. As part of the Series D issuance, outstanding convertible notes were converted into Series D shares. See “Note 7, Notes Payable” for additional details on the convertible notes. As of December 31, 2020, there were no cumulative dividends owed or in arrears on the preferred stock.

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Convertible preferred stock consisted of the following as of December 31, 2020:

The Company’s convertible preferred stock was classified outside of stockholders’ equity (deficit) on the Consolidated Balance Sheets because the holders of such shares have liquidation rights in the event of a deemed liquidation that, in certain situations, are not solely within the control of the Company and would require the redemption of the then-outstanding convertible preferred stock. The convertible preferred stock was not redeemable, except in the event of a deemed liquidation event.

Note 10. Common Stock

Each share of Class A common stock entitles the holder to one vote per share and each share of Class B common stock entitles the holder to 10 votes per share on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the Company’s board of directors. As of December 31, 2021 and December 31, 2020, no dividends had been declared.

Initial Public Offering

On April 20, 2021, the Company closed its IPO and issued 27,878,787 shares of its Class A common stock at a price of $18.00 per share for net proceeds of $462.4 million, after deducting underwriting discounts and commissions of $35.1 million and other offering costs of $4.3 million. In connection with the IPO, all shares of convertible preferred stock converted into 115,598,018 shares of Class A common stock.

Stock Split

In April 2021, the Board of Directors approved a 1.5-for-1 forward stock split of the Company’s common and convertible preferred stock. Each shareholder of record on April 9, 2021 received 1.5 shares for each then-held share. The split proportionally increased the authorized shares and did not change the par values of the Company’s stock. The split affected all stockholders uniformly and did not affect any stockholder's ownership percentage of the Company's shares of common stock. All shares and per share amounts presented within these Consolidated Financial Statements were adjusted to reflect the forward stock split for all periods presented.

Class A and B Common Shares Authorization

In April 2021, the Company’s Board of Directors authorized two classes of common stock, Class A and Class B. The rights of the holders of Class A and B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share and is convertible at any time into one share of Class A common stock.

All Class B common stock is held by Christopher Gibson, Ph.D., our Chief Executive Officer (CEO), or his affiliate. As of December 31, 2021, Dr. Gibson and his affiliate held outstanding shares of Class B common stock representing approximately 37% of the voting power of the Company’s outstanding shares. This voting power may increase over time as Dr. Gibson vests in and exercises equity awards outstanding. If all the equity awards held by Dr. Gibson had been fully vested and exercised and exchanged for shares of Class B common stock as of December 31, 2021, Dr. Gibson and his affiliate would hold approximately 40% of the voting power of the Company’s outstanding shares. As a result, Dr. Gibson will be able to significantly influence any action requiring the

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approval of Recursion stockholders, including the election of the board of directors; the adoption of amendments to the Company’s certificate of incorporation and bylaws; and the approval of any merger, consolidation, sale of all or substantially all of the Company’s assets, or other major corporate transaction.

Note 11. Collaborative Development Contracts

Bayer AG

In August 2020, the Company entered into a Research Collaboration and Option Agreement (the Bayer Agreement) with Bayer AG (Bayer) for a five-year term pursuant to which the Company and Bayer may initiate approximately 10 research projects related to fibrosis across multiple organ systems, including the lung, liver and heart. Under the agreement, the Company contributed compounds from its proprietary library and Bayer contributed compounds from its proprietary library and will contribute scientific expertise throughout the collaboration.

Under each research project, the Company will work with Bayer to identify potential candidates for development. Under the agreement, Bayer has the first option for licenses to potential candidates. Each such license could potentially result in option exercise fees and development and commercial milestone payments payable to the Company, with an aggregate value of up to approximately $100.0 million (for an option on a lead series) or up to approximately $120.0 million (for an option on a development candidate), as well as tiered royalties for each such license, ranging from low- to mid-single digit percentages of sales, depending on commercial success.

Under the terms of the agreement, the Company received a non-refundable upfront payment of $30.0 million, which was recorded as unearned revenue on the Consolidated Balance Sheet. The Company determined that it has one performance obligation under the agreement, which is to perform research and development services for Bayer. Recursion determined the transaction price to be the $30.0 million upfront payment received and allocated the amount to the single performance obligation. The Company is recognizing revenue over time by measuring progress towards completion of the performance obligation. This method of recognizing revenue requires Company to make estimates of the total time to provide the services required under the performance obligation. A significant change in these estimates could have a material effect on the timing and amount of revenue recognized in future periods.

