# Guardant Health, Inc. (GH) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Guardant Health, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1576280/000157628025000044/gh-20241231.htm
Accession: 0001576280-25-000044
Filing date: 2025-02-20
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/GH/
All MD&A years: /company/GH/mda/
Previous year: /company/GH/mda/fy2023/ (FY 2023)
Next year: /company/GH/mda/fy2025/ (FY 2025)

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

You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, beliefs, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A, “Risk Factors,” of this Annual Report on Form 10-K.

The following generally compares our results of operations for the years ended December 31, 2024 and 2023. A detailed discussion comparing our results of operations for the years ended December 31, 2023 and 2022 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023.

Overview

We are a leading precision oncology company focused on guarding wellness and giving every person more time free from cancer. We are transforming patient care by providing critical insights into what drives disease through our advanced blood and tissue tests, and real-world data. Our tests help improve outcomes across all stages of care, including screening to find cancer early, monitoring for recurrence in early-stage cancer, and helping doctors select the best treatment for patients with advanced cancer. For patients with advanced-stage cancer, we have commercially launched Guardant360 laboratory developed test, or LDT, and Guardant360 CDx, the first comprehensive liquid biopsy test approved by the U.S. Food and Drug Administration, or the FDA, to provide tumor mutation profiling with solid tumors and to be used as a companion diagnostic in connection with non-small cell lung cancer, or NSCLC, and breast cancer. We have also launched the Guardant360 TissueNext tissue test for advanced-stage cancer, Guardant Reveal blood test to detect residual and recurring disease in early-stage colorectal, breast and lung cancer patients, and Guardant360 Response blood test to predict patient response to immunotherapy or targeted therapy eight weeks earlier than current standard-of-care imaging.

We also collaborate with biopharmaceutical companies in clinical studies by providing the above-mentioned tests, as well as the GuardantOMNI blood test for advanced-stage cancer, and the GuardantINFINITY blood test, a next-generation Smart Liquid Biopsy that provides new, multi-dimensional insights into the complexities of tumor molecular profiles and immune response to advance cancer research and therapy development. Using data collected from our tests, we have also developed our GuardantINFORM platform to help biopharmaceutical companies accelerate precision oncology drug development through the use of this in-silico research platform to unlock further insights into tumor evolution and treatment resistance across various biomarker-driven cancers.

For early cancer detection, in May 2022, we launched the Shield LDT test to address the needs of individuals eligible for colorectal cancer screening. From a simple blood draw, Shield uses a novel multimodal approach to detect colorectal cancer signals in the bloodstream, including DNA that is shed by tumors. In December 2022, we announced that the ECLIPSE study, a registrational study evaluating the performance of our Shield blood test for detecting colorectal cancer in average-risk adults, met co-primary endpoints. In addition, in March 2023, we submitted a premarket approval application, or PMA, for our Shield blood test to the FDA. In July 2024, we received FDA approval of our Shield blood test for colorectal cancer screening in adults age 45 and older who are at average risk for the disease, and in August 2024, our Shield blood test became commercially available in the U.S. as the first blood test approved by the FDA for primary colorectal cancer screening, meaning healthcare providers can offer Shield in a manner similar to all other non-invasive methods recommended in screening guidelines. Shield is also the first blood test for colorectal cancer screening that meets coverage requirements by Medicare. We also expect to expand into lung cancer screening and multi-cancer detection with our Shield platform.

We currently perform clinical, research use only, and investigation use only tests in our laboratory located in Redwood City, California. Our Redwood City laboratory is certified pursuant to the Clinical Laboratory Improvement Amendments of 1988, or CLIA, accredited by the College of American Pathologists, or CAP, permitted by the New York State Department of Health, or NYSDOH, and licensed in California and four other states. We also perform research use only tests in our laboratory located in San Diego, California. In addition, our Redwood City, San Diego and Palo Alto, California laboratories are currently operated as centers for our research and technology development.

We generated total revenue of $739.0 million, $563.9 million and $449.5 million for the years ended December 31, 2024, 2023 and 2022, respectively. We also incurred net losses of $436.4 million, $479.4 million and $654.6 million in the years ended December 31, 2024, 2023 and 2022, respectively. We have funded our operations to date

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principally from the sale of our stock, convertible senior notes, and revenue from our precision oncology testing and development services and other. In May 2023, we completed a follow-on underwritten public offering, in which we issued and sold 14,375,000 shares of our common stock at a price of $28.00 per share, and received net proceeds of $381.4 million after deducting underwriting discounts and commissions and other offering costs of $21.1 million. In December 2023, we completed a registered direct offering with an investment management firm, in which we issued and sold 3,387,446 shares of our common stock at a price of $26.77 per share, and received net proceeds of $90.6 million. As of December 31, 2024, we had cash, cash equivalents, restricted cash and marketable debt securities of approximately $944.2 million.

Factors affecting our performance

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

•Testing volume, pricing and customer mix. Our revenue and costs are affected by the volume of testing and mix of customers from period to period. We evaluate both the volume of tests that we perform for patients on behalf of clinicians and the number of tests we perform for biopharmaceutical companies. Our performance depends on our ability to retain and broaden adoption with existing customers, as well as attract new customers. We believe that the test volume we receive from clinicians and biopharmaceutical companies are indicators of growth in each of these customer verticals. Customer mix for our tests has the potential to significantly affect our results of operations, as the average selling price for biopharmaceutical sample testing is currently higher than our average reimbursement for clinical tests because we are not a contracted provider for, or our tests are not covered by clinical patients’ insurance for, the majority of the tests that we perform for patients on behalf of clinicians. Precision oncology revenue from clinical tests for patients covered and administered by Medicare represented approximately 39%, 43% and 45% of our precision oncology revenue from clinical customers for the years ended December 31, 2024, 2023 and 2022, respectively.

•Payer coverage and reimbursement. Our revenue depends on achieving broad coverage and reimbursement for our tests from third-party payers, including both commercial and government payers. Precision oncology revenue from tests for clinical customers is calculated based on our expected cash collections, using the estimated variable consideration. The variable consideration is estimated based on historical collection patterns as well as the potential for changes in future reimbursement behavior by one or more payers. Estimation of the impact of the potential for changes in reimbursement requires significant judgment and considers payers' past patterns of changes in reimbursement as well as any stated plans to implement changes. Any cash collections over the expected reimbursement period exceeding the estimated variable consideration are recorded in future periods based on actual cash received. Payment from commercial payers can vary depending on whether we have entered into a contract with the payers as a “participating provider” or do not have a contract and are considered a “non-participating provider”. Payers often reimburse non-participating providers, if at all, at a lower amount than participating providers. Because we are not contracted with these payers, they determine the amount that they are willing to reimburse us for any of our tests and they can prospectively and retrospectively adjust the amount of reimbursement, adding to the complexity in estimating the variable consideration. When we contract with a payer to serve as a participating provider, reimbursements by the payer are generally made pursuant to a negotiated fee schedule and are limited to only covered indications or where prior approval has been obtained. Becoming a participating provider can result in higher reimbursement amounts for covered uses of our tests and, potentially, no reimbursement for non-covered uses identified under the payer’s policies or the contract. As a result, the potential for more favorable reimbursement associated with becoming a participating provider may be offset by a potential loss of reimbursement for non-covered uses of our tests. Current Procedural Terminology, or CPT, coding plays a significant role in how our tests are reimbursed both from commercial and governmental payers. In addition, Z-Code Identifiers are used by certain payers, including under Medicare's Molecular Diagnostic Services Program, or MolDx, to supplement CPT codes for our molecular diagnostics tests. Changes to the codes used to report to payers may result in significant changes in its reimbursement. If their policies were to change in the future to cover additional cancer indications, we anticipate that our total reimbursement would increase.

In March 2021, the Centers for Medicare and Medicaid Services, or CMS, approved advanced diagnostic laboratory test, or ADLT, status to our Guardant360 CDx test, based on which Medicare paid us at the lowest available commercial rate per test, from April 1, 2021 to December 31, 2021. Effective January 1, 2022, Medicare started to reimburse Guardant360 CDx services at the median rate of claims paid by commercial payers. In March 2022, Palmetto GBA, the Medicare administrative contractor for MolDX, conveyed coverage for our Guardant360 TissueNext test under the existing local coverage determination. The policy covers our Guardant360 TissueNext test for Medicare fee-for-service patients with advanced solid tumor cancers. In July

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2022, Palmetto GBA conveyed coverage for our Guardant Reveal test for fee-for-service Medicare patients in the United States with stage II or III colorectal cancer whose testing is initiated within three months following curative intent therapy, with an effective date of December 2021. In April 2023, Palmetto GBA conveyed coverage for our Guardant360 Response test for fee-for-service Medicare patients in the U.S. with metastatic or inoperable solid tumors who are on an immune checkpoint inhibitor therapy, tested four to ten weeks from therapy initiation. Effective January 1, 2024, Medicare has increased the reimbursement rate for our Guardant360 LDT test to the same rate as our Guardant360 CDx test. In January 2025, Palmetto GBA granted coverage for our Guardant Reveal test to monitor disease recurrence in patients with colorectal cancer in the surveillance setting following curative intent therapy. This represents an expansion from the prior Medicare coverage of our Guardant Reveal test for colorectal cancer in the early post-surgical setting only.

In August 2024, following the FDA approval, our Shield blood test met the coverage requirements by Medicare based on the criteria established in its National Coverage Determination for blood-based colorectal cancer screening tests. The test is covered once every three years for eligible Medicare beneficiaries.

Due to the inherent variability and unpredictability of the reimbursement landscape, including related to the amount that payers reimburse us for any of our tests, we estimate the amount of revenue to be recognized at the time a test is provided and record revenue adjustments if and when the cash subsequently received differs from the revenue recorded. Due to this variability and unpredictability, previously recorded revenue adjustments are not indicative of future revenue adjustments from actual cash collections, which may fluctuate significantly. Additionally, if coding changes were to occur, payments for certain uses of our tests could be reduced, put on hold, or eliminated. This variability and unpredictability could increase the risk of future revenue reversal and result in our failing to meet any previously publicly stated guidance we may provide.

•Biopharmaceutical customers. Our revenue also depends on our ability to attract, maintain and expand relationships with biopharmaceutical customers. As we continue to develop these relationships, we expect to support a growing number of clinical studies globally and continue to have opportunities to offer our platform to such customers for development services, including companion diagnostic development, novel target discovery and validation, as well as clinical study enrollment. For example, our tests are being developed as companion diagnostics under collaborations with biopharmaceutical companies.

•Research and development. A significant aspect of our business is our investment in research and development, including the development of new products. In particular, we have invested heavily in clinical studies as we believe these studies are critical to gaining physician adoption and driving favorable coverage decisions by payers. With respect to Guardant Reveal, in October 2021, we initiated a 1,000-patient prospective, observational, multi-center study, which we refer to as the ORACLE study, designed to evaluate the performance of our Guardant Reveal liquid biopsy test to predict cancer recurrence after curative intent treatment, across 11 solid tumor types. In addition, with respect to Guardant Reveal, in December 2022, we entered into a partnership with Susan G. Komen®, the world’s leading breast cancer organization, to bring the patient perspective to the development of clinical studies that help identify early-stage breast cancer patients who are at high risk of disease recurrence and may benefit from additional monitoring or therapy. With respect to Shield, in December 2022, we announced that the ECLIPSE study, a registrational study evaluating the performance of our Shield blood test for detecting colorectal cancer in average-risk adults, met co-primary endpoints. The test demonstrated 83% sensitivity in detecting individuals with colorectal cancer. Specificity was 90% in both individuals without advanced neoplasia and in those who had a negative colonoscopy result. These results exceed the performance criteria set forth by the CMS for reimbursement. This test also demonstrated 13% sensitivity in detecting advanced adenomas. Based on these study results, in March 2023, we submitted a PMA to the FDA for our Shield blood test. In July 2024, we received FDA approval of our Shield blood test for colorectal cancer screening in adults age 45 and older who are at average risk for the disease, and in August 2024, our Shield blood test became commercially available in the U.S. as the first blood test approved by the FDA for primary colorectal cancer screening, meaning healthcare providers can offer Shield in a manner similar to all other non-invasive methods recommended in screening guidelines. Shield is also the first blood test for colorectal cancer screening that meets coverage requirements by Medicare. To clinically validate the performance of our next-generation Shield blood test in lung cancer screening in high-risk individuals ages 50-80, in January 2022, we initiated a nearly 10,000-patient prospective, registrational study, which we refer to as the SHIELD LUNG study. In addition, in January 2025, our Shield multi-cancer detection, or MCD, test was selected for the Vanguard study funded by the National Cancer Institute, part of the National Institutes of Health. The Vanguard study is a four-year pilot study which will enroll up to 24,000 people to inform the design of a randomized controlled trial evaluating the use of MCD tests for cancer screening. We have expended considerable resources, and expect to increase such expenditures over the next few years, to support our research and development programs with the goal of fueling further innovation.