For the years ended December 31, 2021 and 2020, the Company recognized $10.0 million and $3.3 million, respectively, of revenue resulting from the collaboration. There was $10.0 million and $6.7 million of current and non-current unearned revenue, respectively, remaining as of December 31, 2021. The allocation of unearned revenue between current and non-current is based on Recursion’s estimates of when the Company expects to incur the related costs.

Takeda Pharmaceuticals

In October 2017, the Company entered into a research collaboration with Takeda Pharmaceutical Company Limited. For the year ended December 31, 2019, the Company recognized $1.3 million of revenue related to the collaboration. The Company does not expect future revenues from this collaboration.

Note 12. Stock-Based Compensation

In April 2021, the Board of Directors and the stockholders of the Company adopted the 2021 Equity Incentive Plan (the 2021 Plan). Under the 2021 Plan, 16,186,000 shares of Class A common stock were reserved. Additionally, shares were reserved for all outstanding awards under the previous 2016 Plan. The Company may grant stock options, RSUs, stock appreciation rights, restricted stock awards and other forms of stock-based compensation.

As of December 31, 2021, 14,677,116 shares of Class A common stock were available for grant.

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The following table presents the classification of stock-based compensation expense for stock options and RSUs for employees and non-employees within the Consolidated Statements of Operations:

Years ended December 31,

Stock Options

Stock options generally vest over four years and expire no later than 10 years from the date of grant. Stock option activity during the year ended December 31, 2021 was as follows:

The fair value of options granted to employees is calculated on the grant date using the Black-Scholes option valuation model. The weighted-average grant-date fair values of stock options granted during the years ended December 31, 2021, 2020 and 2019 were $7.66, $1.50 and $1.34, respectively.

The following weighted-average assumptions were used to calculate the grant-date fair value of stock options:

Years ended December 31,

Expected term (in years) 6.3 6.2 6.2

Expected volatility 65 % 67 % 64 %

Expected dividend yield — — —

Risk-free interest rate 1.1 % 1.0 % 2.3 %

In February 2021, the Company granted 150,000 shares of stock options with a performance and service condition that had a fair value of $358 thousand. The grant was fully expensed during the year ended December 31, 2021 as the performance and service conditions were met.

In March 2020, the Company granted 1,500,000 shares of stock options with performance, market and service conditions. At grant date, the Company estimated that the fair value of the options was approximately $2.0 million. For the years ended December 31, 2021 and 2020, $1.7 million and zero of expense was recorded, respectively. For the year ended December 31, 2021, several of the award’s conditions were met. For the year ended December 31, 2020, no expense was recorded as the performance conditions were not considered probable.

As of December 31, 2021, $31.7 million of unrecognized compensation cost related to stock options is expected to be recognized as expense over approximately the next three years.

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RSUs

In April 2021, Recursion redesigned certain aspects of its long-term incentive program. As a result, equity awards granted to employees since the redesign generally consist of a combination of stock options and RSUs. RSUs awarded to employees pursuant to the 2021 Plan generally vest over four years. The weighted-average grant-date fair value of RSUs generally is determined based on the number of units granted and the quoted price of Recursion’s common stock on the date of grant.

The following table summarizes Recursion’s RSU activity during the year ended December 31, 2021:

Stock units Weighted-average grant date fair value

Outstanding as of December 31, 2020 — $ —

The fair market value of RSUs vested was $312 thousand during the year ended December 31, 2021. As of December 31, 2021, $9.9 million of unrecognized compensation cost related to RSUs is expected to be recognized as expense over approximately the next three years.

Employee Share Purchase Plan (ESPP)

In April 2021, the Board of Directors and stockholders of the Company adopted the 2021 Employee Stock Purchase Plan (the ESPP). Under the ESPP, 3,238,000 shares of Class A common stock were reserved. The ESPP has consecutive six-month offering periods. The offering periods are scheduled to start on the first trading day on or after May 20 and November 20 of each year, except the first offering period, which commenced on the plan effectiveness date and will end on the first trading day on or after November 20, 2021. The second offering period commenced on the first trading day on or after November 20, 2021. The per share purchase price is 85% of the lower of the fair market value on (1) the first trading day of the offering period or (2) the exercise date.