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•International expansion. A component of our long-term growth strategy is to expand our commercial footprint internationally, and we expect to increase our sales and marketing expense to execute on this strategy. We currently offer our tests in countries outside the United States primarily through distributor relationships, direct contracts with hospitals, and partnerships with local research organizations and laboratory companies.

In May 2018, we formed and capitalized Guardant Health AMEA, Inc., with SoftBank, relating to the sale, marketing and distribution of our tests generally outside the Americas and Europe, and to accelerate commercialization of our products in Asia, the Middle East and Africa. In June 2022, we purchased all of the shares held by SoftBank and its affiliates, and upon completion of the transaction, we obtained full control over operations of Guardant Health AMEA, Inc. In July 2023, Japan's Ministry of Health, Labour and Welfare granted national reimbursement approval for our Guardant360 CDx test for patients with advanced or metastatic solid tumor cancers in Japan.

In December 2020, we signed our first public private partnership agreement with Vall D'Hebron Institute of Oncology, or VHIO, one of Europe’s leading cancer research institutions, and in May 2022, the first blood-based cancer testing services in Europe based on our digital sequencing platform became available at the VHIO testing facility in Spain. In October 2021, we signed a partnership agreement with The Royal Marsden NHS Foundation Trust, or Royal Marsden, a premier cancer center within the United Kingdom, or the UK, for patient care, research and teaching of all types of cancer, and in April 2023, the blood-based cancer testing services based on our digital sequencing platform became available at Royal Marsden testing facility in the UK. In September 2024, we signed a partnership agreement with the Agostino Gemelli University Polyclinic Foundation IRCCS, one of Italy’s largest and most renowned hospitals known for its advanced oncology services, including diagnostics, treatment, and research, to establish an in-house liquid biopsy testing service within its hospital system.

In June 2022, we signed a strategic partnership agreement with Adicon Holdings Limited, or Adicon, a leading independent clinical laboratory company based in China, and in December 2023, the blood-based cancer testing services based on our digital sequencing platform became available at Adicon's testing facility, which offers our industry-leading comprehensive genomic profiling tests to biopharmaceutical companies to advance clinical research and the development of new cancer therapies in China.

The success of our international expansion strategy depends on a number of factors, including the internal and external constraints placed on our international laboratory partners and biopharmaceutical companies in the context of broader global, regional and U.S. economic and geopolitical conditions. For example, deterioration in the bilateral relationship between the United States and China may impact international trade, government spending, regional stability and macroeconomic conditions. The impact of these potential developments, including any resulting sanctions, export controls or other restrictive actions that may be imposed against governmental or other entities in, for example, China, may contribute to disruption of our international partnerships and instability and volatility in the global markets, which in turn could adversely impact our operations and weaken our financial results.

•Sales and marketing expense. Our financial results have historically, and will likely continue to, fluctuate significantly based upon the impact of our sales and marketing expense, increase in headcount, and in particular, our various marketing programs around existing and new product introductions.

•General and administrative expense. Our financial results have historically, and will likely continue to, fluctuate significantly based upon the impact of our general and administrative expense, and in particular, our stock-based compensation expense. Our equity awards, including market-based and performance-based restricted stock units, are intended to retain and incentivize employees to lead us to sustained, long-term superior financial and operational performance.

•Other operating expense. Our financial results might fluctuate significantly based upon the impact of our other operating expense, and in particular, our legal settlement costs, which could potentially decrease or increase significantly.

While each of these areas presents significant opportunities for us, they also pose significant risks and challenges that we must address. See Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K for more information.

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Components of results of operations

Revenue

We derive our revenue from two sources: (i) precision oncology testing, and (ii) development services and other.

Precision oncology testing. Precision oncology testing revenue is generated from sales of our tests to clinical and biopharmaceutical customers, including those tests delivered by labs operated by our strategic partners. In the United States, through December 31, 2024, we generally performed tests as an out-of-network service provider without contracts with health insurance companies. We submit claims for payment for tests performed for patients covered by U.S. private payers. We also submit claims to Medicare for reimbursement for our Guardant360 CDx, Guardant360 LDT, Guardant360 TissueNext, Guardant Reveal and Guardant360 Response clinical testing performed for qualifying patients. Precision oncology revenue from clinical tests for patients covered and administered by Medicare represented approximately 39%, 43% and 45% of our precision oncology revenue from clinical customers for the years ended December 31, 2024, 2023 and 2022, respectively.

Development services and other. Development services revenue primarily represents services that we provide to biopharmaceutical companies, large medical institutions and international laboratory partners. We collaborate with biopharmaceutical companies in the development and clinical studies of new drugs. As part of these collaborations, we provide services related to regulatory filings to support companion diagnostic device submissions for our test panels. Under these arrangements, we generate revenue from progression of our collaboration efforts, as well as from provision of on-going support. In addition to companion diagnostic development and regulatory approval services, we also provide other development services, including clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect and GuardantINFORM. Other revenue includes amounts derived from licensing our technologies, kit fulfillment and delivery of our Shield screening tests.

Costs and operating expenses

Cost of precision oncology testing. Cost of precision oncology testing generally consists of cost of materials, including inventory write-downs; cost of labor, including employee benefits, bonus, and stock-based compensation; equipment and infrastructure expenses associated with processing test samples, such as sample accessioning, library preparation, sequencing, and quality control analyses; freight; curation of test results for physicians; phlebotomy; and license fees due to third parties. Infrastructure expenses include depreciation of laboratory equipment, rent costs, depreciation of leasehold improvements and information technology costs. Costs associated with performing our tests are recorded as the tests are performed regardless of whether revenue was recognized with respect to the tests. While we do not believe the technologies underlying the third-party licenses are necessary to permit us to provide our tests, we do believe these technologies are potentially valuable and of possible strategic importance to us or our competitors.

We expect the cost of precision oncology testing to generally increase in line with the increase in the number of tests we perform, but we expect the cost per test to decrease modestly over time due to the efficiencies we may gain as test volume increases, and from automation and other cost reductions.

Cost of development services and other. Cost of development services and other primarily includes costs incurred for the performance of development services requested by our biopharmaceutical customers, and costs associated with our partnership agreements and delivery of Shield screening tests, which comprise of labor and material costs including any inventory write-downs. For development of new products, costs incurred before technological feasibility has been achieved are reported as research and development expenses, while costs incurred thereafter are reported as cost of revenue. Cost of development services and other will vary depending on the nature, timing and scope of customer projects.

Research and development expense. Research and development expenses consist of costs incurred to develop technology and include salaries and benefits including stock-based compensation, reagents and supplies used in research and development laboratory work, infrastructure expenses, including facility occupancy and information technology costs, contract services, other outside costs and costs to develop our technology capabilities. Research and development expenses also include costs related to activities performed under contracts with biopharmaceutical companies before technological feasibility has been achieved. Research and development costs are expensed as incurred. Payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered. Costs to develop our technology capabilities are recorded as research and development unless they meet the criteria to be capitalized as internal-use software costs. We expect that our research and development expenses will continue to increase in absolute dollars as we continue to innovate and develop additional products, expand our genomic and medical data management resources and conduct our ongoing and new clinical studies.

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Sales and marketing expense. Our sales and marketing expenses are expensed as incurred and include costs associated with our sales organization, including our direct sales force and sales management, client services, marketing and reimbursement, medical affairs, as well as business development personnel who are focused on our biopharmaceutical customers. These expenses consist primarily of salaries, commissions, bonuses, employee benefits, travel expenses and stock-based compensation, as well as marketing, sales incentives, and educational activities and overhead expenses. We expect our sales and marketing expenses to increase in absolute dollars as we expand our sales force, increase our presence within and outside of the United States, and increase our marketing activities to drive further awareness and adoption of our tests.

General and administrative expense. Our general and administrative expenses include costs for our executive, accounting and finance, information technology, legal and human resources functions. These expenses consist principally of salaries, bonuses, employee benefits, travel expenses and stock-based compensation, as well as professional services fees such as consulting, audit, tax and legal fees, and general corporate costs and overhead expenses. In addition, our general and administrative expenses also include severance costs related to workforce reduction. We expect that our general and administrative expenses will continue to increase as we incur additional costs to support the growth of our business. These expenses, though expected to increase in absolute dollars, are expected to decrease modestly as a percentage of revenue in the long term, though they may fluctuate as a percentage of revenue from period to period due to the timing and extent of these expenses being incurred.

Interest income

Interest income consists of interest earned on our cash, cash equivalents, restricted cash and marketable debt securities.

Interest expense

Interest expense consists primarily of charges relating to amortization of debt issuance costs.

Other income (expense), net

Other income (expense), net consists of foreign currency exchange gains and losses, unrealized and realized gains and losses of marketable equity securities, and impairment of non-marketable equity securities and other related assets. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.

Provision for income tax

Income taxes are recorded using an asset and liability approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Tax benefits are recognized when it is more likely than not that a tax position will be sustained during an audit. Deferred tax assets are reduced by a valuation allowance if current evidence indicates that it is considered more likely than not that these benefits will not be realized.

Our tax positions are subject to income tax audits. We recognize the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is more likely than not to be realized upon settlement with the taxing authority. We recognize interest accrued and penalties related to unrecognized tax benefits in its tax provision. We evaluate uncertain tax positions on a regular basis. The evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of the audit, and effective settlement of audit issues. The provision for income taxes includes the effects of any accruals that we believe are appropriate, as well as the related net interest and penalties.

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Results of operations

The following tables set forth the significant components of our results of operations for the periods presented.

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[[/GREPCENT_TABLE]]

(1)Amounts include stock-based compensation expense as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["","(in thousands)"],["Cost of precision oncology testing","$","5,315","","","$","4,614"],["Cost of development services and other","4,050","","","1,851"],["Research and development expense","50,566","","","34,682"],["Sales and marketing expense","36,479","","","24,764"],["General and administrative expense","44,001","","","24,848"],["Total stock-based compensation expense","$","140,411","","","$","90,759"]]
[[/GREPCENT_TABLE]]

In November 2020 and May 2021, we granted restricted stock units with certain performance metrics, or PSUs, consisting of a performance period of 4 years combined with an additional service period requirement of six months should the vesting criteria be met, with a grant date fair value of $113.40 per share and $148.19 per share, respectively. Before 2024, no compensation expense for these PSUs had been recorded since the achievement of the performance metrics did not meet the criteria for accrual. In 2024, the performance metrics of these PSUs were considered to be achieved; as such we recorded $24.8 million in stock-based compensation expense related to these PSUs, based on 219,161 shares granted with fair values of $113.40 per share and $148.19 per share, of which $2.4 million was recorded to cost of development services and other, and $11.8 million, $6.5 million and $4.1 million was recorded as components of research and development expense, sales and marketing expense, and general and administrative expense, respectively.