The fair value of the ESPP grants is measured at grant date. The fair value is determined considering the purchase discount and the fair value of the look-back feature. Black-Scholes pricing models are used to calculate the fair value of the look-back feature. The weighted-average assumptions used in the Black-Scholes models were as follows:

Expected term (in years) 0.5

Expected volatility 61 %

Expected dividend yield —

Risk-free interest rate 0.06 %

For the year ended December 31, 2021, 106,365 shares were issued under the ESPP. For the year ended December 31, 2021, Recursion recognized expense of $731 thousand. As of December 31, 2021, $522 thousand of unrecognized ESPP compensation cost is expected to be recognized as expense over approximately the next five months.

Warrants

In connection with the execution of the Pacific loan agreement (see Note 7, “Notes Payable” for additional details), the Company issued to Pacific fully vested warrants to purchase 84,486 shares of Series A Preferred Stock (Series A warrants) at a purchase price of $0.71 per share. In May 2017, the Company drew on additional borrowing capacity under the Pacific loan agreement, which required the Company to issue additional fully vested warrants for

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28,161 shares of Series A Preferred Stock at a purchase price of $0.71 per share. These Series A warrants were exercised in April 2021.

In July 2018, the Company drew on additional borrowing capacity under an amended agreement. This required the Company to issue fully vested warrants to purchase 25,762 shares of Series B Preferred Stock (Series B warrants) at a purchase price of $2.79 per share. These Series B warrants were exercised in April 2021.

In January 2020, the Company issued warrants to purchase 213,646 shares of Series C Preferred Stock (Series C warrants) at a purchase price of $5.49 per share as part of a services agreement. These Series C warrants were exercised in October 2021. The grant date fair value was $4.10 per share.

The FASB has issued accounting guidance on the classification of freestanding warrants and other similar instruments for shares that are redeemable (either puttable or mandatorily redeemable). The guidance requires liability classification for certain warrants that are exercisable into convertible preferred stock. The initial fair values of the Series A and B warrants were recorded as debt issuance costs, which resulted in a reduction in the carrying value of the debt and subsequent accretion. The Company remeasured the Series A and B warrants on each Consolidated Balance Sheet date. The change in valuation was recorded in the Consolidated Statements of Operations in “Other income (loss), net.” The liability was recorded to equity upon the exercise of the Series A and B warrants.

The Series C warrants’ compensation expense was recorded in general and administrative expense ratably over the requisite service period based on the award’s fair value at the date of grant. These warrants were classified as equity as they were issued to non-employees for services and the convertible preferred stock was not redeemable.

The following is a summary of the changes in the Company’s Series A and B warrant liability balance during the years ended December 31, 2021 and 2020:

(in thousands)

Decrease in fair value of warrants (11)

Decrease in fair value of warrants (3)

Increase in fair value of warrants 2,215

Recorded in equity upon exercise (2,340)

Balance as of December 31, 2021 $ —

Note 13. Employee benefit plans

The Company has an employee benefit plan under Section 401(k) of the Internal Revenue Code. The plan allows employees to make contributions up to a specified percentage of their compensation. The Company is currently contributing up to 4% of employee base salary, by matching 100% of the first 4% of annual base salary contributed by each employee. Employer expenses were $2.1 million, $1.1 million and $931 thousand during the years ended December 31, 2021, 2020 and 2019, respectively.

Note 14. Income Taxes

The Company did not record any income tax expense for the years ended December 31, 2021, 2020 and 2019. The Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets. Foreign taxes were insignificant for the year ended December 31, 2021.

The provision for income taxes consisted of the following components (all deferred):

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Years ended December 31,

Total $ — $ — $ —

The Company’s effective tax rate of 0% for the years ended December 31, 2021, 2020 and 2019 differs from the statutory U.S. federal rate as follows:

Years ended December 31,

R&D credit generation 3.2 % 3.3 % 3.6 %

Orphan drug credit generation 1.1 % 1.0 % 1.5 %

Uncertain tax positions (0.4) % (0.4) % (0.5) %

Other non-deductible expenses 0.4 % (1.1) % (0.4) %

Change in valuation allowance (25.3) % (23.8) % (25.2) %

Effective tax rate — % — % — %

The tax effects of temporary differences that give rise to significant components of the deferred tax assets are as follows:

December 31,

Deferred tax assets

Research and development credit carryforwards 16,742 9,529

Deferred rent 3,132 —

Deferred tax liabilities

Tenant allowance receivable (1,783) —

Net deferred tax asset $ — $ —

As of December 31, 2021 and 2020, the Company recorded the portion of its deferred tax assets that was determined to meet the more likely than not threshold. A valuation allowance was recorded against the remaining deferred tax assets. Significant judgment is required in determining the Company’s provision for income taxes, recording valuation allowances against deferred tax assets and evaluating the Company’s uncertain tax positions. Due to net losses since inception and the uncertainty of realizing the deferred tax assets, the Company has a full valuation allowance against its net deferred tax assets. To the extent that the Company generates positive income and expects, with reasonable certainty, to continue to generate positive income, the Company may release all, or a portion of, the valuation allowance in a future period. This release would result in the recognition of all, or a portion

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of, the Company’s deferred tax assets, resulting in a decrease to income tax expense for the period such release is made. As of December 31, 2021 and 2020, the Company’s valuation allowance was $102.0 million and $55.4 million, respectively, which increased by approximately $46.6 million and $21.7 million during the years ended December 31, 2021 and 2020, respectively.

NOLs and tax credit carry-forwards are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and may become subject to annual limitation due to ownership changes that have occurred previously or that could occur in the future under Section 382 of the Internal Revenue Code, as amended and similar state provisions. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. Further, until a study is completed and any limitation is known, no amounts are being presented as an uncertain tax position.

As of December 31, 2021 and 2020, the Company had federal NOL carryforwards of $353.1 million and $193.8 million, respectively, available to reduce taxable income, of which $18.6 million expire beginning 2036 and $334.4 million do not expire. The Company had state NOL carryforwards of $63.0 million and $77.4 million as of December 31, 2021 and 2020, respectively, available to reduce future state taxable income, of which $5.3 million expire beginning 2031 and $57.7 million not expire.

As of December 31, 2021, the Company also had federal and state research and development credit carryforwards of $16.5 million and $2.2 million respectively. As of December 31, 2020, the Company had federal and state research and development credit carryforwards of $6.7 million and $2.2 million, respectively. The federal research and development credit carryforwards expire beginning in 2036 and the state credit carryforwards expire beginning in 2030. The Company also had federal Orphan Drug credits of $3.8 million and $1.8 million as of December 31, 2021 and 2020, respectively, which will begin expiring in 2036. The Company had reserves for uncertain tax positions against these credit carryforwards of $1.9 million and $1.1 million as of December 31, 2021 and 2020 respectively.

The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. It is the Company’s policy to include penalties and interest expense related to income taxes as a component of Other income (loss), net as necessary.

The Company files income tax returns in the United States, Canada, Utah, California and Massachusetts. The Company is not currently under examination in any of these jurisdictions. The Company is subject to income tax examinations on all federal returns since the 2018 tax return.

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Note 15. Net Loss Per Share

For the year ended December 31, 2021, Recursion calculated net loss per share of Class A and Class B common stock using the two-class method. Basic net loss per share is computed using the weighted-average number of shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares and the effect of potentially dilutive securities outstanding during the period. Potentially dilutive securities consist of stock options and other contingently issuable shares. For periods presented in which the Company reports a net loss, all potentially dilutive shares are anti-dilutive and as such are excluded from the calculation.

The rights, including the liquidation and dividend rights, of the holders of the Company’s Class A and Class B common stock are identical, except with respect to voting. As a result, the undistributed earnings for each period are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the period had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis and the resulting amount per share for Class A and Class B common stock was the same during the year ended December 31, 2021.