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Comparison of the Years Ended December 31, 2024 and 2023

Revenue

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[[/GREPCENT_TABLE]]

Total revenue was $739.0 million for the year ended December 31, 2024, compared to $563.9 million for the year ended December 31, 2023, an increase of $175.1 million, or 31%.

Precision oncology testing revenue increased to $687.9 million for the year ended December 31, 2024, from $514.2 million for the year ended December 31, 2023, an increase of $173.7 million, or 34%.

Precision oncology revenue from tests for clinical customers was $542.8 million for the year ended December 31, 2024, up 34% from $403.9 million for the year ended December 31, 2023. This increase in clinical testing revenue was driven primarily by an increase in sample volume and an increase in reimbursement for our tests. Total tests for clinical customers increased to approximately 206,700 for the year ended December 31, 2024, from approximately 172,900 for the year ended December 31, 2023. The increase in reimbursement for our tests for the year ended December 31, 2024 was primarily attributable to an increase in Medicare reimbursement for our Guardant360 LDT test to $5,000, effective January 1, 2024; and increases in Medicare Advantage and commercial payer reimbursement.

Precision oncology revenue from tests for biopharmaceutical customers was $145.1 million for the year ended December 31, 2024, up 31% from $110.4 million for the year ended December 31, 2023. This increase in revenue was primarily due to an increase in sample volume. Total tests for biopharmaceutical customers increased to approximately 40,500 for the year ended December 31, 2024, from approximately 29,900 for the year ended December 31, 2023.

Development services and other revenue increased to $51.1 million for the year ended December 31, 2024, from $49.7 million for the year ended December 31, 2023, an increase of $1.4 million, or 3%. This increase in development services and other revenue was primarily due to an increase of $9.1 million associated with our companion diagnostics collaboration projects and other service agreements with biopharmaceutical customers, partially offset by a decrease of $7.2 million associated with our partnership agreements, and a reduction of $3.2 million in royalty revenue. The increase in other revenue was also attributable to $4.1 million derived from the delivery of approximately 6,400 of our Shield screening tests for the three months ended December 31, 2024, following the FDA approval.

Cost of Revenue

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[[/GREPCENT_TABLE]]

Total cost of revenue was $289.8 million for the year ended December 31, 2024, compared to $227.1 million for the year ended December 31, 2023, an increase of $62.7 million, or 28%.

Cost of precision oncology testing was $260.6 million for the year ended December 31, 2024, compared to $205.5 million for the year ended December 31, 2023, an increase of $55.1 million, or 27%. This increase in cost of precision oncology testing was primarily attributable to an increase in sample volumes and an increase in average cost per sample primarily due to changes in product mix, resulting in a $44.7 million increase in material costs, a $4.7 million increase in production labor and overhead costs, and a $4.6 million increase in other costs, including costs related to collection kits, freight and professional services.

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Cost of development services and other was $29.2 million for the year ended December 31, 2024, compared to $21.5 million for the year ended December 31, 2023, an increase of $7.7 million, or 36%. This increase in cost of development services and other was primarily due to an increase of $4.3 million associated with our companion diagnostics collaboration projects and other service agreements with biopharmaceutical customers, and an increase of $3.3 million associated with providing Shield screening tests during the year ended December 31, 2024.

Operating Expenses

Research and development expense

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands)"],["Research and development expense","$","347,753","","","$","367,194","","","$","(19,441)","","","(5)","%"]]
[[/GREPCENT_TABLE]]

Research and development expenses were $347.8 million for the year ended December 31, 2024, compared to $367.2 million for the year ended December 31, 2023, a decrease of $19.4 million, or 5%. This decrease was primarily due to a decrease of $31.8 million in outside services costs primarily driven by a reduction in the ECLIPSE clinical study costs as the study nears completion, a decrease of $9.7 million in material costs, and a decrease of $3.7 million in information technology infrastructure costs; partially offset by an increase of $15.9 million in stock-based compensation, primarily related to the PSUs of $11.8 million discussed in the Results of operations section above; and an increase of $10.0 million in other personnel costs.

Sales and marketing expense

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands)"],["Sales and marketing expense","$","364,935","","","$","295,227","","","$","69,708","","","24","%"]]
[[/GREPCENT_TABLE]]

Sales and marketing expenses were $364.9 million for the year ended December 31, 2024, compared to $295.2 million for the year ended December 31, 2023, an increase of $69.7 million, or 24%. This increase was related to commercial team expansion and marketing activities to support existing products and the Shield product launch, primarily resulting in an increase of $34.1 million in other personnel costs; an increase of $14.9 million in marketing activity related costs; an increase of $11.7 million in stock-based compensation, including $6.5 million related to the PSUs discussed in the Result of operations section above; and an increase of $10.5 million in information technology infrastructure costs.

General and administrative expense

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands)"],["General and administrative expense","$","180,123","","","$","155,800","","","$","24,323","","","16","%"]]
[[/GREPCENT_TABLE]]

General and administrative expenses were $180.1 million for the year ended December 31, 2024, compared to $155.8 million for the year ended December 31, 2023, an increase of $24.3 million, or 16%. This increase was primarily due to an increase of $19.2 million in stock-based compensation, including $4.1 million related to the PSUs discussed in the Results of operation section above; and an increase of $12.4 million in other personnel costs; partially offset by a decrease of $7.5 million in severance costs related to a workforce reduction in the first quarter of 2023, and a decrease of $3.1 million in legal expenses.

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Other operating expense

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands)"],["Other operating expense","$","\u2014","","","$","83,400","","","$","(83,400)","","","(100)","%"]]
[[/GREPCENT_TABLE]]

Other operating expense for the year ended December 31, 2023 was related to a legal accrual in connection with a jury verdict related to TwinStrand Biosciences, Inc. and the University of Washington entered into in November 2023. See "Commitments and Contingencies - Legal Proceedings" in Note 9 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Interest income

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands)"],["Interest income","$","53,691","","","$","35,365","","","$","18,326","","","52","%"]]
[[/GREPCENT_TABLE]]

Interest income was $53.7 million for the year ended December 31, 2024, compared to $35.4 million for the year ended December 31, 2023, an increase of $18.3 million, or 52%, primarily attributable to higher rates of return on our investments.