Recursion issued certain shares of convertible preferred stock that were outstanding until April 2021 and were concluded to be participating securities. For the years ended December 31, 2020 and 2019, there was only one class of common stock outstanding. Due to the presence of participating securities, Recursion calculated net loss per share during the years ended December 31, 2020 and 2019 using the more dilutive of the treasury stock or the two-class method. For periods presented in which the Company reports a net loss, the losses are not allocated to the participating securities. The preferred stock converted to common stock in April 2021 as part of the Company’s IPO. See Note 10, “Common stock” for additional details.

The following tables set forth the computation of basic and diluted net loss per share of Class A and Class B common stock during 2021:

Year ended

(in thousands, except share amount) Class A Class B

Numerator:

Allocation of undistributed earnings $ (172,399) $ (14,080)

Denominator:

Net loss per share, basic and diluted $ (1.49) $ (1.49)

The following table sets forth the computation of basic and diluted net loss per share during 2020 and 2019:

Years ended December 31,

(in thousands, except share amounts) 2020 2019

Numerator:

Denominator:

Net loss per share, basic and diluted $ (3.99) $ (2.87)

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For the years ended December 31, 2021, 2020 and 2019, the Company reported a net loss and therefore basic and diluted loss per share are the same for all periods. The Company excluded the following potential common shares from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:

Years ended December 31,

Note 16. Fair Value Measurements

The fair value hierarchy consists of the following three levels:

•Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets that the company has the ability to access;

•Level 2 — Valuations based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations in which all significant inputs are observable in the market; and

•Level 3 — Valuations using significant inputs that are unobservable in the market and include the use of judgment by the company's management about the assumptions market participants would use in pricing the asset or liability.

The Company measured the Series A and B preferred stock warrant liabilities at fair value using a Black-Scholes option-pricing model. See Note 12, “Stock-based Compensation” for details on the valuation of the warrant liabilities and a reconciliation of the balance.

The following tables summarize the Company’s assets and liabilities that are measured at fair value on a recurring basis:

Basis of fair value measurement

(in thousands) December 31, 2021 Level 1 Level 2 Level 3

Assets

Cash equivalents:

Investments:

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Basis of fair value measurement

(in thousands) December 31, 2020 Level 1 Level 2 Level 3

Assets

Liabilities

Warrant liability $ 125 $ — $ — $ 125

Total liabilities $ 125 $ — $ — $ 125

In addition to the financial instruments that are recognized at fair value on the Consolidated Balance Sheet, the Company has certain financial instruments that are recognized at amortized cost or some basis other than fair value. The carrying amount of these instruments are considered to be representative of their approximate fair values. Additionally, Recursion has short-term financial instruments including accounts receivable and accounts payable whose carrying amounts are considered representative of their approximate fair values.

The following tables summarize the Company’s financial instruments that are not measured at fair value:

Book values Fair values

Liabilities

Note 17. Related Party Transactions

In December 2017, the Company entered into a loan agreement with its CEO to provide a loan of $595 thousand. The loan had a seven-year term. As of December 31, 2021 and 2020, no amount remained outstanding on the loan as the balance was fully paid during the year ended December 31, 2020.

The acquisition of Vium was a related party transaction due to the fact that Vium was affiliated with certain investors of the Company. See Note 3, “Acquisitions” for additional details on the acquisition.

Note 18. Subsequent Events

In January 2022, Recursion received a $150.0 million upfront payment related to the Company’s collaboration with Roche and Genentech, collectively referred to as Roche. Recursion will work with Roche to identify targets and medicines in key areas of neuroscience and in an oncology indication. Recursion is eligible for additional milestone payments based on performance progress of the collaboration. Under the collaboration, Roche may initiate up to 40 programs, each of which, if successfully developed and commercialized, could yield more than $300.0 million in development, commercialization and net revenue milestones for Recursion, as well as tiered royalties on net revenue. Recursion is currently analyzing the accounting impact of this agreement.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Recursion Pharmaceuticals Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Recursion Pharmaceuticals, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2017.

Salt Lake City, Utah

March 23, 2022

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Item 9. Changes in and Disagreements with Accountants.

None.

Item 9A. Controls and Procedures.

The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including the principal executive officer (our Chief Executive Officer) and principal financial officer (our Chief Financial Officer), to allow timely decisions regarding required disclosure. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives as management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2021, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

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Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year.

Item 11. Executive Compensation.

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant.

Item 13. Certain Relationships and Related Transactions and Director Independence.

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year.