Interest expense

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands)"],["Interest expense","$","(2,581)","","","$","(2,578)","","","$","(3)","","","\u2014","%"]]
[[/GREPCENT_TABLE]]

Interest expense was primarily attributable to the amortization of debt issuance costs related to our convertible senior notes issued in November 2020, for the years ended December 31, 2024, and 2023.

Other income (expense), net

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands)"],["Other income (expense), net","$","(42,605)","","","$","53,174","","","$","(95,779)","","","(180)","%"]]
[[/GREPCENT_TABLE]]

Other income (expense), net was a $42.6 million expense for the year ended December 31, 2024, primarily attributable to $44.4 million of net unrealized and realized losses recorded for our marketable equity security investment in Lunit, Inc. during the period. Other income (expense), net was a $53.2 million income for the year ended December 31, 2023, primarily due to $79.7 million of unrealized gains recorded for our marketable equity security investment in Lunit, Inc., partially offset by $29.1 million of impairment recorded for our non-marketable equity security investments and other related assets during the period.

Provision for income taxes

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands)"],["Provision for income taxes","$","1,284","","","$","685","","","$","599","","","87","%"]]
[[/GREPCENT_TABLE]]

The change in the provision for income taxes between the years ended December 31, 2024 and 2023 was insignificant.

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Liquidity and capital resources

We have incurred losses and negative cash flows from operations since our inception, and as of December 31, 2024, we had an accumulated deficit of $2.6 billion. We expect to incur additional operating losses in the near future and our operating expenses will increase as we continue to invest in clinical studies and develop new products, expand our sales organization, and increase our marketing efforts to drive market adoption of our tests. As demand for our tests are expected to continue to increase from physicians and biopharmaceutical companies, we anticipate that our capital expenditure requirements could also increase if we require additional laboratory capacity.

We have funded our operations to date principally from the sale of stock, convertible debt and through revenue from precision oncology testing and development services and other. As of December 31, 2024, we had cash, cash equivalents, restricted cash and marketable debt securities of $944.2 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to provide liquidity while ensuring capital preservation. Additionally, we have investments held in marketable debt securities consisting primarily of United States treasury securities that can be immediately liquid.

Based on our current business plan, we believe our current cash, cash equivalents, restricted cash and marketable debt securities and anticipated cash flows from operations, will be sufficient to meet our anticipated cash requirements for more than 12 months from the date of this Annual Report on Form 10-K. We may consider raising additional capital to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons. As revenue from precision oncology testing and development services and other is expected to grow long-term, we expect our accounts receivable and inventory balances to increase. Any increase in accounts receivable and inventory may not be completely offset by increases in accounts payable and accrued liabilities, which could impact our working capital balances.

If our available cash, cash equivalents, restricted cash and marketable debt securities and anticipated cash flows from operations are insufficient to satisfy our liquidity requirements because of lower demand for our products as a result of lower than currently expected rates of reimbursement from our customers or other risks described in this Annual Report on Form 10-K, we may seek to sell additional common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our platform technologies or products or grant licenses on terms that are not favorable to us. Additional capital may not be available to us on reasonable terms, or at all.

At-The-Market Offering Program

In August 2024, we entered into an Open Market Sales Agreement, or the Sales Agreement, with Jefferies LLC, or the Agent, with respect to an at-the-market offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, having aggregate gross proceeds of up to $400.0 million through the Agent, subject to the terms and conditions of the Sales Agreement. During the year ended December 31, 2024, no shares of our common stock were sold under the Sales Agreement.

Convertible Notes Exchange

In February 2025, we entered into privately negotiated exchange agreements with certain holders of our convertible senior notes due 2027. See Note 17, Subsequent Events, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information related to this transaction. The transaction will be accounted for under FASB ASC Topic 470, Debt, and relevant accounting guidance, based on which and due to the nature of the transaction, a gain is currently expected to be recorded for the three months ended March 31, 2025.

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Cash flows

The following table summarizes our cash flows for the periods presented:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["","(in thousands)"],["Net cash used in operating activities","$","(239,858)","","","$","(324,975)"],["Net cash (used in) provided by investing activities","(261,308)","","","840,250"],["Net cash (used in) provided by financing activities","(996)","","","477,375"]]
[[/GREPCENT_TABLE]]

Operating activities

Cash used in operating activities during the year ended December 31, 2024 was $239.9 million, which resulted from a net loss of $436.4 million and changes in our operating assets and liabilities of $60.9 million, partially offset by non-cash charges of $257.4 million. Non-cash charges primarily consisted of $140.4 million of stock-based compensation, $44.4 million of net unrealized and realized losses on marketable equity security investment in Lunit, inc., $42.4 million of depreciation and amortization, and $31.1 million of operating lease costs, partially offset by $6.8 million of amortization of discount on marketable debt securities. The changes in our operating assets and liabilities was primarily the result of a $36.1 million payment of operating lease liabilities net of receipt of tenant improvement allowance, a $21.4 million increase in accounts receivable, net, a $9.1 million increase in inventory, net, a $7.7 million increase in prepaid expenses and other current assets, net, and a $2.8 million decrease in accounts payable and accrued liabilities; partially offset by a $18.7 million increase in deferred revenue.

Cash used in operating activities during the year ended December 31, 2023 was $325.0 million, which resulted from a net loss of $479.4 million, partially offset by non-cash charges of $100.6 million and changes in our operating assets and liabilities of $53.8 million. Non-cash charges primarily consisted of $90.8 million of stock-based compensation, $42.9 million of depreciation and amortization, $29.7 million of operating lease costs, and $29.1 million of impairment on non-marketable equity security investments and other related assets; partially offset by $79.7 million of unrealized gains on marketable equity security investment in Lunit, inc., and $13.6 million of amortization of discount on marketable debt securities. The changes in our operating assets and liabilities was primarily the result of a legal accrual of $83.4 million in connection with a jury verdict entered in favor of TwinStrand Biosciences, Inc. and the University of Washington in November 2023, a $8.4 million decrease in accounts receivable, net, and a $5.2 million increase in accounts payable and accrued liabilities; partially offset by a $31.5 million payment of operating lease liabilities net of receipt of tenant improvement allowance, a $10.4 million increase in inventory, net due to forecasted higher testing volumes, and a $4.3 million increase in prepaid expenses and other current assets, net.

Investing activities

Cash used in investing activities during the year ended December 31, 2024 was $261.3 million, which resulted primarily from purchases of marketable debt securities of $307.3 million, purchases of property and equipment of $35.1 million, and purchases of non-marketable equity security investments of $7.5 million; partially offset by sales of marketable equity security investment in Lunit, Inc. of $53.6 million and maturities of marketable debt securities of $35.0 million.

Cash provided by investing activities during the year ended December 31, 2023 was $840.3 million, which resulted primarily from maturities of marketable debt securities of $1.5 billion; partially offset by purchases of marketable debt securities of $629.9 million, purchases of property and equipment of $20.5 million, and purchases of non-marketable equity security investments and other related assets of $5.6 million.

Financing activities

Cash used in financing activities during the year ended December 31, 2024 was $1.0 million, which was primarily attributable to employee taxes paid related to settlement of restricted stock units of $15.7 million, partially offset by proceeds from issuances of common stock under our employee stock purchase plan of $11.7 million and proceeds from exercise of stock options of $3.1 million.

Cash provided by financing activities during the year ended December 31, 2023 was $477.4 million, which was primarily attributable to proceeds from equity offerings of $493.1 million, and proceeds from issuances of common stock under our employee stock purchase plan of $10.2 million; partially offset by payment of equity offering costs of $21.1 million, and employee taxes paid related to settlement of restricted stock units of $11.2 million.

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Critical accounting policies and estimates

We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP. Our preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures at the date of the consolidated financial statements, as well as revenue and expenses recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.

Revenue recognition

We derive revenue from the provision of precision oncology testing services, as well as from development services and other. Precision oncology testing revenue includes amounts derived from the delivery of our precision oncology tests, including those tests delivered by labs operated by our strategic partners. Development services include companion diagnostic development and regulatory approval, clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect and GuardantINFORM. Other revenue includes amounts derived from licensing our technologies, kit fulfillment, and delivery of our Shield screening tests. We currently receive payments from third-party commercial and governmental payers, certain hospitals and oncology centers and individual patients, as well as biopharmaceutical companies, research institutes, international laboratory partners and distributors.

Revenues are recognized when control of services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. FASB ASC Topic 606, Revenue from Contracts with Customers, provides for a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

Precision oncology testing

We recognize revenue from the sale of our precision oncology tests for clinical customers, including certain hospitals, cancer centers, other institutions and patients, at the time results of the test are reported to physicians. Most precision oncology tests requested by clinical customers are sold without a written agreement; however, we determine an implied contract exists with our clinical customers. We identify each sale of our test to a clinical customer as a single performance obligation. With the exception of certain limited contracted arrangements with insurance carriers and other institutions where the transaction price is fixed, a stated contract price does not exist and the transaction price for each implied contract with our clinical customers represents variable consideration. We estimate the variable consideration under the portfolio approach and consider the historical reimbursement data from third-party commercial and governmental payers and patients, as well as known or anticipated reimbursement trends not reflected in the historical data. We monitor the estimated amount to be collected in the portfolio at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required. Both the estimate and any subsequent revision contain uncertainty and require the use of significant judgment in the estimation of the variable consideration and application of the constraint for such variable consideration. We analyze actual cash collections over the expected reimbursement period and compare it with the estimated variable consideration for each portfolio and any difference is recognized as an adjustment to estimated revenue after the expected reimbursement period, subject to assessment of the risk of cumulative future revenue reversal.

Revenue from sales of precision oncology tests to biopharmaceutical customers are based on a negotiated price per test or on the basis of an agreement to provide certain testing volume over a defined period. We identify our promise to transfer a number of distinct tests to biopharmaceutical customers as a single performance obligation. Precision oncology tests to biopharmaceutical customers are generally billed at a fixed price for each test performed. For agreements involving testing volume to be satisfied over a defined period, revenue is recognized over time based on the number of tests performed as the performance obligation is satisfied over time. Results of our precision oncology services are delivered electronically, and as such there are no shipping or handling fees incurred by us or billed to customers.

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Development services and other

We perform development services for our biopharmaceutical customers utilizing our precision oncology information platform. Development services typically represent a single performance obligation as we perform a significant integration service, such as analytical validation and regulatory submissions. The individual promises are not separately identifiable from other promises in the contracts and, therefore, are not distinct. However, under certain contracts, a biopharmaceutical customer may engage us for multiple distinct development services which are both capable of being distinct and separately identifiable from other promises in the contracts and, therefore, distinct performance obligations.

We collaborate with biopharmaceutical companies in the development of new drugs. As part of these collaborations, we provide services related to regulatory filings to support companion diagnostic device submissions for our testing panels. Under these collaborations, we generate revenue from achievement of milestones, as well as provision of on-going support. For the companion diagnostic development and regulatory approval services performed, we are compensated through a combination of an upfront fee and performance-based, non-refundable regulatory and other developmental milestone payments. The transaction price of these contracts typically represents variable consideration. Application of the constraint for variable consideration to milestone payments is an area that requires significant judgment. We evaluate factors such as the scientific, clinical, regulatory, commercial, and other risks that must be managed to achieve the respective milestone and the level of effort and investment required to achieve the respective milestone. In making this assessment, we consider our historical experience with similar milestones, the degree of complexity and uncertainty associated with each milestone, and whether achievement of the milestone is dependent on parties other than us. The constraint for variable consideration is applied to the transaction price such that it is probable a significant cumulative reversal of revenue will not occur when the uncertainty associated with the contingency is resolved. Application of the constraint for variable consideration is assessed and updated at each reporting period as a revision to the estimated transaction price.

We recognize companion diagnostic development and regulatory approval services revenue over the period in which biopharmaceutical research and development services are provided. Specifically, we recognize revenue using an input method to measure progress, utilizing costs incurred to-date relative to total expected costs as its measure of progress. We assess the changes to the total expected cost estimates as well as any incremental fees negotiated resulting from changes to the scope of the original contract in determining the revenue recognition at each reporting period. For development of new products or services under these arrangements, costs incurred before technological feasibility is reached are included as research and development expenses in our consolidated statements of operations, while costs incurred thereafter are recorded as cost of development services and other.

We also recognize revenue from other development services, in addition to companion diagnostic development and regulatory approval services noted above, such as clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect, and GuardantINFORM. These revenues are generally recognized over time based on an input method to measure progress in the period when the associated services have been performed.

In addition, we license our digital sequencing technologies to our domestic customers and international laboratory partners. For the licensed technology, we are compensated through royalty-based payments, non-refundable upfront payments, guaranteed minimum payments, and/or sample milestone payments. Depending on the nature of the technology licensing arrangements, and considering factors including but not limited to enforceable right to payment and payment terms, and if an asset with alternative use is created, these technology licensing revenues are recognized in the period when royalty-bearing sales occur, when the technology transfer is complete, or over the technology transfer period. Other revenue also includes kit fulfillment, which is recognized when such products are delivered. In addition, other revenue includes amounts derived from delivery of our Shield screening tests.

Contracts with multiple performance obligations

Contracts with biopharmaceutical customers and international laboratory partners may include multiple distinct performance obligations, such as provision of precision oncology testing, the above-mentioned development services, and digital sequencing technology licensing, among others. We evaluate the terms and conditions included within our contracts with biopharmaceutical customers and international laboratory partners to ensure appropriate revenue recognition, including whether services are considered distinct performance obligations that should be accounted for separately versus together. We first identify material promises, in contrast to immaterial promises or administrative tasks, under the contract, and then evaluate whether these promises are both capable of being distinct and distinct within the context of the contract. In assessing whether a promised service is capable of being distinct, we consider whether the customer could benefit from the service either on its own or together with other resources that are readily available to the customer, including factors such as the research, development, and commercialization capabilities of a third party as well as the availability of the associated expertise in the general

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marketplace. In assessing whether a promised service is distinct within the context of the contract, we consider whether we provide a significant integration of the services, whether the services significantly modify or customize one another, or whether the services are highly interdependent or interrelated.

For contracts with multiple performance obligations, the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine standalone selling price by considering the historical selling price of these performance obligations in similar transactions as well as other factors, including, but not limited to, the price that customers in the market would be willing to pay, competitive pricing of other vendors, industry publications and current pricing practices, and expected costs of satisfying each performance obligation plus appropriate margin; or by using the residual approach if standalone selling price is not observable, by reference to the total transaction price less the sum of the observable standalone selling prices of other performance obligations promised in the contract.

Stock-based compensation

We measure the grant date fair value of our service-based and performance-based restricted stock units issued to employees and non-employees based on the closing market price of the common stock on the date of grant. For restricted stock units with only service-based vesting conditions, compensation expense is recognized on a straight-line basis over the requisite service period. Compensation expense for restricted stock units with performance metrics, or PSUs, is calculated based upon expected achievement of the metrics specified in the grant, and is recognized using an accelerated attribution model over the requisite service period for each separately vesting portion of the award. No stock-based compensation expense is recorded for PSUs, unless it is determined to be probable that the related performance metrics will be met. In addition, a cumulative adjustment will be recorded in the period when the probability of achieving the related performance metrics is adjusted. Any PSUs that remain unvested at the end of the performance period will be forfeited. Forfeitures are accounted for as they occur.

We measure stock-based compensation expense for stock options granted to our employees, directors, and non-employees on the date of grant based on the fair value of the awards and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective awards. Compensation expense for stock options with performance metrics is calculated based upon expected achievement of the metrics specified in the grant.

We estimate the fair value of our stock options on the grant date using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the use of assumptions regarding a number of variables that are complex, subjective and generally require significant judgment to determine. The assumptions used to calculate the fair value of our stock options, were:

Fair Value of Common Stock

The fair value of our common stock is determined by the closing price, on the date of grant, of our common stock, which is traded on the Nasdaq Global Select Market.

Expected Term

The expected term represents the period that the stock options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as we have concluded that our stock option exercise history does not provide a reasonable basis upon which to estimate expected term.

Expected Volatility

Prior to the commencement of trading of our common stock on the Nasdaq Global Select Market on October 4, 2018 in connection with our initial public offering, there was no active trading market for our common stock. Due to limited historical data for the trading of our common stock, expected volatility is estimated based on the average volatility for comparable publicly traded peer group companies in the same industry plus our expected volatility for the available periods. The comparable companies are chosen based on their similar size, stage in the life cycle or area of specialty.

Risk-Free Interest Rate

The risk-free interest rate is based on the U.S. Treasury rate, with maturities similar to the expected term of the stock options.

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Expected Dividend Yield

We do not anticipate paying any dividends in the foreseeable future and, therefore, use an expected dividend yield of zero.

Black-Scholes Assumptions

The weighted-average assumptions used in our Black-Scholes option-pricing model were as follows for stock option granted to our employees, directors and non-employees for the periods presented:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023","","2022"],["Expected term (in years)","5.50 \u2013 6.09","","5.50 \u2013 6.10","","5.50 \u2013 6.10"],["Expected volatility","67.4% \u2013 69.4%","","69.3% \u2013 70.5%","","63.3% \u2013 67.6%"],["Risk-free interest rate","3.8% \u2013 4.5%","","3.4% \u2013 4.5%","","1.9% \u2013 4.4%"],["Expected dividend yield","\u2014%","","\u2014%","","\u2014%"]]
[[/GREPCENT_TABLE]]

We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis, including probabilities of meeting performance metrics for our PSUs. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.

Recent accounting pronouncements

See Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.